Construtora Tenda S A : Dados Econômico-Financeiros

Financial Statements

2022

FINANCIAL STATEMENTS, DECEMBER 31, 2022 AND 2021

MANAGEMENT REPORT 2022

MESSAGE FROM THE MANAGEMENT

2022 ended with the issue of costs proving to be more challenging than initially imagined, but on the other hand with important achievements in our profitability resumption. We reported a loss, until recently unthinkable, of R$ 547 million in the year, as a result of a highly inflationary period in the civil construction sector, which especially impacted our construction model based on concrete walls and quick turnover, minimizing our time to respond to price increases. In addition, as we will show later, the unfolding of the disruption in the supply chain has had a relevant impact on our construction model, also based on an industrial approach, in addition to the impact of high interest rates in a period when we had to leverage our balance sheet.

But the good news is that 2023 is showing clear signs that this will be the final year of transition to resume profitability. Some of these signs have already appeared in 4Q22 results, such as operating cash generation and the continued recovery of new sales margins. In 4Q21 release we had made a commitment to reach the end of 2022 with gross margin on new sales between 28% and 30% and 32% to 34% by the end of 2023. We managed to exceed the ceiling of this guidance, with gross margin on new sales at 31.1% in 4Q22.

Evolution of Gross Margin from New Sales (%) and Gross Profit from New Sales (R$ million)

This margin improvement has two main pillars:

1. Improving our processes and work controls: As already explained over the last few quarters, we continue with an extensive action plan that includes the discontinuity of typologies above 16 floors, which, in addition to being more complex in execution, have worse specific consumption of cement and steel per unit, in addition to increased control of the infrastructure execution and project implementation, previously outsourced to contractors, among other measures.
2. Price gain: Although we have already reached 32% of adjusted gross margin from new sales, we want to continue improving this indicator. In the current context, we are already finding it more difficult to increase this indicator in several regions, where our customers' income already conflicts with our ambition to set a higher price. However, we are confident that the improvements in the parameters of Minha Casa Minha Vida (MCMV) program, which tends to benefit families with incomes of up to R$ 2,640 Brazilian reais/month, in addition to the entry into force of the use of future FGTS in income composition, will allow us to reach higher margins, in the search for the top of our guidance, which ranges from 32% to 34% in new sales margins in the year.

3

Regarding cash consumption, this was another major positive highlight of the quarter, since not only did we continue the downward trend in total cash consumption, which has been going on since 1Q22, but we also had operating cash generation of R$ 17.4 million in 4Q22, an important milestone in the company's restructuring process.

Total and Operating Cash Consumption (R$ million)

As a result, our leverage measured by corporate net debt / equity closed 4Q22 at 66%, versus a threshold set by our covenants of 80% (which increases to 85% in 1H23). This indicator would have been 43%, if we consider the effect of the assignment of receivables completed in March.

Corporate Net Debt / Shareholder's Equity (%)

We are convinced that we will still have a challenging year ahead, but we are confident that our levers are strong enough to resume profitability from 2024 onwards. Therefore, we see 2023 as the last year of crossing this new turnaround started in 3Q21, when we detected worse than expected inflationary pressures and execution challenges in the context of the pandemic. In this context, an important subsequent event that we announced on March 4TH, 2023 was the settlement of an transaction to assign our receivables portfolio, in the amount of R$ 160 million. For this transaction, we assigned a portfolio of R$ 320 million in receivables, which is more than enough to cover the yield of these CRIs in the period (of CDI + 5% p.a.), where, after their settlement, all surplus receivables not used to amortize the transaction returns to Tenda. This assignment had Kinea Investimentos as counterparty, and exclusively involved receivables from projects still under construction.

4

We see the assignment of receivables as our main source of funding through 2023, since with the resumption of our expected profitability in 2024, we expect other funding sources to become more attractive to the company. As for the assignment of receivables, we also expect that receivables from projects delivered, therefore with no execution risk, may have a lower rate of return than our first issue.

Another important subsequent event was Tenda's participation in the Pode Entrar program in the municipality of São Paulo. As soon as the result of the program is released, we will inform you whether or not we were included.

We remain confident in the return to profitability throughout 2023, however, we continue to report cost deviations in 4Q22, which totaled R$ 47 million in the quarter. It should be noted that our cost variances should follow this new downward trend, and as we anticipated in the 3Q22 results conference, the expectation is that approximately 80% of the most problematic works in terms of cost deviations (launched by Dec/2021) end by the end of 2Q23, which ensures a significant recovery of margins expected for the second half of 2023.

Other indicator evidencing this continuous improvement in our construction efficiency is the indicator of backlog of finishing activities. Due to our industrial approach, each subsequent stage has its pre-defined goal for each construction work, giving rise to a delay when it is not executed within the pre-established period. This indicator was negligible before the pandemic and began to steepen sharply after the start of the pandemic, as shown in the graph below, peaking at almost 23,000 delayed activities in Jun/22, and following a steady decline since then. We remind that the simple checking of the closure of a door is a delayed activity.

Overdue finishing activities

5