EZTEC Empreendimentos e Participações S A : Transcription Conference Call 3Q22

Earnings Release Transcription	3Q22

CONFERENCE CALL 3Q22

PEDRO TADEU LOURENÇO:

Good morning, ladies and gentlemen. Welcome to our EZTec's 3Q22 earnings conference call.

We inform you that this event is being recorded, and that during the Company's presentation, all participants will be temporarily muted. We will then begin the Q&A session, at which point further instructions will be provided.

If anyone needs assistance during the conference, please ask for help from support in the chat. In case of a connection issue, please reuse the same link or ID available on ir.eztec.com.br, and that will bring you back to the presentation.

Also on our website, you can find the slides for this presentation in the download center. Information is available in BRL and in BR GAAP and IFRS, applicable to real estate development entities in Brazil. Otherwise, it will be indicated as follows.

Before starting, we would like to mention that any statements made during this conference call regarding EZTec's business prospects, projections and operational and financial goals and figure beliefs and assumptions of the Company's management as well as information that is currently available. Forward considerations are not guarantees of performance. They involve risks, uncertainties and assumptions, as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could affect EZTec's future performance and could lead to results that differ materially from those expressed in such forward-looking statements.

Now I would like to pass the floor to Mr. Emilio Fugazza, Financial and IR Director, who will start the presentation. Please, Mr. Emilio, you can begin.

EMÍLIO FUGAZZA:

Thank you, Pedro. Good morning, everyone. It's a pleasure, as always, to start our earnings calls for this, our 3Q22. I am honored to be here, along with the President of the Board, Flavio Ernesto Zarzur; our Vice-President of the Board, Samir El Tayar; and Vice-President of New Business, Silvio Ernesto as well.

I will now begin the presentation. I will begin talking about launches during this quarter. We start with Unique Green. We had the second phase launched here in August. We have R$410 million. And that, when added to the R$367 million already launched in 2021, make up a total of over $800 million. This is our long-running pack to build up the west end of São Paulo.

You can also see down into the right some other launches in Vila Mariana and Vila Clementino, we have sold 55% of these launches. Also near Santo Amaro and Chácara Santo Antônio, we have sold 33% of our launches there. And so in total, that may talk R$1,314,000.

Now moving on to our next slide. We see our operational performance. On the top left, we see R$470 million in growth sales. That's the largest sale in the Company's history. And now, when we remove downgrades or transfers, we see that these results are absolutely in line with the last few quarters, nearing R$30 million. It also bears highlighting that the middle high-end sales were absolutely outstanding compared to the rest.

Our upcoming launches add up to a total of R$580 million. This is forecast for the 4Q22. Starting with Park Avenue. This is a joint venture. We have 50% of that launch. This is in Avenida República do Libano. It's a very high-end construction which is worth R$235 million in terms of construction, that is our part.

Earnings Release Transcription	3Q22

We also have Jota Vila Mariana. This is the first launch to be implemented in our joint venture with Lindenberg. This includes the apartments with sizes up to 120 m³. This is also very high-end construction.

Next, we have Chanés Street. This is one street block away from Avenida Dos Bandeirantes, R$170 million of our part of construction. We have a number of different unit sizes from small studios to 75 m³.

And lastly, we have another joint venture in PIN Osasco. This is now the third joint venture that we have with that company. This is in the Rodoanel region in the Osasco municipality. EZTec has invested R$43 million, and it has already started being sold.

Moving now to the next slide. We are now on slide 6, talking about deliveries. You can see on the left, on image of our launch Fit Casa Alto do Ipiranga. There are a number of different units. We have sold 75% of them. Everything has been delivered strictly on time and on cost.

And so we have completed practically everything that we promised to deliver in 2022. That leaves Haute Ibirapuera, adding up to a total of R$768 million in delivery. It should also be highlighted that we have sold 82% of units. So we have practically all but sold out that unit.

On our next slide, we see our land bank. This adds up to R$11 billion, which means it has remained absolutely stable since the part of the year. Despite some acquisitions we have made, some properties that we have purchased with our incorporation partner and also some paving the way for some constructions in the south end of São Paulo.

On our next slide, you see some details about our inventory. We spent in the 3Q with R$2.8 billion. We have sold all but R$1.1 billion. So our inventory is very well controlled. We have approximately R$338 million in residential, and much more in commercial.

And now talking about our financial performance. On the top left, you see our net revenue, and we finished the 3Q at R$281 million. That's a gain of R$40 million compared to the 2Q. We have record sales for this quarter, one example of which is Unique Green. This means essentially we are improving our results, but we still have a lot of room to cover because construction has not yet progressed, but we have already sold many units.

You will also see that we have recovered 5p.p. of our margin compared to the 2Q, a technical effect widely commented on in our material regarding the correction of the INCC, but it does not mean a loss for the Company.

The past few months really tell us what we can expect for the quarters to come. Just to complete this slide, on the bottom left, when we see our equity income going, we have R$33 million. That's a result of our many partnerships, which have been increasing over time, not just in the city of São Paulo, but in the Metropolitan São Paulo area as well, which includes Osasco and Guarulhos. We have low-end and high-end construction ventures there. So we will have a R$33 million result or almost 40% gross margin, 37.2%.

Moving on to the next slide. Here, we see our financial results. Our financial result is R$30 million, which is an important result for the Company. This does seal the impact of the current inflationary situation that we have been seeing over the past few months. This movement does not end in the 3Q. It will persist into the 4Q. But I should remind everyone, we have a very comfortable cash flow status. And that is still resulting from our many partnerships.

On the top right, we see the development of our receivable portfolio, and we see that since the start of 2021, it has remained quite stable. We are now at R$367 million. This means that we do have a lot of expectations of course and that's also a result of many of the campaigns we have been running and our financing offers as well. And we expect to see a lot of good development over the next few months.

On the bottom left, we see our net profit of R$105 million, which is a great result and our margin is even better than in the past, where we are now at 37.6%. We will talk more about those R$105 million in just a bit. And our quarterly outlook has also been approved by the Board. I would like to remind you that these numbers are effectively linked to a stronger growth, stronger investments by the Company in terms of share buyback, for instance, that adds up to over R$200 million

Earnings Release Transcription	3Q22

that we have invested. We also have a considerable portion, over $700 million that were invested in property, real estate. So that puts us at R$412 million in net cash.

We will talk more about that in the next slide, and here, we see our capital structure. We have finished the quarter at just over R$4.5 billion. Our third-party capital is approximately R$969 million at the moment that includes some investment, financing and debentures, construction and land purchases. Those had up to just under R$500 million and land payable being R$139 million.

Our 2 greatest assets at the moment are land bank, R$1.194 billion. That is a historic level of land bank. And also one of the major highlights in this total are commercial investments that adds up to R$5.519 billion in assets owned by the Company.

Here on slide 12, we see the development of some of our commercial ventures. This is the most recent phase of Air Brooklin Corporate on the left and Esther Towers on the right. These two developments will bring EZTec a great financial return over the years to come in terms of rent.

We have some other relevant topics to discuss as well. Dividend payment is valued at R$25 million, approximately R$0.11 per share. And so that puts us at R$172 million in dividends paid. So that is the highest number in the past 5 years. These dividends will be paid on November 30, 2022.

And now we will move on to the Q&A session.

SILVIO ERNESTO ZARZUR:

I would like to mention that we are thriving in a very challenging scenario. Our B2B last year was R$1.8 billion. This year, we are looking to reach R$1.9 billion. We will very soon have a new level of revenue that we will attain. Our revenue is going to increase considerably. So the Company is growing and it is accelerating its growth as well. So this will bring us to a new level of revenue.

When we were at 2%, we were working in a certain manner. We are reacting to that to present interest. And now our interest is much higher. So we are launching new ventures more quickly, more aggressively. We are also controlling our costs. We have recently balanced our cost over the past 9 months. So we are no longer technically accelerating, but our investments are very well controlled, as this is our margin.

We have increased our sales volume considerably to really own those sales volumes. I also want to mention that our properties, we have very large properties, and they were bought almost 100% in cash. So there was no financial loss involved. The prices we paid were very competitive. We have everything needed to build up those properties.

So now looking forward, our inventory is very well located. So this is inventory that is perfectly ready to be sold. Each product within its own region of the city is very competitively priced. So our scenario that we are in is quite challenging, but the Company's situation is very good. Our prognosis is very good.

MARCOS ERNESTO ZARZUR:

The EZTec showroom sales, we now have 2 of them. They are going to be very important in helping us to sell off all of these products that we have.

ANDRÉ DIB, ITAÚ:

Good morning. Thanks for the presentation, and thanks for answering my question. Could you please talk a little bit about what you are seeing in terms of labor and materials cost? You mentioned that concrete and cement were pressures that

Earnings Release Transcription	3Q22

you held, although other inputs have been dropping in price. Have you felt that impact? Or what can we expect looking forward in terms of costs?

SILVIO ERNESTO ZARZUR:

Marcelo will respond, but as a whole, during the past 9 months, we have been cost stable compared to the INCC. This cost has been growing, but there are some specific particulars that Marcelo will talk about.

MARCELO ZARZUR:

Good morning. We are currently at a time in our economy and in the engineering and construction field, where materials have stabilized and some are actually seeing correction, but cement is one of the few inputs whose price continued to rise.

We do have information CSN purchased Lafarge-Holcim, so they are going to come into the São Paulo market very strongly. So we expect that prices, including cement prices, will be contained moving forward, especially when CSN starts operating in strength here.

Other products have either dropped slightly in price or are stabilizing. When we look at the USD exchange rate, we also need to remember that whether there is a sudden high in USD to BRL exchange rate, that affects all commodities. And labor prices, I think, have reached the limit. So I believe that now, looking for the INCC will cover any potential high prices that we see.

BRUNO MENDONÇA, BRADESCO:

Good morning. Thank you for the presentation. I have two questions. The first is about the REF margin. You were very clear in the release showing that the REF margin is a little bit lower than the reported margin. So could you talk a little bit about the margin levels you are working in, especially with regard to future projects? And also on that topic, do you think sales of existing inventory and launch inventory, do you think you are working towards selling those at a higher margin than the REF margin?

And the second question is specifically about EZ Infinity. I have been hearing that there is a discussion going on with regard to zoning changes in that region. So could you update us about that situation, please? The zoning change? And would that have an impact on the project?

SILVIO ERNESTO ZARZUR:

The older ventures that you asked about, they are being sold well above the margin. So some of these ventures are older ventures. They were built during a better time, and so that means that their margin is higher.

So when we look at a launch being sold right now a contemporary current launch, those margins are a little bit tighter. But when we look at the total net results for the Company, we see some higher costs. We were able to raise prices slightly. We increased sales speed as well a little bit. We also have some costs linked directly to sales. So overall, we were able to keep our margin quite stable as a whole.

And as for your second question, the Infinity, which has been renamed to Sense, we were very careful when working out the details of this launch. This is a partnership with Lindenberg. You know that this is the Company we have been looking at for quite some time now. And we brought the Lindenberg brand into our fold, and we really updated that project. We improved it. We reduced costs, we inserted it into the market in a better way. And so honestly, I do not have any news about zoning changes. So that was about the Infinity.

Earnings Release Transcription	3Q22

Your question specifically is about zoning change. We have 500 different speculative questions about zoning changes but in practice, nothing has affectively happened. So I should mention that this launch is in the Paraiso district, and there are no properties there. So I do not know if any zoning change is there will have any impact at all because there are no green ground properties in that region.

And the thing about Infinity is it is a very large property in a location where you do not have any green ground properties. So the zoning changes will not have an impact on existing properties. So if the zoning changes, okay, well, that does not mean anything for ventures that are already approved.

EZTEC:

And our venture has been approved. It has been recorded and archived at the notary office. So there are no changes applied to our venture.

SILVIO ERNESTO ZARZUR:

And I can tell you that our sales for that venture are going to be spectacular. This is a very distinguished launch in that region. Lindenberg is also helping us in that regard. You know that pricing can become really premium if we so choose, and that is what we are doing. So rest assured.

Gustavo Cambauva, BTG Pactual:

Good morning. I have two questions. The first is about your forecast for the next year to come. You mentioned the 4Q22, and so the Company is looking to round out the year with R$2 billion in launches. I would like to know about next year, do you have a pipeline already in place? Do you expect to grow or shrink in the face of our challenging scenario? Do you have any idea what the Company size is going to be next year?

And my next question is about inventory sales. We see some good results in the 3Q. I would like to understand a little bit, could you explain the reasoning behind that perhaps? Were there any specific sales event? Was it the home store, some policies perhaps, more aggressive policies, discount or just statistic results from the market? I would like to understand a little bit about what you found during the 3Q and your forecast looking forward?

SILVIO ERNESTO ZARZUR:

Our inventory sales are linked to a change in the Company's policies. So we respond to the scenarios. So we came from a 2% interest rate and it very quickly hit 3.75% and we keep searching for better prices and better liquidity. We have a good margin, as I mentioned, but we decided to speed up sales.

So we worked with an accelerator. We increased our marketing budget. We gave real estate brokers better incentives and so on, many such similar investments and incentives. We worked with clients more directly as well.

So all that added up to give us better results. So I should mention that the market scenario has not improved. So we actually ran some tests. I wanted to see results in practice. And at the end of the day, the discounts and marketing we ran were diluted among the sales volume. So even though the sales volume was sold with some discount, we did get better margins and better results.

So all of us, the Board, we decided to persist, let's call it, the more intensive sales, more aggressive. We know that we were going to have better results. I do not know what our scenario will be until the end of the year, every month something different happens. So it's all surprising. But our idea is that we are going to have sales similar to what we saw during the 3Q. So the 4Q is going to be similar to the third.