Conference Call Transcript 3Q07 Results November 13 th, 2007

Transcription

1 Good afternoon, welcome everyone to TECNISA 3Q07 earnings conference call. Today with us we have Mr. Meyer Joseph Nigri, CEO, and Mr. Leonardo Paranaguá, CFO and Investor Relations Officer. Today s live webcast and presentation may be accessed through TECNISA website at: We would like to inform you that this event is recorded and all participants will be in a listen-only mode during the Company s presentation. After TECNISA remarks, there will be a question and answer session. At that time further instructions will be given. Should any participant need assistance during this call, please press *0 to reach the operator. 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 future events and therefore depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, 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. Leonardo Paranaguá. Mr. Paranaguá, you may begin your conference. Good morning every one, welcome to our 3Q07 operating and financial results conference call. We have today here with us Meyer and some of our directors attending the call. We prepared a very straightforward presentation, which focuses on the recent launchings and the approval stage of the projects to be launched before the end of the year. We will have now Meyer speaking about the main highlights of the period, starting on page six of the presentation. Meyer, please. Meyer Joseph Nigri: Good morning every one. I am very satisfied with the Company. The 3Q was very important for the Company, as we moving towards the guidance given at the beginning of the year. The Company has grown substantially comparing to 2006, keeping the high profitability that characterizes our projects, as you can see in our financial statement. This quarter was especially important to me because we celebrated Tecnisa 30 th anniversary. In September of 1977, I founded Tecnisa when I was 22 years old and at the last year of the University. I would like to draw your attention to some points of this quarter. We launched R$183 million in the 3Q and R$283 million in October and early November, reaching R$715 million in the year. We already have R$259 million in project approved by the competent department to be launched in the next days allowing us to reach R$974 million, almost delivering the R$1 billion launched guidance for

2 Even the size of our current land bank, we considered the guidance of R$1.2 billion of launch in 2008 to be very conservative. Contracted sales were over R$200 million underlying both the excellent moment for the sector and the acceptance of our products. We have been keeping high margin, our gross real estate margin was 40% in this quarter, one of the highest in the market. It is worth mentioning that the backlog margin, which has been consistently growing, reached 41.3% in this quarter. Our net margin was 24% in the quarter, in line with the previous quarter and reached 25% in the year. We continuous our geographic expansion, in November we started a new partnership with NCBR and Tecnopar in the City of Manaus. We now have 10 partnerships contributing significantly to our strategy of income levels and geographic diversification. We are currently in seven Brazilian states capitals and in other 12 cities in the state of São Paulo. We would like to announce a new independent board member, Mr. Roberto Rurman, he is an experienced executive from the financial market who worked for Citibank in and Safra bank, he was also a partner of Matrix Bank. We would also like to highlight the hire of Carlos Alberto Julio who replaced me as a CEO of the Company after January of Julio is an experienced executive with experience as the CEO of Polaroid and HSM. Julio will have a key role helping the Company to grow in a most structured way. The new structure will allow me to dedicate more time and energy to strategic and business decisions. We have an aggressive management model designed to reach our ambitious growth target. We started the stock option plan to all management levels of the Company, aligning the interest of our management to our shareholders. Finally, we were awarded with five important rewards in the period. The magazine Você S.A. Exame, awarded us as one of the best companies to work for, the only company in the real estate market and the magazine Carta Capital ranked us the third most admired company in the sector. The web, which has been an important business channel, was also awarded as you are seeing in the presentation. Now I would like to give the floor to Leonardo who will present the 3Q07 results. Later on, we will begin with the Q&A session. Thank you. We begin the presentation of our operating performance on the slide eight, which shows the launches made during the quarter. We launched four projects in the 3Q, totaling R$183 million. At the end of 3Q, we have launched another R$277 million and so far this year we have reached R$715 million in launches, a growth of almost 200% compared to the volume launched in the entire year of Two projects refer to José Gomes Falcão, which was a great commercial success. The commercial tower was fully sold out in 48 hours while 53% of the residential towers have already been sold. On the next slide we have a breakdown of the launchings to be made before the end of the year in terms of approval status. We have R$259 million in approved projects, - 2 -

3 which will allow us to record R$974 million through the end of Thus, we are very positive about achieving the guidance, we need the approval of only R$26 million to meet this goal. On the next page, you can see the sales breakdown. Sales amounted to R$203 million in the quarter, an increase of 70% compared to the previous quarter. Including sales made after the end of the quarter this figure goes up to R$465 million, which represents more than 50% more than what we sold in the whole year of It is important to mention that the delays occurred in the beginning of the year made us concentrate our launchings on the 2H, which demonstrates the high sales velocity. We have successfully kept our margins and launchings, which can be seen in an increase of our backlog margin. We have continuously monitored the demand for each product through our sales team so, we can, whenever we believe it is feasible, adjust prices before the projects are launched. We have already increased our sales team to over 100 brokers. Page 11 shows the size of our land bank and its evolution since the last conference call. We recorded a decrease in our land bank due to the launchings we have made. Our land bank is now worth R$4.6 billion in potential sales, a decrease of 11% compared to the previous quarter. In the next two pages, we will show the breakdown of our land bank in terms of geographical diversification and the income segment of our product are targeted at. On page 12, we can see the largest portion of our land bank is still located in São Paulo. It is important to say that almost 70% of the land bank in the city comes from the piece of land acquired from Telefonica. This project will be launched in stages, so not representing any risk of concentration in each specific year. On page 13, we can see that 73% of our land bank relates to the middle-income segment. We have simplified the classification reducing the number of segments to three. We joined the medium low, medium and middle high segments in a single classification which we now call middle segment. A total of 73% now falls under this new classification. We will now talk about the Company s economic financial performance in the 3Q07. On page 15 you can see the evolution of net revenues, which gained 52% in the 9M07 against the 9M06 reaching R$251 million. This increase was a result of the recognition of the New Jazz, Change, Inovarte, and New Worker tower projects of a higher percentage of completion of our projects under construction and of an increase in service revenues. Our gross margin reached 37.5% in the quarter within our guidance range. Excluding the effect of service revenues, our gross development margin came to 40%, one of the highest rates in the market. Our backlog margin is presented on the next page. By the end of the 3Q07, we had R$383 million in backlog revenues, with a gross margin of 41.3%. It is important to observe the growth of this margin because it shows both the improvement of the market and our ability to raise prices whenever we think it is possible

4 Next page we see the beginning of the dilution of our G&A expenses, which accounted for 9% of the quarter s net revenues. The Company has considerably increased expenses since the end of 2006, due to the new larger corporate structure and in this quarter we can see the first signs of dilution of these expenses. We can also notice our commercial expenses represented only 5.2% of the net revenues, driven by key factors such as our superior customer pool sale relationship in the Internet, which represented more than 45% of our year to-date sales, cutting expenses with additional advertising. As a result, we can see the recovery of our EBITDA margin, which moved from 19% in the 2Q to 23% in this quarter. Year-to-date we have recorded a 21% EBITDA margin. Net income amounted to R$25.4 million in the 3Q and almost R$64 million in the first 9M07, adjusted by the IPO expenses. The net margin remained and in line with the previous quarters, reaching 24.4% in the 3Q and 25.4% year-to-date. To conclude this presentation, we see in the last slide the awards, which we have been granted recently. We would like to highlight the awards given by the magazine Exame and Você S.A., which included us among the best companies to work for, and we are in this case, the only company in the real estate market. Also the award Master Imobiliário, the category use of new media and the awarded given by Carta Capital, which ranked us the third most admired company in the sector. With this, we conclude our presentation and I will ask the operator to start the Q&A session. Thank you. Vinicius Molina, Phoenix investments: Good morning. I can see your margins growing, but are the same margins being sustainable going forward? Hi, Vinicius. Yeah, we think the margin will grow to be the same for the next, or maybe it will be a little bit higher, for the next year or maybe more. Why? When I mentioned last year that we were very confident that the margins would keep the same or would be a little bit up, we were right, and there are a lot of reasons for that. Having a high margin, especially net margin, there are many factors involved together. For example, the first reason, because we have the construction company too, we save some money and have a better margin because you do not have to hire contractors and a construction company. Also because we have our own brokers in the house sales force. We sold last year, 66% of sales kind from our in house sales force, and that means that we save money when we sell internal. And another point is because the general expense. We grow the Company, we hired a lot of people one year ago, and now that we are increasing the Company even for the future we do not have to increase the number of staff. We do not have to increase in the same proportion of the sales. So, I think general expenses is going to represent less then normally represents

5 And many other reasons, because we are focusing the saving money in the construction in the internal sale, because we sell, we do not spend too much money in advertising, because 22% of sales come from recommendation, because we treat the clients very well and 25% came from Internet because we are very strong in the Internet. The cost of advertise in the internet is for sure cheaper than in the traditional media. So, all together combined makes our margin be probably one of the highest, if not the highest one of the market. Vinicius Molina: OK. Thank you. Thank you. We do not have any further questions, I will not turn it over to Mr. Meyer Joseph Nigri for final consideration. Mr. Meyer you may give your final considerations now. Meyer Joseph Nigri: I am very confidential in the direction we are heading. We believe we will reach our goals without prejudice to our margin and profitability. Our current result already demonstrates all our work and care in to the development of our business. On behalf of Tecnisa s team I would like to thank everyone for attending this conference call. We are at your entire disposal for better follow up and the understanding of our operation. I will also reinforce the invitation to visit our Company. Have a good day. Thank you. Thank you. This concludes today s Tecnisa earnings conference call. You may disconnect your lines at that time