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Edited Transcript of RDNI3.SA earnings conference call or presentation 12-Mar-20 1:30pm GMT

Q4 2019 RNI Negocios Imobiliarios SA Earnings Call

São Paulo Apr 6, 2020 (Thomson StreetEvents) -- Edited Transcript of RNI Negocios Imobiliarios SA earnings conference call or presentation Thursday, March 12, 2020 at 1:30:00pm 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, Financial & IR Officer

* Felipe Rodrigues

RNI Negócios Imobiliários S.A. - IR Coordinator

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Presentation

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Operator [1]

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Good morning, and welcome to RNI's Fourth Quarter 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, IR manager. We'd like to inform you that this call is being recorded and being broadcast simultaneously. (Operator Instructions)

This event is also being broadcast over the web and can be followed at ri.rni.com.br. The respective slide deck can also be found at the same URL.

Forward-looking statements made during this conference call concerning the company's business outlook as well as financial and operating goals and targets are based on the company's assumptions and beliefs and also on information currently available to them. Those involve risks, uncertainties and assumptions as they refer to future events that might or may not materialize. Investors should have in mind that general economic conditions, industry conditions and other operating factors might affect the company's future performance and lead to results that could differ significantly from those expressed in these forward-looking statements.

I'd like now to turn the call over to Mr. Bianconi, who will start the presentation. Mr. Bianconi, please, you have the floor.

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

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Good morning, everyone. Let's then start with the highlights of the year 2019. And for the fourth quarter of 2019 for RNI real estate businesses. The first item is the launches, which amounted to BRL 371.1 million in 2019, a growth of 42% in the MCMV segment. So we are strongly focusing on the MCMV program as a strategy pillar. Net sales moved up 26% last year, driven by a 109% growth in the MCMV segment which confirms our focus on that segment.

Our landbank expanded by BRL 1.2 billion, closing the year at BRL 4.9 billion PSV for the landbank, of which 67% are allocated to MCMV projects, which is, once again, consistent with our company's strategy. Once again, our focus is to derive 80% under that program, we're at the level of 67%, as you can see.

Net revenues in the fourth quarter 2019 was the highest, since the third quarter 2016, 3 years ago. In the year 2019, our net revenues amounted to BRL 319.8 million, up 75% from 2018, an important growth was registered.

Adjusted gross margin came at 38.9% in the fourth quarter of 2019, driven mainly by the recognition of the sale of a loss, which was not part of our core businesses.

So in the year, the adjusted gross margin came at 30.2%, reflecting that new strategy. Once again, a major focus on the segment strengthening the MCMV.

Speaking a bit about the structure, the G&A/net revenue ratio came at 12.7%, which shows a very serious type of discipline on G&A, on the structure, on the machinery of the company that came at the lowest level since 2014.

So we want to grow business volume but not necessarily grow the structure of the company at the same rate, at the same pace, trying to keep things under control.

All of that allowed us to have a net income at BRL 5.3 billion in the fourth quarter last year, which is the highest since the first quarter 2016 while making a turning point for the company, which posted a net income for the year of BRL 1.6 billion, after 3 years of net losses -- 3 years consecutive losses.

We also saw a reduction of 1.7 percentage points in the average rate of production debt. So we sped up the conditions, the financial conditions, for production, the financial costs, through portability and renegotiation of debt. So we are paying close attention to whatever opportunities emerge to improve our interest rates, our financial cost curves, always with an eye at the new realities of the market.

We also saw an expansion of 6% and when compared to the same quarter of 2018 in the gross margin of unearned revenue, the backlog, which reached $121 million in the fourth quarter, reflecting the new products for the current model. In other words, products launched as of the second half of last year of 2018, rather, with a higher concentration also in the second half of last year, with a smaller impact because of the slower sales of speed, but which is a promising [fund] for 2020.

So those are the main highlights, the main points. The items that warranted a special note. And now I'll turn the floor over to Felipe, our IR Manager, who will be discussing the financial and operating results with you. Felipe? Carry on.

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Felipe Rodrigues, RNI Negócios Imobiliários S.A. - IR Coordinator [3]

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Good morning, everyone. Now moving to Slide #6. Let's talk about our financial results. Launches in 2019, they were concentrated in the fourth quarter at BRL 300 million launch in the fourth quarter, totaling BRL 371 million in the PSV, a growth of 15% when compared to 2018.

Also important to note the growth in MCMV, ranging from 42% in the year-to-year comparison. Another highlight in this slide, I have a series of details on the right -- with the strong return the company had in the Santa Maria gross sale on top of the return from Santa Catarina. In Mato Grosso, we launched 3 projects, Parque Ohara in the city of Cuiabá, the capital, the Moradas Clube in the city of Rondonópolis and in Santa Catarina, with the Green Club launch in Palhoça.

We also had a launch in the state of Sao Paulo, Cipreste Jardim Botanico, in the city of Ribeirao Preto. Those were the launches of the year.

Moving on to the next slide. You see in the line #1 that even though we have a growth in the sales volume when compared to the third quarter, you can see a drop in the year. So that drop in sales, if you consider the sales in the last quarter -- in the last month of quarter, actually, the most sales moved to the first quarter 2020.

That's why you have a slightly lower DSO, but it should stabilize throughout the year. But that lower number impacted our consolidated number, but we hope to recover that in the first quarter.

In the year, we closed the year at BRL 240 million in United States and a growth of 26%, driven not only by the sharp reduction in cancellations, but also in the growth of 109% for MCMV.

Those were the main highlights in the city of Várzea Grande and Green Home Ribeiro Preto and other projects in the state of Sao Paulo, which accounted for half of those sales.

As for our inventory on the next slide, you can see that from the third to the fourth quarter there was an expressive growth of 52% due to the launches that we made in the previous months without the respective sales. So a good portion of those new launches are part of that inventory as of December.

Another highlight is that half of the inventory is under the MCMV fair grant, about half, which shows that our operating numbers are converging with the company's strategy to operate more strongly at the MCMV.

In the bottom part, the aging of the inventory (inaudible) recent inventory. 70% were lost from 2018 on, a relatively new -- on the right-hand side of the chart, only 13% of our inventory has been concluded. The remaining is under construction. In 2020, we have BRL 99 million to deliver, Green Home [worldwide] and in Sao Paulo and Green Club and Rondonopolis as you saw in the previous slide.

Now briefly talking about the company's financial results on Slide #10, talk about the income when compared quarter-on-quarter, reflects the growth in sales and a strong work in construction.

[Launch] 2017 and 2018. A large focus representing a high percentage of those numbers. A reduction in cancellations, as it was mentioned, which sort of relieved the impact on revenue. And in the last quarter, we also had a sale of a non-core lot and that generated some gain for the company and drove revenues up. We saw a big growth in revenue and net profit followed suit, and margins remained stable when you compare year-on-year. Once again in 2018, we also had sales of nonrecurring lot, where we had cancellations, both in 2017, '18 and '19. We had nonrecurring [sale], that pushed the company's profitability up. We see some increase due to that concentration in the last quarter in '19. I think we have been so strong in 2018 and the year-on-year comparison see a drop of 2%.

Because in 2018, we had launched early-on several projects for the mid-income segment, Green Home, (inaudible).

So in 2018, we allocated our marketing efforts to the SBPE. This year, as we focus on MCMV, a lighter product in terms of commercial expenses, we saw the slight drop, but the highlight as [the economy has already -- we] already mentioned, G&A saw a drop in both fronts. That's very important. That shows our strict control in terms of costs and expenses, even though we had a growth of 75% in net income -- net revenue, sorry, we saw an important drop in G&A.

In other words, we are operating in very new machines, and that should continue going forward. In terms of equivalent, we have net sales of partners dropping, losses since 2016 and from -- (inaudible) another plus in January. So the equivalent line we will recover as we move forward.

All of that together, saw a growth in revenue with cost control, higher profitability that led the company to very strong income of BRL 5.3 billion in the quarter.

And the current partner company will also be at BRL 1.6 billion in net income, after 3 consecutive years of what [businesses] mentioned earlier. So it was really a turning point in our numbers.

On Slide 11, we have a macro view of those results. You can see revenues growing on a comparative basis, profitability also growing, even though financial revenues have dropped year-on-year because of a weaker IGPM, a reduction in portfolio, still the operating gain coming from sales, allowed us to have a good result overall.

On Slide 12, you can see that after several years where we have losses consecutively, we managed to reach the turning point and the trend now is to continue to with positive results.

On Slide 13, very briefly, we see the [REF] revenue for the fourth quarter in '18 compared to '19, the margin went up 6 percentage points because of this new strategy, which has a comparitively higher profitability, products launched as of the second half of 2018, taking that range, that we mentioned of a gross margin of around 33%, from 28% to 33%, that already reflects the company's future revenues. And that's why the company's gross margin should be around going forward. And that's clear from the numbers.

And lastly, on the debt slide, growth in companies' debt always pegged to our production, the corporate debt remains flat. When we look at our net debt, it sits at a negative level, as you can see, the net debt equity ratio is negative, even though we managed to raise 70 -- had gathered BRL 70 million in cash in 2019, that will be allocated to the operations, to production.

It's also important to highlight in 2019, we settled BRL 270 million debt. We renegotiated other debts which were more expensive. So we packed opportunities that emerged in terms of renegotiating those debts.

And lastly, our production debt accounts for most of debt, 88% of our total debt. And that should remain the same for the coming period.

So I'll turn it over to Alexandre Albernaz for his final 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. For us to close our presentation. Talking about our strategy briefly. Well first, speaking about our launches performance in 2019, we were talking about reaching BRL 500 million. Unfortunately, 2 projects that were our main target the -- one of them was launched and the other is in the phase of -- final phase of development. So our expectations for 2020 is that we will have a growth, much more significant than the one we saw in 2018 in proportionate terms. As our macro region, in terms of price and structure, we have a very well consolidated configuration in terms of landbank, launches and so on.

So for 2020 the launches will be, well fitting that configuration. So we do believe we will have launches which will be better distributed throughout 2020 and not so much concentrated in the final quarter. As for the landbank, we made a big change. You can see that the concentration of MCMV becomes more relevant when compared to the total landbank. We discarded a few projects, we checked new areas. We still have a relationship between vertical and horizontal, a breakdown 50-50 by now. And in the long run, we will be concentrating slightly more on the horizontal front. And we are doing this because horizontal takes a little longer to be approved, and we cannot rely only on that. So we are including in our pipeline for the next 2 years, more vertical projects. And in the future, the trend -- we do believe that that will be a much more liquid, more net possibility. We'll be working on both, of course. But the trend is back.

We now remain available for questions and answers or comments you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mr. [Pedro] indiscernible] from (inaudible).

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Unidentified Analyst, [2]

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Like to understand what you expect for the rest of the year, 2020. You were expecting a growth last year, of 2.5% in GDP. But now with the coronavirus, oil prices, stock markets plummeting, we see that GDP expectation is going down to below 2%. And we are in March now and that may become even worse as we move along the year. So where would your projection fit in view of all that for this year and next?

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Felipe Rodrigues, RNI Negócios Imobiliários S.A. - IR Coordinator [3]

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Thank you for your question. You are correct, 2020 -- in 2020, well, let's (inaudible) a bit. We are going through a moment now that was unprecedented to us, right, in terms of stock market movements. We do believe that the news that we see are quite concerning. We had 2 secret breakers at our local stock exchange. But speaking about our industry, we have a few projects, which are being launched. And we have a very interesting speed of sale, as I mentioned earlier in the presentation. Late in the year, we launched the main project of MCMV, which had been designed to be rolled out in 2019, should have happened earlier in the year but launched -- we launched that late in the year. And then in the first quarter of 2020, we see a interesting level of performance for a few reasons. The main reason being that interest rates are -- how can I put it? They are more favorable in terms of clients contracting that or taking loans.

Something else which is helping us in 2020 that we are not operating in São Paulo and Rio and Minas. All those launches were made in those marker regions, as it was mentioned by Mangabeira just now.

So we are trying to meet a demand, which is slightly more interesting as it's far from larger centers. And where we offer different products. We talk about horizontal homes of -- for low-income clients. We also launched a vertical project -- 2 vertical projects, but we also work on the horizontal front.

Also turning to the agribusiness community. So we are trying to explore the scenario in a more pragmatic manner. Our macro regions are located in the countries outside of Brazil, where things do happen, but not as in -- thankfully, as in the major centers.

But of course, we are paying close attention on all of those movements. And of course, the demands are there. The market is better, our products are better, income levels are better, but we have to pay attention to this macroeconomic scenario, but we still remain very confident. And we're going to be working to grow the company's results as we move forward.

Mangabeira, will make a complement to your question.

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

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[Pedro] I'll give you my personal opinion. I think the macroeconomic fundamentals in Brazil are very, very solid. The coronavirus situation effect, I would imagine, capital markets more intensely, but I see an opportunity there. We're talking about -- we see people talking about a drop in interest rate -- people are discussing the drop in the interest rates for the MCMV. So the issue of confidence on the part of clients might be important. And at the end of the event, a drop in net interest rate can always be an opportunity. I do not see a hike in unemployment. I do not. I think the drop in GDP is important, but I see companies decreasing investment, but I do not see, really, unemployment growing. So we may not have major distortion in our balance. That's my opinion. The coronavirus led to a certain panic, but I think it will go away faster than we think. Thank you.

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Felipe Rodrigues, RNI Negócios Imobiliários S.A. - IR Coordinator [5]

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[Christian] (inaudible) had a question over the web. And you had mentioned that we have answered your question. Your question had to do with what Pedro asked earlier.

And so thank you for bringing that topic up.

Christian , just to your point, we are going through a moment today, which is special, different and challenging. But as Mangabeira said, we are -- the effects are much more macroeconomic than industry located. We're talking about clients who have increased the income who have the desire to buy, and we do believe that as we look at the Brazilian financial scenario, we do believe that things continue to maintain or to stabilize. So we chose those macro regions. And we see that because they are located in the countries out of Brazil and close to agribusiness areas, we see that isolations are not that big. We have grown volumes. We grew in January, we grew in February and that should be replicated in March. And as Mangabeira said, we already have some launches in the first quarter.

Unlike 2019 when our first launches only came in June. Quite a different scenario.

For 2020, we have already hit the ground running. But thank you for your question and for bringing up the topic.

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Operator [6]

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(Operator Instructions) I think there are no more questions. I turn the floor back over to Mr. Bianconi for his closing remarks.

Please, Mr. Bianconi, you may carry on with your closing remarks.

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Carlos Bianconi, RNI Negócios Imobiliários S.A. - Co-Chief Administrative, Financial & IR Officer [7]

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Okay. We have given you a brief overview of the company's main highlights and in summary, you are following our management, our style, our philosophy. And today, we have a company with a very low debt level. Our bank's debt, when we analyzed the (inaudible) production, we have a negative 10% equation, that's quite interesting. That places our company to remain very comfortable, important position.

Of course, we were on a recovery curve. Now we are in the development path. And our financial results show that, we have brought down the operating cost of the company, we brought down the financial cost of the company, and we placed the company in a very competitive space. We developed products, products for which we have a very strong know-how. Thousands of units sold in Brazil. So we are poised to make a profit now.

So you guys who follow us on a daily basis, please feel free to make observations, notes, ask questions through our IR channel. We remain available. Our doors are open for us to comment on numbers, for us to talk about the future of the company or about what's happening today.

I'm aware that we are going through a weird moment in terms of market -- capital markets, but we are quite confident just to say, and we are once again prepared. We are ready. We have funding, we have credit and we have several projects being approved.

And so thank you all once again. And as I said, we remain available to talk about the company's numbers or other scenarios if you feel the need to. Have a nice day, everyone.

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Operator [8]

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Thank you. RNI's Fourth Quarter '19 results for -- the conference call is now over. You may now disconnect your lines.

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