Earnings Call: Q1 2023

May 12, 2023

Summary

Q1 revenue reached BRL 140 million and net income was BRL 4 million, extending profitability to a third consecutive quarter. Adjusted gross margin reached 30%, while launches and further value realization depend on CEPAC timing and economic conditions.

Good afternoon, everyone. Welcome to Tecnisa's first quarter of 2023 earnings conference call. Today with us, we have Mr. Fernando Tadeu Perez, Chief Executive Officer, and Mr. Flávio Vidigal de Capua, CFO and Investor Relations Officer of the company. I'm Anderson Hiraoka, Investor Relations Manager. We inform you that the recording of the event will be available on the company's IR website. As usual, we'll start with a presentation by the executives, and then we'll move on to the Q&A session. If you do need support, please send a message via chat box. Now I'd like to turn the floor over to Mr. Fernando Perez, who will start the presentation. Please, Mr. Perez, you may proceed. Good afternoon, everyone. It's a great joy to be here with all of you once again, one more quarter, and to be able to share interesting information. Let's get started. We have the agenda for today. I'll talk about the strategy, then my colleague will talk about the operating performance, the financial and economic performance, and the financial position. Then Flávio and I will be open to answer your questions as they come. Okay. I'd like to start by talking about our strategic drivers. We split here into four points. The first one, we have a solid land bank to guide the business plan in the next years. I will get into the details. Two, focus on commercial marketing strategy, control of administrative expenses with focus on efficiency and profitability of the operation, and value creation for our shareholders. Okay. We can see that we have BRL 4.3 billion potential sales value, which makes us feel very comfortable. As the graph well shows you, this is how it's split. We have nearly BRL 3 billion in the West Zone at the Jardim das Perdizes. We have BRL 1 billion in the South area, and we have BRL 277,000 in the Eastern area, and we have some land in Ceará that adds up to BRL 67 million. Jardim das Perdizes, which is definitely the jewel of our crown here, which shows that we're taking steps forward, and we will have the next months with also many more projects to come. Jardim das Perdizes is really one that has consolidated as the pillar of the company. We have nearly BRL 3 billion when we talk about potential here, JV, and we have 49.2% of gross margin reported. We've been able to get interesting prices for Bosque Pitangueiras. We sold up to BRL 16,000 for the square meters, and we've already sold 83%. For Reserva Figueiras, we're nearly reaching BRL 18,000 square meters, and 35% has been sold. Very well. I'd like to share with all of you the following. All this strategic structuring that we've had in marketing and the commercial area has brought great results. BRL 153 million in gross sales for the first quarter of 2023. The graph can well show you that the lighter colors per development here compares the first quarter of 2022 with the first quarter of 2023. You can well see there was quite an increase in gross sales over the year for this first quarter, I mean. Talking a bit about G&A expenses. We are still working hard when it comes to our expenses. We need to be very lean, and the graph shows really well. As I compare the G&A expenses with net revenues, in 2021, we reached 46%. 2022, we reduced to 28%, and now if I can consider the first quarter, we are at 20%. When we compare the first quarter of 2022 with first quarter of 2023, we have a significant drop of 19%, from 28% to 9%. Right here, another point that is interesting, our adjusted gross profit, where we had a profit, adjusted gross margin, where we can see BRL 41 million, and we can see that the gross margin has increased greatly, and we have reached 30%. When we consider the adjusted gross margin of the fourth quarter to now, we are talking about 11% increment, which is quite significant. When it comes to net revenue or net income, we can see that there is some comfort into our future here. Today, I am very happy to say that our consecutive third quarter shows profit. We have had loss in the past, but since all the measures were taken, we now are reporting the third consecutive quarter at a profit, and definitely that will be the pace from now on. Another very important point that I should highlight is that we went through the accounting recognition of Reserva Figueiras here in Jardim das Perdizes and Kalea Jardins, which is a very differentiated development in Jardins, and that made us create 30% of value to our shareholders. When we consider the NAV, net asset value, in the fourth quarter, it was BRL 917. Now for the first quarter of 2023, it is nearly BRL 1,200, BRL 1,193. That means there is an increment of 30%, and in terms of absolute numbers, it is BRL 203 million. That means we are adding to the company's value to our shareholders, BRL 203 million. To complete my first part of the presentation, and not at all less important, but we must say that we are very proud, and personally, I am very proud to say that Tecnisa was for the first time recognized and certified by Great Place to Work for a healthy and collaborative work environment, considered one of the best companies to work at. It is a turnaround process that we went through when usually you have a worse environment because you need to take measures that necessarily are not one that pleases many. After taking all the measures necessary, one was having to redo some type of workers and having to rethink home office. We are still focusing on people. We need the team, and we worked on respective people, their engagement, and this brought the certificates at a very high level. That question at the end of the research study says if the person would recommend Tecnisa to have a place to work at. We reached 92%, which is definitely a significant figure. Well, that was my first part. Now I shall pass the floor to Flávio, our CFO, to detail the next part financially. Thank you, Fernando. Congratulations for your presentation. Now carrying on for the operating performance. Right here, we see the percentage of Tecnisa. Here, the gross contracted sales. We can see an increase of 11%, where we see also a net contracted sales, where we see that most of our sales have been of those projects that are undergoing. For the next slide, we can see that our inventory shows in terms of the completed ones. That is why it shows where the sales at. Our inventory completed the fourth quarter of 2022 at BRL 1.1 billion. We did not have new launches because of the sales, and we completed at BRL 1 billion at inventory, where only 6% are completed units. Just to remind you, most of the completed units are hotel units that we have in Curitiba at a hotel. When it comes to distribution by status, by stage, today, most of our projects are under construction and some that is to be initiated. Once they do, our results will show an improvement because of the developments of the project. Now for the next slide, the financial economic performance. Fernando explained in his presentation where our net revenue reached for the first quarter, BRL 140 million, nearly twice as much of what we had in the previous quarter, and three times what we had at the first quarter of 2022. Definitely a significant number. To remind you all that the revenues of Jardim das Perdizes is not included here because all of the projects there are not consolidated by equivalence of the asset. It's important. In the release, we made that clear of what Jardim das Perdizes means figure-wise. General administrative expenses, you can see if comparing the first quarter of 2022 to 2023, stable. In adjusted gross margin, we have a significant increase where we have a 30% adjustment because of the project that we've been talking about that had a very differentiated with the Kalea Jardins. The net income reached BRL 4 million in the quarter, showing 3% of here net income. Financially, we feel very comfortable. We've been very stable at work with here a figure of 626. We can see that this has been sustainable, and this also shows an increase of 293,359 for total receivables. One important point, so you can pay attention to actually two. One, that we have a high number of receivables to be expiring by 2025, 2026, where we have a total here of BRL 287 million for 2023, 2024 also. We have BRL 190 million that are not consolidated at our point here, where we're talking about the project that we have in Visconde de Guaratiba. When we match with the next slide, with the receivables, we have a also schedule of that, which is very interesting. For the total indebtedness, we have dropped from BRL 166 million to BRL 188 million, and for the production has been increasing because of the under construction developments. What we've said, the trend of reducing corporate debts and increasing construction debt. For 2023, we don't have much expiring, BRL 40 million. We have a robust cash position of BRL 195 million, nearly four times what is to be expiring in 2023. We see a 12-month horizon. We see what we will have in 12 months. The net indebtedness is at BRL 450 million, which is, I would say, stable. In terms of net indebtedness on equity, we have reached 74%. When we look at corporate net indebtedness alone, which would be the corporate indebtedness less cash divided by equity, we reach 63%. When we add to the cash the performed receivables, we reached a healthy number, 57%. We had the maintenance of the ratings. Now, as Fernando already talked about net asset value, we reached of 11.9 per share, representing BRL 900 million, four or five times the market value of the company. And to remind you that most of our land is still at a low price as we launch Jardim das Perdizes. The trend is to have quarter-over-quarter adding value to our shareholders. I close my presentation, as Fernando said. I will open now to Q&A. We will now start the question and answer questions for investors and analysts. If you have any question, please click the raise hand button or type your question directly into the Q&A box. Our first question comes from Mr. Matheus Malone. Let me just open for him. So go ahead. Hello, everyone. Thank you very much. I think I have three questions. First, I want to understand a bit more of what you expect in terms of margin recovery for 2023. The second, I want to understand a bit what do you expect of Jardim das Perdizes development to be more significant. I also would want to understand when it comes to CEPAC auction, when you are expecting that to come through, and if it's already undergoing so that you can actually get the auction up. And also pricing. That's what I had. Okay. Matheus, thank you for your question. Well, for margin, we have been working hard, so margin can be the best possible. We reached 30%, and we shall remain at that level. I should highlight that Jardim das Perdizes, which is a land that we bought some time ago, I usually say is the good side of the bad part. The bad part is that we had to stop other launches over time. But now with all this land, we have here a high value or high margins for Jardim das Perdizes. So we believe it will remain at that level. And here, Jardim das Perdizes are even over 40%. For the second question, I'm not sure if I understood right, the importance of Jardim das Perdizes for us. Is that right? Would you like to answer? Yes. In terms of equivalence, Matheus, it should start to be more significant to us as we already launched them. There is a low historical price of the land. For the second quarter, we will start the construction for both Figueiras and Pitangueiras. So the likelihood of increasing the result of Jardim das Perdizes and also equity there. After the auction, which was a third question of the price and the dynamics, we will, with CEPAC, launch new projects that will contribute to our results. That will be the whole dynamic. So whatever has been launched, we will carry on with it. We should remind you that we have a revenue of BRL 52 million of that which has already been sold or been launched. So I will pass back to Fernando to talk about auction. He's very involved. Well, definitely, it's something that is very important for us. Every other day, we're checking and talking to the authorities, and this auction shall take place in June or July. We definitely are working to be in June, although it seems like it might be in July. We expect to have something under BRL 1,000. That's the expectation, and that's what we're working with. That is very clear. Thank you, everyone. Our next question comes from Q&A, is Gleniel Soares. The question is, the land figure increased by more than 320% in the quarter. With the accounting of revenues to be recognized, will this figure continue to impact the cost of property sold? Gleniel Soares can explain a bit more if necessary. This is among those that are sold units. Yes, because the project of Kalea, as we said, it's a higher cost of land of BRL 100 million. As we account for it will have a greater representation. It also has a higher representation because we recognize the higher amount of revenue in the units of the sold ones, which was half of the project itself. The second question is for me. Management fees had a significant reduction in the quarter of 78%. Will this figure remain at the current level in the coming quarters? I have a great concern with expenses, and I always say, and I said that before, we here, I mean, I work at a bank. We have a very clear criteria about that. As results are reached, a part of that is transformed into compensation for executives and our employees. I shall say that by the end of the year, as the new results and good results are reached, we will have an increase with a distribution with part of the gain with our people. Next question, also from Glen. Is it correct to say that Tecnisa has total revenue to be recognized in the quarter of around BRL 465 million, with gross profit of around BRL 109 million? I was even opening the release here to get some figures. On page 13 of our release, we have BRL 260 million, so BRL 465 million here, and when you go to the next page, it's BRL 205 million, so at 100%. We should multiply that by 57.5%. I believe it will pretty much reach what you have. For results is around BRL 70 million plus the BRL 51 million of the Tecnisa in Enchantes Pages. So we're talking about BRL 120 million. So it's a bit more than what you had there. Next question also from Gleniel Soares. On approved projects of BRL 1.1 billion, does the company intend to launch them this year? Gleniel, we can't just give space for anything, but we have many approved Enchantes Pages who are waiting for the auction. Obviously, with the launches, it depends on the economic scenario nationally and even internationally speaking. What's important is that what I can tell you, and I believe this is one that can make us feel very comfortable, there are many approved projects. As we have the convenience, the demand, and stabilization of the economic situation, we will decide how we'll carry on. Next question is: Is there any forecast for the company to distribute dividends to shareholders again? Yes, definitely. We're working hard to get there. We're here to add value to shareholders, and to reach that, we must go through some steps. The first one, to not have losses anymore, we went through. The second one, to have a solid result and sustainable one until we're able to reach the dividend distribution. That is our goal. Next question. Since the fair value of the share is around BRL 12, what has prevented the quotation from reaching these price levels? This is the BRL 1 million question we ask ourselves every single day. When you consider the company value, we have here three lands that is worth more than that. There is many variables that will take the markets to have the discount. Many discounts in the companies in our segment, and particularly Tecnisa. Flávio, would you like to add to that? I was smiling because that is a great question. That is the question we ask ourselves every single day, and there is much value to bring Granted to shareholders. The graph that Fernando showed already talks about that, and it shall be increased. We believe there is synergy, and this will be fixed by the market for the next period of time. That is the scenario we are working with. Definitely this is not a guidance, but it depends on the market. Next question is about the hotel in Curitiba. Is there any update on the sales process? Well, this is a story that has to explain that we want to sell the hotel in the past, because that was the whole idea, and it is still to be sold. We have many interested parties. With the completion of the pandemic, the occupation rate of hotels improved greatly, and this is an amazing hotel. I was at that hotel when I was in business in Curitiba. It is wonderful. Our occupation rate increased greatly. In that way, two things came about where we have more people interested in buying the hotel. Our director of new business, Renato, is already taking care of that. But on the other hand, with the occupation rate increase, the hotel starts bringing to us revenue. Now we will sell at a higher amount. Next question, does the company expect to carry out share splits into the future? No, we do not have. I do not think that is the case now. I want to thank you for your questions. They were great questions. Congratulations. Thank you, Glenyo. It was really great. Your set of questions were able to allow us to answer many of important questions here. The next one now, would a share buyback be a good idea while stocks are cheap? This is a question for Melchizedek. Well, for us now, we must say we have gone through that, and we have that as one way to go. But we need to also see. We see shareholders buying shares, but we have not taken a decision in buyback of stocks now. To add to what Fernando is saying, we are highly focused on our resource for Jardim das Perdizes CEPAC. That is why we have been focusing on that and for our capital structure. This is something that will create even more value with Jardim das Perdizes CEPAC, and then we will really be able to evaluate that. That is very true. Yes, this is important. With CEPAC, we are talking about BRL 250 million for CEPAC, and we are talking about that possibility. That is our focus now to preserve that. The first focus is that we already have an exposure of cash in buying CEPAC. Thank you, Flávio. Fernando, since there is no future question, I would like to pass the floor back to Fernando for closing remarks. I would like just to say that this, my fifth quarter with you, and right from the beginning, I said about my optimism and my certainty of the recovery of this big company because of its history legacy. I have the conviction that even with a very challenging scenario, there is no moment that we say is easy. It's all complex moment. But I have the conviction that we will carry on to be able to add more value to our shareholders. Thank you everyone for being here. Have a great afternoon. Thank you.