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Edited Transcript of RDNI3.SA earnings conference call or presentation 7-Nov-19 1:00pm GMT

Q3 2019 RNI Negocios Imobiliarios SA Earnings Call

São Paulo Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of RNI Negocios Imobiliarios SA earnings conference call or presentation Thursday, November 7, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandre Firmo Mangabeira Albernaz

RNI Negócios Imobiliários S.A. - Co-CEO & Development Officer

* Carlos Bianconi

RNI Negócios Imobiliários S.A. - Co-Chief Administrative, Chief Financial & IR Officer

* Felipe Rodrigues; Investor Relations Manager

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting. Welcome to RNI Third Quarter 2019 Results Conference Call. Today with us, we have Mr. Carlos Bianconi, co-CEO, CFO and IRO; Mr. Alexandre Mangabeira, Co-CEO of Development; and Felipe Rodrigues, Investor Relations Manager.

We would like to inform you that this call and the slides are being broadcast in the Internet at the company's IR website. Also, this event is being recorded and simultaneously translated. (Operator Instructions) and can be accessed at ri.rni.com.br where the presentation can also be found.

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

I would now like to turn the call over to Mr. Carlos Bianconi who will begin the presentation. Mr. Bianconi, you may proceed.

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Carlos Bianconi, RNI Negócios Imobiliários S.A. - Co-Chief Administrative, Chief Financial & IR Officer [2]

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Hello. Good morning, everyone. Let's discuss the results of the third quarter 2019 of RNI. First, let's go to the highlights of the third quarter 2019.

Net sales grew by 30% in relation to 2018. Average monthly cancellations fell to lowest level since 2007, a constant downward trend. Landbank expanded by BRL 400 million via swap agreements, most predominantly, the physical swap and these are focused on the MCMV segment. So this led to the third quarter of 2019 to the amount of BRL 4.5 billion today and 60% of which is allocated in the segment of MCMV. Net revenue in 2019 amounted to BRL 224 million. It already surpasses the net revenue of the entire year of 2018 with a growing of 51% on the same period last year.

G&A is stable for 2019 in the first 9 months of the year, meaning that we had 0% increase in relation to the previous year. We grew in net revenue in performance, and we are not growing the structure of the company. The G&A-net revenue ratio stands at 13%, down 5 p.p. on the third quarter 2018. So it's all under control. Adjusted gross margin was 26.4% for the first 9 months of the year, reflecting the higher contribution from products under construction. These are the new products of MCMV, and this is the strategy that we have already disclosed in the previous call.

Net income was BRL 3.8 million in the Q3 2019, advancing 63% when compared to the second quarter 2019 with a reduction in net loss to date by 80%. Expansion of 5.9 p.p. when compared to the third quarter 2018 in the gross margin of the Backlog Revenue amounting to BRL 140 million in the third quarter as a result of the new strategy and new products by the company. The products were launched in the second quarter 2018 under the new strategic guidelines of the company.

I will turn the call to Mr. Felipe Rodrigues to talk about the financial and operating aspects.

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Felipe Rodrigues; Investor Relations Manager, [3]

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Good morning, everyone. We are going to go over the figures of the third quarter and also the first 9 months of 2019.

On Slide 6, we can see the graph of net sales. We sold BRL 51 million for the quarter, and we would like to draw your attention to our stability. Even though we had no launches for the half of the year, in the comparisons of the year, net sales grew by 30% driven not only by the gross sales, but also by the significant decrease of the level of cancellations. In addition to that, the products launched in 2018, [they had] -- which is very -- SoS, which was very important.

And now moving on to the next slide of stock inventory. We can see that the inventory level fell by 10%, reaching BRL 449 million, reflecting the net sales of the period, 20% of which refer to MCML (sic) [MCMV], showing how this is becoming more significant in the company. On the graph below to the left, we can see that out of this inventory in the month of September, half of it is launched from 2018 onwards. That means that it's a very recent inventory. So we can see that BRL 342 million are inventory underway, and 2/3 of this has a delivery estimated for 2021. So we have a long time ahead of us, so that we have all this leeway in terms of sales.

Now providing details on the income state (sic) [statement] of the company on Slide 8. As Bianconi said, the revenues have been growing when compared quarter-on-quarter or year-on-year. This is driven by the work which is underway. We have a large inventory of products in this period, and the gross margin of sales is growing. So we have been recovering prices. And also, the cancellation levels dropping have been helping our results and has been helping the bottom line of the company. And as a consequence, we increased the gross profit. The margin has stability in relation of last year. But last year, we had nonrecurring events. It's important to remember that. And today, we managed to stabilize this margin according to the operation.

Now still talking about commercial expenses. We have expenses quarter-on-quarter with stable results that when compared to last year, had a reduction of 5%. It's a natural movement since last year in the first quarter we had some launches of average and medium and higher income with commercial [ticket much] stronger. And now [most of] the launches of this year are concentrated on the third quarter. We are going to see the results in the future.

G&A shows stable results in relation of last year. As Mr. Bianconi mentioned, with the optimization of the structure, the net income increased by 51%, and we have been able to expand the structure. Net income also favored the results, especially Goiânia and Ribeirão Preto. And also, we have recovered the prices and this helped in the results. And all this put together and with the growth in operation and also the stabilization of expenses and also the gain in equity income, we closed the quarter at BRL 3.8 million in terms of shareholders' net income.

On Slide 9, basically, are the figures of what we have just mentioned. This also describes the expenses and all the scenario of the quarter and showing that we surpassed the drop in terms of financial results. And when we go on the [graphic] terms, since 2008 (sic) [2018], we accumulated these numbers in terms of net income, and we can see the recovery that we had brought about to our company with the control of expenses and all the launches and efforts and shows that we, after so much time, we have been recovering from such negative level.

On Slide 11, we talk about the future of the company, and these are the backlog revenue of the company. We can see that from 2018 to 2019, we can see that the margin goes up to -- by 6 percentage points. And the products that were launched in the Current Model shows that they're more profitable, and the margin stands at 28.2%. And it's entering the range of what we expected, as we have announced to the market, and this figure is likely to be going in this upward trend. And there was a drop in revenue, which was very specific because of the launches together with other expenses related to construction. But this is not a movement that we are likely to see in the future.

And lastly, talking about cash and debt. We had a cash burnout in terms of net debt variation of [BRL 22 million] for the year, which is linked to the production. So it's a natural movement. And for 3 or 4 years, the level was low, but we are resuming the levels. It's natural that all those construction expenses affect us. So the corporate debt is intact. So all those leverage movements linked to production are normal movements, and they are likely to be happening in the futures to come.

I'll turn the call back to Alexandre Mangabeira who will make some comments and remarks. Thank you.

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Alexandre Firmo Mangabeira Albernaz, RNI Negócios Imobiliários S.A. - Co-CEO & Development Officer [4]

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Good morning, everyone. Our final message is related to the landbank. We are going to touch upon some details on this. And we have this commitment of BRL 400 million. To date, we have BRL 1 billion of landbank, and we'd like to close the year at [BRL 6 billion]. This volume is necessary even though our landbank is at BRL 4.5 billion because we are repositioning our landbank for the My House, My Life, MCML. And as I said, the land are very large, very attractive land and divided into different phases that will be used along the next 5 or 6 years. And since this is -- this relates to a slow progress, and we have to position ourselves now so that the volume of launches can be more linear than what we saw this year.

So now talking about launches. Unfortunately, we have the expectation of having launched in the third quarter. However, Ourinhos was pushed to the first week of October. And to end -- to the end of the year, we are very confident that 5 other launches will happen: Rondonópolis, Cuiabá, São José do Rio Preto, Ribeirão and Palhoça in Santa Catarina. 3 of them are in the segment of MCML and 2 of them are in the economic side. And 4 undertakings out of the 5 that I mentioned already have the permit for the registration phase in the registry offices. So we are very confident that when we launch those undertakings, we will have better results than the previous year.

In relation to the market, the markets [favor] to our sector. Interest rates are falling. MCML still does not have a clear positioning, but we are in the range of 2 or 3 and we do not see any risks for next year. And at the end of the year, we might expect some lack of budget level by [Caixa]. But however, this will be resumed in January, so we are very confident for 2020.

I will then open the Q&A session now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from -- [Andreas] removed himself from the queue of questions.

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Unidentified Company Representative, [2]

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I'm going to answer [Christian's] question from the webcast. What are the expectations of launches for 2020 if we have a target of reaching 1 billion. [Christian], our purpose is to have a linear growth up to 2021. So in relation to the previous year, a growth. So since we do not provide guidance, I cannot disclose the number, but what I can say is that the growth will be linear up to 2021.

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Operator [3]

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(Operator Instructions) If there are no further questions, I would like to turn the call back to Mr. Carlos Bianconi for his final considerations. Mr. Bianconi, you may proceed.

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Carlos Bianconi, RNI Negócios Imobiliários S.A. - Co-Chief Administrative, Chief Financial & IR Officer [4]

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Well, I would like to thank everyone for attending our call. And if we summarize all the figures, that demonstrate the performance of the company in the third quarter, [we'll close it]. And also into the first 9 months of the year, we have figures that demonstrated the results with a very interesting delta showing our improvement, margin growth, the increase in the net revenue and all the launches mentioned by Mangabeira. We did not record them in the third quarter, but we are going to start with Ourinhos.

The message I would like to convey is that we continue in performing the strategy that we disclosed to all of you as of the second quarter. And its strategy contemplates products, new products, market share and the firm guideline of maintaining the stable level of cash. And we're always looking at the housing deficit and the improvement of employees so that we also have a strict eye on funding, so that we are going to provide more products that will be consumed.

So I would like to thank everyone. And our IR team with Felipe, me and Alexandre Mangabeira will be here at your service, and we are available for answering any questions that you might have. Thank you very much, and have a good day.

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Operator [5]

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Thank you. The conference call on the discussion of the third quarter 2019 of RNI is ended. Please disconnect your lines, please.