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

[Audio Gap] officer and Investor Relations Officer. [Operator Instructions]. After, we will begin the Q&A session for analysts and investors only, and further instructions will be given at the time. [Operator Instructions]. This event is also being simultaneously streamed via webcast, and you can access that on the address ri.alianscesonae.com.br where you also have the company presentation available. The replay of the event will be available after the end of the call for a period of 1 week. [Operator Instructions]. Before proceeding, we would like to clarify that any statements made during the earnings call regarding the business perspectives of the company and operating and financial goals of the company are based on beliefs and assumptions of company management as well as any information that is currently available. Forward-looking statements are not a guarantee of performance as they involve uncertainty, risks and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors must understand that any general economic conditions and industry conditions as well as other operating factors may affect the future performance of the company and may lead to results that differ materially to those mentioned in such forward-looking statements. Now I would like to hand over to Mr. Rafael Guimarães, who will begin his presentation. Mr. Salis Floor is yours.

Good afternoon, everyone, and thank you for being interested in our results before talking about the company's earnings, I'd like to say that Aliansce Sonae plus brMalls is now ours. We're beginning a new chapter of our story. I'd like to mention this is a legacy of over 50 years since the inauguration of the second shopping mall in Brazil, the shopping of [ Bahia ] in 1975 in the city of Salvador. And since then, with the changes in consumer relations and focusing on customer experience, our shopping malls solve many challenges or small challenges in urban life that transform moments and service within Charman and focus on people's priorities in addition to driving business that lead to connections and opportunities. In 2023, Aliansce here by bringing together 2 of the main stars in Brazilian retail, bringing together their strengths and strengthening this new entertainment lifestyle services and purchases platforms. And this new brand is here to strengthen our purpose to connect people, business and society, serving and enchanting every single day. The name Aliansce comes from the Greek world, Allion, together, [ respectively ], mutually Aliansce of experiences. So we're a platform that connects people to experiences that brings the experience to or enchantment to this experience. On the first slide of the presentation, you can see the QR code for our institutional video to launch the new brand. I'd like to invite you all to visit the contact whenever you have an opportunity. The main takeaway here is that we're looking at the future, and we will continue passionate for our work in moments that and transform people's lives. Now moving on to the results for the quarter. I'd like to ask you to take a look at the next slide, where we go into the details of the second quarter. So our revenues added BRL 644 million meaning a growth of 12% year-over-year of the 2 combined companies, obviously, across the last 2 years, we followed the strategy of maintaining occupancy in our shopping malls, and they are at very healthy rates. So this scenario led to and acceleration of removal of discounts that we had in the past, but now reinforced by capturing synergies and revenues with the business combination that originated Aliansce. As a result, total rental revenues was BRL 488 million in the quarter, 12% higher year-over-year. It's interesting to note that in this quarter, our same-store rent was 11%. That indicator is close to the rate of growth of rentals showing a convergence of profitability of the renewals area and new rentals. The Aliansce NOI was BRL 563 million in the quarter with a lights of the good operating results and cost efficiency, even though you had higher provisioning in major retailers, as you know, they are going through financial troubles. EBITDA BRL 473 million increased by 12% year-over-year with a margin of 73%. That indicator was also benefited by our real estate incorporation operations developed and for dedicated the opportunities that add value to the shopping mall and create more density in our areas in which we are doing business. On Slide 4, here we can see company sales. In the second quarter, we've achieved BRL 9 billion in total sales, growing 5% year-over-year, and that's a slowdown compared to what we had in the first quarter. In May, we had the worst growth. And in June, we already had a comeback being the strongest quarter. In July, we had total growth of sales of 10% compared to July last year. So we'd like to highlight that, that figure is preliminary, not audited and will be reviewed when we provide results for the third quarter. It's important to mention some of the highlights of our portfolio in the second quarter because the shopping malls in Sao Paulo had 2-digit growth, such as Tampere, Campolipo and Baru and the same level of performance, Maceió and [ Catarina ], which are top 5 for growth in the quarter. When we go to the year-to-date, the Midway left is the highlight, 12% higher than the first half of 2020 compared to the first half of 2022. It's interesting to see the sales of that region, which is driven by the economy and especially the results of agri business. So we're very well positioned in the Midwest. As you all know, we service many different capitals in the region. So the out of occupancy rate was 96% so you can see that, that level is a bit lower than what we've seen in the past quarters. And that variation occurred as a result of our decision to go back to strategic places 4 large retailers that are going through financial difficulties. It's worth noting that, that's an opportunity to increase the potential and profitability of these areas by the saturation of areas and other operations that reinforce and qualify the mix in our shopping malls. The difference that we currently have in the total performance in same-store sales showed the success in the new mix. So the new stores in our portfolio had an increase in sales of 47% year-over-year. And that's very high. So that number positively contributed for the performance of the portfolio in the quarter overall. In the next slides, Danny will go into further details about our results. And then I'll come back in the Q&A session. Thank you very much. Danny? Thank you, Rafael. Good afternoon, everyone. I'd like to move on to Slide #6, and we're going to talk about our work to manage liabilities and the financial results of the company. In the second quarter of '23, we had a drop in the average cost of debt to CDW plus 0.8% to 1.9% in 2Q '23. So that's a result of prepayment of higher debt in the issuance of financing at more appealing rates in 2023. We ended the quarter at 83% of our debt index to the CDI, 15% prefixed and 2% according to inflation and our leverage is 2.4x net debt over a bit. On Slide #7, we have the rig operational indicators. We ended 2Q '23 and occupancy cost of 10.8%. That level is sustainable for our store owners operations, so net debt is at a controlled level. net indebtedness of 2.5% for the period, a drop of 2.1 percentage points compared to 1Q '23. The variation compared to the same period of the previous year can be mostly explained by the large volume of recoveries as of 2Q '22. Now we have some highlights of our sustainable journey. We've had some important acknowledgments from the market regarding our positioning in relation to our company was acknowledged by Exame Magazine with the best ESG 2023 award for homebuilding and real estate category. We also won 11 trophies in the Brazil. So gold and people management silver in sustainability. So this quarter, we can also highlight the materiality matrix of Aliansce. This matrix is a way to identify and prioritize the more relevant ESG matters for the company and its stakeholders to help us make our strategic decisions. It's worth noting that the results obtained in this process has confirmed our directions in relation to the public commitments that we had taken on and will be the grounds for the future in terms of our sustainability indicators. Now on Slide 9, we're going to talk about the digital transformation at Aliansce, about the relationship programs, the number of customers registered was BRL [ 270,000 ] a growth of 250,000 users compared to June 2020. The reflected the share of 29% of the sales captured in the program with a 4 percentage point growth compared to 2Q '22. So engaged customers is fundamental for the relationship program. According to the results of the second quarter, we had some success cases for stores owners that had an interesting increment in their sales through the actions of this program and the synergy of these consumers that we're engaged with the digital shopping. Next, we'll talk about our real estate development program. So on the result, we have a compilation of the expansion, reveliization and redevelopment short-term programs. We're talking about projects that in lot of shopping malls of the company at a total of 173,000 square meters of area that will be intervened. Out of that 61,000 square meters at an already inaugurated since 4Q '22 and 113,000 square meters are currently under construction. Regarding the multi or mixed-use projects, we have 2 novelties. In second quarter 2023 received almost BRL 8 million for a project that will be developed by contopemonia, which will be built adjacent to Park Shopping [ Maia ]. The project envisions the construction up to 3 towers and 1 will be for business use. So 45,000 square meters of private area with the density of over 2,500 individuals in the primary year of the shopping mall. In July, we closed the negotiation of a land close to North shopping with our JZ [ Soraa ] development company. So there are 5 residential towers in stores totaling more than 56,000 square meters of private area with an anticipated density of over 2,200 individuals in the shopping malls primary area. Thank you, everyone. Now we'll move on to the Q&A session. Now we'll begin the Q&A session. for investors and analysts only. [Operator Instructions].Our first question is from Bruno Mendonca from Bradesco BBI. Danny, could you talk about the rental growth dynamics compared to vacancy? We saw that going up in the quarter. So that additional vacancy has to do with strong retailers that have -- are having financial issues. But at the same time, last year, we saw a more conservative discourse of years and transferring rental to maintain high occupancy during these moments of reopening and now I have a feeling that you're being more emphatic so to speak, in renegotiations and in this quarter, you had the highest growth in rental compared to other states and an extra point there in vacancy. So I'd like to understand your mindset in terms of the negotiations and what should we expect moving forward, not only in rental price growth, but also in vacancy. Bruno, Thank you for your question. I understand that question comes up when vacancy goes up. But actually, it's contradictory because across last year, when we were saying that we were going to be a partner of the retailers in the reopening process. It didn't mean that we weren't reviewing the contracts. We just weren't charging them full, especially the new retailers that had come in and we were opening stores and that there would be a ramp up during the year from building stores, opening restaurants things that took longer to get ready, especially when we're still -- we're trying to create a better environment and evolving the product so we can bring in more services events, great things. and replace retailers that may have outdated processes or sustainable model or -- excuse me, a financial model that's not sustainable. So that was dealing with the pandemic and then the recovery and this year, the areas we don't have to do with the growth in revenues from last year. Actually, growth revenue growth comes from normal ramp-up and specific factors of being fine negotiation. That's why our occupancy rate is very healthy, actually. So we still have good occupancy rates at higher than 11%. And even though or vacancy rate is 100%. So -- and bad debt is very much under control. And actually, it's coming from other things where we have to be careful. Where retail some segments in retail are still going through refinancing and other issues. There is no contradiction in the discourse. Actually, it's a continuation of what started last year and vacancy this year is actually relating to specific cases and stores that weren't really performing that well and the total sales and rentals are coming from other healthy operations. Therefore, the operation that are mentioned in the release, operations have 47% of growth sales compared to lower same-store sales and 47% growth in new stores after 2 months shows that there's the growth -- the total increase can come from that. So healthier stores. Danny, would you like to add to that? Just one thing I'd like to add. We look at the growth dynamics for rent. The same store event is very similar to total rent and that just corroborates what Rafael mentioned, in addition to the new stores selling well, we've been able to profitize the new stores areas in similar levels to the renewal areas. So when we hear that there's an increase in vacancy as a one-off this quarter, it didn't impact the results or our ability to make these areas profitable. And you can see a result that has a growth of 14% year-over-year. Okay. And just to add to that, would you expect or the second half. Should we expect more from the negotiations in for these distressed retailers? Or should this just repeat itself? For the flagship stores. So there's -- the demand are sustained, many for the quarter. 200 -- almost 250 contracts signed for the quarter. So the demand is not something that concerns us and we also have a demand for larger areas. Anchor stores coming from restaurants or activities such as services, restaurants and sectors that are growing, such as women's fashion, fast foods, general beauty services and cosmetics. The demand is very resilient, so we don't have any specific concerns in the reduction of area of these segments that are rail right now. We've been able to handle that well, replacing them gradually and without affecting the negotiation for future. Next question is from [ Ratos Nelonen ] from Santander. Hi, everyone. I have two actually. I'd like to understand what you're thinking of for portfolio recycling. So I'd like to understand your mindset of how that -- and which assets you're considering selling and what factors would help you decide if you're going to sell it or not. And the other point is how do you see retailers health and general separating the 2 different types? Thank you for your question. First of all, First of all, about M&A sales of assets and so on. Currently, we do not have any need to recycle portfolios because all our shops have NOI and sales that are very healthy and sustainable [indiscernible] NOI million. What we do have are shopping malls that have a position of not being a leader in the region or being small in the markets in which you're located in markets that have a limit in growth. So they're not sufficiently relevant for a company our size. We have 12,000 stores currently in the portfolio. And obviously, we count on a lot of technology for mix and price, but very important. The importance of reallocating capital. So it's capital reallocation. It's not portfolio recycling. It's capital reallocation. And we're very concerned about that after all its intensive capital. With one of the main items in management in a company like ours is capital allocation. So we have to understand that if it's interesting shopping mall. It's profitable. But if it's going to give us more work, it could be a lot more work in management in terms of scaling and then we can reallocate that capital something else where you have a higher potential for growth, and we have theaters and there's a to expand. As we've been doing in the last year, we bought Bourbon, [ optimal ], [ Tableau ], Goiânia and brMalls with Goiânia and Maceió. So all these shopping malls are going right way and becoming leaders in relevant places in large markets. So we have very healthy leverage different than what was presented during the merger. The leverage is once again one of the lowest in history. Its under 5x from -- according to the covenants. So allocating capital is more in that sense. That's a strategy, we don't have a conflict with the form of brMalls or former Aliansce Sonae as we're facing in leader shopping malls that have competitive differentials and one of the main destinations in their cities or region of influence. So that's the strategy. And that's the strategy for larger shopping malls and once again, that could happen in the potential to reallocate that capital in a more interesting manner for the company or for shareholders. to reach for dividends or by not where we have higher potential for growth or for the industry. So all of that is still valid. So we have specific segment for the anchor stores. That's a bit harder because of credit. So currently, the operations that require credit such as a shopping mall or few. In terms of total sales, it's not very relevant percentage. So they can see increasing and revenue is growing a lot. And rent adjusted. You can see that, that segment specifically didn't contribute the most in terms of rent or in growth of sales. So obviously, it's a segment that we want to readjust but structural aspects behind that. So we can adjust our mix of what consumers currently need and demand today. That's why the shopping malls are very healthy with high traffic and strong sales. In the in-line stores, we have intense activity for the in-line stores. Franchise is especially, it's very strong. And now with lower interest rates, the have already went back to loaning and especially working capital because the retailers were affected of what happened in May, there was a slowdown. In June and July, we see better conditions. So we're very satisfied with those perspectives for the retailers as well. Next question is from [ Cadence ] from BTG [ Paccar ]. Two questions from our side. First of all, about rental that you mentioned. In digital, the growth of rental, which is pretty much capturing synergies from revenues. I'd like to hear more about that. What would be the revenue synergies that you mentioned and the direct effect in the growth of rentals because of that and the second question is the 113,000 square meters in the works. So what would be the timing to open that? And what kind of return do you see for those new developments?

You show all the projects that are undergoing and to show what is under concluded. As soon as we have a definition of how and when we are going to start the other projects, we are going to that market now. Thank you. Next question comes from [ Tainan Costa ] UBS. Good afternoon, everyone. I wanted to explore what you commented on the excess communication. We've seen that now on, there should be a lower impact and you work with positive deposit costs. So what can we expect over the next quarter? Is it going to be close to the BRL 2 million store the payment for -- well, how much do you estimate that, that can represent in the next quarters, the premium that is a BRL 2 million order of magnitude? Well, also media it's the mall media that is rather of the occasion revenue. Is that 2% threshold is where you force recurrent? Or is there any potential for an increment? Or maybe was there an outlier this quarter? If you can give us some color, that would be great. This is Daniel again. In regards to the expenses of the combination of the businesses, we reduced the trifold of the fourth quarter. The first quarter was very high. And in the second quarter, we can drop 1.8%. What we have now scheduled until the end of the year, the expenses for the launch of the brand. These are pain points is not very different from what we reported for this quarter. Now [ Melemed ], I'm going to comment and then [ Vicente ] can take it away. This is a line that we expect... The services, then we have for shopping mall the building that is not choppy Moso are going to grow over the over the next quarter... And now I are doing the how the call as a rent will do the site -- the question is about the portfolios think that, that threshold of activity gens and they need a lot of space. So look. And in fact, we're talking with the first question well, the percent rule, but it doesn't have analysis of this bad debt merger every quarter is seeing this and... It's finance portfolio for the [indiscernible] and this cost in the previous the new tenants are ready may appear even reopen and we have we have more tumor. The retailers that are tailors with that debt that Brazil potential priced. So we are and we go until 2025. Thank you to that point, now I have 2 questions issue, that's under and how many more removed of the rent and the second question through the performance highlighted event, there is the -- that there is strong last year and in the today, we don't have a lot of contracts is basically. So in the close to we have that embedded I mentioned in the previous rent discounts or these all throughout the and it's -- but this area, is the main and it was growth of contract as I explained before for Brent and sales have are suffering with rent there operating in and that we have been without something very healthy. Well, from the center Arlant in improving the -- so it's tends of culture we have projects of multi occupancy of the has improved over the but was a success showing that in -- before I give it's very interesting what you between income and the shopping mall during the release and Marina -- all of these are very much in cold and see high so the expansion city and the performance and probably Berlin by deal seen better than some of the models our portfolio, if people found class as a share of wallet relevant more, even for our characteristics -- we can highlight all of income class. So dynamic. Talking about we have -- that was ingrowth are opposite relatively new we have good opportunity and flooring a second Macatawa was the we have discussion for Capa and opened recently have also under the while using the growth rising where it's in certain more vertical ahead interfere skills. -- hopeful and we after the Okay. understand the dynamic. Second question location -- as a return by the shareholders of the stake malls because there are allocation and. thank you for the question Multi from it. Yes. And I think that it's of real estate is the and for the development of the malls because potential rent building in the green business. So treat the the annual guidance we are always against here some things will come up view the overview of there is margin, it et cetera. We allocate the ratio, so we decreased the risk by the Nevada Trust risk of from that standpoint. So the project because my Norte shopping has parallel to it, the same thing we don't -- so that's why we don't get but we tell you what's eyes of deep we should have 7 of. So the result they are captured in. for these projects that the second quarter of the smaller long-term strategy potential for growth and there is there is a relevant malls for without any into consideration, the the that is a good model and to manage... In terms listed our we will pay and there with 50% in dividends, feeding accidental structure that for the work to do technology or product development. These are sales differential. It's important to highlight reporting in terms of the retail when you see the listed companies than better than Brazilian even more dynamic that we've gained the market is our best have a better product. So the capital criteria. Improving the consumer we can generate disinvesting in reasons that that are left -- in the case of you discussed -- so the time that we are going to pay for dividends and were lower than what we plan of indebtness, Sony can correct if it we will be the were never close ever getting so we don't but as we can good if the important today's cost of the debt among the big and choose... To differentiate the company. And now I'm going to let Daniel Any speaking. 40 until -- and thank you I'd like to hear more... Is that months -- that mean increase compared -- when we look at the category improved sales... Highlight first -- so and the rest of the quarter. questions to turn over our meeting with a high return as you mentioned, our -- so could you of retailer the base that -- is that because of the strategy or in type of retailer? The integration Mani, what are the 2 main things that you can see coming up. So those questions better so I'm going to end. -- on average, 2%. It's even a bit lower. -- number could change getting Considering a mix that would add on to the rate. for us... So reinforcing reinforce Beauty and Health it demand recently, Pat 1 region didn't have about the integration that started -- we were bringing together -- so we had together had to work well. The retailers we had you have a second quarter with very get through that -- we still have integrating IT we can also already with the results in... Moving forward. Thank you for... We're being interested once again. results retail a lot of money with us a great afternoon.