Earnings Call: Q1 2024

May 10, 2024

Summary

Q1 gross sales rose nearly 63% YoY, but a BRL 21m loss reflected delayed plans and CEPAC-related costs. Management expects launches and construction progress to support improving results, while debt and financing costs remain key pressures.

Good afternoon. Welcome to Tecnisa's first quarter of 2024 earnings conference call. Today with us, we have Mr. Fernando Perez, CEO, and our CFO, Mr. Anderson Hiraoka. I am Renata Nogueira, investor relations manager. We inform you that the recording of this event will be available on the company's IR website. As usual, 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 via chat box. I will now give the floor over to Mr. Fernando Perez, who will start the presentation. Over to you, Mr. Perez. You may proceed. Thank you, Renata. Good afternoon. Once again, it's a pleasure to be here with all of you. We will walk you through a brief presentation, broken down in three parts. Our strategy, operating performance, economic financial performance. I will begin by talking about the strategy and turn it over to Anderson to talk about the operating, economic, and financial performance. The key points. The strategic drivers are the resumption of launches in Jardim das Perdizes. Now with the acquisition of CEPAC, we are good to go. We have BRL 5.3 billion of total PSV as per guidance that we shared in our last earnings call. We have a solid land bank to guide the business plan with BRL 3.5 billion in the company's land bank for Tecnisa. Still focusing on commercial and marketing strategy. I will dig more into that. But with an increase of 52% in net sales compared to the previous quarter. We are always keeping track of our control of administrative expenses. We want for them to remain at the same levels and whenever possible, to reduce them. And we have a profitability of the operation with a backlog gross result reaching BRL 179 million. And as you all know, well, we cannot acknowledge this profit immediately, but it is there. And happily, this is the second consecutive year that we have been nominated by the Great Place to Work as one of the best companies to work. And briefly, Recanto Oliveiras. As we mentioned in the last quarter, we launched Recanto Oliveiras with 424 units, PSV of around BRL 800 million. We have almost half of the first tower sold. Here are some photos of Recanto Oliveiras. These units from 81 to 109 square meters. And we may proceed and view the other slides of Recanto Oliveiras. And what we are willing to show you is that with this first launch, we have fulfilled 8% of our guidance. And by mid-June or maybe earlier, we will launch the second tower and will therefore move forward with fulfilling our guidelines. Bosque Cerejeiras, once again, it's an amazing project, facing the park. 100 units, and we have over 100 interesting parties willing to buy our units. We have the penthouse and there's already Well, we have two penthouses and eight people who are interested. Eight potential buyers. The launch will happen soon. We are simply hiring our business plan, and we will be launching soon. Here are some photos of Bosque Cerejeiras. BRL 430 million PSV and with units ranging from 202 to 293 square meters. I would invite you all to see a decorated unit. In Perdizes neighborhood, we have the decorated unit right next to our sales booth. We will have six or seven decorated units. They are wonderful and much worth a visit. Here are more photos. These are actual resorts, right? Our project, our development. The next project is Reserva Flamboyant. This is the largest residential building in Jardim das Perdizes neighborhood. It is very interesting with a 5,000 sq m plot of land. We had planned to build two towers, and we then later decided for one single tower. There is a huge leisure area with tennis courts, et cetera. The penthouses, 155-186 sq m unit, plus six duplex units with also many potential buyers. This should also be launched in the second quarter. More photos of the project. As I mentioned, I would also like to talk about our land bank variation and what are we have. Well, some differences for some reasons. We had 4.1 million. There was a 5% sale in Jardim das Perdizes to the Nigri family. We sold one or two plots of land. We launched also one project with the accounting adjustments. That is why we amounted to BRL 3.5 billion. Most of which, BRL 2.7 billion, are here in Jardim das Perdizes. This is the potential sales value in the company's land bank. As for sales, very important, we reached BRL 249 million in gross sales in the first quarter of 2024. An increase of almost 63% in relation to the same period in the previous year, 56% of the sales in Jardim das Perdizes. As I mentioned earlier, our backlog gross profit reaches BRL 179 million in the end of first quarter. An increase of almost 35% compared to 1Q23. You will observe this is happening both in Jardim das Perdizes and in the other projects that we have here. On the backlog gross margin, Jardim das Perdizes reached 46.4% in the first quarter and still growing. As I mentioned in the previous quarter, this margin should reach 50%. To conclude my part, I would simply like to once again state that once again, we have attained the Great Place to Work certificate. Thanks to the participation and cooperation of all of our staff, all of our labor, despite the challenges that we have faced. But fortunately now with CEPAC, things are doing great in the workplace environment. I will now turn it over to Anderson, who will share more about the operating performance. Thank you, Fernando. Good afternoon, everyone. Moving on to the first slide on operating performance. I am going to talk about sales. Fernando talked about sales 100%. Now focusing on Tecnisa, the first quarter, we reached BRL 121 million in sales, raw sales reals. There was a reduction here this morning. We have a smaller stake, a smaller share. This is why we have the effect. We also have the seasonality. The first quarter is normally lower in volume, but still is very similar to the fourth quarter sales volumes. We ended with BRL 163 million in net sales and also a low number in net contracted sales. On the next slide, we will see that we began this year with BRL 906 million in stock in Tecnisa with the sales BRL 182 million. With the launch of the Trigal Vendas and as well as the sale of our stakes of 50%, we reached the market inventory of BRL 100 million in the first quarter of 2024. To the right-hand side, we can see that we have operations in São Paulo only. Our inventory in Curitiba related to the hotel. We also view the execution phase of each project. In blue, 46%, we are going to initiate construction. 48% are units under construction, which contribute to our results, and 6% are concluded units. This is the inventory also related to the hotel. In the next session, financial economic development performance. In the first chart, we have our net revenue. The first quarter with BRL 87 million. This effect, once again, as I mentioned, is due to seasonality, so sales go down in the first quarter. The two following months, well, they have not been computed yet, the sales. Because with the equity method investments, they are not computed here. The adjusted gross income also an improvement in relation to 2023 and the margin 6.3%. On the next slide, we have the receivables schedule and our debt schedule. In this chart, we see in the short term 2024, 2025 with total BRL 567 million cash plus receivables related to the debts that are to be due. Quite a comfortable position. You can see some changes. We were pretty active in the first quarter in relation to debt. We had the debts, our amortization schedule, the BRL 42 million in balance. We also had an investment and the average term is 3.4. Corporate debt, therefore, has an average maturity of 2.7 years. On the next slide, we see our long-term debt schedule. We have some receivables over the next years, 2026, 2027, and the debt maturity over BRL 470 million. This difference will actually be paid with the sales of our inventories, BRL 26 million, as I mentioned, in PSV, to be sold from inventory. It is a significant PSV related to launches, with BRL 2.7 billion of PSV with upcoming launches of JDP. On the economic and financial performance slide, in the following slide, we see our cash position. We had a CEPAC significant acquisition, BRL 225 million. Around BRL 130 million in stake. For this reason, in the first quarter, we had to make adjustments to our debt position. We actually raised funds and made operations that generated cash. 25% of participation of shares in Jardim das Perdizes with BRL 50 million paid up front by Tecnisa in a lump sum. We sold units from Kalea Investment to a fund with a BRL 46 million strengthening cash reserves for 2024. As for our results in the first quarter, we had BRL 21 million in losses due to the delays in our business plans, considering CEPAC, well, was delayed, but it finally happened. Now we have a strong growth potential going forward and our net profit BRL 514 million, the result of these results. On the following slide, we look at our indebtedness ratio, BRL 50 million, resulting from the operations and the sales of our shares and the sales to the funds. There was also a net debt reduction on the net equity, 108%. Really how the financing debt, which will be paid with the receivables in the upcoming projects. Our net debt amounts to 85%. In concluding, on the next slide, we see the net asset value summing cash BRL 206 million with accounts receivable net here, BRL 604 million, and inventories also, plus plots of land and investments, which are basically the Jardim das Perdizes plots of land. These are our properties, and we take out our debts and the incurring construction costs. We reach the net asset value of BRL 660 million, not considering the shares. It's BRL 11.66 per share considering these values. We now conclude our presentation and will open the Q&A. Thank you, Anderson. Thank you, Fernando. We will now start the Q&A session for investors and analysts. Please click on Raise Your Hand button or type your question directly into the Q&A box. Our first question is from Matheus Medroni from Bank Santander. Over to you, Matheus. Hello, everyone. Good afternoon. I have two questions. One in relation to the revenue growth. What is the trajectory of the revenue growth and EBITDA ratio? As a second question, how do you consider selling additional stakes? Is it something you're considering? What do you have in mind in relation to selling more stakes? Thank you, Matheus. I will begin and then turn it over to Nidada. Considering, well, our revenues. As you know, we have our partners and we have our rules, of course, and our shareholders' agreement. We could have launched the Regatas, for instance, which I showed you, a building with over 100 units and many potential buyers, but we're still waiting. We would need to sign the loan contract and all banks, Santander included, are analyzing if they will sign. With this in mind, we have planned to launch on the next weekend, and maybe they will be completely sold out. Therefore, we can be certain that our revenues and our sales will increase, our profit will increase. Flamboyant is also quite successful. As for Jardim das Perdizes, we are willing, as I mentioned in the last call, that we will be more careful. We are open, of course, to consider new businesses as long as they are interesting to us, and maybe selling more stakes in Jardim das Perdizes would be convenient to reduce our leverage. So we have not ruled out a potential sale as long as it is very interesting for us. Anderson, would you like to add something? Yes. I would add that, well, when it comes to the receivables transfer and our equity transfers, we look mostly at our equity transfers or influence. So going forward in Jardim das Perdizes, the revenues will remain flat initially and over time as we begin the sales of the Jardim das Perdizes units, it will go down. As for the margin, it will depend on the price recovery. We don't have a forecast for that, but on the other hand, they are under control. Therefore, I don't believe these margins will change going forward. We should also bear in mind that in our costs, we have the financial costs of the projects that also have an impact on the margins and in turn present lower margins or margins are more under pressure for this reason. Thank you very much. Good afternoon. We have one more question in the Q&A from Glênio Soares. I will read the question to you. Glênio asks for more details on the pace of the sales and the progress of the launched units, if they have affected the cost of the sold units. So let me break it down. Can you share more details about the sales, how they're going, and how the construction of the units are going? Those units that were launched, do they impact the cost of the sold units or properties or real estate? You wish to learn more details about the sales, how sales are doing. We have been doing very well in terms of sales and growing since the first tower was sold. The second tower will be launched, and the second tower unit should be sold more rapidly because the buyers, once they realize they could afford to buy units in the first tower, they will most certainly also buy units from the second tower because the average ticket is lower. As for Reserva Flamboyant, we should be launching and sell. I think the first one is already sold out. Second one, Reserva Flamboyant, will also be sold soon. This is my answer as for the sales pace. As for the evolution of construction, the construction units, I normally say this is a mini Dubai. We have two projects underway, and we are also preparing two or three plots of land. We will have cranes also operating here. What is outside Jardim das Perdizes, as mentioned in the last quarter, we are in the delivery phase of many different units. I think we delivered five or six projects this year, and this will generate cash. To the last part of your question, will those units that were launched, did they have an impact on the cost of the sold units? This is not really clear. The question is not clear to me. Are you asking whether the prices? We launched many units, many projects. Did they drive prices down? I would say they didn't. We are still selling at appealing prices, attractive prices. We have sold an apartment unit here with BRL 20,000 per square meter. The average is around BRL 17,000, BRL 17,500. We don't see any problems in this area. Next question by Mr. Glênio Soares. Why was the cost of the sold properties higher than the gross profit? I can answer this question, if I may, because it is also related to margin as the Santander question. Once again, we also have our debt here, which plays a role. It is relatively high, and we have been taking measures to bring it down. One of the consequences of the debt is we have a financial cost that hurts our results. As for the interest rates, since these funds were used for the acquisition of plots of land, and also in some projects to start construction, these costs are allocated as property costs, real estate costs, and this explains this impact on the margin coming from this financial cost. Are there more questions? One question. In relation to projects outside Jardim das Perdizes, many have 80% of the private area sold. Over 70% of the construction is executed. Have these projects brought profit to the company? These developments that are in this actually status, they of course were hit, as the whole market was, by the construction costs before the pandemic and during the COVID-19 pandemic. Right now, we are within the budget and below budget with our new projects by the end of the year. Well, we looked at the impact and the higher cost in these projects. These projects had their margins very affected. The reasons were not a privilege of ours. The last question by Mr. Glênio Soares, "Considering the full construction and sale cycle of a project or development, can you explain in what phase of the project, in phase it's successful, you begin to, of course, compute profits?" I will begin to answer, and Anderson Hiraoka, feel free to add any time. As you all know, this is something I repeat again and again. You make a car, you sell it, and you can recognize the results, the profits immediately. In our case, we only compute the results as our project begins to be used. We have a calculated profit. It's a ref of future, a forward result. In the case of Cerejeiras, we are going to launch next year. Once we launch this product, presuming we sell 50% of the units, this 50% will, of course, generate profit for the company. I cannot recognize this profit immediately, but yes, it will generate results, forward results for the next quarter. This year, everything is linked to CEPAC. We were tied to CEPAC. Without CEPAC, we would be able to acquire CEPAC early last year. We only acquired CEPAC late last year, December. It was a problem. This year things have changed, and next year we will certainly begin to recognize these profits because the construction works will have progressed. I would also add that the recognition of this profit will happen as the construction works are carried out. In the case of Jardim das Perdizes, once the construction begins and are underway, we will see the results as the construction evolves over the next quarters. One question from Claudio Souza. "When the launches of brand in Casa were informed to Well, you informed us they would be launched in the first half 2024. Could you please give us an update with this regard? What is the PSV for Tecnisa for 2024 and the following years, upcoming years? Thank you." Thank you, Claudio. Yes, everything is aligned with the business plan. We have been progressing carefully. The first launch will happen, yes, in mid-June, is a partnership with Plano&Plano. This year, we should also have two more launches through this partnership. So yes, we will have this PSV generation. As you well know, the first two years will have a cash disposition that is higher than our returns. As of the beginning of the first year, Piscasa will contribute to our results. Last question from Mr. Rafael Zinet. "Have you obtained funding from banks for the high standard projects such as Kalea?" Rafael, in this case, in Kalea, it was not needed. It is a high-end project and sales happened very rapidly. Payments came in rapidly. There was no such need. Now, it is a fact, and I want to believe that all of you are aware of it, that funding. Actually, the funding process has changed drastically. Financial institutions are more rigorous now. We had talked to Banco do Brasil, Santander, and Bradesco banks, Banco ABC Brasil. Right now, I am convinced, I firmly believe that next week one of these banks will approve the business plans that we have submitted to kickstart the construction. There are no further questions. We would like to thank all of you for joining us today. We will turn it back to Mr. Fernando Peres for closing remarks. Well, this quarter, we still are facing difficulties, but as Anderson mentioned, we have been working on bringing down the negative results from the fourth quarter last year to the first quarter this year, and we are very certain of what we are doing. We have a positive outlook. We firmly believe that the acquisition of CEPAC was a good deal. But as you all know, yes, we spent high volumes, high amounts of money, which impact our debts and our costs. However, it is a matter of time and things will go well. Things will be under control. I am convinced that we will be sharing more positive results quarter over quarter going forward. There is no reason for any type of concern, and rest assured that we are doing the right thing and we are doing a good job.