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

Good noon, everyone. Welcome to Tecnisa's First Quarter 2023 Earnings Conference Call. Today with us, we have Mr. Fernando Tadeu Perez, Chief Executive Officer; and Mr. Flávio Vidigal De Capua, CFO and Investor Relations Officer of the company. I'm Anderson Hiraoka, Investor Relations Manager. We inform you that the recording of the event will be available on the company's IR website. As usual, we'll start with a presentation by the executives, and then we'll move on to the Q&A session. [Operator Instructions] Now I'd like to turn the floor over to Mr. Fernando Perez, who will start the presentation. Please, Mr. Perez, you may proceed.

Good afternoon, everyone. It's a great joy to be here with all of you once again, one more quarter and to be able to share interesting information. Let's get started. So we have the agenda for today. I'll talk about the strategy. Then my colleague will talk about the operating performance, the financial economic performance and the financial position. And then Flavio and I will be open to answer your questions as they come. Okay. I'd like to start by talking about our strategic drivers. We split here into 4 points. The first one, we have a solid land bank to guide the business plan in the next years. I will get into the details. Two, focus on commercial marketing strategy, control of administrative expenses with focus on efficiency and profitability of the operation and value creation for our shareholders. Okay. We can see that we have a BRL 4.3 billion potential sales value, which makes us feel very comfortable as the graph all shows you. This is how it's split. We have nearly BRL 3 billion in the West zone at the Jardim das Perdizes. We have BRL 1 billion in the South area, and we have BRL 277,000 in the Eastern area, and we have some land in Ceará that adds up to BRL 67 million. Jardim das Perdizes, which is definitely the jewel of our crown here. which shows that we're taking steps forward, and we will have the next month with also many more projects to come. So Jardim das Perdizes is really one that has consolidated as a pillar of the company. We have nearly BRL 3 billion when we talk about potential here. And we have 49.2% of gross margin reported. We've been able to get interesting prices for Bosque Pitangueiras. We sold up to 16,000 for the square meters, and we've already sold 83%. And for Reserva Figueiras, we are nearly reaching 18,000 square meters and 35% has been sold. Very well. I'd like to share with all of you the following: all this strategic structuring that we've had in marketing and the commercial area has brought to great results, BRL 153 million in gross sales for the first quarter of 2023. And the graph can will show you that the lighter colors per development here, compares the first quarter of 2022 with the first quarter of 2023, and you can well see, there was quite an increase in gross sales over the year for this first quarter, I mean. So talking a bit about G&A expenses. We are still working hard when it comes to our expenses. We need to be very lean and the graph shows really well. As I compare the G&A expenses with net revenues in 2021, we reached 46%. 2022, we reduced to 28%. And now if I can consider the first quarter, we're at 20%. When we compare the first quarter of 2022 with first quarter of 2023, we have a significant drop of 19% from 28% to 9%. Right here, another point that is interesting our adjusted gross profit, where we had a profit -- adjusted gross margin where we can see BRL 41 million. And we can see that the gross margin has increased greatly, and we've reached 30%. When we consider the adjusted gross margin of the fourth quarter to now, we're talking about 11% increment, which is quite significant. And when it comes to net revenue or net income, we can see that there is some comfort into our future here. And today, I'm very happy to say that our consecutive third quarter shows profits. We have had lost in the past, but since all the measures were taken, we now are reporting the third consecutive quarter at a profit and definitely, that will be the pace from now on. Another very important point that I should highlight is that we went through the accounting recognition of Reserva Figueiras, here in Jardim das Perdizes and Kalea Jardins, which is a very differentiated development in Jardins, and that made us create 30% of value to our shareholders. When we consider the NAV, net asset value, in the fourth quarter, it was [ BRL 9.17 ]. And now for the first quarter of 2023 is nearly [ BRL 12 ], [ BRL 11.93 ]. That means there's an increment of 30% and in terms of absolute numbers, it's BRL 203 million. That means we are adding to the company's value to our shareholders BRL 203 million. And to complete my first part of the presentation and not at all as important, but we must say that we are very proud and personally I'm very proud to say that Tecnisa was for the fourth time recognized and certified by Great Place to Work for a healthy and collaborative work environment, considered one of the best companies to work at. It is a turnaround process that we went through when usually you have a worse environment, because you need to take measures that necessarily are not one that pleases many and after taking all the measures necessary, one was having to redo some type of workers and having to rethink home office, and we're still focusing on people. We need the team, and we worked on respect of people, their engagement and this brought the certificates at a very high level. And that question at the end of the research studies as if the person would recommend Tecnisa to have a place to work at, we reached 92%, which is definitely a significant figure. Well, that was my first part, and now I shall pass the floor to Flavio, our CFO, to detail the next part financially.

Thank you, Fernando. Congratulations for your presentation. Now carrying on for the operating performance. Right here, we see the percentage of Tecnisa, here the gross contracted sales, we can see an increase of 11%, where we see also net contracted sales, where we see that most of our sales have been of those projects that are undergoing. So for the next slide, we can see that our inventory shows in terms of the completed ones. That's why it shows where the sales at. Our inventory completed the fourth quarter of 2022 at BRL 1.1 billion. We did not have new launches, because of the sales, and we completed a BRL 1 billion at inventory, where only 6% are completed units. And just to remind you, most of the completed units are hotel units that we have in Curitiba hotels. When it comes to distribution by status -- by stage, today, most of our projects are under construction and some that is to be initiated. And once they do, our results will show an improvement, because of the developments of the project. And now for the next slide, the financial economic performance. Fernando explained in his presentation, where our net revenue reached for the first quarter BRL 140 million, nearly twice as much of what we had in the previous quarter, and 3x what we had at the first quarter of 2022, so definitely a significant number. And to remind you all that the revenues of Jardim das Perdizes is not included here, because all of the projects there are not consolidated by equivalents of the assets. It's important in the release, we made that clear of what Jardim das Perdizes means figure-wise. General and administrative expenses, you can see, if comparing the first quarter of 2022 to 2023, is stable. In adjusted gross margin, we have a significant increase, where we have a 30% adjustments, because of the project that we've been talking about ahead, a very differentiated with Kalea Jardins. And the net income reached BRL 4 million in the quarter, showing 3% of here, net income. So financially, we feel very comfortable. We've been very stable at equity with -- here a figure of BRL 626 million, so we can see that this has been sustainable. And this also shows an increase of BRL 293 million, BRL 359 million for total receivables. And one important point -- so you can pay attention to actually 2, one, that we have a high number of receivables to be expiring by 2025, 2026, where we have a total here of BRL 287 million for 2023, 2024 also. So we have BRL 190 million that is not consolidated at our point here where we're talking about the project that we have in this Curitiba. And then when we match with the next slide, with the receivables, we have a also schedule of that, which is very interesting for the total indebtedness, we have dropped from BRL 606 million to BRL 588 million. And for the production has been increasing, because of the under construction development. And what we've said, the trend of reducing corporate debt and increasing construction debt. For 2023, we don't have much expiring, BRL 40 million. We have a robust cash position of BRL 195 million, nearly 4x what is to be expiring in 2023, and we see a 12-month horizon, we see what we will have in 12 months. And the net indebtedness is at BRL 450 million, which is, I would say, stable. In terms of net indebtedness on equity, we have reached 74%. When we look at corporate net indebtedness alone, which would be the corporate indebtedness less cash, therefore by equity, we reached 63%. And when we add to the cash, the performed receivables, we reached a healthy number, 57%. We had the maintenance of the ratings. And now as Fernando already talked about net asset value, we reached of BRL 11.9 per share, representing BRL 900 million, 4, 5x the market value of the company. And to remind you that most of our land is still at a low price as we launched Jardim das Perdizes, the trend is to have quarter-over-quarter adding value to our shareholders. And I close my presentation, as Fernando said, I'll open now to Q&A.

We will now start the question-and-answer questions for investors and analysts. [Operator Instructions] Our first question comes from [ Mr. Matteos Malone ].

I think I have 3 questions. First, I want to understand a bit more of what you expect in terms of margin recovery for 2023? And the second, I want to understand a bit how -- what do you expect of Jardim das Perdizes development to be more significant? And I also want to understand when it comes to CPAC auction when you are expecting that to come through? And if it's already undergoing so that you can actually get the auction up and also pricing that's well ahead?

Okay. Matteos, thank you for your question. Well, for margin, we have been working hard, so margin can be the best possible. We reached 30%, and we shall remain at that level. I should highlight that Jardim das Perdizes, which is a land that we bought some time ago. I usually say it's a good side of the bad part. The bad part is that we had to stop other launches over time. But now with all this land, we have here, high value or high margins for Jardim das Perdizes. So we believe it will remain at that level. And here, Jardim das Perdizes are even over 40%. And for the second question, I'm not sure if I understood right, the importance of Jardim das Perdizes for us. Is that right? Would you like to answer?

Yes, in terms of equivalents, [ Matteos ], it should start to be more significant to us. As we already launched them, there is a low historical price of the land. And for the second quarter, we'll start the construction for both Figueiras and Pitangueiras. So the likelihood of increasing the result of Jardim das Perdizes and also equity there. And after the auction, which was a third question, of the price and the dynamics, we will, with CPAC, launch new projects that will contribute to our results. That will be the whole dynamic. So whatever has been launched. We will carry on with it. And we should remind you that we have a revenue of BRL 52 million, of that, which has already been sold or been launched. So I'll pass back to Fernando to talk about auction. He's very involved.

Well, definitely, it's something that is very important for us. Every other day, we're checking and talking to the authorities. And this auction shall take place in June or July. And we definitely are working to be in June, although it seems like it might be in July. And we expect to have something under BRL 1 billion. That's the expectation, and that's what we're working with.

Our next question comes from Q&A is Suarez. The question is the land figure increased by more than 320% in the quarter. With the accounting of revenues to be recognized, will this figure continue to impact the cost of properties sold? And can explain a bit more necessary. This is among those that are sold units?

Well, yes, because the projects of Kalea, as we said it's a higher cost of land of BRL 100 million. And as we account for it, it will have a greater representation and also, it has a higher presentation, because we recognize a higher amount of revenue on the units of the sold ones, which was half of the project itself.

The second question is for me. Management fees had a significant reduction in the quarter of 78%. Will this figure remain at the current level in the coming quarters?

Well, I have a great concern with expenses, and I always say, and I said that before, we here, I mean, I work at a bank. We have a very clear criteria about that as results are reached. A part of that is transformed into compensation for executives in our employees. So I shall say that by the end of the year, as the new results and good results are reached, we will have an increase with a distribution with part of the game with our people.

Next question also from [ Glenn ], is it correct to say that Tecnisa has total revenue to be recognized in the quarter of around BRL 465 million with gross profit of around BRL 109 million?

Well, I was even opening the release here to get some figures on Page 13 of our release, we have BRL 260 million, so BRL 465 million here. And when you go to the next page, it's BRL 205 million, so at 100%. So we should multiply that by 57.5%. So I believe it will pretty much reach what you have. And our results is around BRL 70 million, plus the BRL 51 million of the Tecnisa in Jardim das Perdizes. So we're talking about BRL 120 million. So it's a bit more than what you had there.

Next question also from [ Glenial ]. On approved projects of BRL 1.1 billion, does the company intend to launch them this year.

Well, [ Glenial ], we can't just give space for anything, but we have many approved in Jardim das Perdizes. So we're waiting for the auction. Obviously, with the launches, it depends on the economic scenario nationally and even internationally speaking. So what's important is that what I can tell you, and I believe this is one that can make us feel very comfortable. There are many approved projects. And as we have the convenience of demand and stabilization of the economic situation, we will decide how we'll carry on.

Next question is, is there any forecast for the company to distribute dividends to shareholders again?

Yes, definitely, we're working hard to get there. We're here to add value to shareholders and to reach that we must go through some steps. The first one just not have losses anymore we went through. The second one to have a solid result in sustainable one until we're able to reach the dividend distribution. That is our goal.

Next question, since the fair value of the share is around BRL 12, what has prevented the from reaching these price levels?

This is a one million dollar question. We ask ourselves every single day. When you consider the company value. And we have here -- the lands that's worth more than that. So there is many variables that will take the market to have the discount. Many discounts in the companies in our segment and particularly Tecnisa. Flavio, would you like to add to that?

I was smiling because that is a great question. That's the question we ask ourselves every single day. There is much value to create it to shareholders in the graph that Fernando showed, already talked about that, and it shall be increase. So we believe there is synergy and this will be fixed by the market for the next period of time. That's the scenario we're working with. And definitely, this is not a guidance, but it depends on the market.

Next question is about Curitiba. Is there any update on the sales process?

Well, this is a story that has to explain that we want to sell the hotel in the past, because that was the whole idea. And it's still to be sold, and we have many interested parties with the completion of the pandemic, the occupation rate of hotels improved greatly, and this is an amazing hotel. I was at that hotel when I was in business in Curitiba, it's wonderful. So our occupation rate increased greatly in that way. Two things came about, where we have more people interested in buying the hotel our Director of new businesses, [ Renato ] is already taking care of that. But on the other hand, with the occupation rate increase, the hotel starts bringing to us revenue. So now we will sell at a higher amount.

Next question. Does the company expect to carry out share splits into the future?

No, we do not have. We are around -- so I don't think that is the case now. And I want to thank you for your questions. They were great questions. Congratulations -- thank you, Glenial. It was really great. I mean, your set of questions were able to allow us to answer many of important questions here.

The next one now would a share buyback be a good idea while stocks are cheap? This is a question from [ Melchizedek ].

Well, for us now, we must say we've gone through that. And we have that as one way to go, but we need to also see -- I mean, we see shareholders buying shares, but we have not taken a decision in buyback of stocks now.

And to add to what Fernando is saying, we're highly focused on our resource for Jardim das Perdizes setback. That's why we have been focusing on that and for our capital structure. So this is something that will create even more value with Jardim das Perdizes CPAC, and then we'll really be able to evaluate that. That is very true. Yes. This is important with CPAC. We're talking about BRL 250 million for CPAC, and we're talking about that possibility. So that is our focus now to preserve it and the first focus is that we already have an exposure of cash and buying CPAC.

Thank you, Flavio. Fernando, since there is no future question, I would like to pass the floor back to Fernando for closing remarks.

I'd like just to say that this -- I mean, my fifth quarter with you. And right from the beginning, I said about my optimism and my certainty of the recovery of this big company, because of its history legacy. So I have the conviction that even with a very challenging scenario, there is no moment that we say is easy. It's all complex moment, but I have the conviction that we will carry on to be able to add more value to our shareholders. Thank you, everyone, for being here. Have a great afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]