LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Transcript 2020-Q2

[Operator]

Good afternoon, ladies and gentlemen, and thanks for waiting. Welcome to the conference call of LPS Brasil to discuss their earnings regarding the second quarter 2020. Today, with us are Marcos Lopes, CEO; Francisco Lopes Neto, VP Officer; Beatriz Machert, Investor Relations Officer; and Robson Paim, CFO.

We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being simultaneous webcast on the company's website at www.lopes.com.br/ir.

In there, you will also find the presentation available. The slide selections will be controlled by attendants. The event replay will be available soon after its end. We would like to remind that webcast attendants may ask questions on the website that will be answered after the end of the conference call.

Before moving on, we would like to let you know that any statements made during this conference call relative to LPS business outlook, projections, operating and financial goals are based on the beliefs and assumptions of company management. Forward-looking statements are not a guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events and, therefore, depend on circumstances that might or not occur.

Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the company's future results and lead to results that will materially differ from those in such forward-looking statements.

Well, first, Mr. Marcos Lopes will present the operating results. Then, Mr. Francisco Lopes will present CrediPronto results. And finally, Ms. Beatriz Machert will talk about the financial results. Finally, we'll open for your questions.

And that, we are going to turn the call to Mr. Marcos Lopes. Please, Mr. Lopes, you may go on.

[Marcos Lopes, executive]

Good afternoon, everyone. We would like to thank you for your attendance in another conference call of earnings for LPS Brasil. And in here, we are going to present the results of the second quarter 2020. Today with us is our VP, Francisco Lopes; our Investor Relations Officer, Beatriz Machert; and our CFO, Robson Paim.

The second quarter 2020 was marked by the challenging scenario since more than -- in more than 2 minutes (sic) [ months ] face-to-face activities in all industries were suspended.

In this context, we're able to minimize the negative impact of the pandemic, thanks to the technological support and innovations that we will have already been implementing in the company, which enabled us to reach satisfactory results in the quarter vis-a-vis the conditions of the pandemic.

We already reopened our sales stands and our real estate agencies in July, taking all due precautions in terms of sanitation, social distancing that are necessary for our next launches. At the same time, our credit market volume captured the volumes of originations that we observed pre-pandemic, showing that social distancing measures have not prevented CrediPronto to have good results. Therefore, profits of the operations totaled BRL 12 million in the period.

As part of our plans of digital transformation for the company, we invited the renowned professional in the digital area to Joaquim Torres known as Joca, to be part of our team as Executive IT Officer. Joca has vast experience in products, digital transformation companies and will join efforts to our team, adding value to both Lopes and our clients. These were my first remarks.

And let's go to the presentation of our results per se, starting with Slide #5 with the highlights for 2020 second quarter. So CrediPronto mortgage volume reached BRL 544 million in the quarter, an increase of 32% year-on-year, reflecting the favorable real estate scenario and efficiency of our operation. We recognized in second Q a profit sharing for CrediPronto of BRL 12 million regarding profits from the months of March, April and May.

In June, the operation's profit sharing was BRL 5 million, which will be accounted for in the next quarter. This number showed how solid and how efficient in results the operation is. Our net revenue totaled BRL 33 million, and the highlight here is the share of CrediPronto that accounted for 47% when we put together origination and profit sharing receivables.

The company's EBITDA added up to BRL 8 million. We closed the first half year with an EBITDA margin of 24.3%.

As for our digital project, we continued all investments that were programmed and continue to embrace company's transformation. We saw very positive results had several hits in our portal with the 291,000 access and a growth of 132% compared to June '19.

Going to Slide #7, we are going to talk about the launches for the second quarter of 2020. In the first chart that you see in the upper-left corner, we can see that the volume launched in the quarter was BRL 440 million, with the launch of 10 projects with volumes 88% below that of the previous year and 70% below the first quarter 2020. Notably, this has been impacted by social distancing matters.

The launches performed were concentrated in the state of Sao Paulo and Fortaleza. In Sao Paulo, they accounted for 90% of the total volume. The city of Sao Paulo basically concentrated launches in the metropolitan region, with 78% for the city of Sao Paulo and 22% in Sao Paulo metropolitan region.

And on the right-hand chart, you see the number of projects and average price of unit launch. We see a substantive reduction in average ticket, showing a preference of contractors for leaner products.

When we go to Slide #8, we see the result of transactions closed in the second quarter 2020. On the left, we have the company's consolidated results. That is our own operations added by those transactions closed by our franchises. Comparing year-on-year '19 and '20, we had a decrease of 41%, reaching BRL 1.2 billion in the period. Now when we compare to the previous quarter, we see an improvement of 11%.

When you go to the right, we see our franchise businesses with a decrease of 23% in transactions closed compared to the previous year and basically stable compared to the previous quarter. Although it was impacted by the pandemic, franchise operations are more exposed to the secondary market and, therefore, are less impacted by launches. Also, we've had a very specific campaigns in the quarter, selecting ready properties, focused on the secondary market, which contributes for the results of our transactions in the period.

As for our own operations that are more focused on the primary market, well, they were more impacted by the effects of social distancing and also by the postponement of several launches. That, together with the closing of sales stands and the closing of real estate agencies for the quarter, led to a drop of 51% compared to last year with BRL 631 million of transactions closed when we compare to the previous quarter. Basically, in own operations, we had an improvement of 24%, again, reflecting our efforts in terms of digital transformation and how the company operates with focus this period on online campaigns and other internal efforts to increase the volume of businesses.

On the next page, Page 9, we show our transactions closed by region. You see the state of Sao Paulo continues to be our main market both in own operations and franchise. In the South, particularly the operations in Londrina, continued to show very good results and closed 17 -- closed the quarter at 17% share, again, with an increased share for this region. On the right, we again break down our transactions by our operations and franchises. In Sao Paulo, again, we have most of transactions with 78%; and Rio de Janeiro, the runner-up, with 16% of transactions closed.

Also on the left, we have our geographic distribution. You see that we are present in 10 states plus the federal district with 100 stores, 18 own and 82 franchises.

Now we are going to go to Slide #10, showing our speed of sales over supply and over launches. Starting with Sao Paulo, we see a reduction in our indicators with a steeper drop at [indiscernible]. So you see that basically, this is because of the low volume of transactions closed and a decrease in property available. With that, we closed the quarter with 10.1% of speed over supply and 1.6% of speed over launches.

On the right, we see our consolidated numbers. As it happened in the city of Sao Paulo, the indicators in Brazil showed the same retraction, again, because of same combination of transactions closed and the supply of property. We closed at 7.3% with speed over of supply and 1.7% with speed over launches.

Still on this slide, we can see basically transactions with Lopes and refinance projects and projects in inventory. Differently from what happened in previous quarters, the concentration of intermediates was in projects that were launched before the first Q '20, which was expected because of the retraction of launches this quarter.

On Slide #11, we show our evolution of every daily transactions closed. You see that transactions in the first quarter 2020 most times had an average number that was higher than the previous period last year, again, reinforcing the ascending trend that was expected this year. With the close of sales stands we had a strong reduction, and we had the greatest impact in the month of April. As expected, during social distancing, our average of transactions closed was below that reported in '19, however, better than April.

In July, we see that we already reached the levels pre-pandemic. We believe that even with social distancing still in effect, we are going to have a second half of the year quite positive, not only because of the recovery of the market, but based on the internal initiatives that transform the way we operate in the Brazilian market.

These were my considerations with regard to operating results. And now I'll turn to Francisco that will talk specifically about CrediPronto, and then Beatriz will show the company's financial results. Thank you very much.

[Francisco Neto, executive]

Thank you, Marcos. Good morning, good afternoon, everyone. It's a pleasure to be able to comment and analyze the results of CrediPronto, which is a reason for our pride in the company.

Well, starting with the quarter reported and when we compare it to other contract -- quarters, we had substantial growth in mortgage volume year-on-year and especially compared to the growth of private banks. So in the bottom-left part, we can see that we originated BRL 544 million, which is equivalent to growth of 32% year-on-year. And it is basically twice the average of the sector that we have in the period. So that makes us quite proud because we are showing efficiency in origination and in our activities in general and especially in times where social distancing and social practices are very difficult, but CrediPronto was able to adapt well and had really efficiency in growth, which is translated by these numbers.

Also, we had quite interesting results that I would like to comment, particularly when you see in terms of profit sharing. Remember that we report March, April and May, in the second quarter 2020, and then we have a delay of receivables that we know of about 30 days for us to account for the results. So this referred to March, April, May with a total of BRL 12 million. And we already mentioned that, in July, we had this profit of BRL 5 million to be recognized in the third quarter 2020. These profit sharing numbers are quite interesting. And on Slide 14, I'll talk a bit more about that.

But before, it's important to highlight the growth of our portfolio in terms of average balance. If you compare the second quarter 2020, when the portfolio had BRL 5.7 billion, and today, we are at BRL 6.5 billion -- BRL 6.54 billion, which is growth of approximately 14%, which reflects improvement month-after-month regardless of the portfolio having prepayments as it happens in the Brazilian market with periods of 30 to 35 years in mortgage, the duration is much lower than that.

So this increase despite the BRL 200 million of financing announced in the month of June 2020 makes our numbers to be positive, that is in the last 12 months we had an increase of more than BRL 800 million in terms of balance that was added to the portfolio between prepayment and new originated financing.

On Slide 14, that shows that we have profit sharing results going up. So the results grow as the average balance of the portfolio grows. And also remember that in the months of May, April and June, we also had a drop in the Selic interest rate. In April, it was 3.75%, and it went down along the quarter. And so it ended at 2.25%. And now in August, it is at 2%. But this quarter, the Selic interest rate also benefits just 2 lines of financial expenses and on capital because they are impacted by the driver of the Selic interest rate.

So we have been improving month-after-month from the mortgages growing up in volumes and a healthy portfolio enabled us to have good results, as you can see on what we are reporting today.

And talking about reporting, we, this quarter, will start to adopt the same practice that we have once a year. That is showing our profit sharing evolution. And now we are going to start to release that every quarter as we did in terms of the whole of the year, about having profit sharing and virtual P&L on a quarterly basis. In the past, we did that just annually, but now it's going to happen every quarter.

Well, once again, thank you for the opportunity. I wish you all a good afternoon. And I'll turn now to Beatriz, our IR Officer, that is going to talk about our financial results.

Thank you very much.

[Beatriz Lavieri, executive]

Thank you, Francisco. Good afternoon, everyone. We are going to go to the financial results, starting on Slide 16. Here, we have the consolidation of the company's net gross revenues. You see to the left, BRL 631 million of transaction closed multiplied by the net commission gives our transaction gross revenue of BRL 3.1 million.

With that, we add all the other revenues from segments: BRL 2.4 million franchise revenue and profit sharing of 1% in addition to other revenues. To total, the gross revenues of the period of BRL 36.3 million, we have to add BRL 3.6 million that is revenue to accrue from Itau operations that is cash for the company.

On the table on the right, we have the net commission fee per region. We closed at 2.12%, a slight drop compared to the second quarter '19 basically because of reduction of the average ticket in the period.

On the next slide, Slide 17, we have net revenue and our cost and expenses. Here, on the left -- right, you have -- on the left, I'm sorry, you have the net revenues in the period. Although we have been impacted by the company with a reduction in 22% of our franchise and 44% in our own brokerage operations, CrediPronto had significant increase, 73%, considering profit sharing and originations. With that, we offset the effects of the other business with a total of minus 15%, which was quite positive given the challenging scenario.

On the right, we have the total cost and expenses with BRL 24.9 million, an increase of 3% or BRL 16 million in the period. Basically, these are because of the measures that we had to take with regards to remote work. Legal expenses also had a slight increase because of provision of contingencies occurring, an increase of BRL 650,000 and also the payment of success fee increasing the expenses for our litigation part in the period.

On the next slide, we have a comparison of EBITDA and net income before IFRS. On the left, EBITDA, BRL 8 million at the end of the quarter with a margin of 24%, a reduction of BRL 7 million compared to last year, basically is explained by what we had in the period as is explained before. To the right, we have net income and net margin attributed to controlling shareholders, again, a decrease of almost BRL 7 million because of the same reasons, closing the period at BRL 2.5 million of loss.

On the next slide, Slide 19, we see results by segment. As expected, our sales transactions was the most affected with a negative margin and a loss of BRL 10.3 million. In franchise, we were also impacted, but we had a positive contribution margin given our asset-light business model. We closed the quarter with a profit. And CrediPronto has the best positive contribution to the company, basically because of profit sharing origination closing at BRL 10.4 million. Consolidated before, again, the distribution to controlling shareholders was BRL 1.1 million; and after the net income attributed to controlling shareholders, BRL 2.5 million negative as presented in the previous slide.

On Slide 10 (sic) [ Slide 20 ], we see the IFRS impact in our results. The main impacts are related to the periodical reassessments that we carry out with the company. So see here the financial results with a variation of BRL 7.3 million. And the total impact that is caused by the new assessment was without any cash effect. So we recommend the analysis of our numbers without this effect.

Finally, on Slide 21, we have cash variation in the period in terms of cash flow generated and cash equivalents. To the left, we have the general flow, positive -- cash flow positive of BRL 3 million, which is explained by the good results of CrediPronto. And to the right, when we consider finance and investment activities, we had approximately BRL 3.1 million in the period. Basically, we have the digital project, as Marcos mentioned, as our key priority.

And basically, the idea is also the distribution of good results. And therefore, we closed the quarter with a cash equivalent with a total of BRL 140 million in the period, which is quite comfortable for the company.

And now we have closed our presentation in terms of financial results, and we are going to open for your questions.

[Operator]

[Operator Instructions] Our first question comes from Elvis Credendio from BTG Pactual.

[Operator Instructions] Since there are no questions, we are going to close the Q&A session.

We are going to turn the call back to Marcos Lopes, the company's CEO, for his final consideration. Please, Mr. Lopes, you may go on.

[Marcos Lopes, executive]

Well, thank you very much for attending our call to disclose the earnings of the second quarter 2020. We would like to tell you that the company is very proud about how it reacted to the pandemic. I think that we have done very well in terms of health management and our brokers and agents work as we continue to invest in our digital project, moving on as possible and recording market share that is being confirmed in the second half of the year.

Launches are going on, and that reinforces our confidence in the future. And CrediPronto, perhaps the highlight of the quarter, doing very, very well. We are very happy to say that we are on the right path, and we wish you all a good day. Thank you very much.

[Operator]

LPS conference call is now closed. We thank you very much for attending and wish you a good day.

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