Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting. You're welcome to Rossi's teleconference to discuss the fourth quarter of 2019 results conference call. This event is also being broadcast live via webcast and may be accessed through the company's website at www.rossiresidencial.com.br/ri, where the presentation is also available for download. [Operator Instructions]

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Rossi's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. João Paulo Cuppoloni, Rossi's CEO. Mr. Cuppoloni, you may begin your presentation.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everyone. We are starting another earnings release for the fourth quarter of 2019. I thank all for your presence here today. And I will start with a brief message and then we'll talk about the results themselves.

2019 represented a new year for Rossi's history. As mentioned in the material facts released to the market on December 26, we took another decisive step to guarantee the company's financial restructuring and deleverage by renegotiating our corporate debt with Banco Bradesco, our main creditor, which provides that the entire unpaid balance will be settled with the transfer of specific assets, which collateralize these agreements.

With the signature of this MoU and the overcoming still in 2019, the basic conditions of the document, a new financial discount in the order of BRL 122 million was granted by the bank and recorded by the company, resulting in a 10% Y-o-Y reduction in our corporate debt. Thus, contributing to a 49% Y-o-Y reduction in our net loss in 2019.

Another important part of this new negotiation will impact 2020 results is the reduction of indebtedness through the transfer of assets will significantly lower the financial expenses projected for the coming years, allowing the company to invest in new developments and focus on the resumption of the launch cycle.

Together with the financial deleverage effort, we have also made significant progress towards the readjustment and simplification of the company's operational structures such as intensifying the initiatives aimed at reducing the company's administrative expenses, which fell by 20 -- I'm sorry, by 31% in the fourth quarter of 2019 compared to the same period in 2018, and the 16% in 2019 compared to 2018, either through our employees' productivity gains or the renegotiation of contracts, partnerships and the constant revision of our internal processes.

Number two, restarting resumption of real estate launches by means of a new strategic positioning of taking part in real estate development, not necessarily in development and construction activities. In 2019, we concluded the sale of our shares in 2 assets to the partners of these projects who will be responsible for real estate development. The company will be entitled to profit sharing and will be responsible for rendering intelligence and real estate development services. This new format is positively impacted in the short term of the BRL 22 million by the sale of such assets that were responsible for the 53% Y-o-Y increase in the revenue for the fourth quarter of 2019.

If the growing expectation of improvement in the industry and in the Brazilian economy as a whole is confirmed in 2020 as well as if the uncertainties related to the rapid expansion of the new COVID-19 virus and other global macroeconomic tensions were quickly contained, we believe that 2019 may mark the company's long-waited transition to new phase with resumption of launches and creation of value for our shareholders.

Challenges will continue to exist. But if we remain diligent and confident in our planning and in the results already achieved, we'll be able to reaffirm our vocation as real estate entrepreneurs, taking advantage of the full potential of our brand and our team's capacity to develop new real estate profits. Our main commitment is to ensure the company's continuity in the next few years.

I will now turn over to my presentation of the results for the fourth quarter 2019 and for 2019 as a whole. I will start my presentation on Slide 2 with the sales performed by the company. On the upper part of the slide, we can see that the gross sales has reached BRL 37 million in this fourth quarter of 2019, of which BRL 32 million were for Rossi. And then in the accumulated over the year, the sales reached BRL 167 million, of which BRL 150 million were for Rossi.

Now the sales for some assets was 63% with a slight increase when compared to the previous quarter. On the lower part of the slide on the left corner, we have outlined the participation of gross sale of concluded units which represented 98% of our sales. And then on the right side, we can see the geographic distribution with highlight to São Paulo sales and also Rossi Mais in Parque da Lagoa, which was delivered more recently.

And now moving on to Slide #3, in the upper part, we present the evolution along of the last semester for the cancellation. In the fourth quarter, you can see BRL 28 million, and BRL 26 million for Rossi, with a reduction of 18% when compared to the same period in the previous year and then 33% in terms of the accumulated for the previous year. Of this total in 2019, 90% of the units were resold throughout the year, contributing for the maintenance of the high resale rates presented by the company in this last quarters.

And then in the lower part of the slide, we can see the distribution of cancellations regarding the construction stage and geographic distributions.

The relevance for the share of sales in São Paulo for 2019 are related to the recent delivery of the Rossi Mais Parque de Lagoa, which has to do with the clients who no longer could buy the property.

And then in the next slide, we can see the inventory of the company totaling 88 million for Rossi. And then on the upper right corner, we can see the details of our inventory according to the year of launch. Once again on the lower graph, we can see the construction stage of finished units and those to be delivered in 2020. We can see the amounts and the geographic distribution on the right side.

Now moving on to Slide #5. We can see the land bank of the company and the potential. And then at the end of the year, we can see that it represented 89% of the total now. The lands that will be decommissioned represent 86%. On the lower right corner graph, we can see that 100% of our land bank with possible launches for the next 12 months are located in the state of São Paulo.

I now turn over to Fernando Miziara, CFO, so that he can make his calculations regarding the financial performance for this quarter -- last quarter of 2019.

[Fernando de Mattos Cunha, executive]

Good morning, João Paulo. Good morning, everyone. We're now moving down to Slide #6, where you can see the debt evolution along the last quarters in terms of the corporate debt. And also as João Paulo mentioned before, we are in a new phase of our corporate debt with Banco Bradesco. And then in the end of 2019, we signed a contract where we will pay 100% of our debt with the bank by the valuation of certain assets, which were used at guaranteeing this contracts. However because we overtime the effects in 2019, the bank gave us another financial discount in the order of BRL 123 million, leading to a 10% decrease of our corporate debt, totaling BRL 1 million, as you can see on the left upper graph of the slide. The debt reached BRL 443 million which represents a 7% decrease of the debt when compared to the third quarter. And this was done according to another negotiation established in the second quarter of 2019, which will also enable us to pay our operational debt with the bank.

In the same slide, we can see the cash and equivalents which have been stable over the last quarter. We can also see the net debt which reached BRL 1.4 billion when compared to BRL 1.5 billion in the last quarter of the previous year.

And now in Slide #7, we can see the cash flow drivers over the last quarters, cost to be incurred when compared to the fourth quarter of 2018. Also on the same slide, we can see the transfers fee which reached 21% in the quarter in addition to the cash coming in from clients and is shown on the right lower corner, reaching BRL 153 million.

Now moving on to Slide 8. We can see the main result metrics. On the left upper corner, we see the net revenue which reached BRL 30 million in the quarter and BRL 61 million in the accumulated for the year. We saw the loss of a plant, which was not incorporated in the amount of BRL 22 million and then the reduction year-over-year results from the sales performed and conclusion of construction.

In this slide on the lower left corner, we show the reduction of operational expenses -- I'm sorry, so we had continued decrease towards -- I'm sorry, a continuous trend towards decrease. This effort resulted in savings of 31% of our administrative expenses in the fourth quarter of 2019 when compared to 2018 and 16% in the year when compared to the accumulated in the previous year.

And we are now going to move on to our Q&A session.

[Operator]

[Operator Instructions] Our first question is from [ Paola Tocados ] from [indiscernible].

[Unknown Analyst]

I'd like to know if you have any emergency plans for the next 3 months when companies won't really be operating because of the coronavirus? I wanted you to talk a little bit about this. And I also wanted to know if you have any special plans?

[João Paulo Rossi Cuppoloni, executive]

Thank you, [ Paola ], for your question. As we all anticipate, there is no doubt that we'll have some impact. We're preparing ourselves and our workforce. We have not had any impact in terms of cash, it is too early to anticipate that. I would like to highlight that a large part of our inventory is not located in the states that are -- have framed the loss and therefore, we have not noted any impact on the sales yet. It would be too premature for us to anticipate anything. We are preparing ourselves for the worst but praying for the best.

In terms of follow-on, the company had not anticipated anything. The first quarter for this year is the time for us to implement the agreement established with Banco Bradesco, which will allow us to have massive leverage of about BRL 600 million and therefore, it's an extremely important agreement. Regardless of the scenario changing or not, it would be a semester for us to implement that and perhaps save the growth for the second half in terms of some kind of operations. But none of it is in our radar yet. What we plan to do now is to conclude this leveraging process. And I would like to complement something which may have an impact on different companies and is related to construction and those people working at the construction sites. Currently, we only have 2 constructions, which are about to be concluded. We're in the process of this concluding here, very few people working and therefore, the impact of the coronavirus to our construction is going to be minimal because of our current status of construction.

[Operator]

Since there are no other questions, we turn over to the company for the closing remarks.

[João Paulo Rossi Cuppoloni, executive]

I would then, on behalf of the Board of Directors, like to thank you all for your presence and to all the fellows who participated in this conference call. We conclude the fourth quarter for 2019 conference call. I'll see you next quarter, and I thank you all.

[Operator]

That does conclude the conference call for today. Thank you very much for your participation, and have a nice day.

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