PDG Realty SA Empreendimentos e Participacoes

BOVESPA:PDGR3

Earnings Call Transcript

[Renato Barboza, executive]

Good morning, ladies and gentlemen. Thank you for waiting, and welcome to the First Quarter 2023 Conference PDG S.A. We have here Mr. Augusto Reis, who is the Chairman and Financial President and Investor Relations Manager. So during the presentation, we'll then be able to go through all the information. So we will also have a Q&A session, okay, at the end.

And before we start, I'd like to mention that all the declarations that might be done according to the PDG, according to the operational and financial goals are according to the assumptions and based on the available information. Considerations of the future are not about the performance itself, but we also have circumstances that might or might not occur. Investors and the market should understand that the general economical situations and the industry issues might affect the future of the PDG and conduct results that we do have.

So now I will hand over to Mr. Augusto, who will be able to introduce the conference.

[Augusto dos Reis Neto, executive]

Thank you, Renato. I hope you are well. And I would like to thank you for being here this morning. We will be able to provide you the first quarter result and numbers.

Before we move to our agenda, I would like to briefly introduce all of our main work focus of this first quarter. In the first quarter, we focused on the definition of our goals for the year and the process of the conclusion of the launching and also for the projections of the year itself. We have a special attention to the sales of the units considering our ix. Tatuape launching. And after the first quarter, we had 15 units sold.

Taking into consideration, we are in the final projection for the beginning of the work. And on April, we've started a term sheet with ORIZ in order to have the financing for the work. And bear in mind that the commitment that we have with our investors is to start the work up on October. And our next launching is for the second semester.

And we can anticipate that we do have the approval of our legal project. So now we have this, this is going to be a new product that we had planned and developed carefully with our internal team and our external partners as well.

As for the improvement of our customers and our [indiscernible] survey, the development of our project and our digital journey has kicked off, and we will also provide you information about. We have our SG agenda, and we also have a diversity and inclusion. So March, we started the -- we finished the R3 in which we didn't have a social capital changes. And as for the B3 below BRL 1, so we also have all the legislation undergoing. And according to the CVL and the best practices of finance, we hired [indiscernible] for the independent auditing. And they have started to provide financial analysis for this year.

Through the first quarter, we also initiated our credit conversion considering the creditors as it is foreseen in our judicial recovery plan. And all the creditors are informed of this topic. So we're starting the presentation itself, Slide #2, our agenda. And on Slide #4, we have the executive summary in which we had have the highlights and subsequent events. So I have mentioned about Tatuape financing the construction of ix. Tatuape. And we have 2 -- 8.2% in first quarter '23, sales over supply of launches. We also had a reduction of 36% quarter-on-quarter compare to the first quarter of 2022.

The cancellations reduction of 45% quarter-on-quarter, first quarter 2022. And we also have a 3% reduction of leverage. And as for the operating results, we have for the first quarter, the gross sales totaled BRL 19 million, a 14% decrease over first quarter '22 and the cancellations amounted to BRL 14.2 million. So we also reached 6%.

During the first quarter, cancellations amounted to BRL 14.2 million, 45% lower than the first quarter of 2022. And this is a very important leverage to increase sales given the units provided net sales was at BRL 4.8 million in the first quarter of '23. And as I have been mentioning, the first -- the key indicator is the net sales and gross sales. Also considering our -- everything that is not going to impact in our cash flow. We also had 48% reduction comparing with the first quarter of last year. So we also had a reduction of sales.

So it is also in line -- so on Slide #7, after the first quarter, our totaled BRL 1.3 billion amount -- or market value amounted to BRL 1.3 billion. And the total finished inventory, BRL 243.5 million, 34% is concentrated in Sao Paulo. And as for launching, it's 4% on the -- and the conclusion of first quarter and taking into consideration our prompt stock BRL 243.5 billion, 34% is concentrated in Sao Paulo, which is our key market and 49% refers to residential products.

Our general expenses, we are able to demonstrate that we had 38% increase quarter-on-quarter and that was mainly due to the higher provision for profit sharing. And this provision is conducted in the last quarter, of each exercise however, that has been conducted in the previous year. So then we had the first quarter conducted. So we have unknown recurrent impacting for the first quarter. So then you will be able to see the realization of that. We also have commercial expenses reduced by 36% quarter-on-quarter. So our general and administrative expense added to commercial expenses were all reduced by 1% on a quarter-on-quarter comparison. At the end of first quarter 2023, PDG had 143 employees. As for all the efficiency and cost reduction of our processes, we have conducted and we will have reinforcements by enhancing and developing our team, considering other launchings.

On Slide 9, we have our extra-concursal, indebtedness. The gross debt increased by BRL 114 million, 4% percent.

On Slide #10, we have the indebtedness, the concursal debt, increased by BRL 37 million, 3% during first quarter '23, and that is due to the accrual of interest and the qualification of new credits in the judicial reorganization and the total, considering debt leveraging, we were able to have the amortization of BRL 1.1 billion of our indebtedness. We are then working in order to accelerate the process of the organization.

And on Slide #11, we are able to see this process deleveraging our extended leverage totaled BRL 4.6 billion. And the remaining value -- we also had debt considering the increase of capital. So our indebtedness that are being taken into consideration, and we will also be able to have a good -- a positive point for our results.

We are also seeking for results and solutions for all non-concluded works. So then we are able to understand the whole operation and also the liability since the end of 2016 that we had our judicial recovery, we were able to have a reduction of BRL 2 billion liability. In '21, '22, we had a very mental reduction and also the finishing a conclusion of the financial recovery. This result shows the recovery performance of the organization so that we are able to have a very positive results with this very expressive leverage.

On Slide #12, we have the financial operational result income statement. We have a gross revenue, 11.3% and operational net revenue. We were also able to have a net debt that is according to the debt of the organization that were all questioned.

And to finish our presentation, I would like to emphasize that we have a big focus on these deleveraging agenda, innovation and also our launching and the conclusion of the increase of capital for the concursal debt for equity that might occur in the second quarter that is extremely important for the debt deleveraging, and we also want to improve our indicators.

As we have been mentioning in the last calls, this is extremely important for the organization. Another important point is that the beginning of the ix. Tatuape work. We have -- besides these work, we also have other launches for this year and our digital journey process. We are also prospecting the buying process of new land, we are remembering that the recovery process goes through our current and the acquiring of -- and purchase of the new lands. We are carefully following the current economic scenario. We are well aligned for corrections in case they are necessary, and we do reinforce our commitment for the judicial recovery with special attention to our customers, our team and focus on the recovery by taking into consideration all the risks and the learning curve.

First, I am going to finish the results and open for Q&A.

[Renato Barboza, executive]

Thank you, Mr. Augusto. We will now start Q&A.

[Operator Instructions]

The organization has been recovering in the first quarter, a very meaningful impact. In case of reclassification of the indebtedness to consursal debt following the recovery plan followed by the organization?

[Augusto dos Reis Neto, executive]

Well, good morning, thanks you for your question. Well, fortunately, our recovery plan is extremely important. We do have the expectation of it in our balance. Every time we do have our extra-concursal to concursal debt, the good news is that all the impacts are very positive. Given the extra concursal debt has a higher expense and other debts and the concursal debt consequently, there is no immediate disbursement. So we do believe and it's important to perceive considering all the processes, the capital processes and the negotiation of extra-concursal debt is that debt that is going to bring very positive impact for the future in a long and medium term as well?

[Renato Barboza, executive]

Next question, Felipe. Congratulations for another quarter and for the recovery of the [ market ]. So the ix. Tatuape sales are within the expectations is financing 100% closed as ix. Tatuape sales is in line with our individual planning and our initial planning?

[Augusto dos Reis Neto, executive]

Obviously, in a nutshell, the market has been having a reduction in the sales force. However, we have been mentioning in our quarterly conversations that we have been very conservative considering all the sales. So in line of what we have foreseen yes, and unfortunately, we have been very conservative and the warning of the economic scenario hasn't been something negative. As for the work financing, we had the process that the financing is contracted. And the initial steps are foreseen. We do have some issues to comply with, but we do have our partner and everything is agreed and I'd like to thank for their partnership and their reliability with our team.

[Renato Barboza, executive]

Felipe, another question from [ Miles asset ].

Are you negotiating the new finance for the next launching. How is your expectation on this topic?

[Augusto dos Reis Neto, executive]

Yes, sure, we have got the project approval even before what we were thinking about, even considering the ix. Tatuape, we have the planning and we want to have everything completed to start the sales. And we are very attentive to the scenario and the market itself. We have learned from the past and we don't want to make the same mistake. So our recovery plan is kept for the next quarter semester. And yes, we are taking that into consideration, and we want to have this structure.

[Renato Barboza, executive]

Next question from [ Hannah, Reborn asset ].

Congratulations for the material and the presentation and results. Can you comment anything about the new launching segment, Region B, GP, et cetera?

[Augusto dos Reis Neto, executive]

Thank you, Hannah. Our next launching will be the Sao Paulo City. Everything is concentrated here in our recovery plan. Our next launching will be in the north area of Sao Paulo, BRL 100 million estimated. And every ticket, medium to high or high standard, but it's from medium to high.

[Renato Barboza, executive]

Our next question is also from [ Hannah ]. The organization has been reducing the SG&A, but recovering the operations, should we expect any stabilization in this line?

[Augusto dos Reis Neto, executive]

Yes, naturally, the stabilization process as we have the organizational structure stable. And we do have some movements considering our structure. And with the recovery of the launching, we do need to reemphasize some areas of the organization. And given the timing and the direct relations with the launching, we did have some reductions, and we also have a demand for the hiring process. Although these new launching, we have been looking to emphasize the structure and have the SG&A, and we will then be able to keep that. So once the organization have this, we will be able to improve. But in the short term, we don't have any expectation of the increase for this line.

[Renato Barboza, executive]

Next question from Felipe.

My last question, how does the capital increase can impact in the financial expenses? Could we expect any reduction post increase?

[Augusto dos Reis Neto, executive]

Felipe, it can infect in 2 ways. The key one is that every time that we are able to have a negotiation of our extra-consursal debt because it hasn't been restructured. And once the negotiation start, given the increase of the capital process that has a very positive impact. So have a capital increase. And once we have the payment of the concursal debt, so then the debts are paid, we then improve the balance.

So we have these 2 ways. So we do have the oscillation of results introduced through the semesters and that impacts the debt planning of the organization.

[Renato Barboza, executive]

Next question is from [ Andrea Marquis ]. When is the credit conversion going to happen towards actions? And when it's going -- what is going to be the pricing for the action for the payment for the creditors?

[Augusto dos Reis Neto, executive]

Well, we do have debt in line and that this process will be concluded in the second semester after all the steps, and we do take into consideration all the internal queries. And the value of the credit is foreseen in the plan we have followed in the last years based on '19 and the final approval of our capital process. I just like to emphasize that you can send your questions on the Q&A here on the platform, okay? So you can also additionally send your questions to our email.

[Renato Barboza, executive]

Next our next question from [ Vince ]. The organization has prospected new land. And the retaining of financing or deals of partnerships or the launching?

[Augusto dos Reis Neto, executive]

Yes, we are prospecting land. We have acquired a new land here in the city of Sao Paulo and that this process of recovery goes through the land bank. So even though we have the restructuration of the organization, we were able to think about this recovery process, and the lack of liquidity this period post liquidity is very complex. So we have acquired very important lands and we do understand what is important for the organization and even considering what we do have...

[Renato Barboza, executive]

Next question, what has the most difficult for the organization recovery purchase of land or retaining financings or closing deals?

[Augusto dos Reis Neto, executive]

Well, considering what you placed, I think it is about lunching. As we have been showing all the partners, we have everything, demonstrated considering what we've been through and the financing processing is the most difficult one. So for us having a first one and the following ones. And considering our performance of our first lunching, we would be able to acquire the market reliability, we have done quite a lot, and we do need to emphasize.

[Renato Barboza, executive]

Thank you. If you have got any other questions, you can send to [email protected]. So now I will hand over to Augusto for the final considerations.

[Augusto dos Reis Neto, executive]

Well, once again, I'd like to thank you for participating -- who have been participating with us. It's very good to have you here and have IR team aligned. We know all the work that the team has been developing. And I think that the market is going a very tough moment. And even considering this market, we have a difficult moment. However, we are very cautious that we are trying to do things the best way possible. The real estate market, so we have learned from the past, and we don't want to make the same mistakes. So we will go through and we will provide you good news.

[Renato Barboza, executive]

Thank you very much, and I hope I can see you in our first -- in our next quarter results. Thank you very much. The conference of the first quarter 2023 is finished. Thank you very much for your participation, and have a nice week.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]