Tecnisa SA

BOVESPA:TCSA3

Earnings Call Transcript

[Operator]

Good afternoon, and welcome to Tecnisa's Fourth Quarter of 2017 Earnings Conference Call. Today with us, we have Mr. Joseph Nigri, CEO; Flávio Vidigal De Capua, CFO and Investor Relations Officer and the other executive officers of the company. Today's live webcast and presentation may be accessed through Tecnisa's website at www.tecnisa.com.br/ir and the MZiQ platform, where the presentation can be downloaded. I would like to inform you that this event is being recorded. [Operator Instructions]

Before our proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Tecnisa's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from these expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Joseph Nigri, who will begin the presentation. Mr. Joseph, you may begin your conference.

[Joseph Nigri, executive]

Good afternoon, everybody, and welcome to the 4Q '17 earnings presentation. As we had previously published, our strategy was to monetize assets, adjust expenses and focus on launches with low commercial risk in São Paulo state, especially the metropolitan region. In our perspective, we were successful. We had an adjusted cash and we sold 7 pieces of land located in regions that are no longer strategically interesting. The inventory sale was also good of BRL 306 million and BRL 17 million of dividends. Our monetization reached BRL 484 million, generating a decrease in debt and also opening up for opportunities for Tecnisa to look at new projects moving forward. So we've already looked into land choices and swaps, making association with funds, and I'll talk more about that later on.

When it comes to administrative expenses, we adjusted the number of employees in the company, reducing the office areas both in and outside of São Paulo. We reassessed contracts with the service providers, and with that, we closed 2017 with a little over BRL 75 million, which represents a decrease of 33% nominal versus the BRL 103 million of the previous year. So it's a decrease that's been happening year after year, and it's quite significant.

For 2018, now I'm in Slide #5. Before I speak about our commitments, I'd like to reinforce that the macro scenario is much better. I think everybody agrees with that. And in terms of GDP and inflation and employment, everything is really moving along favorably to us. And what's most important is that the banks are lowering their rates for buyers. The rate is close to 3% or close to 9% per year, and we think that there's room for improvement. And the natural competition between the banks, we believe, will bring these rates even further down and further improve our perspectives. So for 2018, we intend to resume launches. We will continue with the monetization process that we've been undertaking in the past few years, and that will continue as well as the assessment of new projects, as I have mentioned before.

So it could be that a fund could buy a piece of land and make a swap or we could have a minority share or stake. There are alternatives that we are willing to look into so that we can continue to grow. Another commitment is to reduce gross debt as well as the cost of debt. Our partner bank recently lowered the financing rates as well as opened a credit line for us worth BRL 350 million, which gives us confidence that our partners are there for us and to support our growth. We will also continue with the rationalization of G&A expenses, looking at cutting back on costs and rationalizing our operations.

Now I will give the floor to Flávio, who will speak about the numbers for 2017.

[Flávio De Capua, executive]

Thank you, Joseph. Good afternoon, everybody. About operating performance, Slide 7. During this period, we had a volume of BRL 474 million, with a gross income end of this year of 35%. In terms of net sales, the fourth quarter closed with BRL 110 million versus BRL 63 million for quarter 3. In the year, we closed the year with BRL 373 million worth of net sales.

For the next Slide, where we talk about inventory, our stock is at approximately BRL 1 billion, with 60% of the inventory in São Paulo approximately, and the other 3 regions were approximately 20% each, Paraná and the Federal District. And 75% of the inventory is concluded.

Now onto the next slide. Speaking about the operations in the state of São Paulo, we have 9% in Fortaleza, 83% in São Paulo, 5% in Curitiba. And we intend to advance our operations in these areas in Fortaleza and Curitiba. The same thing happens. We launch, focused basically on these areas for the next few years.

Our land bank currently is BRL 5.1 billion. The approved projects, BRL 1.8 billion, 63% for the São Paulo state.

Now in terms of deliveries, we delivered BRL 321 million for the period, 774 million units in this periods, and the deliveries for the period allowed for a very good generation in terms of cash flow since we were able to have a significant improvement in December, cutting back on costs that we had in terms of generating cash flow. And I'll talk more about that about this item further ahead.

For quarter 3 (sic) [ 4 ], in terms of the units, 661 units, and for the year, BRL 604 million, with 2,750 (sic) [ 2,745 ] units for 2017.

Now speaking about the financial performance for quarter 4, BRL 299 million worth of net revenue in the period. Our net income was negative and a little better than the BRL 252 million that we had in 2016 the first quarter -- the same quarter.

And provision of BRL 100 million due to remeasurement of the cost of units in inventory, BRL 10 million for losses in partnerships and BRL 6 million for indemnification for clients.

Next page, at the beginning of the year, we were questioned due to this item. We now have BRL 60 million, but we are ahead of the target for an additional reduction of 21% until 2018. This is an expressive reduction given this period we had almost BRL 50 million worth of expenses.

In terms of financial positions, the cash level is close to the quarter 3 with BRL 87 million, and we went from BRL 240 million. And this is a very good perspective for this period.

Now for the next slide, in our net assets, we closed with more or less BRL 100 million. And the debt decreased from BRL 240 to BRL 185 million. And corporate debt is more or less, they're both at the same level. And comparing the fourth quarter of 2016 and '17, we are talking about a good improvement in terms of the asset base.

Now for the next slide, we closed the period with BRL 80 million in terms of cash generation we received a few reports. And speaking about the net debt of BRL 20 million. And we generated a lot of cash and around BRL 80 million for the period. This is basically Tecnisa's projects. And the network generated BRL 20 million worth of cash. In the year, we had an expressive generation of BRL 280 million. And as we said before, we expect to reduce the operating costs of the company. And BRL 280 million are within the expected generation for the period.

Speaking about the operating profit of the company, we show that in the fourth quarter 2017, the leveraging -- the operational leverage of the year, talking about future projects, net indebtedness, this is what we think is mistaken. If we look at the net indebtedness, it went from BRL 416 million to BRL 120 million in the period. And Tecnisa went from BRL 1,098 to BRL 613 million in 2 years. And the projects performed, we had a good number. Following a reduction of BRL 1.1 billion worth of operational leverage over the last 2 years, therefore reducing the financial risks of the company.

So this is the end of my presentation, and now we'll take questions.

[Operator]

[Operator Instruction] Our first question comes from Mr. Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

The first thing I'd like to highlight concerns revenues, the low number of posts and the revenues are also relatively low. Certainly in the future, this will rely heavily on selling inventory. And you talked about new projects. At the beginning of the call, you said that you intend to launch new projects in 2018. What do you intend to do in terms of the new launches? And which type of volume are we talking about in terms of plausible numbers for this year? And what about the land banks? Do you -- are you looking into the land, lots or what? And the second thing is, you talked about the guidance, that you had announced for 2017, and you achieved this. But when it comes to the G&A for the fourth period of '17, and if we analyze it, it's still a little bit higher than 2018's guidance, which is BRL 60 million. What can we say that could be optimized for the G&A structure so that we can optimize -- so that at least we can reach 2018's guidance taking into account that you are going to have new launches?

[Joseph Nigri, executive]

Victor, to answer your first question -- it's Joseph here. You talked about launches. Well, actually, the revenue of our launches, we -- what I can tell you is that we will have -- we are having a good selling of the inventory for this year. In March, we will hit a record in terms of sales. We are hitting this record in March, and we will have our revenues from that and also from individual launches. What you can conclude by looking at our land bank, investors are a large portion of it. If that's approved and you could break it down, you can have more or less an idea of how much we're going to be launching in the short term. And speaking about the future, about lands for the future, we have already looked into few lands, and we are still negotiating with a few other land lots. Would you like to add anything about that subject or have I answered your question? Okay, so probably we will talk about G&A. Well, in terms of G&A, we still have room to do a few things, specifically about the occupancy costs. And since we've reduced our staff, our office is now too big for us, and we can cut back on space to save costs. We are also implementing several strategies in the IT area that will represent a significant cost reduction, especially in São Paulo. So I think that the main items for improvement are the one that I mentioned. But we are confident that we're going to be able to reach the forecast numbers. The G&A also includes depreciation, which does not represent cash. And concerning resuming our launches, this -- well, even after the project is ready, part of the services to be done, such as technical assistance and charging, also still need to be done, still remain. We believe that our structure, the current structure, we invested a lot in automation, for instance, to gain efficiency. And we believe that our structure is enough to give support to the next launches.

[Operator]

[Operator Instructions] Mr. [indiscernible] from Crédit Suisse would like to ask a question.

[Unknown Analyst]

I have 2 questions. The first is about cash generation. You said that you're having good cash generation, but the cash balance is decreasing. You have BRL 83 billion, but there's a debt of BRL 91 billion apart from the BRL 57 billion. Based on which, I'd like to understand your plans. Are you going to continue with this debt or are you going to raise capital to pay it? The second question is, do you expect to sell noncore assets such as a piece of land? And could that have an impact on the company's margins?

[Joseph Nigri, executive]

Well, talking about cash generation. We have an expensive cash generation worth of projects. And just to give you an idea, if you do a quick calculation, to calculate the volume of sales that has been substantial, if you look at the numbers, we're talking about BRL 311 million, which is quite significant. And the calculation is, therefore, of BRL 311 million, which is almost 55% of the corporate debt of Tecnisa. And the pace of sales has been expressive for this period. And at the end of quarter 3, we had a net debt of BRL 126 million. So you see that this is a project from which we can expect a cash generation to pay Tecnisa's debt. Part of the other debt is also self-payable. BRL 30 million more or less can be paid through the sale of the inventory, which is considered collateral. And in the first quarter, we had a debt that would have to be paid as of July, and we have postponed it for another 12 months, and we've been paying with several inventories free from any more expenses. We have already -- since the interest rate decreased a lot, buying stakes and shares would also be an option. And the second question, concerning the lands that we are selling, if I understood your question, is that, well, we understand that all necessary payments have been made for the previous periods. I don't know if I answered your question or -- well, just to comment on cash generation, it's worthwhile doing some calculation. If you take our cash generation and compare it with our competitors, and considering the size of the company, you will see that our generation was quite significant.

[Operator]

Our next question is from Mr. Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

I have one other comment that I'd like to understand. The [ distract ] has been decreasing. It's now close to 60, and you still have a volume of deliveries. I believe you also have some pending deliveries for 2018. What do you imagine for that situation [ distracts ] for 2018 or a termination for 2018? Will that harm your margin? Or is that improving?

[Joseph Nigri, executive]

Well, Victor, this is Joseph. As you said, there's a trend towards seeing a decrease in that situation. That's sort of related to the market, and that could be related to real estate credits. They were not charging us. Now they are. And most of the deliveries have already been made. And when you resell what's been terminated, you have less and less and these numbers tend to decrease towards a very low number.

[Felipe Meira Dias, executive]

I'm Felipe. I am a manager for Tecnisa. And we've got a few questions through webcast. I'm going to read them. The first question was already answered, which is, how do we assess the risks concerning the expenses? And we also -- we already talked about that. There is another question, which is, quarter 3 indicates that the provisions are good. However, new provisions were made in quarter #4. Please comment on that, and please indicate what you intend to do to recover credits.

[Joseph Nigri, executive]

Well, concerning the recovery, it will come through the commercialization -- through the sales themselves. As I said, recovering our prices in the regions where we are present, as I said about the last quarter. And concerning the additional provisions that you talked about in your first question, well, we understand that what we've been doing is what we've been doing every quarter for a long time now, for a while now.

[Felipe Meira Dias, executive]

We have another question about the impacts of the company's launches on the rights of protocol and the changes in the approval of projects.

[Joseph Nigri, executive]

It's Joseph here. The impact is not too great for us because we have some operations in Água Branca, for instance. And there was a change in the law, so there is no protocol. And for the already approved projects, there is no impact. And the other projects are already considered under the new law for the occupation of lands. Only a very few pieces of lands will fall under these restrictions, and we believe that this will be disconsidered or made void. So no, we don't think that this will hinder our plans to resume our activities now.

[Felipe Meira Dias, executive]

We have one last question from Mr. Garcia about dividends and profits and dividends and the company's perspective about that and how the company expects to go back to paying dividends.

[Joseph Nigri, executive]

Well, first, I think there are companies that have fared better and companies that unfortunately did not survive the crisis. Tecnisa did suffer a lot with the crisis, that's true, which can be accounted for by, first, I think through a strategic mistake in the past doing some projects in a few regions which were not our main regions of operation. So it was a geographic mistake. And it ended up causing stronger, high rates of termination. And whoever was buying in São Paulo started buying less. In addition to that, the company also grew a lot with the strong growth in a short period of time, and there were a lot of construction projects ongoing. And the termination crisis coincided with our peak of deliveries, so it sort of amplified the impacts. But having said that, given the reorganization of the company and everything that we did in the past few years to change that, we believe that moving forward we will not have this type of problem anymore.

[Operator]

Thank you. If there are no more questions, I would like to give the floor back to the company for their last comments.

[Joseph Nigri, executive]

Well, thank you very much. I think we were able to give you a good perspective of what we intend to do. And I'd like to reinforce that we are still working on monetization and working on the inventory. And at the same time, we are keeping an eye on the future, analyzing and focusing on the regions where we have always been present, focusing on cash generation and reducing indebtedness and reducing the cost of debt and also focusing on resuming our new launches. I am confident that now the market is going to improve, the situation will improve, and we are on the right path. Thank you. Thanks, everybody. And we are available if you have any questions. Thank you. See you next time.

[Operator]

Thank you. This concludes today's Tecnisa's earnings conference call. You may disconnect your lines at this time, and have a good afternoon.