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

Good afternoon, ladies and gentlemen, and thanks for waiting. Welcome to Helbor Empreendimentos S.A to present the fourth quarter 2021 earnings and the year of 2021. This webcast is recorded and simultaneously translated. [Operator Instructions] Before proceeding, we'd like to inform that any 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. Forward-looking statements are not guarantee of the company's performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. 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'd like to turn the floor to Mr. Henry Borenstein, our President. Mr. Borenstein, you have the floor.

welcome to all of those who are here with us, together with our Sales Director, Marcelo Bonanata, Financial Director and Investor Relations, Franco Gerodetti. We are here to talk about the results of the company in the 4Q '21. We closed off the year of 2021 with the positive trend of the operational and financial indicators showing the continuity of the cycle of growth and retake of the results generated by the company that is getting stronger as we launch new developments and advance in new projects with higher margins. The sales of ready units continue in the scheduled pace and are decreasing the level every quarter. We began 2022 launching 2 projects that were postponed at the end of 2021, Helbor Jardins by Artefacto and Figueira Leopoldo, both of very high standard located strategically in prime areas in Sao Paulo. More specifically, one on the corner of Rua Haddock Lobo and the other at Rua Leopoldo Couto de Magalhães. We hope to have even more challenge in 2022. So that's why we will close monitor the issues that concerns to commercial, economics and market in relation to the projects that we will launch during the year. Our focus will continue to keep the company with high margins and consequently, consistent returns. We believe we are prepared to face one more challenging year. I'd like also to thank on behalf of [ Helbor ] for the trust by the investors over the years and reaffirm our commitment with the maintenance of our business model, the generation of value to the shareholders and the company among one of the best focus in this responsible and transparent management. I'd like also to highlight the restructure of the Board that was scheduled and was approved yesterday. Roberval Toffoli is now the new Director, Vice President of the company, and he will be responsible by corporate governance, ESG, legal process, internal auditing, risks and compliance and [indiscernible]. For his place as Financial Director, we elected Franco Gerodetti. He will be the Financial Director and Investor Relations. We wish them both success in their new challenges. Now Franco Gerodetti and Marcelo Bonanata will present the main operational and financial results.

Well, going to our first slide, we show the highlights of the year and the last quarter. Our total sales reached BRL 1.5 million in line with what we had in 2020 of this, 63.4% accounts for the commercialization of ready inventories and in building. And 70% are of ready units, showing the focus of the company in selling these units. The VSO total was 37.2%, a relevant number in our opinion. Our launches were important, reaching BRL 1 billion, almost 17% increase in relation to 2020. The net operating revenue was BRL 948 million, in line with 2020. Our gross margin, we saw and showed reached at 28.2% in the fourth quarter 2 p.p. of increase compared to the 4Q '20. We closed the year with a gross win of 26.5%, 6.8 p.p. above the previous year. The company is recovering consistently the gross margin. For 2021, in the fourth quarter, we had 3 launches. The first was LIV Pinheiros. We launched Casa Vila Nova, unique project, one for units and [indiscernible], which is a Caminhos da Lapa. Once again, it's a prime neighborhood that we are doing. It's one more in development in a location that we are changing the face of Sao Paulo. It's an important transformation that we see, especially in the speed of sales, 2 developments ready, more than 800 unities already. This is a transformation that we are doing for 5 or 6 years in Caminhos da Lapa. In the total, we have developed demand in BRL 1.5 billion. Here, we have the higher sales. If you compare the fourth quarter of 2021 with '20, we had a decrease of 37%. As Henry and Franco said, this is a result of 4 projects that we were ready to launch in the last quarter of 2021, but we postponed 2 projects due to approvals; and two, because of the time, which are very high standard projects, and the profile of these clients is in a different moment. So we decided to postpone in the beginning of 2022. But in the year comparing with the 2020, we had 2% above 2020. So even postponing launches in the last quarter, we had a total VGV higher than the previous year. The sales per quarter in the last quarter, 53% of the sales were of ready units. This is important showing the alignment of the company and the effort to sell ready units. And then we have Helbor Empreendimentos, 47% were of ready units. It's a good indicator, 33% related to launch, showing also the good performance of our launchings. So in the next slide, we have VSO in the fourth quarter had a decrease obviously because of the postponing of the launch. When you compare with the fourth quarter of '20, it goes from 12.8% to 8.9%. But if you compare '20 with 2021, we are almost in line. So even with this decrease in the year, we had a very good VSO. And finally, we talk about the inventory situation composition. The total is of BRL 2.769 billion and only 31% is of ready units. And this is the last slide. The distribution of the inventory showing our concentration in the Southeast region, especially in the city of Sao Pal, 76% and also showing that we are starting to see a concentration of launches of high and very high standard. We see a great demand for it and a shortage of supply launch that was in 2021 in the city of Sao Paulo, almost 90,000 units only on development above 300 square meters. So our efforts today is to try to have a concentration in high and very high level due to the shortage of supply and the active demand we have. And due to the economic diversities, this is an audience that suffers very little with this. And now the financial data. Thank you.

Very quickly, let's see the financial part. This is the operating -- net operating revenue of the last quarter. We had a decrease of 26% and also a decrease in relation to the third quarter '21 of 45%. However, if you look at our annual revenue almost with the same number, we assess that the impact from the sales we had in the fourth quarter, we believe that as we retake the sales in the next quarters, we will have a position more similar to what we used to have. And this is very important slide. We show you since the end of last year, this is the main responsible for us to revert our results and reflect this in our bottom line of our financial statements. So the gross revenue in the fourth quarter was 28.2%, well aligned with the third quarter. And the year -- the total year, we closed 26% with gross margin -- 26.5%. And we -- just to remember you, in 2020, 19.7%, and in 2019, this gross revenue was very low. We recover 8 p.p. and in 2021, 7 p.p., the expectation of the company that we are sharing with you since last year. And now we can prove with numbers what we mentioned the entire year. Another important point of this slide is that we are also opening -- we start this in the last quarter. And we improved this. Now we have the legacy in new cycle, both '20 and '21. So we can see the new cycle is bringing gross margin of 28% and the legacy of 20%. And the good news here is that the new cycle, we know it was expected the margin of the new cycle points to something around 35%. But good news is to see that the legacy also brought us an increase in our margin in 2021 of almost 3 p.p., and this also contributed to our results and also to our net profit. In the next slide we will talk about our margin. It is in line with what we had. This is our backlog margin. We have the purpose to launch only projects with a very robust margin, and we've been showing this quarter after quarter. And the effect we will have this reflected in our margin and the balance sheet. And if everything goes right, we will bring this margin to a higher level. We -- for many years, which maintained our gross margin around 30%, 35%, and this is the level we want to reach in the next quarters. This is a number that we always show, our DNA, and the graph speaks for itself. We have very rigid expense control, especially in this year, cash is skinny as the market says. So we are concerned with our expenses and a proof of this is here. It is almost the same as last year, even in a year where the inflation levels rose up. IGPM, almost 18%, IPCA, almost 10%. So this is a good result of a very hard daily work. And now our net results. This slide is being shown constantly to you. We have a longer perspective here to show that the company for many years has been constant in its results. Then we had the mutual agreement period. And since this is a long-term factor, when you change a trajectory, a big ship takes some time to get the right way. We did this 5 years ago, and we are seeing the results now. In 2020, we had a symbolic result but very important. And 2021, we closed with a net result of BRL 101 million. What we see here, this is very constant. So we can -- we are showing you that we believe we are on the right track. Next slide here, our indebtedness. We've been following this very closely. We had also a decrease. If you look at the last quarter of '20 versus '21, we had a drop of 8 p.p., the debt, as I mentioned. We'll have a sharper decrease when we sell our ready units. This happened in 2021, and we believe we will keep this trend in 2022. But just reminding that next year, when you have many deliveries, we -- our expectations is that this will be a stronger year of decrease in debt. But here, there is no sharp movement and as we show in the last quarters. So finally, this is the cash burn situation. In 2021, we had BRL 61 million in cash burn. We believe it's a low value but within our expectations. And we believe that from now on, and we have a company's goal and we are following this closely, but this is in line with what we expected. So in a very brief way, these were the main numbers of 2021 and the fourth quarter. And now let's open the Q&A session. And if you have any questions, please send them through the Q&A icon in the bottom of your screen.

Our first question is from [ Caul Vagera ]. Thank you for your question. It's nice to see you here in our call. So how do you see the market for 2022? The VSO of 2022 will fall -- continue in line.

Well, here is Marcelo speaking. We see the market in a more positive way than we expected last year, we see a positive response in our inventory in the ready units and in construction and in the work we do with the launches. We are not totally optimist, but we are much more optimistic than we were last year and making a parallel, I compare this first quarter with the first quarter of last year. It is very aligned, both in relation to the work with the launches and with the quarter's performance.

I'd like to add, we still have already unites -- products focused on investor and we have a wide range of ready units of very high standard and something focused on investors. This is good for us because we can sell a bit of everything. So as Marcelo said, we are very careful with this year because it is a challenging year, but the first quarter met our expectations in line with last year's. But as Franco showed, we have developments with a better gross margin, okay? If we intend to postpone some launchings until the interest rates is normalized. Well, we do this daily. We know the difficulty we will face this year, a year of election, World Cup and war and interest rates. So the launchings that we had in the first quarter were those that we start to work in the last quarter of last year. And fortunately or unfortunately, they were not launched due to legal issues. And also in December, we had things ready to launch, but we decided to do this in the first quarter. So this first quarter, we were with the presales very strong. But I want to say to you that the companies will do it for everything in preparation, everything ready to launch. But we will, month-by-month, feel these commercial issues of our sector to see if it is worth to launch because, as I said, it's a year of caution.

Our next question is from Jean [ Zongos Vivera ] from Banco.

How is the company sees the possibility of OPA?

Right now, we don't have any plans in the company for movement to an OPA or any other thing. We are concerned and reduced our indebtedness and improve the company's conditions.

Our next question is from [ Bruno ], an individual investor.

What is the future strategy of the company in relation to indebtedness? Do you have any intention of working with a negative net indebtedness? Or is your profile to have adapt? And what is the profile of the company in terms of CLX level?

Thank you for the question. Well, the company obviously is a movement to reduce the indebtedness. We saw this on Franco's presentation. It went from 58% and closed in 50% this year. And we continued this movement to reduce especially with our strategy of selling ready units. Until '16, '19, we have the problem with the mutual agreement. And over this year, we went from higher levels to 50%. The strategy of the company is to reduce it even more. This is the year that the company will deliver to development by the end of the year. But next year, we will have 11 deliveries. So the next year will be a year to reduce even more because it will be a year of cash generation with many things happening. Obviously, the debt profile of the company is reduce our debt and focus on debt for the production of new developments. You see this difference in Helbor's balance sheet. The corporate debt is reducing and the debt of ready units are being reduced month after month. And I think that this is the debt that we will see a good reduction this year that is related to decrease. So as always, we've been -- the company opens with this more leveraging model, especially in projects. And always, we had corporate debt, but not so high. The idea for the company is to have a debt of about 30%, 40%. And I'd like to add Bruno, feel free. We can give you any other information on that profile. But in terms -- just for the sake of time, we have a long-term debt and 1/3 in the short term. But these include the debt of Fazenda Rodeio and the projects that will deliver within 1 year. We have 3 projects to deliver until the end of the year. So this debt is included, but we have high coverage in terms of sales. And if you take this value, our debt along the year is well balanced. We are working in this location. So we don't have any pressure for that year.

Our next question is from [indiscernible] .

How is the company for 2022 concerning launches? Can you detail the number of projects?

We're in line with what I said. So these launches are being put into the market. For the rest of the year, we are already preparing the launches, approving projects, preparing the material for presales and fill the market. But we need to fill it month after month. we'll have elections. We still face some more -- so we need to analyze, but we are prepared for the opportunity. We are talking opportunities in our land bank. We had the land of -- 700 lots. And we are finishing this year. The rest, we will analyze month after month the market. And in terms of topology, we have them all. We go from studio to a very high standard. So we are prepared. This is an year of caution. So launches would be different. High standards in launching Haddock Lobo, land Leopoldo Couto de Magalhães, the only one land. So the company is focused in differentiated products because we know that interest rates hinder the market. So what we want to [ obey ] for the mark up is the first quarter based on the work of last year. Let's see what will happen. If there is a market with this space, we can do this. The strength of the company is its land bank, the land bank we bought. If the market is not ready, we will wait.

The next question is from [indiscernible], individual investor.

There was a cash burn of BRL 83 million in the fourth quarter. With the ordinary expenses of the company, was there a relevant factor for that?

In addition to usual expenses, we paid some land that were acquired by the company a long time ago since 2019. So these are land payments in our cash flow. So as I mentioned, the company has a very robust land bank, and we are not acquiring new land that require cash. We are buying our land in exchange terms. But we have a land bank for many years in the future.

Next question is from Elvis from BTG.

Can you comment on the sales for the first quarter of '22? And how is the situation of Haddock Lobo and Leopoldo Couto de Magalhães projects?

As I said obviously the first quarter is well in line with the first quarter of last year. It's even better than we started the year with a very cautious expectation. So it's a good quarter. And in relation to these 2 projects, we have a strong demand, again, because of the shortage, the survey that only 1% of the developments with more than 300 meters in the city of Sao Paulo. One has 372, the other 355. So there is a strong demand. There are high price developments in the area of BRL 15 million, BRL 16 million but requires longer term, but we do have a strong demand. So this is now the first launching of 2022 with more room to work and to meet this high demanding customers of very high standard development.

The next question is from [indiscernible] from [ MBM Investments ].

How do you see the increase in the interest rates and how this will impact your business?

Well, I think that Henry said something I'd like to repeat. Helbor does not operate in only 1 segment. And we are not a hostage of investors. We have many final consumer, a high standard is end user, and it's above anything of interest rates. So we have a good number of final users. Of course, we see that the market has changed. But to say to you that we were impacted and we are in a complicated position. No, we also work in the high-income population and the interest rates that goes is very, very short for the population. So we see stability in line with our sales of ready units. So we are attentive but nothing that has hit us that creates a great concern.

Our next question is from [ Marcus Antonia ] an individual investor. Thank you, Marcus, for your questions. We will answer in parts. First, the line of [ property ] equivalents in projects not controlled by Helbor, recognized in property equivalents of what is the reversion of these results? So basically, these are adjustments or expenses we had in projects that we don't control relate to sales, marketing and commercialization some of the products and interest rate, this for equity adjustment. So we don't have time here to explain everything, but I'm at your disposal. This is the portrait of this line. Well, the next question is from Marcus. I will summarize it. First, considering the first quarter closing tomorrow, what was the gross sales value of the company in the first quarter? Marcus, we are closing it. Within one week, we will disclose it and we'll be able to analyze the sales results. And on the line of other financial revenue, we showed again of approximately BRL 17 million. So basically, here, Marcus, this is an adjustment we made in our CPX. We recently acquired CPXs for a company, and we adjust this value to the current CPX value. So that's why we have this gain of BRL 17 million. Another question. With other operating revenues, we had a gain of almost BRL 24 million, and Marcus is asking where did it come from? So basically, Marcus, the total of these other operating revenues or operational revenues are adjustment to the fair value of the properties we had. We put them to rental. And as accounting classification, it became properties for investment. And this is the impact of the adjustment and this development. And the company adopts this strategy for some years, specifically for commercial developments that we face difficult to sell, we rent. And then at the maturity of the rental, we give this exit possibility. We did this with 4 developments in 2019. This is another one. These are commercial rooms proof of mutual decision. And now we rent them, and this went to the line of property investment, correcting the value of [ EPQ ] and selling at the best moment, very similar market what we did last year. And was asking also with the hotel in [indiscernible], we did it. So we had sales with margin of developments who had a very low sales. So this is following the same line with what we are doing in the last 2 years. And relating -- concerning with the free float, the database is of July 21 with the participations in local and foreign funds. And he is asking us to update. Well, it is updated. We did no movement because there is no relevant participation different from this what we had in our IR website. If you want more details, we can give you later on.

One more question of an individual Investor. Can you talk about the forecast of the launching of Fazenda Rodeio? We mentioned it, but -- the final -- the expectation is by the end of the first quarter, beginning of the second quarter, June or August of this year. Well, this development is being well expected. The next question is [indiscernible]. Can you describe the change in the Board that you announced this week? Well, the company adopted to the new policies of the stock exchange. And this will be implemented in the assembly. So we created a sector of compliance, internal auditing committee. And this cannot be linked to the controlling or to the financial director. So with this, Roberval, who is an expert in the company, he was our CFO for many years. So he took over this challenge. And Franco, who is in the IR Director for more than 1 year, he took over the IR and financial area. This is very good regardless being or not a legal requirement.

The next question is from individual investor, Bruno. Can you make a homemade assessment of the company? The value of the land, ready inventory availability, receivables and compare with the market value? Well, Bruno, every time we do this math, we are said because the value of the company's share is far from what we see as a value. When we look to our inventory ready and in construction, BRL 2.7 billion, we have 2/3 of this inventory as Helbor share. And when we add our receivables, they are around BRL 1 billion. So let's keep only these 2 metrics. More BRL 1 billion of receivables. If you see in our financial statements in our balance sheet, we have land in the value of BRL 1 billion. So I did the math, a rough math of almost BRL 4.7 billion. If you take our entire indebtedness, we will get close to BRL 3 billion with 60% of the company of this total -- we reached BRL 1.8 billion. So when you see the market value, we see the value market reaching BRL 44 million, totally out of any financial or mathematical concept. In 2019 the indebtedness situation of the company cannot be compared to what Helbor is today. More than BRL 2 billion and with the balance sheet that cannot be compared to what we have today and even with the land bank we have today. So you are investors, I know. I think this is the message. We need to work to reduce our margins -- increase our margin, reduce the indebtedness, improve the bottom line. Well, this is time to buy.

We have one more question from [indiscernible]. I think we have already answered about the Fazenda Rodeio. So with this, I think we close our call for the fourth quarter of '21 and the year of 2021. And now I give the floor to Henry for final considerations.

I hope next time, we can show the stand ready for Fazenda Rodeio because we have high expectations for it. I'd like to thank you all for participating in our webcast and to say that it was a very productive year for Helbor. Those who have been with us, I said that we would reach a gross margin of 25%, and we were able to deliver. We also reduced our net indebtedness. We did that. The last quarter was not what we expected. But those who know me, know the real estate market does not leave on quarters. It's a long-term market. So the company wants to deliver better margins, reducing debt and bringing Helbor back before the mutual rescission crisis. We are very satisfied with this gross margin, very close that we expected to deliver. We still have room to improve, but I'd like to thank you very much, and thank you for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]