Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Rossi's conference call to discuss results regarding the third quarter 2019. The conference webcast is being streamed simultaneously over the Internet at www.rossiresidencial.com.br/ri. At such an address, you can also find the respective PowerPoint presentation for download. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during the 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 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 performance 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, Rossi's CEO. Mr. Cuppoloni, you may proceed, sir.

[João Paulo Rossi Cuppoloni, executive]

[Interpreted] Good morning, everyone. We are now going to start another results conference to discuss the results of the third quarter 2019.

We reached the end of another very challenging quarter for Rossi. Our focus remains on our financial and operational restructuring process, which has already delivered positive results and contributed to the preservation of the company's cash balance in addition to improved sales and transfers performance.

However, we still have important goals to meet, the main one being the resumption of project launchings. Fortunately, we began to experience initial signs of recovery of the real estate market during this quarter with an increase in property demand arising from certain measures, especially in the state of S?o Paulo. This is a result of measures taken to stimulate the economy that led to a sequence of reductions in the basic interest rate and ultimately contributed to better financing conditions offered by both public and private banks.

The improvement in the macroeconomic environment allowed us to maintain the same level of sales speed, or SoS, of the previous quarter, resulting in a 56% accumulated SoS over the last 12 months. We also maintained the resale efficiency of the company's completed units throughout 2019, reaching 86%, and recorded higher transfers, advances and prepayment volumes, which consequently improved our cash inflows from clients. These effects are directly related to the restructuring process of the customer service area, as mentioned in the previous quarter, which brought the commercial and transfers area closer together.

In terms of administrative expenses, our strategy to simplify the company's structure continues to deliver promising results, maintaining the downward trend in expenses, which fell by 26% in the third quarter year-on-year and 10% year-to-date over the same period 2018.

Throughout this year, we also maintained the cash discipline and ongoing negotiations with our main creditors aimed at reducing the company's leverage. Our cash balance at the beginning of the year has been largely preserved and the reduction in the gross debt resulted in cash generation of BRL 65 million profit share in the last 12 months.

Given the expectation for the recovery of the real estate sector and the Brazilian economy, along with important results already achieved, we reiterate our commitment to improve the company's operating and financial indicators in order to diligently take advantage of this new cycle and to shortly resume launchings of the new real estate projects.

We are now going to start discussing the presentation. So I'm going to start discussing the operating indicators, and then Fernando Miziara will continue talking about the financial part.

So we start on Slide 2 that discusses the gross sales made by the company. In the upper part of the slide, we can see that gross sales reached BRL 37 million in the third quarter 2019. BRL 34 million refer to Rossi's share. Year-to-date, sales reached BRL 129 million, BRL 118 million Rossi's share.

Quarterly SoS was 15%.

The lower part, on the left of the slide, we would like to discuss the gross sales in the third quarter 2019 in relation to the construction stage that refer to 97%. On the right, we discuss the geographical distribution.

And on next slide, Slide #3, in the upper part of the slide to the left, we show the evolution of cancellation throughout the quarters. In the third quarter 2019, cancellations amounted to BRL 34 million in the 100% basis and 33% Rossi's share, a reduction of 42% in relation to the previous year and 35% drop in the year-to-date period -- in the first 9 months of the year.

In the total amount of cancellations, 95% were -- 86% were sold in the same period with positive results as the company has been presenting in the period.

In the lower part of the slide, we see the distribution of the cancellations according to the construction stage and the distribution by region. And this result is related to Parque da Lagoa project that show the devaluation -- natural devaluation of the inventories and also considering those who do not present the possibility to purchase real estate anymore.

On the next slide, we show the profile of the company. On the upper part, we see the details of the inventory according to the year of launch. The bottom part, we see the distribution of finished units, amounting to 87% of our inventory and 13% to be delivered in 2019. The geographical distribution can be seen on the right in the bottom part of the slide.

Now moving on to Slide 5, we can see the land bank of the company and its potential PSV. The land bank with a potential to be launched until 2020, that amounts to a PSV of BRL 1.8 billion, Rossi's share. We can show that 28% is targeted to the My Life -- My House, My Life program, MCMV. We can see that 100% of our land bank whose launch is likely to be -- happen up to 2020 is in the state of S?o Paulo. This is aligned with our strategy to focus our undertakings in S?o Paulo and Campinas.

I turn the call over to Mr. Fernando Miziara, our CFO, so that he can discuss the financial aspects of the company.

[Fernando de Mattos Cunha, executive]

[Interpreted] Thank you, Jo?o Paulo. Good morning, everyone. Continuing the presentation. On Slide #6, we can see the evolution of the corporate debt along the last quarters and also SFH debt. The corporate debt maintained at the level of BRL 1 billion in the third quarter, as we can see on the graph on the top right-hand side of the slide.

The SFH debt, following the negotiations we had with Santander, Ita? and Bradesco Bank, we can see a decrease in relation to the same period of last year of about 12%, reaching in this quarter BRL 476 million.

On the same slide, we can also see the cash and equivalents balance and the net debt that reached BRL 1.5 billion in the third quarter this year versus BRL 1.6 billion in the third quarter 2018. This is a result of the impact of the amortization of SFH debt and also associated with the renegotiations of the debt with the banks, which is an operation that we have started last year, as we have mentioned in the previous calls.

On Slide 7, we can see on the upper part of the slide the history of deliveries along the last quarters and the reduction of the costs to be incurred that dropped from BRL 19 million of last year to BRL 9 million this year. In particular this quarter on the same slide, we have the transfer speed, the SoS of the company, reaching 23% in this quarter, in addition to the cash flow coming from the negotiations. As we can see on the right, that reached 75%. 72% relates to Rossi's part, an increase of 27% when compared to the previous quarter.

On Slide 8, we show the evolution of the main results and metrics. On the upper part on the left, we can see the net revenue that reached BRL 31 million year-to-date, the lowest net revenue when compared to 2019 that's driven by the drop in sales and the cycle of losses of the past years that caused a direct impact on the net revenue.

On the slide, we show on the left the reduction of administrative expenses, the SG&A that continues with a downward trend. And we continue with our simplification of our structure, operational in our company. And that resulted in the savings of 26% in our SG&A in the third quarter this year in relation to the same period of last year, 10% of the year in comparison to year-to-date of last year.

Lastly, the increase of commercial expenses in the quarter is driven by the provision for losses related to net doubtful payers in order to make a better alignment with CDC41.

We are now going to turn the call back to the operator to start the Q&A session.

[Operator]

[Operator Instructions] Mr. [ Calvajeda ] from [indiscernible] would like to ask a question. You may proceed, sir.

You may proceed, sir, with your questions. Hello?

[Unknown Analyst]

[Interpreted] We saw the -- could you explain better the renegotiation of the debts with the banks, please? Could you provide more color on that?

[Unknown Executive]

[Interpreted] The audio quality was not so good. Could you repeat the question, please?

[Unknown Analyst]

[Interpreted] We saw that the company's sales do not react and the company is still in debt. I would like to know the debt negotiations you made with the banks.

[Unknown Executive]

[Interpreted] Thank you for your question. Because the company has not accounted for income in the past years, has affected the results of the company. And as for negotiation, we can say that we have made continuous efforts to complete the negotiation that started with Bradesco 24 months ago. And this is our major creditor in terms of corporate debt, more than 30% of our debt balance. And as for project-related debt, we have made great headway with Bradesco and Santander and Ita? banks amounting to 60% of the debt balance. And this allowed us to have the possibility of selling our inventories as quickly as possible and to work more efficiently.

For the months to come, we plan and we hope to complete the major part of the corporate debt. And we continue making continuous efforts together with Caixa Econ?mica and Banco do Brasil in order to have a more effective renegotiation especially related to SFH debt.

[Unknown Analyst]

[Interpreted] Another question. Considering the debt renegotiation plans, do you include the need of follow-on or capital inflow? Could you give us an idea, an order of magnitude, for us to understand?

[João Paulo Rossi Cuppoloni, executive]

[Interpreted] This is Jo?o Paulo speaking. In the short and medium term, we haven't planned an increase -- capital increase. We understand that considering this is a very good moment for the stock market also associated with a reduction in the interest rates, but we understand we have an intermediate step to be taken before that since we are still completing the renegotiations of the debt in order to focus on the leverage of the company. And then later on, with a proper balance, we can consider that. This is a plan that we do not have for the time -- for this time around.

[Operator]

[Operator Instructions] Since there are no further questions, I would like to turn the call over to the company for its final considerations.

Since there are no further questions, I would like to turn the call over to the company for its final considerations.

[Unknown Executive]

[Interpreted] Thank you very much for attending this conference, and we end our call for the third quarter 2019. And the next call will be held next year when we are going to show the results of the company. And we would like to thank on behalf of the Board of the company. Have a good day, everyone.

[Operator]

We close the conference call of Rossi. We would like to thank everyone for attending this conference, and have a good day.

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