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

[Audio Gap] Need assistance during the conference, please let us know and will help you. This event is also transmitted simultaneously over the Internet through our webcast. You can go to ri.alianscesonae.com.br, and you will find this available. The replay of this event is going to be available until the end for 1 week. You can also send us your questions. If you're connected through a webcast, this can be sent directly to the RI team through the e-mail, [email protected]. Any projections or operational or financial statements or the Board opinions and any future considerations are not guaranteed here. They involve risks, uncertainties, and everything depends on circumstances that may or may not occur. Investors should also understand the conditions of the industry and the market that may change and affect the performance -- the future performance of the company and mainly to results that completely differ were materially differ from those that are steady here. Now we will now turn it over to Mr. Rafael Sales, who is going to begin the presentation. Mr. Sales. the floor is yours.

Good afternoon, everyone. Thank you. Thank you very much for being here. It is a pleasure to be here today and present our company, Aliansce Sonae brMalls. On our call, we're going to be discussing what we did in 2022, and we're going to show you a view of what we have here in the company. On Slide #2, we have a summary of the indicators of Aliansce Sonae. We had a year in which it is clear that the pandemic had a great impact, but we were very solid throughout. We had this recovery that shows that, indeed, we're a complete platform for entertainment, for services and lifestyle. As we've been saying for a while, we are way more than a place for shopping. We're also a place for connection for people, for brands. Our revenue in 2022 went beyond BRL 1 billion with a growth of 20% against 2019. And we had an intense process where we were changing store brands. We were replacing them, so the revenue in the first year had this impact of those stores and everything that is done before operations begin. We ended the year with 97% occupancy, 97.4% actually, the largest one, the highest one ever since we started. This is very good for our guidance for year. The EBITDA margin went back to the same level of 2019, and the company grew versus 2019 despite the interest rate in Brazil. Besides the evolution of financial indicators, we've seen also growth in operational indicators in 2022. We had lots of demand for new spots and we had new contracts for rental that will sign this year with an expressive or a significant reduction in failure to pay. We also had a change in occupancy for our shopkeepers. We also had structural changes in the company. We finished the implementation of our new SOP, which is a process that lasted for around 2 years, and it was concluded without any interruptions in our businesses. We also concluded a series of expansions, driven remodeling processes in Leblon, Carioca and Parque Dom Pedro malls. We also had a relevant change in our ESG trajectory. We had this great achievement, which was the initiative to have stability in B6, and Aliansce is the first and only shopping mall representative in that list. Also, we were invited to present at COP26 last year. Additionally, we participated in various M&A processes, as you all know, and the main one was with brMalls. Before I turn it over -- before I actually continue here with the next slide, I would like to congratulate the entire team. We've had an excellent team working, the great legacy. So Aliansce Sonae, brMalls, we were able to conclude this deal that is very transformational. It's going to completely transform our industry in December '22. And we can already begin this year thinking about the future. Now on the presentation, we're going to focus on our combined business. Now on Slide 6 and 7, you can see that we're going to show this large scale for Aliansce Sonae and brMalls. We're looking at millions of visitors and we have 11,000 stores. Today, we are one of the main platforms for retail in Brazil. It is evident that we have high quality in our portfolio because we're the only company in Brazil with 10 shopping malls that have great revenue individually. And this only happens due to the M&A because we have some legacy at brMalls, 5 malls, and 5 from Aliansce Sonae. It is important to say that is the only company in Brazil that has these 10 malls that are individually -- that have individually over 1 million sales. Now on Slide 7, you can see that the main brands that we have here have addition that is twice as much as the other operators in Brazil. On Slide 8, let's see some of the consolidated results. If we sum Aliansce Sonae and brMalls, we have significant growth here. So the sales for malls last year, if we sum all of them combined, we're looking at BRL 2.5 billion, and the EBITDA was BRL 1.8 billion and AFFO BRL 1.1 billion. So it's important to say that these numbers -- well, we have excluded the nonrecurring expenses from these numbers for Aliansce Sonae and brMalls. The company had excellent operational results, commercial results, and we can see the increase in rent and also the rent has an occupancy rate also that is very good and with an increase that are sustainable in our rent. We still have an occupancy cost at a very balanced rate. So we will be very successful in our malls. 2023, the trajectory of growth is very positive. This year, we started the year with the accumulated of 19% in regards to '22, and the sales increase of 16% in regards to the period in the last year. I'm going to give the floor to the speakers and during the Q&A session, we can answer some more.

The next slide. Before we talk about the combination of businesses being concluded, the both companies start to work in their liabilities. And to reduce the cost of debt, the increase of deadlines and the harmonization of covenants. The brMalls fourth quarter 2022, we have the issuance of debentures and a total of BRL 900 million. CDI plus 1.3%, with a deadline of 5 years. And at the beginning of the year, regardless of a worsening of the credit market, we managed with success with [ BRI ]. Of BRL 600 million, still had demand -- additional demands of at least BRL 500 million. But we have in CDI plus 1% and 1.20%, we have 5 and 7, respectively. With that issuance, the cost -- the average cost of the company is 0.87%, with 83% of the CDI, 2.7% of inflation and 14 pre fixed. Now let's continue with the presentation. We can talk about the transactions, M&A, which is the most recent that we've done by the legacy of brMalls and Aliansce Sonae. Throughout 2022, both companies negotiated and concluded successfully having investments that are strategic. The legacy of brMalls, we had the partial sale of shopping, which are very important, at a cap rate of 7.7% and the total sale of Campinas with a cap rate of 7.8%. With the legacy of Aliansce Sonae, we had the selling and disinvestments of Brasilia and -- there is a cap of 8.2%, and Boulevard Vila Velha and Boulevard Campinas Shopping with a cap rate together of 8.1%. Now in 2023, we've also had the partial sale of 10% of our division in the Passeio das Águas Shopping with a cap rate of 8.5%. Therefore, all the caps considerably lower to what the company had expected. And this reinforces the excellent capacity for the allocation of capital for the company with a great track record and M&A and profitable returns for the shareholders. Last slide, let's talk about the dissynergies of the market. Just with the Aliansce Sonae at the end of '22, we reached BRL 56 million, as a consequence. We presented an important expansion of the margin EBITDA for 63% in '22 versus 72% in 2023. In the synergies, operational synergies that were announced, we also reached BRL 34 million in reductions of cost, condominium costs. And also, we had several elections of reducing liabilities, which has an economy of BRL 47 million per year in regards to the Aliansce Sonae and brMalls. After all the bottom-up work with an integration consulting -- consultancy company, we are very comfortable to confirm that we have the expectation of annual synergies of BRL 180 million and BRL 210 million. It's very important to highlight that the synergies of BRL 210 million initially announced and between Aliansce Sonae and brMalls included BRL 160 million of operational synergies and BRL 50 million in synergies that are financed, plus the finance synergies that were reached even before the agreement of the business is effective through the well management of the liabilities of brMalls. So now we are talking about BRL 180 million to BRL 210 million in operational synergies for the company as a whole. On the next slide, we exemplify our capacity to generate synergies and capture operational results. Highlight that our top 10 malls with the greatest annual growth has an increase consolidated of 51% in 2022 versus 2018. As a highlight of this performance, we have shopping Passeio das Águas with a growth of 145%, Parque Shopping Belém with 77%, Boulevard Shopping Belo Horizonte with a growth of 53% and Franca shopping with 48%. Besides these malls, we also have an increase of ROI with the sailing of the malls. And we have 127% growth in 2022 versus '18. These are examples of turnaround and reinforces in the trust of the future synergies. Now thank you very much, and we are open for the Q&A session.

[Operator Instructions] Our first question Wilfredo Jorel Guilloty, Goldman Sachs.

My question is basically focused on the synergies that you mentioned that you reiterated for what you expect in 2012, well, you started and then until 2028, what are the synergies? And then wanted to see what the future to -- well, I wanted to know if you can tell us more about the schedule of how should we think about from now until 2022? How are those synergies ongoing? And can you tell us, if possible, how much do you see of revenue costs? Anything -- any information you can provide will help.

I'm Daniella -- Here is Daniella. Thank you for the question. So for the implementation phase of the integration, we are here in the first steps. But it's important to report that throughout the first 6 months since the approval of the deal until approval at CADE, we have prepared the integration and we've calculated bottoms up the total of synergies. So it's important to highlight that the original guidance of operational synergies is BRL 170 million. So we increased the bottom to BRL 180 million, going from BRL 180 million to BRL 210 million totally operational. Out of that, we expect to have about 40% in the cost of expenses. And obviously, you will capture a little by little, year-by-year in terms of savings. It is reasonable therefore, that 85% should be reached until the end of 2025.

Next question, Fanny Oreng Avino, Santander.

Is there any follow-up in that issue of ? You're talking about the percentage that we're going to get to 2025 of the cost synergies. And the revenue, it would be the synergies that we would reach until '28. That would be the first question. My second question goes along the lines of the shopping malls. So you have the objective 6, you have about 9 malls that are managed. So I wanted to understand, within the 9 managed malls, you said that all and they increase the capacity for the negotiation with the wholesale is there -- or retail, is there any of any of these assets where it makes sense to stop managing these? Could you please tell us?

This is Rafael. Well, about the synergies. Now we -- the synergies, we have this -- The cost and expenses, we have an increase of 40% in the guidance. The capture, we hope to capture 85% until 2025, considering the total synergies, both expenses today, obviously, we should see in the first part of that. But in the first 3 years, we have 85% of that total that we are mentioning, obviously, if we don't have any pandemics along the way. Having said that, we are very -- we are working with the synergies and the increase of revenue, the improvement of the EBITDA, the management of the malls, and also management of the mix.

So please, if you allow me, in terms of revenue synergies, how -- well, of course, if you can share the breakdown, how much it would be mall and media, all the initiatives, how much it would be in terms of mall and of rent?

Sorry. Actually, we are not doing the breakdown of the number yet, but I can discuss and we're going to see if we're going to publish that breakdown. However, for now, this is the breakdown that we are comfortable to provide anything that we will provide more transparency in the next results. About the management of the malls that are within our portfolio of course, we have -- the portfolio has decreased in the number of malls, increase in terms of because of El Dorado, and we are continuing to focus in the shopping malls that are dominant and very relevant. Of course, not all the 9 malls are within the characteristics of dominance and relevance in their respective markets. Or whenever they're not dominant, we have a shopping mall that is attractive initially. So these mall, certainly, they're going to stop being a part of our portfolio, and they are managed over the next few years.

Our next question is from Bruno Mendonca, Bradesco BBI.

I will ask a question about synergies, CapEx, specifically. I understand that we haven't dealt with it in the guidance. But anyway, we can think about CapEx synergies and thinking about cash and Aliansce Sonae and brMalls, I see a difference. In the cash conversion when we're talking about CapEx, how have you seen this? Can you mention -- can you mention anything about that? And with Aliansce and brMalls, these numbers of guidance. Do you have a reference of your portfolio of Aliansce and brMalls in your portfolio?

Well, in terms CapEx and conversion. The most important thing is that we have equivalent images. Aliansce reported in the middle of next year in that we had the conversion of cash. It's the same index. Therefore, this is our objective in terms of CapEx and operational results. It's important to think and consider that, for example, in this first year, we're going to have a consolidation expense of IT processes and systems. Nonetheless, we're going to have the CapEx and technology part is going to be a relevant drop from the proportional standpoint from the next year's onwards, once we start to generate the synergies and this purchase of technology. What we expect until the middle of next year in margin and CapEx and cash generation that is convergent to what we are reporting.

And to finish, there is still one.

For the portfolio. We do not have the breakdown, no. But we have synergies in both portfolios. Specifically, when you look at the part of revenue or because we -- until January this year, we don't have a company -- we didn't have a company that we had 10 malls with selling over BRL 1 billion per year and another 35 malls thereafter with a total of 35 malls that sell over BRL 500 million a year. We didn't have that group now the most robust portfolio that sells BRL 500 million per year, and this BRL 500 million per year is a portfolio of 15 malls of the second biggest company. So we, in fact, are going to have 35 malls -- or 37 malls with this number. So it is a potential for partnership with the retail to increase the turnover of mix, improving the mix. And we imagine that we can consequently capture better results specifically with our tenants, better results for everybody. Thank you.

Next question is from Marcelo Motta, JPMorgan.

Two questions. First, if you can comment on the liability management, and there was a comment on data synergies, finance synergies we've seen brMalls and also your side that we had finance reduction of debt. Do we have anything left of what can be done? And maybe it's not included in the BRL 50 million that was mentioned, but considering the company that has a cash generation that is stronger, has the assets complementary, more robust assets. Could you wait for news? And the second question, is about disinvestment. I think the macroeconomics is not helping in that front. But when we're looking at the less sales that we've done, these are attractive cap rates. So do you think that it's, in fact, should we wait for the market to improve? Or can we think about doing something before adjusting that? How is the fine-tuning in the portfolio?

Motta, this is Daniella. I'm going to answer the first one. In terms of liability management, we just issued debt even in this challenging scenario in the credit market, Brazilian credit market. We have CRI, which is BRL 612 million. The minimum was BRL 500 million. So we managed to get an additional demand of BRL 112 million at a cost that is very attractive. We're talking about in a series of 5 years of CDI plus 1% and CDI plus 1.20% and the Series 7. So that reinforces the good visibility that the company has in the credit market. . The spread sheet is strong and the trust of the investors is strong in our company. So we managed to do this lessen and we're very comfortable with the profile that -- with that issuance, we have the opportunity for the prepayment of debt, containing the process of the management of liabilities that we've been doing for many years. We have a debt in the balance sheet that are still above 2.5, 3x the CDI, above the CDI. So consequently, we are going to work on them. Not all can be paid immediately, so we're going to using the window -- we're going to see the window in accordance to the availability of payment and the cash availability that with this transaction and with the operational cash generation, where it should finish with a robust cash. And we should do that improvement of the improving the profile of the debt. In regards to the macroeconomic scenario and disinvestment, I believe that the most important thing is for you to take a look at a portfolio that we don't have any malls that has an NOI that is less than BRL 20 million. No shopping mall is a shopping mall with difficulties of management or from problematic. Besides the shopping malls that are a bit smaller, they have a reasonable occupancy and they are not problematic. In some cases, maybe they are small for us to focus on the profile of 10%, 15%. It's not relevant for the whole that would be one of the concerns. And the other one is when the shopping mall is not commercially the main destination of the tenants. So these are the 2 criteria that we're going to continue to analyze, prioritize in the portfolio. And thereafter, we're going to review our stake. We've just seen Passeio das Águas that shows that shopping mall still has a lot of potential. But as we've demonstrated in the previous slide of the presentation, the shopping mall grew 145% since the creation of Aliansce Sonae. And this shows that with the new management, the shopping mall performed very well. And now we have a new cap, a shopping mall that was acquired in exchange of shares considering the same cap in 2018, 2019. Therefore, showing that this is important for the shareholders. We're selling at 8% cap, gives us comfort that we are doing the right thing in terms of investment and disinvestment as well. Now we still have demand for the minor participation, minor shareholding. But the market requires more depth. We need to have a deeper market. It's too shallow from the standpoint of checks and transactions. Therefore, it's important to wait for our portfolio. It's far away from having a problem. So we're going to conclude the integration all throughout the year with gains -- in operational gains. One company has been to learn with the other, we have the teams already mixed the management, each having their own experience and forming a management capacity that is more robust and maybe in the second semester or maybe next year, we're going to start to look at disinvestment, and we hope to finish the year below 2.5x the EBITDA even with the dividend that is important here in April that they will happen in April, I believe that the company starts to generate a lot of cash and has the potential to return capital in a more title and more relevant way for our shareholders. Therefore, all of this is supported by a balance sheet that is very well structured and a payment of dividends that we can consider as a recurring and consistent.

Next question from , BTG Pactual.

First, let's talk about the expenses. The expenses that we had in the fourth quarter, what can we wait in terms of one-off expenses? Do you have anything? A great deal was working with the fourth quarter. And the second question is development. Aliansce had a cost project brMalls as well. So I wanted to understand how the investment plans are for the new company? Are you thinking about more? Do you have any expectation of addition of areas from now on?

This is Daniella. First of all, in the fourth quarter, we got into the expenses referring the transaction. However, we are still working with the integration of the 2 companies. So it's natural that we still have a few expenses referring to the consulting companies, consulting of our HR, IT, the consulting of the integration itself that is still working in the first quarter. And as a reference to the brMalls legacy, we still have the expenses related to retention and a few expenses related to severance with more concentration in the first quarter, therefore, we're going to reduce all throughout the year after the first quarter. In regards to the project, multi-use project and expectation of additional areas, we're exploring the projects for a long time. We have projects that are very important in Maceió, Alagoas. We launched 3, 4 buildings and a hospital. Some projects that are very relevant in where we have a contract with to talk about some towers, and we are getting close to the local developers, so we can bring this potential, for the expansion of the shopping mall and the exploration of the land bank to real estate, so we can bring a qualified improvements to the shopping mall. When we think about the projects on the long term, we always prioritize the shopping mall and how can we do to actually highlight the capacity for each of these assets. Therefore, -- that's why we have several expansion projects just with the legacy Aliansce, BRL 4.4 million in potential that is for the future, where we balance between the expansion and the potential of the mix.

[Operator Instructions] Next question is from André Dibe, Itau BBA.

On my side, there is just one question that maybe -- we are still going to have the first quarter in the company that is still going to be talked about, but thinking about the long-term horizon after the integration that has been consolidated. What do you imagine there for the company in terms of strategy? Do you think that the strategy we are consolidating in the market? Given this deal, do you imagine that the company can become a company that is more yield -- that has more yield and therefore profit sharing more?

Andre, thank you for the question. We prepare the company, so we can get into this moment, we can make a few decisions. Certainly, now, there is the need for consolidation, which is lower, because as we can see on one of the slides here, adding the relevant brands here in Brazil, we separated 8 brands, but we can get 20 best brands, and we can see that are very similar. We have at least doubled the number of operations of the best brands and some of the small competition, we have a comfort that in terms of relevance. In terms of impact in the wholesale, we have a size that is -- that makes a difference in regards to us being a smaller company in one of the regions -- in some of the regions. This is one of our objectives to differentiate ourselves. Now, having reached this objective, we obviously are potential consolidator for the industry. I don't think that we are not the only one or others that have a in our business, and we are going to continue consolidating, one way or another, maybe we're not going to have so much of an impact relevant as when the fusion happened, because of the size of our company now. So I don't see that one thing is a conflict with the other idea. We're going to be a company with a robust cash management. We will continue to do the disinvestment of the malls, we have less potential, and we will continue to reallocate the capital in investments with expansion, new projects as well as purchasing malls that maybe eventually will come up and they are for sales. We want to work with the dominant malls in cities and urban areas and that we can have the best destination in town. These are our objectives. Within these objectives, of course, we have returned the capital profit share for the shareholder, but of course, in a predictable manner. The predictability is key while the shareholders can expect to receive in a company that doesn't have a high leverage and it doesn't allow for the company, for example, to do a strategic investment once we are very leveraged. This is not going to happen. We are prepared, should that happen. And when we have an opportunity, we can consolidate certainly. However, the first year, the company is a year focused on integration on improving our commercial practices, improving the management capacity, we have a lot to learn one from another, and we also have to look outside and adopt new management models and processes that can help us. I think we should get a cash return and we can show the shareholders that there is growth, but there is a capital return that is predictable relevant for the shareholder along the way.

Next question is from Tainan Costa, UBS.

Congratulations on the results. I wanted to know a little bit more about the following. You were talking about these past 2 months, is there maybe something an element that helped highlight that result, maybe something that happened with a tenant or a region? And also still on stores, what is the distribution in terms of segments now for your portfolio for the 2 consolidated companies? Do you see any possibilities to improve the mix?

Tainan, thank you for that question. Actually, we've seen a general improvement in our portfolio. I think in some of the regions like the north of Brazil, Northeastern region of Brazil, it's been very robust. In some of the areas, it started to recover with more momentum now. So when you see the combined results of January and February -- In January and Febuary, we had that impact of Carnival, which happened in March last year. And we believe that there's going to be a recovery in March this year as well. So it was stronger. And I think in terms of demands for retailers, we see a very good demand, very high demand right now. We understand that, that is happening with home appliances. We see that happening with services, with food as well as food chains that a lot with the pandemic, but now it is returning. I think -- we think that this is -- we're always looking for opportunities to improve the mix of the mall with more opportunities for over years. We want to have always high quality in our portfolio.

If you don't have any more questions, I'd like to give the floor to Mr. Sales for the final thoughts.

Thank you very much for the interest in our earnings call for Aliansce Sonae plus brMalls. We are very optimistic with the perspective of the company working together, and we remain at your service should you have any more questions that you have all throughout the quarter and you can contact our team. Thank you.

Thank you and the earnings call of the fourth quarter of 2022 of Aliansce Sonae is closed. You may disconnect. Have a wonderful afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]