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

Good afternoon, and thank you for waiting. Welcome to the earnings call of Allos. For the discussion of the results for the third quarter of 2025. We have here today Mr. Rafael Sales, President; Vicente Avellar, Director of Operations; and Ms. Daniella Guanabara, Financial Director and Investor Relations Director. This event is being recorded. [Operator Instructions] We are transmitting this event via webcast, and you can access it at the IR website of Allos, and you have the presentation there. The replay of this event will be available for a period of 1 week. [Operator Instructions]. Before continuing, I'd like to state that any forward-looking statements that are done during the earnings call regarding the business perspectives of the company, projections and operational goals and financial goals are based on beliefs of the Board of Directors of the company based on information that is currently available. Forward-looking statements are not guarantees of performance. They involve risks and uncertainties. They refer to future events. Therefore, they depend on circumstances that may or may not occur. Investors should understand that general macroeconomic conditions, industry conditions and other operational factors may affect the future performance of the company and might lead to results that are different from those stated in the forward-looking statements. Now I'd like to give the floor to Mr. Rafael Sales. He will start the presentation. Mr. Rafael, the floor is yours.

Good afternoon, everyone. Thank you very much for your interest in the results of Allos.. This third quarter, the company consolidated the integration with the conclusion of the process of the unification of the ERPs overcoming this stage of stabilization. And today, we have a structure of back office and systems that are very robust, integrated, running without hiccups. Another important pillar of our integration thus far is that our operation as a whole in terms of revenue, relationships with tenants, growth of sales, launching expansions was done without ruptures, which is something rare. We know of the integrations of the challenges on integration and in M&A. We saw the companies that have done important transactions through the years. They consolidated their industries, and they had difficulties. For example, they had write-offs. They had difficulty in the cultural integration. The results dropped. And Allos all the time through the fusion and thereafter, we had growth in all quarters since our creation in March of '23. So I would like to say that the operational excellency is the second point of highlight in the integration of the culture of Allos. And we are demonstrating that we are in a good path with our business team working together, developing new opportunities, and we're moving forward. Third point that I'd like to highlight is our reworking of the portfolio. We've done many disinvestments. We are still investing in our shopping malls, specifically in those that are highlight in our portfolio, so we can continue to grow more. This is all in regards to the results that we've already seen in the past. Our gains in selling through square meters and NOI through square meters in general terms are very positive since the fusion, specifically when we look post pandemic that we have very expressive results, improving in a highlighted way, the efficiency, operational efficiency of our business. The fourth pillar is our balance sheet, an exceptional work that was done through all the team that improved our financing. And when we did the [ fusion ], the new company in January of '23, we used to run the cost of debt of CDI plus 2.5%. Now we have a cost that is much lower than that. The last capture was even below the CDI index. This allows us to -- as soon as the interest rates drop, we are going to capture the total effect of the drop of the rate once our spread is very low, which is compared to the best companies that access the market. And as a demonstration of that, we've kept our AAA ratings that today give us a unique balance sheet to access the capital markets. Therefore, today, we look inwards after this integration that was successful. And we look at a few opportunities that we understand that are important, and we already started to attack those. One of those is to gain more operational efficiency. Once we integrated correctly the company in a post-fusion moment. And therefore, we can continue to deliver growing results in the quarter without hiccups. The opportunities are in optimizing processes, reducing bureaucratic flows trying to be more efficient. And therefore, we are implementing since the inception of the year, a gain of efficiencies of short, medium and long term. In the short term, we already executed important measures over the last quarters, implemented a reduction of organizational structure with the processes that will generate results from the first quarter of '26 onwards. And as you can see, this quarter, we've had a dropped robust of costs in 8%, which confirms the trend from the previous quarter. G&A is flat regardless of the inflation in the year, but the adjustments that we've done, we can see drops of expenses from the first quarter of next year onwards. This is a gradual process done with care, respecting the culture of the company and continuing to deliver an execution of excellency, which is our main objective. Another important possibility that we have from this successful integration is trying to find a more efficient capital structure, releveraging the balance of the company. Today, we have a lot of liquidity. We're running with a cash flow much higher than we run in the past for two important factors. First, because of the great conversion of results of revenue and cash -- revenue over revenue and cash. We generate a lot of positive cash flow. Secondly, by the reduction of our indebtedness and our cost of debt. With that, we are very comfortable to be able to rebalance -- releverage the balance of the company step by step, keeping our capital structure -- current capital structure. Now I'd like to go to the next slide, and we're going to talk about the selling operational results. Third quarter, our shopping malls had -- we sold over BRL 10 billion, a growth of 5.5% in regards to the same period of last year. This result even with the impact of the movies that didn't have a strong public in the last year with no strong launches in '24. This factor influenced the same-store sales, which grew 2.9% against the base more robust of the third quarter of '24, which grew 6.2%. To illustrate same-store sales in cinemas in the third quarter of '24 grew 11%, which makes it difficult for a base of comparison. Since we've confirmed over the last quarters, our selling continue to overcome broadly the selling of the retail in Brazil and the [ Abras ] shopping malls, which reinforces a gain in market share in the main regions that we are, and we've captured more and more the attention of our consumers and clients. The regional highlight for this quarter was the North, North of Brazil with the malls that are there that grew 8.8%. Slide 3. Now let's discuss the commercial position. Well we reinforced the leadership and attractiveness to our tenants, and we've had -- they've demanded ever more consistent spaces. It's a surprise given the macroeconomic complex scenario of high interest rates, much higher than we expected at the beginning of the year when we did the budget of last year. This quarter, we signed 241 new contracts, and we closed the period with an occupancy rate of 96.5%. Amongst the launches, we have two stores of [ FARM ] in [ Shopping Vila Plaza Sul and in Catuaí Shopping Maranga ]. Besides [ Cohumambo in Independencia ] Shopping, two stores of [ Sepfoa in Mocaplaza ] Shopping and another one in Shopping [ Campo Grande ]. So we have to say the H&M shopping mall, H&M store that will be launched next year in Norte Shopping. And we launched on October 30, the first H&M store of the portfolio in Parque Dom Pedro [ Campinas ] and had a strong performance of sales at the beginning. Let's talk about the results, financial. Slide 4. We've had a solid performance of sales that resulted in gains, real gains of rent. Third quarter of '25, we had a growth of 6% in rent revenue, same-store rent, 6.5%. The Media segment, we started the operations in airports at the end of July, still in an accelerated rhythm ramp-up, growing 25.2% when you compare to the third quarter of '24. Now the parking lot revenues, they've also highlighted with an increment of 10.2% in the same period. Combining the growth of revenues and the reduction of costs and expenses, we've had the results of NOI and EBITDA, they were leveraged with gains in the margin. Our costs dropped a lot, 8.1%, and our expenses of SG&A were stable regardless of the inflation. The NOI got to BRL 586 million, an increase of 7.8% and the EBITDA margin closed with 73.2%, again of 100 bps in regards to the previous years. And I'd like to say that the revenues of our restructuring of the organization and the efficiency program still was not captured in the G&A of the quarter. We should capture it in the next quarter. So it's something that we should check in the next call. In regards to FFO, we've had BRL 305 million in the quarter, an increase of 3.5% regardless of the interest rates much higher than the previous year. And the FFO per share, which is a highlight, grew 9%, pushed by the repurchasing of shares in the period. To conclude and complement to what I just told you at the beginning of the call. Over the last years, we've had several strengthenings of our portfolio, and we did investments that were important in our malls. Now we are deleveraging even more our balance sheet. When the interest rates climbed up, we were going through deleveraging in the company. And we went through the high interest rates with the indebtedness dropping and the cash generation is strong. Now we can use this moment to make a strategic decision. Given the current scenario of the economic growth of Brazil with the political uncertainties and the cost of capital is still high, we opted by reducing investments, which would make us even more deleveraged. That's why it's natural that we make a decision of not keeping the company with so much cash flow. I don't think it's healthy to keep the rich company in cash flow. It's not a synonym usually of efficiency. Therefore, we're giving a guidance of dividends that was already approved by the Board. Based on an expectation of keeping the company with a leverage that is closer to 2x than that over EBITDA, we're going to increase our dividend in almost 3x, as Dani will detail up ahead when we talk about the intention of reducing CapEx and keeping the capital more leveraged. I'll give the floor to Dani, and I'll come back in the Q&A. Thank you very much.

Thank you, Rafael. Good afternoon. Now let's talk about our operational indicators. The cost of occupancy closed at 10.5%, 30 bps above the previous year, capturing the opportunities of closing the new contracts of rent and renewals with the leasing spreads that are real. The net delinquency had controlled -- is controlled and stable with low levels, closing the quarter at 0.9%. The comparison with 2024 reflects the renegotiations that are pinpoint that occurred over the last year without structural impact on the quality of the base of tenants. Slide 6, continuing the case study. And now we would like to highlight the strength of our shopping malls in the Southeast. Allos has 21% of market share of sales in the region with 4 of the top 5 shopping malls in sales and NOI per square meter located in the Southeast. This reinforces our leadership and capacity of generating results that are superior. I recommend that you read the release. Going to the next slide. Let's talk about the media business, which is one of our engines of growth. In the third quarter of '25, the media revenue grew 25.2% in regards to the same quarter of the previous year, representing 88% of the gross revenue of the company in advance of 130 bps. This performance reflects a higher business volume, pushed by the seasonality and the strengthening of the fourth verticals of actuation that already works at the airport since the end of July. Our financial management is still efficient. The average rate of the financing of the company in the quarter was CDI plus 0.7%, which resulted from the several actions of liability management that we've done in the previous quarters. The profile of the indebtedness is still 98.2% indexed to the CDI and 1.8% prefixed with a leveraging of 1.7x net debt over EBITDA that gives us flexibility to study different approaches in the capital allocation as we will discuss ahead. Going to the next slide. Let's talk about the front of efficiency and expenses. This quarter, we followed the program of gains of efficiencies with the simplification of structure and the processes of Allos, and we are getting the low-hanging fruits. When we compare the SG&A over the last 12 months, where the values of 2022 are adjusted for inflation, we reached a reduction of 13.4%. As Rafael said before, we've done a reduction -- relevant reduction in the organizational structure that had an impact in this quarter, but it will affect the SG&A more relevantly from the first quarter of '26. Next slide. Aligned to our capital allocation strategy, we defined a new projection of the CapEx for 2026 between BRL 350 million and BRL 450 million, a reduction of BRL 100 million in regards to the estimation for 2025. This decision reflects our strategic vision, facing a macroeconomic scenario that is challenging. We will prioritize small projects with quick implementation and bigger returns, maintaining efficiencies and generation of value even in an environment of macroeconomic uncertainties and political uncertainties. In other words, we will do intelligent and responsible investment, seeking efficiency in the capital allocation. In that sense, given our great liquidity and the balance, the strong generation of cash flow, our schedule of amortization of financing and the provision of reduced CapEx, so we can keep the capital structure more efficient, we adopted the strategy of deleveraging our balance to around 2x net debt over EBITDA, returning the cash to our shareholders. With that, the Board of Directors approved the payment of BRL 146 million in dividends for the month of December of '25. And for 2026, we have approved the guidance between BRL 0.28 and BRL 0.30 per share per month, which is about 3x more than what we were paying monthly through 2025. The prediction of dividends to be paid between December '25 and December of '26 should be a total of BRL 1.9 billion. These results show that we are delivering growth, efficiency and generation of value for our shareholders. Thank you for your interest in Allos. Now we're open for the Q&A session.

[Operator Instructions] First question, Gustavo Cambauva from BTG Pactual.

I'd like to ask you a few questions. It's more related to the dividends, not so much the quarterly results. First of all, I'd like to understand more. It's a discussion that we've had in the past about the utilization of the reserves for the payment of dividends. I remember that the last conversation that we've had, you had an understanding that maybe you could use just a buyback, not just the dividend. But since you announced now this guidance of dividends, I would like to understand if something changed in the understanding the lawyers, et cetera, and then you feel comfortable to utilize this reserve? Also, second question, talking about dividend. The guidance is a payment that is monthly next year. Well, I want to understand, given that the company has made this decision of paying the dividend, wouldn't it make more sense for you to announce and pay everything now once we have that issue of the discussion of the taxation, wouldn't it be interesting to anticipate? And then I want to understand the rationale of why doing it monthly next year and not this year payout to avoid taxation. Lastly, I want to understand how do you think about the recurrence of that? Of course, the guidance is only for the next year. but thinking about '27, '28, would you still be -- you would still be below the projected what is '26 in terms of EBITDA. Do you continue below in 2x net debt over EBITDA. But on the other hand, there is the reserves there are going to be reserves in '27 to keep a dividend so high given that the net revenue is less than the distributed dividend. So I want to understand how you foresee the possibility of keeping this threshold of dividends, maybe thinking about '27, '28.

Starting with the canceling of shares, we have comfort and we can distribute through canceling or the distribution of dividends. When we discuss in regards to the payment, monthly payment for next year, the issue is if there's going to be taxation or not. When we talk about the part that was already announced of December that will be BRL 146 million, it's announced and it will be paid in December. So it's before to the new legislation. So it will not -- we will not get taxation. And we're studying with our lawyers and our consultants that the law was just published. We still need to understand what is the best way of declaring those dividends for 2026. Would you like to complement?

[indiscernible] Rafael. In terms of balance sheet and capital studies, the most important is to understand the dynamic of the rationale. Rationale is company stabilized completely post integration, results, predictable, strong even though the growth is not so strong as we would like in Brazil. And because of these issues, the cost of capital, the leverage of the consumer. So it's not a moment of accelerating investments. It's -- well, we are reducing the investments, natural that we will keep the expenses dropping. We're going to have more cash flow in the operation. Therefore, we still have a CapEx -- that is interesting to keep the shopping malls attractive to bring news as we have announced. We will still have capacity of investing in the business. But given the growth that is more moderate, we also invest less, and there is some capital left. So we're going to try and find -- and we go back to releveraging the company because at no moment, we totally deleverage the company. But at the moment of post integration and in the middle of the process such as these, we're more cautious, less leverage. Therefore, we have a high cash flow in the company. So it's a cash flow that a company with BRL 3 billion in cash flow. So it's natural to distribute this cash. At the same time, we understand that the adequate way as a gradual way. step by step. That's why we prefer the monthly payment of the dividend instead of paying the lump sum of one time and leverage the company once because the overview of having a recurring payment, we understand that is positive for the shareholders to create the recurrence of the return that the company provides to the shareholder. So between taxation or not, several of our shareholders will not be taxed with the change in the funds in Brazil. So several funds are not going to be affected in that way. So we need to do what is more adequate for the strategy of the company and not necessarily guide ourselves through taxation. The idea is to pay in installments monthly. Having said that, the publishing of the dividends can be done differently, depending on the final interpretation of how this possibility of announcing and paying afterwards and we're starting. So that's why we're announcing that the intention is to distribute this range of 28% -- BRL 0.28 sorry, per month and as necessary, we define the way of payment over the next few months. And the recurrence of that for the future, I don't see any limitations actually because of the cash generation and the data that the company is going to have next year. And certainly, 2027 by all the projections that we have analyzed and also by the deleveraging natural deleverage that we're going to have in a positive combination of interest rates dropping and the opposite, which is the interest rates high going up and even we could deleverage and with the financial expenses, the CapEx grew regardless. So all of this allows us to state that given the current scenario of growth and the CapEx and the level that we are announcing and with less expenses and more cash flow, it's natural that we keep levels of dividends similar to these using the recurrent revenue and the reserves that we are creating. So we discussed in the Board on the 2026, which is obviously the way that we can work. And we have to -- we cannot tell you the dividend of '27 now. But doing the projection, we have in the company, the possibility of keeping the level of dividends and the interest rate dropping it's going to be more attractive. With a smaller interest rate this year, it will be more interesting for the investor with the return. Of course, if there is great opportunities of growth, we're going to discuss this with the investors. And also, we can leverage the company even more. There's still a lot of space for leveraging in the balance sheet that we do not use because of the current scenario of uncertainties of the interest rates and the macroeconomic and the political uncertainties that doesn't allow for the growth of Brazil that could unlock more investments than what we do today. And today, we consider that it is far away. That's why today, our scenario is that what we are saying to you. At the same time, we are keeping a great level of investment in our business. Thank you, everyone.

So a quick point, my doubt, in the recurrency leveraging seems okay in the cash generation. My doubt is in the projection with the accounting with the FFO, with the cash generation that we're going to use almost all the reserves if you don't think that in '27, '28, can we go through the same limitation with the reserve issue? And in your projections, will it -- so the revenue grows so much that we get you close to that dividend. So that's my doubt because in the leverage, I don't think that there is a limitator.

Well, actually, look, the most important part of this is recurring cash flow. So our cash flow is recurrent. And it's paying the dividends, the recurrent, which would be a big absurd. But I agree with you. From the material standpoint, what is the most important is what we think that is sufficient to pay and -- on the partnership issue, there are several strategies, even going back to using the repurchasing. So what's interesting to us is that there are ways of generating reserves. There is the recurrent net revenue to be generated by the company. And the most important thing that you've discussed is the cash flow and the leveraging gives the economic fundamentals for the distribution of capital. So this is an important value for us.

Our next question comes from Herman Lee from Bradesco BBI.

Two questions. First of all, there was a reduction of operational expenses that led to an improvement in the margin. So I want to know how much of that is synergies of Fusion or that's initiatives from the company? And what can we expect looking up ahead in terms of capturing of efficiencies? And the second question, given the perspective of growth of EBITDA and NOI over the next quarters, an environment that we know that is decelerating in the company -- in the economy, I apologize.

As we discussed in the release, we are doing a project to gain operational efficiencies in the company. So it's been 3 years after the combination of the businesses. And after we've done a big process of disinvestment of the assets, we studied our structural -- our capital structure, and we have space to have the gains of efficiency. So we've done a few movements. in the third quarter, but that you should look at the impact of these movements through the year of 2026 as a whole. So that, in general, is a project that is not simply that starts in a month or ends in the other. This is a journey that will take some time. And we will go over not only the expense structure, but expenses, CapEx that resulted in this reduction of CapEx. So what we imagine and by decreasing the structure of cost and expenses as the revenue of the company grows and then you see that in the quarters that we are discussing. We're going to see the growth of EBITDA and NOI we are trusting that it's going to be within the guidance that we have. We are seeing commercial strength that is very good, very interesting. We saw the third quarter a signature of contracts very strong. When we look at September in and of itself, we're talking about 90 contracts. So more so, we added a lot of areas because of these contracts. So you see a response in the occupancy rate. In general, in this quarter, we've seen a recovery of revenue of rent because of IGP. There is a deceleration, natural one of IGP for the fourth quarter, but we believe that with this process of efficiencies, we will be able to deliver an important result. And I reinforce what Rafael said that even with the macro scenario, we have had growth of FFO and most importantly, the growth of FFO for the share in this quarter. So I'd like to reinforce right now the capacity for generation of capital.

The next one -- the next question, Ana Julia Serkowski from UBS.

We would like to explore this point of the dividends. If you can share with us how is the composition of the BRL 1.9 billion in cash flow, part FFO, part leverage. So we want to understand if there is a potential for this investment in this amount? The second one, we have an operational performance in the fourth quarter. If you can share the performance of October, so you had the H&M in [ Parque Dom Pedro ]. So if you have the numbers of how is the performance of the store, but we want to understand the performance of selling, the acceleration of October versus the third quarter. Is there any reading for November?

Actually, October is accelerating in regards to the previous quarter, the base of comparison for the same store in the third quarter was really higher. So we had a bit of a hindrance. We also had a lot of engagement of the consumers in our app, the growth of the same-store certainly better than the third quarter, the total sales as well. The launches that we discussed in the call are very important. Some of them are consequences of investments that we've had. For example, the H&M is a consequence of a revamping of the redevelopment of the area of Parque Dom Pedro. And consequently, it attracted new stores. It is an area that had something totally different from what we were working. It's fashion and lifestyle, and it's a consequence of the investments that we've done. The investments are maturing, and we have the launch still this month of [indiscernible] along with multi plan, we -- it's exceptional what we've had. And the other project that we are working, Shopping [indiscernible] that is already open, but we're going to do the complete launch of this month and several other projects in Bahia complementing and we've completed this movement. So several projects that will lead to an improvement in the fourth quarter that should be affected by these news. So this is the dynamic of the fourth quarter. It's apparently better, but the comparison base of third quarter was better, was higher. So we saw the same-store sales in the third quarter of '24. So in that way, I would like to say as before, we are far away from being at a moment that the retail is growing at a breakneck speed, but it's not, but it's growing. We're getting the fruits -- the low-hanging fruit of the investments over the next years. So we are maturing. We had a launch that was in the first quarter of next year. And we have the launches of stores that are being done in the works, and we're doing the revamping of [ Villa Lobos ] and this is reflecting in results. So many measures that we have operational growth, and we understand it in October, we are doing well. So November, we are doing well for the fourth quarter. It should be good. About synergies, I'm going to give the floor to my colleague.

How can we work that [ 1.9 ]? It has to do with what we are discussing, the capacity of generating the cash flow that the company has. So improvement operational efficiency. We are reducing CapEx. We are improving the SG&A of the net revenue and opening more space for generation of cash flow. It's a comfortable position of cash flow, and we are very comfortable. And it's important to mention that we don't have any other disinvestment. It's not at the moment. So this is not the scenario of this investment that is favorable. We already did several disinvestments. We deleveraged the investments, and that's why we have so much cash flow. So none of everything that we are discussing has to do with disinvestments. It's outside of the projections. This projection is recurrent within the dividends and the cash flow and the dividends.

Next question, [ Carla Grasa ], Bank of America.

I have two on our side. First of all, I'd like to talk about the CapEx since you were discussing the projection for the next year. It's a bit lower than what we have for '25. Can you give us an opening on what are the expansions that should pull this CapEx? And thinking about the long term, what are the shopping malls that still have a potential for expansion? And the second question has to do with rent, IGP-M. You discussed the IGP-M that is accelerating and that has generated for the rent difficulties. Can you comment on the perspective of rent for the next quarters, the negotiations with the brands that just closed the contract?

Thank you for the question. The CapEx, these are projects that are smaller pinpoint. The expansion of [ Chizuca ], we have a few projects that we have the project of [ Manauara ] Manaus and taking that, we have spaces case by case, revamping a change of restaurants, everything very pinpoint that generate results still within the year. So it's important. These are projects that are focused in most 12 months of maturation, which is the focus of the next year in terms of CapEx. So CapEx that is more focused in quicker projects in a more challenging year, given that we've expanded the big expansions that were done until the end of the year. So this is our guidance that we have today. We don't have any project that will demand a percentage that is much higher, more relevant than the CapEx. These are pinpoint issues. And it's smaller because we have a reduction if you take from 2022, the company had -- the two companies that invested over BRL 800 million and then an amount in 2023, less '24, '25 higher number. So it's natural that we have a smaller CapEx, and we have the potential for expansion, very big in the portfolio. Many of the projects, we've had over 200,000 meters of potential malls amongst the 5 million square meters that we can develop of multiuse. We have at least 300,000 square meters of shopping mall, but we're not in Brazil. And we cannot do so big relevant expansions right now. We have two projects that are very good to implement. And we have [ Campo Grande ] we have to wait the correct moment and the approvals are ongoing. And in a scenario of growth that is stronger, we have these projects that will take some time of implementation because of the time of approval, of course. About the rent, we can -- well, as we commented, we've had an increase in this quarter. And naturally, the increases in the second quarter reflected in the third, and we see a deceleration of IGP. But with this commercial demand that we've had, we start to occupy more of the portfolio because we have a perspective that is more positive when we talk about revenue. So it's important to highlight that the company is diversifying its sources of revenue through the year. We've grown in our service line, the media that we've had the relevant growth. So beyond rent, we are being able to deliver significant results and with the growth of bottom line, even in a scenario that is challenging with the interest rates of 15%. So we've managed to generate cash flow. We return the -- we have the return for the shareholder.