EZTEC Empreendimentos e Participações S A : Transcrição 4Q22 (eng)

CONFERENCE CALL 4Q22

PEDRO TADEU LOURENÇO:

Good morning, ladies and gentlemen, and welcome to EZTec's results presentation for the 4Q22.

Please note that this call is being recorded and that all participants are in listen-only mode during the Company's presentation. After that, we will begin the questions and answer session, when further instructions will be given. If you need assistance during the call, please let us know in the chat box. If you have any connection issues, you may reuse the same link or ID to return to our website. It's available at ir.eztec.com.br, along with the slides for this presentation.

This information is available in BRL. And before we begin, we would like to mention that any statements made during this call about the Company's business projections, operational and financial targets are based on the management's beliefs and assumptions as well as on currently available information.

Future considerations do not constitute an assurance of performance. They involve risks, uncertainties and assumptions as they refer to future events, which will depend on circumstances that may or may not happen. Investors should take into account that the general economic conditions, industry or operational circumstances may affect the Company's future performance and may cause the Company's results to differ materially from those expressed in these forward- looking statements.

Now to continue our presentation, I would like to pass it over to Mr. Emilio Fugazza, the Chief Financial Officer and Investor Relations Officer, who will get us started.

EMILIO FUGAZZA:

Thank you, Pedro. I am very happy to be here for our earnings call for 2022 and for the 4Q22. I have the honor of being in this presentation with some of the Company's executives. Flavio Ernesto Zarzur, Silvio Ernesto Zarzur; Marcelo Ernesto Zarzur, who will be here to help answering questions from our investors and to add information to this presentation.

I would like to begin with the first slide, the operational slide. Speaking about what we did in the 4Q22. We had a few launches such as Park Avenue, which is a high-end launch here at República do Libano. It's an apartment building and each one will run for about R$10 million, and we have 24% of it sold as of now. It still has not been recognized in our results, but it definitely will be in the 2H22, and it will definitely add to our gross margins.

We also launched Chanés Street, which is in Chanés Avenue, very close to Bandeirantes avenue in Moema, very close to Ibirapuera park, and its PSV is R$176 million.

And finally, we are in the second phase of Pin Osasco, which is a low-end unit. Its first phase has already been delivered, about 40% to 50% of this first phase had already been sold, and it follows the same rationale as we had in Pin International in Guarulhos, which is now being launched. It was a very successful stage and it had amazing results.

And here, we see the remaining launches that we had in 2022. In the 1Q, 56% of them were sold. We had a few launches very close to Ibirapuera park and very close to our headquarters, at EZTec. In the 2Q, we launched Hub and Haute Brooklin with 41% of the units sold. In the 3Q, we had the second stage of our project. It's a big phase of the Bandeirantes project. Many phases are still to come, and we are still waiting for some approvals, but the first part has a total PSV of R$800 million, and we are now at 58% sold. And in the 4Q, we have mentioned in the past slide. So we finished 2022 nearly at R$1.8 billion launch, with about 48% of it sold on average.

On the next slide, we have some of the next launches that we intend to have or have already had in the 1Q23. We had our first launch of our joint venture called Jota by Lindenberg in Gregório Serrão in Vila Mariana. It's a building that had a

50% stake from EZTec. It was launched in February and 21% of it has been sold. It's important to highlight. That's the first launch that we had with this construction company, Lindenberg.

And here, we have a picture of our current construction of EZ Infinity, which will probably have a regulated launch, we have many units already sold. We have a model apartment, and it will have a new name, a new campaign from May onwards.

On the next slide, we see the Company's operational performance in sales. So the 4Q22, as you can see on the graph, at R$346 million in gross sales and R$304 million in net sales. You can see on the right-hand side, the annual sale comparison in net and gross sales. So we have finished at R$1.2 billion in 2021, and we finished at R$1.4 billion in 2022. So this is an 18% growth in the Company's sales, and this was balanced throughout the year.

The next slide shows some of the deliveries we have made. This will be a relevant topic for 2023 because there has already been some growth in 2022. In the 4Q22, we delivered 2 enterprises coming to a total of R$400 in PSV, part of it in Ibirapuera and Haute Ibirapuera. And everything that was delivered in 2022, 83% has been sold. So we have a very small inventory of apartments and real estate is already prepared.

And here, we can see what we will deliver in 2023, R$1.8 billion. And out of all of this, 75% has been sold. So our deliveries are very important to generate cash for the Company and for our operational recovery. It also allows us to have new enterprises developed, and it does not create any relevant inventory with these deliveries. So it shows how healthy our launches have been in the last year.

The next slide shows the Company's inventory finishing 2022 at R$2.8 billion, out of which R$130 million is commercial inventory. We had significant sales this quarter, especially in the 4Q22, which contributed to significant gross margins and a revenue of nearly R$20 million in this sale alone. If you look at our inventory, it's made up of a significant share of projects under construction. So our residential inventory is under R$400 million.

The next slide shows the situation in our 2 commercial projects in construction. Esther Towers has 51% of its project executed. This is a project in Chácara Santo Antônio, right next to EZ Towers and next to the Parque da Cidade complex. We are making significant investments there, and it will probably bear fruit in the next few years.

On the same slide, on the right, you can see a picture of 2 of our enterprises. Air Brooklin residential, which is the tallest building and run next to our Air Brooklin commercial project, and 82% of it has been executed and will probably be concluded with some rental so that we can generate sales in this building still in 2023.

The next slide shows our landbank based on projects that are under construction. So we see how much of it is for the residential and for commercial projects. And we finished at R$8.6 billion. And about R$3 billion of it was in projects with resolution clauses that will be recognized by 2024.

We now continue with the Company's financial performance. The Company's financial results for 2022. Starting with net revenue. It grew in 2022 from R$958 million in 2021 to R$1.1 billion. So this is about a 20% growth, and it relates to the Company's launches in the last few years with growing sales over the last few years. So we had very significant and important work coming into an advanced stage, and it allowed the Company to have more revenue.

Similarly, on the right, we see the Company's gross profit and margins. It had to be adjusted in the 4Q22. It was a one-off adjustment, which was the result of a significant adjustment in the companies projects in delivering some of our main projects. So for the Company's transparency and integrity, we positioned our costs to deliver earlier and also to offset some of the fines according to the law. So all of these effects and the best expectation we had in the 4Q22 have been accounted during this quarter.

And it does not mean that there was anything to account for besides the Company's regular activities in the 4Q22. So we concluded the year with gross margins of 34% for the entire year. And it should recover if we return our results to the appropriate margins. What we should expect is that it will come to about 36%. And this is the margin for all of the Company's projects with the mix approved by the Company's results in buildings under construction or yet to be launched.

Of course, it does not include some projects, which are better than the Company's consolidated projects. So we might see that these margins come closer to 40%, with Park Avenue in the 2Q23 being launched, we will also see significant expansion of these margins, since this is a project that will give the Company margins above 50%. So as you can see, this margin that we reported in 2022, is the effect of a compensation in our balance.

Finally, you can see our equity income. There was a growth of R$77 million to R$87 million, and it could have been a bit higher, R$10 million higher to be precise, just as you can see in this graph for the 4Q, because we decided to include a land area from the Company that cannot be used for construction.

We are taking action for that, but for the Company's equity income, we had to provision for all of the land area in FTE that includes this area. So we have no further provisions. So again, this is a one-off effect in our results, and we do not expect it to repeat.

The next slide shows the Company's financial results. So the upper left-hand corner graph shows our financial results specifically. As you can see, our results for 2022 were lower than 2021, and this is due to our receivables portfolio, which still has a high level of default, and it has a very similar volume to what we had in 2021, R$363 million versus R$384 million in 2021.

So our portfolio is being corrected by the interest rate at around 10.2%, and in some cases, by the IPCA index. IGP-DI, one of our indexes, was negative, and it practically offset how much we charge in this portfolio. So what you see in our financial results is a reflection of how the companies applied its indexes.

As we go above 0 in the IGDP index, we will be much closer to the results that we obtained in the 3Q22, a result of R$30 million or more. So from the net profit perspective, we finished at R$323 million, which is an EBITDA margin of about 29%. So you can see that here's the projection of our net profits for the first 3 quarters and the 4Q, which was impacted by these effects I have mentioned thus far, which are nonrecurring effects in the Company. So the Company's net profit was R$32 million in the 4Q22.

Finally, the Company's net cash variation. You can see that our operation is strong and it's lower cost. It's construction debt is low. And as you can see for 2022, we had R$223 million in construction debt and R$171 million in investments in other parts of the Company, such as buying land and so on. It's also important to mention that we had a significant amount of dividends paid, R$172 million and a buyback of R$61 million. So these R$230 million also result in our net cash, which is still positive for the Company, R$241 million. And this makes us feel absolutely confident in the Company's future operations.

In the next slide, we see our balance and how robust it is. On the left, on the pie chart, you see our financial sources and how we build up our capital. 18% was third-party capital, which is basically the loans we have. Whether they are financing or debentures and on the land payable. And this is about R$1 billion from third-party capital versus R$4.5 billion in shareholders' capital.

Asset distribution can be seen on the right-hand side graph, where we see our cash and our equivalents, R$769 million. And you see at the top, the assets with bigger liquidity at the end of 2022. In our finished units receivables, we have R$578 million. Non-finished units are the ones connected to executing projects, but that have been recognized, and it's about R$500 million.

Inventory under construction, out of the Company's R$2.8 billion in inventory, we have the different shares, which are under construction and in the landbank. And this is all at market value. So you can see that it's about 40% of the Company's inventory.

Landbank, R$8.6 million. This connects to R$1.194 billion. So this includes the land prices themselves and some costs related to the contamination and so on. So when we look at the Company's results in 2022, you can see the Company's assets. Our company shared assets R$539 million. So if you look at everything that was done in the Company's equity. This has allowed the Company to give returns of about 18%.

And to conclude, here we see some information on dividends in 2022, we paid R$179 million. And we are going to pay an additional R$7 million according to the payment approved by our Board. This is due to the 4Q22. And the first 3 quarters have already paid dividends in this line of R$179 million. It will be paid on March 23 and ex dividends on the 24th.

So that concludes our presentation, and now I will pass it over to our controllers who are going to open up for questions from our floor. Thank you.

FLAVIO ERNESTO ZARZUR:

I would like to welcome everyone. It's a pleasure to be back with you. I am here with my brothers, and some of our directors to talk about the results for this year. We are maintaining our way of being. So whenever something is reportable, we report, so we do not let problems fester or surprise anyone. So we are very confident and Emilio's presentation demonstrates it.

We have a very solid Company and it will help us to overcome the challenges that we may face. So right now, we are very comfortable with our position. We are aligned and very united to overcome the challenges that we may face in 2023 and in the future.

So feel free to add anything.

SILVIO ERNESTO ZARZUR:

I would like to welcome everyone. Thank you for being here. And I would just like to tell you that we are in a new difficult macroeconomic scenario in our industry. If we analyze macroeconomic factors in the Company's restructuring, we really are facing an adverse situation. We are used to dealing with it.

This is not new for us. We are going to have to navigate these waters and face some consequences in the short term. But we have a lot of certainty in how we will be able to do well even with an adverse scenario.

We are absolutely sure that we are going to have good results in the future. We are working hard and the Company has never been so mature. The Company has never been so well prepared in its personnel and its system. And we are really at a different level. The Company really is at a new level, and we really can manage this company in the best way possible.

So my message to you is that we are very confident on what we can do. We do not have any major concerns. We work a lot. We are trying to get good results and do well. I think that's it. The Company's solidity, its assets, and we handle it with a lot of care. I think that's it.

MARCELO ERNESTO ZARZUR:

Let me just say something. Good morning, everyone. As my brother said, it was a challenging year, and we know that it will continue. So we are working as we have never worked. We are determined to overcome these difficult moments. I am sure that we will do it well. And that's all I have to say.

MARCOS ERNESTO ZARZUR:

I just want to say hello to everyone. And on sales, despite these issues, we are still selling, and clients are still buying apartments, they are still looking for opportunities. That's it.

PEDRO HAJNAL, CREDIT SUISSE:

Good morning. Thank you for this presentation and for taking my question. On my side, considering the Company's inventory, I would like to understand what the Company is thinking about this trade-off between sales speed and gross margins? We see that inventories are at healthy levels. But considering that you might need to eventually prioritize, what margins would be the lowest for this inventory to still be sold?

Secondly, on inventory, we can see the Company's efforts to reduce this current level through different initiatives, from financing rates and from your commercial strategy. And if this inventory comes to a certain level, will you change your strategy? Will the Company not operate the stores that have been bought? Are we returning to the same levels that we had before. That's it.

EZTEC:

So when we set prices in an agenda. It's difficult to say, but we work a lot with accounting. We test our balance, and we see what the results are of what we can do. So what I have to tell you is that we are not doing anything based on guess work. Basically, every month, we look at the Company's balance sheet to see what will happen to what we did. So we control it very well. And now we are trying to balance between VSO and sales prices. So we dilute the Company's financial expenses, and sometimes even with a higher discount, we have a good result that's similar or only slightly below what we would have.

I am very careful about doing that. I do it with Emilio, and we follow this up close. It's something that we seek, and our goal is to make the Company healthy. We do not want to sell off our inventory. We want to keep the Company healthy with a lot of profitability at the bottom line.

So you mentioned financial expenses, but we look at this every week, expenses in stores and everything. And we have numbers where we seek a certain percentage versus gross sales. I cannot take into consideration net sales because we can only do it once a year, and you cannot really control it. So we are within the normal threshold.

So commercial expenses did not go up. There are some other things that add up in our accounting that make this figure go up. But in any case, my answer to you is that we always try, whenever possible, to be at about 3.5 or 3.4 of our general sales volume. That's our commercial expenses. Advertising, having salespeople there, and this all adds up to number I mentioned.

HUGO GRASSI, CITI:

Good morning. Congratulations for your results. Although this is a noisy scenario, I think you deserve congratulations. And it's worth mentioning that it may be one of the best years for you. So congratulations to the entire team. I would like to ask you about the land dynamics and how it affects your launches.

We see that there has been some rotation on the landbank. You acquired a lot of VGV, but you also sold a lot in the same proportion. So, if you can tell us how much you have available and how this appetite for acquisition matches your appetite for launches. And if you can tell us about the specific area in Guaratuba, Bertioga that led to a provision of R$10 million.

EZTEC:

Hugo, thank you for that question. We have a large volume in our landbank. These 2 areas that have been sold are not appropriate for construction right now, and we see an interest rate of 75% a year. We received an offer that was profitable and sold it. So that was basically it. So it was a profitable proposal, a long term to carry it.