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

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the Helbor's Third Quarter '22 Earnings Conference Call. This webcast is being recorded and simultaneously translated. If you need simultaneous translation, we have a tool available located at the bottom of your screen, the Interpretation role, then you can choose the language you prefer, Portuguese or English. For those listening to the conference in English, there is an option to mute the regional Portuguese audio, just clicking on mute the regional audio. Participants will only watch and listen during the company's presentation, after which we will open for the Q&A session. [Operator Instructions] Before proceeding, we would like to inform that any statement 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 certain forward-looking statements. Now I'll turn the floor to Mr. Henry Borenstein, President of the company.

Good afternoon to all those, who are watching this earning conference call along with our Sales Director, Marcelo Bonanata, our Financial and Investor Relations, Franco Gerodetti. We are here to share with you the company's results for the third quarter of 2022. Before starting this quarter's highlights, I would like to pay a possible tribute to our Board member, Mr. Paulo Libergott, who passed away on September 7. I'd like to give a special thanks for the relevant services he provided to the company in addition to sending our condolences for the family. Talking about the third quarter of this year, it is worth mentioning they remain challenging. Just like the previous quarters. once again, the management plan the period with positive operational and financial indicators continuing the recovery cycle with favorable results, generated by the company. And in this sense, it is worth noting that we recorded one of the best quarters of the total sales and reached for the ninth consecutive quarter of net income. Regarding launch, we started selling 2 new developments that totaled a net PSV of BRL 228 million. The highlight for the first stage of the first phase of Fazenda Itapety, whose sales reached 90% by the end of the quarter. It is worth remembering that this is a project that still has a second phase that will be launched next year. We would also like to reinforce that we continue to pay attention to the macroeconomic and market indicators before making a decision regarding the projects we plan to launch by the end of this year and beginning of the next year. I thank the opportunity -- take the opportunity to thank on behalf of Helbor for the trust placed by investors over the years and reaffirm our commitment, maintaining our business model, generating value for the shareholders and the outsetting sector. Before closing, I'd like to point out that we had another event [indiscernible] on November 5 and 6th in the city of São Paulo. And on November 19 and 20, we will hold the retain event in the cities of Mogi das Cruzes and Curitiba. The purpose of this advantage to reduce the company's inventory finished and reinforcing once again the company's commitment to reduce its [indiscernible] and generating positive results. Now Marcelo Lima Bonanata will present Helbor's main operational and financial data.

Thank you, Henry. I will go briefly by the highlights of this third quarter. As I mentioned before, we had a very relevant sales value. One of the best quarters in the history -- in the history of the company with 200% recurring to get the 30% of the production and 40% of the launching. The SoS launch was significant. [indiscernible] in this quarter with BRL 2,000. Our net revenue was over BRL 277. Our gross margin rate is 27.3%, giving with what we saw in this last quarter. And finally, we have a commitment of BRL 10 million going for the ninth consecutive quarter of positive results for the company. I now give the floor to [indiscernible] talk about our operational development.

Good afternoon. It's a good pleasure to be review talking about our landbank. The total was BRL 10.1 billion, Helbor share [indiscernible] in 35 new projects and 71%, 2/3 of our land bank is the city of Sao Paulo. The other part, 21% in the Great São Paulo region, providing this mobility that we've been presenting. The next slide shows the distribution of our landbank. We do this according to the business model. It's a more clear model. We have no concentrations neither in one single place or product. The company still had wholesale land in very good place in Jardins [indiscernible]. It's important to say that this year, we launched some iconic development one in Jardins. We have almost 80% of the units sold, we started in March. So it shows the importance of launching in good locations. And you see in this map, we have places that are [ renewed ] -- well known and in the last launches with 7.7 billion [indiscernible] and 4.4 billion is the Helbor's share of [indiscernible]. Talking about launches that Henry mentioned, we had a great happiness of launching 2 developments this quarter, one, this so long expected Fazenda Itapety with a big farm and we have -- our expectations met 80% of the units were sold. And we saw the project and the importance that we were keeping with us over time, we were able to put into practice. We will start the second phase, 260 more allotments, and we restart the sales as of March of next year. The other development launch was Helbor Patteo Sao Bernardo our [ punch ] line is a project. We had a flexible apartments with the service structure giving to the client this convenience in a so competitive market like the city of Sao Bernardo. We sold 60%. Today, we have 72% of units sold, and we are ready to open the second phase, the second power -- tower that we will open this month. So it's a great success of this development. Contracted sales, as Franco mentioned, this is one of the quarters with greatest relevance we reached BRL 470 million, a 25% more than the last quarter and 11% more than the quarter of the previous year. It's important to highlight this [indiscernible], but also a strong work in the sales of our inventory and ready units. We had a slight drop, but it's in line with what we are working. Now the SoS, the total of 10.4 went to 3.2 [ million and Helbor share ] from 10.5 to 11.5. On the next slide, we see our inventory, it dropped to BRL 3.2 billion and Helbor share 93 located in the Southeast. I think the composition is important. We have an important highlight of our high standard inventory since last year until now, we had an important performance in the sales of these high standard units. Much to do with the location, we returned to the sales, and we've seen significant results in Artefacto and Leopoldo, we are in line to launch a high standard project in [indiscernible] Street. So this just to confirm the high standard developments. Our ready inventory is selling well, almost 20% of the total inventory. And we always mentioned the legacy inventory, but we are -- we've been able, every quarter as [indiscernible] highlighted. Last week, we had the [indiscernible]. It's the largest real estate sales in Brazil. We have 2 more, 1 in Curitiba, the other in Mogi. And for sure, we will be very successful, and we will reduce our inventory. And now I'd like to ask Franco to continue with the financial data.

Thank you. This is our net operating revenue of BRL 267 million in this quarter. When you see the graph, it's important to remember that in '21, we have a significant number of deliveries. So this -- and as of '22, we didn't have any deliveries this year, but at the same time, we spent the entire year in construction for '21, '22. We built without delivering. So an increase on revenue from the second to the third quarter and later on, we will see the results of this in the increase of our backlog revenue. This is our gross profit. As I mentioned, we continue keeping our gross margin in the same levels at 27%, 28%. As we mentioned in other points Helbor's business model is slightly different from what we see in the market. We don't have a construction company within our organization. We hire a third party. So we -- this is what creates the resilience of our gross margin. If you compare the margin we had from our Legacy in '21 to '22, you see that even the Legacy has a certain margin. And this will continue to point to the margin we had some years ago around 30%, 31%. And as I mentioned, when we look at our revenue and our margin, we are following our revenue here results of the sales and the advancement of our works. So we have here our backlog margin next to 33%. And this is the general and administrative expenses. The company is very strict with this GA. We are comparing '21 with '22. We saw a boost, an increase in inflation rates that are in the annual comparison, we see an increase, but we are very comfortable in terms of general and administrative expenses. Going very quickly through the net results of the parent company. We are in line with the last quarters. Obviously what harms us [indiscernible] is the debt level vis-a-vis the interest rate. You can see clearly that we are keeping the same level in the last quarters. Now talking about indebtedness. As I mentioned, this is the year that we don't have any deliveries. So there is no repays and I keep the financing to reduce production and this reflects on the company's cash and corporate debt. This was expected for '22, a year with an increase of indebtedness, but we know that both '23 and '24 will be very strong years concerning deliveries that will balance the year of 2022. Our cash burn -- due to everything I said, it was expected to have a quarter like we have in the second quarter. Basically 2 major factors. We still have some reinforcement, some efforts on the works when we start the works until we reach the part of financing, we need to put our own resources. We did something with previous contracts. The policy of the land bank of the company is kept on hold because we are very -- in a very comfortable position, but we had some commitments taken in the past. Sorry, but this will affect the balance of the company. So basically, that's it. I'd like to thank you for your participation, and now we will open for the Q&A session.

[Operator Instructions] We have a question from Bruno from BTG.

Can you comment how you found the market for sales in October? And what is the expectations for the end of the year? How do you think on the margins for the new phases of Fazenda Itapety?

We will have any change in size of target audience. October was a good month, slightly above our expectations because of the elections, but it was quite satisfactory. We sold all things. And now in the beginning of December, our event [indiscernible] was a great success. And now we -- I can say that October was satisfactory. November was also very good things are happening. It's not easy. We are working hard for -- with this forward to convince the client. But with the client, we decided to acquire it. It takes a little longer, but things are happening. And concerning Fazenda Rodeio, yes, the products are similar. We map, but the sizes are similar, and we changed the table -- the pricing table. We repassed the inflation on the tables. So we were able to see this actual gain. So we have good expectation for the development. It's important to highlight the sales of the high standard. And the good news here is the retake of the [ W ] sales. The [ W ] was launched. But unfortunately, we had the pandemics with no spend with no decorated unit. And -- but we had to wait. And finally, it's time has come. We start to sell in the second semester. And every month, it's providing a good response. We have [indiscernible] It's a very important location in São Paulo and Fazenda Rodeio, it's important to highlight the target audience. The first time, the first phase was for the people living around the city. We didn't even start any advertising. And now that we will take the second phase of the market, but we believe that we will not be only the inhabitants of Mogi that will come. This will go -- will reach the other areas of São Paulo and Fazenda Itapety was the first development, 714 allotments, and we launched it. And we have with the approval for another development, a second development in Fazenda Itapety with almost 600 allotments. This for the next years.

Next question is from Bruno Mendonca from Bradesco.

What will be the strategies the company will put in practice to reduce leverage.

Thank you, Bruno, for your question. I think this strategy will be the same to sell the units, generate cash and pay our obligations. It's worth mentioning when the leverage of the company increased, we had about BRL 2 [ billion ] of ready units paying condo and the taxes. So the value that we did in the last years and another point to remember that is really important is that this year, we didn't deliver any development. If you just [indiscernible] idea, next year, we have in inventory BRL 900 million and with BRL 200 million, we will have paid everything, and we have BRL 700 million and then we see the leverage of the company, reducing. You know this is a sector where things happen every quarter. We adhere to meet our investors, but we do not build the development in 3 months. So we are -- with great expectations, we are prepared for this new government, but operationally, Helbor has delivered the good results for the size of the company. Every quarter, we sell well. We improved the margin. So for sure, there is so long [indiscernible] leveraging will restart the next year and '24 will be even smaller. If you look to this quarter that today the company has a higher volume of that -- of things that were held the funding of the works that are ongoing. Just to remind when we talk about next year, when we get to the final day of all works of next year, we are talking about almost BRL 600 million. So when do we deliver everything next year, we will have BRL 600 million and the expectation in that -- and with -- with this, we expect to have cash for the company. And we made the decision in corporate operation, so this will be the scenario. And 2024 is also with similar numbers with products that helped us in the last years to push, to increase our margin. So we will do what we were expecting leverage, this increasing gross margin both for '23 and '24.

Our next question is from [indiscernible]. She is asking to talk more about cash burn, the main reasons and the expectations.

The main reason is we spend a year with no deliveries. We don't see the effect of cash generation in the beginning of the project. So this changes significantly next year. We will have 3 deliveries next year. If you look the PSV of these development that we are doing to deliver is 1.4 [indiscernible]. This is total PSV of all developments. Some of the expectation is that as of the second, third quarter, when we have a concentration of delivery, we will see a development. It started in the beginning of the next year with 2 products. And then we will continue until the end of the year and '24 also with very similar numbers. During the year, we had commitments with the parent company, go rewarding the works and the presales period with initial resources and the construction of stands we have something also to pay some piece of land, and we had the debt service that also impacts because the interest rate is very high, and this contributes negatively into our cash burn.

We have a question from individual investor, [ Anabelle ].

And what about the mutual revisions in the new sales.

This is a good news we have. I would say that we consulted the legislation, we tested legislation, and it is really working so our number of mutual revisions is very low nowadays, but very in line with the sector. This will have -- next year, we will have a large number of deliveries, maybe there is some change. But this is natural according to the cycle and the moment of the delivery. But unfortunately, we are not so concerned and we haven't seen any increase in the mutual revisions request. I'd like to add we've been measuring this month by month. We are concerned with the [indiscernible] because we suffered a lot in the past. So we see this by development by region. And in the recent past, we created the installment that traditionally was paid -- would be paid in the key delivery. We anticipate it for -- we advance it for 6 months before. So it seems silly or simple, but this may be a different. We do this with the client or we sell the unit, so we are able of having a good speed in relation to these risks, and we are following month after month even with all the diversities that the country is facing. The company decided to sign the agreement at [indiscernible]. This will give us a better position. The client that bought Itapety. We also already signed the deed and paid the taxes. We see the sector and also Helbor, we suffered a lot. So we are very careful with this mutual recision subject. I think that's what we have for today. In case you have any other question or if you want any other type of information, please contact our IR team. These are the communication channels, and we have also our website. So we are closing our earnings presentation, and I give the floor to Henry for final considerations. Thank you. Thank you, IR team. I'd like to thank our collaborators and say that we are doing our job. We are concerned with this new next year, but we are optimistic. The company will only give to the market those developments that are worthy, and we will care for our leverage. The things we will deliver next year are perfect, and this is important with all the works on time within the cost. So this is very positive. And I'd like to thank for your participation. Have a nice afternoon. [Statements in English on this transcript were Spoken by an interpreter present on the live call.]