Nexpe Participacoes SA

BOVESPA:NEXP3

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome at this time to earnings conference call for Brasil Brokers' fourth quarter results. We would like to inform that all participants can find the slide deck on the Internet at www.brbrokers.com.br/ir website. Once again, the following -- the respective slide deck can be found there.

[Operator Instructions] We would like to inform you that questions can only be asked by telephone. If you are connected through the webcast, you should e-mail your question directly to the IR team at [e-mail].

Before moving on, we would like to inform you that forward-looking statements made during this conference call concerning the company's business assumptions or perspectives and also operational and financial goals are based on assumptions and beliefs of the company's management. Forward-looking statements are no guarantee of performance as they involve uncertainties and unforeseeable events, which might lead to different results. General economic conditions, industry conditions and other operating factors might affect the company's future results and leads to results that differ materially from these expressed in the current forward-looking statements.

First, Mr. Claudio Hermolin, the company's CEO, will present the operating results. And then Mr. Pedro Alvarenga, Financial Director, will present the financial results.

So please, Mr. Hermolin, you have the floor. You may carry on.

[Claudio Hermolin, executive]

Good morning, everyone. We will start our conference call around our earnings and results relative to the fourth quarter 2019 and the whole year 2019.

Before we move on to the presentation, we have to talk about the COVID-19 pandemic, which has been affecting populations and economies across the world. At BR Brokers, we prioritize health of all our associates, partners and clients. This way, we have adopted all necessary measures so as to maintain our operations ongoing as efficiently as possible, strengthening channels and tools that allows us or allows our partners and clients to have their journey -- their commercial journey in a safe way, following the guidelines provided by health authorities.

On Slide #2, I will briefly cover the main highlights of the period. Last year was marked by the consolidation of our diversification strategy, which was adopted with an eye at expanding our business opportunities and which also strengthened the company in moments of crisis and allowed for the raising of new financial lines and acquiring new clients and providing a good experience for our customers. The economic scenario and the increasing competition in the market reinforce the need that we have an increasingly global view of our portfolio so that we can distinguish ourselves in the market. Today, we have created at BR Brokers a unique platform in the Brazilian real estate market, where we can offer a very broad spectrum of different products and services. That strategy has allowed us to reach better results in 2018. And then in 2019, it became clear how effective we were when we took that decision.

Our gross revenue grew by 21% when compared to 2018. The expressive increase in revenue was driven by the growth of our different business lines, especially corporate and financial credit -- or housing credit. 27% of our revenue comes from the primary market; 31% came from financial services; 23% (sic) [ 24% ] came from our corporate business line; 12% from our secondary market line; and 8% emerged from our rental business line. Such evolution, combined with a significant drop in expenses, led the company to reach a very good operating results as you can see. And that's one of the topics which was very important last year and which we'll be touching upon in more detail as we move on.

Briefly talking about our primary market. 2019 was marked by a gradual growth in the number of transactions in São Paulo across our sales segments and by our growth in the high-income segment in Rio, which increased our average ticket. We have materialized in the second half the fusion of our operations in São Paulo, which are now known by our most valuable brand at the main region in Brazil, the brand is Abyara. And with that, we can better use our marketing strategy.

I'd like to emphasize the expansion of our digital platform, the so-called Desenrola, which aim to simplify and remove bureaucratization when somebody wants to buy or sell real estate. We started in the city of Goiânia, we have expanded to Cuiabá. And earlier this year, we brought this platform to the São Paulo market. Another important driver in our result was the growth of our corporate line. Once again, for another quarter, we increased results for that.

Lastly, in terms of financial services, I'd like to highlight we have reached the amount of BRL 2 billion in financed amount in 2019. And we became the largest independent player in that front in Brazil. We have renewed our partnership with Bradesco for housing credit for another 10 years. We have expanded to other channels, especially the online channels with partnerships with OLX and ZAP and widening our portfolio of services through the home equity offering.

Moving on to Slide #3. We have detailed some of our business lines launched, starting by purchase and sell, which is a dynamic of our market. The PSV launched grew by 42% when comparing 2019 and 2018, driven by a robust growth in São Paulo and by a recovery of the high-income financing in Rio. Despite our PSV contracted having reached a minus 6% throughout the year, which was coming from a different performance in different regions, we are better when we compare year-on-year, especially in the primary market when you compare to 2018.

The negative impact was driven by the slow recovery of the secondary market, and the country suffered in other regions. It's important to know that in the fourth quarter, it's already possible to see the evolution of the business. And we see an increase of 38% when compared to the previous quarter, showing an evolution and reflecting higher number of launches, especially in the states of São Paulo and Rio.

Moving on to Slide #4. Banks show a higher appetite in granting credit with better rates, which led to a recovery signs in the secondary market. It's important also to mention the expansion of the average ticket when compared 2019 to 2018, which reflects our change in strategic positioning, when we invested more in high-income segment. In 2019, the PSV reached 5% more than the previous year.

If we speak about the fourth quarter 2019, the PSV grew by 24% when compared to the same period of the previous year and 5% when compared to the third quarter of last year, clearly showing a significant evolution. And we started our first test with our digital platform, the so-called Desenrola, for business related to finished products in the city of Goiânia. The model developed for ranking can be easily replicated for the sales of business because the customer journey is very similar.

On Slide #5, we talk about the rental, which was seen as a main priority for the company in 2019. So we invested in technology and we dedicated a significant amount of time to leverage that line. We believe that combination of best technology that we have in the market with the customization of our services led to better results than we would have in the traditional model. And that's how this new brand was born, the Desenrola.

And we need to create a nice entity for that platform that we can create an image of expedition, streamlined and efficiently. We closed the quarter with an increase of 51% in the number of units brokered, reaching the number of 278, a 72% increase when compared to the previous year. We started the expansion of that line of business to other regions, including the state of -- the city of São Paulo earlier in January.

On Slide #6, our corporate market line. We've reached the expressive landmark of BRL 1.3 billion last year negotiated in the last 12 months, more than twice as much as we had in the previous year. That happened across different segments. And of course, that happened as we welcomed new executives onboard. It's a very important business line for the final results of the company and offering a very high operating margin.

On Slide #7, I'd like to comment on the results reached by our financial services line. I'd like to highlight the total volume of new contracts exceeded BRL 2 billion recently, which made us the highest credit ranking player in Brazil. The Credimorar grew by 700% through a very broad network of credit partners. On top of our own outlets, we also resort to other channels. Within our strategic plan, we are now exploring new products, for example, home equity or mortgage.

I'd like to turn the floor over to Pedro Alvarenga, our Financial Director, who will be touching upon more detail about our numbers for 2019 and the fourth quarter of last year.

[Pedro Alvarenga, executive]

Thank you, Claudio. Good morning, everyone. Moving now with our presentation, on Slide #8, you will see a breakdown of our numbers. We see an expressive improvement. Our successes both in the first instance and the second instance has been clear in the number of new claims filed, saw a significant drop in the past 3 years, coming down from 22 monthly average to an average of 4 per month, a significant drop, bringing better perspective as we look forward.

Since early in the year, we have managed to reduce by 36% the number of labor liabilities as we raised new resources. We have started a new strategy of new settlement to decrease our liabilities. [ 35% ] [indiscernible] come to support both legal suits. So we had 140 settlements since 2019, leading to a drop of 30%, generating a savings of BRL 16 million for the company. So as a consequence of this speeding-up of a number of settlements, it's possible to see an acceleration in the line of lawsuits, as you can see in the other chart. As seen in our report, losses coming from suits in 2019, that amounted to BRL 42 million, 113% above 2018.

And then the next slide, we'd like to show the main enhancements in our labor suits in terms of annual -- reaching BRL 169 million in 2019, a growth of 21% when compared to 2018, driven by a larger number of sales, especially in the cities of São Paulo and Rio, and an optimal result we reached in our corporate line and by the strong annual growth in our financial services line. It's worth mentioning that we have a company which is much more balanced than before with several growth leverages in place, which reflects the success of our strategy adopted early on.

We maintained our focus on expense control and other expense monitoring. In fact, we managed to reach a balance between new launches, corporate business consolidation and expansion of the secondary market. And that has become a mantra for us to leverage our business going forward. It's worth mentioning that in the past years, we stopped operating in certain regions. And we have renegotiated 100% of our lease agreements. We improved the performance of our back-office operations. And we have also conducted several round of negotiations with suppliers, especially for TI and telecommunications. As we exclude legal expenses, we've been in comfortable balance since 2018.

On Slide 11, I'd like to focus on cash flow. We have reached the objective of positive cash flow this year with something close to BRL 2 billion. We closed the year with [ BRL 91 million ] and the company had another BRL 17 million with an average term of 87 days. Even with the improvement in the operating front, we still have significant cash challenges, especially due to our labor lawsuits, which we'll be facing in the coming 2 years. The current cash pressure becomes relevant in terms of the legal issues. Lastly, we cannot forget that during this uncertainty period because of the pandemic, we will need to maintain a higher cash position to be able to face the challenges coming forward.

And this concludes our presentation, and we can now start the Q&A session.

[Operator]

[Operator Instructions] This concludes the Q&A session. At this time, I would like to turn the floor back over to Mr. Hermolin for his final remarks.

[Claudio Hermolin, executive]

Once again, I'd like to thank you all for participating in our earnings call. I'd like to emphasize that our IR team remains available for clarification, questions and comments that you may have. Please do not hesitate in getting in contact with us. Have a nice day, everyone.

[Operator]

Brasil Brokers' earnings call is now over. Thank you all for participating, and have a nice day, everyone.

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