Earnings Call: Q1 2021

May 14, 2021

Good morning, one and all, and welcome to the EasyTech's Results Presentation for the Q1 of 2021. Please note that this call is being recorded and that all participants are in a listening only mode. At the end of the presentation, we will begin a Q and A session When further instructions will begin. And in case you may need any assistance over the call, please let us know through the chat box. In case you have any connection issues, you may reuse the same web link or ID to return to the presentation available on our website. You may find that LinkedIn ID as well as the slides for this presentation on the address ir. Easytech.com. Before we start, we'd like to mention that any statements during this call pertaining to EasyTech's business projections, operational and financial targets are based on management's beliefs and premises as well as on currently available information. These considerations do not constitute an assurance of performance. They involve risks, uncertainties and premises. Investors may take into account that general economic conditions, Industry or operational circumstances may ultimately affect Gisotek's future performance and they may cause the company's results to differ materially from those expressed in those forward statements. Now I'm accompanied by Emilio Fugaza, our Chief Financial Officer I'll get the presentation started and pass it to Emilio as soon as we get to the financial portion. Now moving on to the first slide. Just very briefly introducing the main figures, main numbers I will try to address more color within the course of the presentation. Operationally, the quarter was marked by net sales of SEK 236,000,000 launches significantly lower at SEK28 1,000,000 a single project Land Bank of SEK14.1 billion with many acquisitions to the year. Financially, we had gross profit of CHF 83,000,000 accounting by a gross margin of CHF 42.5 Our net income was €73,000,000 with a net margin of 37% assisted by financial revenues. Net cash of €1,060,000,000 alongside €5.29 of We performed receivables, much of that financed directly through Bausitec in a portfolio of direct receivables of CHF 482 million. Here we're talking about financing to the clients made through a statutory lining rate directly from this attack to the final consumer. Briefly mentioning subsequent events that have happened already by the Q2. We have yet another launch of $353,000,000 was DreamVue launched as soon as sales stands were reopened. In our shareholders meeting of The end of April, we have also approved the payment of dividends of about BRL96.2 million, about $0.42 per share. And as an increment of the company's government standard, We had appointed we had an election of our Board of Directors with 4 independent members out of a whole total of 9 members altogether. Now getting us started in each specific theme Addressing the EasyTax Land Bank, it's important to mention that despite the quarter itself We've not had very many acquisitions, it's around 40,000,000 of new acquisitions in the quarter. We have been coming from a full year of 2020 in which we had several acquisitions basically fulfilling the full mandate that was given to Isotek By the follow on, at which time we had approximately €940,000,000 of cash injected in the company And basically, about a billion dollars was already earmarked for acquisitions. Much of that was already deployed. Some of it is still pending funds, but that money has been directed to land bank that is already within Isotec's Landing Banking. In the Q1 specifically, we noticed that there was A significant contribution coming from price provisions. We're talking about something an average of 14% growth 14% growth in price levels in our land bank alongside basically in line with actual price growth for practice sales through the quarter. As you consider that we also have SEK 2,300,000,000 in option acquisitions, you reach a combined land bank of SEK14.1 billion by as we speak. Just to keep that in proportion, Out of that $14,100,000,000 we have approximately $3,400,000,000 which is with Inc, our commercial development company subsidiary, while the remaining SEK 10,700,000,000 is within EZYTech's residential operation That basically represents something like 4.3 times a Sustained launching volume of €2,500,000,000 which implies that there's plenty of land bank available at this time already, somewhat signaling to a cycle, a few years in which we do not need we do not have the imperative need to buy a different land bank and we may keep on acquiring just the expense that we actually push forward new launches. Now moving on to the operational slide, here's where We still have the direct effect of the toll that the pandemic has taken on EasyTech's performance for the past quarters, especially when you look at the fact that approvals For new launches coming from the City Hall, they have been lagging relative to what we wished for, which means that launches have been significantly lower over the course of the year thus far. Naturally, that has its own implication as far as the sales that will be derived from those launches. But the sales in themselves were also harmed in the Q1 by the fact that About 45 days out of the full quarter were marked by direct phase of the pandemic here in Sao Paulo. The rapid pace of the pandemic means that all sales trends were forced shut over the course of 45 days that had a particular effect on ready to put units considering that a client's very next year we would prefer The visit the unit that we live in prior to making the investment decision actually had a lot of clients that chose to postpone that investment decision and let the revenues in term units about 30% lower than previous quarter and actually that in itself has its implications in terms of revenue recognition. Regardless, as you as soon as sales plans reopen, What we have seen thus far in approximately 3 weeks is that sales speed at this time is 26% faster than the average Weekly sales period before the Q4 of 2020, we're basically talking about a level of 31,000,000 sales per week, and royalties per week. And just quickly mentioning about cancellations, here we have a smooth convergence to a €20,000,000 standard of cancellations, closer to normality. And very important to remind you that out of those 23,000,000 in cancellations in the quarter, 44% Actually refers to transfers or upgrades and downgrades where our credit recovery team tried to redirect A client to another unit as a way to prevent cancellation in that may mutually advantageous way for both the company and the client. That takes us to a net sale of €236,000,000 in the Q1 of 2020. Now moving on to the next slide, we will talk about The outstanding inventory for Exotec, what you noticed is that altogether we're standing at 1.66 €1,000,000,000 of available inventory at this time. You noticed that we have some 300 commercial units, but mostly we're talking about Residential units within the city of Sao Paulo, there has been a marginal decrease in the inventory size In comparison to the Q4, as a consequence of the fact that we do not have enough launches to replenish the volume of net sales we've had, That takes us to a point in which we have the lowest inventory level for the past 7 years, especially when you looked at and within that inventory, you should notice that the red inventory in itself is shrinking. The largest concentration we have is still in Sidajimaya and the city of Guarulhos where we have 435,000,000 Available inventory, Zazajimaya, always a good reminder, is still selling in this quarter at a gross margin of 49%. So that's a very strong contribution here for EZYZYZAK operation and it's been so for the past 3 quarters already. And actually, we do not have very many deliveries over the course of the past 2 years as a consequence of the fact that we also do not have very many launches over the course of 2015 all the way through 2018. But those deliveries should Take up that again by the second half of twenty twenty one and on. We're talking about some €500,000,000 of PSV to be delivered in the second half of twenty twenty one. So that should contribute with a larger portfolio of units available for Yztech's commercial assets. Now moving on to slide number 7, we're going to talk about launches. Like we said, launches for the Q1 itself were only the single tower launch In IV Paraiso, that's €28,000,000 in PSV. It's actually combined It's a project that is combined with a previous launch called Signature Biopsy. And if you take it all together, it's at this point, it has 60% of its area already sold The ID Paraiso bit very much driven towards investors. ID Paraiso was launched at a time in which we do not have We don't have our sales stand open, but given that it is a relatively small project and investors tend to be a little more nimble In terms of being able to access digitally, that worked out fine for EasyTech. And as soon as SimSens reopen By the 18th April, we also launched the DreamVue Vila Foundation project that happens as a subsequent event, adding another SEK253 1,000,000 of PSV to the quarter. Now moving on to our next launches in Slide number 8, It's very important to highlight Easy Infinity. Easy Infinity is the main project for the coming months. It's also possibly the highlight for high income projects to be launched in Sao Paulo for the year as a whole. We're talking about something that could reach €600,000,000 of PSV by the time it is launched. It is the and just for reference, it is a project on to be built on top of IBM's current parking lot by the Paraiso region, a region where it's very hard to replenish Land Bank, very valuable asset and a launch for the coming months. Other than that, we also have Arcadju and Altavista. They are a smart living and high income project for the Shaka San Antonio region of Sao Paulo For the still pending approval to be launched, but also hopefully a launch for the coming months And that will bring an additional if you take those three products combined that basically represents 1.1 €1,000,000,000 of launches already in the coming months out of the guidance of The 2 year guidance of $4,000,000,000 to $4,500,000,000 that we had committed to basically where we're still left with an additional €2,600,000,000 to €3,100,000,000 of guidance still pending for the remainder of 2021. With that said, I'll pass the word to Emilio, our CFO and Investor Relations Officer, to let the comment on financial performance. And thanks, Hugo. Let's talk about financial performance. Slide number 9, starting with net revenues Coming at BRL195 1,000,000 in first year 2021 coming down from BRL262 1,000,000 in the Q4 2020. It's important to be reminded that the piece Of the construction and nowadays is becoming a little bit slow compared to the Q4 2020 with the cost of the problems regarding the sanitary conditions, the COVID issues Here in Brazil, specifically between February March. It's important to understand how Can we come up with those revenues? Once we can sell 1 unit, performing units. Obviously, we are going to recognize the growth revenues coming from these units. But units under construction or units already launched, we are going to recognize only The stake of the land over the revenues and the construction part is going to take place Means of the construction. So we are going to recognize by the percentage of completion method the revenues of the quarter. The problem is, given the fact that we sold less of home units in the 1st Q and the pace of the construction sites were slower than the past. We came up with less revenues than the past. From now on, we do expect that the volume of construction And we can increase a little bit in the Q2, but mainly in the Q3 2020, Given the incremental prices we have been facing so far and obviously The situation about the pandemic, given the deal specifically in Sao Paulo. Talking about growth prospects on the chart At the top right of this slide, you can see BRL83 1,000,000 of gross profit And gross margin of 42%, recovering a little bit from the Q4 2020 from 40%. That's important. It's important to say that I anticipate the index which is Adjusting all the receivables we got in our balance sheet can so far We replaced the incrementing costs we are facing now. It's important to understand that we have been facing A lot of incremental costs, especially of raw materials like concrete, like steel, specifically copper, So far those incrementing costs or Delays in the construction sites are not harming the schedule of delivering those construction sites. And so far, the costs And the margin are remaining a little bit steady, over a little bit more than 40%. Talking about selling expenses, selling expenses nowadays are coming at a base of 40% of gross sales. That's important to mention. When you think when you look deeply at the figures, you can understand that we are Coming up with a lot of new sales stand to launch the project since Rugo told you before. Apart from that, you can see an increment an incremental branch of ready inventory commission and others. It's a pre commission because nowadays totally different than the past, All the commissions are recognized over the selling expenses Because mainly of the sales are coming through digital ways. So digital ways Means that the brokers are not charging for the commissions directly to the clients, but also trying to do that directly to the company and that's a way to perform Sales a little bit faster in this moment we have been through. In terms of G and A, specifically you can see R25 $1,000,000 for Q 2021 compared to R27 $1,000,000 1 year ago. That's because we made a lot of adjustments in the 2nd Q 2020 and 3rd Q. Those adjustments in payrolls or even adjusting the whole teams, the whole Teams of EasyTech in the headquarter and we have recovered The number of people we actually saw before in our company. That's why We can see a little bit less G and A expenses than in the past. Apart from that, it's important to mention If you are going to look deeply at expenses of the company, tax expenses We're a little bit higher than in the past. That's because of every Q1 each year, We can pay in advance the whole land and property taxes to the municipality. And this year only land has impacted something around BRL 12,000,000 counting on the Plaque or the land managed by ZEETEC or in partnership with other developers. And that's why We saw an increment on this branch. Moving on to financial performance Q On Page number 10, you can see on top left BRL 45,000,000 coming In the 1st Q 2021. Let me remind you that it's thoroughly because Of the performing assets we have here holding on our accounts, Nowadays, it's about 1500 units we have been providing financing to them adjusted by IGP plus 10% yearly. Only to bear in mind, only to understand what happened here in Brazil, IGP was You can see January 2020 adjusted by something around 35% And quarter by quarter is impacting our receivables on this branch. If you look deeply at financial expenses, It's important to understand that since Q4 2020 Q4 and Q1 2021, You can see a huge increment in financial expenses. It's not regarding debt because we have No holding gaps in our company, but mainly given the questions I got from the Q and A in Portuguese an hour ago. It's important to understand that that's because mainly because of 3 factors. First of all, because many people are paying in advance installments that they were going to pay only after the permits of leaving. So these payments in advance are accounted with some sort of discounts. Secondly, because in the Q4, We have the lead requirements for 1 specific project in advance. This project was Equitovia and but we only delivered the units to our clients between March and April. And we have decided about these projects. Instead of charging IGT plus 12 was so high for this specifically project. We had charged only INCC. So what's a huge difference because INCC on this Specific time was something around 3% yearly and IGP plus 10, IGP plus 12 was more than 6%. So the difference between one and another made an adjustment of financial expense Reported in those quarters. And finally, only to understand, so when we sell what units, After we sell this unit, the client has 3 to 4 months to get the mortgages from the banks. But in between, the client has its stats, his stats adjusted by IGB +12. And in the majority of the cases, because of the units are performing, because of the units are the middle income segment, it's barely possible to have this amount of adjustments Only within 2 to 3 to 4 months. And we provide a discount to them And this discount mainly can see 0.5% of this adjustment of IGP for instance. And that's why in the last two quarters, we saw we went in an incremental financial Moving on to equity income. Now equity income is about BRL6 1,000,000 that was the quarter 2021, Mainly impacted also because of the profit attached, something around BRL 4,000,000 to BRL 5,000,000 Over this line, we don't expect less than that And less than that amount of results in the next coming quarters, specifically because many of the enterprises coming from this branch Starting to starting the constructions and or factoring the pace of the constructions overall. In terms of net income, net income came at SEK73 1,000,000 and a net margin of 37 So and obviously 6% of it impacted by financial results. We do expect that We are going to see a higher increment in revenues recognition in order to boost The volume of net income coming in the coming quarters. And finally, that I would say could be the highlights of these Q1 results, Q1 2021 results It's the backlog margin around 45%. Around 45% means that all the adjustments we got In the budget of the constructions or in the accountants because of the constructions had not impacted so far The margins to be recognized in the coming quarters from the sold units so far. That's very important to say. So the main idea, the true mindsets behind this can be The fact that all the incremental costs we have been facing can be offset by the adjustments of the ISSC so far. On Page number 11, you can understand a little bit more deeply the portfolio of the units sold with financing provided by ZEETEC. So far, for SKU, there is Something about BRL488 million, meaning something around 15 100 units under management for Isitac. Important to see the payments in advance we have already received Something around BRL66 million this quarter, meaning that's 182 units Pay cadets off, specifically trying to transferring the credits To the banks, taking mortgages from the banks. This is highly possible right now because many clients Many clients that do finance from EasyTech 5 to 6 years ago nowadays have Loan to value of 60% or 50%. Nowadays, those credits for them are available in a very interesting in a very good interest rate, something around 5% to 6% yearly compared to IGB plus 10%. The highlight of this slide is about the foreclosure, only 12 units. Let me remind you that For the whole assets managed by Zidec in terms of performing the portfolio, only 100 to 110 Units are on the fall right now. We have been managing obviously you can expect something around 60 To 70 units to be taken back in the next coming quarters, so the foreclosure can reached something around 60 to 70 units in the whole year. So meaning that is about 4% of the total amount of units Total amount of million which is not a concern by itself. On Page number 12, financial performance, Fizkarta, our brand For Mi Academy Aveda low income segments, it's important to understand that we have reached something around 50% gross margin on the on pizzicasa, meaning something around BRL 8,000,000 of net income In this segment, let me remind you that BRL8 million is already impacted by the tax Property, our land taxes, we have paid in advance in the first queue more than BRL5 1,000,000. Even with that Huge impact in the Q1. We could provide something around 10% return on equity. So you can expect Our return on equity even higher for the next coming quarters because as Marcelo Zarzaur, our Technical Director and current CEO, Isitec CEO, sat in the company's call in Portuguese, Two projects scheduled to be delivered by the end of this year or Half of twenty twenty two, I will not be delivered in advance, 6 months in advance And with some savings in budgets, we can provide An increment in the net profit and also in the gross margin of pizzas as well. So saying that, let me bring to the end of this presentation, Slide number 13, talking about Our common equities in this company, 1st Q ended up with R4.1 billion Shareholders' equity, which can we can break up into cash and equivalents Of almost BRL 1,100,000,000, finished unit receivables of BRL 529,000,000 And the cost of the land bank, the land bank of BRL 11,000,000,000 has already booked by BRL1.2 billion, almost BRL1.2 billion, but we have to increase here Another BRL3 billion, we are going to do that in the next coming quarters and it's going to add by something around R300 million dollars land bank inventory. In terms of my abilities only To remind you that the dividends we are going to pay in the next coming quarters of R96 1,000,000 And they're only carrying something around BRL 8,000,000 of Construction financing, almost nothing regarding the EUR 4,100,000,000 for this equity. All in all, that's our Earnings for the 1st Q 2021 and we are completely open to further questions you may have. Thank you very much. Thank you for all our audience today. Hello, can you hear me? Yes, we can't hear you. Is this I cannot really see here who exactly speaking? I'm sorry, this is Nicole Nuit from Bank of America. Thank you for your question. There you go. Sorry for the misconnection. No problem. Thank you, Ugo. Thank you, Emilio for the call. Just a couple of questions. First on launches, How are you thinking about your guidance for this year? We've had a difficult start of the year. We had another shutdown. We're already reaching the end of May. So how strongly do you feel that you'll be able To meet this guidance for the year? And if not, how do you think it will look in terms of launches for the year given the recent lock Downs that we had. And then the other question just in terms of your pace of construction, it's been slower this quarter. I saw some specific problems with Park Gustaf. So if you can elaborate a little bit more on that, it would be great. Nicolas, thank you very much for the questions. Very good morning to you. Regarding launches Specifically, let me say what Servo Zarzaur and Pazhu Zarzaur have already mentioned in the Portuguese call right now. In terms of launches, so obviously, we are fully committed to achieve the guidance. But obviously, we have already missed something around 45 days In terms of launching process, so regarding to take the permits, specifically since the beginning of March, We haven't read we haven't saw a huge work coming from the municipality This is LeGrande, San Paulo. Releasing the formats. Hugo had already mentioned About the 3 major projects we're going to see in a couple in the months coming, specifically in terms of IBM, Arcadio and AltaVista. All in all, we are talking about BRL 1,200,000,000. Adding the 2 projects we have already launched, which means something around BRL300 1,000,000, It's meaning that up to July, beginning of July, we can reach something around BRL 1 point BRL 5,000,000 or launches in the first half twenty twenty one. So there are Something around 50 more projects under the process of taking licenses, taking permits. And regarding with Mr. Clavas as you said, so he is fully We're committed to get the license for those projects up to the end of this year. So in order to achieve the guidance at the end of this year. But obviously, in terms of getting capacity enough, operational capacity enough, Snell opened the sales stance to making the sales of those products Also in 2020 can be a little bit harder. So it's possible to see The launches coming at 80% of the guidance, something about that up to the end of this year And watching the remaining projects being accomplished by January or February. All in all, depends on not having another stop, another closing of the sales stand again In the next couple months. So let me bring into Maybe a long story short, we are fully committed to achieve the guidance, but obviously we already know that We have already missed something around 2 months so far. In terms of Phase of construction. It's important to understand that what we have been facing now It's not something that is harboring the schedule of delivering the targets. That's important. All the drives we are going to deliver We're going to deliver. 2021 are going to be delivered On the schedule and with all costs or even facing some savings on those costs. But projects with very large proportions such as Partly of Cidade, we have our invention in the earnings release or even though at Nuclin, for instance, Our projects that are at the beginning, the cost of the constructions are getting higher and higher specifically of the raw materials. And we are facing obviously some delays because Hiring hiring people to work on these projects. Saying that, I would like to address that everything about 2021 are not harmed, But in 2022, I would say that we have got strong enough to achieve the goals. So we don't expect an enhancements in the pace of the construction In the Q2, as we are in the middle of April, we do expect Subsea coming from the Q3 2021. Nicole? Great. That's very useful. Thank you, Emilio. Thank you very much, Nicole. Have a wonderful day. Thank you very much, Nicole. And with that, our conference call for the results presentation is over. We thank you all for your attention and remain available All the investigations speak for any further questions at any time. Have a nice day.