Earnings Call: Q4 2023

Mar 28, 2024

Summary

2023 gross sales reached R$664 million and revenue backlog rose to R$167 million, while the year ended with a R$56 million accounting loss. Acquired CEPACs enable R$5.3 billion of Jardim das Perdizes launches planned for 2024–2026.

Good morning everyone, and welcome to Tecnisa's fourth quarter of 2023 earnings conference call. Today with us, we have Mr. Fernando Peres, 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 chat box. Now, I'd like to turn the floor over to Mr. Fernando Peres, who will start the presentation. Mr. Peres, 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. 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, R$820 million, and the Tecnisa part, R$130 million. 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% for 2023. Another important point is control of administrative expenses. We reduced R$6 million, even in spite of inflation. We cost R$6 million less than in 2022. Another important issue that should be pointed out, we have reached R$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. We have R$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. It's another 46%. We are also constantly seeking for innovation. We've been awarded, we've launched our AI, which is called ISA. This is the first artificial intelligence system on the real estate market. ISA is really impressive. It's been a huge success with our clients. Clients request, for example, floor plans, and the AI sends them, and of course, it gets better day by day. It's been a huge success. Another highlight, we started delivering waves of works in 2020 and 2021. In the fourth quarter, we delivered Auguri Mooca with a PSV of R$125 million. Now our results in 2023. We had accounting loss of R$56 million in this period. That's substantial, of course, but as we have a very long cycle and we have a good projection with CEPACs, it was expected to take place in April, but it only took place in December 12th. We were late and this was the consequence. Belaterra was just launched at the end of the year. I'll be explaining this later on. As a result of this and some operating expenses led to this result of or loss of R$56 million. As I said before, our net income was R$56 million, but negative, less R$56 million. That was a loss. We had also backlog revenues of R$167 million in 2023. It was an increase of 120% greater because we generated R$91 million. If we had recognized these R$91 million before, we would have about R$30 million-R$35 million. I'd now like to highlight the importance of Jardim das Perdizes, a wonderful project, and what it means to us. In these R$167 million backlog revenues, R$75 million are from Jardim das Perdizes. This margin, I'll talk about the future later, but this is about the past. The margin increased from 34% to 45%, and it will be even greater with the next launches. So R$75 million of these R$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. Zelli. This was a very interesting development, and it was really helpful. We improved our cash with R$130 million, as I mentioned. This operation was conducted. I'd also like to inform you, and this is no secret, that we were trying to sell a stake in Jardim das Perdizes, but any international investors or traditional investors, they liked this project, but they were always concerned. How much more will the auction take? Things wouldn't really work. After the auction, things have changed. Now we get a lot of interested people. Funds from Dubai, Abu Dhabi, Singapore and even in Brazil. They're interested in purchasing this. We came to the conclusion that this first investment should be made by the Nigri family. Now we can study other proposals. 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. After a long time, we are now releasing our guidance for the next three years. 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 a CEPAC now for all the plots, and we have projects, we have a good demand level. We are now offering a guidance of R$5.3 billion. Another amazing fact is that the margin for the next development projects, they have reached up to 50%. 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. 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 R$5.3 billion, Tecnisa's stake is about R$3 billion. As you can see on the right-hand side, each year in 2024, we're expected to launch about R$1.7 billion, in 2025, R$1.5 billion, and in 2026, R$2.1 billion. This is the guidance we have to offer. This is our best perspective. 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. Until yesterday it's been a huge success. We've already sold 40% of our first tower. This is a very traditional neighborhood, widely known, so there's a high demand level. People want to live here. The total PSV is R$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 Serrapilheira. The apartments have 222 square meters and 293 square meters in addition to penthouses. This is really close to Palmeiras and São Paulo Football Club training centers. Many footballers and coaches and managers, some of them already live here in this region, and they are now looking for us to purchase these new apartments. Additional information, the total PSV, R$430 million, and it has 96 units from 222 to 293 square meters, and four 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 façade. It is really great. The total PSV is almost R$600 million, 210 units and six duplex apartments from 304 to 365 square meters. An amazing façade. We will have a leisure area that is amazing. Again, 5,000 square meters in a single tower. There was a project with two towers, but we chose to build a single tower to have a greater leisure area. It is like a club. We will have a tennis court, which is a sport that the people who live there really like. Now, our land bank is about R$4 billion, in the region of R$4 billion. That is Tecnisa's land bank. As you can see, most of the land bank is in the Jardim das Perdizes region in the west of São Paulo. That is R$3 billion and some other land in other areas of the city of São Paulo. This is about sales, private areas that have been sold. In 2023, we totaled R$664 million in gross sales. The nice thing about this is that this was really balanced. At the bottom chart, we see our development. Gray is 2022 sales and the red bar, the progress that was made in 2023. We sold R$664 million in gross sales in 2023. That is a very interesting result. As I highlighted before, this is about our ongoing concern with G&A expenses. Even with the inflation, we spent R$6 million less than in the previous year. That is a reduction of 14 p.p. relative to our net revenue. Now, I would like to provide a summary of what we can expect. We are 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 five projects, so generating cash in 2024. We will also reduce our debt ratios, returning to the low income segment, as I announced before, with our new brand, Tencasa. We are expected to launch some developments this semester, and we will be constantly seeking for innovation. Very good. I will now ask our CFO, Anderson, to provide our financial information, and I will be back to answer your questions. Thank you very much. Thank you, Fernando. Good morning, everyone. Let me start discussing our operating performance. Our sales performance, this was the best quarter. R$200 million in gross sales, R$70 million growth with regard to the third quarter of 2023 with a SoS that was good. That is when you compare this. Sorry. 548 million in sales as compared to what was sold last year. That means we launched R$208 million as compared to 2022. The inventory volume was smaller, but our SoS, as Fernando Peres said, there was an increase of 100% in the year, almost 42%. Net sales, very similar, almost R$96 million in Q4 compared to R$622 million. In other words, a 20% of SoS and 40% in SoS with R$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 is R$790 million, and we started with R$1 billion and R$100 million. We sold almost half, R$148 million, and R$23 million that were recorded. That is what we achieved. Geographical distribution, almost everything in São Paulo except for the hotel in the city of Curitiba, which is in our inventory. We are increasing the volume of dividends in the hotel. It is interesting to keep this on our inventory. We are 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 two projects this year in addition to the ones that were underway. We have the highest net revenue for the quarter. That was a 31% increase regarding to the third quarter. In the year to date, it was even greater, an increase of 84% as compared to 2022. Now, our adjusted gross income, that was R$82 million. What we should highlight here is that as we get closer to the delivery of our apartments, we have five projects to be completed in 2024. We realized that some of the budget costs that we projected in 2021 were higher than we had expected. There was a significant increase in costs. We are now close to 80% of the works or apartments completed. We estimated what was spent, what was saved, and so we needed to increase our budget values. We accounted for all these figures, and there was a reduction in the percentage of our completed project. The budget was R$26 million, and the reversal was R$19 million. We had a specific impact of a particular project with a problem with elevator, and the impact was R$8 million approximately. That is again adjusted. Mr. Anderson Hiraoka, let me explain about the elevators. We are bringing a lawsuit, and this expense will be recovered because this was not our own responsibility. Yes, that is right. Thank you. We can see that in the year to date value, we have R$69 million. That means an increase as compared to 2022, when we had a different gross profit number. This is a receivable schedule, and for 2024, we have a great number of receivables, and then we have over R$81 million. In other words, if everything added up R$361 million to be received as compared to the debt amortization schedule for 2024. That is a total of R$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 2026 and 2027, the new sales will help pay off this debt. Then we will have the launch of Jardim das Perdizes, and over time, after 2027 and 2028, after this project is delivered. We are expecting to have better results. 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, R$106 million in the fourth quarter of 2023. Then with the CEPACs, which were acquired, a lot of value was generated for Jardim das Perdizes, and we had this PSV for all these launches. We had, of course, the gross profit to be appropriated in the projects that were consolidated. This is R$76 million and the gross margin, 28%. We now show our net indebtedness and the percentage here. As we mentioned on the previous slide, it is now moved to 115%, and the net corporate indebtedness when you account for project debt, the payment is, of course, linked to the project performance. The final figure is 97% in our net corporate debt. Finally, our net asset value, NAV. We can see here that what is receivable and also inventory at market value, net of taxes, and the investment, and the Jardim das Perdizes investment. Then, of course, if you deduct the debt, the total net asset value is R$129 million. That is a very good perception about our project. Then our share price is R$11.26, which is good when we consider the other market values. In other words, we have a very good growth potential as we move on. This is the end of presentation. Thank you, Fernando. Thank you, Anderson. We will now start our Q&A session for investors and analysts. If you have any questions, please click on the raise hand button, and you can write your question in the chat pod. The first question, Mateus Meloni from Santander. Hello, everyone. Good morning. Here we have two 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 reversal, and if everything was reviewed or if there is other figures to be reviewed in the next quarters? Then the sale of your stake in Jardim das Perdizes, was that the ideal stake or can there be more sales to come? What is your rationale behind this operation? Good morning, Mateus. Thank you for your questions. As for cost, first, I would 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 is nothing else to happen. What happened, as you can see, during the pandemic, with increasing costs that were really a very significant increase. 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. We studied these costs, and as Anderson mentioned, we now have an average of 80% of our projects are completed. In other words, we need to readjust our budgets. The impact was about R$26 million. Cement, concrete, plaster, everything increased. The cost of all these materials increased. The good part about this is that there is nothing else to be adjusted. No more surprises. We have already adjusted all the budgets. All the work started in 2022 and 2023. These projects, these works, as you can see, we have been following that really in detail, discussing with our management and our board of directors. The current projects are totally on budget. As for Jardim das Perdizes, this operation can be analyzed from different perspectives, and I would like to stress the following perspective. This is a living proof that this project, Jardim das Perdizes, is a winning project. You know that the Nigri family invested a lot of money. They already invest as individuals. 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 would not be making further investment. It is 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. We are getting a lot of offers, but we will now analyze all these offers carefully. If we get any offers that all shareholders are interested in, we can talk about these offers, of course. Thank you. It was really clear. Thank you. Thank you, Mateus. 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 have 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 would like to tell you about this, share it with you. You know when people fall into a river or the sea and start swimming upwards, and then when they are at the bottom, they do not 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 have really won all the problems with CEPAC. We have overcome all these obstacles. 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. 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. 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.