JHSF Participações S.A. (JHSF3) Earnings Call Transcript & Summary

Good afternoon. Welcome to the conference call of JHSF Participações to release the results of the fourth quarter of 2019. Today with us, we have Mr. Thiago Alonso de Oliveira, CEO and IRO; and Mara Dias, Investor Relations Officer. This conference call is going to be recorded. [Operator Instructions] This conference call is also being simultaneously transmitted through the webcast and may be accessed at JHSF's Investor Relations website at ir.jhsf.com.br and at the platform, MZiQ where the presentation is also available for download. Before continuing, we would like to say that statements made during this conference call relative to JHSF operation and financial projections and goals are beliefs and assumptions of the company's management, and they are based on information currently available. They involve risks and uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Changes in a macroeconomic scenario in the law and other operating factors may affect the future performance of JHSF and may lead to results that will be materially different from those expressed in such forward-looking statements. Now we would like to turn the conference over to Thiago de Oliveira, who's going to start the presentation. Mr. Oliveira, please, you may start.

Good afternoon to everyone. You're all most welcome to the conference call of JHSF about Q4 2019. I'm going to start it slightly different. There'll be a recap of a year that was quite atypical for us. We started with a level of activity in real estate that we had not had for a few years. All the launches are being made as part of the company's commitment towards its customers of leading quality and -- providing quality and excellence in our products to deliver innovative solutions to newly launched products. And I would like to highlight Fasano Cidade Jardim that was launched at BRL 830 million and Boa Vista Village, a project of about 10 years in execution for which we estimate a total of -- yes, of BRL 4.5 million in last year. We've launched it in phases. The first phase of the project, and then we are going to have the golf development. So we estimate that the PSV is going to be BRL 2.2 billion. In terms of retail, the year was significant. We had Moment store, the only store in Brazil of this brand, Peugeot, CJ Mares and Chloé, another exclusive brand in Brazil that is with JHSF. Further on, we'll talk more about our retail strategies and how this is fully aligned with everything that we want for this business unit. We didn't have openings just in retail. In restaurants, we have had 2 openings Gero Panini. Gero Panini, if you don't know, is a new concept that has been -- during 2019 that has already won the prize Opening of the Year by Visão Magazine. So we are developing new business and to open 2 Gero Paninis a year. I could not fail to mention also for last year, the opening of São Paulo Catarina Executive Airport structure that was thought based on safety or security and convenience for executive aviation users. This is an important project for the company. And fortunately, on December 16, last year, we opened it. And so we left the preoperational phase and we went live. We have also launched last year, the operations of Fasano in New York. New York City is an iconic city for any brand, and it wouldn't be any different for Fasano. We have 2 projects there, Fasano revenue that now already operates in soft opening phase. And New York -- Fasano New York restaurant that will open in the half of this year from the first -- the second to third quarter. So we also improved the capital structure of the company going through longer -- with a longer debt profile also because of reduction in spreads and also a primary offer that reinforced by more than BRL 1.5 billion the company's cash. I would also like to highlight that along 2019, we have had a significant growth in the basis for our shareholders. So this growth is more than 700% today. We have more than 51,000 shareholders investing their money at JHSF. So first of all, I would like to thank you for the trust you deposited on us. And on behalf of management, we are greatly honored with your participation with us. And also, along the year, we have seen a growth of 32x in terms of the average trading. So we have more shareholders and this has been an important step that we have taken towards improving the capitals market channel. Lastly, but not least, I am deeply grateful to JHSF team for everything that you have delivered along the year for a result that was very significant, not just in terms of results, but also in terms of generation of operating cash. And I would also like to thank all our business partners that have trusted everything that we had planned, that we've been able to deliver, our customers that are the reason why we exist and our shareholders, too. In this introduction, I would like to invite you to go to the first page of our presentation when we are going to start talking about the performance of our real estate development on Page #4 of the presentation. So I start saying -- talking about sales. The year for real estate development was a year of solid growth for Fazenda Boa Vista. It increased by 84%. We have launched and already sold BRL 96 million of Fasano Cidade Jardim, which is a project that is absolutely within our schedule and the works have already started, and Boa Vista Village that only in 20 days sold BRL 17 million. In a manner, the conclusion is that the consolidated sales have grown 190%, and we are firm with the objective of and delivering innovative and creative products as JHSF offers for the customers that have trusted in our team and that have bought many products that I have mentioned. As to revenue, we have had a growth in real estate development of 120% and the revenue of Fazenda Boa Vista has grown 99%. Fasano Cidade Jardim, of the BRL 96 million that have been sold, we booked only BRL 27 million in the results. So there is still some certain amount, another BRL 79 million to be booked over the next few quarters. This is regardless of new sales. Village, the BRL 17 million that was sold last year has not yet been booked in terms of revenue in 2019. And additionally, we will also have another BRL 16 million revenues to book for other projects. So overall, the growth in revenue was about 20% and another one has been BRL 2 million that have not been booked in terms of revenue. With the sales and revenue profile, we have also seen EBITDA growing 82% and margin for the year for real estate development is at 44%. When I talk about margin, I mean, adjusted EBITDA margin, which has reached about BRL 112 million last year. Now we are going to go to our next slide, and we are going to talk about recurring income. So here, I'll be talking about the shopping malls on this page and highlight here is that sales by store owners have grown 16%. And this is an excellent number in our opinion, considering the GDP has had a weak performance in 2019. And these sales are an evidence of JHSF focusing on premium audience is once again a strategy that has proven to be right. Secondly, I want to highlight the left-hand side chart at the bottom, occupancy cost. We had a growth of 0.4 percentage points. This has been the best indication of occupancy cost of companies reporting. And this demonstrates our competitiveness, not just as compared to other companies operating shopping malls, but also in terms of the cost platform. I would also like to highlight the right-hand side chart at the bottom, occupancy rate. Occupancy rate close to 97% in 2019 and improvement of 200 bp. The utilization rate of our assets in shopping malls and the main highlights is Ponta Negra Mall, where we have seen a significant advancement in terms of the reduction of vacancy. And right now, we are negotiating 3 contracts that are very significant to complete the repositioning of Ponta Negra Mall. And in closing, the operating indicators at the right-hand side of the top, all of them are at levels that have made us very happy about the performance of our stores and therefore, in terms of shopping malls, we should celebrate our performance. In terms of recurring income, we still have significant work to do is in terms of retail and CJ Fashion. And although neither of them is profitable, they have had good growth rates, and we plan -- we have plans to continue with retail in 2020, opening new stores, not just in Cidade Jardim Mall but also at shops, the projects that we are going to open at the end of the first half of the year here in São Paulo, which is also going to reinforce our retail activities. When we look at recurring income, we closed the year with a growth of 13.2%. So once again, comparing to the GDP, this has been sometimes superior to the growth of Brazil's GDP in a year. And in terms of operating result or adjusted EBITDA, we have grown 24%. I would like to highlight one point, which are properties for investments that appreciated during the year by BRL 437 million. And for those who are not so familiar, or who don't -- this method of accounting, this is the company's property that we created for the company and for shareholders, too. I would like to invite you to go to Page #7 or rather #6 of our presentation to talk about the performance of our hotels and restaurants. In terms of hotels, we have grown almost 9% in terms of average daily rate date, and this is above the growth of the GDP. So here, this is the actual growth. And RevPAR is a measure that the industry uses, we have had a growth of 15%, a result of occupancy that is more robust. For the year, we have had an average in 2019 of 63% in contrast with 59% in the year before. And as a highlight in Q4, we have had 70% occupancy. So RevPAR translates this effect of average daily rates that higher occupation rates, too. In terms of restaurants, our -- we have increased the number of couverts sold by 29% and average couvert has grown by 2%. As a reminder, as we have launched 2 Gero Panini, a product with a lower average couvert, this growth indicator is very positive, considering the new scenario of lower average couvert that Gero Panini has. In terms of the share of our business, we have closed with 56% of our revenues coming from restaurants and 44% coming from hotels. We have increased net income by 10%. Adjusted EBITDA has gone by 50%. The growth of adjusted EBITDA, if you've been following us for a long time, this is something that we had been indicating for some time that we had been working in order to improve our expense efficiency in that division, and we have been able to improve quality and at the same time, improve our expense control. And that's why it has such an effect in the results in the bottom line or adjusted EBITDA for this period. On Slide 7, some people that are participating in the conference call have already had a chance of being with us in the opening of the airport on December 16 last year. The airport, therefore, exceeded or is past its preoperational phase. Right now, it's live and operational, very active in terms of selling its capacity. Right now, we have 50% of its capacity already reserved for the customers that have visited the airport, that have understood the advantage of having their airplanes operating with us. It's a safe infrastructure, modern, fast and developed for executive aviation passengers unlike any other structures offered in Brazil. I would also like to say that we have a pipeline where the process of including more airplanes to be in the airport, the number of airplanes that the company is prospecting exceed the total capacity of the airport by 200%. So we are evolving progressively in using the current capacity and as its totality is occupied, we are going to expand whatever is necessary to serve our customers. Lastly, I would like to leave a message to everyone once we have then with launches and construction in parallel to all the process that I have mentioned to you. We are working very intensely in the process of making our airport international, and we believe we can do that still in 2020. Now if you could go to Slide #6 of our presentation. Here, there is a summary of the consolidated results of our business. So net revenue is almost BRL 640 million, almost 40% growth as compared to 2018. Gross profit has grown 44%. So we have reached BRL 310 million in terms of gross profit. So also with a positive effect in terms of the growth of margin along the last year. Looking at our adjusted EBITDA, it has grown 60% from BRL 141 million, then getting to BRL 227 million in 2019. When we look at the financial result and here, we're looking at the financial results recurring, we had a significant reduction of almost 24% in the net financial expenses, which is reflected -- which reflects 3 effects. The reduction of spread, which is related the improvement of the company's risk profile. Another effect of reduction of the total average gross debt along the year and also an improvement of the duration of the company's debt. Lastly, the result of everything that we have mentioned, we are talking a fivefold growth of net income, which has grown some BRL 54 million last year to BRL 327 million in 2019. Now on the next page of our presentation, here, you can see the company's gross debt of about BRL 13 million. And as part of the variation -- or this variation includes a fundraising operations of BRL 120 million that right now we've classified as debt, but it is a debt that is going to be converted into minority share in a project that the company is developing in the city of São Paulo and Faria Lima Avenue. Cash evolution is significant. We have grown 131% in our cash position during the year of 2019. And lastly, we have had an evolution of almost BRL 100 million in working capital allocated to accounts receivable. And the main element of that reduction was that we received a price share that we had to receive from the -- it's the mall fund that has bought from JHSF. At the end of 2019, they bought some assets, and they paid in the first quarter of 2019. Another conclusion here of stability of our bits of accounts receivable, is that the way we are managing the invested capital, we have had a growth of almost 40%. And we have kept the amount of capital allocated to accounts receivable has remained stable. Therefore, all that said, our net debt has gone down by BRL 340 million. It has dropped 55% as compared to what we had at the end of 2018, which is very much in line with the message that we were telling the market in terms of deleveraging and reinforcing our capital structure. And in this manner, we have noted the average time of the debt to mature from 3.9 years to 6.9. So we have a longer debt and it has become 64% longer, which is also significant in the construction of the company's debt structure and a reduction of average cost incurred of about 11%. All that said, we closed 2019 with an adjusted EBITDA ratio in the last 12 months to the net debt. Net debt over adjusted EBITDA is 1.1. And this level is absolutely okay in our opinion. We are confident in terms of something to carry over for the next period. Before opening for questions and answers, I would also like to reinforce a few messages or highlights for the year. So the gross profit has grown 44%; gross profit, 104%; and operating income has grown by 508%. Net revenue has grown 120% and adjusted EBITDA has grown 82% for real estate development. In terms of recurring retailers' sales growth, 16%; net revenue, 13%; adjusted EBITDA has grown 24%. And the airport, which until recently was generating some concern for some shareholders, is already operational with about 50% of its capacity already operational and with a quite exciting commercial pipeline in terms of capital structure, as we completed the follow-on that took place late last year, reinforced our cash position. There was a drop in net debt, and there was a longer term. There was an extension in the term of the debt and also cost reduction. And the company continues to work to always keep it improving. I would like to stop now to give you the opportunity to ask questions. Thank you.

[Operator Instructions] Now our first question comes from Bradesco BBI.

Our first question regards real state development with a gross margin of 61.5% and historically, there's a combination of Fazenda Boa Vista and 10% of the revenue comes from Fasano Cidade Jardim. And I would like you to tell me what is the individual gross margin for each one of these projects and how you came to 61.5%? The second question is about shopping malls. And I think that you have had a positive price in terms of our expectations. It was better than expected. And this is even more positive considering that the GLA is smaller than last year. Is this increase, sales increase? Or do you see any reduction in a minimal discount or average rent? So could you break it down by mall. So you mentioned Ponta Negra, and I would like to understand more about the 3 other malls and how each one of them behaved.

So first, the margin for real estate development. The margin has 3 levels that are different depending on the product profile. So when we sell Fazenda Boa Vista plots of land, so the margin level is higher, many average. When we sell homes built in plots in Fazenda Boa Vista, the margin is closer to the average margin that we are seeing this quarter. And the average margin of Fasano Cidade Jardim is also close to average margin. So margin land is higher. Margin homes plus land is the smallest one. And Fasano Cidade Jardim margin is in the middle. And then your second question has an assumption. It's based on an assumption that is not accurate. When we showed our -- published our press release, there was a disclaimer in the second paragraph on the cover saying that the comparison to the year of 2018 was spent on the same basis but -- at the ABS, but apart from that comment, everything else that you mentioned is accurate. So in fact, there is a significant growth. And the indicators -- all operational indicators is higher than the overall expectation. We can say that sales -- the profile of JHSF audience had a good performance that was strong above overall trade in Brazil and the position for -- our positioning for high-income public, which is part of the essence of JHSF business model is proving to be the right strategic positioning through which we can have growth rates for the business that are superior to -- than if we had been working at other income levels.

I just have another question, if you allow me, in terms of e-commerce. It grasped my attention in terms of e-commerce growth. Can you tell me how much e-commerce accounts for in the total sales for Cidade Jardim?

Well, I cannot be so accurate. There are some stores that already have -- that are close to 10% to 12% of their sales volume coming from e-commerce. There are other stores where penetration is relatively low. So CJ Fashion is something that is still new. And we are, all the time, adjusting our models and adjusting the platform as a whole to make it more efficient. We're very happy with the results that we've been delivering so far even though the platform, as a whole, is not yet fully profitable. But our model according to our projections is to have continuing growth of sales through the platform. It's going to -- I think it's going to breakeven very soon. And I'm going to set the context because along last year, we brought to the platform of CJ Fashion, some operations that are not physically integrated to Cidade Jardim Mall, especially activities that do not have competition in Cidade Jardim but our audience understands that it's complementary to them. So for us to reach that objective, we have created a tool on CJ Concierge, which is an interaction through a personal shopper that takes -- provides customers with a solution going beyond what is offered inside the shopping Cidade Jardim. So while we get our next question, there are some questions that have been posted on the webcast. And I am going to start. So the venture in Faria Lima, what is it going to be, a mall or offices? Well, it's going to be focusing on retail and not corporate roles. And then [ Daniel Sua Guimarães ] is asking, if -- do you want to expand having airports in other regions? Well, not right now. As a company, we are very much focused on the metropolitan region of the city of São Paulo. The second question comes from [ Christian Dolsen ]. He says congratulations to our employees. Once again, it's an spectacular result. Looking at contracted sales for Fasano Cidade Jardim, I think we had BRL 61 million in Q3 and in Q4. Could you tell us more about the expectations for the future in terms of sales curve? Christian, thank you for your question. The sales curve is absolutely in line with what we said. Our commercial plan for this is to sell. Along 3 years, we wanted to sell the total PSF at a curve of 40% of PSF in year 1, 30% in year 2 and the other 30% on year 3. So the cover that we have delivered in 2019, it meets that commercial plan that we made. I would like to turn the conference back over to our mediator or to the operator because I think there are other people who want to ask questions.

Our next question comes from Ms. Kamila Oliveira from Banco do Brasil.

I would like to address 3 points. I think that it's going to be quick. Do you know when airport is going to reach maturities? Is it on year 5? And the other one is recurring income. We have seen that for Q4, same-store sales has grown at the low intensity than Q4 '18. Is this a reflect of a strategy for shopping Ponta Negra? And lastly, we are seeing many initiatives of the company. Could you give us an update of what we should expect for CapEx for 2020?

Thank you, Kamila for your questions. While the issue of maturity of the airport, we always need to look at the airport as an asset that the company has built and that -- and operates and we want to expand after our demands. So we think that maturity of the current phase has everything to take place along 2020. So we wanted to break even in the first year of operation. And as the commercial pipeline that I mentioned that we are working on. And as it matures, we may expand the capacity of the airport. But I think we would only be ready to talk about that more objectively more in the future. As to your question, specifically about same-store sales in Q4 2019 against Q4 '18. We had same-store sales in the fourth quarter of 2018 that was very strong. So soon as we saw, especially the definition of the elections, November and December last year, we're very, very strong. So I think it's much more an issue of comparison basis than one or another mall that might have a different posture. In terms of CapEx for 2020, we have a completion on Cidade Jardim shop, which is a 4-month -- it's a project that we still have another 4 months of construction, and we have already started expanding Cidade Jardim Mall. We have started the construction of the new area of parking lot to then convert the parking into leasable area. And in the next weeks, we are going to start the expansion of Catarina Fashion Outlet. So these are the 3 main projects that we have for the year in terms of utilization of CapEx.

Our next question comes from Luiz from Safra Bank.

I think my question is a follow-up of the last question regarding your projects. So there's a completion of shops and expansion of Cidade Jardim, especially -- could you give me more details this expansion of Cidade Jardim. Is this the plot of land in front of Cidade Jardim where a bigger project is going to start off 23 (sic) [ 23,000 ] square meters of leasable area? And you have other plots of land. Do you have any guidance in terms of launch dates? An example is the plot of land in Salvador with almost 38,000 square meters to launch homes for residential lots. In Itai, we also have a plot of 1,000 square meters that you classify it for mixed use. And at the expansion of Catarina, an investment is usually faster. This is a horizontal mall. And can you imagine when you're going to expand Catarina?

Luiz, let me clarify. In Salvador, we do not have any plans or projects of real estate development in the city of Salvador. The only project we have for the city of Salvador in Bahia, Brazil, is a small expansion of Bela Vista Mall, which is a mall that we have in Salvador. And this expansion aims to increase the mall. The land that the company has around the mall is land that is being sold as our investment focus is in the city of São Paulo with a radius that does not exceed 100 kilometers from the city of São Paulo. As to your questions about Cidade Jardim. No, we are not going to expand the Cidade Jardim Mall in the land with the 23,000 meters. What we are doing is to convert a covered parking lot area in the building that the mall is ready in more leasable area. This plays into the neighboring plot, the parking. So with a GLA -- the additional GLA of almost 16,000 square meters and about 13,000 is commercial in terms of stores and services and another 3,000, the construction of Fasano Cidade Jardim Hotel. And lastly, the date of the opening of Catarina Fashion Outlet, I'm going to answer you -- I'm going to ask you -- to answer this question in the future because right now, we don't have a precise date. This is not going to take place in 2020. But I can tell you that it might be -- or I have some confidence that it's going to be in 2021. I am going to take the opportunity. There are a few questions that have been posted from the webcast. The first question comes from [ Derek ]. He asks, today, the real estate development segment is focusing in the state of São Paulo. Are you planning to expand to other countries, which ones? Derek, the question is no -- the answer is no. We are focusing in São Paulo. And then there's a question by [ William Carvallo ] asking whether we are -- are there any plans to -- for the payout of dividends? Payout of dividends is going to be proposed for the shareholders' meeting by management, and this document is going to be filed over the next few days. And then we are going to disclose our strategy for the payout of dividends. I'm going to turn it back to the operator.

We are now closing the question-and-answer session. I would like to turn the conference back to Mr. Thiago Oliveira for his closing remarks.

I am going to close maybe being slightly repetitive considering the way I started, but the message is of deep respect and recognition of the wonderful work that our team has done along 2019 for the support -- the unparalleled support that we have received from our shareholder basis that is growing, that provides each and everyone from us here in the company. The responsibility of looking after the money of 51,000 families and also managing the generation of almost 53 direct jobs -- 53,000 direct jobs. And then, we have focused our energy to deliver unique businesses and to our business partners that also support us to do everything that we've done. I thank you very much for this hour that we've spent together in this conference call. And if any of you has any questions that have not been answered during this conference call, and I know that many people listen to it afterwards, too, listen to the recording, so JHSF Investor Relations team is available to you. You can have access to us at (11) 3702-5453 or jhsf.com.br. And if you want to be closer to us monitoring our operations, you are invited to come and visit us. The doors of JHSF are open to you, and we are going to receive you in a very respectful way. I wish you all a very good weekend.

JHSF conference call has now ended. Thank you very much for your participation. Have a good afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]