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Edited Transcript of PDGR3.SA earnings conference call or presentation 18-Nov-19 2:00pm GMT

Q3 2019 PDG Realty SA Empreendimentos e Participacoes Earnings Call

Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of PDG Realty SA Empreendimentos e Participacoes earnings conference call or presentation Monday, November 18, 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. You're welcome to PDG's Third Quarter 2019 Earnings Conference. Today with us, we have Mr. Vladimir Ranevsky, CEO, CFO and IR President. We would like to inform you that this meeting is recorded. (Operator Instructions) We would like to inform that questions must be awarded directly to the IR team by e-mail at, ri@pdg.com.br. The slides are being transmitted simultaneously at www.pdg.com.br/ri. There you can find the presentation for download.

Before moving on, we would like to clarify that [eventos]information shared by PDG's projections and operational goals are based on premises of the company. They involve risks and uncertainties and premises because they are regarding future events that may or not take place.

Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn over the conference to Mr. Vladimir Ranevsky, who will begin his presentation. Mr. Vladimir, you may begin your conference.

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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 very much. Good morning, everyone. You're all welcome to PDG's Results regarding the Third Quarter accumulated in the first 9 months of 2019.

Our agenda today starts in Slide #3 with the executive summary about the main events in the third quarter and in the 9 months in 2019. I will then share a brief presentation on the results for this period and the Court-supervised Reorganization.

In Slide 4, we have the executive summary with the financial and operational results in these 9 months. In 2019, we have had a significant improvement in the gross profit totaling BRL 8.6 million with an adjusted gross margin of 16.9%, compared to a gross loss of BRL 104.1 million in the 9 months of 2018. There was a reduction of BRL 96.4 million or 14% in net loss Y-o-Y.

The G&A expenses following downward trends, registering a 50% fall Q-o-Q. Furthermore, in the comparison between these 9 months, we had a 31% decrease when compared to the same period in 2018.

Commercial expenses were reduced by 28% when you compare the same quarter in 2018. Since the beginning of the company's recovery plan, the amortization of debts has reached BRL 280 million, which is quite significant. In August, we reestablished the construction activities of Palm Beach project expected to finish by May 2020. It's located in Manaus. The project has already complied with 220 units. We confirm the commitments of the company to keep continued negotiations with the bank and other investors to find solutions for the entrepreneurships that were already started.

Moving on to the next item, talking about the Court-supervised Reorganization in Slide 6. This debt recorded an increase of BRL 3 million (sic) [BRL 13 million] because of interest rates, in the order of BRL 28 million. All of the placements were added to BRL 15 million. Payments anticipated in the plans are taking place, contributing for the amortization.

In summary, at the end of the third quarter, taking into account the capital increase and the payments made to class I, II and IV that the company has already amortized BRL 280 million in debt.

Now moving on to the financial and operational results. In Slide 9, we demonstrate the results of the company. The gross sales were reached BRL 41 million, 50% lower than the 3Q '18. During the 9 months, gross sales totaled BRL 180 million, with -- which is 20% lower than the 9 months in 2018. The company is focusing its efforts in selling units that would generate immediate cash. Throughout the third quarter, equivalent units with a [CCB]of BRL 40 million , which is 4% above than what was recorded for the third quarter last year.

In the 9 months of 2019, BRL 118 million were paid, representing a reduction of 20% when you compare to the same period in the previous year. Part of this was done to continue making the payments anticipated in our recovery plan.

Furthermore, we continue with our strategy to prioritize the units that have better liquidity and no liabilities. Net sales close of quarter was negative BRL 41 million in the accumulated in the year. They totaled BRL 62 million, 20% lower than the 9 months in 2018. In October, we started a sales campaign. And with the efforts of our business team, our performance will contribute for the results in Q4.

In Slide 10, we present the general administrative expenses. And as I've mentioned, the reduction in costs as an expenses to optimize our processes and structures continues among our priorities. And when we compare Q3 '18 and ['14], the G&A had a 50% decrease. In the accumulated 9 months, there was a 31% decrease. Commercial expenses were reduced by 28% Q-o-Q.

In the 9 months accumulated results, commercial expenses increased by 8% especially because of the expenses of -- with the [condominium] fees and electronic media. The general expenses added to the commercial expenses, which we call SG&A, had a 42% decrease when we compare the third quarter with last year.

Now talking about the stocks of the company in Slide 11. In the end of Q3 2019, we had BRL 1.8 billion at a market value. The number of units went from [4,491]in the second quarter of this year to 4,469 units in the third quarter of this year. We had a 1% decrease. When compared to the third quarter 2018, we had a 12% decrease in the volume of stock units. The state of Rio and São Paulo concentrated 69% of the company's stock, excluding commercial products. Of the available stock, 41% is concentrated in units for incomes greater than [60%]with good liquidity.

Regarding the concluded stock, 72% is located in São Paulo and Rio, 72% is located in areas with a 61% and 69%. In other words, we have stock with good sales velocity.

In the next slide, we present the Court-supervised Reorganization of the company, which was -- had an increase of BRL 63 million or 2% from 2Q '19 to 3Q '19. Considering the payment of interest rates, we had a total of BRL 25 million.

And to conclude in Slide 13, we have our income statement, highlighting the decrease of the gross losses when compared the third quarter 2018 to the third quarter 2019. In the 9 months this year, we had BRL 8.6 million, with adjusted gross margins of 16.9%. When compared to last year, we had a decrease of 14% in the net losses when we compare the 9 months in 2018 to the 9 months in 2019.

And before closing, I'd like to highlight that we are pursuing productivity and savings in our operations with all of the processes, controls and governance in place. The results may be seen in the last opinions issued by the auditors, which are independent from the company and have improved their opinion regarding the controls and processes of PDG. Throughout the third quarter this year, we have dedicated special attention to the commitments of the companies which were started in 2018. We are now concluding our main actions, which will allow PDG to diversify its projects, generating more cash.

As a result, aligned to PDG's new phase we will soon issue a new brand in the market, aiming at providing different services in the real estate market. I will soon share more information about this with you.

With this, I end my presentation, and I'm open to questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We now have our first question from participant.

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Unidentified Analyst, [2]

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I have a question about the new service company. When do you intend to launch this company? And what services will be provided?

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

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We're planning to launch this new company early next year. Actually, we have 2 companies whose expertise areas we've provided in 2Q. We are focusing on sales and engineering services. We will have 2 companies focusing on each one of these services using the expertise and experience that the company has accumulated over the years.

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Unidentified Analyst, [4]

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Okay, I get it. I have another question about the constructions. You have resumed Palm Beach constructions. Do you have any new ones in the pipeline to be resumed?

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

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You -- are you talking about new launchings or just about resuming constructions?

We have worked intensively to be able to have -- to get a loan to be able to conclude those constructions. We have been negotiating that with different financial institutions, and we do plan to resume the constructions that were halted, especially those that make sense, where we have a lot of value to recover. But the answer is, yes, we will try to resume constructions.

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Operator [6]

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(Operator Instructions) We have our next question from Mrs. (inaudible).

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Unidentified Analyst, [7]

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I have 2 questions. The first one is that you talked about resuming your launchings, and I'd like to know what is the timing for these launchings and what kind of products is the company planning to focus on in the beginning?

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

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This is another area where we have focused a lot. It is also related to obtaining resources. We're also dedicating to do that. We were planning to just have 1 launch this year but I don't think it will be possible. We will have to delay that to the beginning of next year. We have some alternatives, but we don't know exactly where it's going to be. It will depend a lot on the resources we will obtain.

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Unidentified Analyst, [9]

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My second question, all of the debtors have activated their shares and do you -- is there anything else coming up?

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

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No. We are still taking some actions. This process is a bit complex. It involves the payments of delayed condominiums and other payments to be made by our debtors. But this is going to move on.

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Operator [11]

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(Operator Instructions) Our Q&A session is now closed. I will turn over to Mr. Ranevsky for his final considerations.

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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, I thank you all for your participation in this teleconference. I would like to reinforce that if you have any questions, our IR department is available to help you. Thank you very much.

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Operator [13]

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The third quarter 2019 PDG's conference is now closed. Please disconnect your lines now.

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