EZTEC Empreendimentos e Participacoes SA

BOVESPA:EZTC3

Earnings Call Transcript 2021-Q3

[Unknown Executive]

Good morning, one and all, and welcome to EZTEC's results presentation for the third quarter of 2021. Please know that this call is being recorded. [Operator Instructions]

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

Now I would like to pass it to Mr. Emilio Fugazza, EZTEC's CFO and Investor Relations Officer, who will get us started.

Please, Mr. Emilio, you may go on.

[Antônio Clemente Fugazza, executive]

Good morning, everyone. Thank you very much for being here at our conference call for the third quarter 2021. The main highlights for this quarter is about the launches of 2021, subject that Mr. Pedro will say a little bit more ahead.

[Pedro Tadeu, executive]

Thanks, Mr. Emilio. Talking about launches, during the 9 months of 2021, EZTEC announced the launch of 4 projects inside the City of Sao Paulo.

In the first quarter, we launched ID Paraíso, a project of BRL 28 million in PSV focused on smart-living units in Aclimacao.

In the second quarter, we launched Dream View Sky Resort and EZ Infinity project. 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 sales stand were reopened in April during the COVID situation.

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 and we believe that this project will become a new icon for the City of Sao Paulo and is located in Paraiso besides the IBM Tower.

In the third quarter, we launched Arkadio, another high-income project in the Brooklin neighborhood with BRL 460 million in PSV.

If you move to the next slide, we will talk about our operational performance. And you'll be able to see that the Launches Sales as well as the Construction Sales became the most relevant component on the total volume of the third quarter of 2021. This fact is due to the lower volume of performing units available, which had a higher demand in the previous quarter.

The main reason for the incremental of the cost in construction of the sales of performance units that you see in the previous quarter was due to the inflation index, the INCC, that is making clients to be more likely to make agreements [indiscernible] index than being exposed to the construction inflation. For this quarter, constellations were dropped to BRL 32 million, with 33% made of relocated customers. About 33% of these volumes refer to downgrades, upgrades or units that were transferred that is also linked to a portion of another unit or even the transfer of a balance of already paid units for another property under finance.

In the next slide, you'll be able to see how we is composed our landbank. With our new acquisition, the PSV is maintained by adjustment in the price assumption due to the inflation as the company is already [indiscernible] with raw material, and we're talking here about lands for this stage of the cycle, where we were no -- there we were no relevant acquisition in the third quarter of 2021. So we finalized the quarter with a 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 in the City of Sao Paulo. The maintenance of a residential landbank is equivalent to more than 3 years of launches if we believe that the launches will be something close to [indiscernible]

The sum of the PSV for the company with residential land stands at approximately BRL 7.4 billion as of the date of this release. This volume brings comfort to the company as this removes the urgency to make new acquisitions to buy new lands.

If we go to the next slide, where we're going to talk about the inventory map, you'll be able to see an increment in the volume of our inventory, that is attached to launches or under-construction units especially when we're talking and we are looking to the south zone of Sao Paolo, where the company has made the majority of the recent launches.

On operational aspects, the deliveries of the projects are marking the end of the most [ voluminous ] delivery cycle experienced so far by the company. By the way, completed this quarter -- the company completed this quarter, 358 units with a total PSV of BRL 330 million of which are more than [ 90% ] also.

Indeed, the volume of ready inventory is concentrated in the south zone but the majority of this inventory is commercial inventory. The majority of our ready inventory is located in Guarulhos region more attached to [indiscernible] -- the volume of the finished residential inventory currently represent less than 11% of the company's total stock and should only increase by the end of 2023, when the projects that were launched in the last 2 years will be concluded.

In the next slide, we will talk about the future launches of the company. And we can see that we're putting all of our efforts preparing the new launches for the next months. As you can see, we have 3 new launches. In the bottom is a massive project for the middle-income client near to the [ Recreio dos ] Bandeirantes that is very similar to the Cidade Maia project that was launched in Guarulhos in 2012. But this one is inside the City of Sao Paulo. And it comes with 885 units and a total PSV of BRL 716 million.

At the top of this slide, there is 2 smaller projects with an estimated PSV of BRL 150 million and BRL 45 million. The first one is In Design, and it is a medium-high project with 150 units located in Ipiranga.

Pin Osasco, in the right, is a project of middle income with 702 units that is located in Sao Paolo region metropolitan area, more specifically in Osasco.

Now I will pass over to Mr. Emilio Fugazza to comment on the company's financial results. Please, Emilio, you can go forward.

[Antônio Clemente Fugazza, executive]

Thank you so much. Hello, everyone, again. Let's start talking about financial performance on Slide #8. The top left chart is talking about net revenues and revenues has remained flat compared to the second quarter 2021, from BRL 289 million to BRL 298 million this third quarter.

The good news or the bright side of this number is that the majority of the amount of this revenues are coming from projects under construction, projects that we have already started the construction with and good sales.

There is only one project, I would say, we started recognizing revenues here, which was Dream View Sky Resorts Vila Prudente after 6 months, we launched the project. And in this specific quarter, the amount of revenues coming from performing units are lower than the previous quarters.

In the chart, right of this slide reflected gross margin. This is one of the bright moments of this conference call and this earnings release, which mean that gross margin achieved 50% in the third quarter. Since the bottom of the cycle, which was in fourth quarter 2020 of around 40%.

These were profit margins, these incremental margins, they happened specifically because of 3 main things. The first one is because of INCC. INCC is the inflation adjusting the receivables, our portfolio receivables unit under construction.

Let me remind you that adjusting the portfolio, we have something around 5% within 3 months of INCC. And on average, regular client -- ordinary clients has been [indiscernible]-- to the company something around 35% on average of the total amount of the price within construction time for our [indiscernible]. Because of 65% on average of the whole amount of receivables are adjusted by INCC without the counterpart of the cost. And that's why we have this gap -- I would say, this amount this mouth being open in terms of margins since the fourth quarter 2020.

The same factor is about the units performance, there are units [ when to leave ] that we have been selling. We are talking about units for instance, in the [indiscernible] -- which is the majority of the portfolio inventory of our company. And on average, the gross margin of these inventories [indiscernible] -- is more than 50%.

But let me add one important matter, that is, the projects we have been delivering. In the third quarter 2021, we delivered 3 projects. And on average, those projects came in with savings of 2.75% of the budget booking at the moment we launched the project, adjusted by inflation, which means that only produced an improvement of 4 percentage points comparing second quarter 2021 to third quarter.

There is some selling expenses, I think, that is flat compared to the second quarter and the volume of expenses targeting publicity and the sales stands and more costs we have to do for launching the project was something around BRL 11 million this quarter. And the whole, these whole expenses means something around 4% of the total of gross sales we got this quarter in our company and we are talking about something around 4% in the whole year.

G&A expenses, about BRL 29 million in the third quarter, something flat compared to the second quarter of 2021. My personal opinion is that we are running this company in terms of G&A of about something around BRL 120 million of G&A expenses given two last quarters of expenses.

It is mostly due to the increment people we hired to support the incremental operations in our company and eventually some adjustments in payrolls we have to do.

Moving on to Slide #9, it is in order to understand a little bit on top left shot the financial results. As we have been watching in the last, I would say, 4 quarters, the volume of financial results is pretty high compared to the total amount of results coming from our company. This is most due to the fact that we have a huge amount of portfolio of all the receivables. So receivables that we -- that are provided by financing the client. So is that of the clients searching for mortgages coming from commercial banks here in Brazil, they change the idea to keep their contracts with our own company, coming from the shareholders [indiscernible]9 -- so that is the majority of the result of BRL 43 million.

Apart from it, 1/4 of these amounts results are coming from the cash and equivalents of our company. This amount of money nowadays, the total amount of net cash position we got, which is around BRL 1 billion are something around 100% based on [ CDIs]. [ CDI ] in the next 3 quarters, during the months, I am sorry, in the third quarter of 2021 was something around 1.5%. And that represented something around BRL 12 million of financial results added to the portfolio of the receivables.

[indiscernible] of the results, the fine results coming from the projects we've got in partnerships. Projects [indiscernible] -- projects low end or even in the high income classes. The majority of this BRL 21 million result is coming from the projects [indiscernible] --is a middle income project [indiscernible] metropolitan region of Sao Paulo. This is the last phase of a bigger project called Jardins do Brasil, a project itself of something around 700 units, very well sourced and with the budgets completely on track.

Finally, talking about net income and income and the bottom left of this slide. It came in at BRL 145 million with net margin of 49%. The bright side of this quarter was the majority of this result, this outcome is coming from the operational side. So we've got good results from the operational site since the last quarter with an improvement in operational models, too. That's important to mention.

And finally, results will be recognized for me is one of the most important things when we talk about financial performance because it's final outlook of the future gross margin, we are going to [indiscernible]. And you can see since the third quarter 2020, we remain flat, over 45% to 44%, which means that we have been counting on these incremental costs or is huge or complicated time we have been living here in terms of cost inflation for all sectors given the fact that we are, we can, I would say, increase the prices and so in selling there too we could see or we can see the margins at the same level as before.

On Page #10, talking about a little bit more deeply about the portfolio of performed units, financial bodies, et cetera. At the end of 9 months 2021, we see BRL 421 million from start of 2021 up to BRL 509 million, an decrement of about 80 million. This is -- the majority of this is because the amount of maintenance in advance or the migration from our portfolio to the commercial banks in the last 9 months was higher or huger compared to the yield and originations we could see. In terms of the units, you can see something around 1,200 units being financed by us that compared to beginning of this year something around 1,600 units being financed by our company.

In terms of foreclosure, this is the bright side of these figures. You can see something around BRL 23 million this year representing something around 33 units compared to 27 units last year. I can say bright side for these slides, specifically cost, the IGP, which is the main index, inflation index, adjusting this portfolio was something around 30% in the last 12 months.

So 30% is huge enough to provoke a very -- I would say tricky moment to the clients in order to keep up with their installments. And what we saw was a huge effort coming from them to migrate from our office to the banks in order to keep without the delinquency so far.

On Page #11, I would like to highlight the performance of Fit Casa. Fit Casa is our brand to low-end segments and Minha Casa Minha Vida segments. Minha Casa Minha Vida are the projects that's on average, we have been selling for BRL 200,000 per unit, something like that in the City of Sao Paolo and also in the metropolitan region of Sao Paolo.

On the top left, you can see a chart providing net profit and gross margin in third quarter 2021, you can see BRL 18 million of net profit. And the [indiscernible] can show you 53% of gross margin.

On the right side of this slide, on the top right side of the chart. The same chart can provide you 9 months 2021, the total amount of net profit, the outcome provided by Fit Case worth BRL 43 million. Let me remind you that the way we are not talking about much more than projects 5 under construction or being delivered and on average, a gross margin of 50%. Return on equity only came at 18% more than on the average [indiscernible] -- itself.

Let me remind you guys that in the last week -- last weekend, I'm sorry, we delivered 500 keys to 500 clients for our very first project. The delivering this segment -- [indiscernible] in this brackets, which was Fit Casa Bras. Fit Casa Bras is a kind of project we ended up with a gross margin above 50%, a very, I would say successful projects [indiscernible]and only to remind you, even these projects we started with an amount of gross sales no more than 24%. And we reached by the end of this project something around 94%, a project that we delivered much more than the expectancy from our clients in terms of finishing, in terms of time line, in terms of quality of the project itself. So that's why we have been counting on selling Fit Casa with better prices and trying to get betters margins for the whole [indiscernible].

Finally, on this line on Page #12, I would like to highlight the balance sheet. On the right side of this slide, you can see BRL 4.5 billion of shareholders' equity. BRL 5.5 billion means that now we are running this company on average 12% return on equity.

We'd like to show you more. It's our expectancy. It's our outlook to see these improving specifically because the volume of the projects launched, the volume of the sales we've got so far today, we are going to see, without any kind of new sales, we're going to see more recognizing of revenues coming forth. In terms of assets, the main highlight, I would say, the 25% of these -- equity, each about cash, BRL 1 billion in cash in this company.

From this cash, 60% of this cash is cash available for new investments to our company. And 40% of this amount of cash equivalents are cash exclusively to be used at the construction of the projects of cash that is -- the payments in advance of our clients or payment of our clients that we have to, given the lock -- we have to use specifically to finish all the constructions. and that's why when you look deeply at the liabilities in our balance sheet, you only can see only BRL 13 million of construction finance because in last 12 months -- in the 18 months, we saw huge volume of payments in advance coming from our clients, clients that were running out from the INCC. The INCC was increasing so much and running out of lower interest rate in our economy that's why we saw many clients winding to, I would say, take advantage of it making payments in advance.

Many projects [indiscernible] -- high income segment, we saw on an average, clients paying something around 50% of the total amount of the price in advance and that's why nowadays, we don't need or so far, we haven't needed a huge amount of finances to fulfill the construction of the projects.

Apart from that, let me remind you when you see the landbank, I'm sorr when you see the assets, the landbank brackets showing BRL 943 million meaning that all the grants, all the lands, all the [indiscernible] which means the grants or the funds we have to pay, we have to buy from [indiscernible] -- in order to increase the potential of the land. I book it by cost, so saying that is this amount of landbank was bought, on average, 5 years, 5 years ago.

So I would say the pricing, the new pricing, if we were doing something like that in order to reevaluate our landbank, could show you something like 50% or 60% more than the costs booked in our landbank. And this BRL 943 million, it means that can represent [indiscernible]-- in land in potential sales value. On landbank, the same number Mr. Pedro showed you before.

In terms of the units on inventory, units under construction. So we are talking about something around BRL 1.2 billion in costs for a total amount of inventory mentioned by Pedro before of about BRL 2.5 billion.

So it means that the gross margin of these units under construction and that are ready to use of about 45% to 50%. That's why we are so confident to keep the margins at the level that we can show you at the backlog results.

So saying that, I would like to open ourselves to answer any further questions you may have. Thank you very much for audience today. [Operator Instructions]

Without any manifestation, we would like to close our conference call for the [ youth ] presentation. And we appreciate all of you, and we are calling that this presentation is now over. And we thank you all for your attention. Have a nice day.