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Edited Transcript of PDGR3.SA earnings conference call or presentation 15-Aug-19 2:00pm GMT

Q2 2019 PDG Realty SA Empreendimentos e Participacoes Earnings Call

Sep 17, 2019 (Thomson StreetEvents) -- Edited Transcript of PDG Realty SA Empreendimentos e Participacoes earnings conference call or presentation Thursday, August 15, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Vladimir Kundert Ranevsky

PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director

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Presentation

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Operator [1]

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Good morning. Welcome to our conference call for PDG concerning the second quarter of '19. We have here with us Vladimir Ranevsky, CEO, CFO, and also the IRO. We would like to inform you that we are being recorded. (Operator Instructions) We would like to inform you that questions can be directly submitted to the IR team of PDG using the e-mail, ri@pdg.com.br. Audio and slides of this teleconference are being simultaneously aired through the Internet at the address, pdg.com.br/ri. At this address, you can also find the presentation for download in the webcast platform.

Before moving on, we would like to clarify that statements that may be made during this conference call with respect to business perspectives, forecasts, operating and financial goals of PDG are all based on beliefs and assumptions of the Executive Board as well as currently available information. These beliefs and assumptions involve risks and uncertainties since they relate to future events and therefore, depend on circumstances which may or may not occur. Investors should understand that general economic conditions of other operational factors may affect future performance of PDG and lead to results which may materially differ from those expressed in these considerations.

I would like now to hand it over to Mr. Vladimir Ranevsky, CEO, who is going to start the presentation. So please, you can start, sir.

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [2]

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Thank you. Good morning, everyone. Welcome to our conference call for PDG concerning the second quarter of '19 and first half of the year.

We start today on Slide 4, where we have the executive summary and where we have the key highlights of the second quarter and first half of '19. In the second quarter, our gross profit reached BRL 30.4 million, with adjusted gross margin of 51.4% as over a BRL 45.5 million net loss in the second quarter '18.

During the first half '19, gross profit totaled BRL 13.6 million with adjusted gross margin of 19.2% over BRL 50.2 million net loss in first half '18. Our net loss went down -- second quarter '18 and second quarter '19, our loss got down BRL 91 million or 30% approximately. Year-to-date, net loss was reduced by BRL 111 million or 18%.

63% improvement in net sales growing from BRL 43 million to BRL 70 million in the first half '19. We still have focused on adjusting our structure to the size of our operations. So G&A expenses showed a decrease of 47% of second quarter '18 over the second quarter '19. In the 6 months comparison, our G&A expenses dropped 19% compared to the first half of '18.

At present, we have already paid BRL 265 million to our debtors, and this amount is probably going to increase throughout the year considering what we have. Cancellations fell by 18% quarter-over-quarter, and 32% decrease if we compare the first half of '18 to the first half of '19.

Now Slide 6. We can talk about our -- the restart of our construction of Palm Beach project. As a result of our discussions with the bank and commitments with our clients, we have resumed the construction activities of this project in Manaus for middle-income population with apartments that range from 71 square meters to 86 square meters. There are 2 towers of 16 stories in a very large piece of land, and we expect to have it ready by May 2020. 270 units, of which

(technical difficulty)

Slide 10, now we can see financial and operating results. Gross sales amounted to BRL 53 million, 44% lower than the second quarter '18. Year-to-date, gross sales totaled BRL 139 million or a 3% reduction over the first half of '18. This decrease in gross sales throughout the second quarter of this year impacting the results of the first half of the year resulted from the change in our sales strategy. Now we have focused our commercial efforts on selling units that have an immediate generation of cash -- BRL 40 million on units that have an income, but -- and generated free cash to the company.

Throughout the quarter, we had cancellations of BRL 40 million, 18% below the second quarter '18. And year-to-date, we had BRL 68 million in cancellations, with a 32% decrease compared to the first period last year.

We have maintained our strategy to have cancellations of units that have better liquidity, and our unencumbered net sales totaled BRL 13 million in the second quarter '19 or 70% below the second quarter '18. However, considering the good performance of sales in the first quarter of '19, accrued net sales in the first half of '19 reached BRL 70 million, 63% above the first half of '18.

Slide 11 now. We have reviewed our selling, general and administrative expenses. Reduction of cost in line and expenses and the reorganization of the structure are our #1 priority to optimizing processes and increasing efficiency of operations of the company.

[Between] the second quarter of '18 and second quarter of '19, G&A expenses decreased by 47%. Year-to-date, it had a decrease of 19%. This downward trend should be maintained throughout the second half of the year.

Selling expenses increased by 44% half-over-half of the year because of increase in the cost of some units which are in inventory, and also increase in expenses with our electronic media advertising. So SG&A expenses, as a whole, had a 2% increase quarter-over-quarter and also presented 3% decrease comparing the first half of '18 and first half of '19.

Slide 12. We can see that by the end of first quarter '19, we had BRL 1.8 billion of market value of our inventory. The total number of units in inventory have grown to 4,991 in the second half, over 2% decrease. Comparing the second quarter of '18, there was a 15% decrease in number of units in inventory.

By the end of the second quarter '19, [sales in] São Paulo and Rio concentrated 60% of our inventory, excluding commercial products, with a total available inventory 46% in -- income level of over 60%, meaning good liquidity range.

Over BRL 500 million, 63% of them located in Rio and in São Paulo, 74% concentrated in projects that have income range of between 61% and 79% and 64% concentrated in residential projects, excluding Minha Casa, Minha Vida land plots and commercial units.

Slide 13, we can see our Court-supervised Reorganization or debt not subject to that Court-supervised Reorganization, we had had an increase of the first -- compared to first quarter and second quarter of '19, resulting from interest rate and monetary adjustments of BRL 119 million in the period, with main amount and the interest at a total amount of BRL 42 million.

Slide 14 to conclude, we can see our income statement showing our BRL 30 million gross income in the second quarter '19 and BRL 13.6 million in the first half of '19. Therefore, the company has had adjusted gross margin of 42.7% in the second quarter '19 and a 19.2% in the first half of '19.

Considering the volume of the liabilities, comparing the first quarter and second quarter, amortization and depreciation showed significant reduction and had a positive impact on our results of the second quarter this year and the first half of '19. As a consequence, one more quarter, our net loss was reduced going from BRL 339 million on the second quarter to BRL 250 million in the second quarter '19, with 30% decrease. Year-to-date, reduction of net loss was 18%, going BRL 489 million in the first half last year to BRL 600 million.

Before closing, I would like to emphasize that we have reviewed and improved our processes and controls of the company. As a consequence, it can all be observed in the recent opinions of independent auditors hired by the company, who have continuously indicated the improvement of our actions in terms of controls and processes of PDG. Throughout the first half of the year, we have focused on completing our short and medium strategic plan, which had been started at the end of last year. One of the main focuses of our plan was to identify new opportunities that would provide PDG an opportunity to diversify products and services, generating additional recurring revenues.

Aligned with the Recovery Plan and the new operational plan of PDG, we will launch a new brand in the market shortly, probably during the second half of '19, where we are going to have different products and services in real estate. Shortly, we are going to share more information about that with you. With that, I close my presentation.

And now I would like to open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Patricia Cortez] (inaudible).

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Unidentified Analyst [2]

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I have a question about the new company of services. When do you expect to have it launched? And what kind of services are -- do you have in mind?

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [3]

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Well, Patricia, as I've told you, we are probably going to launch the new company by the end of this year. We are speaking about management of real estate, which is something that we have a lot of experience there. We are going to expand that to the market overall, and it's going improve also in sales and probably, we are going to have an area of engineering and construction, providing services to the market overall.

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Unidentified Analyst [4]

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Wonderful. The second question about picking up the construction of Palm Beach. Do you have new construction to be resumed shortly in your pipeline?

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [5]

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Not yet. We have renegotiated with one specific bank, so that we could resume construction. And now we are working on renegotiating that with the banks that are currently holding our debt there. We still do not have any other information to share with you concerning that.

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Operator [6]

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The next question comes from (inaudible).

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Unidentified Analyst [7]

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I have two questions. The first one is about what you've said about new launches. What are you anticipating? What kind of products and regions are you going to focus on?

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [8]

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We have planned to have a launch by the end of the year. We are (technical difficulty) working with potential partners to not define yet, but our main focus will be in São Paulo and 1 or 2 pieces of land that we have here in Brazil in São Paulo, but we still haven't decided on what will be the region or the land yet. This is going to depend on the negotiations we are making with potential investors.

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Unidentified Analyst [9]

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Fine, second question now. About the payments provided by the plan -- are all creditor -- have all creditors already executed their -- their shares and interest, or there will be anything else?

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [10]

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Well, these are things to be negotiated and executed. There are many of them which are still ongoing, and we still haven't finished them all.

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Operator [11]

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(Operator Instructions) Thank you. So the Q&A session is finished. Now -- I would like now to hand it back to Vladimir Ranevsky for his closing remarks.

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Vladimir Kundert Ranevsky, PDG Realty S.A. Empreendimentos e Participações - CEO, CFO, IR Officer & Director [12]

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Well, thank you very [much for your participation] during this conference call. And I would like to reinforce that should you have any questions, our Investor Relations area is at your disposal. Thank you very much. Have a good day.

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Operator [13]

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Thank you. The conference call for the earnings of the second quarter of '19 for PDG is now closed. Please disconnect now, and have a nice day. Thank you.

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