Earnings Call: Q2 2024

Aug 9, 2024

Summary

H1 launches totaled BRL 1.0bn and land bank stood at BRL 2.8bn. Q2 revenue rose to BRL 231m, while backlog gross profit reached BRL 216m; a BRL 15m partner-related loss weighed on reported results.

Also we have Mr. Fernando Perez, CEO. Mr. Hiraoka, CFO and CRO. I am Leonardo Furlan, 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 a presentation by the executives, then we'll have a Q&A session. If you need support, please send us a message via chat box. 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 2024. This is our schedule for today. We're going to cover our strategy, 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 launches in Jardim das Perdizes. We, in the first half of 2024, we have launched a total of BRL 1 billion. I'm going to cover that a little bit further in our guidance. We have a solid land 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 2023. We are always aware of the importance of controlling administrative expenses. I would also like to mention the profitability of our operation. Our backlog gross results reach BRL 260 million, and we're going into more details on that when Anderson speaks. I would also like to mention the delivery of two developments, two projects, which totals a PSV of BRL 304 million. This is Bosque Cerejeiras, one of the projects that was launched in May 2024. The PSV is BRL 445 million. Our share at Tecnisa is 52.5%. 100 units. 96 units have between 222 and 293 square meters. We have four duplex units, with a very interesting floor plan. We always follow that concept of providing a complete and comprehensive infrastructure. 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 thought of building two 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 186 square meters, and six duplex units reaching up to 365 square meters. This is an amazing project. Our sales expectations are quite high. 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. 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 2024, 2025, and 2026. It is around BRL 5.3 billion. The margins, which I always highlight, this is the good side of the bad thing. The problem, the bad thing was the lack of a setback, 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 BRL 1.7 billion, but we have launched 64% of that so far. 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 is called Tencasa. It is our new brand for this specific segment of the market. In June 2024, we launched a new product with a PSV of BRL 210 million. It is a partnership with Plano & Plano. In this project, our share is of 10%. This is the beginning of the Tecnisa operation that will certainly be very much successful. I wanted to mention now our land bank, which is still very solid, BRL 2.8 billion. Jardim das Perdizes is BRL 2.2 billion of that. Here you see the division. We already have BRL 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. An additional BRL 428 million under approval. In Q1, we had BRL 3.5 million. Then we sold BRL 469. Then we had BRL 254 million. This is one of the terrains that we ran the Tecnisa operation. Then we have Bosque Cerejeiras that was launched. Of course, since it was launched, it leaves the inventory and it becomes a project. The BRL 3.5 became BRL 2.8 billion, which is actually quite an important figure. That will certainly bring us a very bright future. Let me tell you about our commercial and marketing strategy now. This is a path we are 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 a near future. We have BRL 322 million in gross sales for Q2 of 2024. The speed of sales is almost 25%, which is quite considerable. We have increased the speed by 14 percentage points versus Q2 2023. Now a little bit about profitability. The backlog gross profit has reached BRL 216 million in Q2. That is an increase of 52% versus Q2 2023. This is very interesting. Maybe this is not clear for some of you, but we have BRL 216 million in short. As construction moves forward, we realize this profit. Just in this Q, we have added BRL 37 million to this pot. 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 2024. We have this trend of growth, this upwards trend. Finally, I wanted to tell you that in Q2 2024, we have delivered two projects in São Paulo. We have Vila Romana with a PSV of BRL 139 million, 140 units. We have also delivered Highlights Campo Belo with a PSV of BRL 165 million and 231 units. Now I am going to give the floor to Anderson, our CFO, and I will be back for the Q&A session when we finish the presentation. Anderson, please, you can take over. Hello, everyone. Good afternoon. I would 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. The speed of sales has increased from 17% to 22%. Let us look at year-to-date figures from BRL 209 million to BRL 405 million. The growth went from 20% to 30%. Let us look at net sales. You see the volume here. We have delivered some projects. Our volumes are low, BRL 211 million in sales in Q2, and BRL 384 million in the first semester. When we look at the last 12 months, you see the improved performance, 41% in Q2 2023, 43% in Q1 2024, and 45% in Q2 2024. Here, a little bit about our inventory. We finished this quarter at BRL 885 million. We have the variation in sales, BRL 223 million. Then we launched Bosque Cerejeiras, that represents BRL 234 million. Cancellations are very low volume, as I have said, BRL 12 million. We made some accounting adjustments. We were negotiating this for sales, but dividends are better and better, and occupation is also better and better. 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 is how we reach BRL 885 million in inventory for Q2 2024. On the right-hand side, almost 100% of our inventory is in São Paulo. This is according to our strategy. 55% are under construction. This is very much contributing to our results. 43% is for works that will be initiated. Now let us 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 2024. 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. Selling two 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 2023, and also in this quarter. As for the adjusted gross income, we finished at BRL 32 million. We are already considering Jardim das Perdizes and Unic With Char, the projects that are investments. We understand that increasingly, Jardim das Perdizes is very representative. We will always include Jardim das Perdizes in an adjusted manner. We have reached BRL 32 million in gross income with a gross margin of 14%. It is important to remember that we had these sales of land at a very low margin. This puts down margins a little bit. When we look at gross profit, we are above Q1 2024. Year-to-date figures, BRL 50 million. This is the adjusted gross income, and the adjusted gross margin is of 14%. In this 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. The maturity of debt is BRL 292 million. 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 are 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. Thank you for adding that. In this 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. That is cash generation of BRL 26 million, as you see on the bottom right-hand side. Shareholders equity, BRL 481 million, and that is because of the net loss that we will mention in a minute. As Fernando Peres said, BRL 37 million of backlog gross profit. That means BRL 37 million just by executing construction. Yes, we are generating value for the company, regardless of the accounting results. In this quarter, we had a non-recurring event, which was a loss of BRL 15 million from a 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. That would have contributed to reducing our debt, but since we had a loss, it is still aligned, both in net debt and corporate net debt. The corporate net debt around 86%. 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. That shows the significant value of our share. With that, I finalize my part of the presentation, and I would like to open the floor for questions. Let us begin the Q&A session. We have a question from Mateus. Please, Mateus, you have the floor. Hello, everyone. Good afternoon. Thank you for taking my question. First, I would like to know about Tencasa. What are your plans looking forward? What are the launches foreseen in your pipeline? Can you give me an update on the project and how it is going? Thank you very much. Belaterra. The second question is referring to Belaterra. Thank you very much, Mateus, 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. We have created this brand, Tencasa. It is a separate company. We want to grow in this segment. We believe it is 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, Plano & Plano, and I would like to thank Rodrigo, by the way. They have been amazing partners. We believe that the location of these terrains should go for different, for 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. We want to go gradually. We want to have a safe learning curve. We believe we will reach good results with this new operation. Regarding 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 12-18 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 filed a complaint. We ran an in-depth legal analysis with our counsel, with our experts. We have also hired an external law firm. We've called renowned urban consultants. They've all analyzed 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 an additional 2 years. 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 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. We even covered the expenses that they had with real estate brokers. So that's the situation with Belaterra. Thank you very much. The answer is very clear. Next question is from Jose Silva. He asks about the loss of BRL 15 million with partners. Yes, Jose. It hurts indeed, this loss. We, at Tecnisa, in the past, there was the housing boom, if you remember. We built all over Brazil. We, just like other competitors, we needed local partners. Integral is a local partner in Fortaleza in the northeast of Brazil. As happened with other companies, when we were midway through constructions, they said, "Our money is over." We are a 47-year-old company, and we funded these partners, Integral, specifically. We gave them credit. They signed a debt document, a public debt document. With these documents, you're not even discussing the merit. They acknowledge the debt. 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 2019, we collected the debt from them. 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 courts in Fortaleza. We appealed and they said, yes, in the court of appeals, this legal mistake will be corrected. To our surprise, I think around 2020 and 2021, the sentence was upheld. We appealed again to the superior courts in Brasília, in the capital. Everyone stated, yes, if you reach the courts in Brasília, this decision will be overturned. 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. That's what happened in that event. Okay. Next question is from Luan. Go ahead, Luan. Hello, Luan, you can ask your question. Hello, can you hear me? Yes, we can hear you. Go ahead. Good afternoon. Good afternoon, 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, Luan. You give me an opportunity to comment on that. Let me be objective. From Q4, 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 100 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 City Jadas, which we have already launched, we faced a little bit of 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. 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, debt will be completely paid, our cash will be positive. 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 Reserva Flamboyant, which is the next project we will launch, both Bradesco and Itaú 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 Itaú, 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 five construction sites. As these constructions progress, we will be able to realize these profits. That is almost BRL 200, actually, BRL 200 million in the backlog of a profit. Luan, I ask you for a little bit more patience. Of course, you can do whatever you deem is best for you. I always tell people, "Don't sell your shares. You have held up to them so far, and you will be soon making money." Thank you very much. Thank you, Luan. There are no additional questions, and I would like to give the floor to Fernando for his final remarks. Yes, again to Luan, in 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 are doing. We know that a blank sheet of paper accepts everything, and we have no blank sheets of paper here. What we have is in-depth planning, and it is 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 is not easy, but it is 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 earning calls, we are always available. Myself, Anderson, and Leonardo, we are available. Please send us an email, drop us a line. We will be pleased to keep you all well informed. Thank you and have-