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

Good morning, everyone, and welcome to Tecnisa's Fourth Quarter of 2023 Earnings conference call. Today with us, we have Mr. Fernando Perez, our Chief Executive Officer; and Mr. Anderson Hiraoka, CFO and Investor Relations Officer of the company. I'm Renata Nogueira, Investor Relations Manager. We inform you that the recording of this event will be available on the company's IR website. We will start with a presentation by the executives and then move on to the Q&A session. If you need support, please send a message to our chatbox. Now I'd like to turn the floor over to Mr. Fernando Perez, who will start the presentation. Mr. Perez, you can proceed.

Good morning, everyone. Good morning, Renata. Good morning, Anderson. It's a great pleasure to be with you today. We have some information about the fourth quarter of 2023, and that's the end of the year. So as Renata mentioned, we will provide some initial information and then we'll be here at your disposal to answer all the questions you might be interested in asking some highlights. This is something we are very happy to announce. We acquired all the necessary CEPACs for all the lots in Jardim das Perdizes region. We spent a substantial amount of money, BRL 820 million and the Tecnisa part, BRL 130 million, and this is very important to point out. It kind of unleashed our development with very positive consequences. Another highlight, we improved our sales performance. We increased our speed with 42% in -- for 2023. Another important point is control of administrative expenses. We reduced BRL 6 million even in spite of inflation. So it was -- we cost BRL 6 million less than in 2022. Another important issue that should be pointed out, we have reached BRL 167 million in backlog revenues. As you know, our company has a long cycle. And although we've had good sales, we'll only get these results as the works are developed. So we have BRL 167 million of backlog revenues -- of revenue to be appropriated. Another highlight is our gross margin in Jardim das Perdizes. The backlog gross margin is really large. Another -- 46%. We are also constantly seeking for innovation. We have been awarded. We've launched our AI, which is called Isa. This is the first artificial intelligence assistant on the real estate market. Isa is really impressive. It's been a huge success with our clients' requests, for example, floor plans and the AI send them. And of course, it gets better day by day, so it's been a huge success. Another highlight, we started delivering waves of works in 2020, 2021. So in the fourth quarter, we delivered Auguri Mooca with a PSV of BRL 125 million. Now our results in 2023. We had an accounting loss of BRL 56 million in this period. That's substantial of course, but as we have a very long cycle, it may have a good projection with CEPACs. It was expected to take place in April, but it only took place in December, December 12. So we were late, and this was the consequence. And [ the latera ] was just launched at the end of the year. I will be explaining this later on. But then as a result of this, in some operating expenses, led to this result of -- or loss of BRL 56 million. So as I said before, our net income was BRL 56 million but negative, less BRL 56 million. That was a loss. But then we had also backlog revenues of BRL 167 million. And in 2023, we had -- it was an increase of 120% greater because we generated BRL 91 million. If we had recognized these BRL 91 million before, we would have about BRL 30 million, BRL 35 million. I'd now like to highlight the importance of Jardim das Perdizes, a wonderful project, and what it means to us. So in these BRL 167 million backlog revenue, BRL 75 million are from rating Jardim das Perdizes. In this margin -- I'll talk about the future later, but this is about the past. So the margin increased from 34% to 45%, and it will be even greater in the next -- with the next launches. So BRL 75 million or these BRL 167 million came -- BRL 75 million of the BRL 167 million came from Jardim das Perdizes. Another very important fact, and I'd like to spend some time explaining this in detail, we sold 5% of our stake in Jardim das Perdizes to the Nigri family and also to another investor. And that's Mr. [ Zeev ]. And this was a very interesting development, and it was really helpful. We improved our cash with BRL 130 million, as I mentioned. So this operation was conducted. I'd also like to inform you -- this is no secret -- that we were trying to sold a stake in Jardim das Perdizes, but an international investors or traditional investors, they always like this project, but they were always concerned. How much more will the auction take? Things wouldn't really work. But then after the auction, things have changed. And now we get a lot of interested people, funds from Dubai, Abu Dhabi, Singapore and even in Brazil. They're interested in purchasing this. So we came to the conclusion that this first investment should be made by the Nigri family. And now we can study other proposals, and we are indeed open to proposals with a much more comfortable position to analyze these offers and choose one or many of them, the best proposals that are really the best for the company. So after a long time, we are now releasing our guidance for the next 3 years. And on the guidance, it's for the Jardim das Perdizes. It's not Tecnisa's guidance but rather Jardim das Perdizes' project guidance. We have CEPAC now for all the plots, and we have projects. We have a good demand level. So we are now offering a guidance of BRL 5.3 billion. And another amazing fact is that the margin for the next development projects, they have reached up to 50%. And this means the good part of something that's not so good. The bad part is that we hadn't had an auction for such a long time, but then the good part was that this land was purchased a long time ago. And then the sale led to amazing margins such as this. Of these BRL 5.3 billion, Tecnisa's stake is about BRL 3 billion. As you can see on the right-hand side, each year -- in 2024, we're expected to launch about BRL 1.7 billion; in '25, BRL 1.5 billion; and in 2026, BRL 2.1 billion. So this is the guidance we have to offer. This is our best perspective, so let's make sure we can deliver this. Now I'd like to discuss the resumption of our Jardim das Perdizes launch. One of them was Recanto Oliveiras that was launched at the beginning of March. And so yesterday, it was -- it's been a huge success. We've already sold 40% of our first tower. This is a very traditional neighborhood, while also there is a high demand level. People want to live here. And the total PSV is BRL 583 million. The apartments are 81 square meters and 109 square meters. I have some photos also to show how good this development is, this launch is. Another launch is Bosque Cerejeiras. And the apartments have 222 square meters and 293 square meters in addition to penthouses. And this is really close to Palmeiras and São Paulo Futebol Clube training centers. And many footballers and coaches and managers, some of them already live here in this region, and they're now looking for us to purchase these new apartments. Additional information, the total PSV, BRL 430 million, and it has 96 units from 222 to 293 square meters and 4 duplex apartments from 435 and 568 square meters. We have some pictures again to see how high end this development is. Now the next launch to be launched really soon is the Reserva Flamboyant. These are 155 and 186 square meter apartments in addition to the penthouse. Look at the facade. It's really great. The total PSV is almost BRL 600 million, 210 units and 6 duplex apartments from 304 to 365 square meters, an amazing facade. And we will have a leisure area that's amazing, again, 5,000 square meters in a single tower. There was a project with 2 towers, but we chose to build a single tower to have a greater leisure area. It's like a club. We will have a tennis court, which is a sports that the people who live there really like. Now land bank. Our land bank is about BRL 4 billion -- in the region of BRL 4 billion. That's Tecnisa's land bank. And as you can see, most of the land bank is in the Jardim das Perdizes region in the west of Sao Paulo. That's BRL 3 billion and some other land in other areas of the city of Sao Paulo. This is about sales, private areas that have been sold. So in 2023, we totaled BRL 664 million in gross sales. The nice thing about this is that this was really balanced. The bottom chart, we see our development. Gray is 2022 sales and the red bar, the progress that was made in 2023. We sold BRL 664 million in gross sales in 2023. That's a very interesting result. As I highlighted before, this is about our ongoing concern with G&A expenses. Even with the inflation, we spent BRL 6 million less than in the previous year. That's a reduction of 14 bp relative to our net revenue. Now I'd like to provide a summary of what we can expect. We're resuming the launches in Jardim das Perdizes with a great focus again on our commercial and marketing strategy. We want to generate cash by delivering these 5 projects, so generating cash in 2024. We'll also reduce our debt ratios, returning to the low-income segment, as I announced before, with our new brand, Tencasa, and we're expected to launch some development this semester. And we will be constantly seeking for innovation. Very good. I'll now ask our CFO, Anderson, to provide our financial information, and I'll be back to answer your questions. Thank you very much.

Thank you, Fernando. Good morning, everyone. So let me start discussing our operating performance. Our sales performance, this was the best quarter, BRL 200 million in gross sales, BRL 70 million growth with regard to the third quarter of 2023 with a SoS that was good. So that's -- when you compare this -- sorry, BRL 548 million in sales as compared to what was sold last year. That means we launched BRL 208 million as compared to 2022, so the inventory volume was smaller, but our SoS, as Fernando said, there was an increase of 100% in the year, almost 42%. Net sales, very similar, almost BRL 96 million (sic) [ BRL 196 million ] in quarter 4 compared to BRL 622 million (sic) [ BRL 122 million ], in other words, 20% of SoS and 40% in SoS with BRL 525 million in net sales. About 35% of the sales were made in -- or came from Jardim das Perdizes. Next, inventory at market value, that's BRL 790 million, and we started with BRL 1.100 billion. We sold almost half, BRL 148 million (sic) [ BRL 548 million ] and BRL 23 million that were recorded. That's what we achieved, geographical distribution of everything -- almost everything in Sao Paulo except for the hotel in the city of Curitiba, which is in our inventory, and we are increasing the dividends in the hotel. So it's interesting to keep this in our -- on our inventory. We're expecting to reduce interest rates and also increasing the daily rates in this hotel. In other words, this is a very interesting product to have on our portfolio. As for our distribution, 74% already in our inventory that are units that are being built under construction and 19% of works to be initiated, and 7% is the hotel really, in other words, finished units or completed units. Now economic and financial performance, again, our net revenue. We started this year -- we started 2 projects this year in addition to the ones that were underway. So we have the highest net revenue for the quarter. That was a 31% increase regarding to the third quarter. And of course, in the year-to-date, it was even greater, an increase of 84% as compared to 2022. Now our adjusted gross income, that was BRL 82 million. So what we should highlight here is that as we get closer to the delivery of our apartments, we have 5 projects to be completed in 2024. We realized some of the budget costs that we projected in 2021 were higher than we had expected. There was a significant increase in costs. So we are now close to 80% of the works or apartments completed. So we estimated what we spent, what we saved. And so we needed to increase our budget values. So we accounted for all these figures, and there was a reduction in the percentage of our completed project. So the budget was BRL 26 million and the reversal was BRL 19 million. And we had a specific impact of a particular project with a problem with elevator and the impact was BRL 8 million approximately, but that's again adjusted.

Now Anderson, let me explain about the elevators. We are bringing a lawsuit, and this expense will be recovered because this was not our own responsibility.

Okay. Yes, that's right. Thank you. So we can see that in the year-to-date value, we have BRL 69 million. That means an increase as compared to 2022 when we had a different gross profit number. This is our receivables schedule, and for 2024, we had a great number of receivables, and then we have over BRL 81 million. In other words, free -- if everything added up, BRL 361 million to be received as compared to the debt amortization scheduled for 2024. That's a total of BRL 302 million. In other words, we believe we are okay with this debt without taking into account the new sales, which will also contribute to the payment of this debt. Until '26 and 2027, the new sales will help pay off this debt. Then we'll have the launch of Jardim das Perdizes and over time, after 2027 and '28 after this project is delivered, so we are expecting to have better results and the payment of the debt is okay in terms of considered term and deadlines. Now shareholders' equity, considering the loss that we mentioned, there was a release, BRL 106 million in the fourth quarter of 2023. And then with the CEPACs, which were acquired, we -- a lot of value was generated for Jardim das Perdizes, and we had this PSV for all these launches. So we had, of course -- the gross profit to be appropriated in the projects that were consolidated, this is BRL 76 million and the gross margin, 28%. We are now -- so our net indebtedness in the percentage here, as we mentioned on the previous slide, it's now moved to 115% in the corporate -- net corporate indebtedness. When you account for project debt, the payment is, of course, linked to the product performance. So the final figure is 97% in our net corporate debt. Finally, our net asset value, NAV, and we can see here that what is receivable and also inventory at market value net of taxes, the investment and the Jardim das Perdizes investment. So then of course, if you deduct the debt, the total net asset value is BRL 129 million. That's a very good perception about our projects. And then our share price is BRL 11.26, which is good when we consider that -- the other market values. In other words, we have a very good growth potential as we -- to move on, and this is the end of the presentation.

Thank you, Fernando. Thank you, Anderson. We will now start our Q&A session for investors and analysts. [Operator Instructions] So the first question is from Matheus Meloni from Santander.

Here, we have 2 questions. First, I need to understand the reversal of cost and also the impact on your revenue. Can you explain a little better what happened? Why was there such a cost reversion -- reversal and if everything was reviewed or if there's other figures to be reviewed in the next quarters? And then the stake sale of Jardim das Perdizes -- the sale of your stake in Jardim das Perdizes, was that the ideal stake? Or can there be more sales to come. What your rationale behind this operation?

Thank you for your questions. As for costs, first, I'd like to say that we have already made the new budgets. Everything is already budgeted. And this is very solid information. Everything that needed to be budgeted has already been budgeted. In other words, there's nothing else to happen. And what happened? As you can see during the pandemic with increasing costs that were really significant, a very significant increase, so what we did -- our budget was made before this cost increase. So our engineering department works really well. We have a great engineering director with a wonderful team. So we studied these costs as Anderson mentioned. We are now -- have an average of 80% of our projects are completed. In other words, we need to readjust our budgets. The impact was about BRL 26 million. Cement, concrete, plaster, everything increased. The cost of all these materials increased. Now the good part about this is that there's nothing else to be adjusted, no more surprises. We've already adjusted all the budget. So all the work started in 2022 and '23. These projects, these works, as you can see, we've been following that really in detail, discussing with our management and our Board of Directors. So the projects, the current projects are totally on budget. As for Jardim das Perdizes, this operation can be analyzed from different perspectives. And I'd like to stress the following perspective. This is a living proof that this project, Jardim das Perdizes, is a winner -- winning project. You know that the Nigri family has a lot of -- invested a lot of money, so they already invest as individuals. And so everyone knows and the market, I believe, will understand this, that this is so good. This Jardim das Perdizes project is so good. Otherwise, they wouldn't be further -- making further investment. So it's a winning project. Are we open to additional sales? Of course, we are because things are a little different now. We get a lot of offers. So we're getting a lot of offers, but we will now analyze all these offers carefully. And if we get any offers that all shareholders are interested in, we can talk about these offers, of course.

We have no further questions. Thank you very much, everyone. We will now give the floor to Mr. Fernando Perez for his final remarks.

Right. Thank you. I think we've mentioned everything that needed mentioning, but I have something else to say. The other day, one of our directors, Renato, he made an analogy. And I'd like to tell you about this, share it with you. When people fall into a river or the sea and start swimming upwards and then when they're at the bottom, they don't see anything, but then they start swimming and swimming. What Tecnisa is doing is that we are at the last -- almost at the surface. We see the light. We are almost there. We've really won all the problems with CEPAC. We've overcome all these obstacles. And from now on, we have Jardim das Perdizes. We know that our area with new businesses -- our new business area is also always looking for new opportunities. And -- but we have all the reasons to focus on Jardim das Perdizes. We have many launches to make with a pent-up demand that is really high. So this is my final message. We are really hopeful and confident that the results from quarter 3 onwards will be increasingly better. Thank you very much for your attention. Have a great day, and a happy Easter, everyone.

Thank you. Thank you. Have a good day. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]