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

Good afternoon, ladies and gentlemen. Thank you for waiting. Welcome to Helbor's Fourth Quarter '22 Earnings Conference Call. We inform all participants that this webcast is being recorded simultaneously translated. If you need translation, this tool is available, clicking on the interpretation globe icon located at the bottom of your screen. There, you can choose language you prefer. For those listening to the conference in English, there is an option mute the original Portuguese audio, just clicking mute original audio. We also inform that participants will only watch and listen during the company's presentation, after which we will open for a 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 perspective, projections and operational and financial goals are based on the beliefs and assumptions of Helbor's management and 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 would like to turn the floor to Mr. Henry Borenstein, President of the company. Mr. Borenstein, the floor is yours.

Good afternoon, everyone, for those watching this conference call, and along with our Sales Director, Marcelo Bonanata; our Finance and Investor Relations, Franco Gerodetti, we are here to share with you the company's results for the fourth quarter of 2022. It's worth stressing that this quarter was very challenging. And due to some operational factors, we are continuing the cycle for resuming our activities that is evolving at each year. Now concerning our launches we have totaled some -- we have reached BRL 7 million. Concerning the sales, we have sales -- and we have the total VGV, BRL 1.4 trillion, 53%, and those units ready. Now we would like to highlight the 41% reduction of the inventory that totaled [ BRL 150 million ]. Now the year 2023 continues with challenging macroeconomic indicators, and we are closely monitoring them, and so that we can make decisions concerning what we are going to launch over the year. And I would like to thank you for those who have placed their trust on us and we would like to remain our commitment to maintain our business model, generating value for shareholders in keeping with the company with most outstanding in the sector, focus on responsible and transparent management. I also would like to point out that we held another event, Só a Helbor Day on March 25 and 26 simultaneously in the city of São Paulo, once in Curitiba. The purpose of this event is to reduce the company's inventory of finished another construction unit, reinforcing once again the company's commitment to reducing its leverage and generating positive results. From now, Franco Gerodetti and Marcelo Bonanata will present Helbor's main operational and financial data. Now you have Franco and Marcelo with you. I will -- let's move on to the results of the fourth Q and the sales volume of the year. And of these 29% correspond to ready unit and 47.2% of launches. The VSO of launches the year was 36.9%, and the total VSO was this. In the year of 2022, we launched 13 project at total and net PSV of BRL 1.7 billion, and Helbor's part was 57%, with a total of BRL [ 464 ] million concerning the year of '21. And the gross margin reached 28.9 in the fourth Q, 0.7 percentage points higher than in comparison with the fourth quarter '21. We closed the year of '22, 1.4 percentage points above as compared with the previous year, reaching 27.9%. The net profit of the parent company was BRL 51 million in 2022. Now I'll give the floor to Marcelo Bonanata who's going to talk about the operating performance.

Good afternoon, everyone. First, I would like to present our -- the fourth quarter of '22 with a potential of BRL 9.8 billion. And we would like to highlight that high percentage of this in the city of São Paulo and 16% in the metropolitan region of São Paulo. And we also had composing our total earnings. Now we distribute the landbank throughout the city of São Paulo and potential landbank totaled [ 7.4 ] and Helbor's part 4.5%. So we have several regions of São Paulo and where we concentrating neighborhood such as Arches, Itaim-Bibi, Moema, Vila Nova and places with urban mobility and the major virtue of the Helbor's the assets are projects that vary from compact apartments to ultra high in practically all regions in the state of São Paulo. And this is the major adventure of Helbor's and we have to highlight some launches such as Leopoldo and practically, we are pulling to deliver the lands in the city of São Paulo. Now we are going to talk about the launches in the last quarter, the fourth quarter of '22. The highlight was the launch at Vila Nova Conceição and [indiscernible] one of the best street neighborhood is a differentiated project we launched in December of last year, and the second phase of the Helbor Patteo São Bernardo. It was the second phase following the model of the company with bigger projects, bigger lands, and we do this -- the idea we focus on this project and that's why we have achieved the process we have achieved so far. Now we are going to talk about the contracted sales. We closed the second quarter with a total sales 4% higher than the fourth quarter of '21, and practically is in line with '21 with the slight drop 147 in 2022. This was a typical year. We cannot forget when we had one of the most troublesome elections culminating with the World Cup, especially in the last quarter of '22, which is usually more active quarter, and it was affected by these 2 events that took place in our country. Even so, we performed well and above the level of 2021. Now with our VSO, we closed the fourth quarter assuming everything that happened at the end of the year, the SoS. And now let's talk about our inventories. I would like to highlight that we have the even rate of quality and with ultra-high projects, as I mentioned, and in addition to our standard and the Ultra High performed very well. And we would like to show in this segment today, we have several ready construction. In the fourth quarter of '21, we have 871 ready. And today, the fourth quarter of '22 we had a drop of 44% in our inventory, BRL 491 million. So I would like to reinforce the work that the company has performing in decreasing the inventory, especially the ready inventory. From here, we can observe that the greatest inventory was in '22 because we still had a higher inventory. Now I'll give the floor back to Franco.

Okay. Very briefly, I would like to talk about the operating revenue and our operating revenue is in line with what we expected. We have relevant construction works. And in 2023, we have our project. And now it's aligned with what we expected since the beginning of the year. The next slide, we were pleased to see this slide and see that we'll be able to transform into figures, this comparison. The increased margin of Helbor's. We had a tight margin and then we have a more robust. We have seen that this 2019, we had an increase of our margin and we'll close to 2022 with 28% with a legacy 19.6% and new cycle 29.3%. As Bonanata said, our inventory relation -- in relation to this legacy, it's lower now. So we are try to react or respond. And today, we are talking about BRL 350 million. From now onwards, it's going to have a lower participation in our margin. And we are going through sales with the margin of the new cycle. And I would like to show you Helbor is a pure developer and we hire third parties. And because of that, we pay a higher price. And then we suffer with the circumstances. Now moving to the next slide. We are talking about the backlog margin. It continues at a satisfactory level. And we've seen some drop, but the brand is from now onwards to maintain at this level. And as we move forward, we are going to see our gross margin getting closer to the backlog margin, and then we can make projections. Now concerning the general and administrative expenses, the company has a very well-controlled and we have -- sometimes we have some uncertainty, and we haven't had a year where we had inflation and the cost inherent to the business. Now let's go back a little bit and talk about net earnings. And we can see in this slide, just to remember that this is the model we've been using. In 2022, we had an impact of the interest rate that interfered in the results and was even higher than '21, but we have a trend of positive results. Now concerning indebtedness, we had an increase of indebtedness, it was a scenario that was expected for foreseeable reason 2021, we have low deliveries and the deliveries were very much concentrated in the third quarter, and we are going to have the impact this year and next year, and we expect to have a drop of leverage and closing '23 and '24. Now talking about the cash burn. And this slide falls with the previous slide. And due to this gap of deliveries, we have a cash burn of BRL 71 million, and we had a landbank a lot that had been acquired in 2022, and we have talked to sell over to our landbank has came to a halt. However -- so we still have net loss. We have the payment of land, the payment of the launches that were made, and we also had a volume of -- volumes concerning the construction work, serving the financing of the constructions. In 2023, we have some payment of debts and the interest rate was one of the reasons of the cash burn in 2022. So the expectation for '23 and '24 is to reverse this situation. So that's basically what we had to say. And now we would like to open for Q&A.

[Operator Instructions] The first question is from Bruno Mendonca of Bradesco.

So how are these sales and what is the strategy for this final stretch.

The construction works are doing very well. We are going to deliver the residential. Our expectation is in May and June and began to deliver since July and August. Concerning the sales I was talking to Marcelo. Okay. I should tell you that in the first quarters, we leveled off mid last year. And 2020, we had some difficulties and access to credit and with the model units. And now we're in a more mature plan, and we are at a cruise speed and we are performing very well. And we have been discussing the new launches with the new systems. I'm not going to say that it's a very low cost. But the price today is for in line with the reality of the market as compared that when we launched it, that we intended to break paradigms. Today, we have a strategy in the speed of sales, and we began an event that's going to be 29, 30 and 31st in the last floor of the residential. And concerning the [ art wing ] of São Paulo, and we are breaking it of an artist and is having a great repercussion in the media [ Monica Bellucci ] and are giving us a press coverage. So we have some strategies and activities to date. Obviously, there are many things to be done, but we have achieved the level we deserve. I would like to say that people now are understanding the real truth of it. And it has do with a project that has a brand, and it's an iconic in the state of -- in the city of São Paulo. And once again, we have these sales and now it has shown that our strategy is correct. We are in the right path.

Okay. The next question is from [indiscernible].

So what are the company's plan for launches in 2023?

Thank you for the question. The focus of the company is to sell what is being constructed that we are going to deliver this year and next year. So the company is focused on these facts. We want to reduce our leverage. And then in spite of the challenging economic scenario, I can say that the company has projects approved, but we know that this is a challenging year, and we still have some inventory. We have to work and sell. So the company is more focused in selling the inventory and the legacy that is left.

Our next question is from Elvis.

How was the sales performance of the event Só a Helbor Tem?

Hi, Elvis. It was surprising -- we have 3 simultaneous events, Sao Paulo, Mogi and Curitiba. It was surprising -- so we are reporting to last year. It was well above our expectation. In Mogi for instance, the first client arrived at 8 p.m. on the previous day. Our event is the largest event of the sales of inventory in Brazil is an inventory where the sales people buy and sell it to the clients with the advantages. Talking for price, we never worked with absolute discount, and we are able -- the creation of this event started in 2016 with -- suggested by Brownstein with Bradesco and again, we were able to innovate to a differentiated rate and we finance up to 90% of the event, condo expense and the quality of the products, we could only have this event the successful event. And without giving up margin, and we are very fortunate. But we have our feet on the ground. And it had leverage and we were able to close with an excellent quarter. And we know what's going on in the political and economic sphere. But in this moment that with a strong purchasing wave and people are buying real estate properties and the event only confirmed our expectation. Now I give the floor to Marcelo.

The majority of the projects -- we had over 70% of the construction work already executed and there was the prepayment, we were able to make a prepayment of the debts too.

The next question is from [ Mar Salima ].

What is the cash necessary for the payment of the company's expense. Is it the same level of '22 with an expectation of '23, and we could be in a comfortable position without incurring further indebtedness.

Now thank you for your question. Firstly, we are going to explain how we manage the company. The first thing I can say is that our sales projection for the year, this December last year, we have a conservative position. And I can say that we have a very conservative position the first time. We have from this year and next year. And the scenario we are going to face and we have aligned and try to manage our cash. And we are more conservative in the area of sales. The second point, this year continue maintaining our indebtedness and the financing of construction. And we have a reduction and we are going to follow the same system and try to maintain the same level of indebtedness because we have the effect of 2022. And we had some expenses concerning the new projections we have for this year. Another additional point is that the management of the assets of the company. Once a month, we have a meeting and we look at the operational project by project and make decisions concerning what to do and which pack we should take. And lastly, we are going to have a high volume of delivers this year that will concentrate in the third and fourth Q. And we are going to continue pretty much with the same level we have now. We want to make the deliveries, and we are very alert concerning the sales of the inventory. And so we do leverage at the end of this year in 2024 in terms of volume is similar to the previous year. And we have many positive aspects we want to get the [ lights on ]. And we have some launches, they sell with the rates. And we have the marketing and the expenses, then we have to set aside the cash.

The next question is from Daniel, an investor.

I would like to know what the company is going to do in terms of shares.

Thank you on to your question. This year is year to maintain the cash. I think this year we have to take care of our indebtedness. This is not in our horizon. All those -- this does not represent our assets, but it's not in our projections to make the purchase of shares.

The next question is from [indiscernible].

I would like if the metropolitan project has a suspensive clause considering the macroeconomic situation.

This SoS is much higher. It should be now about 15% or 20%. The sales are taking place at higher value. All of our developments in the -- this is a very peaceful investment, smooth investment is within our projections.

Next is from [indiscernible].

Good afternoon. In the next general meeting, I don't see any proposal concerning the compensation of the Board.

Last year, we approved in the general meeting, BRL 17 million, both for the Board of Officers and Board and [ BRL 18.6 million ]. So it was below that was proposed. This year, the increase was only 7%, and this was due to inflation. There was an increase of BRL 1.4 million, and we are preparing a program for incentive in the long term and we are going to have a long-term project. So we understand that this is a irrelevant increase due to the size of Helbor. The company -- the compensation is linked not only to corporate roles and as it happened last year, there was a forecast of BRL 17 million, and we realized BRL 15 million. So this has to be made clear. This is linked to the goals.

The next question is from Paulo Morais, an individual.

Concerning the Itapety project in São Paulo, we are bearing the second phase and the other phases of the Fazenda Itapety and it's increasing -- the sales are being increased, and we are preparing for the new phases. This phase, the Fazenda Itapety 3 phases. We are ready to launch Phase 2 and 3, and this takes time, allotments take time, but we are already have another plot of land of the same size, and we tend to sell whatever is available. Within 2 years, we are going to have another allotment ready.

The next question is from [ Marcos Antonio ].

The adjustment to the adjusted value were based to Helbor's with BRL 41 million and the appreciation of 30%.

Thank you very much for your question. Here, we have some projects. They were placed at properties for investments. We have the rental contracts, practically 2 properties that had some variation in the previous year, both of them in 2021. This is not something new. One is in [indiscernible] dos Campos and the rental was about 30% of the property in 2022. We closed an occupancy of 90%. And we can talk about this. It's an aeronautical company São José and in January, we put aside 1 part. And we are also having rental contracts in this area. This year, we made some quotations, and the strategy here is precisely the same one we had adopted in other projects of Helbor. So we have the [ government ] rented to [indiscernible] then we sold it. So this strategy worked very well. And these are commercial real estate properties we had in the inventory, and we could form this cushion of rental and then sell them of a corporate project. Now going back to your question, we sold the real estate, and we did the same thing in Rio de Janeiro 2 years ago for BRL 80 million, but the goal is the same, is to wait a little bit to have a longer history of rentals. And this strategy would be the control fees, the land tax. And once it's lowered, we can sell them at an appropriate price.

The next question is from you [indiscernible] Capital.

What is the prospect for launches this year?

As Henry had said, in addition to sales of quality, we already have some projects that have been approved -- was approved and developed. But we started the year focused on selling our story. We are going to plan for the second semester. We are in -- with the peace of mind, and we are selling our inventory, and we are prepared to launch. We have projects. We have projects approved, but this will depend on the macroeconomic scenario. We are not going to create more inventory. We are only going to launch if we see a real opportunity.

Our next question is from [ Carlos Ferreira ].

Could you talk about the first quarter '23 and based on there what happened in '22 and what you plan for this year?

First quarter is above our expectation. We had expectation concerning the economic and political aspect, that things were more by it. But we are having higher sales than we expected, including with the event, we sold more than we expect. We expect to have the number of sales higher, and we expect -- we went back through decimal places. Now we don't have a full reading of the year. We still depend a lot on the macroeconomics, the moment is positive. And after the event, we think that, in addition to all the advantage of the event, the financing conditions, we heard many clients say, I want to take my money out of the bank and invest in real estate properties. I -- so I don't know if this is going to be momentaneous. So we are growing slow, and that's why we are going to do it only if we are absolutely sure leaving 1 day after the other, 1 month after the other because banks are still troubled. The expectation for the second half is that the interest rate may decline, but we are still fearful and we are going slowly.

Next question. Could you explain the main measures to deleverage the company.

As we mentioned, we have a major focus on the projects under construction. And we can say the first quarter was very satisfactory. We didn't have any new launches. And the company is waiting to see. And the second point we have some sales directed to some products, we still have, and we have done that, too. The last point is we are treating our cash very carefully. And we -- it's very hard to approve new purchases of plots of land and the cash will be used for the launches of last year. And we have -- we are still thinking about the interest rate to see if it's going to decline or not imagining what the scenario will be less. We did not deliver anything for 13 months. And this year, we are going to deliver many projects. And there -- the company has future developments that are well located, concentrated, mainly in the city of São Paulo. There are some commercial. And we have a healthier inventory as compared to the best. And as Marcelo said, this event has really taken us by surprise. And it was better than we expected. We don't know if this situation will continue for the rest of the year. We are trying to sell the inventory and we've been working hard in our company 24 hours a day.

Next question is from [ Lucas Anthony ].

So about the delivery of My Square. And there were many complaints. Has the project build delivered?

The [ condo ] will be installed this Friday. And I'm not saying that clients were not right. We are using the 6-month grace of period granted by the law. We are not going to deliver it late. It's a residential project and has generated some expectations. But this has been solved, and we have already scheduled the delivery. And we said RA1000. That says that Helbor has the same evaluation in the real estate sphere. Yes. And people complain anything, and they -- this weekend, they even [ tari ] is doing very well. We are delivering a project that has exceeded the expectation of those who bought it. We have delivered over 4,000 property in that area. People will live with quality. Helbor has the history of delivering their projects on the due date or before that. But in the last 2 years, we had some problems in the supply chain. This happened not only to Helbor, but to other companies. But so far, we haven't exceeded the contractual term. So we are going to use 2 or 3 months of the grace period. And everything -- considering everything that happened during the COVID pandemic I think we did a great job.

The next question is from [ Beatro ], an individual.

We should pay BRL 0.9 earnings per share. And this year we'll continue with the 25% of our earnings. It's about BRL 12 million. I haven't made the calculation, but it's about 33 million shares.

Our next question by [ Marcelo Butcher ], who is an investor individual.

Considering the delivery '23 and '24, what would be the percentage of the net debt.

As we mentioned before, we have a period for concentration of deliveries in the second half of this year. And when we deliver, we have a certain period for [indiscernible] roles to take possession and we have -- if they delivered July and the effect, then your effect would be September or October. And it's more emphasized at the end of the year. And throughout 2024, we'll be scattered over the year. We are hopefully to have a great reduction towards the end of next year. We still have indebtedness concerning we got some work from last year. And we are going to have an increase in our financings as a result of that.

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

[indiscernible] question.

We recurrently -- we analyze the capital share of the company -- and as I mentioned before, our share does not represent at all the value of the company and so in our radar, and we have a much higher level of the price of our shares.

The next question is from [ Philippi Armas ], an investor.

Doesn't the volume of recession tend to increase with the value of delivery.

Thank you for your questions. We always established this correlation, determination with deliveries, and this is coming in the marketplace, taking upon with the previous question. And we had a very low level of terminations. We have a close control of our clients. But we understand that we'll deliver products with high quality, very well located. And it's nice to remember that we are closing a cycle. The construction was in another level. We understanding that the projects we are delivering now are not in the same price as they were in the past. The market has changed a lot and this concerns us, but looking the 2022 with the last deliveries up to this moment, we don't have any red or yellow light going on. The company had suffered a lot with the terminations in the past. And we became experts in this segment, but the situation is completely different from that time. Today, the person only will give up if the person cannot really pay for the property. This has to do with a product and this issue with the high income is lower with the medium and medium low. People are more exposed. And what happened in the past concerning the terminations was the drop in the price of the property. The real estate price was cheaper than what they paid for the project. And today, we see there is a different cycle. The sale price is maintained or even goes up in some cases. And we see the possibility of this price going up to the price of material and the terminations always happened. And in our model, we consider these terminations healthy. I would like to add in additions to the My Square. We had to deliver in Mogi and we have a zero rate of terminations. And the event at Só a Helbor Tem the launches in the marketplace are above the inventory we have. What we see in terms of termination, we have a department that handles this issue since we suffered this in the past. Those who usually terminated because they lost their jobs or cannot pay for the purchase. So both the level of termination and defaults are at a low level. But this is not something that is making us suffer as it did in the past.

We have another question by Marcos Antonio.

And the committed properties.

Marcos, thank you very much for your question. What happens is, first, when we see that 85% is changed. We sign a commitment of sale and purchase, and he also undertakes to deliver the landlord with the documents and the launch is when we transfer the land to the SPE, and we cannot transfer before that. And at this point in time, and we agree what we have to give him. We launched a lot of projects in the past and that we had a certain percentage of exchange, and we recognize is commitment, and we bring the land to our balance sheet to our accounts.

Okay. We arrived at end of our presentation concerning fourth quarter of '22. Thank you, Marcelo. On behalf of the company, I would like to thank all of you that participated in the webcast. We have a total focus on reducing our inventory and from the -- it's a long process. From the purchase of the landlord to delivery, we take about 3 or 4 years and the company is focused on reducing the leverage. And we are available to answer any questions you may have using our appropriate channels. [Statements in English on this transcript were spoken by an interpreter present on the live call.]