Helbor Empreendimentos S.A. (HBOR3) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thanks for holding. Welcome to the Helbor teleconference to present the results of 2019. We'd like to inform that this conference call is being recorded. The audio will be available on the Internet, in our website. [Operator Instructions] I would like to remind you that forward-looking statements that are made in this teleconference are based on the beliefs and assumptions of the company's management and also based on information currently available. They are not a certainty of the performance. They involve risks, uncertainties, assumptions and also depend on circumstances that may or may not [ occur ] in future. General economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause the results that materially differ from those expressed in here. Now I will give the floor to Mr. Borenstein, President of the company.

Good afternoon to all of those listening to this conference call. With our Sales Director, Marcelo Bonanata; and IR management, Roberval Toffoli, we'll share with you the results of the company in the fourth quarter in 2014 (sic) [ 2019 ]. The company is very concerned with the epidemics of coronavirus in Brazil and in the world. And we know it's a serious health problem affecting people and the role in the economy. So we wish health to everybody, those who are taking care of the sick people and those who need to go to work, especially the elderly people. We will make it. Helbor presented the financial operational results showing the recovery of the company in relation to the previous quarters. The numbers show that we are in the right path. To show the position we have, we still focus in a project with small VGV projects launching residential unities (sic) [ units ] and personalized in the metropolitan region of São Paulo. The increase of capital of the company was in more of BRL 506 million, showing the confidence that the shareholders have in Helbor. In the operational side, our sales in the fourth quarter reached BRL 689 million with a 134% increase compared to the fourth quarter of the year 2018. And the best results is in the last 5 years, annual sales summed BRL 1.732 billion, 40% superior than 2018. We also see a sharp reduction in 47% when compared in the annual comparison, 2018 to '19 and in the quarters. The law numbers 13.786 of December '18 also contributed for a specific reduction. We launched the eighth development in São Paulo, Curitiba, Mogi das Cruzes and Barueri. They happen in the fourth quarter of 2019, very successful. The Alphaville development reached 100%. For the third consecutive quarter, we had a cash recovery totaling BRL 180 million. The company also reduced the average cost of the liabilities. We also rescaled the corporate debt in about 20 -- BRL 200 million with a lower cost than originally hired. The new approach allowed the company to innovate its operations, selling the inventory for the investment fund called Multi Renda Urbana. The operations realized in December totaled BRL 175 million used to the amortization of the CRI of June 2019. As a reflex of this restructure, our financial expenses reduced 24 -- 25.4% going from BRL 174 million in 2018 to BRL 129 million. Our general expenses in 2019 were reduced in 16% going from BRL 90 million to BRL 83 million in 2019. As for the net profit in the fourth quarter, the -- it was negative in BRL 26.9 million. In spite of unfavorable result, the improvement was expressive if you compare to 2018 when we had a negative result of BRL 45.5 million. The company also reported the profits in 2019 of BRL 17.1 million with the return and growth in scenario of economic stability. Helbor is financially prepared to overcome this crisis with cost and rescaled debt. Our financial commitment with our partners, suppliers and employees will be honored. We are following -- the execution is scheduled higher. We will have the resources released normally by the financial agents. Our launching are suspended until we have a clear scenario of the coronavirus epidemics. We want to see the actions result for it. We implemented the home office to our employees to reduce the number of staff in our offices. Helbor is following it and is committed with these financial commitments with the strategy of longer term. Now Marcelo Bonanata, our Sales Director, will show the operational results. Thank you.

Now we will have the operational results of Helbor in the fourth quarter of 2019. We had a substantial improvement. This is a result of the strategies adopted in the finished inventory and the launchings of the high segments. In Slide #4, we show you the sales. The total volume was BRL 689 million in the quarter. Helbor part accounts for BRL 479 million. Total volume, 134% higher than the fourth quarter of last year. Helbor part was 102% higher. In 2019, the sales summed BRL 1.732 billion. BRL 1.241 billion accounts for Helbor part. The total of gross sales in this quarter correspond to 67% of finished units, showing our continuity in our sales. In the next slide, we see that the sales over offer reached 20.1% in the fourth quarter for the -- considering the Helbor part, considerably better when we had 10.3% in the last quarter and also the fourth quarter of 2018 when we reached 10.4%. When we see the participations by segment and cities, we can see a concentration in the southeast region, with more than 40% in the city of São Paulo in the mid and high levels. In the fourth quarter of 2019, we had 4 launches, resulting in BRL 365 million of CGV. We launched 4 residential development, 2 in this city in São Paulo, Helbor Edition Vila Madalena and Helbor My Square; and one in Mogi das Cruzes, Helbor Passeo Patteo Mogilar; and one in Barueri, Origem Casa in Alphaville totaling BRL 540 million, and the Helbor part, BRL 365 million, 170% growth. We were successful in the 4 developments, highlighting Origem Casa Alphaville that sold 100% of its units during launch. In 2018, we had BRL 906 million in our development. So 125% more compared to the same period. Now we have the opening of the inventory by segment and city. We have finished unities located in the city of São Paulo. Here is the inventory stock. We finished BRL 1.987 billion compared to 2019. The total inventory had a high increase of 2.3% and the Helbor part, 0.5%. Comparing with the fourth quarter of '18, the total inventory dropped 0.9%. Now we'll show the distribution of our land bank in December 31, 2019, and with the highlight in the metropolitan region of São Paulo. Now I will give the floor to Roberval Toffoli.

Thank you, Marcelo. Good afternoon, everybody, who is following our conference call. Now we will go to the financial results. So Slide #10, we show the evolution of the net revenue in the fourth quarter of '19, totaling BRL 450 million with a 14.5% increase compared to the fourth quarter of '19 -- '18. This is due to the sales speed in 2019, especially to finished unities. In Slide 11, we see that the gross result of the quarter was BRL 29 million, with a positive gross margin of 3.5%. The adjusted margin was 16.4%. In the year, accrued was 151% -- BRL 151 million, with 11.7% gross margin, representing a reversion of the negative gross profit of 2018 and negative margin of 11.2%. On Slide 12. Since it's a nonrecurrent event, it is important to highlight that we are showing the margin without the effect of the sales of the unities to the Multi Renda Fund. The gross margin and adjusted without this effect, it would be gross margin, 12.6%, and adjusted gross margin of 28%. On Slide 13, we see that the general expenses totalized BRL 20.3 million in the fourth quarter, a drop of 31% in relation to the same period of last year. The expenses reduced in 4%. And in the year accrued, we had a drop going from 99.3% in 2013 (sic) [ BRL 99.3 million in 2018 ] to BRL 83.4 million in 2014 (sic) [ 2019 ]. In Slide 14, we see the EBITDA positive in BRL 22.6 million in the fourth quarter with a negative margin of 5% and adjusted margin of 7.9%. In the year, accrued, it was BRL 22.2 million. And adjusted EBITDA was BRL 183 million in the same period, accounting for an adjusted margin of 14.2%. In Slide 15, we see the evolution of the net result of the holding, negative BRL 27 million in this quarter with the negative margin of 6%, showing a great reduction in the losses when compared to the fourth quarter of '18 when we had BRL 45.6 million negative. The company in December '19 had already presented a positive holding result with BRL 17.1 million. As for '19, we had an expressive reduction in the losses going from BRL 340.9 million in 2018 to BRL 104 million in 2019, a 70% reduction. Slide 16 shows the total indebtedness of the company with a great change in its profile, result of the work done during 2019. In the year-end, the total debt was BRL 1.4 billion against BRL 1.8 billion registered in the same period of the previous year, representing a 20% decrease in the total debt. This was 43% in the short term. Also we had the extension of the debt profile going from 66% in the third quarter '19 to 72% in the fourth quarter '19. The total funding of works, BRL 272 million are fundings corresponding to projects launched into 2015 legacy, and the others are financing of projects after 2015, the new phase in the total legacy value. More than 69.2% (sic) [ BRL 69.2 million ] were amortized in the first quarter, reducing the balance of the legacy to BRL 203 million. In the closing of the fourth quarter of '19, 72% of the gross debt was concentrated in the liabilities, very compatible with our activities that, due to its characteristic, has a long cycle. Now on Slide 17, we see a reduction in the ratio debt and net assets consolidated in 54.9% in 2019. The major factors that result in this reduction were the expressive speed in sales that reached 53.1% in the year focusing especially in the sales of the finished units; expressive volume of repasses in BRL 880 million per year; and the increase of capital in BRL 560 million. We also show the cash generation of BRL 7.8 million that was accumulated BRL 133 million. In a continued series of 7 quarters of positive cash, the reduction of the net debt reached 45% in the last 12 years, closing the fourth quarter in BRL 878.6 million. We are still at your -- we are available to clarify any questions you may have. Thank you.

[Operator Instructions] Our first question comes from Mr. Tapia, Bradesco.

The first point I'd like to touch here, you mentioned the follow-on last year and you have this leverage that was smaller. But it's clear that with these launches, you will be on hold for a while, sales will be impacted during -- due to what is happening. And maybe we see some faults and failure, but should we pay attention to any special period in the productive chain or if you face any difficulties or even the city hall, if they delay in their approval processes? So where do you see more hazards, so to say, in this chain? And the second point, if you could elaborate or talk about the sales performance, especially in these 2 last weeks because of the lockdown. And how are you doing with the payment authorizations for that?

Well, we are all suffering with this coronavirus pandemic. It's something new and a world problem. Well -- but everything will depend on the speed and where we are in this lockdown process. We are well because we have a good cash position to go through this period with the follow-on increase. So we are in a good position to face this challenge. But I think it's still very soon to imagine what will come. What we are really afraid now is the economic issue because maybe the economy return will take longer. But I think it's still soon to be sure of what will happen. All companies in our sector are facing problems. We know that we will have a cash burn and we need to wait to see what will happen. And this issue with the city halls, maybe we'll have a bottleneck. But since we have a launch schedule for the first quarter of 2020, we have everything ready. We are not depending on any other approval. We are just waiting for the economy to react to go back to the market. We, today, are looking much more inside the company, take care of our cash and see the developments we have to launch. The works are going normally. The greatest challenge we will face will be the economic and commercial challenge because it depends on the lockdown duration. If it stays until -- to April will be one scenario. If it is extended more than that, the scenario will be June.

This is Marcelo. In relation to the first quarter sales, we will close it with a very -- in a very good sales position. January and February were fantastic and the 2 first weeks of March were excellent. And with this, we would deliver an excellent result, much higher than last year. The 2 last weeks, obviously, we have a drop in this speed but every day, we are scoring, we are selling. Every day, we sold 1 or 2 units. We -- of course, we had a reduction, but we are still selling every day because we have a delay in our market, especially for finished units. If a guy wants to -- if he goes to see a real estate, it takes 1 month for the person to make a decision. But today, we have our staff in an online platform to address the client and the word is availability to this client. Our kiosks are closed, but we are available to any personalized services to the client, and we will deliver a very good quarter because we were already doing it.

This is Roberval. Concerning your question about the clients' reaction and mutual rescission, it is early to evaluate this. But we are doing it daily. We are following the client's evolution. And what we are noticing is a very different movement from the past, where the first reaction of the client was a mutual rescission. Now the client does not want it. He is facing difficulties, but he wants to renegotiate. I would even say that half of the requests we have for renegotiation, they came to us before the due date of the first installment. So we feel -- we know that we will have this renegotiation requests. We are studying it case-by-case, making flexible whenever we can. But mutual rescission requests are not so relevant up to now. So what we see is the client willing to renegotiate and not to have a mutual rescission. And just to add to what was said, we have a very few requests of renegotiation. I don't know if it is because it's just the first month, but I think that next month, we're here to assess it better and everything will depend on the lockdown duration.

Our next question is from Mr. Trotta from Itaú BBA.

I'd like to understand your launching pipeline. We still don't know how long we'll be in this lockdown. But does it change the profile of your future projects? The demand that you have from investors that were taking some apartments, what will be the demand now because it will probably decrease? So I'd like to know what will be this scenario and how it would change the project's profile for this further development.

Enrico, this is Marcelo. It's quite good, your question. First, I mentioned our platform. We are very available. We are doing our homework. We are finishing projects. We are approving, developing and developing the images and campaigns. We are getting prepared in our backstage. We have the profile of the final consumer. We don't have only products for investors. We also have it for the end user. And the interest rates are very low. We had another decrease in Selic. Today, it's about 3.75. So it's another important point. A real estate is a very attractive investment. And it's also safe so we are in this expectation on how long the lockdown will take and how the economy will return. We are ready to go back in total or partially. We didn't plan to have any launches in the first quarter. So the first quarter would be dedicated to sell the launches, and that's what happened. And this was very assertive because now we are assessing what is happening. We have no new products on the market. And at any time, when the market returns, we will have time to recover.

Our next question is from Gustavo Cambauva from Pactual.

I'd like to know, in relation to the commercial developments of the Fundo de Imobiliário and the perspective of closing the sales of the commercial units, did it change anything? Can you keep the initial plan? And the other question is, is this 2 last sales you had, they were included only in this first quarter of this year. I'd like to confirm it.

Well, the money entered in the first quarter of 2020. We sold in 2019, but the money entered in January. And as for the commercial units sold to the fund, they were ready and we need to sell them and also the development in -- on [ Juapiquecheta ]. With this is responsible for a great part of the CRI so the company was not thinking to sell this to the fund. But I think it was a very -- it was the right action because we sold this to the Fundo de Imobiliário and I think it was the right decision. When the market returns, we will be able to settle the operation. But on the other hand, we are very -- we are at ease because it was a debt of 16 years with an interest rate of 2.30, which is very low. So answering your question, most of what we -- was sold today -- this year. We still have a building in São Bernardo, São José dos Campos, but these are smaller values in this operation. So we'll settle our debt, and it will return cash to the company. We will delay, we will postpone this operation for now, but this was a very good decision of the company in the last -- in the end of last year. And it was very good to Helbor to do this at that time.

Another -- a question about the CRI. So are you going to use this resource to have the amortization on CRI? Or this amortization is automatic?

It is automatic. We will receive the resources in January. And we paid this CRI, C-R-I, the real estate receivables. So the sales was good. And this operation will result in a good cash generation.

[Operator Instructions] So we close the Q&A session now. I'd like to give the floor to -- back to -- for his final consideration.

Thank you very much for participating in our conference call. Have a nice day.

This conference call is concluded. We thank you for your participation. Wishing you a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]