Good morning, and welcome to Tenda's earnings release call for the fourth quarter of 2019. In today's conference call, we have Rodrigo Osmo, CEO, and Renan Sanches, CFO and Investor Relations Officer. We would like to inform you that this presentation is being recorded and that all participants will be placed in a listen-only mode during the presentation. Afterwards, we will hold a question-and-answer session. If you require assistance, please press star zero. Before beginning, we would like to inform you that this conference call will address Tenda's financial results for the fourth quarter in 2019, and based on information currently available. Management statements involve risks, uncertainty, and may make reference to future events. Any changes in macroeconomic policy or legislation and other operating results may affect the company's performance. Please, Mr. Sanches, you can proceed.
Good morning, everyone, and thank you for participating in Tenda's earnings release conference call. We are going to start with some considerations for 2019, then we will open for our Q&A session. In 2019, we had increasing revenues, even in a challenging year. First of all, we had the largest credit reductions of the companies offering with Minha Casa, Minha Vida. Then we had a contingency of resources from the union compared to previous years. Finally, the restart of civil construction, with a lot of construction throughout the year. Even so, Tenda continued growing. We launched almost 18,000 units, which made us reach 31.6% year-over-year, reaching 20% of VSO. We delivered the results anticipated in the guidance with digital transformation. Net revenue of BRL 2.04 billion in 2019 were combined to three other initiatives for potential clients, current clients, and sellers.
These initiatives helped us accelerate our sales in the second half of the year, in a year where we were impacted by so many other aspects. The adjusted margin had a benefit of high performance and charges, an activity that was reformulated at Tenda, going through the reformulation of more robust systems, and also with the support of our partners. Among other measures, with that, we had a revenue of BRL 273 million, with an increase of 31.6% year-over-year. We closed the year with a 26% return of the net revenue and 28.3% over the invested capital. We also saw our shares grow 36.6% at BRL 0.1 per share. Despite the transfers at the end of September, we had an increase of BRL 16 million in our cash flow, which allowed us to close the year with BRL 7.2 million of the net cash.
We reiterate our option for a conservative management approach. This was validated by the recurrence of events that have an impact on our cash generation, such as Minha Casa, Minha Vida. In addition to that, our net cash flow has three specific impacts for the year using our current model. We made a business model based on off-site construction, releasing civil construction in the country, and also faced digital transformation. That way, we will keep our commitment with financial responsibility, restating our focus on the popular sector, which still lacks offer in the country. With that, I close my comments and am available for our Q&A session.
We are now going to start our Q&A session. In case you have any questions, please press star one. To cancel any questions, please press star two. Our first question is from Ms. Nicole Inui .
Well, I wanted to hear from you how you see the impact of the coronavirus. Are you considering stopping construction? How is that going to impact you? How will you be able to move on from now on with all the stores closed? Also in terms of liquidity to face the crisis we're going to face from now on.
Hi, Nicole. How are you doing? Nicole, the first part of your question was cut. We only heard after what you said about the coronavirus. So what did you say before so that I can answer your full question?
Well, actually, the question was about the coronavirus. I do not have any questions about the third or the last quarter of last year. I wanted to know what's going to happen from now on. What are you going to do to face this crisis? Do you anticipate closing, and what will the impact be to you? Also how that will impact your sales, because you have some stores, and I know that stores will be shut down in many cities.
Well, I'm going to give you an overall context of what's going on regarding the coronavirus. Every day we have new things showing up. Rodrigo will clarify from a strategic point of view, how we are preparing to face this. Especially throughout this week, we have witnessed an important escalation of the coronavirus in São Paulo. Stores other than drugstores and grocery stores have to close. Some states and cities have already asked for collective or public transportation to be discontinued, and therefore, I think that some of the construction will have to stop.
In some areas, we can take our employees to work by Uber, but we may be demanded to stop construction. Also, in the last two or three days, we received the news of the discontinuation of new licenses for construction in the municipality of São Paulo. That is all very recent, and I think that it starts showing us what may be in the future for us and what the impact will be, because you won't be able to launch.
If you do not construct, then we will have a significant impact in the short-term results. But it all depends on how the coronavirus situation is going to escalate and how the authorities are going to act in this regard. Today, we have isolated events such as stores closing in some locations, discontinuation of licenses in the city of São Paulo, more especially, but for the time being, only there. Also in terms of public transportation, but that is only in a few places. Because every day we receive new information, and the perception we have here in-house is that we will have more and more relevant news, and Rodrigo will tell you how we're preparing to face that.
Oh, hello, Nicole. What we're doing here at Tenda is that the impact of the coronavirus will be relevant for four to six months. In this context, and because of all of the practical issues related to it, for example, Renan has already mentioned several of them, the focus of the company right now for this year is not in terms of operation or financial results. The focus of the company is cash. Because we understand that with a good cash management, we will be able to avoid having losses beyond what is necessary.
Of course, there's no way that anybody can go through this crisis without affecting finances. But we may also have some opportunities to generate value for the company. Luckily enough, and because of the merit of the work we've been doing so far, we will go into this crisis with a very strong balance. We have a very robust cash position. We have a very low decommissioning, and this is a very important situation for us to face the times we have ahead of us. We work in a segment which is very scattered, with small companies. Companies cannot support themselves the way they are, and so it's likely that we will suffer and a lot of small companies will go bankrupt in the meantime. But we have some economic aspects in terms of employment and work generation.
This sector will have to be seen, as always, very carefully by the government. Our focus today is for us to overcome this period with the least side effects possible. It would be almost irresponsible to make any predictions. Also, it would be very irresponsible if we wanted to invest. The company has established a crisis committee, which I lead, and we get together twice a day, every day, so that we can initially address our scenarios, and this week has been critical to minimize suffering and the level of exposure of those here at Tenda to minimize the impact on our clients. From now on, we have to think about a more structured way to guarantee the company's financial conditions. We're at a good position. We also have to consider value generation.
It's very clear. I thank you very much. Could you talk a little bit more about what you expect in terms of support from the government?
For the low-income market, Minha Casa, Minha Vida program. In your vision, how can the government support this industry in these difficult times? Well, we have three aspects. One of them is the program, and it's important to create special conditions for the program which would allow people to buy real estate right now. In this lower income market, people buy in face of their current status, not in face of their future abilities. Right now, this will deteriorate very quickly, and there will be much less potential clients during this period. But this is a possibility, but it's the least relevant.
For me, the most relevant in terms of the type of help the government can give regarding employment, well, this is a sector which traditionally when construction starts, employees are hired. When construction stops, they are fired. If in fact we get to a point where we will no longer operate, unemployment, if nothing is done, will be huge in this sector. Therefore, it is important for the government, and I think that they are worried about this. They will have to provide a solution, a significant solution, in my opinion. Otherwise, there will be a social drama.
Credit is also important. Most companies will not be able to survive without cash, and we have almost BRL 1 billion and BRL 100 million in our cash. Now, this is absolutely atypical. Usually, companies have a very small cash. I'm not talking about open capital company. But even those can benefit from a credit line. But smaller companies without a specific credit line will have huge complications. Therefore, I think that we have the program, employment, and credit as important factors.
Well, thank you. That's excellent. I thank you very much.
Our next question is from Victor, from Bradesco BBI.
Good morning, everyone. The first question I have regarding the coronavirus, I'd like to know how the off-site is going to be dealt with. You already mentioned it, but are you going to hold it, or how do you see that? The other question is regarding innovations that you talked about. Could you tell us a little bit more about what was done for sellers, and provide us some indicators on how that improved sales and some of your other initiatives? Thank you very much.
Victor, this is Rodrigo again. Regarding off-site, when we think of the company for 2020, this was a year that we wanted to push our cash and long-term initiatives. We will have an important reduction in our operational volume. In the company, we wanted to be dedicated to strengthen the company. Off-site fits in perfectly within this logic. It's not an initiative that would have operational relevance in 2020. We were already going to operate with a pilot project, and therefore, it would not generate a loss of focus. But we now see it with a lot of interest, but as everything else throughout the year, it will be affected. It will be more difficult for us to approve projects for our pilots. Eventually, the construction sites may stop or not. And that may make it more difficult for our pilots.
But we keep 100% of our previous emphasis, keeping in mind that actually this may improve our abilities in the future. Regarding digital transformation, today, this is a topic that has become very relevant in different companies. And here we're learning, and I would say that we have learned very well how to have a flexible management model. It has become a reality in the company. Two years ago, we had two, now we have 10, and others being developed to start new initiatives in the future. We know that the speed we have gained is very relevant. I will give you an example since you talked about sales. A very relevant case we had last year was to increase our penetration in sales company. Our main sales channel are our own stores.
We had a penetration which was comparatively small, but we understood that in a lot of locations where we were located, Tenda had products offered for final clients, but we did not have a very good penetration. The result last year was the overall sales of the company increased to 10% from 2018 to 2019, and we had a 50% increase in sales and continued growing, and that shows the potential these initiatives of digital transformation may have in the company.
Okay, thank you very much.
Our next question is from Alex Ferraz from Itaú BBA.
Good morning, Renan, Rodrigo. Thank you for your presentation. Of course, we cannot avoid speaking about the coronavirus. You mentioned some opportunities because of the difficulties some competitors, especially the smaller ones, may eventually have, and they may have to stop construction. But thinking about your production chain, what risks do you foresee in terms of supply and construction? I know that the construction is verticalized, but eventually, if there is a risk of any relevant supply or lack of supply in your chain. This question is because we saw the government announce some measures with PIS/PASEP and others. But the impression we have is that they chose not to talk too much about it, and maybe the problem is not exactly there, and they didn't approach the core of the issue. So how could we prioritize t his program?
Alex, regarding your first question, we have an important advantage here. Basically, large of our construction is verticalized in the company, and therefore our risk of supply problems is almost zero at the tower. We have infrastructure contractors, but the advantage is that if we lack equipment, that's not a problem, and perhaps the price of equipment will go down, and that will be an opportunity even. Having said that, we cannot anticipate what a shutdown, a prolonged shutdown on Earth will come have to use good strategies for the day-to-day of the company.
And that's why our emphasis for this year is to focus on cash and keep a comfortable liquidity position. Regarding FGTS, in fact, the first thing was positive, and of course, it is an obvious solution right now. It could provide resources by means of using the money or Minha Casa, Minha Vida, and the option of the government was Minha Casa, Minha Vida. However, having said that, once again, the context is very volatile. It's very hard for us to anticipate.
We have to go beyond this and determine what the behavior of the society is going to be in the next four or six months. On the other hand, because the sector will have a significant decrease, the resources dedicated right now for FGTS won't be used and on the other hand, fast loans whose credit risk belongs to Caixa will increase the liquidity of FGTS. And so we have to monitor this carefully on a month-by-month basis. There are positive signs in a volatile scenario. We have to monitor it, but we do have a possibility for Minha Casa, Minha Vida to remain feasible for a while.
Oh, that's very clear. Thank you very much.
Our next question is from Luis Stacchini from Credit Suisse. from Credit Suisse.
Good morning, everyone. Thank you for your explanations. Luis, I have two questions, and perhaps I wanted to explore some details about the impact of the coronavirus. The first thing I wanted to understand is that if, in fact, you operate in a more virtualized manner in a scenario where we may have to stop construction. I wanted to understand from you, what are the indirect production costs that you may have? We know that there is overhead and other aspects.
I'm not very familiar with everything, but I wanted to understand what eventually would be the fixed cost of the company in this scenario with a little activity or no activity. And then the second aspect perhaps would be to explore the setup. I know that in the fourth quarter you were able to decrease. I know that there's some volatility related to FGTS, but I want to understand from you how Caixa is analyzing it, or whether they will make it more flexible to allow this backlog to be executed. Thank you very much.
Luis, thank you very much for your questions. Regarding our construction, in fact, we have significant verticalization of our construction processes, as Rodrigo has already mentioned. In practice, the model that we use allows us to have a direct personnel cost, which is higher. We have 55% of our construction costs related to materials, and 45% is related to our personnel. If the volume we have of people and expenses, we will at least have this fixed cost for a while, and it's relevant cost. Of course, we have all of the other fixed costs of the company, which are only natural.
In terms of transfers, in the fourth quarter, in our opinion, we regained or restarted transfers, but we did not conclude the backlog. For the fourth quarter, we were very close, but we were not able to use all of our transfers. Also, something we made very clear in our release, it was an increase in the provision of the sales. I sold four months ago, and I haven't transferred yet. We still have a relevant backlog to clean up in the first quarter. Now by analyzing what happened in the first quarter, in January and February, we basically didn't have any transfers because some of the characteristics of the beginning of the year, and this improved in March, but it is not enough. We haven't had enough time to turn around the backlog we had in the past.
What do we see from now on? First of all, the first quarter will have an impact of all of the sales that were performed in the third and fourth quarter last year. We have a long time, and we will still have some backlog for the second quarter, and it will probably be very representative. We had some improvement in the first quarter, but this will not, by any means, conclude our backlog. We are discussing with Caixa some operational measures to help us during this moment of crisis, but we still do not have any decisions.
Caixa, in different moments of difficulty, has always made some things more flexible, such as the time, the expiration time of a credit. We are starting discussion with Caixa by means of ABRAINC, but we still do not have any decisions yet. Now the situation is more serious, and we have to see what they are going to do, but we are already discussing that. We talked about the personnel, and we talked about material costs and your costs with your payroll. I want to talk a little bit about all of the specificities. You also have the plots.
Could you give us an idea of the payroll, just for us to understand what the impact would be?
In money, it's difficult to calculate that, Luis. The total discontinuation of construction is one thing. There would be no production. If we can continue with our construction, that's something else, and therefore unproductive labor would have a different impact. Now, because the scenario is too volatile and we don't know what's going to happen in terms of stopping construction or not, I would rather not risk saying what the amounts would be in terms of fixed costs for the construction.
Okay, no problem. Thank you very much, Renan.
Our next question is from André Mazini, Citibank.
Thank you, Renan. My question is regarding digital transformation for buyers. We see it in other segments, not only in Minha Casa, Minha Vida. We have units for investors with a large penetration of sales made over the internet. Of course, it's different. Investors look at it with different eyes to the units, but there is a significant percentage of this. Minha Casa, Minha Vida, of course, we have sales and transfers. But is it feasible? Have you had any of such sales? What about the digital transformation that you now have in this new context? Could you increase your segment in the internet? Thank you.
Hi, André. This is Rodrigo. It is feasible. Coincidentally enough, two weeks ago, we had our first online sale, where people would send pictures of specific documents. We would run their credit with Caixa and started the sales project that way. Based on this experience, we obtained almost 500 CK2s approved according to the Caixa system. In São Paulo alone, with marketing investments, we invested BRL 60,000 and obtained 500 CK2. Of course, the whole process cannot be digital. Documentation still has to be delivered at the bank.
But the core of the operation can be digital, and we're very likely to have an increase in the experience and understanding of company, which is very significant right now. For example, in São Paulo, as of today, the stores can no longer open. So we will have to work online. Whenever we talk about being stronger when this is over, we have to use the crisis to strengthen ourselves. Strengthening the company performance online is one of the options.
Okay. Thank you very much.
Our next question is from Mr. Ygor Altero from Santander.
Good morning, everyone. Thank you for the presentation, and I congratulate you for your results. I wanted to see if you could tell us how the last week was in terms of sales for you, to give us an idea of sales and whether you can see any differences according to the different regions and if there is a stronger de-acceleration in São Paulo or not.
Hi, Ygor. Thank you for your question. Regarding sales, we have not observed any difference in our performance. But on the other hand, visits have gone down, and it went down in Rio. Rio was the first state to close the shopping malls, and we had some stores in shopping malls in Rio, and therefore, we can see a significant decrease in Rio.
Now that the stores are going to close in São Paulo, it would be reasonable to say that there will be a significant impact as well, and that will have an impact on our sales, and therefore, we know that there will be a significant decrease in our sales volume, even though on March 20, we cannot say that there is already an impact. We're not talking about 10%-20%, but we have 60%-80%. We don't know what it's going to be actually. For example, in São Paulo, there's no visits anymore. You cannot go to a store, you cannot go anywhere, and it will be very transformational, of course.
Well, thank you very much.
Our next question is from Marcelo Motta from JP Morgan.
Good morning, everyone. I have two questions. Going back to the cash of the company, do you consider stopping construction before you are forbidden to do so? Or will you stop construction as a preventive measure before the state government determines that? Also, you said that sales last week de-accelerated. What about Caixa? You have a backlog of transfers to be made. Do you think that Caixa will be on the way as well?
Motta, according to our logic, stopping construction won't preserve cash. It will use cash because we run our constructions, and therefore, the construction generates cash for the company. What may happen is that if we have a very large gap with our launches, we cannot continue construction like that because we may reach a point where we will have no more construction to run because we won't have anything. Initially, the guidelines for construction is to continue running those that are allowed.
Of course, there may be cases where we cannot continue construction because the government determines that or because of a lack of new investments. Regarding launches, we will be responsible. We will only launch anything if we understand that there is a perspective to sell with a minimum speed. We are lucky because our model allows us to construct in 11 months and usually the contracts with the clients are for 36 months.
So even if we have a slowdown in the construction, we would be able to launch and start construction later on without any major problems. But we have to evaluate everything. Possibly the most significant impact will be for public notaries and other areas that will change their activities. Regarding Caixa, things will change quickly, I believe. Yesterday, Caixa has a guideline that 50% of the employees would work from home. There is a center that processes all of the documentation for transfers, and today they cannot work remotely, but Caixa is organizing itself so that it goes on.
But I think it's very unlikely for Caixa to be bottleneck because they understand perfectly what their responsibility would be right now. Caixa is a bank that will make the lives of people easier in a moment of crisis. I don't think that they will spare any efforts to do so even though they may have some short-term loss right now. They want to help us and I think that Caixa is going to be a wonderful partner in this process.
Thank you very much.
We now close our Q&A session. I'd like to turn over to Renan Sanches for his final considerations.
Well, just for us to separate 2019 and 2020. 2019 was a year of a lot of challenges, and then in the end, we had a good year. Strategically speaking for Tenda, it was a very relevant year. We started investing on digital transformation. Rodrigo gave you the example of the sales that were made by our digital platform. We also had an improvement in the collection area of the company, which led to gains throughout the year and allowed us to be in the core of our guidance in terms of gross margins.
Regarding off-site, we announced the plan we have for off-site and how we can integrate that into strategic plan. We were able to overcome a series of operational difficulties which were very relevant last year. We had the Caixa sales and we overcame a lot of the challenges and that is why I would like to thank Tenda's collaborators who helped us a lot in 2019. This is part of our culture and it was demonstrated once again in 2019.
Now, analyzing 2020, we understand that we start 2020 in a scenario of crisis and uncertainties regarding the coronavirus. The most interesting strategies we may have, and we have a very high level of cash, but we must have a comfortable situation, and we must have low short-term debt, which is something that we pay attention to. We have a BRL 200 million net debt, a gross cash of BRL 400 million, and that puts us in a good position. This is it. I wish you all a great 2020 as possible and have a wonderful afternoon.
Tenda's teleconference is now closed. Have a good day.