Rossi Residencial SA

BOVESPA:RSID3

Earnings Call Analysis

Rossi's Q4 Boost Despite Annual Sales Drop

Rossi Residential's Q4 earnings call marks a significant turnaround with a colossal 453% sales increase to BRL 9 million over the same period last year, all thanks to overcoming judicial recovery challenges. Despite this quarterly success, 2023 saw a 28% sales drop to BRL 36.4 million due to a reduction in inventory from stopping new project launches since 2017. Focus on non-strategic regions led to 78% of Q4 sales originating there, primarily in Rio de Janeiro. Rossi actively worked on default receivables, reducing cancellations by 53% year-over-year. The company ended 2023 with BRL 256 million in net profit and a strong cash balance of BRL 70 million, while debt was cut by 44% and sits at BRL 163 million post-restructuring.

Rossi Group's Turning Point and Debt Restructuring

2023 marked a pivotal year for the Rossi Group with the ratification of their reorganization plan, signaling a shift towards financial stability. They saw a significant decrease of 44% in their current liabilities year-over-year and netted a profit of BRL 256 million. By executing their judicial reorganization plan, Rossi seemed to be aligning its cash flow and operations towards expansion and future growth.

Sales Performance and Strategic Focus

Rossi showcased a noteworthy sales increase in Q4 '23, with gross sales jumping 453% compared to the same quarter in the previous year, reaching BRL 9 million. This was partly due to the unblocking of units post the approval of their judicial recovery request. However, annual sales dropped by 28% due to a conservative approach and a reduction in inventory, as the company hasn't launched new developments since 2017. Sales were strategically driven, with nonstrategic regions contributing to 78% of total sales, predominantly in the Rio de Janeiro state.

Inventory Management and Reduction of Indebtedness

Rossi reduced their inventory by BRL 1 million due to price variation on returned units, bringing their total inventory to a Potential Sales Value (PSV) of BRL 112 million. Furthermore, their debt was reduced by 48% in Q4 '23, totaling BRL 163 million, following the repayment deals with major banks. The emphasis on strategic areas continued, with 51% of the inventory PSV located in such regions.

Improving Cash Position and Projecting Future Growth

Cash inflow saw a 29% increase from the previous year's Q4, reaching BRL 9 million, indicative of a positive cash flow aligned with the initial quarters of 2023. This, combined with a cash balance of over BRL 70 million at year-end, underscores Rossi's improving financial health and paves the way for the initiation of new projects and attracting further investment.

Reduction in Cancellations and Operational Efficiency

Cancellations in Q4 '23 rose by 25% year-over-year but showed a decrease when analyzed over the entirety of 2023. This was attributed to the successful monetization of delinquent accounts receivable. Operational improvements led to an 18% reduction in commercial expenses, reflecting Rossi's strategic cost reduction and operational efficiency.

Financial Metrics Indicating a Positive Trajectory

Net revenue in Q4 '23 stood at BRL 16 million, with a total of BRL 19 million over the last 12 months, contrasting the negative BRL 34 million from 2022 — a turnaround attributed to fewer cancellations and a positive gross profit increase. Rossi also maintained General & Administrative (G&A) expenses at the same level as in 2022, despite renegotiations and discounts from the reorganization plan. The net income of BRL 256 million over the last year marks a substantial improvement from the BRL 427 million loss in the previous period.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen. Thank you for waiting. Welcome to Rossi Earnings Conference Call to discuss the results for the fourth quarter of 2023. We have here with us today, Mr. Fernando Miziara, CEO; and Mr. [Indiscernible], Director of the company. Please be aware that this meeting will be recorded and we have simultaneous translation to English. You can select the webcast with desired audio at ri.rossiresidencial.com.br. During the meeting, all participants will be in listen-only mode for the presentation, and then we'll begin the Q&A session when further instructions will be provided.

Before proceeding, we would like to clarify that any statements that may be made during this presentation regarding the company's business prospects, projections and operational and financial goals, our beliefs and assumptions of the management as well as information currently available to the company. Future considerations 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. General economic conditions, industry conditions and other operating factors may affect the company's future results that may cause them to differ materially from those expressed in such forward-looking statements.

I would now like to give the floor to Mr. Fernando Miziara, CEO. Please proceed.

[Fernando de Mattos Cunha, executive]

Good morning, thank you. 2023 was an important turning point in Rossi's recent history. As stated in factor relevant to material fact released on December 7, we took an important step towards the continuity of the company. This was achieved with the [Indiscernible] of the first quarter [Indiscernible] and traditional recovery in court of Sao Paulo regarding the company's traditional reorganization plan, which was approved at the general creditors meeting called on November 8. This plan provides a global and definitive solution to readdress Rossi Group's cash flow, maintenance operation normality and resuming the expansion of its activities. With the approval in place, a 15-day winter commenced for creditors of the judicial reorganizations to choose their preferred payment method, which ended on December 28. With that, the company wrapped up the [23 year] with a clear outlook aware of its obligations, this confident in its ability to meet future payment, commitments -- payment commitments to its creditors.

The proven ratification of the company's initial reorganization plan [Indiscernible] important implications in 2023 financial statements with a reduction in current liabilities by 44% Y-o-Y and a net profit of BRL 256 million. Regarding the operational results, we sustained strong sales performance in 4Q '23, consistent with what was seen in 3Q '23, with growth sales nearing BRL 10 million representing. However, a noteworthy increase of BRL 153 million as compared to the same period of the previous year. Moreover, cancellations saw a 53% decrease Y-o-Y while maintaining a higher resale efficiency rate of 91%. These terminations are directly tied to the company's endeavor to monetize its delinquent accounts receivable.

We remain focused on our cost reduction strategy, and our team has been increasingly striving to improve the performance of our operational indicators. This has led to an 18% reduction of commercial expenses in 2023 as compared to '22. We closed the fiscal year with a cash balance of over BRL 70 million, reflecting the results achieved during 2023. We are aware, however, and confident that we must maintain efficiency and control in cash management, which initially will be allocated to meeting payment commitments outlined in our judicial recovery plan. These figures depict a positive scenario, paving the way for us to soon embark on a new phase of the company, potentially initiating new projects and attracting investors.

Lastly, it's worth mentioning the unwavering commitment of our team who have been diligently working over the past year to secure approval and ratification of our recovery plan. Now we will begin the presentation by Slide 2 that operates the sales from the company. On the upper part of the slide, we see that gross sales reached BRL 9 million in this fourth quarter, 453% above the same period of the previous year where the performance was affected by the judicial recoveries request. After fulfilling that request and approval of it, the company has achieved success in reducing the units that were blocked what explains the improvement of performance in this last quarter. With that, we also maintained our sales around 8%, a level similar to what was seen in second and third Q '23.

When we analyze 2023, we see that the sales reached BRL 36.4 million in Rossi's share, a 28% share drop when compared to '22. This drop compared to 2022 is directly connected to reduction in inventory as the company has finished the launch developments until 2017, and we maintain a conservative stance in regard to new launches. In the lower part of the slide, we emphasize the participation of units delivered that represent 100% since all the developments have been delivered. And we also show the geographic distribution of the sales, emphasizing the nonstrategic regions that represents 78% of the total sales in the quarter. And many of them were in Rio de Janeiro state.

Now Slide 3 in the upper part, we show cancellations throughout the last 15 months. In 4Q '23, cancellations were 3 million Rossi's share, a volume that was 25% higher than we saw in '22 which was much less than -- much less increment in what we saw in gross sales. And if we compare that with what we saw in the 3 previous quarters, we see a relevant reduction, although gross sales stayed on the same level because of the agreement with [Indiscernible] that enabled us to resume the products that have been financed by that institution. In '23, cancellations were BRL 23 million, very different from last year, and this difference reflects the -- how the company prepared itself for the judicial recovery in 2022, when we have more cancellations. Cancellations are directly associated to the effort of the company to monetize its delinquent accounts receivables. In the total units that were canceled last year. All the lower graphs of that slide, we see the distribution regarding the stage of the development in where these units are.

On the next slide, we see the profile of the inventory with a total PSV of BRL 112 million Rossi's share. Besides the natural effect of net sales, there was a decrease of BRL 1 million inventory related to the price variation of these units that have been canceled. They came back to the company, and they will be sold by their current value. On the upper right side, we detail the inventory according to the week of launching. And on the lower part, we see that the ready units represent 100% of our inventory and 51% of the same PSV is in strategic regions. Now I give the floor to [Indiscernible] our Director to provide his [Indiscernible] regarding the financial performance of the company in this quarter.

[Unknown Executive]

Thank you, Fernando. Good morning, everybody. Going on with the presentation on Slide #5. We show what happened with that evolution. After the company conducted process of restructurization and paying our debt with Bradesco, Banco do Brasil and Itau, we did in the fourth quarter 2023, one more important step on this process. With the ratification of the plan that impacted in the reduction of indebtment in '23, since the relevant volume of our debt will be paid during the judicial reparation. In this 4Q, our debt is BRL 163 million and the balance of FSH, SFH, as you can see, with a 48% reduction when compared to the previous quarter. In the lower part of the slide, we show the evolution of cash in the last 15 months that reached BRL 18 million in December with a positive variation of 125% vis-a-vis what was seen in the same period of the previous year.

And this increment in cash is related to the increase in gross sales in the last -- that we saw in the last 9 months of '23 that impacted volume of payouts and the settlements done by our customers. Now Slide #6, we show on the upper part the evolution of transfer, speed of the company that in this quarter reached 24%, a 5 PP reduction as compared to 3Q '23. When we analyze in absolute terms, the volume of signature of new agreements and settlements, we can see that it was BRL 5 million of payout in this quarter, going back to the level that we were at in the first 2 quarters of '23. Now the lower part of the same slide, we see that cash inflow reached BRL 9 million this quarter, representing a 29% increase vis-a-vis 4Q '22 where the commercial performance were negatively impacted because of the judicial recovery plan.

So here, the cash flow is aligned with what we see in the first quarter of that year, especially because of the volume of sales that we saw. We hope that when the units -- judicial units are able to be sold, we will improve that. And we will see when the [Indiscernible] are liberated, so to say, we will improve that. And the company has delivered everything that has been launched. So there is no cost in development. Slide 7, we show the results metrics. On the upper left side, we see our net revenue that we had a total of BRL 16 million in 4Q '23. In the last 12 months, the net revenue was BRL 19 million as compared to minus BRL 34 million that we saw in '22 since we had a high number of cancellations regarding the traditional plan.

On that slide, on the left lower side, we show G&A that was on the same level of 22%. In spite of renegotiation in internal revisions in 4Q '23, we took actions related to G&A into the discount we obtained in the traditional recovery plan that impacted our G&A in 4Q '23. And at last, on the lower right side, we see the net income in the last 12 months, BRL 256 million, significantly higher if you compared to the negative result of BRL 427 million in the same period of '22 besides reflecting an increase in net -- in gross profit. This contemplates the result of the reorganization plan of the company, restructuring it assets, [Indiscernible] discounts and can be paid further in the future. Now I give the floor to the operator to begin with the Q&A session.

[Operator]

Thank you. We now begin the Q&A session. [Operator Instructions]

As there are no questions, we give the floor back to the company for their final considerations.

[Fernando de Mattos Cunha, executive]

Thank you. We will then finish this call, thanking again our team, relentless and our coworkers that are anchors towards the future in aiming at meeting the needs of our judicial reorganization plan always looking at the promising future of the company. Thank you all. Thank you. Rossi's call is now finished. Have a good day.