Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Rossi's conference call to discuss the results of the fourth quarter of 2020. The audio of this conference call is being simultaneously broadcast over the Internet at the address, ri.rossiresidencial.com.br. At that address, you can also find the respective PowerPoint presentation for downloading. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this conference call relating to the company's business prospects, projections and operational and financial goals constitute beliefs and assumptions of the Rossi's Board of Directors as well as 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 therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future results of the company and may 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. Joao Paulo Cuppoloni, Rossi's CEO. Please, Mr. Cuppoloni, you can proceed.

[João Paulo Rossi Cuppoloni, executive]

Good morning, everyone. We are here for another conference call. We will be showing what happened in 2020 and in the last quarter of 2020. 2020 was a very challenging year, impacted starting in March by the new coronavirus pandemic and with effects that were felt over the year -- in the first months, April and May with isolation and other negative impacts from the restrictions imposed by states and cities. We saw a decrease in the demand for apartments and consequently, a reduction in the sales of our company. After this initial adjustment period, over the rest of the year, we were able to reestablish the sales targets that were established for 2020. And we ended the year with 18% sales in the fourth quarter above the fourth quarter in the previous year.

The sales speed in the 12 months window finished in December was 65.5% vis-a-vis 55.1% determined in 2019. And this result reflects the recovery of sales in the third and fourth quarter of 2020 and the major operational effort made by the sales department of the company.

In 2020, we could also highlight that we met 100% of our goals regarding the projects and we got the permit of the projects in Campinas, Porto Alegre and delivery of the last 401 units. Even in this scenario of uncertainty, the company remained focused on its financial restructuring process, focusing all its attention and efforts to mitigate risks and to execute its strategic plan.

In this context, new financial debt renegotiations were formalized with our main creditors. As mentioned, in the relevant fact released past December 18 to the market, the company and the Bradesco Bank successfully completed a process that started in 2017 with the restructuring and settlement of 93% of the updated debt or corporate debt. And that was made without payment of cash because with the alienation of some assets that's to amortize the contract. We also had a discount of around BRL 460 million.

In addition to this negotiation with Bradesco Bank, according to the relevant facts released in December 22, 2020, the company also formalized a new restructuring of debt with Banco do Brasil. We signed amendments to corporate debt contracts and 100% of the debt balance around BRL 282 (sic) 288 million will be paid until June this year, 2021, with the alienation of its guaranteed assets without any cash disimbursement. Thus, the significant decrease in the net debt, which has happened in the fourth quarter 2020, will be followed by other reductions in debt over the year 2021.

Together with this effort to financial leverage, we also made important progress to simplify the operational structure of our company. In this regard, we can highlight the following: First, we finished the partnership with FIP Norcon and the company left the Norcon Rossi joint venture with operations focused in the city of Aracaju.

And #2 decrease in our administrative expenses, and over the year, we had a decrease of 24% when compared to expenses -- administrative expenses in 2019.

With the uncertainties of the expansion, if we no longer have worsening of the COVID-19 scenario, with vaccination this year, we believe that the company will be in a better shape than it was last year. And to make the use of the new cycle and then review new development projects.

Well, now we will have the presentation of the fourth quarter and for 2020. So we start the presentation from Slide #2, which is about the sales made by the company. In the upper part of the slide, we see that gross sales reached BRL 142 million in 2020, BRL 125 million related to the Rossi's share, a 17% reduction when compared to 2019, reflecting the natural reduction in inventories as the company finished its launched developments and being conservative regarding new launch. When we include here, the starting inventory, we can see that sales SoS reached 18% in the last quarter with an increase of over 2 percentage points when compared to the SOS of the fourth quarter of 2019. The year-to-date regarding sales speed in the last months finished in December was 66% vis-a-vis 55% in 2019, thus, an increase of over 10 percentage points.

On the bottom of the slide, in the last quarter, we see the sales share of units delivered, and it was 92%. In the right corner, we see its distribution by region with sales in areas that were considered not strategic, but accounted for 39% of the sales in the fourth quarter.

Turning now to Slide #3. On top of the slide, we see cancellations over the last quarters and the year-to-date. In the past year, cancellations were 151, 136 Rossi, reduction when compared to cancellations in 2019. And these cancellations are related to the effort of the company to monetize its delinquent accounts receivable. Of the total of canceled units, 91% were resold within the year, thus contributing to maintain a high level of resales in the past quarters, leading to a continued generation of operational cash. We see also distribution regarding construction stage and the location of the canceled units, these units that were canceled in the fourth quarter.

The next slide, we see inventory, BRL 144 million, in this quarter. There was a reduction of BRL 3 million in our inventory, which is related to revaluation of the prices of the units that were canceled and that came back to the inventory of our company. In the top right, we see detail of inventory according to the year of launch. And on the bottom of the slide, we see that finished units account for 100% of our inventory, in addition to the geographical distribution.

Now going to Slide #5, we can see here the land bank and its potential PSV. Today, our land bank for real estate development and allotment represents 82% of the total and the lands that will be decommissioned represent 18%. And the bottom right, plus we see that 100% of our land bank with launch possible in the short and mid-term allocated in the state of Sao Paulo.

And I'll give the floor to Fernando Miziara, our CFO, so that he makes his remarks regarding the financial performance of the company in the fourth quarter. Fernando?

[Fernando de Mattos Cunha, executive]

Thank you, Joao Paulo. Good morning, everyone. Going on then with the presentation in the Slide #6. We will show the evolution in the past quarters of the corporate debt and SFH debt. As Joao Paulo mentioned during his introduction, the company and Bradesco Bank successfully finished the restructuring of all corporate debt contracted with this bank, resulting in the payment of around 93% of its updated balance. The major effort between these 2 companies since we first started our talks. It's important to highlight, too, that on December 22, we had another deal -- another transaction this time with Banco do Brasil, a transaction that will be concluded in the next months of this year. With that, the balance of the debt, corporate was BRL 508 million, as we can see on the left top graph, a significant reduction, 50% reduction in corporate debt when compared to the corporate debt of the fourth quarter last year.

Here, we also see CFH (sic) [SFH] debt, which was BRL 374 million this quarter, and the cash debt remains stable, BRL 52 million. And with the payment of this debt with Bradesco Bank, well, that has happened without a company having to use its cash.

Finally, the last bottom, we see total net debt of the company. In December, it was BRL 831 million, with a significant reduction of -- in relation to the number we had when we finished last year.

Now going to the next slide, Slide #7. On top left, we see the history of projects delivered in the past quarters. We didn't have any delivery in the fourth quarter. And with the completion and delivery of all 401 units, the company has no project that has no permit. And this we can see on the top right, where we have the evolution of costs to be incurred. In December, it was BRL 1 million when compared to BRL 4 million we had to spend at the end of 2019. Here, we also see the transfer speed, which reached 22.1% in the fourth quarter with a 2 percentage point increase when compared to the previous quarter, in addition to cash inflow, which we can see in terms of bottom right corner, cash BRL 40 million, BRL 38 million regarding the Rossi's share.

Now on Slide #8, we see the main metrics regarding results. In the top right, we see net income, BRL 52 million when compared to BRL 30 million in the fourth Q '19. This reflects income coming from sold units by the old joint venture located in the city of Aracaju. An operation that was consolidated through equity equivalents until the third quarter 2020. And we have an impact of increasing IGP-M in the second half of 2020, which is the main index that's used to adjust accounts receivable for finished units. And year-to-date, net revenue was BRL 76 million when compared to BRL 61 million in 2019.

Still on this slide, on the bottom left graph, we see a reduction in administrative expenses that still are going down after renegotiation of contracts and constant review of our internal processes. This effort resulted in a 24% saving in our administrative expenses this year when compared to 2019.

Now regarding sales of commercial, expenses, the increase in the last Q of 2020 reflects complement made and the forecast for expected losses with credit, because of the increase in IGP-M in the second half of 2020, which is the main index used to adjust accounts receivable for the finished units.

To close, in the right bottom corner, we see that net income was BRL 196 million in the fourth Q and in the year, BRL 15 million, very much impacted by the beneficial effect of the payment of the corporate debt and discounts, we managed to get with Bradesco Bank in the last Q of 2020.

Now, I'll give the floor to the operator, so that we can start the Q&A session.

[Operator]

[Operator Instructions] If there are no further questions, we will return the floor to the company for their final remarks.

[João Paulo Rossi Cuppoloni, executive]

Thank you all very much for attending this conference call regarding the earnings of the last Q 2020. Thank you all very much. On behalf of the company, of the Board and all our employees, thank you very much. I would just like to stress 2 figures we presented here that show the evolution in the past 3 years. Our net debt went from BRL 1.7 million in the end of 2019 -- 2017 to around BRL 800 million, as Fernando said. This reflects our efforts to renegotiate with all our creditors and banks, and we've managed to decrease half of the debt we had.

Another thing, Fernando said, which are cost to be incurred with construction. 3 years ago, we had around BRL 85 million still to be incurred to finish all the projects. And as we could see, we have almost 0. We have delivered all units, all projects, and we have just BRL 1 million of costs to be incurred. So these 2 indicators reflect all the efforts and the work done in the past 3 years. There are other indicators, too, reduction in G&A costs, for example. So these are really significant figures. And we, from the Board and we from the company, are really proud of having reached this level.

So once again, thank you all. Thank you very much, and see you in the next conference call.

[Operator]

We, here, finish Rossi's conference call.

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