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

I'm Anderson, Manager of IR relations. This recording will be available on Tecnisa's IR website. We will begin with a presentation by their management and will immediately be opened for Q&A. [Operator Instructions] I will now give the floor to Mr. Tadeu Perez, who will open the presentation. You have the floor, sir.

Good afternoon to all. First and foremost, I would like to acknowledge the presence of our directors: Flavio Vidigal, our CFO; Dr. Jose Carlos, our legal director. Very well. Welcome to all. We are very happy to be here. We have many reasons to celebrate. This half, second half of the year, we have completed 45 years. We have launched 7 million square meters that were built. Over 45 units were delivered. Over 50 awards were received, many of which were innovation. We have been pioneers with the rooftop concept which is popular in the market. We have a planned neighborhood that we have built in São Paulo, the most modern neighborhood. We have made an important decision in regards to the urban operation. In Água Branca, we have very successful launches and once again have become profitable. So it is a moment to celebrate. And now we will begin the presentation. I would like to highlight the following. First, on our land bank, we have a robust land bank, a strong land bank totaling BRL 4.6 billion in PSV located in São Paulo. New project launches, we have launched Bosque Pitangueiras in Perdizes with over 60% sold in 1 month. It was a great success. And we have 2 more projects to launch soon this year, of which I will speak soon. In operational efficiency, we are optimizing the company's structure without affecting our deliveries, significant gains, improvements in our operations. And we are also selling nonstrategic assets. This quarter, we have sold a plot, a land plot in Curitiba for BRL 16 million. And we are also considering other investors for sale of a large plot we have in Aquiraz Ceará state. And these sales are going to, of course, make up our cash for future launches, and we are reestablishing the company's profitability. In the third quarter, our net profit was BRL 2 million, a small profit, but it was an important effort from our whole team here which clearly indicates we're on the right track in terms of recovering our profitability, and we have reaffirmed our commitment to generate value and earnings to our shareholders. On the next slide, we'll speak about our land bank. As I mentioned earlier, BRL 4.6 billion. Tecnisa, as you're all aware, we have partners in Jardim das Perdizes. our total land bank is higher. Tecnisa shares totals 4.6 million, 99% São Paulo, where we are -- have our strategic focus. In Jardim das Perdizes, it stands for BRL 2.8 billion. As in September, we had -- the legal action was considered unfounded by the prosecutor's office, and we presume the auction will be held by city hall over the next months. And I should mention, we have 5 projects that have been approved at City Hall totaling BRL 1.5 billion in PSV, and we have 2 more projects that are to be approved, reaching BRL 600 million. On the following slide, we have more information on launch projects -- project launches. Astral Saúde, in August 22, PSV, BRL 107 million and it is located very close to Saúde Metro with 91 apartments, 69 and 95 square meters, 39 studios and 1 store. And there are many highlights in this project for wellness, a family room, a fitness center and we have sold many units. 18% has been sold. And the jewel of the crown is Bosque Pitangueiras in Jardim das Perdizes. Launch date was September this year, the PSV amounting to BRL 218 million, 158 apartments from -- a complete success in sales. Over 66% were sold. On the first weekend, we sold 40%. It was a great success. The average sale price, around BRL 14,000 per square meter. And there are many highlights, sports bar and party room, indoor and outdoor, and above all, it is close to a park. This development is inside a park, so to speak. It is fabulous and we will share more details about this project soon. And well, we have one more launch here in Jardim das Perdizes planned for the month of November with an estimated PSV of BRL 280 million with larger apartments, 165 to 188 square meters, 104 apartments. And they have been decorated here in our booth. It's worth visiting. Higher prices than Pitangueira. It's better located. It faces the park. And there are many other advantages such as private elevators, covered indoor and outdoor pools, fitness room, massage and spa center, a quite interesting development. And well, we also have planned for this year a fabulous project, a high-standard project, Kalea Jardins. It was projected by Trianon Park, Athié Wohnrath, should launch in November in a high-end location in Jardins with 107 units, 368 square meter in a duplex that I can say, well, has attracted great interest so far. In regards to operational efficiency, we are committed to our efficiency strategy and processes and sales processes. We have produced results quarter-over-quarter. We had a 10% point gain in G&A and net sales over the third quarter in '21, which is a significant contribution to generate value and earnings for shareholders, and this is our ultimate goal. And in regards to nonstrategic land bank or assets, as I mentioned this year, we acknowledged we sold the Curitiba land plot for BRL 60 million. We work to monetize the remaining area in Aquiraz Ceará state. And the nonstrategic land bank that was sold, as I mentioned, is very important to generate cash in order to continue investing in more profitable projects. And as for profitability, we have reestablished profitability after 2 years of losses. In this quarter, we have increasing results in BRL 111 million over the last month compared to the same period last year. It is a result of hard work by the whole team. And I will now turn it over to my colleague, Flavio Vidigal, our CFO, who will share more information and more details with all of you. Thank you, Flavio.

Thank you, Fernando. Well, on this first slide on operational performance, as Fernando said, I'd like to congratulate the sales team for the success we have had with sales performance in Jardim das Perdizes project, which allowed us to have a 30% growth in gross sales over the third quarter 2021. And when compared year-over-year, a substantial increase of 50% in sales increase, resulting from all the efforts Fernando mentioned. In usable area, 29% increase, and average prices also followed this growth with a 20% return. I would also point out that considering we have a low inventory, as you will see concluded, most of our sales at the moment are for undergoing projects, which is very good for the company. And in the next slide, we will talk about our units. We began this quarter with BRL 150 million in stock -- BRL 119 million, and we launched [ BRL 232.7 million ] reaching BRL 876 million by the end of the sales unit period in Tecnisa. Most of our units are in São Paulo, as mentioned, with a strategic region. And in regards to construction, well, as a result of the improved result, 74% of the projects are under construction, which contributes to the results. Two projects will begin to be constructed in the next period, and 55% of the units have been concluded. On the next slide, we have an increase in our net income, net revenue compared to third quarter 2021 almost doubled, reaching BRL 71 million in the period, and therefore, a margin increase of 2% points, resulting from what I just mentioned, new launches and projects underway. And G&A, we have -- well, despite the current inflation rates that are high, we have controlled our expenses, looking at BRL 27 million (sic) [ BRL 17 million ] going down to BRL 13 million, a BRL 4 million reduction in a high inflation rate period. And the net income totaled BRL 2 million, an improvement of BRL 47 million compared to the third quarter in '21. And on the next slide, we have -- well, our equity has remained stable with a BRL 2 million increase, and the receivables portfolio, considering the projects, reaching BRL 369 million, which is in the balance. And IFRS, BRL 125 million, it's an effect of BRL 255 million of IFRS. BRL 250 million were performed, and therefore, we have fundraising and credit grants of the receivables that can be used in cash. And it is important to mention, as you will see on the next slide, we have a concentration of accounts receivable maturing in 2023, '24. And on the next slide, we have our financial position. And the timetable, well, we have maturity, mostly after '24. We have a cash cycle, therefore, of the projects we have launched. And this is instrumental. When it comes to having a lower cash exposure, our indebtedness has remained stable in the period. We have more liquidity, BRL 140 million net cash, and considering the short term debt, '22, '23, BRL 64 million and almost twice as much with short-term debt than cash. And all the projects that we have already mentioned, except for the ones that are to be launched, they all have this credit with our partner banks, and therefore, we have a good rating with financial market and the net indebtedness with the PRs around 66% or 65%. When considering the corporate, corporations, we have 62%. And if we go down to the pro forma sales, the indebtedness reaches 54%. On the next slide, we made a brief exercise looking at the DV reaching BRL 722 million. And these are the projects that are launched that tend to create value, especially with the lower costs, PSV and earnings for shareholders. This would be our presentation for today. And now we will take your questions.

Thank you, Flavio and Fernando. We will now open the Q&A session for investors and analysts. [Operator Instructions] We have one question from Mr. Elvis.

I'd like to ask 2 questions. First one on the new launches you've talked about for the fourth quarter. If you could share, well, what your expectations are in regards to sales performance and if you also heard about interested buyers. It would be great if you could share more on that. And one more question on the launch pipeline for next year. You have actually considered the PSV budget and the company size for next year for launches and what the launch mix would consist of. How much would focus on Jardim das Perdizes?

Thank you for your question. In regards to the launches, Jardim das Perdizes has been a great success since it was launched. It is the most modern neighborhood in São Paulo. It was designed to have 30 towers maximum. Three have been built and they're very successful. They were built simultaneously and they sold out very rapidly at the time. And then we had a halt because there were no auctions and therefore, we had a pent-up demand. People moved here. They really liked the neighborhood and many of them want to bring their relatives, their family members. Many wished to live in a more comfortable, larger apartment. But as I said, there's a high demand in the region. And when we launched the data, sales -- well, everything was sold out very rapidly. Therefore, what we expect for the next tower sales, [ P-gueiras ], is something similar. We don't want to overreact, but we believe we're going to sell extremely fast and well. And as for Lorena Kalea Jardins, the crossings between Lorena and Consolacao near Haddock Lobo is a top-notch neighborhood in Jardins, a high-standard neighborhood. Yes, we have had many interested buyers reaching us and asking us questions about the project, about the development, and we are setting up our sales booth and we've had many requests. As regards your second question, I should tell you, and you will certainly understand, I cannot, of course, make a wild guess about our future. But I would say the following. We have maintained an organizational structure that is capable of launching more than BRL 1 billion per year in projects. And this is -- we plan to remain on the same track.

Right. And if I may ask one more question. What is your view on Jardim das Perdizes' participation in next year's PSV? Would you say you'll be able to launch the next steps, the next phases? Or will that go further down the road?

Once again, well, what I can say for now is the following. There is a very high demand. This is a neighborhood where 30 towers can be built. We have built 13 and are still to build 16, 17. We're building 2 right now. There's a high demand, which indicates, of course, that we will continue launching more projects in this region, Jardim das Perdizes, after the auction, which should take place in the first half of 2023.

One more question, from Mr. [ Mateos Belloni ].

I would like to get a better understanding of what you expect in regards to prices for next year's auction. And also, considering the auction, what is the gross margin that is expected for Jardim das Perdizes project?

Well, [ Mateos ], let me tell you. As you're aware, this legislation, this law that was passed, it was quite a challenge. We had to wait for so many years, as you all know. It was sitting first in the House of Representatives and then there was a judicial process. We had a favorable ruling. And this project that was passed by City Hall sets a minimum [ APAT ] value of BRL 900. So this is what we expect. This is the value we expect to see in the auction. But as you know, we have to conduct -- but well, we have to wait for the results of a study that will be conducted by a municipal company and they will set the price. We expect something around BRL 900, which is actually an interesting amount. And the gross margin, yes, by gross margin, [ Mateos ] I would also point out one thing I didn't mention before. Our gross margin, Tecnisa, well, does not contemplate the project -- does not consolidate the project. And therefore, it's important that you consider equity income because this gross margin is higher than the other Tecnisa projects without giving you any guidance. We cannot reassure, make sure, guarantee this is going to happen, but we have launched these projects in Jardim das Perdizes, which can, of course, fluctuate according to the sales price, et cetera, but the acquisition price is very interesting for the company.

There's -- someone has no microphone. There's noise in the background, sorry. One more question, from [ Bruna Nome ].

In the release, you talked about nonrecurring effects that impacted revenues, caused by changes in the methodology in regards to revenue structure. Can you please share more colors about it and what the possible impacts may be going forward? Can we expect levels -- similar levels to the ones we had from the operations? And what -- in regards to sales in October and later this year -- I had a technical problem here. Sorry, maybe you have already covered this, but I couldn't join.

Bruna, with regards to revenue, it's not significant, but we wanted to share with investors that we had projects that were not consolidated. They had equity equivalents, equity income. We acquired partner shares and it was -- but it was not representative. There are still many units left to be sold in those projects. And the construction has been concluded. Therefore, it will not change actually the revenue structure in any important way. And there's also an impact to the quarter. As Fernando mentioned, we sold a land plot for BRL 16 million and the margin went down to 0, and therefore, does not have a negative impact to the gross margin that we said is, well, at a breakeven. Those were changes, and Fernando can answer your second question.

With regards to sales, Bruna, things are not easy at the moment, and we -- well, the offering, the supply, there is a very high supply in the market with new launches. And there's an additional factor to that, which is, well, next Sunday, not this Sunday, well, the World Cup will begin and then we'll have the Christmas holidays, New Year's. So it is not a very favorable period for sales. On the other hand, as I mentioned earlier in answering the previous questions, we have 2 launches for November that are very, very special. And despite the challenges we face in the market, we have a very positive outlook. And we are convinced that we will sell those units very rapidly for those 2 launches.

We have one more question that came in to the chat box. Congratulations on the results. The question in relation to -- well, Curitiba, which was -- if it was completely sold. The suggestion is Tecnisa should have more visibility in the market because it is an amazing company. It's by [ Antonio Moraizarojo ].

Thank you for your comments, Antonio. It is actually fulfilling knowing that, well, you acknowledge our efforts. Thank you once again. And I would say the following. Very openly, we want to sell the hotel. It is not our core business. This new management, well, we have adopted -- made changes to our strategy. We are focusing on our core business and, well, selling the hotel is not the easiest thing. There are many implications. There's a company that manages the hotel, so it's a complicated process but we still want to sell it. Now I would say the following. The pandemic is over. And now the hotel occupation rates have grown. Importantly and now, we are having interesting monthly results with the hotel. But even so, we still want to sell it, but now it is not a burden to us. It is also contributing to our revenues, to our profit.

Thank you, Fernando. And now I would give you the floor for your closing remarks.

Well, I would like to thank all of you for joining us today. And I would like to reaffirm that we are firmly confident in the Jardim das Perdizes projects and the other projects. And we would like to reaffirm our commitment, which is providing dreams to the population and generating value earnings to our shareholders. Thank you very much.

Thank you, and good afternoon, everyone.

Good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]