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Edited Transcript of TCSA3.SA earnings conference call or presentation 24-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Tecnisa SA Earnings Call

Mar 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Tecnisa SA earnings conference call or presentation Friday, March 24, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Meyer Joseph Nigri

Tecnisa SA - CEO

* Flavio Vidigal de Capua

Tecnisa SA - CFO & IRO

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Conference Call Participants

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* Gustavo Cambauva

BTG Pactual - Analyst

* Felipe Gies

- Analyst

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Presentation

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Editor [1]

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Audio begins in progress.

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Operator [2]

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-- Meyer Joseph Nigri, Vice CEO; Flavio Vidigal de Capua, CFO and Investor Relations Officer; and other executive officers of the Company. Today's live webcast and presentation may be accessed through Tecnisa website at www.Tecnisa.com.br/IR and the Engage-X platform where everything will be presented.

We would like to inform as well that this event is recorded and all participants will be in a listen-only mode during the Company's presentation. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Tecnisa management and on information currently available to the Company. They involve risks and uncertainties because they relate to further events and therefore depend on circumstances that may or may not occur.

Investors should understand that conditions related to macroeconomic scenarios, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Meyer Nigri, who will begin the presentation. Mr. Nigri, please take the floor.

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Meyer Joseph Nigri, Tecnisa SA - CEO [3]

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Good afternoon to all. Most welcome to our web call on the earnings results on the fourth quarter and 2016.

Despite the problems we had in the fourth quarter, due to the high interest rates, we had a very good results of BRL173 million due to our monetization of our assets. And this made our investments have the best results in the last six years and the main result -- reason for our results not being even better were the cancellations.

Please realize that in 2016, we had 52% of the amount sold in the same period and this result was due to our cancellations, which was very harmful to all of our [risk factors]. These cancellations were equivalent to a PSV of a nominal value that any monetization value was equivalent to that. And whatever accounting practices we do, we had cancellations and we sometimes are obliged to give great discounts and we had to account for BRL221 million in the year in terms of monetizations.

This strategy will go on based on the monetization of our financial assets, but we already want to advance the following. We will go on building residential properties. We will go on also reducing our administrative expenses.

We presented our projects launched in the second half all in the city of Sao Paulo and to minimize the effect of cancellations, we prioritized projects with units up to BRL400,000 within the program for the holder. It let both to transfer already in the project stage with the resources subsidized by the government severance fund for indemnity of employees. All these expenses were 32% smaller than in 2015 and this represents a decrease of almost 50% in two years, this reduction of 32%, and we hope to go on decreasing this amount in the coming year.

Now we go to the next slide and I would like to mention another point of the increase of capital which we announced yesterday. As a way of reduce our indebtedness, we increased BRL180 million private increase amounting to almost BRL54 million. We have confidence in the amount of the Company and the value of our amounts and we still have some problems in our industry.

To conclude, our satisfaction with client satisfaction concerns is still present and we work in the most relevant area in the country. And the premium, or as we saw in 2016, and we got the price that for Tecnisa is the best company in terms of respect for consumers. Now we want to mention that our previous CFO also received the price for full dedication to our company.

I want to introduce our new CFO, who has great experience in the area. Now I will give the floor to him and he will give us the view on the last quarter of the year. Thank you very much.

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Flavio Vidigal de Capua, Tecnisa SA - CFO & IRO [4]

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Thank you very much, Meyer. Good afternoon to all. Now I will start. Sales, gross sales were BRL293 with an increase of 22% and we had BRL257 million of gross sales and net sales in the quarter increased BRL[253] and in fact the cancellations represented an increase of 15%. Throughout the year we closed with net sales of BRL362, an increase of 20%.

Going to the next slide, not considering that BRL316, as Meyer commented, we closed the quarter with a decrease of 2% as compared to the previous half of the year. And 7% of the budget of the quarter. 58% in all the percentages according to the graph that you have in front of you.

Now the next graph. We have a landbank of 58%, BRL5.8 billion, 79% of the landbank acquired in cash, and all the other land slots are distributed in four points which amounts to 57%. An all-in strategic points (inaudible) land slots were renegotiated as Meyer mentioned. In terms of approved projects, we have BRL2.5 billion approved, 145 of them in state of Sao Paolo and the great mention is that most of them were paid in cash.

Now the next slide, the operating performance deliveries slight positive. We had a PSV delivered of -- in the last quarter of BRL456 million, approximately 6,500 units delivered in the quarter.

Now the next slide. We had BRL168 million as compared to BRL251 million in the fourth quarter and BRL300 million receivables transferred to financial institutions. And here you see the number of units was 3,184 units transferred.

Now we have the financial performance. We speak here of net revenue of BRL75 million and comparing year after year, we have here tried to compare with 2015. You see the total in 2015 here and 2016 was BRL329 million and here you see 2014 compared to (inaudible) [329].

In terms of net results, in the fourth quarter we had BRL329 million, but I want to say that we had several nonrecurring items in this quarter. And one of the events that was created here, as you can see, the top quality, the provision of BRL107 million for cost of remeasurement of units in inventory aside from sale. And we also have approximately BRL58 million here and one of the effects of cash, we have (inaudible) also of BRL30 million in equity income, primarily as a result of the reinforcement of provisions for this track.

Now going to financial position, we spoke about cash. We maintained our cash position. We have almost the same value as in the previous quarter with total receivables here BRL75 million, BRL174 million in the 4Q in total receivables. I want to remind you that the total here was BRL284 million, as you can see here, and the BRL175 million in this total receivables, you can see all the other amounts here described.

Now on the next slide, you can see that our equity we closed the fourth with [1.448 million net to equity] and you can realize already some profits in our total indebtedness. You can see the figures in BRL1,067 and this is part of our debt with financial housing system, SFH, and here debt amortization schedule in the short term.

Now financial provision. Adjusted net value net debt variation BRL174 million in the fourth Q and the variation here without the IFRS impact yet of the Brazilian accounting system. The next slide shows us the financial position with the reduction of BRL458 million in the operating leverage in the last 12 months, that's quarter after quarter you see here, as compared to 4Q 2015 with BRL44 million jobs executed or work executed with BRL937 million executives.

Next slide is our financial position with our net debt over equity. Here, if we consider the increase of capital and we went to 45% here, this is quite a good number. And the net corporate debt over equity you see here the amount of 7% on closing.

And I would like to thank you for your attention on our presentation and then here at your disposal for any questions. Thank you very much.

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Meyer Joseph Nigri, Tecnisa SA - CEO [5]

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Thank you very much and now we open for our Q&A session for investors and analysts. Since our teleconference is being simultaneously translated into English, I would kindly ask you to pose the questions and Portuguese and then we will have a second stage for English questions. Kindly ask the English questions at once. (Operator Instructions)

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Operator [6]

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Gustavo Cambauva, BTG Pactual.

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Gustavo Cambauva, BTG Pactual - Analyst [7]

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Good afternoon. I have two questions; the first I would like you to delve a little bit more on the capital increase. Perhaps last year when you announced the previous capital increase, what happened differently from what you had thought at the time and at the end of the day led to this new capital increase? What really happened differently?

Was it cancellations, more cancellations that impaired the situation? What was it that worsened the situation? Or is it that you are seeing something more dangerous in the near future? What was it that made you take a no capital increase?

My second question is due to (inaudible) business enterprise, the project, it's still very high in levels of cancellations. What about your active debt, not in terms of contracts, but in terms of sales of units? Is the demand going stronger or do you imagine that there is some difficulty in terms of this specific project? Thank you.

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Meyer Joseph Nigri, Tecnisa SA - CEO [8]

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This is Meyer. Good afternoon. In terms of your first question, Gustavo, capital increase, our first increase was due to the contingencies of the time. But in -- at that moment we thought that the cancellations issue was set, but in the middle of last year and until today the cancellations number was much higher than what we had expected. And the impeachment and the situation last year was a significant impact on us. And the interest rates.

And so we thought this would have gone faster, but it didn't. And the assets analyzed is done in a certain way, but you never know what's going to happen exactly. But we had expected some things to go one way, they didn't and in a given moment we do think your actions are going to be convenient to improve capital structure. And everything is very expensive and then you have to use what you have for your working capital.

I think that this is a important measure, our new capital increase, and I think that we will feel relieved, the Company will feel relieved in terms of growth. And this -- we will have all our figures in a very low situation. Judging (inaudible) would like to answer you.

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Unidentified Company Representative [9]

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Judging the stages is [clear]. We have 10 units delivered. Out of 2,048 units only 332 are in inventory. All the rest were sold. Many people are already residing there.

With them I have talked. They are very happy. The place is beautiful. They have the park, adjoining park and everybody is very happy. They are content.

And as (inaudible) we are giving good reductions and announcing -- and we have a new advertisement that just went -- was just aired last week. We are being able to reduce the number of cancellations and I think that this number of cancellations is marginal now. Therefore, I think that our inventory, which is now at 27% overall, I think it will shrink even more. It's shrunk a lot this year-end, but I think it will shrink even more now.

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Gustavo Cambauva, BTG Pactual - Analyst [10]

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I just wanted to make a piece of comment now on your report in view of sales. But there were corporate sales; I couldn't understand the difference between the (inaudible) sales and these sales. Nonrecurring sales, but the sales of a commercial building wasn't recurring.

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Meyer Joseph Nigri, Tecnisa SA - CEO [11]

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Well, we can discuss afterwards the report. This was a relevant sale. This was not recurrent because it's not every quarter that we sell a whole building of this size for a relevant amount, but I am at your service if you want to discuss with me after the call.

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Gustavo Cambauva, BTG Pactual - Analyst [12]

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With great pleasure. For me it will be very interesting. Not considering the building sale but we sold it at a lump sum all at once.

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Meyer Joseph Nigri, Tecnisa SA - CEO [13]

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Okay, we are your service. Meyer was speaking.

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Gustavo Cambauva, BTG Pactual - Analyst [14]

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Well, thank you very much.

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Operator [15]

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(Operator Instructions)

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Felipe Gies, - Analyst [16]

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This is the [Felipe Gies.] I have two questions through webcast. First, to Capua, regarding operating expenses. This refers effectively to cost, the BRL117 million, and I will send this question to Flavio Vidigal. This regarding the land slot.

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Flavio Vidigal de Capua, Tecnisa SA - CFO & IRO [17]

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Well, we remitted the value to what we believe is market value. Costs; we analyzed, re-analyzed all the costs we have and compared them to the total of our inventories and we realize that some of the products we were considering then below the market price. And then we reassessed our inventory and adjusted the values. Mainly in the BRL58 million in inventory.

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Unidentified Participant [18]

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What is Tecnisa's position in how you should deal with cancellations? There is a very strong condition. I would like to know from Tecnisa in this situation in which buyer transfers and the buyer transfers all the property, isn't there too much risk for the buyer? Should we use --?

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Unidentified Company Representative [19]

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You can check with any company in Europe, in the US, in China, in Israel, Mongolia, you can check all of them. Customers lose everything they paid and in most of these countries they even have other penalties. So it's very tough for buyers to buy a property and the next day they owned -- don't own it anymore.

In my opinion, the right to cancel should not exist. There should not exist the right to cancel with unilateral rights. If there should be the right -- there shouldn't be the right of cancellations in a unilateral session because this is unfair. There shouldn't be maintained the right of cancellation from the side of the buyer.

But this speculation situation isn't fair because some -- there are people who buy and, due to speculations, they cancel and they get all their money back. And this, therefore, brings about huge losses to developers and most of our industry is highly impacted by that. These launch risks are transferred -- are not transferred to buyers and, therefore, they shouldn't have the right to cancel.

And even not having the right to cancel, they do not set aside the purchasing, because they want to buy a house. So in the case of force majeure, if they lose their job or if they have someone very sick in their family, okay, this is fair and just. They should sign for lower values in purchasing a house, but those who bought 20 offices and they want to cancel, then this is a different situation.

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Operator [20]

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(Operator Instructions) Thank you very much. Provided there are no more questions, I would like to convey the floor to the Company for the last consideration.

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Meyer Joseph Nigri, Tecnisa SA - CEO [21]

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In view of the current difficulties, I am very happy and confident on the sector. We want to say that the level of confidence of consumers are resuming and that in Brazil we are undergoing much better times than in the past.

Both the commercial and residential properties are resuming to the previous levels. Our increase of capital brings our company to a very solid space and I see that we have a trend of lower discounts with the lower indebtedness. Therefore, all the situations improved for the half of the year. We decreased our level of indebtedness and I think that we will face easier situations throughout the year.

Thank you very much and I hope to see you and have you all with us in our next presentation next quarter. Thank you very much.

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Operator [22]

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Thank you very much. Tecnisa earnings conference call is ended. You may disconnect your lines. Have a nice afternoon.

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Editor [23]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.