Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the conference call of Rossi for the earnings of Q3 2018. The audio will be transmitted simultaneously through the Internet at www.rossi.com.br.ri. (sic) [ www.rossiresidencial.com.br/ri ]. You will also find the slide presentation, the PowerPoint presentation there for download. [Operator Instructions] Before we continue, we would like to clarify that any declaration that may be made during this conference call concerning the business perspectives of the company, projections and operational financial goals are based on beliefs and assumptions of the company's management, as well as on information currently available. Considerations about the future are not guarantees of performance, they involve risks, uncertainties because 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 operational factors may affect the future results of the company and may lead to results that may differ materially from those expressed in such future considerations. Now I would like to pass the floor to Mr. João Paulo, CEO of Rossi. Mr. João Paulo, you may proceed.

[João Paulo Rossi Cuppoloni, executive]

Good morning. We are here with the Board of Directors for another conference call for the earnings of Q3 '18. In Q3, we renegotiated the corporate debts. Also, we paid part of this by giving plots of land to Bradesco as we announced. So we paid off part of our debts. Also, we paid debts also to Santander also by giving them real estate and we've reduced the company's debt by BRL 252 million without cash disbursements. We would like to highlight that since the beginning of Q3 2017 when we made negotiations with banks, these negotiations reduced our gross consolidated debt by 22%. Apart from the financial impact, also, it is good to remind you that other actions will contribute to improve the structure since the assets involved are concentrated in nonstrategic regions. And this will allow the company to concentrate efforts in the markets where we will have launches in the future.

Concerning the operational results, we had an improvement in sales, which reached 17% and we have 4 consecutive quarters with increases say in the last one 48% (sic) [sales for the last 12 months was 48%].

Concerning cancellations, a reduction of 58% in Rossi in comparison with Q3 2017. And 51% year-to-date. Apart from this, we maintain the high level of resale of these units, reaching 63% in line with the other quarters.

In Q3, we also had a reduction of 51% in administration costs in relation to Q3 2017, and 35% year-to-date. Our trend in terms of SG&A, the reduction will continue with during some more quarters and this will help us to begin to launch new launches, again.

Here we have the acquisition of 2 areas in Campinas, 2 plots of land and this -- the payment of the plots of land will be made by a barter by exchanging without any cash disbursements.

Now the presentation of the results. Operational indicators. So on Slide #3, here we have the sales made by the company. On the upper part of the slide, we see gross sales that reached in Q3 BRL 89 million, BRL 76 million in Rossi's part. During the year, sales reached BRL 305 million or BRL 252 million in Rossi's part. The reduction in sales when compared to Q3 '17 and year-to-date last year are due to the reduction of inventory as the company concluded projects launched in 2014 and had a conservative posture in relation to new launches. As we can see, VSO sales for example, went from -- went for example, was in excess of 17%, which wasn't reached before Q3 '17. Here on the bottom of the slide, on the left, we see the participation of sales of units that are ready, 86%. On the right, we see the geographic distribution of these sales.

Now going on to Slide 4. The upper part, we see the evolution of cancellations. In Q2, the cancellations represented BRL 66 million. In Q2 on a 100% base, BRL 57 million Rossi's part. A significant reduction of 58% in relation to Q3 2017, and 51% year-to-date. We would like to highlight that the index of resale of units continues high those that the cancellations [ continues ] are reaching 63% in Q3. Finally, we see here the cancellations in relation to the phases of the projects and geographic distribution.

On Slide #5. Here we have on this slide the indicators VSO and net sales of the company, as already mentioned, VSO in this quarter was 17%, and in the last 12 months, 48% as shown in the upper part of the slide. This is the fourth consecutive quarter with a high VSO. Net sales totaled in Q3 2018, BRL 24 million; Rossi's part, BRL 19 million.

On the next slide, Slide #6. We see the profile of the company's inventory. The company has today an inventory of BRL 280 million in Rossi's part. There was a reduction of 36% in inventory of units in Q3, explained especially because we gave real estate to Santander to pay off operations of that and loans we have there. On the lower part, we see the distribution of units that are ready representing 82% of our inventory and to be delivered apart from geographic distribution of the total inventory.

Going on to Slide #7. We see the bank land -- plots of land, our plots of land. The potential of VGV, and also the type of income that they will have. When we gave assets to Bradesco, this represented a significant reduction of 74% in the number of plots of land, this was expected and was explained in previous quarters. As I mentioned, we continue looking for plots of land in line, in Q3 in line with our business. In Q3 '18, we made an acquisition of 2 plots of land near the city of Campinas with the potential VGV of BRL 262 million. These 2 plots of land are added to other plots of land bought in previous quarters and have a potential for launches representing a potential of BRL 670 million.

Now Slide #8. This business unit and this was done as we have this company in, that was begun in 2017. The goal is to reach BRL 300 million in launches per year in the Metropolitan region in Campinas. With the plots of land already bought, we have 60% of our ambitious business plan ready, which foresees BRL 1.1 billion in VGV until 2023. Here on the bottom left, we see the geographic distributions per city of the plots of land already acquired. Therefore, we have -- this is a city where we have a long track record of real estate projects. Now Mr. Fernando Miziara, our CFO will talk about the company's financial indicators.

[Fernando de Mattos Cunha, executive]

Thank you, João Paulo. Good morning, we would like to begin the presentation on Slide #10, where we see the reconciliation between gross debts and cash position in the different vision. IFRS, 100% and Rossi's part. The balance of debt of financing for production totaled BRL 537 million in Q2, 2018 using the IFRS method. Now the balance of the corporate debt reached BRL 1.1 billion in the 3 vision as we can notice on the graph.

On the upper left side, going on to Slide 11. On the left, we see the evolution during the last quarters of the corporate debt following IFRS. We are restructuring the company's debt, we've formalized at Bradesco giving them real estate assets in nonstrategic regions to pay off debts, as already mentioned to the market in the last quarters. This operation resulted in a drop of 11% in corporate debt of the company when compared to Q2 2018. Now on the graph on the right side of the slide, we see the evolution of our debt to finance production using IFRS, it dropped 23% in relation to Q2, due to another operation giving land in payment formalized at Santander Bank to pay off the debts we had at the bank. We'd like to say that due to these effects, at the end of the quarter, we had a strong reduction of BRL 270 million in the net debt of the company.

As -- in order to talk more about the renegotiation of corporate debts, we are presenting a new slide with a schedule of maturity dates of the corporate debt: Slide #12. Here you can notice that of the total balance that we have in our reports at the end of Q3 2018, approximately BRL 390 million, almost 40% of the total balance of BRL 1.1 billion, may be paid through assets or plots of land that were given as guarantees to our creditors. The remaining balance, as already mentioned, when we signed the documents to renegotiate our debts with Bradesco Bank, Bank of Brazil and Caixa Econômica, the payment terms were made longer, decreasing the pressure on the company's cash in the next 2 years. When the focus -- now the focus is acquisition of plots of land and launches.

Going on to the next slide, #13. We show on the upper part, the history of projects delivered in the last 12 months and the evolution of costs. Year-to-date, we delivered 2 projects that were part of the legacy of projects until -- begun until the end of 2014. We delivered Rossi's part, BRL 139 million reducing the cost to be incurred to BRL 18 million in comparison with BRL 86 million that we would have to spend at the end of Q3 2017. Also on this slide, we have the evolution of the transfers to banks reaching 22%. This is the financing of those who purchased the units. We've -- and here you can see on the lower right, reaching BRL 100 million, which dropped to BRL 90 million for Rossi.

Slide 14. We see the reduction of SG&A, which is the continuity of the restructuring process, operational restructuring the company is going through. As shown on the upper graph, since Q2, 2014, there was a reduction of 83% in the number of employees, administrative employees. This resulted in savings of 35% in year-to-date G&A of this year when compared to the previous year. In relation to sales expenses, there was an increase in IFRS due to the change in the way we are recording. And this impact year-to-date was BRL 4 million. In the 100% vision, for example, where numbers depend on the criteria for recording in our books, we had a reduction of 16% of sales expenses compared to the previous year.

Finally, on slide, Slide #15 we see the evolution of the main metrics of results. The net debt (sic) [ net revenue ] was BRL 14 million in Q3, and BRL 129 million year-to-date, first 9 months of the year. The drop is due specially to lower sales during the period and the conclusion of projects that were delivered in the last 12 months, contributing to have revenue and appropriate -- this revenue actually during the last quarters. On the upper right, we see -- upper right corner, we see the evolution of gross profit adjusted by the exclusion of financial charges allocated to the cost, which closed at BRL 32 million year-to-date. With a gross margin ex interest of 25%, an increase of 33 percentage points in relation to year-to-date 2017. Adjusted EBITDA year-to-date was negative by BRL 192 million in comparison with BRL 253 million negative in 2017. On the lower right corner, we see that the net loss in Q3 was BRL 158 million and BRL 401 million year-to-date. A relevant part of the reduction of the net profit of the company when compared to 2017 is explained by the reduction in operational expenses due to the realignment and simplification of the company's structure already mentioned in previous quarters. Now I'd like to pass the floor to -- now I would like to begin the Q&A session.

[Operator]

[Operator Instructions] Since there are no more questions, we pass the floor to the CEO for his final comments.

[João Paulo Rossi Cuppoloni, executive]

On behalf of the Board of Directors, we'd like to thank you for your participation during this conference call. We now are at the end of the year. We're optimistic with the last things that happened. We thank you very much. Thank you.

[Operator]

Rossi's conference call is concluded. We thank you all for your participation. We wish you a good day.