Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Rossi's conference call to discuss results for the third quarter of 2021. The audio of this conference call is being broadcast simultaneously over the Internet at the address rirossiresidencial.com.br. At the same address, you can find the respective PowerPoint presentation for download. [Operator Instructions]

Before proceeding, we would like to clarify that any statements made during this conference call regarding the company's business prospects, operational and financial projection goals constitute Rossi's Board of Directors, beliefs and assumptions and information currently available for the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other bridging factors may affect the company's future results and could lead to results that differ substantially from those expressed in these forward-looking statements.

I would like to hand it over to Mr. Joao Paulo Cuppoloni, CEO of Rossi. Please, Mr. Joao Paulo, you can proceed.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everyone. Thank you for participating. One more quarter that we are concluding. I will say some words about what happened last quarter before we start our presentation. After the first 9 months of 2021, even in a scenario that's still quite challenging for Rossi, we were able to achieve important results for the company and implement a lot of what has been planned at the beginning of this year in our strategic planning. We know that COVID-19 and the low period of living with this pandemic has brought us to a scenario of uncertainty and less economic predictability, which leads to a lower recovery of the activity in the country. The higher unemployment rate in Brazil, it's about 13.2%. And this results in a decrease in the Brazilian population's income, which is 4.3% lower than in the previous quarter and 10.2% lower compared to the same period in 2020.

Even so, we still maintain our cash discipline and implement renegotiation approved at the end of last year with Banco do Brasil, obtaining new financial discounts. And consequently, reducing the company's corporate debt, which is 57% lower than in September 2020.

In this period, we have maintained our resale efficiency of units completed in 2021. We reached 87%. We saw a stable transfer performance in this quarter compared to past quarters, which consequently sustained the company's cash inflow at the same level or similar level to last year in spite of reduced inventory of ready units and reduced gross sales.

As to administrative and commercial expenses, our plan to simplify the company's structure is still giving positive results, maintaining a downward trend in these expenses compared to the first 9 months of 2020, which fell by 7% and 27%, respectively.

As we address our legacy related to projects launched in 2017, we will also gradually change our focus to the development of our land bank by creating new partnerships with funding partners or selling the assets to other developers, we shall benefit from Rossi's expertise as a real estate developer or even as a builder.

It's worth remembering that even with a more challenging scenario, the company chose to comply with its contractual obligations and finished constructions that have had started in the last launching cycle. And this has enabled us to maintain a good relationship with our main suppliers and so ensure operation continuity for new projects without any kind of disruption. We believe this will be essential to the company's future success, and it will enable us to continue to generate revenue in the medium and the long term.

We will now talk about numbers and results referring to the third quarter of 2021. I will begin by talking about operational and financial indicators. And then our CFO will complement with financial indicators.

We will start on Slide 2, where we see the sales performed by the company. In the upper part of the slide, we see that the gross sales reached BRL 16 million in the third quarter, a drop compared to the first 3 quarters. The first 3 months of this year. That reflects there's more uncertain macroeconomic scenario and also the natural reduction of our inventory, since the company has completed all launches that started in 2017 and maintaining a more conservative approach to new launches.

Over the year, sales reached BRL 80 million, dropping 20% compared to the same period in the previous year. When we analyze this indicator, we can see that our sales reached 13% in this quarter, lower than SoS in the first quarter of 2020. So over the year, we can see that we reached 72% with an increase of 9% points compared to the first quarter of the last year. And this reflects an increase in sales in the third quarter of 2020 and the efforts of the company to that mitigate negative effects of the pandemic of the new coronavirus.

In the lower part of the same slide, we can see in the last corner, the sales of units completed, which is 100% if all constructions of the company were completed in 2020. And on the lower right corner, we see the geographical distribution of these sales emphasizing the São Paulo region and nonstrategic region that represented 73% of total sales over the quarter.

Now in Slide 3. We can see the progression of cancellations over the last 16 months. In the third quarter of 2021, we had BRL 32 million with a reduction similar to the one that we saw in gross sales compared to the first semesters. Cancellations are directly relation to the efforts of the company to monetize. But that's -- and the total of units that were canceled this year in 2020, 87% were resold contributed to maintain an elevated resale index in the last quarters and to continue to generate operational cash. And the graphs in the lower part of the slide, you can see the distribution of our constructions and construction state and the location of units that were canceled in this quarter.

In the next slide, we can see the profile of the company's inventory with a VGV of BRL 126 million. Even though we had negative net sales in this quarter, a reduction of [ BRL 14 million ] in our inventory was obtained. This is related to the revaluation of prices of our units that were readapted to the current sales price.

In the graph in the upper right-hand corner, we can see the detailed inventory according to the -- of launching. And in the lower part of the slide, you can see that completed units represent 100% of our inventory. And the most part of 62% of the same vis-a-vis is in nonstrategic regions.

In Slide 5, we can see the land bank of our company and potential developments. Our current bank of sites for incorporation and new launches represent 64% of total. And [indiscernible] can mobilize to reduce the cost of maintenance. These real estates represent 32%. And the graph in the lower corner, left corner, we can see that we have a good possibility of launches in the court -- in the short-term in the state of São Paulo to accelerate the maturation of these developments.

The company is thinking about establishing partnerships with partners of other investors incorporator, and this may be achieved through the realization of these assets. And Rossi may be higher as a constructor or developer of these projects.

I would like to hand it over to Dr. Fernando Miziara, our CFO, for him to discuss the financial performance of the company in this quarter.

[Fernando de Mattos Cunha, executive]

Ladies and gentlemen, I would like to you wait for a minute. Thank you very much, Joao Paulo. Good morning, everyone. Going on with our presentation on Slide 6, we can see the progression over the last quarters, as has been said by Dr. Joao Paulo, this year, Rossi and Banco do Brasil have been very successful to renegotiate that corporate debt approved in December of 2020, leading to the conclusion of contracts within the financial institutes.

In this manner, after an expressive reduction of leverage that already had been achieved in the fourth quarter of 2020. We had a new reduction of our corporate debt, which is now BRL 220 million.

In this same slide, we can see the progression of our debt related to production, BRL 332 million in this quarter. And our cash flow that dropped and finished at BRL 22 million. As a consequence of these changes, in the lower right-hand corner, we can see the progression of the net indebtedness of the commitment of [ BRL 17 million ] in September. And this represents expressive reduction of 57% compared to the third quarter of 2020.

In the next slide, #7, in the upper part, you can see the progression of the transfers of the company that remained stable in this quarter. And the progression of transfer signatures that dropped compared to the last quarters due to the natural reduction of our inventories, and also accounts receivable from clients that's still mobilized, and that should be used for new launches. And this is reflected in the graph in the lower left-hand corner. In this slide, where we can see the accounts receivable reached BRL 39 million in this third quarter.

We also saw a mild reduction compared to the same quarter in 2020. And finally, in the lower right-hand corner of the slide, we can see the reduction of cost to incur with constructions and incorporation, given the company over the course of 2020, was able to deliver all of the launches that had already been started.

In Slide #8, we can see the progression of our major result metrics and the left upper corner, we can see the net income was BRL 60 million over 2021 and 20 -- compared to BRL 24 million in 2020. This expressive increase is a result of the increase in IGPM, the major index is to evaluate concluded activities. In the same slide, you can see in the left, lower left-hand corner, the reduction of our administrative expenses that are still dropping after the renegotiation of contracts and review of our internal processes. And these highlight to savings of 7% in our administrative expenses in the first 9 months of these years compared to the same period of 2020.

As regards commercial expenses, we had a reduction of 27% over the course of '21, which also reflects more criterias management regarding our cash expenditure compared to last year. That has led us to achieve what we expected as a reduction of credit. We can see that the losses were BRL 70 million in 2021 -- 2020, I'm sorry, and BRL 20 million in 2020, so a reduction -- an expressive reduction relative to 2020.

We will now hand it over to the operator for our Q&A session.

[Operator]

[Operator Instructions] Our first question is via webcast from Guilherme Mendes.

[Guilherme Mendes, analyst]

The company does not have any other incurring costs given these costs, complete that in the third quarter of 2020. At the end of the constructions in 2020, we did have sales with BRL 1.8 million or equivalent to 6 apartments of BRL 200,000 sold every 15 days of the course of the 3 months. The questions are, what has been done over the course of these 3 months given debt, IFRS and SFH have increased. And what does impact the scenario to these debt to go up?

[João Paulo Rossi Cuppoloni, executive]

Fernando, would you like to answer about that? I'm not sure I understand the question.

[Fernando de Mattos Cunha, executive]

Thank you very much for your question. The correct manner of analyzing the issue of debts is regarding -- is analyzing net debt. So we are talking about sales less and so it's not right to say that we sold 6 apartments only. The correct way to look at it is to say that the debt amounted just at the month. So as to the second question, what was done over the course of these 3 months, the debt increased due to a natural changes in interest in the SFH debt and this has impacted our results. So it's the same thing. It's the interest that accrue and then the debt increase as sales of these units that have debt are slower and then you have an increase relative to the debt.

Just to complement. We have a sales speed indicator as to us. And this is the best indicator to measure our commercial performance and sales performance. Because this is a way of analyzing sales relative to what you still have to sell. So the number of sales is really small. However, our inventory is also not that large. Without new launches, the number of sales tends to be a lower nominal value relative to what we had in the first quarter. However, if you analyze sales speed, so how much you're sailing -- you're selling relative to the inventory, we can see that this is a very expressive number, about 18%. Which is in line with the previous quarters, showing that we have a significant sales activity.

[Operator]

[Operator Instructions]

[Fernando de Mattos Cunha, executive]

Just correcting, 13% was our speed of sales in this quarter.

[Operator]

If there are no further questions, we would like to hand back over to the company for final considerations and remarks.

[João Paulo Rossi Cuppoloni, executive]

We would like to thank you all for participating. One more quarter that we have completed, and we expect to have good news in our next meeting. That will be about the last quarter of this year. Thank you very much, and see you next time.

[Operator]

We would like to inform you that this conference call is closed. We would like to thank you for your participation, and have a good day.

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