Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome you to the Rossi conference call to release results for the fourth quarter and full year 2018. The audio of this conference call is being broadcast simultaneously at the Rossi site. At that site, you can also find the respective PowerPoint presentation. [Operator Instructions] .

Before proceeding, we would like to clarify that forward-looking statements made during the conference call referring to the company outlook, projections and operating and financial goals are based on beliefs and premises of the company management. There are no guarantee of performance as they involve risks and they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors could affect the results of the company and lead to results that differ materially from those expressed in these forward-looking statements.

I would like to give the floor to Mr. João Paulo Cuppoloni. You may proceed, sir.

[João Paulo Rossi Cuppoloni, executive]

Good morning, and thank you for your participation. We're going to now begin our conference call for the fourth quarter '18 and full year.

The year 2018 was once again marked by the stagnation of economic indicators, and this worsening month after month may be due to uncertainties as to outcome of the presidential elections and discussions on pension reforms. Inflation remains stable, keeping interest rates below their historical levels. Although there was a slight reduction in the unemployment rate, the growth domestic product were only 1.1%, demonstrating that the improvement of some macroeconomic indicators was not sufficient to boost economic activity. This economic environment has reinforced the importance of continuing to diligently implement the company's financial and strategic restructuring.

We are committed with the deleveraging and simplification of the company structure so we can resume our launch cycle. At the beginning of 2018, we concluded the closure of the Capital Rossi Joint Venture that acted in Manaus and Belém. This operation was concluded without the need for cash disbursement and will enable the company to focus on more strategic regions, where we will focus our future launches.

We also continued our efforts to reduce operating costs with significant drops in administrative expenses of 30% vis-à-vis the expenses in 2017. The corporate debt restructuring process was formalized in the second semester with renegotiations with Banco do Brazil and Caixa Econômica Federal. We paid the debt -- extended the debt to 10 years, and we also significantly reduced by 60%, approximately, the financial charges with Caixa Econômica also extending the maturity.

In the third quarter, we settled a portion of the housing debt contract with Banco Santander to transferred properties with this. Rossi's net debt was reduced by 10% at the end of 2018 compared to 2017 with a cash generation of BRL 173.5 million, according to the IFRS figures.

In terms of operating results, terminations were reduced by 53% in Rossi's take with a high resale level, 73%. We also completed and delivered 3 projects in 2018 in the cities of Aracaju and Rio de Janeiro, representing 240 units and a PSV of BRL 244 million, BRL 215 million representing Rossi's share. The other projects, which are part of the legacy development since 2014, will be delivered through 2019.

Finally, we continue to actively seek and analyze the acquisition of additional plots of land, always aligned with the low-income segment profile. We acquired 4 new plots in the region of Campinas with a PSV of approximately BRL 576 million. In total, considering the acquisitions made in 2017, our land bank already represented BRL 146 million (sic) [ BRL 846 million ] in PSV in the low-income segment, mostly acquired through swap agreements without disbursements by the company.

With all of these we hope that in the next few quarters, the company will begin a new operational phase and resume the launch of development by carefully analyzing the risks involved in the real estate market. And with an improvement in the country's economy, these new launches should boost the resumption of our activities in the near future.

We will now go on to the presentation, and I will begin the presentation on Slide #3, referring to the sales carried out by the company. At the top of the slide, we see that gross sales in the fourth quarter of 2018 reached BRL 46 million, BRL 48 million for the Rossi stake. During the year, sales reached BRL 350 million or BRL 293 million for the Rossi stake. The reduction of sales when compared to the fourth quarter of 2017 are mainly due to reduction in our inventory as the company concludes the developments launched until 2014 and is very conservative in terms of new launches. At the bottom to the left, we highlight the finished units that, during the quarter, represented 87% of total sales. At the lower bottom right, we show you the geographic distribution of our gross sales.

We go on to the next slide, presenting the evolution of cancellation. The rescission in the fourth quarter, they represented BRL 36 million, 100% and a reduction of 63% vis-à-vis the fourth quarter 2017 and 53% accumulated during the year. Additionally, we continue maintaining a high level of resale. 73% of the units were already resold. And at the bottom of the slide, you see the redistribution of cancellations according to the construction stage and the region.

We go on to Slide #5 with a summary of our speed of sales indicated and net sales for the company. For the semester, the total was 14%, and for the last 12 months, 42.6%. As you can see at the top, net sales for the year 2018 represented BRL 108 million, and the Rossi stake represented BRL 83 million.

In the next slide, Slide #6, we show you the profile of our company inventory, made up of a PSV of BRL 312 million for the Rossi stake. At the bottom of the slide, you see the distribution between the finished units, representing 85% of our inventory, and those to be delivered in 2019, besides the geographic distribution.

We go on to the next slide, where we speak about the company land bank with a potential PSV and a great deal of movement through 2018. We had a reduction in sale and land that was not part of the company's launch program and, second, the impact of the payments carried out to the banks to reduce the corporate debt of the company. We actively continue to look for new areas for acquisition, especially in the low-income segment. During the last year, we acquired 4 land plots in the region of Campinas with a potential PSV of BRL 556 million. At the lower left, you see the distribution by segment with launches until 2012 -- 2020, and to the right, the geographic distribution of this land bank.

I would now like to give the floor to Fernando Miziara, the company's CFO, to speak about the financial results for the fourth quarter and the full year 2018. Thank you, Fernando.

[Fernando de Mattos Cunha, executive]

Thank you, João Paulo, and good morning to all of you.

We continue on with the presentation in Slide #9. We have the reconciliation of gross debt and cash and cash equivalents representing 100% of Rossi stake. With the debt that we had contracted with Santander Bank, we're speaking about finished buildings located in the city of Manaus, now the debt totaled BRL 528 million in the fourth quarter 2018 and BRL 567 million for the Rossi stake. It is important to highlight a decrease of almost 40% in our balance vis-à-vis the same quarter in 2017. Now the corporate debt reconciliation reached BRL 1 billion, as you can observe in the graph at the right. During that quarter, we had cash generation of BRL 34 million and BRL 79 million for the Rossi stake. For the full year cash generation, the Rossi stake was up BRL 365 million.

We go on to Slide #10, where we speak about the debt evolution during the last quarter and the housing system. In 2018, which is a year where we restructured debt with Banco do Brazil and Caixa Econômica, we lengthened our term of payment with an expression -- expressive reduction of the financial charges of both entities. After these negotiations in 2018 with our main creditors, we have a trough of almost 10% in the total gross debt of the company when compared to the fourth quarter 2017.

We now go on to Slide #11. At the top, you'll see the units delivered in the last 12 months. For the entire year, we delivered 3 projects that are developments that were launched until 2014. And it represented BRL 216 million for the Rossi stake, and there was a reduction of BRL 57 million to BRL 15 million when compared to the fourth quarter 2017. In the same slide, we also have the transfer of the speed of the company that reached 26% in the fourth quarter, the best indicator in the last month and with a good cash inflow, as you can see in the lower right corner, that reached BRL 97 million for the Rossi stake.

We now go on to Slide #12 with the reduction of SG&A, showing how we are continuing on with our operating -- restructuring profit in the company. As shown in the top graph, since the second semester of 2014, there was a reduction of 85% drop in our workforce, allowing us to have a 30% reduction SG&A when compared to the same period of the previous year. When it comes to selling expenses, there was an increase in reais due to the change of our accounting criteria in the joint venture company, and the accrued impact for the year was of BRL 10 million. In the 100% vision, when the figures do not depend on the accounting criteria of the company, we had a reduction of 24% in selling expenses year-on-year.

Now to conclude on Slide #13, we show you the evolution of our main financial highlights. Net revenue was of BRL 19 million in the fourth quarter and BRL 149 million for the entire year. And here, you see our -- once again to the right, you'll see the growth income adjusted to financial payments with a total of BRL 13 million for the year and a margin of 8.9%. Adjusted EBITDA was negative for BRL 340 million vis-à-vis BRL 300 million in the same period 2017. And finally, at the lower right, we have the net income (sic) [ net loss ] for the fourth quarter, which was BRL 213 million and for the entire year led to BRL 614 million.

I would now like to return the floor to the operator so that we can go on to the question-and-answer session.

[Operator]

[Operator Instructions] As there are no further questions, we would like to return the floor to the company management for the closing remarks.

[João Paulo Rossi Cuppoloni, executive]

I would like to thank you on behalf of the company, thank the investors and all those interested and leave a message that the improvement of the year 2018 are very important for us. We complied with our goals, deleveraging and cash generation, and we're ready for the year 2019. We're ready to resume our launch cycle, which is something we have been awaiting since the year 2014, and we believe that our positioning is correct to guarantee these new launches. This is a year where we're going to test the acquisition of land plots and launches. We're going to undertake partnerships, which is important for us, once again, with the deleveraging and the restructuring, which will be very important for our success.

Once again, we would like to thank all of you for your participation. We hope to see you in the next call. Have a good day, and thank you for listening to the Rossi conference call.