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Edited Transcript of RSID3.SA earnings conference call or presentation 10-Jun-20 1:00pm GMT

Q1 2020 Rossi Residencial SA Earnings Call

Sao Paulo, SP Jun 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Rossi Residencial SA earnings conference call or presentation Wednesday, June 10, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fernando M. de Mattos Cunha

Rossi Residencial S.A. - Chief Financial & IR Officer

* João Paulo Franco Rossi Cuppoloni

Rossi Residencial S.A. - CEO, Member of Board of Executive Officers & Director

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for holding. Welcome to Rossi's Results Call for the First Quarter of 2020. This call is being broadcast simultaneously online at rossiresidencial.com.er/ri. There, you can also find the company's presentation for download. (Operator Instructions)

Before we continue, we'd like to clarify that any statements made during this conference call about the company's future business perspective as well as projections, operational and financial goals are merely predictions based on the management's expectations on the company's future based on current information. Future considerations are not a performance guarantee. They involve risks, uncertainties and assumptions related to future events that depend on circumstances, which may or may not occur. Investors should understand that our industry's performance, Brazil's overall economic performance and other operational factors may lead to results that differ materially from the company's expectations.

We would now like to give the floor to Mr. João Paulo Cuppoloni, CEO. Please, Mr. João Paulo, you may proceed.

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João Paulo Franco Rossi Cuppoloni, Rossi Residencial S.A. - CEO, Member of Board of Executive Officers & Director [2]

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Thank you. Good morning. Good morning, everyone. So I just like to give a short statement on this quarter, and then we'll go into our presentation with the financial and operating results.

The year began with a growing expectation that 2020 would be a recovery for our industry and for the Brazilian economy as a whole. We were boosted by the latest achievements in 2019, especially the renegotiation of the corporate debt with Bradesco, our biggest lender, which was a decisive step in the company's deleveraging process. We were focusing on our restructuring process in our operations based on cash preservation and better sales performance. So our goal was to have, in this year, a landmark in generating value for our shareholders.

This effort was reflected in some of our operating indicators, for example, first, gross sales, which reached BRL 30.9 million from Rossi, in line with the last 2 quarters, even without renewing our inventory. This performance shows that our CSO reached 70% in the first quarters of 2020, 16% above what we saw in the previous 2 months. The second point, maintaining our efficiency and reselling units in the first quarter of 2020, reaching 86%. And the third highlight is our transfer VSO, which was 22% in the quarter, up 2% versus the same quarter last year.

All of this, however, was impacted from March, as everyone knows, by the pandemic related to the new coronavirus, COVID-19. At first, we aimed to prioritize our employees' health and safety. So all protocols established nationally and internationally were followed. 100% of our employees and our administrative staff started working from home. This helped us maintain all the company's operations without any interruption.

But given the uncertainties about the economy and the reduction in demand for new apartments that followed, given how incomes went down, unemployment went up because of social isolation. We saw there was a reduction in sales and an increase in defaulting along March and April 2020. This brings us new challenge to manage our cash flow, and it will test the discipline that we've built over the last quarters regarding controlling, cutting costs and minimizing cash use. A positive factor in this, though, has been related to administrative expenses. They continue to drop, continuing our plan to simplify the company's structure.

And in this quarter, for example, we showed a reduction of 22% versus the first quarter 2019. That is 1 year ago. Along with commercial expenses going down, this represented a savings of BRL 3.5 million. We can see that in the lines related to operating expenses when we compare to last year. So we are aware of the current and future challenges, but we still are confident in our strategical plan. And there's no reason, so far, not to reinforce our commitment with the company's continuity so that we can diligently continue launching new projects.

So now let's go into the operating results presentation for this first quarter. I'm going to start the presentation talking about operating indicators as well as our land bank and our inventory. And then our CFO, Fernando Miziara, will talk about some financial data.

So starting on Slide 2. Here, we see the sales by the company. On the upper side of the slide, we see that gross sales reached BRL 37 million this first quarter; BRL 31 million from Rossi, in line with the performance we had in the previous 2 quarters. Our sales SoS was 16%, up from the third and fourth quarter of 2019 due to a reduction in inventory. On the lower side of the slide, on the left, we see the number of finished units in our gross sales, representing 90% this quarter.

Moving on to Slide 3. Excuse me, there was still a graph on Slide 2. Here, we see the regional distribution of our sales. The highlight here are our sales in São Paulo. This was due to the Parque da Lagoa enterprise delivered in mid-2019, our latest delivery.

On Slide 3, we are showing the evolution of our cancellations over the last quarters. During the first quarter of 2019, we had BRL 37 million in cancellations, of which 33% was from Rossi, a reduction of 22% versus the first quarter of 2019. From this total cancellation numbers, 86% of the canceled units have already been resold. So our resale index is still high as we've seen in the last quarters.

The next graph show our distributions of the cancellations with regards to construction stage and regional location. Most of the cancellations in São Paulo are related, once again, to the recent delivery of the Rossi Mais Parque da Lagoa enterprise. So these are cancellations for clients who no longer can afford the unit.

So Slide 4 shows our inventory for the company, coming to a total VGV of BRL 171 million for Rossi. Here, we see the inventory according to year of launch as well as their construction stage and region. Finished units represent now 87% of our inventory, and the rest is to be delivered in 2020. It is important to highlight here that the 13% inventory to be delivered refers to 2 enterprises that are now being concluded. So in practice, there's no construction still to be done this year. These enterprises are already concluded and are only waiting to be approved.

Continuing with Slide 5. Here, we see the company's land bank and its potential PSV. Our current land bank represents 89% of the total, and lands to be decommissioned represented 11%. The next graph shows that 100% of our land bank will mature in the next 12 months in the state of São Paulo.

Fernando Miziara will now speak. He's our CFO, and he will give us some remarks on the company's financial performance this quarter. Fernando, you may proceed.

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Fernando M. de Mattos Cunha, Rossi Residencial S.A. - Chief Financial & IR Officer [3]

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Thank you, João Paulo, and good morning, everyone. So to continue the presentation, Slide 6 shows the evolution of our debt over the last few quarters. Here, we see our corporate debt as well as our SFH debt. After the latest renegotiation with Bradesco Bank, and after accounting the BRL 123 million discount at the end of 2019, our current corporate debt was stable at BRL 1 billion this quarter, as you can see on the first graph. Now our SFH debt came to a total of BRL 441 million. The same slide shows our evolution in cash and equivalents as well as our net debt, which came to BRL 1.4 billion at the end of March versus BRL 1.5 billion, which we had in the first quarter of 2019. Further reductions are expected for 2020 as the assets involved in the last negotiation stage with Bradesco are alienated so that the company approves 100% of the balance for these contracts.

The next slide, Slide #7, shows our company's deliveries history over the last quarters, and the costs to be incurred and how they evolved. Right now, they are at BRL 2 million. And last year, there was still BRL 14 million to be used in construction work at the end of the first quarter of 2019. We also concluded and delivered the Laranjeiras Reserve lot, which was launched with 127 lots and a VGV of BRL 14 million on the Rossi side. We also see the company's transfer speed reaching 22% this quarter. Our cash inflow from receiving clients is shown on the last slide -- excuse me, on the last graph of this slide. It reached BRL 44 million, of which BRL 40 million was from Rossi.

Slide #8 shows our main financial highlights, the main measures we take for our results. The first graph shows the net revenue we have, which reached BRL 1 million this quarter versus BRL 16 million in the first quarter of 2019. This reduction was due to the conclusion of construction works delivered in the last 12 months as well as a reduction in the sales we've already carried out since the company is taking a proactive stance in cancellations, putting an emphasis on potential cash from resales.

This slide also shows the reduction of our SG&A expenses. They continue to drop after the renegotiation of several contracts and constant review of our internal processes. This resulted in a savings of 22% in our administrative expenses in the first quarter of this year, a 30% reduction in commercial expenses.

Now we will begin our questions-and-answer session. Thank you.

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Operator [4]

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(Operator Instructions) As there have been no questions, we would now like to give the floor for the company's closing remarks.

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João Paulo Franco Rossi Cuppoloni, Rossi Residencial S.A. - CEO, Member of Board of Executive Officers & Director [5]

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So on behalf of the Board of Directors, we'd like to thank you all for listening in. We are continuing to restructure and change the company's scale, as you can notice. And in the next quarter, we expect some further developments in terms of launches and deleveraging the company. Thank you.

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Operator [6]

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This concludes Rossi's conference call. Thank you for participating, and have a nice day. You may now disconnect.