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Edited Transcript of RDNI3.SA earnings conference call or presentation 17-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Rodobens Negocios Imobiliarios SA Earnings Call

São Paulo Mar 17, 2017 (Thomson StreetEvents) -- Edited Transcript of Rodobens Negocios Imobiliarios SA earnings conference call or presentation Friday, March 17, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mauro Meinberg

Rodobens Negocios Imobiliarios SA - CEO, CFO

* Fernando Nogueira

Rodobens Negocios Imobiliarios SA - Investor Relations Officer

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Presentation

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Operator [1]

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(interpreted) Good morning and welcome to the conference call for Rodobens, referring to the fourth quarter 2016 results. Today we have with us Mr. Mauro Meinberg, Chief Executive Officer, Financial Officer and Investor Relations Officer; and Fernando Nogueira, Investor Relations Manager.

We would like to inform you that this call is being broadcast simultaneously, and during the Company presentation, all participants will be in a listen-only mode. Ensuing this, we will go on to the question-and-answer session, only for analysts and investors. At that time, further instructions will be given. (Operator Instructions).

The audio and the presentation appear simultaneously on Internet at the website www.rodobens.com.br/ir, and on the Engage-X platform.

We would like to mention that forward-looking statements made during this conference, referring to the beliefs and assumptions of Rodobens management, are based on management assumptions and on information currently available to the Company. They involve risks, uncertainties and assumptions as 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 Rodobens and cause results to differ materially from those expressed in such forward-looking statements. I would now like to give the floor to Mr. Mauro Meinberg, who will begin the presentation. Mr. Mauro Meinberg, you may proceed, Sir.

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Mauro Meinberg, Rodobens Negocios Imobiliarios SA - CEO, CFO [2]

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A good morning to all of you ladies and gentlemen. It is a pleasure to speak to you, and before we begin, I would like to mention that Carlos Bianconi and Alexandre Mangabeira will become the commercial and new business development co-Chief Executive Officers.

As you know, I have tendered my resignation letter to the company as the CEO and the IRO. I will remain in this position until March 20, and of course will continue to work at the Company until the end of the month, to offer consultancy and advice during this transition period. I am leaving a Company that is fully prepared to face the coming year. Basically these are the main changes that I would like to refer to in these very important positions as -- in the executive board, and of course in the Company per se.

Very quickly, with your permission, I would like to show to you the new organizational structure on slide number four. Once again, we will now have a co-Chief Executive Officers that will be responsible for the Company management. We have those that will be heading the new business and commercial part of the Company, the development of course, and the development of projects, as you can see on the slide.

We will continue on with Clovis Santana as the Technical Officer, who has been in the Company for some time already. The other great focus in the Company, which is the management of receivables, cash management -- other areas will -- we have somebody who has been in the Company for over 40 years. And, of course, this has been very challenging. We will now have these new people managing our receivables in the Company, and also working as the Chief Financial and Investor Relations Officer, and of course I am referring to Mr. Carlos Bianconi. He will be doing this through the coming years.

We go on to slide number six, where I would like to refer to the highlights of the quarter, as well as for the year. During the quarter, we had launches in the city of [Odoraba] and Presidente. And we have concluded more than one phase of our project [Residental das Emas] as a whole for the year.

We have obtained net sales of BRL70 million in the fourth quarter of 2016. With a rather interesting performance selling 40% to 70% of our PSV that was launched. We had a quarter that suffered the pressure. It is also a shorter month. It has an impact on our year-on-year results. But in the second semester, we were able to maintain our sales volume -- a sales volume that was higher, 50% higher than that of the same semester and the same period of the previous year. And once again, we did have an improvement on the same period of the previous year.

I would like to remind you that in the prior quarters, the great focus had been in the sale of our inventory and the management of our receivables portfolio. This strategy has enabled us to have several launches. We have also had to deal with a significant number of cancellations that represented BRL368 million, of course generating a negative effect on gross profit in the year of BRL119 million. And in the -- what we have had is a significant improvement in our receivables portfolio, and we are hoping to improve our receivables in the year 2017.

We are, in terms of general and administrative -- once again I'm referring to the cancellations that were quite high in terms of our potential sales volumes, and we ended being somewhat higher than what we had expected. In the year 2017, we will continue to focus this now, in terms of our general and administrative expenses. We have had a decrease of 11%, compared to the previous year.

We find ourselves in a very balanced cash position, with cash plus the fund receivables, free of debt. We have also reduced our executive team, from seven to only four directors. And during this same period, we have implemented significant adjustment -- reduction in our payroll of more than 30% in the month of January and February. And of course this has been our strategy for the entire year, enabling us new ways of seeking efficiency gains during the year.

We have reduced our office in Sao Paulo, and basically what we are going to be hosting from Sao Paulo will be IIRI officer to carry on with that work.

We had some delays in regularizing our occupancy permits in 2016, and the reductions that we have expected for 2016 did not take place. We are hoping that this will take place in 2017, and we are very optimistic about our cash generation for 2017.

We are continuing to work with the strategy that we have set forth, and we will continue with the strategy throughout the year 2017, once again strengthening our cash generation. Our vision is that we expect to have a slight sign of recovery in the market and expectation of lower interest rates, and once again the Company is fully prepared to work during this year, once again strengthening our cash generation, and once again perhaps having a recovery of demand in the main cities where we are.

With this I would like to conclude my initial comments. I will come back at the end, and I would like to give the floor to Fernando who refer to our operational aspects.

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Fernando Nogueira, Rodobens Negocios Imobiliarios SA - Investor Relations Officer [3]

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Thank you, Mauro. We now go on slide number eight where we have some detail for the launches throughout the year. As Mauro mentioned, we had four launches during the year. 70% of that volume was in the subdivision segment, which is our main focus. We have already indicated this in previous calls, simply because this allows for a better market performance in a more challenging market.

What we are expecting monetize our asset, our inventory, and as Mauro mentioned, we are only going to continue on with our launches if we have the cash generation for this, and if the market conditions go on to the levels that we deem to be appropriate. We go to slide number nine to the levels that we deem to be appropriate.

We go to slide number nine. We ended the year with BRL635 million in terms of contract sales, somewhat below the figure of 2015. Once again, 2016 ended up being much more challenging than the prior year, and we implemented activities during the second semester where we created a specific task force made up by some of our the executives.

We had an average sale of BRL30 million per month, we were able to increase to BRL65 million per month, and this is what you will observe. Now the drop in the fourth quarter is due to seasonal reasons. This is normally the weakest quarter of the year.

When it comes to cancellations, we ended the year with BRL368 million in cancellations. We focused on cleaning up our portfolio. The volume of deliveries for the semester includes some deliveries that will be carried out in the first quarter of this year. Simply to give you the magnitude of the volume of the work that we carried out during the year, we ended the year with a portfolio of receivables that was BRL36 million. What we observe at present is that we have a lower pressure from cancellations throughout the year to 2017, thanks to that work that we carried out in the year 2016.

We go on to the next slide where we speak about transfers and the Company indebtedness. We believe that the transfers will begin to grow this year vis-a-vis 2016. We do have some developments that we will be delivering in the third quarter. We had deliveries of the My House My Life, and the rest of the deliveries will be carried out in the first quarter of this year.

In slide number 11, you will observe a breakdown of our inventories. I go back to what Mauro said; we have been working in a focused way to reduce our inventory. To the left there is a graph. You will observe that in the first quarter, we had BRL628 million. We ended the year with BRL598 million.

When we break this down by year of conclusion of our inventory, we have 21%, and 79% that is underway should be delivered in the year 2017. It is important to mention when speaking about our inventory, that we are referring to a variation of the balance of our inventory. Once again, we did have a very high-volume of cancellations. And what you'll see in the graph is that we have a greater reduction of inventory.

In the last part of this graph, you'll see that we have not had any problems with our developments since the year 2014. And this increase that you see in 2014 simply refers to the greater volume of launches that we had; almost BRL300 million in 2014, compared to BRL200 million in 2016.

We go on to the next slide, to show you our land bank. We had minor changes compared to the previous quarter. We ended with a land bank of 2,576. This is fully in accordance with our strategy. We're focus in Sao Paulo, Minas Gerais and the Center West.

We continued to insist in some areas, because we believe that this is the Company responsibility; areas where we have to continue to work better on our land bank. And in the year 2016, once again, we had several swaps in the residential development land bank and compared to subdivisions, I think the division has been 50-50. And swaps were 80% and 17% cash in subdivision. That's 17% -- I'm sorry, that large amount of land bank refers to My House My Life, from developments that we began several years ago.

We go on to slide number 14, where we show you our cash and debt. We end the year with BRL224 million in net cash, with debt of BRL625 million. We have been reducing our corporate debt. When we look at our maturity schedule for debt, we are not expecting any great pressure in 2017. We have BRL60 million in April that refers to our debentures, and in terms of our corporate debt, we will also be receiving money from our customers.

In the next slide, in cash generation, we ended this quarter with BRL17 million. When we compare this with the third quarter, we see that there is an entry of cash coming from our clients, and the trend is to have a reduction in the first quarter of the year, and for the year 2017, as a whole, is to have a strong cash generation.

We go on to slide number 16, where we are presenting to you are statement, basic statements. We had 300 -- net operating revenue of BRL386 million. The drop, compared to the year 2015, is due to a greater number of cancellations, our inventory, and the number of developments that we have underway. Our gross margin remains at 9.9%.

And when we go on to the next slide, you'll see what is happening there. Basically, this is due to the discounts and, once again, the issue of the cancellations. We had a greater margin of 30%, and the resale of cancellations of approximate 20%. So we have maintained our gross margin.

Now this was a critical decision that we made, as our focus is once again on cash generation to be ready to face this new year. We have had a significant reduction in revenue quarter-on-quarter, perhaps due to the lower volume of launches. And we have also practiced lower prices in our resale, especially due to cancellations, and we do have a very expensive number of developments that are underway. And this is a problem that will continue to occur during the year 2017, because it represents a significant part of the Company work.

We continue on to selling expense (inaudible). We observe an increase in our commissions. Now these commissions are accounted for and when we have a high number of cancellations well, the commission is not given in a single time, and this had a great impact vis-a-vis the year 2015.

In terms of general and administrative expenses, a slight decrease. This is something that we are always seeking to reduce, this is the fourth consecutive year in which we have reduced the G&A, and we expect to continue to do this in the year 2017.

In terms of equity income, once again this is due to that launch that we carried out in the first quarter. As you can tell [Residential das Emas], where we launched the first stage that has been concluded, and the sales have been accounted for directly in our results.

We have BRL75 million of loss, and we -- if it had not been for the cancellations, we would've ended the year with 33 -- BRL43 million.

To conclude the financial results, I would like to go on to slide number 17, where we once again speak about our gross profit and the breakdown so this can be clarified. We had a high margin of cancellations, 37%, 35%. And, once again, you see that we have a reduction of this, as we have had a reduction in the number of cancellations. With this I would like to end the presentation of our financial results, and I would like to give the floor to Mauro once again.

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Mauro Meinberg, Rodobens Negocios Imobiliarios SA - CEO, CFO [4]

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The efforts in 2017 will be focused on the monetization of our asset -- in detriment of our margins, the Company management, once again, has decided to focus more on this to obtain good results. The good news is that we have a great deal of confidence. We have had a very aggressive management of our backlog, of the cancellations, and this has enabled us to improve our backlog significantly.

The intention for the Company, at present, is to generate cash based on these new receivables that are apt to funding -- financing. And once again, this will be the great focus for the year 2017.

This effort of dealing with our inventory -- our backlog, will of course continue through the year 2017. We are carefully monitoring the cancellations that took place last year, and this year. And in the first month of the year 2017, we had a reduction in the volume of cancellations. The great advantage of is that at this point in time, we begin to see slight signs of recovery in the market, thus enabling us, perhaps, to look towards the recovery of prices, or once again to go back to offering discounts during the year 2017. This is how we have been working, managing our inventory, once again, selling off our inventory and selling any nonstrategic asset.

I will not speak about these at length. But all of our non-core assets, once again, have been the object of monetization. And we are focusing, of course, on the financial results of the Company. All of this has allowed us to have positive results, and we can now focus on selling our inventory. This was the goal of the Company.

Our commitment is to fully conclude all of these operations, to be able to guarantee our cash generation. And, once again, we are going to work with the monetization of our receivables. And, of course, this was one of the great challenges in the past, some of the receivables were not subject to monetization, as they were not prone for this. And, at present, the Company is fully prepared to increase its cash generation.

As I mentioned at the beginning of the presentation, the Company has not created new products or new developments. Once again, we did deliver our projects on time and on budget, and we would like to go back to creating new volumes of launches that will be very similar to what we had historically. But, initially, what we will have to do is guarantee our cash generation throughout the year 2017, reduce our indebtedness, and evidently make some additional structural adjustments to adapt to potential changes in (inaudible) and also to adapt to potential changes that may be made in the legislation for cancellations. With this, I would like to end my presentation, and open the floor for your questions or thoughts. Thank you very much.

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Operator [5]

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Thank you, we will now go on to the question-and-answer session, only for analysts and investors. (Operator Instructions). As there are no questions, I would like to turn the floor to Mr. Mauro Meinberg for his closing remarks. Mr. Meinberg, you may proceed with your closing remarks.

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Mauro Meinberg, Rodobens Negocios Imobiliarios SA - CEO, CFO [6]

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Once again, I would like to thank you for your participation in this conference call. I would like to thank you for your support during these 15 months, in which we have been working arduously. I will continue to support the Company and the entire group, and I wish a great deal of success to the new co-Chief Executive Officers during the coming years. And I sincerely hope that we will once again be able to launch new and significant developments very shortly, to go back to having the performance that is expected from a company such as ours. Thank you very much.

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Operator [7]

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Thank you. With this, the results conference call for the fourth quarter 2016, and here, you can now disconnect your lines and have a good day.