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

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the Helbor S.A. to discuss Helbor Second Quarter 2021. This webcast is being recorded and simultaneously translated. [Operator Instructions] Before proceeding, we'd like to inform that forward-looking statements made during this webcast related to the company's business perspectives, projections and operational and financial goals are based on the beliefs and assumptions of Helbor's management and on information currently available to the company. They do -- they are not a guarantee of company's performance, they involve risks, uncertainties and assumptions because they relate to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors can lead to future results that differ materially from those expressed in such forward-looking statements. Now I will turn the floor to Henry Borenstein, President of the company. Mr. Borenstein, you have the floor.

Good afternoon to all those who follow this. Our Sales Director, Marcelo Bonanata; our Franco Gerodetti, our IR Director, are here to talk about the results of the company in the second quarter of 2021. We closed the quarter with the positive indicators showing the continuity growth of the results created by the company that are getting stronger as we launch developments and advance in new projects with good margins. Cash generation intensifies with the delivery scheduled for the year together with the sales of ready units that are decreasing in their inventory levels every quarter. In this sense, we have different strategies to reduce the level of ready inventory, ready units. And among them, we had structured sales with investment funds and securitization of receivables. Practical examples of this strategy were the sales of the Barra Private complex in Rio de Janeiro, and the inventory of all units of Helbor Nun Vila Nova in São Paulo that together, some BRL 118 million in PVS (sic) [ PSV ]. On these measures together with -- contribute to the level of leverage that reached 50%, the lowest level in the last years. This decrease in trajectories shall be capped in the next quarters, making even more solid foundations of the company. In addition, sales are still increasing and shall advance with a greater [ flexibilization ] of circulation of restrictions because of the pandemics and consequent recovery of the economy. So we are confident in keeping our launch planning for 2021. Helbor thanks for the trust investor has put on us and reassure the commitment with the maintenance of its business model, value generation to the shareholders and keeping the company among the highest in the sector, focused on responsible transparent management. Franco Gerodetti, our IR Director; Marcelo Bonanata, our Sales Director, will share with you the major operational data.

Thank you. Now going to the first slide, I will show the financial highlights in the second quarter. And then in the other slides, we go deeper. First, we have a sales quarter that was very, very good. One of the best in the company, reaching BRL 468 million in sales and Helbor's shares, BRL 336 million. Our SoS was 15.4% and Helbor was 17%, even including the launches that was concentrated in the end of the quarter. So we can say that this year PVS (sic) [ PSV ] was very important. Of total sales, 82.4% accounts for sales of inventory and approximately 60% are ready units. Our launchings in the quarter reached total value of BRL 751 million and Helbor's share approximately 60%. Onlendings reached BRL 308 million in the second quarter, an increase of almost 85% compared to the second quarter of '20, also representing a very significant number. Our net operating revenues totaled BRL 268 million, an increase of 48% compared to the second quarter '20 and an increase of 11.6% compared to the first quarter of '21. The gross margin reached 26.2% in the second quarter, 2.1 p.p. (sic) [ 12.1 p.p. ] higher than the same period of 2020 and 2.5 p.p. higher than in the first quarter of '21. The adjusted margin (sic) [ adjusted gross margin ] reached 32.2%. Our net income was BRL 31 million in the second quarter, 11.6% higher than the first quarter '21, reaching a consolidated return on equity of 9%, a very relevant number expressing the good financial recovery that we've been facing in the last quarter. And lastly, our cash generation close in BRL 43 million. Now talking about our operational development. One more slide, please. Here, we are back to highlight the company's land bank. Today, some BRL 9 billion of total value and Helbor's share 5.8 billion with approximately 40 projects. If you remember our previous land bank in the other quarter, we had [ BRL 8.6 billion ] total. We had launches of BRL 750 million and some additions of new areas. We acquired 3 new piece of land in São Paulo, and more significantly that we will show in the next slide. It's an area that the company has in Mogi das Cruzes, accounting for BRL 700 million in our VGV. So going to the next slide. We show this last -- in the last call. And once again, to show the excellent location of our land bank in São Paulo. Of the [ BRL 9 billion ] that we showed of total VGV, [ BRL 3.4 billion ] are only in this slide, showing the good location that later on, translates into a high liquidity of the product in the city of São Paulo. In the next slide, this is a highlight of a project that the company has, together with the Feffer family with a joint venture between the family and Helbor. The area you see is surrounded by yellow line. It's a farm area in the city of Mogi das Cruzes with 10 million square meters, and the company is working in its regulation and the approvals of all the agencies, both the environmental and the city agencies for its approval. We are almost ready to proceed with the launch of the first development in the Rodeio farm. In the next slide, we are dividing the area you saw before. And to make it clear. Number one, that means half of that [ 10 million square meter ]. This is a particular reserve of the natural land. It's the largest reserve, and this area will be reserved by Helbor. The area with the #2 is where we are concentrating the next development. This area will be dedicated to allotments, and we will have a potential VGV of BRL 700 million with approximately 1,400 allotments. And Area 3 is what we call city sector. We are not showing this in financial numbers because it's a huge area. There is an estimate that if we put together all the population that can migrate work in leaving this region, we will have almost 170 million people. So it's a very long VGV, and we'll show you use it as we detect the best opportunities for development in this sector. But in the next slide, we show exactly our next launch in this region, which is allotment of 700 allotments, half of what we have. The VGV is of about BRL 350 million. This area corresponds to 1.4 million square meter. This was a project that take too long to be approved, which is natural here in Brazil. And now we are going to the final phase of defining brand and product. We will have this for the first part of the allotment until the end of the year or in the beginning of next year. Now we will go to the launches, and Marcelo Bonanata will help us with this.

Good afternoon. Thank you, Franco. Now let's talk about the launches in the second quarter. We had 4 launches: Helbor Grand Home Patteo Klabin in Chácara Klabin; Reserva Caminhos da Lapa, the first stage in our neighborhood, Lapa; Helbor Passeo Patteo Mogilar in the second stage and Reserva Ipoema, both in Mogi das Cruzes. These 4 projects account for BRL 751 million and Helbor share, BRL 434 million. Both -- all projects were launched in the fourth quarter. But in July, we had total sales with a good speed in all projects. We had the first launch of the third quarter that was the first phase of Patteo São Paulo and Freguesia do Ó with [ 83% ] of the units sold. And in this weekend will open the second tower of Patteo São Paulo and development in Pinheiros in next Saturday. In this slide, these are contracted sales. The total was BRL 468 million, comparing with the first quarter -- sorry, with the second quarter of '20, we had an increase of 140% (sic) [ 114% ] in sales. Comparing with the first quarter of '21, we had a 46% increase. Comparing with the first semester, the increase was 38%. So it was an expressive sales we had in the quarter, the best sales of all second quarters in Helbor's history. And I'd like to highlight that July, last year, we said it was the best July in a lot times (sic) [ long time ], but this of 2021 was the best month in Helbor's history. It was exceptional in sales, and we are in a very special moment. Going to the next slide, we have the contracted sales Helbor's share, an increase of 170% (sic) [ 117% ] compared to the second quarter '20 and 63% compared to the first quarter this year; comparing by semester, the increase was 36% for Helbor's share. The 83% were of ready units continuing and with the focus that the company has of selling its finished units. It's important that we are going to launch. We are being -- we are being the same company we were, but not losing the focus on our finished units. Now the next slide. Let's talk about SoS. In a considerable increase, if we compare with the second quarter of '20, we had 8.2% of SoS. And today, we have 17%. If you compare with the first quarter of '21, it was 11.6%. We see the clear idea of how strong this quarter was. And comparing with this semester, we had 19.2% in the first half of '20 and now 24.5% in the first quarter of 2021. Next slide. This is the Helbor's inventory in the last quarter of 2020 with [ two million two hundred thirty five ] with finished units, BRL 1 billion. Launched unit is BRL 689 million in '19; '20, BRL 286 million; and 2021, BRL 656 million. In this finished stock, we have about BRL 200 million. There are 2 hotels that we are reverting to residential units. One, in Curitiba has been reverted. And we are reaching a good speed of sales, and we are ready to revert a hotel in Alphaville and another in Santos. In the next month, we will have the change from hotel to residential units. And this will be very good. Within this BRL 200 million, we also have commercial units, small rooms, and we will start a campaign for direct sales. The campaign we start now in August -- at the end of August. This is a spoiler. We'll have our large events, the 100th edition, one of the most successful real estate sales event. We have a partnership with Bradesco, and real sale -- real estate special -- especially finished units an aggressive campaign for our commercial rooms. We can continue with the next slide. Our inventory by region. 92% of our inventory is located in the city of São Paulo or and Great São Paulo and a very low number outside São Paulo. This is a market that is getting stronger, and we are able -- monthly, we can be onlending rate for [ EMGC ] is above the market. We are able to have this onlendings and speed in sales. Our inventory is concentrated in the state and city of São Paulo. Now the financial performance I will give the floor to Roberval.

Thank you, Marcelo. Good afternoon to all of you. Now let's talk about the financial results of the second quarter of '21 numbers that show the sustainable recovery of the company. Now going to Slide 15. We have the net operating revenue that in the second quarter of 2020 -- oh, we apologize, Slide #17. The evolution of the net revenue was BRL 268 million, with an expressive increase of 49% over '20 -- the second quarter of '20 and 12% higher compared to the first quarter of '21 and 60% (sic) [ 16% ] higher in the semestral comparison. In the next slide, we see the evolution of the gross result improving gradually. And in the second quarter '21, BRL 70 million with a gross margin of 26.2%. This margin represents a trend in -- of improvement, showing the evolution of a new cycle, where the new projects have robust margins and the older projects with compressed margins are being reduced. It's important to highlight the constant increase of gross margin, 19.7% in 2019 (sic) [ 2020 ] to 20.5% (sic) [ 25.0% ]. Now the adjusted gross margin in the second quarter was 32.2%. In the next slide, we see the backlog margin, 36%, an expressive increase of the backlog of revenues with BRL 471 million in the second quarter. These figures show the assertive trend of the company of improving its margins in the projects launched in the last years. The next slide show general and administrative expenses had an increase of 11% compared to the same period of last year. The [ VGA ] over the second quarter had a drop of 7.5% compared to the first quarter '21. Corroborating with the efforts of the company in controlling the expenses even in a scenario of returning to projects. The next slide shows the evolution of the net results of the parent company, BRL 31 million in the second quarter '21, an increase of 250% over the same period of last year. When compared to the first quarter of '21, the growth was of 12%. In the next slide, we see the total indebtedness. In the second quarter of '21 total debt was BRL 1.3 billion against BRL 1.5 billion registered in the same period of last year, a decrease of 14% of the total indebtedness. And this decrease was 31% in the noncirculating assets. And finally, on the next slide, we show the cash generation that was of BRL 43 million in the second quarter of '21, resulting mostly from the reduction of our indebtedness. Now we are at your disposal for any questions you may have. Thank you. Now let's open the Q&A session, in case you have a question, please.

Our first question is from [ Luca de Camille, Kai Invest ]. Thank you, [ Luca ], for your entries. Congratulations for your results. We see a good demand for the second. However, we have a concern with the new crisis of mutual rescission. How the company sees this?

Thank you, [ Luca ]. This is Henry. As you said, the market is good. The SoS is very good. Launch is very good. And in inventory sales is good as well. We don't have this view of a new wave of mutual rescission for several reasons. First, because of the launches, they are doing well. We have a repressed demand. And the mutual rescission law showed and Helbor lived this. We have a PhD in mutual rescission. So the company learned a lot to deal with this problem. A great victory was the mutual rescission law that regulate this issue. Today, our sales less -- when you buy real estate you have higher first payment. And if you have a mutual rescission, it is less advantage to the buyers, it loses almost 50%. We create an installment in our table. Yes, Helbor established several remedies for these mutual rescission. We have an installment, a balloon 6 months before of the delivery of the development. It is called the installment for deliver the keys, but it's done 6 months before to clean our portfolio. Another point, the credit score that we run is more accurate. Helbor knows very well the buyer of its units. And our portfolio during the construction is always being analyzed and rated to know who is who. Another important point, the type of product. The company today is focused in the mid and mid-high standard. And for them, this high in INCC is not so harmful. So we also have mid- and mid and low units, but we are very focused in the mid, mid-high and very high. So currently, we don't see this problem for the company. We monthly follow our portfolio of real estate sold and we were vaccinating against this mutual rescission problem, we suffered a lot, but the company learned a lot. So it's much more comfortable to work due to the regulation of this law and the position we took in the company.

The next question is from Alex Ferraz from Itaú BBA. He has 2 questions. First, concerning cash generation, do you believe that you can keep this strong level of cash generation, even considering the acceleration of works? And the second question relates to the sales performance of the launches since we concentrated the launch in the end of June, how this impacted sales? And what is the performance of these launches?

Alex, this is Henry. I will talk about cash generation, and Marcelo will complement. Cash generation will continue in good levels until the end of the year for some reasons. First, the company has a strong focus of selling finished units. And with this, our volume of onlendings continues to -- continues high. The company will reach about BRL 900,000 or BRL 1 million of onlendings. And with this, we see a reduction in the debt leverage to generating cash. The second point...

[indiscernible]...

Oh, exactly. We have 5 deliveries to do. And at every delivery, the onlendings come and cash generation as a consequence. In the past, the company had some mutual rescission that are creating a higher inventory. But our capital is in those units. And we are transforming them into cash and receivables. So we will continue strong. The works are happening, and we are starting to work on these new developments. And this is a healthy debt, which is part of the real estate business. So in summary, we will continue strong until the end of the year. We have an expectations of the deliveries and inventory sales of cash generation.

Just to add, Alex, it's important to say that we have a very aggressive goal to reach [ BRL 1 billion ] this year. It's feasible. We are almost at 60% of this goal with BRL 570 million accumulated of onlendings. The conditions of onlendings were never so healthy as we have today. The level of rates, 7% for residential a term of 30 years are conditions that we've never seen for onlendings. And even with this perspective of an increase in the interest rate, we think this will not impact dramatically onlendings. And that's why I said only in this rate with -- even with this adding of the interest rate, it will be low with the long term. So onlendings will continue strong, and this will help us a lot in cash generation.

Alex, answering your question, the launches were very good in July. And I mentioned, this was the best July of all times due to this -- the launches of the [ secondary ]. And this development -- and to this second -- 3 quarter because we have a lockdown in the city of São Paulo, March and April. And we opened the stands after April 20. So we started working heavily on this in May. That's why the launch were allocated to June, but we are above the velocity of sales. And just one more point for this moment. Phenomenon that we thought it was temporary, but is not -- which is the [ EMGC ] with a higher level. And this month, it went from 2.6 to 0.85. So going to normal levels, this sector will continue to work. And this made us more great expectations. So the [ secondary ], we are happy with this rate of sales. Last month, we have strong sales, the best July of all times.

Our next question comes from [ Bruno ], a personal shareholder. He is asking about the tax reform. In case the tax reform is approved the way it was presented. If the dividend policy of the company will continue the same or there will be other strategies as the repurchase of shares. We are following very close this tax reform. We have indications that the policy of -- dividends policy. When we talk about dividends between [ congregates ] will be different from the usual dividends, but we are expecting favorable wins. And it doesn't make any sense to tax a dividend. So we have a very optimistic view in -- for this. Our next question is from [ Jean Bosco from Baxter ]. 2 questions. First, what is the gross margin of new projects that are performing? And the other question, the [ EMGC ] is increasing the legacy inventory.

Thank you for gross margin of our launches. Historically, we have a gross margin above 30%, okay? And in launch -- [indiscernible] launch, and we have 36%, 37%. So the margin of the new launches is above 30%. What we promised, and we are delivering. We don't launch anything with margin smaller than that. We have some margin from the legacy, and we have the margin of the new launches. As the works continue, this margin will increase, and we reached 30% or more, which is what the company always delivered. Since 2007, you see that the average margin of our launchings is above 30%. The other question, this is about the inventory INCC. The company is focused in launches and margins, the inventory of finished units was not usual in our sector. Unfortunately, it happened because of the crisis. But in addition to INCC, on inventory, the new launches pulled the price high. The legacy I had that was the result of onlendings, I can adjust because the launches are more expensive. But our finished units inventory, the idea is to sell with velocity and reduce indebtedness. But we are in a very favorable environment, in addition to be able to repass the price because the launch have a higher value. We also have favorable conditions. A person who is buying a ready unit in Helbor, especially in São Paulo. The person is paying a good price with a 10% first installment with a very attractive rate and getting the keys, which is the most important. This is helping our SoS. And the interest rate is not a favorable condition for the buyer, but you increase the potential number of buyers because you increase -- you're increasing our base. So we are facing good moments also in the inventory area. So we are improving the combined margin of the company.

Our next question is from [ Carlos Seher ]. Congratulations for your results. Are you confident for the launches in the second half or due to the increase in costs? Is there any chances of you to reevaluate and wait for a less competitive scenario?

[ Carlos ], thank you for your question. We are certain of the guidance we have for this year. We will reach them. We will achieve them. We are working on the launch of the second half. We had the first launch in July 3 was the first launch of this and 80% of the units sold in the first tower, we will open the second tower this we weekend with another launch in Pinheiros. So we are believing in the sector. We do believe, but two important points. When you ask about the company, Helbor is a shelf company. We have no concentrations of products or location, even in the city of São Paulo. We are in all regions with all types of products, studio and big units. There is no concentration. With this, it's possible to decrease product concentration and maximum concentration of competitors. Another important point. And Henry mentioned this already. During the crisis, we did our homework. And we built our land bank at that time. So we had a low price for land when we bought them. So today, we are very comfortable to have an impact of increasing works and the market had incredible increase in prices, elevating the prices and gaining margins. So with this cycle, even of increasing works, we are very comfortable elevating our margins because the sales prices also increased, and we will achieve everything we expect.

The next question is from Bruno Mendonca from Bradesco. Thank you, Bruno. I'd like to congratulate the company for the results, and we have 3 questions. We'll start with 2 of them first. The increase in construction costs, what is the feasibility of larger projects, especially the high standard projects in Faria Lima? And the second is the sales of finished units is strong, what can we expect in this line for the next quarters? How reasonable it is if you have BRL 650 million of legacy inventory?