RNI Negócios Imobiliários S.A. (RDNI3) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the conference call of RNI Negócios Imobiliários to announce the results of the second quarter 2020. Today, we have Mr. Carlos Bianconi, CEO and IRO; and Felipe Rodrigues, Investor Relations Manager. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of RNI 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. Investors should understand that general economic conditions industry conditions and other operating factors could affect the future performance of RNI and could cause results to differ materially from those expressed in such forward-looking statements. Now I would like to turn the conference to Mr. Carlos Bianconi. Mr. Bianconi, the floor is yours, please.

Good afternoon to everyone. You're all most welcome to the conference call of RNI real estate businesses, a Rodobens company. So I would like to ask Felipe to put the presentation on the screen. Thank you, Felipe. So let's first see the highlights, the main highlights for the company for the second quarter of 2020. So here, we will be talking a little bit about the My Home, My Life segment and SBPE. As we had announced previously, the new strategy of the company, in the MCMV-SBPE horizontal. So this segment is increasingly more segmented in the company's strategies with significant numbers in terms of our bottom line generation strategy. So first, the launches. The launches have grown 11 -- 111% in the year, above the -- if we compare 2020 to 2019, net sales in Q2 2020, once again, what chiefly with MCMV in spite of the pandemic, so net sales came to a peak. And we have changed our level of volumes. And I will talk more about that further on. Inventory. So the inventory for this product is 100% in progress. We have -- and the ventures that were launched along 2018, 2019, they are in construction and most -- in 2019 until now, we are starting construction works now and we'll be starting shortly, which demonstrates that we don't have any carryover costs of ready inventory. So in the company, we are reviewing process and procedures, and we are robotizing many fronts of repetitive activities that take the time of our back office. So this is a significant reduction placing the company at levels that are much more interesting in terms of its structural level. Now talking about the legacy segment that we are discontinuing in the company, we are finalizing the sales of the inventories that we have, which is SBPE -- vertical SBPE and housing developments. So today, 30% of our total inventory is related to that. Because vertical SBPE and housing development or the housing developments, we are just managing the portfolio of ventures that we have already delivered. And for the legacy SBPE, we have 2 projects in construction with partners and we have received only the equity equivalents. So basically, this is what we have. So for each period, you will know the reduction of that volume and growth that will be significant of the products of the new strategy, which is horizontal SBPE. And the sale of this legacy segment, and we are settling it and reducing its significance or importance in the company, and the sales were still driven by sales to the controlling shareholder, as you have seen in the newspaper and in the minutes, and this accelerated the discontinuation of the segment. So what you can see here on the highlights, so the movements of the company. So there is a growth of MCMV and horizontal SBPE in the regions that we start focusing on agribusiness. And agribusiness has demonstrated to be very resilient in terms of pandemic and the MCMV, horizontal SBPE product, which is very good. And further on, we are going to give more details. And now, Felipe will be talking about there. Felipe, please, you may start. You may continue the presentation.

Okay. Good morning, everyone. Thank you for attending. So I am going to start talking about our operational results for the second quarter of RNI. So before talking about the results in themselves, we should always remember the actions or the business for which RNI has chosen these products and regions, they are regions where agribusiness, so cities focused on agribusiness outside the major urban centers in Brazil. And so because of agribusiness, they have a better development than the rest of the country. And there are also regions where Rodobens group has built its brand. So there are 3 pictures here of developments. Each one is in place, so vertical MCMV in Goiânia, horizontal MCMV in Ourinhos, and Várzea Grande is a horizontal SBPE. These are the 3 main products in our strategy. Vertical SBPE and housing developments are no longer in our product portfolio. We only have legacy. And we think that we will sell out the inventory before the end of the year. The vertical one, we are going to have a partner. So future launches will only to monetize the legacy. Now on Slide 7, you have economic information, justifying why we have chosen. So agribusiness in Brazil, agribusiness GDP has exceeded Brazilian GDP last year and this year, too. It accounts for 21% of the Brazilian GDP, so the regions that are proven to have a stronger development or economic performance than the rest of the country. Moreover, with the reduction of the interest rate of 2%, this is going to favor our SBPE and legacy products. However, this is going to drive the government to bring MCMV rates down to -- and the changes are going to reduce the rates so we will have access to a much broader range of customers. And with all these regional factors, they make us even more enthusiastic and confident in the business strategy that we have adopted since 2018. Now on Slide #8, you can see the launches in the period. We have launched BRL 150 million in PSV. We have Nova Jaçanã and Estação RNI, and we are no longer going to launch anything in the city of São Paulo. This is a new area. We approved it very quickly, and the market research also. But we do not have the intention of having operations in capitals. So we have launched BRL 215 million with an increase as compared to Q1 '19. So this launch is 100% digital or virtual. São Paulo, we launched in April during lockdown in the city of São Paulo. And the sales were very good because of our success in a digital sales channel. As you can see on Slide #9, customers may have access to the apartment without leaving their home. They can go on a virtual tour. That is very nice. It looks very pretty. And we worked intensely with [indiscernible] intensely to try to find digitalization of our commercial operations. And with the pandemic, that was put to test. And then we were able to do the whole sales process to take place digitally from generation of the lead commercial and brokers and the signature of contracts, the customer can do it digitally. During the pandemic, we offered benefits to our customers if they -- if we could do the sale from end-to-end digitally or virtually, and this has favored a lot the digital market. And now just to finalize and talking about the digital model, it's important to emphasize this because in the MCMV and horizontal SBPE, which are the core businesses of the company, we had a surprising performance. We have renewed our sales peak in the quarter of pandemic. So we launched and sold strongly only with MCMV. We launched in the first half of the year more than whole year of 2019. I and the entire market, we're all very skeptical in terms of what happened for those who have an optimized digital sales channel as RNI. It worked very well. So today, these are the main platforms that we use Salesforce and Adobe campaign. Through Salesforce, we are very fast in terms of providing services, reports, real-time data, automation of tasks. The system is integrated with lead management. This increased sales were very assertive in sales for each different customer profile with each feature. And different customers want to be contacted or dealt with in different ways in a unique way. And we strengthened the Salesforce to work. So Adobe, we have automatic communication rules, dispatches of e-mails and SMS are integrated. So together with the know-how of our sales team in the MCMV market, so this generated a very strong, very sound operational result in Q2. So this is the persona of who buys our properties. These are the profiles. So horizontal MCMV, so younger people from 20-23 years old, they're just leaving their parent's home or they were on paying rent. So horizontal SBPE, people have a slightly higher income. They are married. So it's an upgrade in their housing. But these are the people who are buying our properties during the pandemic in a scenario of uncertainty. So this makes us feel more confident because at times of such great uncertainty, once the cloud is over, we can -- there is even more demand for us to reach as we are setting records in MCMV for a very bad scenario. So I think that the operational performance is going to be even better in the future, and this is reflected in the company's sales. So net sales, BRL 168 million, so there were sales that were supposed to be done in the future, and they were advanced, but we had sales in excess of BRL 100 million. And if we look at the first half of the year as a whole, so 1H '20 has already exceeded the whole year of 2019. We are breaking paradigms in spite of the pandemic. And now talking about inventory. Today, inventory is BRL 648 million. It helped us to reduce the inventory as compared to Q1. Today, inventories, 2/3 of it corresponds to MCMV. So the -- we -- SBPE inventory is quite recent. We are going to reduce it more and more. So the inventory as a whole is new. 80% of it was launched in 2018 with our new strategy, 94% is in progress. So the higher volume of deliveries will be as of 2022. And most of it relates to the new strategy of the company, the MCMV strategy that we launched in 2018. And lastly, closing our operational part. So this is our land bank. And once again, regions of operation are our target regions. So agribusiness region interior of São Paulo. And we are going back to the south of the country. We used to go there in the past, and we are going back. It's a region that -- where we operated before, and we know it well, so we closed the land bank in Q2 at BRL 7 billion, more -- BRL 2 billion more than Q1 '20, so BRL 900 million were acquired and BRL 1.1 billion are options. Of the BRL 2 billion that have been added, there is no cash disbursement. And if there is, it's negligible. It's -- the company's strategy is not to have any cash disbursement in acquiring our land there. Most done through swap. Now in terms of the financial results and opening our consolidated statements, so we had aggressive sales of finished products. So the net revenue has doubled with a gain of volume in the gross profit, and what are the negative highlights in our performance. So we had a higher revenue. And even so, we were at a loss for 2 reasons. RNI has booked provisions being very conservative because of the pandemic. So we looked at our portfolios, and we decided to make some provisions for losses. And the portfolio turnover. So to resell to clean up the portfolio to continue in this segment and this urban development leads to very intense financial revenue. And there are many cancellations. So this is a one-off movement or event as this urban development movement comes off the inventory, it comes off from our bottom line. So there's a positive trend. The operation generates positive result, only impacted by a one-off financial result. So as the legacy is settled and the inventory ends and the MCMV segments remains in our portfolio, they provide profits to the company. So -- and this is very clear. And in terms of net margin, and in 2013, 2019, when we only operated with My Home, My Life, so this is a segment that we are no longer operating, but the new products, and we haven't started, so My Home, My Life product is not yet reflected in our performance and in our bottom line, especially this year when we have postponed launches and the beginning of construction. So this drove us to delay revenue to Q3, Q4 because of the pandemic. But as I said, in future quarters, this is going to reduce. This is going to be mitigated. Impacts are going to be absorbed, and we are going to be profitable again. And this slide is an evidence or proves what I have said in terms of backlog results. So as we see, the backlog margin has grown from 118 to 143, meaning that once the construction evolves, the revenue will have a 30% margin, which is a margin above what we have today. So the backlog margin is just what we are to expect. If you look at the gross margin today, it is the backlog margin we used to have a year ago. And so this is our last slide with debts and receivables. So RNI closed with BRL 91 million in cash. And this quarter, we consumed BRL 11 million cash and RNI had been consuming BRL 40 million cash every quarter. And this quarter, we reduced the cash burn to BRL 11 million only. If payment of the holding, which is going to be -- come in shortly, there would be a BRL 14 million cash reduction. But it's important that cash burn is going down. And now with the transfers that we are going to have for MCMV, we hope to offset a neutralized cash this year to generate cash next year and deleverage the company because MCMV operation is a low leverage operation with 0 leverage because it transfer it before construction. So the debt and the leverage will be 0. And that's where RNI leverage is headed towards. So we have settled BRL 25 million of the debt and we have taken 3 debts, a BRL 50 million CCB right in the beginning of the pandemic. Because we wanted to be very conservative, we have settled and issued daily sales. This was in April, BRL 40 million. And lastly, the CCB of BRL 4 million that we have acquired to buy quotas of SBPE in Goiânia that we are going to launch in August or September. So this is the company's financials. And this is all I had to say. I would like to thank you once again. And I am available for any questions you may have in the Investor Relations channel, WhatsApp, telephone, Twitter. And now I give the floor back to Bianconi for him to give the final message.

Thank you, Felipe. Well, so summarizing our businesses of RNI real estate businesses. The conclusion is that we have a positive evolution, well above the usual growth that the market or that this industry has. The business model, as Felipe demonstrated through the digital channel through the work through very well-formatted platforms, and especially the regions where we are operating, we can already see that we are detached in terms of business volume so that at the end of Q2, and the beginning of Q3, too, we have growing volumes in contrast with 2019 and previous years. So in terms of launches, the growth was 111% above the average. Our sales, the history of MCMV and SBPE H sales up 98% from 1H '19 meaning we are already above the first half of last year inventory. 100% in progress. So we talk about frozen money, so our land bank is BRL 5.9 billion, 152% above June 2019, and this is mainly a focus of the company to the land bank to create a baseline for launches and projects to be launched over the next few years, especially in 2020, in the second half of the year. And profitability, the adjusted gross margin follows the new strategy parameters, is 28%, 33%. So we have our unearned revenues. We are 30.3. So meaning that we are managing to get there, and we have the intention of exceeding those levels. So this is the evolution of the product, MCMV. Now talking a little bit about low-income products. So I usually call. It's not even low income. So we see merging segment of Brazil. So they are buying their first home or seeking an upgrade in horizontal SBPEs. The first unit, there's also an upgrade. They were paying rent and they start paying installments for their own home. So this is where we grow the most, which combined to the RNI target regions and we are very much related to agribusiness in Brazil. So here we are talking about the north of Paraná, Southern Minas Gerais, interior of the state of São Paulo, Mato Grosso, Mato Grosso do Sul and Goiás and Rio Grande do Sul and Santa Catarina. So in the share, where we have our main product where we conducted research, and they are familiar, they know our products. They know the MCMV and horizontal housing development. We identified very strong opportunities to develop the company. This is what we are doing. We have already started it. And we are selling our inventory, too. Now talking a little bit more about the performance of our digital sales. So it's a very -- we are breaking paradigms. We imagine that we could grow this format of sales operations, but we did -- we never imagine it would be so disruptive. It was disruptive. And more than that, customers have accepted and they really trust the channel. Now we are talking about the company that has a name and a rating in the country, a footprint in the country, a consolidated brand. Of course, that helps us, too, in the evolution and finalization closing of businesses. The technological integration is fundamental. It's useless to have a platform that provides a few facilities then as it's fully integrated and compliant in terms of the lead generation chain, business generation and the electronic signature. So customers can have -- do business with RNI and seal the signature by their smartphone. So they can sign the contract electronically. So this demonstrates that we have come a long way. And we have evolved greatly in terms of being pragmatic and consolidated businesses. Customers have responded very well to this strategy, and we believe that each day, we are going to have larger and larger volumes in this channel, in combination with everything with this use digital and many other process. So we have a brand of 13 million a year in terms of process management. We believe that this is still a conservative number and since the reduction of expenses during the pandemic by optimizing our processes and management. And we are optimistic about the future for ourselves and for our shareholders. So in short, we continue to work on the impacts absorbed from the legacy segment, because we are showing all the businesses that are being generated by MCMV and horizontal SBPE. And as I said, we are selling, we're launched. But we are going to start construction work now in the second half of the year. And the construction sites that were in progress before, this slowed down because of the pandemic. They never stopped completely. They just slowed down. The speed is slower in the second half of the year was kind of affected, and now we are recovering it in combination with the beginning of many work that -- as we have shown to you. So we can say that the predominance of work and the new strategy and a new brand and we can say that the strategy that has been defined, and it is consolidated in the company, is to grow, and it's been growing. We've been producing growing numbers, growing results. But this quarter, we still have the impact of our legacy that we are discontinuing, so it becomes less and less relevant. And we have the predominance of the new strategy that will grow gradually. And from then on, we are going to have a sound basis to generate results. It will be a solid and growing basis to generate results, profit, profitability. In short, a company that is well prepared to grow a lot after the pandemic. As the numbers can demonstrate, even during the pandemic. So that are macroeconomic environments that are more favorable and we hope that, that happens. And from now on, in combination with the reformulation of MCMV program, the drop in basic interest rate, so the environment is very promising in spite of the impacts caused by COVID-19. And then considering this, but also never forgetting our target regions, which are more related to agribusiness that are very resilient, both in the domestic and international scenarios. This is all I had to say to you. I would like to thank you for your trust and confidence in your presence and the fact that you have made it possible for us to operate in a domestic market and to have a relationship with you.

[Operator Instructions] Our first question comes from [ Gustavo Alcantara ].

Could you give us more detail in -- about the sale of assets to the holding?

Gustavo, thank you for your question. And so this operation with the holding, and it is audited and approved by the Board of Directors. And the controller didn't vote. This is an operation that was done solely for 3 developments where we completed or closed the activity. They are legacy. They are in medium and high vertical SBPE development. So there is an inventory. The inventory was being finalized. And the controller decided to acquire those units at the standard price, and this has made it possible for us to expedite our coming out from those ventures. And these inventories, most of them have been used. So the cash that came in came to amortize land for strategy land that we had bought before and we -- and this relieves the burden of the -- from the products of the new strategies. And then this will come to the company's cash. So it was a very simple and pragmatic operation.

Our next question comes from [ Rafael ].

I have 2 questions. What is the percentage of cancellations this year?

Okay. So about the SOS, we have 14%. So it's 14%, growing. And we are bound to get to 20% very rapidly. The volume of businesses that we've been developing and experimenting in the channels that we already had, it will be getting close to 20% shortly, something like that. Talking about cancellations, well, basically, this takes place right after sales because all our sales are done before construction. And for the horizontal SBPE, we are still migrating. And so we haven't yet done it. So predominantly for MCMV, the transfer is before construction. We do pre-sales. And if the customer cannot, if they don't have the credit score and they can't get the loan, and then we cancel and then we don't go on with sales. So the cancellations is something that we do not use. It's part of the day-to-day. There are 3 conditions for the customers to be entitled to a loan. So it's social condition, subsidies, and this is related to the severance fund. And then after that, all of that becomes a definitive sale or we cancel right away.

Our next question comes from [ Anderson ].

What are the prospects of launches and sales for Q3? How have been July and August so far?

Well, this is a good question because we started Q2 with volumes that are still superior to Q1. So the volume of sales is greater. And then the first quarter. And obviously, we are in the middle of a pandemic. We are going through difficult times, challenging times in terms of market and marketing and sales, but the rate of sales growth has been very, very interesting, in combination with sales. We are going to come considerably more or stronger in launches in the second half. So H1, we were on alert. We were paying attention. And now in H2, we are going to have more launches, meaning we are going to have launches above the levels that we realized in previous periods. And sales will go hand-in-hand with that. And we should always emphasize that we are a company operating very much focused on agribusiness. So this leads us to believe, based on volumes and everything, even in relation to the GDP, that we are going to have an environment that is positive, a healthy environment to promote sales. And Caixa Econômica Federal, in terms of the transfers, that has been working very well. Many processes that have been evolving greatly during the pandemic. And one detail I would like to complement, 100% of our negotiations, we do it with the finalization for the negotiations and a transfer and with a credit -- a guaranteed credit from Caixa.

Our next question on the webcast comes from [ Anderson ].

What are the prospects in terms of you generating net profit again?

Well, thank you for the question. Very interesting question. Well, the prospects of presenting net profit are, well, almost evident in relation to the last results. So we are very much focused. We see the increase in our unearned revenues or the backlog margin. So it doesn't evolve much percentage. And this is POC. And then we can see a very strong physical evolution, and we'll be able to generate profit again. So you're going to hear much better news in future quarters.

Our next question comes from [ Gustavo Alcantara ].

Do you think that your current capital structure would support the development of a landbank of BRL 17 million? Could the capitals market be a line of funding for RNI, in addition to the fact that it will improve the liquidity of shares in the market?

Well, I am going to separate that in 2 chapters. With regards to the BRL 7 billion, land banking has grown BRL 2 billion this quarter and it will continue to grow. We are contracting many other businesses, and we are about to approve many other projects that are part of those BRL 7 billion. So with regards of keeping the BRL 7 billion, we are very cautious, and we are very confident in preparing businesses. So 100% of those businesses are financial swaps and a little bit physical swaps, 95% of that. So this assures consistency and make sure that not too many resources will be coming out from the company. So with regards to that, we are very confident. Now in terms of evolution and growth and development of the company in the capitals market. This would be an alternative. But today, right now, we are very much focused on putting the projects up for sale. And the projects, as we said before, as hired by Caixa Econômica. And so this enables the funding to manage the SPs not requiring too much funding from the controlling company. In terms of additional capital and a much faster and to build the foundations to generate results. So our backlog margin, we want to grow a lot. We want to grow a lot in terms of backlog margin also considering the construction work.

If there are no more questions, we would like to turn the conference back over to the speakers for the closing remarks.

I would like to thank everybody who is participating. Everyone who trusts the company. Definitely, we have the best prospects. This is going very well. Although the result is still tarnished by legacy, but we are evolving in terms of profitability that we expect, and we are confident that the current strategy is the right one. So we are available to you, myself and Bianconi. If you have any questions, if you want to schedule a call, a meeting, we are available to you. Bianconi?

I would also like to thank -- and I would like to thank you for the questions you sent us. This is very important for us to talk more to interact with you that we are still resilient and confident. And now more than ever, we are growing in sales and launches for the year of 2020 with RNI Negócios Imobiliários, our real estate businesses. We are very healthy and very skillful, and we have a lot of time available to work. We have a lot of work to do, really. And the market is there. Customers, low income emerging, they are emerging and they're eager to see our propositions for housing, quality of life, both horizontal and vertical development. So we are here to work and to meet the needs of our customers in a very pragmatic way and offering our customers the possibility of valuing their investment always if they buy a property from RNI. Have a good afternoon.

Thank you. The conference call of RNI Negócios Imobiliários has now ended. We thank you all for your participation, and we wish you a good afternoon. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]