EZTEC Empreendimentos e Participacoes SA

BOVESPA:EZTC3

Earnings Call Transcript 2021-Q2

[Pedro Tadeu, executive]

Good morning one and all, and welcome to EZTEC's Results Presentation for the Second Quarter of 2021. Please note that this call is being recorded. [Operator Instructions] In case you may need any assistance over the call, please let us know through the chat box. In case you have any connection issues, you may reuse the same web link or ID to return to the presentation available on our website. You may find that link and ID as well as the slides for this presentation on the address, ir.eztec.com.br.

Before we start, we'd like to mention that any statements during this call pertaining to EZTEC's business projections, operational and financial targets are based on management beliefs and premises as well as some currently available information. Future considerations do not constitute an assumption of performance. They involve risks, uncertainties and premises. Investors may take into account that general economic conditions, industry or operational circumstances may ultimately affect EZTEC's future performance. They may cause the company's results to differ materially from those expressed in those forward statements.

I'm Pedro Tadeu, EZTEC's Investor Relations Coordination, along with me to talk about the company's results in this presentation, I have here Mr. Emilio Fugazza, our CFO, Investor Relations Officer.

Starting our presentation, let's move to the next slide, where we are going to talk about what we launched this quarter. During the first semester of 2021, EZTEC announced the launches of 3 projects inside the City of Sao Paulo. In the first quarter, we launched ID Paraiso, a project of BRL 28 million in PSV, focused on smart-living units in Aclimacao. This product is already 52% sold.

In the second quarter, we launched Dream View Sky Resort and EZ Infinity projects. The first one is a middle income project with BRL 253 million in PSV located in Vila Prudente that was launched as soon as the sale stands were reopened in April. The second one was announced on the last day of the quarter, and it is a high income project of BRL 675 million in PSV. We believe that this project will become a new icon for the City of Sao Paulo located in Paraiso besides the IBM Tower.

Last but not least, at a subsequent event, we launched the Arkadio product, another high income project in the Brooklin for BRL 460 million in PSV. It is important to mention that with all of these launches, the company has reached 50% of implicit guidance for 2021.

Now moving to the next slide, following our operational performance, we can see that the gross sale have increased 25% from the first quarter of 2021 to the second quarter, motivated by an increment in sales of ready and under construction inventory. The main reason for this increment is the -- the main reason for this is the increment of the construction inflation index, also known as INCC, making clients be more likely to make agreements with construction index, then being exposed to the construction inflation. This quarter our constellation have grown to BRL 39 million, but are still aligning with the historical volumes, and the majority, approximately 40% of this constellation are, in fact, transfers, downgrades or upgrade of units.

Talking about our landbank. We can see that this quarter, we didn't make any acquisition of new lands, but due to the inflation and changes in some projects we finalized the quarter with the landbank position close to the previous one. As you can see in the chart in the bottom right, the majority of this landbank is well located in premium zones of the City of Sao Paulo.

We are still pursuing to add the lands that are now as options in our landbank. Most of them already have an agreement with a total of BRL 13 billion or future products. The company covers more than 3 years of launches, and we are driving to only looking for opportunities that are special and aligned with our historical financial results.

Moving to the next slide, to the -- a slide about our inventory. We can see an increment in the volume of launches under -- the volume of inventory of launches and under construction units, especially in the South Zone of Sao Paulo, where the company has made a majority of these recent launches.

Indeed, the volume of ready inventory is still concentrated in Guarulhos, more specifically in the Cidade Maia, but it has been shrinking significantly in the last quarters. We believe that this ready inventory will only start to grow again in 2022 when the projects are -- when the projects that were launched in 2018 will be concluded.

Now all of our efforts are now in preparing the launches for the next month. As a preview for the third quarter of 2021, we had in the top left in the slide the Altta Vista project with a mid-high project with 60% EZTEC share located in Chacara Sto Antonio with an estimated PSV of BRL 185 million.

The other one in the bottom of this slide is a massive project for the middle-income client, a project near the Bandeirantes very similar to the Cidade Maia projects that was launched in Guarulhos in 2012, but inside the City of Sao Paulo. It comes with 897 units, making an estimated PSV of BRL 729 million.

Now I will give the word to the Mr. Emilio Fugazza to comment the company's financial results. Please, Mr. Emilio.

[Antônio Clemente Fugazza, executive]

Thank you very much, Pedro. Hello, everyone. It's a pleasure to be here conference call about the second quarter of 2021. Financial performance, Slide #9. Let's start with net revenue.

Net revenue came at BRL 289 million, 48% more than the first Q since 2001 (sic) [ 2021 ] and something around 80% more than the second Q 2020. It's important to bear in mind that units coming -- units sold coming from the performance side means that the recognition of the revenues are on time in this -- in our balance sheet.

Let me remind you that the pace of the construction are okay in the second quarter, better than the first quarter, especially because there were not stops. There not hard stops in our construction sites given the pandemic outbreak.

More revenues -- more net revenues means that the volume of first half is better than the first Q and better than that gross margin came at 46%. 46%, it's about 4 percentage points better than first Q and even better 6 percentage points from the 4Q 2020.

Let me -- let me say a little bit deeper about this specific subject. When you think about the second half 2020, you can understand that margins dropped a little bit, specifically because of the increment in construction costs. Increment constructions costs means that -- well, the time that -- costs were raising, and the inflation index for this -- the construction were not showing this increment in the same path.

That can be explained, because the volume of the construction -- kind of construction we have, we got here in the City of Sao Paulo Metropolitan Region is completely different than the average out of Brazil. Specifically because the index -- the measure of this index is much more related to houses -- town houses or even buildings up to 8 floors. There is not the type or the shape of buildings we have been doing -- doing in the City of Sao Paulo.

There is more than 30 floors, rooftops, swimming pools on the rooftop, pockets of over 40,000 square meters of private area, more than 500 or 600 units of each one, so it's a little bit different. And this equation could be more, I would say, can be -- can match a little bit better in the first half 2021. And that's why we can see margins improving -- gross margins improving a little bit in the second quarter.

Selling expenses -- the highlight here is BRL 15 million of sales stand and publicity. The project Mr. Pedro mentioned before, the Bandeirantes Unique Garden it's a project that we sent something around BRL 6 million to start doing the wholesale stand and this is booked in our second quarter. So more selling expenses, because we have been incrementing the volume of launches in the coming quarters.

G&A came at BRL 28 million, pretty much in line Q-on-Q in the next -- in the last -- I'm sorry, 2 quarters, that's imported. But because of more volume of net revenues, the relation between G&A expenses and revenues are getting better a little bit to 10%.

On Page #10, let's start with financial results. Financial results came in line with the first Q past BRL 46 million. The bright side is the financial result is getting a little bit lower. It's coming to a stage a little bit lower compared to the operational results.

It's important to bear in mind that the majority of this financial result is supported by our portfolio of all the receivables, financing our client IGP plus 10% to 12% yearly. The amount of IGP in the last 6 months were pretty much higher or higher than ever, and we don't expect to see the same path for the next coming -- for the coming quarters.

In terms of equity income, BRL 26 million, much higher than the first Q, higher than the second Q one year ago, that's because in the fourth quarter 2020 we launched 3 projects in partnership and those projects were recognized in the second quarter. Those products were Signature By Ott, in the Aclimacao neighborhood -- its South zone of Sao Paulo. It's a very well sold project and it's a high end project. Apartments are over 100 square meters. Sold by something around BRL 12,000 to BRL 13,000 per square metre.

The second one was Meu Mundo Mooca -- Mundo Mooca is a low income project in Minha Casa Minha Vida it's a project in partnership with Vivaz, belonging to Cyrela, 50-50.

And lastly, we have Eredita Parque da Mooca East Zone of Sao Paulo. It's a mid-high end projects. It's important to say that we got 10 more launches on the same regions or the same neighborhood of Eredita Parque da Mooca.

This is a project sold by over BRL 10,000 per square meter, very well sold far. So all-in-all, the project represented BRL 26 million, 19% of the whole net income for this quarter. Finally, the net income was BRL 139 million, all-in first half 2021, something like BRL 212 million, an important increment compared to 1 year ago. So more than 100% than 1 year ago and something around 90% compared to the first Q.

Stunning 48% margin -- net margin for this company, supported by obviously financial results, increment in the gross margin and an increment for this quarter in equity income. It's important to understand the gross margin to come -- the backlog margin is something around 44%. The variation of less than 1% from the first Q to second Q it's mostly because there was a recognition of Fit Casa Jose Bonifacio, a low income project. The project that we launched in the City of Sao Paulo, something around 25 miles from our headquarters, very far East Zone of Sao Paulo.

It's a project with very good gross margin, but obviously, a little bit worse than or lower than the average margin of this company. That's why there was a variation from 45% to 44% this quarter, specifically.

Let's go to Slide #11 and Slide #11 can show you the bottom line of the portfolio receivables -- I'm sorry, the receivables from portfolio units. The first half we ended up in BRL 451 million and something around 1,300 units under management of this company provided financing to our clients.

The volume of payments we haven't received so far is about BRL 135 million, mostly because there was a transition from EZTEC's portfolio to the commercial banks. Obviously, it's important to remind that even you know guys that the pace of construction in Brazil is growing a little bit from 2% at the beginning of this year to something around 5.25%. But the mortgage rates are not increasing at the same band.

So so far, it's very well competitive for the client that has a loan-to-value low enough and with increments of affordability to make this transition to the bank in order to avoid IGP plus 10 to pay something around 7% to 8% fixed rates. This is a movement that we don't expect to increase in the next coming quarters, specifically because their mortgage rates are increasing a little bit and the volume of people we having seen doing this movement on the majority coming from the 2013, 2014, so years that we made this origination and now they have a loan-to-value low enough to -- say to make this happen.

On slide -- on Page #12, financial performance of Fit Casa. Fit Casa is one of the bright side of our balance sheet. Nowadays it's about BRL 25 million net profit in the first half with a stunning 48.5% gross margin. The majority of the projects launches in Fit Casa are 1.5 year to 2 years. So some of them are going to be delivered by the end of this year, that's important. But 25% can drive us to a return on equity of almost 16%. So the total amount of equity coming from this company is about BRL 356 million, so the construction of return is down to 16%.

Finally, gentlemen, let's go to slide on Page #13. 13 can show you the situation of our balance sheet, the shareholders' equity now -- again to a point of BRL 4.3 billion. In terms of liabilities -- financial liabilities only BRL 11 million in coming from project finance. So even talking about the dividends, the dividends paid for this company approved by the general meeting, our shareholders having in last April, we have uppaid. So we paid something around 15 days after the general meeting. So BRL 96 million. There was no more debt with our shareholders.

And the results -- the second quarter results right is driving us to return on equity of something around the 11%. From the assets -- the big highlight, I would say, the landbank. So when Pedro -- Mr. Pedro mentioned before, about something around BRL 11 billion of landbank already booked in our accountancy, it means that the cost of this landbank is about BRL 1.2 billion. As you can see it was result of our buys versus sale before, so this is landbank by cost. This is not the fair value of this landbank. Nowadays a fair value, given the inflation, given the new values of the properties, specifically in Sao Paulo, nowadays is more than BRL 2 billion of landbank like this one.

In terms of receivables, something around BRL 1.1 billion in terms of inventory -- ready inventory or under construction, something around BRL 750 million. Let me only highlight that the ready inventory, one of the bright side of the results and the sales in the last, I would say, 2 years now that is coming to an end. So less than 12% of the whole inventory.

So an inventory, majority of that is the middle-income segments and the volume of sales are coming -- majority of them be cost on the mortgages rates provided by the financial agents are too low right now. But the inventory under construction right now, is one of the highlights of this company, specifically because it's coming from the mid to high and high-end with margins above 40%.

So what do we expect for the next coming quarters? It's a very, I would say, well controlled operation with very interesting or quite an interesting amount of launches. And the kind of launches are launches that are very well nailed by this company like this Unique Garden, middle income segment, in mid to high income segment in a very neighborhood, a project like no one. A project that definitely is a game-changing for that neighborhood, for that region of Sao Paulo. So what we expect more -- definitely more good results supported by the margins with the same track record. So thank very much for call, and we are completely available for any further questions. Thank you very much.

[Pedro Tadeu, executive]

Thank you, Emilio. We will now open the call for a Q&A session. In case there is any, we will take questions from our sell-side analysts first and then pick up questions from the chatbox. You can use or you can make the Raise Hand button. Since there isn't any questions, we're now going to proceed to the end of our presentation.

[Antônio Clemente Fugazza, executive]

Thank you very much, everyone. Thanks for watching us. And any further questions please send Mr. Pedro, Giovanna and Ronan are completely available to answer. Thank you very much. Have a wonderful day.

[Pedro Tadeu, executive]

Our conference call for the review presentation is now over. We thank you all for all your attention and have a nice day.