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

Good afternoon, everyone, and thank you for waiting. Welcome to Helbor teleconference for results of the third quarter of 2023. We inform all of you that this session is being recorded and simultaneously translated. For those of you who need the interpretation, we have this icon interpretation at the bottom part of your Zoom screen. When you select the icon, you can select the language of your preference, Portuguese or English. For those of you who want to listen to this session in English, you have the option of selecting the option mute original audio. [Operator Instructions] What is more, some clarifications or explanations regarding the company's prospects, financial goals are regarding the beliefs of our Board of Directors. Other future considerations, risks or uncertainties won't be guaranteed because this will happen in the future. Therefore, this depends on different circumstances that may or may not happen. General conditions, reality, industry sector and so on and so forth may affect the company's results, and that will be consider in the future. Now I would like to give the floor to Henry Borenstein, President of our company. Henry, go ahead. The floor is yours.

Good afternoon, everyone, participating in our teleconference. I'm here with our Financial Vice President of Relationship with Investor, Roberval Toffoli; and Marcelo Bonanata, Sales Director. We are here to talk about the results of the company regarding the third quarter of 2023. We just closed another quarter with positive financial and operational indicators, and we are seeing the benefits of our strategy. During this period, we launched a new product, Helbor Open Mind, and the total amount is BRL 278 million, and we reached 32% of sold units. Regarding total sales, we have an accumulated of BRL 1.1 million (sic) [ BRL 1.1 billion ], and 89% of this value over percent units that are ready to sell and in construction as well. And this is a result of a strategy that we adopted during the period, focusing on the sales. We should highlight as well that the project, Fazenda Itapety, was acknowledged with the Real Estate Master Award 2023 in the category professional urban solutions. And this is the 12th award that we received. Before closing, I'd like to mention that there will be an event that is called Só a Helbor Tem in Sao Paulo. The same event was organized previously in Mogi das Cruzes in Curitiba in the last week of October. We are quite confident on the strategy that we're using to reduce our unit stocks, the ones ready to sell and the one under construction. And we're still focusing on continuous improvement of our financial and operational indicators. Now Roberval Toffoli and Marcelo will present the results.

Good afternoon, everyone. I would like to start with the highlights of this quarter on Slide #3, and we can see that total sales reached BRL 395 million, and we got a reduction of 16% regarding the same period last year and 8% above compared with the previous quarter. We should highlight as well that 76% of our sales are regarding ready-to-sell units and the ones in construction, and only 24% are the units that we are launching. Regarding the speed of selling, the total value is 13.2%. And we realized that we got 1 percentile point increasement regarding the previous quarter, considering what was presented in the same period last year. Regarding financial highlights, our total net revenue was BRL 324 million, only 3% less if compared with the second quarter of this year, and we got an increase of 22% regarding the third quarter of last year. Our net profit, the consolidated 1, was BRL 45 million during this quarter. And the part that we assigned to the controller is BRL 8.5 million, and this leaves us with a margin of 13.9%. Finally, I'd like to highlight the reduction of the debts that we have in 6.4% when compared with the second quarter of 2023. What is more, there was a significant reduction of our cash burn of 82% when compared with the same period of last year and a reduction of 70% when compared with the last quarter. Now I'll give the floor to Marcelo, and Marcelo will talk about our operational performance. Marcelo, the floor is yours.

Thank you, Roberval. Thank you, Henry. Good afternoon, everyone. So let's go started with the first slide. Here, we have our land bank, the general one and the potential of our company, and we have BRL 11.8 million (sic) [ BRL 11.8 billion ] and BRL 7.8 billion is the estimated value of Helbor. I wanted to highlight that 76% is located in Sao Paulo and 19% in the metropolitan region of Sao Paulo. And this is linked to the strategy of our company during the last year. Now let's move to the next slide. Here, we have the distribution of our land bank in Sao Paulo City. Here, we are presenting in a very clear way from the geographical point of view how we have our different lands. We have BRL 9.1 billion in Sao Paulo and the other part is BRL 5.9 billion. Our land bank has always been of a good quality, and we have very well-located places with a very good quality. We have different projects. We have Leopoldo, Itaim, Magalhães, and considering our land bank, we have some products in Higienópolis, Jardins, Vila Nova. So this is just somehow very fine, the good quality of our land bank. And when we are including this, everything happens when we buy land. That's why we're very proud of our land bank, which is of a very high quality. In the next slide, we can present some new projects that we are launching in this quarter. The new one was Helbor Open Mind. Helbor Open Mind is in a region quite close to the Morumbi Shopping Mall. This is an area that we already bought in the company since 2010. We were saving this for a very specific moment when we had a good project. So this happened, and we launched this in the third quarter of this year. We have 390 units, 32% of it was already sold. And this is similar to Helbor Wide. It was inspired by Helbor Wide, which is a great success. And this project is compact. In Sao Paulo, there are many questions about this type of solutions only with one room. So this is a small studio. But what we are prioritizing is the location and the differences that we have in this project. This project has a specific brand because we have a partnership with HBR. So in the facade of the building, we have a very good alternative for those who will live or those who wants to buy this to invest and then put it to rent. So it's not only one unit with one room. So here, we are focusing on giving the investors a good location and a good project. We also wanted to highlight the project Fazenda Itapety. We have 100 lands here, 100 units. We launched this in the first quarter last year, and we work on the specific commercial distribution. And we can see here that we are including every quarter new offers to create more demand. We have a good rhythm in sales. We have good prices, and we're selling well. So I want just to highlight that the idea and the projections that we had are slightly different, and we are trying to create even more demand. In the next slide, we're going to talk about the BRL 395 million of contracted sales that we had, and then we have 16% less than the third quarter of 2022. And I mentioned this because we have a decrease of 16%, and this was mainly due to the launch of Fazenda Itapety in the third quarter of 2022. When we launched Fazenda Itapety, sales increased a lot. What is more important is that throughout the year, the speed of sales has been somehow balanced, and we increased in the second quarter of 2023. In the first 9 months when we compare 2023 with 2022, we can see that there was a decrease probably because of what happened with Fazenda Itapety, but I wanted you to observe that there was 58% less in the launch regarding the 9 first months of 2022. This is linked to the strategy that our company adopted since the beginning of the year because we are trying to be a little conservative regarding the market because there was some difference in the interest rate. And since we have a good quality stock, we try to dedicate this to the stock, and the sales that we have are pure in our stock. So even though there was a slight decrease during the 9 months, this launch that we had help us preserve our company in the same level. And this is linked with the good strategy that we adopted. Do you want to comment on something?

I think that you explained it very well, Marcelo. You emphasize that the strategy that we got during this year, since the end of last year was to focus on selling stock, stock under construction and ready as well, precisely to leverage the strong points of our company.

So in the next slide, we are talking about sales of offers, and we have some positive points when we compare with the second quarter of 2023. And it's important to observe that sales of our offers were quite similar if we compare the third quarter of 2023 and the third quarter of 2022, even though in 2022 we sold more than 2023. So it was good. This is something important because we sold a little less with our stock decrease. So we have the same sales speed. And just to wrap up this part, this weekend, we will have another edition of our event. We've organized already [ one Helbor ] edition, is the biggest event of the stock in Brazil. Two years -- 2 weeks before, we organized an event in Mogi das Cruzes and Curitiba. It was a great success. And during this weekend, tomorrow, 11, then Sunday, 12, we'll be here in Faria Lima welcoming our clients, and we are 100% sure it will be a great success as well. We'll be able to wrap up this year in the best possible way, even though it was a very challenging year. Specifically in terms of sales, it was quite satisfactory. So now I'll give the floor to Roberval.

We're going to talk about financial data. Thank you, Marcelo. Now we are going to talk about the financial results of the third quarter of 2023, and the figures are talking about the sustainable results of our company, so we are assuming this. So now we are here, Slide #12. We are presenting the evolution of our net operating revenue. And it increased 34% if we compare with the accumulated of the 9 months of 2022. During the third quarter, our revenue was BRL 325 million. So it increased 22% when we compare with the third quarter of 2022. And there was a decrease of 3% when we compare the net operating revenue quarterly in a quarterly comparison. Now moving to Slide 13. We can see that the gross profit improved gradually. In the third quarter of 2023, we got BRL 94 million and a gross margin of 29% and the net margin of 13.9%. Those margins represent a trend of improvement in the results. So this is proving the evolution of our participation in the sales of the projects of new cycle and the new projects that are being built and launched, and they have a stronger image. If we compare with the previous projects, they had, let's say, more compressed images, and they are in the process of reduction of stock. So we can identify an improvement of the gross margin in the accumulated of the year, which is 28.1% compared to 27.6% recorded during the 9 months of 2022. So the gross margin was 13.6% of legacy and the new cycle was 28.8% in the past 9 months of this year. Moving forward to Slide 14. We can see that the margin was 31.4%. So if we compare it with the past quarter, it was better. And then it was BRL 466 million of revenue. That way, we can keep a high level and a positive trend for the next quarter. In Slide 15, we can see that the third quarter of 2023, general and administrative expenses presented a decrease of 1.9% vis-a-vis in the same period of last year, and there was a reduction of 7.6% when we compare with the second quarter of 2023. That way, we can prove that we are committed to control company's expenses. On Slide 16, we can present the net result of the controller of our parent company, which was BRL 18.6 million in the third quarter of 2023. So there was an increase of 16% when we compare with the previous quarter. When we compare this with the same period of the previous year, there was a decrease of 15.7%. That decrease was due to the reduction of the result of the projects where Helbor was more represented and focusing specifically on the legacy products. When we consider the accumulated of the year, the net profit was higher. Then in Slide 17, we can show the debt profile of our company in the third quarter of 2023. And total debt was reduced 6.4% when we compare this with the second quarter of 2023. It is important to highlight that the loans and the different construction finances suffered a reduction in both lines. The only addition of -- 10% was observed in this loans. In Slide 18, we can share the net debt. It represented a reduction of 0.9 percentile points when we compare with the second quarter of 2023. This proves that the strategy of our company in terms of results is giving us good results, and we are moving towards the first steps of a positive result. Finally, Slide 19, we can talk about cash burn. It was BRL 27 million in the third quarter of this year. It represents a reduction of 82% compared with the same period of last year and a reduction of 70% when we compare it with the past quarter. This is due to the reduction of the debt that we already explained. So those are the most important points that we wanted to highlight. Thank you very much for your attention. Now we'll open for the Q&A session. Thank you.

We have a question from Bradesco BBI and [ Marco Antonio de Carvalho ]. They made 2 questions on the same topic. [ Herman's ] question's says like this. I wanted to listen a little bit more of this process of deleverage of the company and how everything is going on regarding the deliveries. [ Marco Antonio de Carvalho ] said, I'd like to hear a little bit more about the fourth quarter of 2023 and 2024 and how this will improve the structure -- the capital structure of Helbor.

Thank you for your question. So talking about deliveries, we are in November, and only during November, Helbor has 3 deliveries planned. So we have 3 deliveries for November, 1 at the beginning of December and 1 in January as well. So this is a short period from November to January. So we'll have 7 different projects that we will deliver. So it has to do with our strategy as well. So since the beginning of the year, the company wanted to focus on this deleveraging structure, and we are focusing on this right now, so [ Herman ] wanted to hear a little bit more of this deleveraging process. So this is happening already. In this quarter, we realized that there was a very significant reduction in terms of loans and credits regarding sales and stocks, specifically apartments under construction and the cash burn as well. But cash burn was BRL 150 million last year, and it produced. So this is showing that we have a trend of reducing our debt, considering the deliveries on the different projects that we have. And we should mention that we have very big projects to deliver that have a cash flow that is very good. For instance, we have a work that is being -- already about to be delivered, so we are very satisfied with the performance of that project. So to sum up, regarding deleveraging, we will have a good year next year, and there are many, many projects that we're going to deliver, even considering the projects that I already mentioned and the ones that we have planned for next year. We have 16 projects to deliver. So we believe that we'll be able to go back to the same leverage levels that we have before, the way we always work. I don't know if you wanted to add something.

I just wanted to mention that these deliveries that we have for the end of the year will have an impact on our deleveraging process in the beginning of the year. But this quarter is already showing this leveraging the [ seat ] that we have and probably will solidify during 2024. Yes. And just to comment on what you mentioned, about the projects that we have to deliver, we should highlight that most of them have a low stock level. So some of them are aligned to this deleveraging process because we already will be receiving some flow in the cash flow. So we have a low level of stock. I also wanted to mention that, again, we're having another edition of this event next weekend. And our expectations are quite high. I believe that we will have a good weekend, and this will allow us to improve our sales level and the leveraging process as well.

We have another question here from [ Marco Antonio ]. It says the increase of construction potential of the land located in Sao Paulo in the capital will impact the gross margin. And what would be the dimension of that approximately?

Okay. Thank you for your question. Sao Paulo plan was approved, and right now, we are discussing a new law. In the next quarter, the company will be able to act on this after the law was approved, and we will have better information on the constructive potential of those areas, that land. Sao Paulo will map, while we were able to obtain from there. But what I can say so far is that most of that land got at least 20% minimum of potential because we are getting a benefit of 20%. Some of those lands got a cumulated benefit [ HES ] and [ HMB ], for instance, Butantã and Alvarenga. And there is also one land that we have that might change for a different -- from a different zone. And if that happens, it will double the potential of it. We don't want to celebrate any victory before that law is approved. But minimum, this 20% that I mentioned will be for sure -- will happen for sure. We can already count on this. Do you want to add something?

No, I think that's it.

We have 2 more questions from [ Marco Antonio ] as well, and I'm going to join them. So here it says, considering the different events, what type of projects were already launched in the fourth quarter and the different total values of Helbor. And then it says the values reported for the fourth quarter of 2021 and fourth quarter of 2022 were quite weak compared to other. What are the expectations for the fourth quarter of 2023.

Okay. So first of all, thank you for your questions. We cannot talk about absolute values. I just can mention that at the Mogi das Cruzes and Curitiba event, the results were higher than our expectations and than our goals. So we are considering the projects that we have, and it's already better than our goals. So this is already improving the performance of our fourth quarter of 2023, which will be already better than the fourth quarter of 2022 because, last year, it was impacted by a specific characteristic of our sector. But this year, we're focusing a lot on stock sales, so I believe that we'll have a land or 2 for this year at the end of November, probably. But our performance is focusing on stock. So I am 100% sure that we will be above the results of the last quarter of 2021 and 2022 already. And I'm sure that Mogi das Cruzes and Curitiba events were a success, and I'm sure that, in the next session, I'll tell you that the next event that we have this weekend in Sao Paulo will be a success as well.

Here, we have a question from [ Gabriel Musante ]. It says could you comment on your expectations for the event Só a Helbor Tem.

Thank you. I think that Henry already mentioned something about this. We have good expectations for this event, Só a Helbor Tem here in Sao Paulo. That will be this weekend, Saturday and Sunday in Sao Paulo. We have very positive expectations. We are measuring this all the time daily. We have been preparing for the last 15 days. We have met with the sales team, and we created a pipeline for the event. And this is way above our expectations already. So I am quite sure that we'll have a very positive event. And of course, it will depend on the stock and different projects that we'll have. We have tickets of 350,000 and 400,000. So we have even some of high level of 10 million for instance. So we have many, many options in our pipeline. This is the first time that we are not going to do it in our headquarters, but it's in another space in Faria Lima. So we have very good and very positive expectations, and after the weekend, we can say a little bit more. Do you want to comment something on this?

No, what you just said, we have great expectations. So any of you who want to buy a property, would be good to do it here. Of course, you have to come to Só a Helbor Tem.

We got a question from [ Daniel ] and says regarding the new directing plan, do you have any forecast?

Thank you for your question. If I understood, you want to understand how is the return plan and how this will impact, right? So it was approved. It was launched already, directing or steering plan, and we are already discussing this new area division law that we were mentioning before. So we won't be sure when we're having about this until the beginning of December here in Sao Paulo. And as we mentioned before, we'll have some benefits in our land bank. For instance, the solidarity quota, we'll have 20% extra regarding -- well, we can take advantage of in the construction, so we have some plan. Well, that is included in the law, and there will be a possibility of increasing our potential. We don't want to say anything about it so far because this is still under discussion and the law hasn't been approved. So probably the first 3 next year will have this approach, and we'll be able to explain what will happen with our land bank. What we can say now is that our land bank will increase the potential.

We have another question from [ Ademar del Azari ]. Congratulations for the result. Would it be possible to share some information on the allocation of profit to the noncontrolling party that has been growing quarter after quarter? For instance, are those more recent or more specific projects?

Thank you, [ Ademar ], for your question. In fact, this higher allocation for the noncontrolling party, it is linked to our sales of our ready-to-sell stock. Those are projects in which Helbor participation was lower, let's say, was smaller. So the trend for the future is to revert somehow the scenario and have the allocation with the controller being higher.

Piggybacking on what Roberval said, in the new investment, Helbor has a higher participation in each project. So this will have an impact in our results. Another important topic is that we cannot consolidate some of them in our statements. So if we have a good sell, it will have an impact on the result of the noncontrolling party.

We have another question from [ Marco Antonio de Carvalho ]. It says, considering they receive different projects of BRL 320 million, what will be the value in the fiduciary portfolio of Helbor and what will be the value that will be object of passing forward.

Our strategy has been to share maximum as possible. So our objective is not to keep this in the portfolio. And the volume that we have of different cases with fiduciary alienation are sales of commercial properties from the past. And in this portfolio, probably we'll have a different process. Our goal here is to transfer as much as possible to reduce the debt. And this fiduciary alienation of our portfolio is not very relevant, but this could be reduced as well.

We have a question from [ Jason Cardoso Xavier ]. It says is it possible to share an estimation of when the W Residences will be delivered?

Well, W Residences is in the final stage. We have only one tower with apartments, residential apartments, and then we have a bar destined to the hotel. The hotel part will be for next year, first quarter next year, and the residences will be this year. We already started the control process with our engineering team. The documentation part is already done. The regulation of property, the building itself is okay. So probably, we expect to deliver this at the end of this month or during the first fortnight of December.

We have another question from [ Marco Antonio de Carvalho ]. It says, Trinity project was already launched? If yes, what is the total value? And what is the part of Helbor?

Thank you, [ Marco Antonio ], for your question. This was launched last week and is 50% of Helbor, is a partnership with MPD Engineering, and the total value is BRL 230 million or BRL 240 million.

We have another question from [ Marco Antonio ]. I'm sorry I didn't say this one before. It says considering this project, is it possible to launch it in 2023?

Yes, we are working on this. As I mentioned before, the estimation is to launch it at the end of the fourth quarter. Helbor participation is 50%. We have a partnership with the same company. The first part is apartment of 220 square meters and is BRL 190 million. And I wanted to mention that this product is very different, is in Perdizes neighborhood, and this is a better neighborhood, let's say, is in district Montalegre. It's quite close to [ Book University ]. So this is an area of a very high standard. There are not really many offers and many new launches in that area. So we started the process 15 days ago. We already have a lot of spontaneous requests, many people checking. We haven't even started the showroom part, but we expect very positive results. The tower with the bigger apartments will be this year -- will be launched this year, and then we'll have a more compact option, but we have very positive and good expectations for this, this year.

We would like to thank you all for your participation. We already answered all the questions. We are going to finish our presentation, and I'd like to give the floor to Henry for the final remarks.

Thank you, Roberval. Thank you, Marcelo. I wanted to thank everyone who were part of this video conference. And I wanted to invite all of you who would like to visit us in our office here in Faria Lima. I also wanted to thank our Investment Relations team, and good afternoon, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]