Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to the Rossi earnings conference call for the second quarter 2018. The audio of this conference call is being webcast simultaneously through Internet at the address www.rossiresidencial.com.br/ri. At that address, you can also find the PowerPoint presentation for downloading [Operator Instructions]

Before continuing, we would like to clarify that forward-looking statements made during this conference call that refer to the business outlook for the company, projections and operating and financial goals are based on the beliefs and premises of the Rossi board as well as information currently available to the company. These forward-looking statements are not guarantees of performance. They involve risks, uncertainties and premises, 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 and other operating factors could affect the future results of the company and lead to results that differ materially than those expressed in the forward-looking statements.

I would now like to give the floor to Mr. João Paulo Cuppoloni, the Rossi CEO. Mr. Cuppoloni, you may proceed, sir.

[João Paulo Rossi Cuppoloni, executive]

Good morning to all of you, and thank you for your participation. We're going to begin our earnings conference call and refer to the results of this quarter.

In regards to the end of the first semester 2018, and our team continues to focus on the operating enhancements of our company, we're working on restructuring and allowing Rossi to resume growth in a progressive and controlled way. Some of our achievements this year deserves to be highlighted.

First of all, the delivery of 2 of the last 5 works that are the legacy of developments launched until the end of 2014, totaling a PSV of BRL 113 million (sic ) [ BRL 139 million ], reducing our cost by BRL 18 million compared to BRL 120 million that we spent in the second quarter of 2017.

Secondly, we're deploying efforts to change our structure and reduce administrative expenses in the company. For the semester, there was a drop of 27%, vis-à-vis the first semester of 2017. And this includes initiative such as the end of the joint venture that we have previously that will contribute so that the company can focus on both regions, so we will have the new Rossi developments.

In the third place, maintaining our high efficiency and resale of the canceled units that, during the semester, reached 65%, aligned with the indicators that we also had in 2017.

And finally, what I would like to highlight is the gradual and persistent reduction of the company's indebtedness, especially that which is associated to the production of works with the national housing financing company. We had a reduction of 20% in the last 20 months. And we now have BRL 773 million of indebtedness.

In part of the restructuring of corporate debts among our main creditors Rossi, in June of this year, concluded a renegotiation of BRL 156 million (sic) [ BRL 256 million ] with the Bank of Brazil and an additional BRL 130 million with the Caixa Econômica Federal. We have lengthened the payment terms of the debt for 10 years with a 2-year grace period and a renegotiation of interest rates. And we have had a 60% reduction in the charges of Caixa Econômica Federal with the lengthening of the payment term.

We're actively seeking and purchasing new land depending on our economic segment. In the second quarter, we purchased new land in the section of Campinas with a PSV of BRL 25 million (sic) [ BRL 95 million ], which will reinforce our present day land bank.

All of these activities reinforce our confidence that during the coming semester, we will end up in a new phase in the company, where we will resume our financial operation, our efficiency. And we will carefully analyze all of the risks in the real estate market. This should become the foundation to resume our work, and we will be more prepared to resume a new cycle of growth in the economy and in our sector.

We will now go on to the presentation, on Slide #3 with operating indicators. At the top of the slide, we see that the gross sales in the second semester reached BRL 92 million, BRL 83 million in the Rossi stake.

During the year, sales reached BRL 216 or BRL 177 million for the Rossi stake. The reduction of sales, when compared to the second semester of 2017, are due to the reduction of our inventory, as the company concludes the developments launched until 2014 and maintains a very conservative stance in terms of new launches. As we will see, our sales VSO remained stable at 16% if we compare the first semester of 2018 with that of [ 2 '17 ].

At the bottom of the slide to the left, we highlight the sales of ready-made units, representing 81% for the semester. At the right, we show you the geographic distribution of our sales.

We go on to the next slide and show you the evolution of our cancellations. During the second quarter, cancellations were of BRL 68 million and BRL 61 million for the Rossi stake, a significant reduction of 42%. These are the second semester of 2017 and 47% for the entire year 2017. We would like to highlight that the resale indicator during the year reached 65% during the second semester.

Finally, at the bottom of the slide, we see the distribution of cancellation compared to the stage of the construction and geographic distribution.

We go on to the next slide and present a summary of our indicators and speed of sales and net sales for the company. As I had already mentioned, the figure for the semester at 15% and for the less -- rest of the year 54%, as you see at the bottom of the slide.

Total net sales of the second quarter of 2018 were at BRL 25 million and the Rossi stake BRL 22 million.

In the next Slide #6, we would like to show you the inventory profile for the company. We have an inventory of BRL 400 million for the Rossi stake. And in the graph at the bottom of the slide, you'll see the distribution between ready-made units that represents 87% of our inventory and those for delivery beside the geographic distribution of our entire inventory.

If we go on to Slide #7, where we will speak about the company's land bank with a PSV according to the income bracket and geographic location. As I mentioned at the beginning of the presentation, we're still seeking land aligned to the economic profile. In 2018, we purchased an additional area in Campinas with a PSV of BRL 95 million.

I would now like to give the floor to Fernando, our CFO, who will present the financial performance of the company during this quarter. You have the floor, Fernando.

[Fernando de Mattos Cunha, executive]

Thank you, João Paulo, and a good morning to all of you. We continue the presentation on the Slide #9, showing you the evolution of our corporate indebtedness in IFRS. We concluded, in the second quarter, the renegotiation of our debt with Bank of Brazil in the amount of BRL 386 million and along with Caixa Econômica Federal to an amount of BRL 130 million. These new contracts will enable the company to lengthen the term of payment and have a reduction in interest rate.

At the graph at the bottom of the slide, we show you the evolution of the indebtedness relating to the production of work. As we as mentioned before, the accounting impacts of undoing the joint venture with Capital Rossi allowed us to reach the good figures in the first quarter 2018. If we did consider this impact, we would have BRL 230 million, that is to say 20% less than in the second quarter of 2017.

We go to slide #10, where we show you the reconciliation between gross indebtedness and cash availability and -- 100% Rossi stake. As we presented in the previous slide, the financing for productions of BRL 694 million in the second quarter 2018 for the IFRS. Now the remaining of the corporate debt reached BRL 2 billion. As you can observe in the graph at the left part of the slide, I would like to highlight that this quarter, we had a reduction of BRL 10 million in the indebtedness of the company.

We go on to the next slide, where at the top, we show you the background of the work delivered in the last 12 months and the evolution of cost to incur. For the entire year, we delivered 2 of the developments that are part of [ pie ] that we had until the end of 2014. For PSV for Rossi, this represented BRL 139 million. And we reduced the cost to incur by BRL 19 million of the BRL 120 million that we still have to spend at the end of second quarter 2017.

In the same slide, we see the evolution in the speed of transfer that reached 23% in the second quarter and cash inflow, as you'll see at the lower right of the slide, that reached BRL 118 million, BRL 107 million for the Rossi stake. These indicators are fully aligned when compared to the first quarter of 2018.

We go on to the next slide, where we see a reduction in SG&A continuing on with that restructuring process, which Rossi is going through. As what you can see on the top of the slide, this is the second -- since the second semester of 2014, we have reduced our personnel headcount by 83%. This resulted in savings for the year, vis-à-vis the period before.

When it comes to our commercial expenses, we had an increase in IFRS. This is based on the accounting policy of the joint venture, Capital Rossi. The impact for the entire year will be BRL 4 million. In 100% Rossi division, this does not depend on the accounting criteria of company. And we had a reduction of 10% in commercial expense year-on-year.

And to end with Slide #13, we show you the evolution of our main metrics. Now revenue for the second quarter was at BRL 55 million, a 12 -- 19%, vis-à-vis, the second quarter of 2017 and 44% for the entire year 2017. The drop is due mainly to the sales we carried out and the conclusion of works developed during the last 12 months. This contributed to appropriating revenues during the coming quarters.

At the right top, we show you the evolution of our adjusted gross margin. It ended at BRL 27 million for the entire year with a gross margin, ex interest, of 20%, an increase at 18 points compared to 2017.

Adjusted EBITDA was negative by BRL 105 million, vis-à-vis BRL 150 million for the same period in 2017.

And finally, at the right lower corner, we see the net loss for the second quarter of BRL 100 million and BRL 243 million for the entire year and a relevant part of reduction when compared to the second semester of 2017. And this is explained by a reduction in operational expenses and the simplification of the company structure, something that we have been repeating in previous calls.

I would now like to return the call to the operator to go on to the question-and-answer session.

[Operator]

[Operator Instructions] We would like to return the floor to the CEO for the final remarks, therefore.

[João Paulo Rossi Cuppoloni, executive]

Well, I would like to thank all of those who participated in the conference call for the second quarter and the first semester. Once again, we are carrying out positive work, and we hope to see you again at our call for the third quarter so that we can continue to share results with you. Thank you very much for your participation.

[Operator]

The Rossi conference call ends here. We would to thank all of you for your participation. Have a good day.