Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting. Welcome to Rossi's conference call to discuss the results for the third quarter 2022. Joao Paulo Rossi Cuppoloni, CEO; and Fernando Miziara, CFO of the company, are with us today.

We inform you that this meeting will be recorded and has simultaneous interpretation into English. You can select the webcast with the desired audio at the address ri.rossiresidencial.com.br/. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this presentation regarding the company's prospects, projections and operational and financial goals are beliefs and assumptions of Rossi's steering Board as well as information currently available to the company. Forward considerations are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur.

General economic and industrial conditions and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in such forward-looking statements.

I now turn the floor to Mr. Joao Paulo Cuppoloni, CEO of Rossi, CEO of Rossi. Please, Mr. Cuppoloni, you may proceed.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everybody. We are so starting one more call. Thank you for being here. I'm going to start with the introduction, and then we go to the presentation of the figures for this quarter.

The major event of this trimester is our request for Judicial Reorganization. After we delivered the restructuration of our indebtedness and having the constant review of the internal processes to increase operational efficiency and decrease costs and expenditures, the Administration understood that this request for Judicial Reorganization was the adequate instrument to guarantee a definite solution to readequate cash flow and maintain operational normality.

This gap between revenue and costs increased exponentially in the last 3 years. As the economical crisis got worse, and we saw a scenario that was more and more challenging with high unemployment and the interest rates growing due to an increased verified inflation, and that affected directly the financial capacity of the families to acquire new housing. It led to increase in cancellations and civil contingencies related to our launches and delivered until 2020. This increase, unfortunately, was not possible to find a solution administratively wise since this actions impacted in a negative way the capacity of the company to generate cash flow through its sales and transfers, as we noticed in the third quarter.

We had a decrease of 51% in gross sales as compared to third quarter 2021 due to an increase of the number of units that had to be canceled and that blocked the commercialization part of our inventory that associated to drop also in the transfers that led to a reduction of 59% in cash entrance in Rossi part vis-a-vis the same period of the previous year. So we could not say our clients and suppliers. Even the reduction presented in administrative and commercial expenditures of the company that dropped 30% as compared to the previous year, it was not enough to mitigate this less entrance in cash flow. And this is why these actions had to be halted, and the credits had to be restructured in a stable environment, responsible and economic environment that led to satisfactory conditions for the payers and for the company itself.

So we requested for the Judicial Reorganization and it was approved. And we trust that we're going to find balance in our liabilities and we'll create feasible conditions for economic and operational recovery of our companies, also making possible new investments and the development of new projects.

So now we'll go to the presentation itself. We will start on Slide #2 on company's -- sales by the company. On the upper part of the slide, we see that gross sales reached BRL 8.8 millions in this third quarter, 50% less than last year, also much less than the second quarter of '22. Besides impact, because of the natural depreciation of our inventory and for market aspects, we had an increase in the number of units that were judicially taken, what blocked and make it impossible sales of part of our inventory.

When we measure this indicator by the inventory, we could see that SoS reached 7.2% in this quarter, a reduction as compared to the SOO presented in the other quarters due to this blockage in the units and the drop in sales.

On the lower part on the left, the sales of units that were delivered 100% since all the jobs have been delivered. On the right side, geographic distribution of those sales with emphasis in the nonstrategic regions, 46% of total sales.

Now Slide 3. On the upper part, we present recessions throughout the last 15 months. Second quarter '22, cancellations were BRL 36 millions, aligned with the volume of cancellations verified in the same period '21; however, 111% more than the second quarter '22. Specifically, in this quarter, this high number of contracts canceled are results of specific actions taken by the company. We hope that the units -- these units can be resold, contributing to cash generation. It's worth emphasizing that of the total units canceled, 61% have been resold contributed to operational cash generation.

On the lower part of this slide, you see the distribution relating to the status of the jobs and the sites of the units that were canceled this quarter. Here, vis-a-vis, BRL 128 million in Rossi's share besides the natural effect of net sales that was negative this quarter. There was a decrease of BRL 12 million in our inventory, which is related to the units that were canceled and recaptured by the company for the current price.

On the upper right side, we present detail of the inventory according to the year of launch. And on the bottom part of the slide, we see that the ready units are 100% of our inventory and most or 59% of the same PSV is in strategic regions.

Now I give the floor to Fernando Miziara, CFO, who is going to talk about the financial performance of the company in this quarter.

[Fernando de Mattos Cunha, executive]

Thank you, Joao Paulo. Good afternoon, everybody, or good morning. Going on with the presentation on Slide #5, we show the changes throughout the last quarters of the indebtedness. SFH in throughout 2020, '21 and first half of this year, the company had success in restructuring and paying some of its debts that were with Banco do Brasil and Bradesco Bank and SFH also contracted with Bradesco and Itau. These were done, especially using the cash originated in [ alienation ] of the assets that were in the bank's guarantee sets and also renegotiation. With that, after reduction in our indebtedness, the balance of the debt is stable in this quarter, and the variations presented have to do with the interest in this period. And amortization done through sales and transfer of ready units that are a guarantee for those SFH debts.

On the third quarter, the debt was BRL 294 million, and the balance of SFH debt was BRL 317 million. On the lower aspect of the slide, we see the evolution of the cash balance in the last 15 months, closing the [indiscernible] BRL 3 million, similar to last year.

Now Slide #6. We show on the upper part the evolution of the transfer speed. This quarter reached 42% in spite of the potential reduction -- reduction in potential. This increase in our operational efficiency helped us mitigating this reduction seen in the number of agreements that could be transferred. However, it was not enough to maintain the cash entrance in the last quarters, as you can see on the lower left side of the slide. On this third quarter, this cash entrance that came from clients was BRL 16 million Rossi's share.

And at last, on the right bottom part, you can see the reduction in the use of all the costs to incur. The company did in 2020 the delivery of all the last units that have been launched.

Now Slide #7, the evolution of the result metrics. On the upper left side, net revenue, a total of BRL 12 million this third quarter, vis-a-vis BRL 8 million on the same period 2021 since the negative impact of the hard -- the high number of cancellations in this quarter had been previously estimated in provision through the provision for cancellations. Also in this slide, on the bottom left side, the reduction of our G&A that keeps decreasing after negotiation of many contracts and constant review of our internal processes. This effort resulted in a saving of 30% when we compare the sum of 2021 and '22.

On the right bottom, we see that the liquid loss -- the net loss is [ BRL 232 million ], worse against BRL 28 million in 2021. When we obtained financial discounts with Brazil Bank that granted the company the payment of 100% of its operative debt.

Now we give the floor to the operator.

[Operator]

[Operator Instructions] As there are no further questions, we give the floor to the company for their final considerations.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everybody. I thank you for your participation on this call. And so we're going to end this call on 3Q '22. Thank you all for being here.

[Operator]

Thank you. The call is now adjourned. We 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.]