Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Rossi's conference call to discuss results regarding the second quarter 2020. The conference webcast is being streamed simultaneously over the Internet at www.rossiresidencial.com.br/ri. At such an address, you can also find our respective PowerPoint presentation for download. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, projections and operational and financial goals constitute beliefs and premises of Rossi's management as well as information currently available to the company. Forward-looking statements are with no guarantee of performance. They involve risks, uncertainties and assumptions since they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could affect the company's future results and could lead to results that differ materially from those expressed in such forward-looking statements.

I would now like to turn the call over to Mr. João Paulo Cuppoloni, CEO of Rossi. Mr. Cuppoloni, you may proceed.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everyone. On behalf of Rossi's Board, we're starting our new conference call to discuss the results of the second quarter 2020.

The first half of 2020 was a challenging period across major changes for all sectors of the Brazilian economy, marked by socioeconomic impacts brought about by social isolation and other restrictions imposed by the novel coronavirus pandemic that hit the country the hardest in the second half of March. Even in this scenario, the company remained concentrated in its operational and financial restructuring process, focusing 100% of its attention and effort on the mitigation of risk and preservation of cash balance.

Goals for 2020 that seemed feasible, such as the resumption of launches, were temporarily put on hold due to the moment in which we have been living. However, this did not prevent other goals from being achieved.

Operationally speaking, the second quarter highlights were: First, the gross sales, which despite being negatively impacted in April, recovered in May and June and reached BRL 28.2 million Rossi's share, contributing to an SoS of 57% in the 12 months, which ended in the second quarter 2020.

Two, the efficiency in the resale of canceled units, 93% until the end of the first half of 2020, significantly mitigating the negative impact of the increase in

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a 61% decrease in administrative expenses in the second quarter '20 versus the second quarter 2019 and a 46% decrease year-on-year.

And fifth, the 14% year-over-year reduction in debt IFRS due to the renegotiations with Banco Bradesco and the financial discounts, which were obtained both under our corporate debts partially accounted for in December 2019 and the full settlement of the operational debts in June with the conclusion of the transfer process of finished inventories to Bradesco.

We are aware of the present and future challenges, but remain confident on our strategic plan and reinforce our commitment and confidence in the continuity of the company.

In the middle and the long term, we have to live with the limitations and difficulties imposed by the pandemic. But in the short term, we expect that we'll diligently resume the cycle of new launches and finally generate value for our shareholders.

After this brief message related to the second quarter, I'm going to start the presentation. And in the first part, I will discuss our operating indicators, and then we will talk about the financial aspects of our company.

We'll start the presentation on Slide 2 that discusses the sales made by the company. In the upper right-hand side of the slide, we can see that the gross sales reached BRL 33 million in the second quarter 2020; BRL 28 million shares -- Rossi's share, a drop in relation to the second quarter 2019. It [ inflects ] the negative impact caused by the pandemic, of coronavirus, especially in the commercial aspect in April and the total reduction in inventory. And it's important to say that we have adopted a conservative approach towards our cash.

The commercial approach recorded a quarterly SoS of 16.4%, a slight increase over the first quarter of 2020, which was 16.2%. In the lower left side of the slide, we can see the gross sales of the second quarter 22 (sic) [ 2020 ] that, in relation to the finished units, accounted for 98%. On the right, we can see the gross sales divided according to the region. And we have 34% accounting for the other regions of our operations.

On Slide 3, on the upper part, we can see the relation of cancellations in the past quarters and year-to-date as a result. In the second quarter, the cancellation amounted to 43% and 38% of Rossi's share, a 6% reduction in relation to the previous year. And year-to-date, there was a drop of 40% in -- of Rossi's part in relation to 2019. Out of the total cancelation, 93% were already resold, contributing to the high level of resale that the company has been reporting in the past quarters.

On the lower part of the graph, we see the distribution of cancellations and according to the construction stages.

On next slide, we can see the profile of the inventories of the company. With the -- in this quarter, there was a reduction of BRL 10 million in our units, completed units, that are [ less ] related to our process of renegotiations of our debt. On the right, on the top side, we can see the inventory and the year of launch. And on the lower part of the slide, we can see the inventory in the second quarter '20, and the units to be delivered, that account for 15% of our inventory. We can see also on the right the regional distribution of our units.

And when we move on to Slide 5, we can see the land bank and how it stands today. Expressed, our land bank account for 58%. And the potential PSV accounts for BRL 7.3 billion. And launches in the short term are mostly in the state of São Paulo.

I turn the call to our CFO, and he will make the financial considerations related to the second quarter.

[Fernando de Mattos Cunha, executive]

Thank you, João Paulo. Good morning, everyone. And continuing the presentation on Slide 6, we can see the evolution throughout the latest quarters as to the corporate debt. The corporate debt amounted to BRL 1 million this quarter, as we can see on this graph in the upper right-hand side of the presentation. And SFH debt amounted to BRL 343 million. And there is a difference of nearly BRL 100 million that is related to the renegotiation with the Bradesco Bank that settled our debt in June 2020, part of it, considering those units that have been finished.

On this slide, we can also see the cash and cash equivalents and also the net debt of the company that amounted to BRL 1.3 billion at the end of June versus BRL 1.5 billion in the second quarter 2019.

When we move on to Slide 7, we can see, on the top right-hand side, the history of deliveries in the last quarter. No new launches were delivered in this quarter. And the company has only one construction unit underway that is likely to be delivered until the end of the year.

On the right, we have the costs to be incurred that amount only to BRL 2 million, considering that -- the BRL 2 million that we -- had to be incurred in the previous year.

On the same slide, we also have the transfer speed of the company that reached, in this quarter, 25%, with an increase of 1 percentage point in relation to the second quarter 2019 and 3 points -- percentage points in relation to the first quarter this year, in addition to the cash flow from the receiving of the units that we can see on the left-hand side amounting to BRL 36 million, and BRL 35 million is Rossi's share.

On Slide 8, we showed the evolution of the main metrics of our results. On the left, we have the net revenue that reached BRL 10 million in comparison to BRL 6 million in the second quarter 2019. And even with net sales negative and -- negative impact, we had provisioned this amount in the previous quarter in -- and for net debt.

Still on this slide, we can see on the lower-left side the reduction of our operating expenses that continued to follow a downward trend due to the constant review of our internal processes. This constant effort amounted to savings of 61% in our administrative expenses in relation to the same period of last year.

And lastly, on the lower-left -- right-hand side, we can see the loss in net income in the second quarter 2020 amounting to an accumulated value of minus BRL 103 million, and this has -- impacted by the beneficial impact of the discount that we received with Bradesco Bank.

I turn the call over to the operator to start the Q&A session.

[Operator]

[Operator Instructions] If there are no questions, we turn the call back to the company for the final considerations.

[João Paulo Rossi Cuppoloni, executive]

On behalf of the company and all our employees, we would like to thank everyone for having -- attending this earnings conference call to discuss the results of this quarter, all our -- all of you. So we'll see you next quarter, and have a good day, you all.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]