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

[Audio Gap] Mr. Fernando Perez, CEO; Mr. Hiraoka, CFO and CIRO, and I am [indiscernible], Executive Financial Manager. We inform you that the recording of this event will be available on the company's IR website. As usually, we will start the presentation by the executives, and then we'll have a Q&A session. If you need support send us a message via chatbox. I would like to give the floor to Mr. Fernando to begin the presentation.

Good afternoon, everyone. We are here once again to share with you the results this time of Q2 '24. This is our schedule for today. We're going to cover our strategy and then I'm going to cover our strategy, and then I'm going to give the floor to Anderson, who will cover our operating performance and the financial and economic performance of our company. I would like to mention the resumption of the launch in Jardim das Perdizes. We, in the first half of '24, we have launched a total of BRL 1 billion. And I'm going to cover that a little bit further in our guidance. We have a solid [indiscernible] bank to guide the business plan, that's almost BRL 3 billion. Actually, BRL 2.8 billion in the company's land bank. We also have a very strong commercial and marketing strategy. And we increased our net sales by 166% versus Q2 of '23. We are always aware of the importance of controlling administrative expenses. I would also like to mention the profitability of our operations. Our backlog gross results reached BRL 260 million and we're going into more details on that when Anderson speaks. I would also like to mention the delivery of 2 developments, 2 projects, which totals a PSV of BRL 304 million. This is Bosque Cerejeiras, one of the projects that was launched on May 24. The PSV is BRL 445 million, our share at Tecnisa is 52.5%, 100 units. 96 units have between 222 and 293 square meters. And we have 4 duplex units with a very interesting floor plan. We always follow that concept of providing a complete and comprehensive infrastructure and we also offer the family space, which is quite an interesting offering. The next launch without a date yet, but it will take place in Q3. So the next launch is Reserva Flamboyant. It's the highest building in the area, in Jardim das Perdizes. This is a project that will be indeed inside a complete infrastructure. The terrain has over 5,000 square meters and we bought a building 2 towers. But then we decided to build one single tower, which allows us to have a spectacular amenities and a leisure area. Just yesterday, we met the brokers, the real estate brokers and we have 210 units, between 155 and 106 square meters and 6 duplex units reaching up to 365 square meters. This is an amazing project. Our sales expectations are quite high. And yesterday, again, we met real estate brokers when we introduced this project so that they can start working with customers. We noticed that they were very much excited because they are aware that this is going to be a very special project at a very competitive price and this is certainly going to be a hit. I'd like to talk a little bit about our guidance. Tecnisa's guidance -- this is for Jardim das Perdizes for '24, '25 and '26. It's around BRL 5.3 billion and the margins, which I always highlight. This is the good side of the bad thing. And the problem, the bad thing was the lack of [indiscernible], but we were very much focused and now we can have this amazing margin between 46% and 50%. We had said that in 2024, we would launch 1.7 billion, but we have launched 64% of that so far. So with the next project, we will meet our guidance. I would briefly like to mention our new launch under the Minha Casa, Minha Vida project. It's called tencasa, it's our new brand for this specific segment of the market. And on June 24, we launched a product with PSV of BRL 210 million. It's a partnership with [indiscernible]. And in this project, our share is of 10%. And this is the beginning of the tencasa operation that will certainly be very much successful. I wanted to mention now our land bank, which is still very solid, 2.8 billion, judging the space, 2.2 billion of that. And here, you see the division. We already have 808 million in approved projects in these different areas. We have [ B2 ], Flamboyant, and we have other plots of land that are already approved. We have still not defined the projects, and we will do this timely. And an additional 428 million under approval. So in Q1, we had 3.5 million. Then we sold 469 million and then we had 254 million. This is one of the terrains that we ran the tencasa operation. And then we have Bosque Cerejeiras that was launched. So of course, since it was launched, it leaves the inventory, and it becomes a project. So the 3.5 million became 2.8 billion, which is actually quite an important figure. And that will certainly bring us a very bright future. Let me tell you about our commercial and marketing strategy now. This is a path for trailing. Today, we have announced an accounting loss, and you will see more detail about that. But we are progressing. We are running sales and we are going to change this in the near future. We had BRL 322 million in gross sales for Q2 of '24. The speed of sales is almost 25%, which is quite considerable. And we have increased the speed by 14 percentage points versus Q2 '23. Now a little bit about profitability. The backlog gross profit has reached BRL 216 million in Q2. That's an increase of 52% versus Q2 '23. And this is very interesting. Maybe this is not clear for some of you, but we have BRL 260 million in short. As construction moves forward, we realized this profit. Just in this Q, we have added BRL 37 million to this pot. So yes, we are announcing an accounting loss because we are carrying something over from the past. But in our operations, we are generating cash and we are generating future profit. Now a little bit about our backlog gross margin. In Jardim das Perdizes, this backlog gross margin has remained above 46% in Q2 '24. And we have this trend of growth, this upwards trend. Finally, I wanted to tell you that in Q2 '24, we have delivered 2 projects in São Paulo. We have Vila Romana with a PSV of 139 million, 140 units. And we have also delivered Highlights Campo Belo with a PSV of BRL 165 million and 231 units. So now I'm going to give the floor to Anderson, our CFO, and I'll be back for the Q&A session when we finish the presentation. Anderson, please, you can take over.

Hello, everyone. Good afternoon. I'd like to start by giving some more details about our operating performance. As Fernando said, our gross sales have grown considerably in Q2, BRL 223 million in sales. And the speed of sales has increased from 17% to 22%. Let's look at year-to-date figures from BRL 209 million to BRL 405 million. So the growth went from 20% to 30%. Let's look at net sales. You see the volume here. We have delivered some projects. Our volumes are below BRL 211 million in sales in Q2 and EUR 384 million in the first semester. So when we look at the last 12 months, you see the improved performance, 41% in Q2 '23, 43% in Q1 '24 and 45% in Q2 '24. Hear a little bit about our inventory. We finished in this quarter in BRL 885 million. We have the variation in sales, 223 million. Then we launched Bosque Cerejeiras that represents BRL 234 million, cancellations of variable volumes, as I have said, BRL 12 million. And we made some accounting adjustments. We were negotiating this for sales, but dividends are better and better and occupation is also better and better. So we believe it would be better to maintain the investment. We adjusted it. And in a timely manner, we will reassess this. This will remain as an investment for the time being. And that's how we reached BRL 885 million in inventory for Q2 '24. On the right-hand side, almost 100% of our inventory is in São Paulo. This is according to our strategy. 55% are under construction. So the comps, this is very much contributing to our results. And 43% is for works that will be initiated. Now let's talk about our financial performance. As you see here, we have significant gains in terms of revenues, BRL 231 million in Q2 versus BRL 115 million in Q1 '24. So we almost doubled from Q1. Three factors have contributed to that. The volume of construction. We have a lot of construction in end stages. Sales have gone quite well this quarter as well and selling to plots of land, as Fernando mentioned, which meant about BRL 70 million. That has all contributed to our revenues, both in the first half of the year, BRL 346 million versus BRL 249 million in the first semester of '23 and also in this quarter. As for the adjusted gross income, we finished at BRL 32 million. We are already considering Jardim das Perdizes [indiscernible] the projects that are investments. We understand that increasingly that Jardim das Perdizes is very representative. So we will always include Jardim das Perdizes in an adjusted manner. We've reached BRL 32 million in gross income with a gross margin of 14%. It's important to remember that we had the sales of land at a very low margin. So this puts down margins a little bit. But when we look at gross profit, we are above Q1 '24. Year-to-date figures, BRL 50 million. This is the adjusted gross income and the adjusted gross margin is up 14%. In the slide, we highlight our receivables. The total receivables we have for 2024 and 2025, they represent BRL 582 million that will come into our cash. And the maturity of debt is BRL 292 million. So we are comfortable with these projects under construction in a very advanced manner. This is going to contribute to our work to face the expenses we have, and we are in a comfortable situation to follow up with our strategy.

If you allow me to comment on that. In future years, you might see the debt, which is certain, and we have receivables. They're still not happening because sales are still to happen. But look at the proportion up to 2024. This proportion will be at least the same, more receivables than payables. Yes, sure, and thank you for adding that. In the slide, you see our cash position, which had an improvement. We reached BRL 286 million, up from BRL 249 million. We are including the projects here. And our net debt is of BRL 567 million. So that's cash generation of BRL 26 million as you see on the bottom right-hand side. Shareholders' equity BRL 481 million, and that's because of the loss of the -- net loss that we will mention in a minute. As Fernando said, BRL 37 million of gross backlog, gross profit. So that means BRL 37 million just by executing construction. So yes, we are generating value for the company, regardless of the accounting results. In this quarter, we had a nonrecurring event, which was a loss of BRL 15 million with a pharma business partner. If that had not happened, our results would have been even better. Here you see our net debt relatively stable, as you can see, around 110%, and that is very much related to the loss. We have generated cash this Q. So that would have contributed to reducing our debt. But since we had a loss, it's still aligned, both in net debt and corporate net debt. They -- which the corporate net debt around 86%. And now we have our net asset value, adding up cash, inventory, land bank, investments. And when we subtract debt and construction costs, we reach BRL 890 million. If we consider all our shares, that means about BRL 12.09 per share. So that shows the significant value of our share. And with that, I finalize my part of the presentation, and I would like to open the floor for questions.

So let's begin the Q&A session. We have a question from Mattias.

I would like to know about tencasa. What are your plans looking forward? What are the largest foreseen in our pipeline and can you give me an update on the project and how it's going? Belaterra. The second question is referring to Belaterra.

Thank you very much, Matthias, for your question and for being here this afternoon. Yes, as I said in some previous earnings calls, we decided to enter the Minha Casa, Minha Vida segment, the government program. And we have created this brand, tencasa. It's a separate company. And we want to grow in this segment. We believe it's quite promising because Brazil has a huge housing deficit, as you know. It is an interesting segment, although there is a lot of competition. Our strategy for this year is to continue with some projects in partnership with Plano&Plano. And I would like to thank Rodrigo, by the way they have been amazing partners. We believe that the location of these terrain should go for different economic projects, and we want to grow. In 2025, our PSV will be of about BRL 300 million to BRL 500 million more or less. That's what we foresee for next year. And we want to go gradually. And we want to have a safe learning curve, and we believe we will reach good results with this new operation. Regarding Belaterra. Belaterra, in spite of having all approvals, the city has granted all the approvals, as you all know. It's not easy to get these approvals, as you all know, because many different departments from the city are involved. That's why these projects take around 12 to 18 months to be approved. The prosecutor's office, motivated by some complaints of people who live there and who do not want to have a building in their neighborhood. They've filed a complaint and we ran an in-depth analysis, legal analysis with our counsel, with our experts. We have also hired an external law firm. We've called renowned urban consultants, they all analyze this and they said, "Yes, all is fine." The problem is that the courts take time to make the decision. You know how that is in Brazil. So that will take about 2 years at the lower courts. The decision will probably be favorable to us, but they will probably appeal and that can take additional 2 years. And due to that, in respect to our clients, when we heard of that, we are always updating ourselves. And we recommended the cancellations. We have given back all every penny from our clients. Of course, they were not pleased because they lost a dream. It would have been an amazing building in that region, but we decided to terminate the contracts. And we even covered the expenses that they had with real estate brokers. So that's the situation with Belaterra.

Next question is from [indiscernible]. He asks about the loss of BRL 15 million with partners.

Yes, [ Josiah ]. It was indeed this loss. We, at Tecnisa, in the past, there was the housing boom, if you remember. We built all over Brazil. And we, just like other competitors, we needed local partners. Integral is a local partner in Fortaleza, the Northeast of Brazil. And that's happened with other companies. When we were midway through construction, they said, our money is over. We are a 47-year-old company and we funded these partners, Integra specifically, we gave them credit. And they signed a debt document, a public debt document. And with these documents, you're not even discussing the merit. They acknowledge the debt. But then we were surprised by this absurd event. Since they did not pay us, I don't remember exactly when, I think it was 2018 or '19. We collected the debt from them. And to our surprise, at the lower courts in the city of Fortaleza, we lost. They said that they did not acknowledge the debt. From a legal perspective, talking to our counsel, I learned that after you sign a public debt document, you don't even discuss the existence of the debt anymore. But you know how Brazil is and we lost at the lower course in Fortaleza. Well, we appealed and they said, "Yes, in the Court of Appeals, this legal mistake will be corrected." But to our surprise, I think around 2020 and 2021, the sentence was upheld. We appealed again to the Superior Court in Brasilia in the capital. And everyone stated, "Yes, if you reach the courts in Brasilia, this decision will be overturned." But there was a sentence given by one single judge. We appealed to the Superior Court, as I said. But again, the sentence by this one single judge was upheld, and it's not favorable to Tecnisa. We have to follow the rules of the game, so we decided to acknowledge this loss. But we are still hopeful that this sentence will be overturned, so that's what happened in that event.

Next question is from [ Louann ].

Can you hear me?

Yes, we can.

Fernando and Anderson, I am a Tecnisa shareholder since 2014. And I have been suffering together with you. I would like to know Mr. Fernando, when do you believe we will start to have profit in the balance sheet? I understand what Anderson says. Of course, you cannot realize profit as long as you don't start construction, but debt is quite high as well. How do you think of paying this debt and finally, realizing the profit so that you can generate more value to shareholders? That is my question.

That's an excellent question, [ Louann ]. And you give me an opportunity to comment on that. Let me be objective. From Q4, well Q3, of course, we are always working very hard to reach good results. As Anderson said, Integral was a problem for us. If it were not for that loss, results would have been better. We are quite hopeful for Q3, but from Q4 onwards, we will not be talking about losses anymore rest assured. About our debt. If we have to launch a new project, construction usually costs around BRL 150 million to BRL 200 million. So if you want to launch a new project, you need to have credit approved by banks. It would be crazy to launch a project, without credit approved by banks. So talking about Cerejeiras, which we have already launched. We faced a little difficulty in obtaining credit. So we signed a contract with Banco do Brasil because of the corporate debt. So we prepared a presentation. We set up meetings and we visited several banks. And we showed the banks a very well detailed planning on how we will pay the debt. The profitability coming from Jardim das Perdizes is more than enough to pay our debt. In 4 years, that will be completely paid, our cash will be positive, and we showed this to the credit areas of the banks. As you well know, banks are very good at checking if the data is correct, if the figures are correct. Well, now with Flamboyant, which is the next project we will launch, both Bradesco and Itau have approved credit, so that is a clear demonstration that our planning is sound, well structured. And it has been checked and verified by the credit departments of major banks, such as Itau, Bradesco and Santander. So we are working very hard to get there. I always tell the team that we are here to generate value to shareholders. That is our mission. And we think of that day and night. I reassure you all, just like I reassure our team. We are on the right track. We know what we are doing. Construction works are in progress. If you come visit us at Jardim das Perdizes, we have 5 construction sites. And as these constructions progress, we will be able to realize these profits. That's almost BRL 200 million in the backlog of profit. So [ Louann ], I ask you for a little bit more patience. Of course, you can do whatever you deem is best for you. But I always tell people don't sell your shares. You have held up to them so far and you will be soon making money.

So there are no additional questions, and I would like to give the floor to Fernando for his final remarks.

Yes. And again, to [ Louann ] and my answer to him, I made my final remarks. I can assure you, shareholders, that we are a sound company. We are very well prepared. We have a diverse portfolio. Mr. Nigri, the President of the Board, is a seasoned professional. He gives us valuable advice, and we have a diverse team. We know what we're doing. We know that our blank sheet of paper accepts everything. And we have no blank sheets of paper here. What we have is in-depth planning and it's just a matter of time for results to start showing more concretely. They are already showing. Of course, we are still carrying some things that come from the past. Debt hurts, I know. Just this year, we will pay BRL 97 million in debt and interest rates. It's not easy, but it's a matter of time. The good times will come and the market will acknowledge Tecnisa's new situation. Our shares will have the valuation that they deserve and that they should have. Thank you all very much for being here. And regardless of these earnings calls, we are always available. Myself, Anderson and Leonardo, we are available. Please send us an e-mail, drop us a line. We will be pleased to keep you all well-informed. So thank you, and have a [indiscernible]. [Statements in English on this transcript were spoken by an interpreter present on the live call.]