Tecnisa S.A. (TCSA3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to TECNISA's Fourth Quarter of 2021 Earnings Conference Call. Today with us, we have Fernando Tadeu Perez, CEO, and Flavio Vidigal De Capua, CFO and Investor Relations Officer. Today's live webcast and presentation may be accessed through TECNISA's website at www.tecnisa.com.br/ir and at the RI webcast platform. We would like to inform you that this event is recorded. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of TECNISA's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Fernando Perez, who will begin the presentation. Mr. Perez, you may begin.

Good morning, everyone, and welcome to the earnings conference call for the fourth quarter of our company. What I have to say is that, well, as you all know 2021 has been a very challenging year for all segments, all industries and for us as well. Everybody suffered with the pandemic, we did as well. And the terms in order to approve projects took -- were longer. As you know, INCC, the construction inflation rate related to construction was 17% in June and everything made the situation more complex. There is an enormous amount of offer our supply of products in the market. But anyway, I'd say that we're focusing on a growth strategy, and we are absolutely sure that starting in 2022, things will change, not for the entire industry, but in our company, for sure, we will change. Last year, we reached a sales volume of BRL 843 million in PSV, and we added another -- for -- now we added more which leave us with the possibility of a PSV of BRL 5 billion. And we have land for launches for the next 2 years. We are selling nonstrategic assets. We sold some plots for BRL 34 million and assignment of receivables totaled BRL 147 million in October '21. We changed headquarters of the company to Jardim das Perdizes. We were at Faria Lima and savings were enormous. We -- for you to have an idea we paid BRL 3 million in rent for a year. Now we are spending BRL 1 million. It's -- and finally, we'll be able to look at all the construction works that will be made here in the same neighborhood, Jardim das Perdizes. We made a strategic change who was the CEO became the Vice President -- Vice Chairman of the Board of Directors, and I was a member of the Board, and now I am the CEO and will use my experience to help in managing the company. We have been looking for efficiency in all fronts. I can give you some examples. Although we didn't want to, but due to absolutely -- an absolute need for that, we had to reduce the personnel by 30%. We now have a new team of officers more engaged. We have rationalized activities and optimizing processes just for you to have an idea, even physically, I made a change. Engineering is working with us and in developing and engineering working together in developing projects to provide more savings in the entire project. We renegotiated contracts with suppliers. We have go to reduce all agreements or contracts by 20%. So although, this has been a very challenging year. And this year is also challenging. We have elections, interest rates that are high, inflation that is high and the Ukraine conflict. So I hope that this cycle of problems -- of serious problems that we went through will be finished in 2022, and we start to offer positive results. So this year, as I mentioned, we'll launch Jardim das Perdizes. We have 2 launches set forth for this and 1 in June and 1 in the fourth quarter. There's another project that's very interesting, which is Lorena project that is in the corner of Consalosa Avenue and Lorena Street. It's a very high-end building differentiated and there is a strong demand for purchases. We're waiting for everything to be regularized so we can start sales. Yesterday, I was at dinner with the 25 first customers of [ Unique, ] which is a very differentiated building in the segment of the new clubbing area, Nova Klabin. It's on the 16th floor, there would be a large or 36 floor, I guess, a huge gym, with a 360 view of the city, and we're negotiating with a major gym brand to be -- to manage that and other launches in different areas of Sao Paulo. I have conducted a major restructuring in sales and marketing. We have a new officer in Hike, that's in charge of sales and marketing. We are reinforcing campaigns. I have personally led weekly meetings and sales meetings within team stand coordinators, marketing, sales managers. So we are being more aggressive in marketing actions. Another important aspect is that we are continuing to sell the nonstrategic land. There are plots that mean 5% of our land bank outside Sao Paulo and will sell them or it. And in the first quarter of '21, we sold the large area we had in Fortaleza and the part of TECNISA was BRL 15 million. There are launches -- 2 launches -- for the fourth -- we did in the fourth quarter in '21, highlight Pinheiros building at 36% and so then [ Unique ] 17% sold with BRL 327 million VGV -- PSV. Okay. So we'll be back with more information and to answer any further questions you may have. And now I'll turn the floor over to Flavio, our CFO, who will speak about our figures in a more detailed manner.

Thank you. Fernando. Let's talk to -- about operating performance on Page 8. We have increased our number of launches and the sales also increased. We had the best sales volume in the year gross sales totaled BRL 98 million with the SOS of 10% and net sales 93% with DSO of 10%. Now next slide, the company. We have an inventory at BRL 903 million. As you can see, 95% of our inventory is located in Sao Paulo. And in terms of work progress breakdown, we have 6% of our inventory completed, 30% under construction, which helps and the PSV and the 65% that haven't started construction yet, but the construction is scheduled for the second half of the year. So this will increase our PSV and dilute our fixed costs. Now in the next slide talks about the Land Bank. The major strength of TECNISA that we have a differentiated Land Bank, BRL 5 billion in Land Bank. We have a land in Curitiba but that is for sale, and there's advanced negotiation to monetize this asset. The area of Akira, we have land as well. We have sold with the part of it with the revenue of BRL 15 million, but there's still some areas to be sold there. This area generated BRL 15 million in revenue and a profit of BRL 10 million and could be even more depending on some items in the contract. 86% of the Land Bank was acquired in cash and most of it has been paid for already. So there will be any -- no cash disbursement in next quarters. We expanded the Lorena plant when the PSV to BRL 391 million. And there is a large potential in Jardim das Perdizes projects that accounts for BRL 2.9 billion. On the next slide, let me show you how our Land Bank is distributed in Sao Paulo, BRL 3.3 billion in -- of land is located in the West area that was sold at Jardim das Perdizes. In the South zone, we have 7 plots, totaling BRL 1.2 billion, and the East zone, one plot BRL 277 million in PSV. There is a project approved at Jardim Das Perdizes with a potential PSV of BRL 313 million and several projects under approval at the City Hall with a potential PSV of BRL 2 billion of which BRL 1.2 billion Jardim das Perdizes in the stage of approval of these projects is quite advanced. They will be available for launches soon. On Slide 12, I highlight these transfers. As Fernando mentioned, we sold portfolio throughout the year. In the beginning of the year, it was 67. So it gets in the way of comparison with the fourth quarter, but the trend is to start a cycle in which there won't be many transfers because we'll be in the construction stage. And the main construction works will end in the end of '23 and '24. Next item is financial and economic performance. This quarter was -- and the year was marked by nonrecurring events. We had losses of [ 185, ] but 59% are nonrecurring. We had a court settlement of BRL 42 million widely disclosed in material facts and other items that impacted our operating items but won't have an impact in the next quarters. Financial position. The company continues with a net income of around BRL 660 million. We have trade receivables that is increasing as we sell our assets and products. Today, the total receivables is BRL 131 million without cancellations. And we have BRL 68 million in performed receivables that could be sold at any moment and be transformed into cash. That's great news. And as you can see the cycles of construction and launches that started the year are expected to end in '23 and '24, and there will be a new trade receivables schedule, which is the gray bar. The next slide, we see the debt and cash positions. This has been a hard year. The company was prepared for '21 being a hard year. We decided to be more conservative in terms of cash and we have BRL 176 million in cash. only BRL 42 million to mature of that in 2022, which makes us quite comfortable because we have 4x the amount of debt that will mature this year. All the projects that were launched have a financing contract in place, and that's very good because we have the funding necessary for the construction. Our total indebtedness is BRL 561 million at the end of 4Q '21. We have 3 construction projects in progress, and BRL 380 million. And although we have a comfortable cash position, the company will always look at different funding options to lengthen the debt, improving it or maintaining the current characteristics. This is what the financial area is working on constantly. Now moving on to slide -- the next slide, we continue to have a solid capital structure. We have 58% net debt over shareholders' equity, which is a healthy position. When we calculate the net corporate indebtedness, it's 57%. And if we consider in our cash, the performed receivables the debt would amount to 49%. So we have maintained the level that we had in the third quarter '21. And finally, the last slide I would like to show you is the net asset value analysis. In order not to go through every item, I will highlight -- this is an accounting position. So each 1 can make their own calculations. This is a sign of guidance regarding the share value, but it shows that we have assets at book value and our interest at market value. So we -- our share is at [ BRL 340 ]. So we believe there is a lot of opportunity to increase that price and bridge this gap since we're doing a very good work with our strategy. So this ends the presentation, we can now go to the Q&A session.

[Operator Instructions] The first question comes from Elvis Credendio from BTG Pactual.

Fernando, Flavio. First question is about launches in 2022. If you could give us some color of expectations of sales throughout the year? And the second question is about the current SG&A. You mentioned on the administrative -- the change of the headquarters of the company. What's the impact of these changes in the SG&A of the company throughout 2022?

Thank you for the question. We're not going to give any guidance, but our company is structured to have launches of about BRL 1 billion per year says, Fernando and despite this difficult scenario, we're hopeful because we'll start -- we start the Jardim das Perdizes, and there's a huge demand because this is a very successful neighborhood. So this is our point of view for 2022. About SG&A. Okay. I'm an expert in cutting costs. I come from the car industry that always done more with less then I worked at the bank, Itau and it was no different. And in my 10 years as a consultant working for many companies, a consultant like me is only called when people were in hard times in difficulty. So we're working on that. And our G&A we expect to reduce at least by BRL 15 million in 2022. So despite being a difficult year, we are very hopeful and optimistic.

[Operator Instructions]

This is Anderson. I'm an Investor Relations Manager at TECNISA. We have some questions that we received from the webcast. First is from Júlio César. What was the main factor that led you to cancel Mont Klabin launch communicated in a material fact in December '21?

This is Fernando speaking. Thank you being very realistic and straight to the point, despite this being a magnificent project we had many difficulties in terms of sales. People were afraid the increase in the inflation rate in number of increase in the installments. And we were not performing well in sales. So we decided to take a strategic step. We are now developing a new project, reviewing it, and it will be launched soon and will be a great success.

We have a question by Paulo Pereira. The strategy of renting spaces in the home office construction. Is it working?

Okay. Paulo, let me say, many companies decided to go back to work. Home office is something new here in Brazil. We once thought that everybody would stay home, but people started to get tired of being home. And people noticed that staying home isn't always the best option for your career and professional development. But we did not change our strategy. We have many future launches, and we noticed that there is a lot of demand for whole floors for co-working. So we are paying attention to that trend.

The next question comes from Carlos. In the third quarter of '21, the company launched highlights [indiscernible]. And you said in the release that the projects had 7% and 3% sales. Could you inform the current sales rates?

Carlos, okay, thank you for your question. Okay. Let me get the figures because I can't remember anything by heart. Okay. So [indiscernible] and [indiscernible] that was launched in December '20. Construction has started, and we sold 50% of it. And last week, we sold the top floor. When the construction starts, people get excited, you start seeing the actual bidding and buy more. Then we have WL at Vila Romana, launched in December '20. Construction has started and 34% of it is sold. HL in Campo Belo, May '21. We manage the construction, 33% has been sold. Then HL [indiscernible] in September, was launched, construction will begin in August. 15% has been sold, Fortaleza was launched in September, construction is -- will start in June, 12% had been sold. HL Pinheiros launched in October, construction starts in June, 36% has been sold. And MZiQ, which is the jewel of the crown, December '21 it was launched, and construction will start in September, 17% has been sold. And Lorena, as I mentioned before, that has not been launched officially yet, but demand is very high. So this is the situation of our developments for now. Okay. Our Projects.

A question from Rafael Santos. Congratulations on the earnings. Two questions, could you comment on the guidance for 2022 about inventory? Has the company made any discount campaign?

Thank you, Rafael. About guidance, as I told you before, we won't give you that guidance, as I said before, we are structured to be a company of BRL 1 billion a year, and this is what we have in mind, but no guidance for now. What was the other question?

About inventory?

Okay. It's not easy to sell. And so we're working with inventory and decreasing our margin a bit. It's better to sell although with a lower margin because we must guarantee the employment people, brokers people, depend on sales to survive. So thinking about this entire chain, we're giving discounts, of course, sacrificing our margin but still with a positive margin.

Next question from [indiscernible]. Are you going to launch Jardim das Perdizes? I think he's mentioning CEPAC of Água Branca has been approved.

Okay, [indiscernible]. This is a nice question because it allows me to talk to you for you to understand the difficulties we've been facing for many years now. And we hope that this difficulty thinking about the employment that will be generated in taxes that will be paid to the local authority will be solved. There are 2 projects did not depend on this new law called CEPAC, 1 in June and the other 1 in the fourth quarter. The history with CEPAC, let me remind you what this is about. We are suffering from -- with this law for at least 6 or 7 years. We built 13 towers, and we had to stop because there was a huge raise in the CPAC value, which made construction unfeasible. Our company is suffering a lot to this date because of this law because it caused us -- we made a major investment in Jardim das Perdizes and then we had to stop construction for 6 years because of this law. So just a reminder, in May, June last year, finally, the House of Representatives of Sao Paulo has approved the new CPAC law that the bill was started by the city hall. After many years of discussion, the House of Represent test, it passed in the House of Representatives. So after this, there's a city hall make some studies. There is an auction, the construction companies buy CPAC and they start construction. For any -- for some reason, a prosecutor filed an injection saying that the approval or passing happen in an irregular way at the House of Representatives, which is absolutely not true. Many public hearings were held. The entire process was entirely normal. We know how court works or the -- so we're waiting for judgment on the merit of our lawyers, both in-house and engaged law firms are absolutely sure that this will be solved favorably. This new law will be approved, and it will be very good for us and for all construction companies. But there's more to that. Today, we expect this judgment to happen as soon as possible, either favorable or not because if we -- of course, we want this new law to be approved because there are many advantages but even if it was not approved, we need to move on with the company. And we'll continue with CPAC at the old price and continue with our construction at Jardim das Perdizes.

The next question comes from Paolo. There's been purchase of shares by controlling shareholders for two continuing months.

This question is very good, Paolo, because we believe so much in the company and in the market reaction. Despite this complicated scenario that the mayor, the founder of the company, the main shareholder has been buying shares when we made these changes shows you want to cancel and I came here maybe people might think, oh, the family wants to sell their shares. No, it's quite the opposite. The controlling shareholders buying more and more shares given that he trusts these new Board of officers and as well as based on the Land Bank and the new launches that we'll make.

Our last question comes from Antonio Araújo. Has the development being totally project has been totally sold?

No, it hasn't. It's very -- the hotel negotiation. As you may know, it's not a simple negotiation. It's not a hotel that we fully own. We have 150 units. There's other 50, they're owned by individuals. So it's not easy. The hotel, the brand. The hotel industry knows that they have a very long cycle. So they're not interested in exiting. I think it's [indiscernible], isn't it ? [indiscernible], yes. If they wanted to give up on the project, it would be easier. But many people are interested because it's beautiful. I've been there many times. If the hotel gave up, and we could sell that as residential buildings would have been -- we would have sold everything. But it's a difficult negotiation, but we're still sure that we'll be able -- I'm sure that when we come here in the next quarter, we will have that sold.

Since there are no further questions, I'll turn over the floor over to Fernando for his final remarks.

So I would like to thank you all for attending the call. We know and we're not proud of announcing negative results, but I'm very hopeful that this will be the last time we do that because we've been working hard. And as I -- we have a very engaged team. Today, the mindset is the owner's mindset that governs this company. We are working hard, we are very committed, and I can assure you that my team and I works at least 10 hours a day, every day. And I am absolutely sure that 2022, again, despite all the unfavorable conditions, it will be a positive year. Thank you very much for your attention. Have a good day.

Thank you. The earnings conference call of TECNISA has ended. Have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]