Allos S.A. (ALOS3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Aliansce Sonae Second Quarter of 2021 Earnings Conference Call. Today with us, we have Mr. Rafael Sales, CEO; Mr. Leandro Lopes, COO; Mr. Carlos Correa, CFO; and Mrs. Daniella Guanabara, Strategy and IR Officer. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay facility for this call for 1 week. We have a simultaneous webcast that may be accessed through the Aliansce Sonae IR website at ri.alianscesonae.com.br. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call. We would like to inform you that questions can only be asked by telephone. So if you are connected to the website, you should email your questions directly to the IR team at ri@alianscesonae.com.br. Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of the company's management and all information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depends on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Rafael Sales, who will start the presentation. Mr. Rafael, you may begin your conference.

Good morning, everyone. I'd like to thank you all for your interest in Aliansce Sonae's results. In the second quarter of the year, slightly more optimistic than in our previous meetings. We were pleased to see strong sales reaction in May and June and a steady improvement in July. Although April was still a challenging month due to COVID-19, we see room for higher sales throughout the year, increased demand for new areas and more exciting tenants, which confirms our optimistic view towards the future. For me, the most important thing to highlight is how we remain consistent and relevant during the most challenging moment of this crisis. For example, our leasing team worked hard to keep the higher occupancy rate over 95% at the end of the second quarter. Additionally, in this quarter, there were more than 130 contracts signed. The high demand from retailers for space in our malls can be attributed to 2 reasons, the strategic location of our malls and the strong omnichannel approach we offer to our consumers and tenants. Our strategy is to digitalize the consumer experience, so that the physical and the digital work together, allowing the best services to our customers through the most suitable channel at every consumer moment. For some time now, we are convinced that our point of sales positioning will continue to drive sales to our retailers and we'll defer this leverage for our physical strategy. The truth is that even though digital brings convenience and agility to the buying journey, it will never replace the sensory and unique experience of the physical environment. Long story short, the recovery of sales and the integration of our retailers to our omnichannel platforms make us very excited for the resumption of our activities with a more well-rounded approach. Regarding the financial results for this quarter, I think it's worth noting that with the recovery of sales, our results already show significant improvement. For example, our EBITDA already represent almost 80% of what we reported in the second quarter of 2019. Even though April was basically a loss month because of the pandemic effects. This is despite of a still very high level provisioning, which with the significant drop in delinquency should return to reasonable level soon in the coming quarters. Also, I'd like to point out our efforts on the cost side. Common-area costs have been reducing versus our numbers of 2019, which shows that our synergies have been -- we were able to gain synergies with the merger despite the effects of the COVID in our business last year. In addition, we ended the worst moment of the crisis with our financial capacity fully preserved. Our balance sheet remains very solid. We concluded an important acquisition in line with our long-term strategy with the purchase of an additional 21% stake in the Shopping Leblon. We raised also a new CRI, which is kind of a bond in Brazil market with a very attractive rate for an exceptional maturity of 7 years, which demonstrates that our AAA rating on our debt will favor our consolidation strategy in the shopping center and also our growth in the digital strategies. In the end, the pandemic served to ward off several ghosts that were feared in our industry. The main one being the risk of the e-commerce. It's now clear that despite the growth of e-commerce, our value proposition for consumers and retailers remains crucial, which is proved by our high occupancy rate and the high demand for new business in our malls. More importantly, for the sales that have been -- that have picked up recently as soon as the malls are operating in a more normal levels. Moving forward, here for Slide #4, regarding leasing. As I mentioned earlier, it can be highlighted that our occupancy rate continues at an upward trend, at end of the quarter above 95%. The rate remains high, higher than the industry average, which confirms the strength and resilience of our portfolio. The strength of our leasing team is what enables our high occupancy rate throughout the difficulty period of time that we just crossed. We signed 133 contracts in the second quarter with just over 40% in the fashion segment, which has been in fast recovery after the pandemic's hard impact. The highlights of the newly launched stores show a trend that has already stood out in the international markets: the stores created in the digital platform that seek physical presence in strategic locations. In our portfolio, the strength of our malls, leaders in their market, attracted prominent brands, such as ByNV at Shopping Leblon, Mobly in Parque Dom Pedro and also other examples. Additionally, retailers with their origins in the physical environment and with outstanding online performance continue to demand spaces in company's -- in our company's malls, such as Magazine Luiza that -- which opened one of its stores in Belém this quarter and signed 2 new contracts, one in Rio and one in Uberlândia. In the sales front, on Slide 5. We can observe the recovery in the month of May and June, which resumed at an accelerated pace, reaching a bit more than 90% of sales of the same month in 2019. A great part of this strong performance can be attributed to malls in the northern region with record growth of 13% to 15% in the last 2 months of the quarter. And also in the state of Rio, which in June, we recorded practically the same level of sales as of 2019. I think it's even more interesting to highlight the results of July in [indiscernible]. When our sales have already reached nearly 97% compared to the same month -- compared to the same month of '19, it's important to highlight that these numbers are positive, even though we are living with important restrictions regarding capacity of need for restaurants area, food court, movie theaters and all leisure activities in general. Therefore, once the traditional entertainment and leisure activities of our malls resume, we expect even better results in terms of sales through our point of sales and, of course, a strong recovery in our financial results as overall corporate output. Thank you very much for your interest, and I pass the floor for Daniella, and I will be available again for the Q&A session. Thank you.

Thank you, Rafael. Good morning, everyone. On Slide 7, we dive deeper into the company's cash flow. Aliansce Sonae presented operating cash generation of BRL 192 million in the first half of 2021, an amount more than enough to cover expenses with debt amortization and interest payments in addition to CapEx. In this semester, the net cash consumption of BRL 382 million is explained by initiatives in line with Aliansce Sonae's long-term strategy planning, such as the acquisition of additional stake in Shopping Leblon in accordance with our strategic pillar to increase interest in leading malls, the purchase of land bank reinforcing our construction potential, the repurchase of debenture in continuity with the liability management and dividend payment. The company's leverage remained at a low level of 1.8x net debt-EBITDA after Shopping Leblon's additional stake acquisition and dividend payment, which further ratified the strength of our balance sheet, providing us with space to continue seizing investment opportunities. On Slide 8, it can be observed that the net delinquency recorded in the second quarter was up 7.8%, a large recovery compared to the first quarter. This indicates that the resumption of sales has already contributed to the recovery of past due receivables. In June, net delinquency already dropped to lower than 1%. PDA was also largely affected by the worsening effects of the second wave of COVID-19, but already at a lower level compared to the first quarter. In the second quarter, PDA accounted for 11.5% of rent revenue, which is a significant decrease from the 18.5% reported in the first quarter of the year. In Slide 10, we want to highlight Aliansce Sonae's commitment to sustainability by showing some of the campaigns carried out throughout the second quarter. We had 2 projects linked to education, the Park Bengui Computer Project in Parque Shopping Belém, which promotes digital inclusion, free professionalization and preparation for the labor market for children and teenagers living in the outskirts of Belém. And the Boulevard School, which is a project developed by Boulevard Shopping Belém in partnership with the Iris Institute and PAV, Projeto Aluno Vencedor, which is Winning Student Project, and offers to our malls' employees the opportunity to conclude elementary and high school. Passeio das Águas Shopping has in its territory an environmental reserve preserved by a specialized team that maintained all protective care. The mall promoted an action that involves collaborating with children from the region to plant new seedlings, ensuring the continuity of important species for the local biodiversity. In celebration of the Olympics, I would like to share with you 2 of Aliansce Sonae's recurring projects: Levante e Lute, Stand Up and Fight, and Tênis para Todos, Tennis for All. The Stand Up and Fight project provides an opportunity for students from public school in the Parangaba neighborhood to develop skills by practicing judo. Tennis for All aims to present and promote the importance of tennis practice available to all. The classes have qualified professionals and count on the participation of children and teenagers from around Shopping Leblon. I would also like to emphasize that in the first half of 2021, we carried out more than 340 projects benefiting more than 420,000 people. Of this total, 280,000 people were benefited in the context of social action for the pandemic, such as the COVID-19 vaccination in the parking lots of our mall. We are very pleased to be able to contribute this to the advancement of vaccination in our country. On Slide 12, we remind you that having the right people in the right place is one of our strategic pillars and people first is our -- a huge value. And the People and Performance area is one of which conducts a series of initiatives that we have on behalf of our team. We work to create learning experience in essential management team and employee journey through programs such as Aliansce Sonae Leadership DNA, which has workshops that reinforces strategic themes, such as innovation and creativity and a distance learning platform. We understand our social responsibility, and we aim to continuously and consistently promote initiatives that accelerate the transformation of the work environment through diversity and inclusion. Based on a policy, we propose to define and disseminate guidelines that ensure a culture of diversity and inclusion aiming at equity and that everyone is welcome with respect for human integrity and individual aspects. In the second quarter of '21, we launched our first ALSO Trainee Program. The ALSO Trainee aims to offer opportunities for young professionals with up to 2 years of graduation to start their careers in the shopping mall segment. As a company, we seek to attract, develop and retain talent, providing sustainability to the business as the trained professionals will be Aliansce Sonae's DNA. In Slide 14 in this quarter, we want to highlight the case study that analyzed the total sales in the portfolio, the malls of the northern region and from the state of Rio de Janeiro as a percentage of the same month in 2019 compared to the average operating hours. The performance of May and June 2021 was already equal to or even higher than that observed in the month following the first reopening process. This effect is largely due to the performance of malls located in the north and the state of Rio de Janeiro. The malls in the northern region stood out in terms of post-reopening resumption achieving sales growth for practically every month in which the malls ran for more than 88% of the regular hours. May and June 2021 recorded a strong double-digit growth compared to the same period in 2019. This performance is already higher than the first 2 months of 2020, which have not been impacted by the pandemic. Similarly, malls located in the state of Rio de Janeiro, which showed a strong resumption post operational even in 2020 showed an even bigger accelerated recovery in June 2021, reaching the highest level compared to the same period of 2019 since the beginning of the pandemic. Thank you, everyone. Let's now open for the Q&A section.

[Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs.

A question on your occupancy rate. You kind of held up pretty well over the last year and increased a little bit in the quarter. And your peers were seeing some of the -- the occupancy rates falling a bit, I mean compared to you guys. So just curious in terms of keeping that occupancy rate where it is, have you had to give more discounts do you think than peers? Just to get a sense of how you've been able to maintain a pretty strong occupancy rate.

Hello people. This is Rafael speaking. Thank you for your question and for your interest again. Well, of course, the discounts were important to keep up a good occupancy level. But the thing was that with the discounts [indiscernible], target sectors in the segments that were affected the most by the pandemic and by the consumption reduction in the early period, especially in April. In June, our discounts were very, very low. In July also, we expect to have good revenues, very, very -- very similar pace to what we're in '19. Of course, not yet there, but are close. And I think the combination of both of those strategies of keeping up discounts for the segments that needed more, of course, only for the tenants that we [indiscernible] that has not been important for us. And with the high efficiency, we will see a much better consumer proposition -- consumer proposition, this is our guesstimate. Its mission is a rise of the mall and a mall which is full -- fully operated, a lot of new things also, so -- which is very important for reengaging the consumption journey throughout the quarters. And we expect a very low level of discounts from this affecting the third quarter, maybe we will be near '19 since this second quarter, the third quarter or maybe in also the fourth quarter, if things recover in the pace that we are expecting now.