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

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Helbor's Second Quarter 2020 Earnings Conference Call. We would like to inform the participants that this conference is being recorded and simultaneously translated. The audio of this conference and slides are being broadcast on the Internet at the company's our website. [Operator Instructions] Before proceeding, we'd like to inform that forward-looking statements during this teleconference, referring to the company's perceptions, projections and financial goals are based on the beliefs and assumptions of Helbor's management as well as information available to the company. Forward-looking statements are not a guarantee of the performance. It involves risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur. The general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results that differ materially from those expressed in this forward-looking statements. I'd like to turn the floor to Mr. Henry Borenstein, President of the company. Mr. Borenstein, you have the floor.

Good afternoon to all of those following this conference call. With Marcelo Bonanata and Roberval Toffoli, we are here to talk about the results of the company on the second quarter of 2020. After a very promising first quarter, the company and the sector were affected negatively by the restrictions due to the pandemic. Our sales stands were closed. But our partners worked on digital channels and had good results for ready units, especially in May and June. With this new scenario, Helbor adopt a conservative strategy to overcome this crisis especially regarding the capital restructure to strengthen its cash position with credit lines with first-line banks, with very attractive rates, not to increase the financial expenses. This strategy keeps a favorable cash situation, facing the scenario we have now. Our sales are recovering. In June, our -- June was the best month. We reached 85% of the volume registered in the pre-COVID months. 84% before -- above April. In July, we reached sales levels superior to pre-COVID period. In this semester, we delivered, [ offer ] a high level development in Barueri with 78 units. It's interesting to show that the company register comparing first quarter [ 2019 ] to '20, a drop of a 4% in general expenses and a 20% reduction in commercial expenses. In the same period, we had only a 2% reduction in the gross profit totaling BRL 75 million. In relation to financial expenses, in the first quarter, we were able to reduce 70% comparing to the same period of the previous year. The appropriate margin reached 35% in the second semester. The hedge margin ratifies the trend of the company of improving its margins for the new projects that are being launching. With the older inventory of ready units, the trend of the gross margin is to go to the appropriate margin. In terms of launching, the company strategically did not launch any new units. However, the recent improving sales and the conditions of cash and financing puts us in a favorable situation to prepare to go back to the launchings. As for the last happenings, all our sales stand came back to the -- to activities, and we continue to -- with the digital sales strategy. In this period, there was no stop in the construction area. We have more than 3,200 units under construction, following the health protocols to keep the integrity of our employees. These works are contracted and the resources are being released normally by the financial institutions. Marcelo Bonanata, our Sales Director, will share with you the operating results.

Let's see the operating results. I'd like to say that in this quarter, in spite of being totally atypical due to the pandemic, the projection in June, we see a strong recovery. July was marked by an expressive sales volume, overcoming the pre-COVID. This recovery led us to go back to several launches that were ready and they will happen in the second semester. We now have the contracted sales. The total volume reached BRL 219 million in the quarter, this is 37% lower. And the part Helbor had BRL 240 million and was 36% below. At the part -- Helbor part, 65% accounted for ready units showing our efforts in sales. In Slide 5, we show the evolution of sales over the second quarter. In June, we reached BRL 94 million in total sales a 27% growth compared to May '20 and 84% compared to April '20. This performance is equivalent to 85% pre-COVID. Now we have the breakdown by region and segment. In the Southeast region, we concentrated 66% of the sales. In the category breakdown, we have the middle high segment. The speed of the sales reached 8.4% in the second quarter, inferior to the same period of '19, that was 13.3%. The pandemic result in a reduction of sales speed due to the closing of our [ rate ] stands. In the accumulated, we had an improvement of 0.4% in relation to the same period of last year, reaching 21.2%. In Slide 8, we show the inventory of Helbor products by launching segment in city. 52% refers to ready units. Very expressive in relation to the second semester of last year. As for opening of inventory per region, 87% are in the Southeast, especially in the state of Sao Paulo and capital. Next slide, we have the evolution that reached BRL 1.6 billion for Helbor's part, a drop of 7.5% when compared to the second slide -- second semester of 2019. Now our landmark, in June 2020, we had the predominance in Sao Paulo with 91% of the potential for Helbor part. Now I give the floor to Roberval Toffoli.

Thank you, Marcelo. Good afternoon to all of you following this conference call. Now we'll have the financial results. On Slide 11, we show the evolution of the net revenue that in the second quarter '20 was BRL 180 million, with a 46% drop in relation to the second quarter of 2019. In the accumulated, the net revenue was BRL 439 million with a 23% drop over the same period of last year. These drops are results of the restriction measures for the pandemic. On next slide, we see the gross result of the quarter was BRL 25 million, with a positive gross margin of 14.1%. The adjusted margin was 23.7%. It's important to highlight that even with the gross profit, 48% lower than the first quarter of '20, we kept the same level of adjusted gross margin. This is explained by the consistent results of the new projects that are now being with the revenue recognition. The table on Slide 13 shows that the appropriate margin was in high levels, totaling 35%. This number ratifies the trend of the company of good performance of its margins. Slide 14, we see that the general and administrative expenses reached BRL 20 million, a 7% high if you compare to the first quarter '20. In the accumulated VGA totaling BRL 48 million, a reduction of 4.2% compared to the same period of last year. Slide 15 shows the evolution of the controllers net results, negative and BRL 20.3 million this quarter as of a 5.4% positive result in the first quarter. It's important to highlight that the company was recovering its positive results that was interrupted by the pandemic. Slide 16 show the total indebtedness of the company with a great change in its profile. When we closed the period, the total debt was BRL 1.5 billion against BRL 2 billion in the same period of last year, representing a decrease of 23% of the total debt and this accounts for almost 50% in the short term. In this quarter, we settled a financial operation in the amount of BRL 64 million, to settle the remaining of the legacy, zeroing the debts in financing deep production with prefixed taxes. This rate, this will have a reduction of 56% going from an average interest rate of 11% to 5.8%. On Slide 17, we see a slight increase of the debt an asset of 57% in the first quarter to 58% in the second quarter of '20. When comparing annually, the reduction was significant, going from 128% in the second quarter of '19 to the same 58% I just mentioned. The reduction of debt when you compare the second quarter '19 and '20 is a result of the rescaling of the debt in the fourth quarter of '19. And also the high volume of repasses during 2019 with a massive sales of the ready inventory. We have a cash burn of BRL 48 million. The use of the cash in this quarter results for a high financing for the ongoing works. We have 52 works and the repass coming from a lower volume of delivery and the effects of the pandemics. We are at your -- we are available for any questions you may have. Thank you for your attention.

[Operator Instructions] Our first question comes from Mr. [ Paulo Abril ] from [ Pacific ].

I'd like to -- clarification on the competitive environment. How are you seeing the prices, if you can separate by region and price, end product? And how do you see this for your land banks? Do you see more competition in any specific segment or any decapitalization?

This is Henry. It's clear that the companies are not so capitalized, and we see higher competition for land. Well, but this has always existed. We know this. We are able to do good business. In our case, even during the pandemic, Helbor acquired 2 more piece of land and then comes the question. It was good. We did not compromise the company's cash. On the other hand, another movement that is good is the recovery of sales prices, especially in Sao Paulo. We've been talking about this some months ago, especially in mid and high level. If you go to see June and July, we had an increased [ event ] in sales, especially in mid-high levels. This is very good because we will benefit from the land bank we have acquired before. So we are running ahead. The company will resume to launch. We will launch development in Avenida Ibirapuera and also in Joaquim Antunes. And what is good? We bought -- we acquired this land before the competition and before the market improvement. And the price of the apartments improved. This will reflect in our margin. This quarter, in terms of results, we didn't shy because of the pandemics. So it's well in line with the expectations. But the message here is that June in the second half and July were very special month, very special indeed. If this trend continues, I'm certain that the company will continue with this inflection of the curve and achieving good results. So our message is that in spite of the pandemic, the market of mid and mid-high, especially in Sao Paulo, recovery -- recovered fast, and we are quite confident not only with our launch, but with our inventory. Marcelo did a good work to sell the inventory, and we are performing well. And this launch, we also perform well. It's curious because when we see the pandemic, it seems that there is no more new launches because we didn't want -- we want to see what was going to happen. And now we are in a very good moment. We are in a strong movement to go back launching and we are excited with the market. I think we will have a good semester ahead. This is my message. Thank you for your question.

[Operator Instructions] We have a question from the webcast, please.

This is Marcelo. The question comes from Mr. [ Francisco Jose ]. I'd like to know what Helbor will do to leverage the inventory because this brings a burden to the company for the units of 20 -- well, we've been working on a large online platform. As Henry mentioned, June and July, were very important for sales. We have a recovery of the sector and can assure you both inventory and ready units, very boosted by the interest rates. And rates for the customers are very attractive. We see a higher volume of sales of ready units. We are very comfortable. We have this commitment to reduce this inventory until the beginning of the next year and April was below because of the pandemics. But the recovery was strong and we are comfortable with this decrease in our inventory. And as Henry mentioned, even our ready units, we, in many cases, were able to recover the price and we are getting prepared to our launches. So we are very comfortable and we are leveraging our sales.

[ Francisco ], just adding to Marcelo's answer, this reflects of the sales improvement is being very consistent in our volume of repass. In spite of the pandemics and all the operational difficulties for the repass, we are increasing this volume month after month. Thank you.

[Operator Instructions]

One more question from the webcast. The question comes from [ Breno ]. Can you elaborate on the evolution of sales over June and this half of August? This is for Henry. Henry, you mentioned the launchings. What is the forecast for the next 6 months?

Good afternoon, [ Breno ]. First, about the sales in July -- June, July and August. Okay. In July, we had very good sales with no launches. We did not launch anything in June, July and sales was almost double from -- compared to last year. And August is -- continued to be a good month. What we are noticing, we are selling real estate of higher values, a development in Lorena -- Avenida Lorena, BRL 10 million apartment. We sold 2 during the pandemic. We have performed also W, which is a high nominal value apartment. When you have good product in Sao Paulo, mid to mid-high level, if you have a product, you will sell. And this is what is happening. And you see this in the next quarters. In addition, launchings. What is exciting us is the performance of this last month. So we had a meeting with the brokers of this product, Ibirapuera, which is Helbor Window, which is a product that is very close to the subway station in Moema. And we believe it will have a very good performance. We had a live in our stand with 12,000 participants, 12,000 people participating in our live. And today, we have another meeting in a high level apartment on Joaquim Antunes, 180 meters apartment. That is also with good future. We have apartments in Chacara Klabin. We are preparing a condo of houses in Mogi das Cruzes and very similar to what we launched in Alphaville last year. 100%, whenever it's possible to build houses, we end up having a good performance due to a lack of offer. We have another development in Lapa, which is end of -- coming as the Lapa and the meeting will be next week. So the message is, the company is really excited with the market. And we suffered a lot in the beginning of the pandemics. You saw -- we had this drop in sales in the beginning. But with the market reacted and the market is back, we believe that the second semester will be very good for sales performance. And in line with the ready units, this will be very good, better margins, our margin has increased. And when we start to launch, we will recognize these better margins in our balance sheet, and we are also gaining on price over the ready units. And with no doubt, the worst moment of the company, a more complicated inventory, this has gone, fortunately. And now we are on the right track. Thank you for your question.

[Operator Instructions] We have one more question from webcast.

From [ Paulo ]. The question is will this strategy will concentrate land brick in Sao Paulo? Yes, the strategy -- yes, in Sao Paulo and metropolitan region. We have Campinas as well. We have a project that is gain sales price. And with this gap in the market, we will launch this until October. We have a very important land bank in the city of Sao Paulo, very diversified and several differentiated products and also the metropolitan region, Mogi das Cruzes, Sao Bernardo, Guarulhos, Campinas, Osasco. So we work hard in the city of Sao Paulo and in the metropolitan region. We will continue with this strategy because it's working.

[Operator Instructions] One more question from the webcast.

The next question is from [ Alfredo ]. Do you have an idea to increase the discount to decrease the inventory? Well, in the worst moment of the pandemics, March and April, we did not provide any discount or any package with condo or other benefits. We rather -- we prefer to stay quiet because there was no mass production to have a super offer. And I think we did it right because the market recovered [ in V ] and we didn't give any type of discount. We repassed above inflation month after month with no goodness package. So we are happy with this strategy, and we hope things will continue like this.

[Operator Instructions] So with this, we conclude the Q&A session. Now I'd like to turn the floor back to Mr. Borenstein for his closing remarks.

Well, I think this is the message. The company is in a good moment, and we will go through the second semester, it will be very good for the real estate market. Our company has a very good land market. We have a product available, and we have an inventory of quality. So the company is selling the inventory, and we reduce even more its debt. And we will go back to a strong cash generation. So I think the worst is over. And with the launches back, we will improve even more our performance. Thank you very much.

Helbor's conference call is closed. We thank you for your participation, and wish you a very nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]