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

Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to Helbor conference call to discuss the results of the first quarter of 2020. All participants, we'd like to inform you that this call will be recorded. The audios will be transmitted by the Internet in our IR website. [Operator Instructions] Before we continue, we'd like to remind you that forward-looking statements related to the perspectives of the company, operational and financial outcomes are based on the beliefs and assumptions of the company's management and on information currently available. This refer to future events and then depend on conditions that can occur or not. The results can be affected by the results of the company and will lead to results that materially differ from those expressed. Now I'd like to give the floor to Mr. Henry Borenstein.

Good afternoon to all watching this conference call. Together with Marcelo Bonanata and our IR and Financial Director, Roberval Toffoli, we are here to talk about -- to present to you the results of the company in the first quarter. The company and the sector had an excellent environment as well as very favorable financial conditions to the buyers. Unfortunately, due to the effects of the global pandemics, we have this scenario frozen. Helbor adopt a conservative strategy, especially to preserve the financial and capital structure to strengthen this cash position with very good attractive rates and not to create a burden on financial operations. The company was very agile through a committee especially created to meet the demands of our clients in relation to renegotiation of debt. This way, we kept all of them. Any solicitations were very low. Helbor presented the vast scenario for sales and sales over supply. Total sales reached BRL 351 million and Helbor reported BRL 242 million. 61% in this period correspond to the sales of ready inventory. The indicator, VSO, reached 11%. In this quarter, we also delivered 3 developments, 2 in the city of São Paulo and another in Osasco, totaling 759 units and VGV Helbor of BRL 273 million. The company clearly shows the recovery over the last quarter. This is a result of the strategies of the company. As we have the pandemics solved and the recovery of the economic growth, the company shows that it's in the right track to have the highlight position. The gross result was BRL 153 million, 80% in relation to the gross profit. The gross margin reached 19.5% in the first quarter compared to the first quarter of '19. These improvements are results of consistent results that begun to have its impact. BRL 273 million of repasses, reinforcing our dynamic of cash generation and reduction of debt -- indebtedness. For the eighth quarter consecutive, Helbor has BRL 49 million in cash totaling. In the first quarter of '20, we have sold the commercial inventory to the fund called Multi Renda Urbana. This was in the first quarter of '20 with BRL 44 million used to pay part of the CRI debt concluded in 2019. With this indebtedness, our financial reduction -- reduced, going for BRL 14 million to BRL 10 million in the first quarter of '20, leading the company to financial results of the BRL 3 million. Our general and administrative expenses were reduced in 8% from BRL 20 million to BRL 19 million. As for the net profit, after 3 quarters of negative results, the company reported a positive result in BRL 5 million, rectifying our growth recovery and profitability in a scenario of economic recovery. As for the loss in -- happening, our commitment with partners, stakeholders, employees, suppliers are being honored. There is no lockdown in the construction sector. We today have 3 million units being built with all the health precautions. We have resources running normally by the financial agents. Our launchings are on hold until we have a clear scenario of the economic situation of the country and the coronavirus pandemics. We are closely following the threats and results of the pandemics. Helbor is concentrating our efforts to overcome this phase. Now Marcelo Bonanata, our Sales Manager, will show you the operational results.

Thank you, Henry. Let's see the operational results of first quarter of '20. Helbor had an improve in these results. This is due to the strategies adopted, which is very welcome. Slide 4 shows the contracted sales. The total volume reached BRL 351 million in the first quarter. The Helbor part accounts for BRL 242 million, 17% higher compared to the first quarter of '19. The Helbor part was 10% above. Of the sales, Helbor part, in the second quarter, 61% accounts for units delivered, showing our efforts to sell ready units. On Slide 5, we show our best market in the first quarter after 6 years, even in a period without launchings. Slide 6 shows the opening by city and segments. And only in the city of São Paulo, 42% of the sales. And by segment, mainly in the high segment with 69% (sic) [ 69,000 ]. In Slide 7, we see the speed of sales measured by the VSO reached 11.9%, higher than the VSO of the same period in '19, that was 9.7%, the best VSO in a quarter since 2014. Slide 8 shows the opening of Helbor's inventory by segments and cities. 49.3% of the inventory is about ready units, a very expressive number. As for the segment, 42% is for high and mid-standard, with 59% of the units located in São Paulo. In the following slide, we see the evolution of the inventory with BRL 822 million. Relating to the first quarter of '19, we have a 7% drop in total inventory. Slide 10 shows our land bank in 31st of March, with a huge presence in São Paulo and metropolitan region, accounting for 91%. Now Roberval Toffoli has the floor.

Thank you, Marcelo. Good afternoon to all of you. Let's see now the financial results. Slide 11 shows the evolution of the net income in the first quarter of BRL 258 million, 11.2% above '19. This is due to the high speed of sales in the first quarter of 2020, especially in terms of ready units. Slide 12 shows that the gross result was positive in BRL 50 million with a positive gross margin of 19.5%. Adjusted gross margin for the first quarter was 24%. These improvements are due to the consistent results of the new projects that are now being -- showing its results. The administrative expenses reached BRL 19 million in the first quarter of '20, a 10% decrease over the same period of last year. As for the fourth quarter of '19, expenses reduced in 5%. Slide 14 shows the result of the net result of the holding, positive in BRL 4 million, expressive improvement when compared to the other quarters. And Slide 15 shows the total indebtedness of the company, a huge change in its profile. 77% is concentrated in long term. At the end, the closing of the period, the total income was BRL 0.4 million compared to BRL 1.7 million of the previous period, a reduction of 17% of the total debt. And this reduction accounts for 53% in the short term. Now we see a reduction in net debt and consolidated assets of 63% in the first quarter to 55% in 2020. Among the main factors that resulted in this reduction, we see the speed of sales reaching 11.9% in the year, focusing mainly in the ready inventory with expressive repasses volume and follow-on in the amount of BRL 560 million. Slide 17 shows a cash burn of BRL 49 million in the first quarter of '20 with a continuous series of 8 quarters of positive cash generation. We are at your -- we are available to answer any questions you may have. Thank you for your attention.

[Operator Instructions] Our first question comes from Enrico Trotta, Itaú BBA.

Two quick questions. We see that the gross margin of the quarter was very good, very strong, which has a relevant impact on the new projects. So when you see the margin of these new projects, what is the expected margin of the new products? We see that the heavy is around 37%. And what is the gross margin of the inventory? Because we think it's pulling -- pushing down the margin -- general margin. And when you have the sales of your assets, I'd like to know if you still have any co-obligation involved. If you have any -- what happened, we work -- maybe you can clarify this question of mine.

Mr. Henry, your line is open.

I apologize, we had a problem. Well, your first question relates to the margins. The gross margin of launches is improving, shows an improvement with a gross margin of 33%. And we had the record of [ 30% ]. As for inventories, the most difficult one, we were able sell a great part of it. We had a tight margin. In some cases, especially São Paulo, ready units, we are seeing improvement in these units. We want to sell without losing any speed in sales. So what we mentioned during the follow-on, the margin will gradually be improving as we launch new business. And also, we are clearing our inventories. I don't see no movements in our inventories, at least until now, of price reductions to affect margins. So I see a very good horizon. The second question as for -- relating to the [Audio Gap] we are already in the -- it's a rental we have with a group Anima in São Bernardo. Everything is okay there. It's a rental with a fixed value, and we don't have any problem. It's a good performance. We have another asset in São Paulo. We work [ at -- to the street ]. We are in the third month of the pandemics, and we were performing better than the curve expected by people who acquired our CRI Multi Income. So during this month, we were able to deliver a satisfactory result for CRI. And basically, we had no problems because the rental was performing well. The other asset in Osasco is also in the grace period. But for the free market, so the -- as for Mercado Livre -- sorry, the Mercado Livre company, and they will start paying [ the total ]. In Rio de Janeiro, it's a development for Unimed, Neolink. Unimed is already there. They are in the grace period. This rental has a bank guarantee. So it's doing well. We are performing well. But for you to have an idea, the rental was BRL 500 million per month, and now we are in the basis of BRL 180 million, which is the one with Multi Renda. I believe that when the market recovers with the end of the pandemics, we will have the normal occupation. This is just to clarify.

Our next question comes from Gustavo Cambauva, BTG Pactual.

I'd like to ask 2 questions. First relates to the demand. What do you expect in terms of the last month after the first moment of the pandemic. Maybe if you [Audio Gap] 30 days or even with the opening of both.

Ladies and gentlemen, please hold on. [Technical Difficulty] Mr. Henry, your line is open.

Cambauva, I'm sorry, we had a slight problem. So this is Marcelo again. We saw during the weeks an evolution both in the number of leads and scheduled visits and in the number of negotiations and, of course, in sales. In the last 15 days, the last 2 weeks were the best since the pandemics, the COVID-19 started. And last week, we had sales in the level before COVID. So it was a very full, very busy week. So we're -- what we are following and understanding is an understanding of the sales team with the online platforms and the content we generated, so we could serve the clients in the schedule with safety. And over time, we saw that the economy is in our favor. The net rate of EBITDA dropped some points, and now clients are becoming to make faster decisions. So these 2 last weeks were very productive, especially the last one, very similar to what we had before COVID. Today, we have 5 developments, 5 launches for this year. We believe in the project. We think the project is feasible even after all these pandemics. Most of the projects are already approved. We have the sales stand ready, the core units ready. So we are working internally to have everything ready so -- for the moment of opening. And as soon as we have a sign from the market and also from the economy, we are ready to launch them. So we have at least 5 launches that we can do. We prefer to wait a little here in the city of São Paulo. We had a reopening of our stands on Saturday. And in the São Paulo region, we will do this on Monday. Our sales stands are working in reduced time with the safety protocol and with this return, we are ready to launch them again. One of these 5 developments, the [ Tejano ] São Paulo, very well located, a very nice development, very close to the subway. The subway is below the development. The idea is to have a presales using the stand, of course, that is working today in reduced time. We will open this next week. And if everything is okay, we will launch this next week. We don't want to mess up. We never did this, but we want to benefit from the moment and see what we can do. We will first understand the market, feel it. And if the environment is good, we will launch. In my opinion, this product I am talking about, we thought in launching it in August in spite of the pandemics.

Okay. I have another question. Of course, you had a huge task to train all your staff. But thinking in a longer period, do you see any type of economy in terms -- or savings in terms of the work -- working both online and off-line? Do you think about any change or strategy that will be a potential benefit in the long run?

During these 90 days, we had some meetings gathering 600 brokers with almost 0 cost. I think this will happen more and more in the future. As Marcelo said, we did meetings. We had meetings with lobbyists, also 1,000 brokers. And in the past, we had these events, and we spend a fortune in these events. So I think this type of thing came to stay. In terms of the stand and the core unit, this we'll need to have. But many other things, we can change, especially these digital platforms and mainly the training that is not seen but costs with the training and meetings. If you see the volume of launches we have projected, it represents a good deal of money. We are all in home office. And when you schedule these events with the brokers, how easy it is because the guy goes there and just press a key. And we see the sales team really longing for new information. We have a greater presence in digital than presential. And another thing is the digital platform that we have, Corretor ON, we see that in the pandemics, it performed very, very well. We have 20,000 brokers enrolled in the platform, and we want to expand it. We are bringing another executive to take care of this. We want to expand the platform and reach more freelance brokers because brokers, one, sold more during the pandemics than in presence. So this platform provided him of much better performance. We mentioned this in the follow-on that this platform came to stay. And we are investing in this platform, Corretor ON, to improve it even more.

Our next question is from Victor Tapia, Bradesco.

I couldn't see the -- be present in the part of the call, so I apologize if I repeat any question. But my point is the cash generation, the cash burn in the first quarter. You had a repass of almost BRL 240 million. I want to know, what is the repass? And what can you see in the second quarter for cash generation since you have accounts receivable for ready units? But what is the behavior of banks and the direct repass to the client in the second quarter?

Mr. Henry, please your line is open.

Victor, can you hear me?

Yes, I am.

Okay. Sorry again. Well, let's see. As for your question, we had a quite relevant volume of repass in the first quarter. And it accounts -- well, 80% for the repass and 20% securitization. Concerning the banks, we were able to get on track with the repass as soon as the pandemic started because the repass is still a manual process with paperwork, banks. But with the help of the banks, we were able to create a routine. And now I would say it's a normal process. So it's no longer a problem, even for the notaries. And concerning this quarter, the volume of repass will be smaller because the sales will be smaller. But it will not be much different -- well, this is our intention, not to be much different. We are projecting about BRL 160 million and BRL 170 million in repass. And the cash generation from now on, well, it's difficult to determine because it depends on this scenario and how will -- it will be. But I would say that if we sell -- if you sell in a good pass, in a good rate, repass will continue to happen as well as securitization because it's a well-established process with the banks. Another positive point is the funding from the banks, financing from the banks is attractive. The rates are of [ 71% ] for 30 years with a lump sum or entry amount very attractive, 10%. So it is very attractive for the customer to acquire the unit.

I'd like to add to what Roberval said. Another strategy of the company, in spite of most of the sales having the bank financing, we have a good volume of sales in the direct sales. And as a strategy, we are trying to hold the portfolio, not to securitize this because of the low [ Selic ]. So hold it, especially prime products. We will deliver now the [ way in ] Guarulhos. So we will have the repass, but with the direct sales, we want to improve our financial revenue. So this is a strategy of the company. And during the year, we'll see if this revenue will increase or not.

Okay. Can I ask another question? May I? In relation to the purchase of land, you have a very healthy position for the next 2 years with well-located piece of land, very good land. But after this stress, after COVID, do you expect any change in the behavior of the intent of buying land? Do you expect any change? Can you elaborate on this?

As I said, the company is in a very good position in land bank. When COVID came, we hold the cash. So we have a good land bank position. COVID came, and we saw that this is the time to hold on, and we did it. And also, we reinforced our capital restructure via financial market to strengthen this period. But we are a developer. Lands are -- our piece of land is our daily life. We look for land every day. So there is one other company looking to new business, but many people just hit the brakes. But even though talking in the premier, the company just acquire a piece of land in the region of Alto da Lapa. It shows that with no pressure, with no rush, we were able to keep our cash position and we closed the deal. And we are looking to more 3 deals. We are not running after a piece of land. We are much more concerned in selling our inventories and new launch. And I think that we saw a decrease in this purchase of land, but this is due to the pandemics.

[Operator Instructions] We now close the Q&A session. Now I give the floor back to Mr. Henry for his final considerations.

I'd like to thank you all for participating, and thank you very much.

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.]