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

Good morning, ladies and gentlemen. Welcome to Tecnisa's First Quarter 2022 Earnings Conference Call. Joining us today are Mr. Fernando Tadeu Perez, CEO; Mr. Flavio Vidigal De Capua, CFO and IRO, along with other executive officers of the company. We would like to inform you that this event is being recorded and broadcasted live through the IR webcast platform available on the company's IR website. [Operator Instructions] Before proceeding, let me mention that forward-looking statements that may be made during this conference related to the company's business prospects, projection, and financial and operational targets are based on the beliefs and assumptions of Tecnisa's management. Forward-looking statements are no guarantee of performance. They involve risks and uncertainties. Now I would like to turn the floor over to Mr. Fernando Perez, who will begin the presentation. Mr. Perez, you may begin your conference.

Good morning, everyone. Welcome to our First Quarter 2022 Earnings Conference Call. As I mentioned in our last call, we have been adopting a series of measures to improve the company's results. As you'll see, this quarter, the changes have already had significant effects marked by improvements in our results and indicators. This reassures us that we are on the right path. Now let me tell you a bit about our strategy. Our strategy is to create value to shareholders. And it is based on our logic of land bank, launches, innovation, a good health of expenses, sales of assets and profitability. So I will now tell you a bit more about each one of these points. On Slide 4, we talk about our land bank. We have a very consolidated land bank. We don't need to purchase plot to advance in the next 2 years. Almost everything has been settled in cash and 95% of our land is located in the city of Sao Paulo, our strategic location where we have a consolidated brand, a resilient market to adverse scenarios, which allows us for gains of efficiency with scale and good negotiation and also where we have a skilled workforce. Now on Slide #5, we'll tell you a bit about our launches. We are about to launch the first project in Jardim das Perdizes for the year. This is going to be Phase 1 of Bosque Pitangueiras, a tower with 150 units and 2 types of apartments of 78 and a 135 square meters. We also advanced in our major project located on Alameda Lorena, a residential tower with 28 floors. We have an operating capacity to keep launches of around BRL 1 billion per year, and our focus is going to be on middle and high-income residential projects. Now moving on to Slide #6. Let's talk a little bit about innovation. We've been working on construction innovation. We are implementing the so-called BIM Technology, Building Information Model technology that uses 3D and 4D modeling for planning, automation, reduction of waste and gains of efficiency. We have also created an innovation and sustainability committee that is led by our Vice Chairman of the Board, and the main goals are to assess trends in technology, trying to offer differentials in our products, boost competitiveness and sustainability of our business, and apply our ESG concepts throughout the whole company. Now moving on to Slide #7. Let's talk about expense reduction. We were able to reduce administrative expenses by 27%, and that was due to re -- management of our head count, also a review of contracts with suppliers, reducing prices and scope. And also the implementation of a cash conservation program to eliminate nonessential expenses. We've been working really hard on this. And as you know, we have moved our headquarters to a new neighborhood called Jardim das Perdizes. Now on Slide #8, let's talk about asset sales. We have completed the sales of land in Aquiraz Ceara. 15 hectares were sold, generating a profit of BRL 15 million for the company. We still have 46 hectares of land available to be sold there. Now let me add a comment here. If you look at our results, we'll give you further details about these results in a minute, but if you look at the results, you might say, well, this year, you have sold land in the first quarter of '22. And in the first quarter of '21, we have also sold land. I just want to emphasize that. Very well, now on Slide #9. I want to tell you about our profitability. We have improved our net income by 88% against Q4 '21 with new launches in the beginning of construction works, the results will most likely improve even more. We have a 26% value creation to shareholders, measured by our NAV, net asset value, and Flavio will give you further details about that in a minute. Now on Slide 10, we can see part of the results of the first quarter. And as I said, Flavio will give you further details later on. But if we compare the numbers on Slide 10, our net income in Q1 '21, we had a loss of BRL 26 million. Now in the first quarter of '22, we had a loss of BRL 7 million. So there's no question we have a lot to do, but we are doing our homework. Now I'd like to draw your attention to the following. In the last 12 months, with the increase in the Selic rates, we have had an impact on our debts of around BRL 4 million. So we are almost reaching breakeven. If the interest rates were stable, in the first quarter of '22, we would have achieved breakeven. As I said, we have a long way to go, but the results of the first quarter makes us feel more confident about what we said last quarter that we are on the right track. And even when we're facing lots of adversities, we are sure that we are going to be able to reach good results still in 2022. Now I turn the floor over to my colleague, Flavio Vidigal, our CFO, who will give you further details about our results, and I will be back for the question-and-answer session. Thank you very much.

Good morning, everyone. Thank you, Fernando, for joining the floor to me. So let's start by talking about our operating performance. When it comes to sales, we had gross sales of BRL 75 million, around 8% of SoS. Net sales amounted to BRL 70 million. The number of net sales in which we have 100% participation was 82 million and gross sales in 100% was 88 million. Now on the next slide, this is a very important slide that affirms or confirms what Fernando said. We have an inventory at market value of BRL 841 million. Our construction were at stage because our accounting numbers depend on the development of our construction and also the launches, but 30% of our inventory is under construction and 55% of that inventory is about to start construction, and that's going to bring us a positive impact on our results in the coming quarters. And only 6% of our inventory has already been completed. In terms of the geographical breakdown, most of our inventory is now located in Sao Paulo, which is where our strategic focus is. Now the land bank is the strength of our company. We have BRL 5 billion worth in our land bank, BRL 3 billion located in the Jardim das Perdizes project. As Fernando said earlier, most of the land bank has already been settled. So we don't expect any cash outflow in the next quarter because of the blend of sales. And we have a significant share of sales that might contribute to the sales of these lands outside Sao Paulo. In the next slides, you can see where our lands are located. In the south zone of Sao Paulo, we have 3 plots in the East Zone 1 plot that is worth BRL 277 million and in the west zone 9 plots. But you can see the volume of projects that we have already approved or under approval. So we will continue launching projects throughout the year. We have 3 projects already approved amounting to BRL 753 million and another BRL 1.6 billion under approval. Now on the next slide. A few more details about Aquiraz, just so you can understand this better. We have sold the area in red, and we have a plot in light gray to be sold and now 2 areas that are facing the sea. All of these areas to be sold account to 46 hectares. And we have a 25% share in that. So as the new sales are done, we expect positive results in our balance sheet. Now on the next slide, you can see the transfers. As we said in previous calls, the volume of transfers tends to go down because we have fewer projects to be delivered where they're starting a new construction cycle to be recognized in 2024, as you'll see later on in our receivables portfolio. So we believe that we will have a period with fewer transfers in the coming quarters. Now looking at our economic and financial performance. We had a positive evolution in our revenue coming from the removal of the [ suspensive ] clauses in some projects. So we had BRL 47 million in net revenue, almost twofold what we had the previous quarter. That also led to a substantial increase in the gross adjusted revenue. And a significant decrease in G&A expenses, dropping from BRL 19 million to BRL 14 million. So we're talking about BRL 5 million this quarter, so around BRL 20 million in expense reduction throughout the year. Now this quarter, we have had a BRL 7 million negative in net income, which is still negative, but close to the breakeven point, which is our goal. Now let's talk about our financial position. Our net equity is at BRL 673 million considering minority stakes. Our receivables have been evolving due to the new sales. We have gone to BRL 190 million in receivables. And in the chart at the bottom, the information I told you earlier that we can see that we have had sales with a great volume of receivables before the delivery of the key and most of the projects that we are launching will mature in 2024. So we expect a more material cash inflow starting in 2024. So on our next slide, you can see that we worked to rearrange our debts and liabilities so that the flows can be matched to our cycles. We have closed the quarter with a cash position of BRL 186 million. Our total debt amounts to BRL 577 million. It's important to mention that all of the projects launched already have a plan contracted for the construction works, and we have been using the proceeds and the projects that need. But most of them don't actually need us because we have been receiving a great amount of cash before the delivery of the keys. Now in April '22, considering the improvement that the company has had, we have raised proceeds BRL 105 million to mature in 6 years. And with these proceeds, we tried to establish a new debt profile. We have reduced significantly the debt that would mature in '22 and '23. We only have around BRL 70 million to mature in the coming years to strengthen our cash position. In 2024, our debt start to mature, but that's going to be matched with our operational cycle. So we have had no increases in the debt cost. Now on the next slide, you can see our net cash over shareholders' equity that has been kept stable at 58%. Now the net corporate debt over shareholders' equity was 55%, a small decrease compared to Q4 '21. And if we subtract the performed receivables, we have reached 47% than in Q1 '22. Now value creation. Our strategy is correct when it comes to that, all of the launches that we have create value for shareholders. We have had BRL 176 million created in value in the quarter due to the increase in accounts receivable and net inventory. And that has an NAV per share of 11.55%. So a 26% increase in value creation going from 9.16% to 11.55%. Now we have great launches, launches for the year, Jardim das Perdizes and Alameda Lorena that will contribute even more to this value creation. This concludes my presentation, and we can now take your questions. Thank you very much.

Ladies and gentlemen, we'll now start the question-and-answer session for investors and analysts. [Operator Instructions] We have a question from Antonio Castrucci from Santander.

I actually have 2 questions. First, I would like to understand the gross margins of recent launches. And do you predict that there is going to be some mismatch between the cycle of construction and INCC? And now about the relevant reduction of G&A after your reduced head count. So do you see any more possibility to gain efficiency in this front?

Thank you for your questions. About gross margins, we have been giving some discounts that, of course, impact our margins. We have been adjusting our prices to those of the market. But even so we have had a gross margin of 24% in Q1 on average, which is quite reasonable. Now about your second question, I usually say this, and I don't know if you're aware of this, but I have a background in the automotive industry. And I learned the following. Costs is like nails, you have to cut them at all times. So we're always looking at our costs and opportunities certainly come up, and we are going to work on them in order to have an appropriate management of the costs. Just a second. I haven't answered part of your question, which was about the mismatch of INCC and our construction cycle. We are facing an adverse scenario, as you well know. But we've been taking all precautions, and we are also reviewing all of our construction processes, and we have been identifying savings that are possible in order to offset unavoidable costs. So yes, we are taking a close look at that, but we are not very concerned because we see a possibility of offsetting those costs.

Our next question comes from Bruno Tomazetto with BTG Pactual.

I have 2 questions. First, what is the pipeline of launches for the coming quarters? Can you give us a bit more information about that and how the launches will be distributed throughout the year? And what is the magnitude of those launches? And my second question about CPAC, [indiscernible]. What is the status right now? Can you give us a bit more flavor about that?

Let's start by answering your second question, which is something that has been bothering us, CPAC. Not everyone is updated on that, I believe. So let me try and explain this to you. This is a situation that impacts our company. And we believe that we're close to the end. But this all started about 5 to 7 years ago with an excess amount of CPAC that was making construction unfeasible. So we talked to the city hall to the whole industry and the city hall sent a project to update this value in a coherent way, since in the last auction, only 6,000 CPACs have been acquired. So that stayed there in the lower chamber for around 6 years at least. But then in June last year, they finally approved after a very complex process established by our bureaucratic system. And then there was a decision, the Public Ministry appeal. It was then tried in December, and now we are waiting for the final say on this process. And the attorneys that support the whole segment with the cop and the whole industry because this is not only about Tecnisa, but they tell us that the whole process right was correct and that the trial should happen soon. So we have received information that in the next 2 to 3 weeks, this trial is going to take place. And we are happy about that because finally, this trial is going to happen. And of course, we all expect this bill to pass. And that the CPAC value can be adjusted, making many construction works visible, not only for Tecnisa, but other companies in the industry. But we need this to be concluded as my directors here say it's much better to have a happy ending after some suffering than an endless suffering. So when it comes to CPAC, we think we're close to solving that issue. Now you also asked me to talk about the pipeline for launches in 2022. As we said in our presentation, our focus this year is on 2 to 3 towers, actually, 4 towers located in Jardim das Perdizes neighborhood. Lots C7 and C8 and also units on Lot B2 and also another tower on Block D by the end of the year. So we expect BRL 250 million in PSV by the end of the year. And we also have the launch of Alameda Lorena for the year, a PSV of around BRL 350 million with that project.

[Operator Instructions] Our next question comes from the webcast platform and will be answered by the company.

This is Anderson speaking, Investors Relations Manager. And we have a question from [ Mr. Antonio Araujo ]. About the construction works that are ongoing. What is the status of the construction work on Alvin Street in the neighborhood of Pinheiros? When is it going to start?

Well, the construction works will start in the month of June. But as Antonio said, we are putting down the booth there because we have a good amount of sales already. So the construction works will start in June, and I'm sure it's going to be very successful. We are already selling very well. But once the construction works start, the sales numbers tend to go up.

Okay. Next question by Antonio Araujo. About the hotel in Curitiba, what is the sales negotiations looking like?

Yes. Thank you for your question. It's great to answer questions when we have great answers to give. But yesterday, we have signed -- and I think we were missing 1 or 2 signatures yesterday, but they're just telling me that we have had these signatures this morning. So we have sold it, and this is going to be recognized in our cash flow now.

Okay. We have a question by [ Carlos ]. What is your take on the demand for new projects? Is the performance aligned with what the company expected? Can you comment on the sales performance of these projects? And are you planning to postpone some of the launches or you're still focusing on launching around BRL 1 billion in PSV per year?

Okay. Without giving you any guidance, our company, as we said, is structured to be a company that launches BRL 1 billion per year and there's been no changes when it comes to that. For sales, we have an adverse scenario, but we're selling well. We're giving some discounts, as I told you earlier, and adjusting our prices. And you were also asking about the sales. Well, the sales percentage, and let me tell you how much we have sold for each product. [ Ogurimota ], 61%; Wl in Vila Romana, 42%; Highlights Campo Belo, 37% sold; Highlights Nelson Moretti, 17% sold. Florear Residential, in which the sales were hard, we have already reached 33% sold; Highlights Pinheiros 36%; and new [ Unique ] 25% sold. So considering the launches of the construction work and the market situation, I would say we're selling relatively well.

Okay. Last question was about the sales percentage, but Fernando has already answered that. Let me just check if we have any other questions in our webcast platform. So if there are no further questions, I'd like to turn the floor over to Mr. Fernando Perez for his final remarks.

Thank you, Anderson. Well, colleagues and friends who have joined us this morning, I want to tell you that just like we said earlier, and you have now realized, we have started to generate value with the latest launches, and I'm very optimistic about the coming launches, especially those I mentioned here that Jardim das Perdizes, we know about the demand there and the launches in the neighborhood of Jardim and more specifically the one on Alameda Lorena with greater margins that will generate even more value to shareholders. So thank you once again for joining us. And if you have any further questions, our IR department is available to help you. Have a great afternoon, everyone, and I hope to see you again in our next earnings conference call.

This concludes Tecnisa's earnings conference call. Thank you very much for joining us, and have a great day. You may disconnect your lines at this time.