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

We have Augusto Martins, CEO; Breno Vicente, CFO and Mara Boaventura Dias, IRO Director. This webcast is being broadcast over YouTube at our RI website. [Operator Instructions] Forward-looking statements that may be made during this presentation are based on business objections based on premises as well as information currently available. They involve risks and uncertainties because they relate to future events. Macro economic changes and regulations changes may impact these projections. I'll turn over to Augusto Martins for the presentation.

Thank you, Mara. Good afternoon. Thank you for attending yet another JHSF earnings call. Let me dive into these 3 main messages. Let's summarize Q1. It's a surprising number because of the robustness of these results. Number one, the operational success of businesses and the strength of the unique high-end ecosystem. We'll be covering these principles throughout the presentation, but the construction of this ecosystem including several business units and the synergies derived from that relationship we have with customers, again, are the reason behind the success of the company across the board. We'll be detailing it even further. But there's more the importance of recurring revenue. When JHSF about 20 years ago, made a decision to diversify its businesses moving away from real estate development only and we started a new recurring revenue. We started out with the shopping malls that have progressed substantially and other businesses ended up being included. So now we are at a second stage of diversification, risk and nature diversification. So recurring revenue has become more important, a major step forward in the diversification effort. The third important point I would like to highlight on top of looking outwards the relationship with customers, our businesses, the success we've had and the operational care with which we do things. We also have that focus and execution to have more efficiency in capital structure and recycling decisions, which, again, reflects the success of the company. When we look at the macro segments, recurring income and consolidated for the entire company, we have a consolidated result of BRL 440 million I'm going to be rounding up numbers, 40% growth, give or take. EBITDA almost BRL 200 million, BRL 198 billion. 61% net profit, BRL 340 million, 139% increase. Dividends for the year are BRL 250 million, 9% curve March based for our dividend yield. Consolidated development sales, a positive quarter, BRL 227 million, above sales of the previous quarter, maintaining margins and the value of our inventory. And the capital structure for the first quarter, the largest fixed income issuing almost BRL 1 billion. These are unprecedented rates. So that helped us in the last 12 months. Now on to recurring income before I address diversification. The quarter presented robust numbers in line with our strategy. Quarter after quarter, we have been keeping the promise to maintain this robust block, a 36% increase, which indicate good operational performance when we compare to all the other activities, good perception from our customers,. That's why I had that growth. Adjusted EBITDA, almost BRL 150 million, up 52% and at a more macro level, when we talk about coverage, shopping malls, have had surprising performance 15% increase. Cidade Jardim almost grew almost 25%. Hospitality and Gastronomy double-digit growth in main assessment indices. Airport record refueling record movements and especially when we think about the market share, JHSF residences and our clubs have increased its numbers as well. Growth as to the available area and we'll be addressing that issue in further detail shortly. Let me now address more specific numbers. Recurring income growth is significant. It's a 74% share of the consolidated adjusted EBITDA. Gross profit, BRL 262 million (sic) [ BRL 174 million ] and gross profit of 52%. Gross revenue was BRL 333 million. So this segment that we have been focusing for more than 20 years, to diversify the company, maintaining our DNA of real estate organization. It's always present and will always be present down the road. However, today, yet again, recurring income has proven to be a robust business, providing double-digit growth. Actually, exponential growth quarter after quarter. And this Q1 was yet another strong performance. Well, going back to my initial message, this is yet a very positive point. And I'm referring to the distribution. 20 years ago -- over 20 years ago, actually, when we started diversifying the risk of the company and at the same time, looking at our customers to build this unique ecosystem for the high-end segment. This is now the result of the effort. That diversification was focused on malls and as time went by, we start developing other businesses. Now we have a relevant distribution. Malls account for 33% clubs and residents for rent, 32% hospitality and gastronomy at 14%, and the airport business at 21%. What's the highlight I would like to show you today. When we created these new business units, taking into account the lifestyle of high-end customers, this is happening not because our shopping mall businesses did not perform. Quite the contrary. Quarter-over-quarter, we've had double-digit growth in shopping malls, the best performances of the market. So that business has been growing steadily. And the other businesses actually have been gaining participation. First, representativeness. So the company used to be a developer basically. And today, it is an ecosystem focusing high end, focusing on recurring income and development. And the second step was to diversify the businesses, not only malls anymore. Now we have very strong business segments in this high-end segment and how representative they are, which provides us even more diversification. Yet again, proof that the decisions made by the team were right, that representativeness and that distribution amongst different businesses is a major step forward. Again, combined to the growth of our [ cash cow ] business, which was shopping malls and recurring income. Consolidated results indicate robust growth. This is the result of an effort, a very dedicated team working very hard, focusing on the quality of the services we provide. That focus, attention to detail are the backbone behind the operational performance. Gross revenue up 37%, reaching BRL 440 million, almost 60% in gross profit, adjusted EBITDA, almost BRL 200 million, up 61%. Net profit, 139% increase. This consolidated growth, the way we see it, is the result of that very disciplined focus in the high-end segment. And we did that when we recycled capital, selling stakes in malls that were not connected to the high-end focus and also the result of that business diversification, recurring income and development, which built this unique ecosystem in Latin America. We connect to customers in many different ways on top of the development. So combining the strengths of all these businesses and the synergies and the fact that we are the only group that connects to customers at these different moments in their lives, in all the activities we provide are behind the growth and the good operational performance of JHSF. Moving on to the initial business in recurring income. Recurring income shoppings kept on growing, providing the best performance in the marketplace as far as growth is concerned, market leader in the indicators we'll show you. It's a combination of a good mix for stores, our businesses, all the services we provide to customers, they're all behind that outstanding performance. Cidade Jardim Mall has 12 exclusive flagships. We will soon announce an expansion plan to include new flagship stores. So the mall has the largest number of exclusive flagships, a new space for wellness. Overall, other malls are also performing well. Boa Vista Village Town Center, construction is underway. It will be opened in the second half of the year, connected to the Cidade Jardim complex. It will bring in a new operation to the group and also construction is underway in the Shops Faria Lima. So we have been focusing on existing malls, Cidade Jardim, Shops Jardim, Catarina Fashion, Boa Vista Village Market. We are adding these new malls to provide an important growth pipeline for this business unit that is a performance leader in the market. So the highlights are tenant sales up 15%, reaching BRL 945 million in Q1, a robust number for the quarter. Growth that indicates the seasonality as well, which indicates the strength of our malls. The highlight is Shopping Cidade Jardim. So it grew 1/4 of its size. Vacancy is almost 0, which is almost 100% occupancy. In other words, that indicates the perception gains, the market share gains when we look at S indicators, double-digit growth, leader in S indicators, both sale and rent indicators. And the gross results also a reflection, 19% gross revenue, adjusted EBITDA up 15% -- on to the second recurring income business, hospitality and gastronomy. There are challenges to improve operational indicators in this segment due to the nature of the operation. We also again have double-digit growth. The best performance in any Q1 above BRL 100 million in net revenue. And there's an important point on top of operational management, operational efficiency and performance gains in these indicators. This activity has an important growth pipeline which means international expansion hotels, Miami, London, Mayfair, Sardinia, Cascais, and now we are announcing a new operation in Uruguay, in La Barra in Punta del Este region. So it's going to be by the beach our hotel customers will have the option to be up on the mountains or by the beach. It's up to the customer to choose where they want to stay, Punta del Este has been very important destination for the high-end segment. On to the indicators, we have the best quarter in history, above BRL 100 million. Occupancy rate is at 55%, 2 percentage points increase. So our customers are very welcoming to or embraced the product. All indicators are on the plus side. As to hotels, revenue per available room is up 17%. So we can adjust prices according to the product that is being offered, the average couvert is up 13%, BRL 4,739 as the average daily. On to restaurants now. A 14% increase, BRL 326 at the average couvert. Quarter after quarter, we have been adjusting the price of our products. This quarter, we managed to implement the price increase and increase the average couvert. So we have increased prices while kept on growing. And results are up 23%, above BRL 100 million mark, BRL 113 million. Adjusted EBITDA, an 18% increase. The third recurring income business is Airport. It's a very rewarding quarter. As we have been saying quarter after quarter, we've had strong demand which exceeds current capacity. We have 150 under management. We have another 100 aircraft in the waiting list. So we are expanding our airport operations. Last year, we opened an expansion from 9 to 12 hangars. Later in the year, we expanded from 12 to 16. Construction is currently underway. In the second half of the year, these hangars will be available and we'll be able to accommodate more aircraft. Airport has become more and more important. This is the first airport in international movements. Sao Paulo Catarina is the first in the ranking as far as international movements are concerned. In the state of Sao Paulo, that accounts for a 70% market share of these movements. And it's now the second in domestic movements. Again, another indication of this -- the improvement in the business. We've had record operational and financial results this quarter. As you can see, it's almost 50% increase as far as movements. It has important operational leverage -- the infrastructure is there already. These expansions will require building new hangars, and that's it. So more movements can provide margin and EBITDA gains, 50% in movements improvement. We've also had in record liters filled, 30% increase. Gross revenue up 33% at BRL 61 million; adjusted EBITDA up 60%. So these are very robust numbers. So business after business, we have now proof that the ecosystem is very profitable and has excellent performance. On to the fourth income recurring -- recurring income business. JHSF residences, we've been investing with a lot of work and capital to build clubs and residences for rent. The portfolio is 113,000 square meters between rental units and clubs. It's a robust business, therefore. In this first half of the year, we are opening Fasano Tennis Club. The opening is now going to be in this first half, the only club with the Fasano brand in Sao Paulo, 6 tennis courts, all the amenities, a complete club, which again helps the Cidade de Jardim complex, yet another club under our management. On top of this club, we have Sao Paulo Surf Club to be opened in 2025, in mid-2025. Boa Vista Villa Surf Club has been very successful in memberships. We're now opening these 2 clubs. We'll be operating 3 clubs and we will be the leading company to operate high-end clubs. On to the numbers. The increase in membership sales provide an almost 150% gross revenue increase, BRL 55 million. Adjusted EBITDA has grown substantially. We have been successful in the clubs section. Sao Paulo Surf Club will be the first club in a large city with a PerfectSwell swimming pool right across from the bridge, which is a landmark in the city, 13 minutes from Cidade de Jardim, 10 minutes from Faria Lima Avenue, a club that will change the lifestyle of our customers. Surf lovers, sports lovers -- so it's a complete club. So these are unique investments behind the success. And we look at rental units, JHSF residents, again, yet a very successful business unit. Fasano Residences picture, all 100% units are rented. We have a waiting list to rent this unit. As we include new units, this business has a very good growth potential. On to capital. This is the last recurring income business, BRL 2.5 billion assets under management, a company that has existed for 2 years, very rapid growth, top 15 asset companies in Brazil focused on real estate. The only one focused in high-end real estate. This is our focus. It has been strategically contributing to the company for the M&As. Capital provides that exclusive consulting services. A robust pipeline, fundraising in Brazil and abroad that international expansion usually takes place through funds managed by Capital. And it's been very successful given its short existence and how much it has grown and how important it has become strategically to the rest of the company. And in conclusion, on to the development part of our company, positive quarter, BRL 228 million in sales, an increase year-over-year. These are the result of unique and exclusive projects using our own land bank. So it's purchased land bank. They are not consigned. That's why we have to open these projects, but at the right time, well thought out to have the highest margins. Reserva Cidade Jardim sales are the highlight. New towers being connected, the top 4 towers that are iconic in Sao Paulo's skyline, and they have become important in contributing to consolidated sales. Sales has been up -- or sales have been up. The accounting method provides accrued or revenue to be appropriated. So that gives us an outlook of the receivables going forward. So the future outlook remains positive for this business. Accounts receivable, robust, a very strong performance track record given the quality of our customers. And the most important number for this unit is not the relevance or the nominal number of sales. Results and margins are even more important. This is a strategy we've been talking about a very conservative approach on our part to maintain the value of inventory, preserve margins, sales prices and to be very careful about the projects, developing unique projects. This is what's been helping us maintain margins. That's the highlight when we talk about real estate development market. This is the result of the strong control, especially in the amount of products that are being offered. This strategy has been successful, and we'll keep on following that path quarter after quarter. This is something very important for the midterm and long-term vision for the company. Capital structure, can you help me out here, Breno? And then I'll come back for the closing remarks.

Well, capital structure, we have been improving that capital structure through the issuing in the capital markets at very attractive rates, and that concludes yet another step of the Ponta Negra sale. We're now concluding this capital structure effort. It's BRL 773 million. We concluded the real estate receivable certificate at about BRL 940 million, the weighted average 102.93%, longest series 7 years, a very important quarter. Last year, we had 2 major issuing about BRL 1.3 billion, one BRL 700 million, another one at BRL 600 million. And this year, we're addressing the debt maturity for 2025. On to the next slide. 90% of our debt is in the capital markets, a very positive solution in the business environment today. So the market has been very receptive, and we can offer good papers. We have been able to extend the debt while reducing the cost duration pre-liability from 5 years to 6.1%. And this may be extended a little further in the near future from 168 to 110. So these are very good PCA issuing. IPCA has become more representative in the total volume. So that's why we have managed to reduce costs. When we talk about net debt, it's at BRL 1.5 billion, leverage adjusted EBITDA ratio is 1.79x. It's been below 180 despite major CapEx investments the company has made in that change, focusing on real estate development and at the same time, expanding on its recurring income portfolio. Net debt, shareholders' equity ratio is 0.39x and covenants 0.6x. So this is the continuation of the work we started about a year ago. We have been expanding on the net maturity schedule. The cash coverage has been expanded significantly for the short and midterm debt. In the previous chart, we had 1.2 years. Now it's almost 4 years' worth of cash coverage. And on top of that, I think it's important to say that you have maturity that are almost identical year after year. We had major maturity debt. In the short term, we have been able to spread that out with smaller numbers. So that's a chart that shows the result we've had after the work we've done. We have been very focused and paying very close attention to opportunities in the capital markets. So this is an indication that the market trusts us and we have been able to benefit from good opportunities. So that's what I had to say, Augusto. We are not reinventing the wheel. We have been improving the capital structure. And whenever there's an opportunity, we'll be there to take that opportunity.

Well, let me just wrap up summarizing the main topics and this last message from Breno. We remain focused on the execution, both internally "backstage" and also looking outward. What do I mean by that? That diversification effort to become a unique ecosystem focused on the high-end segment, connecting to customers at different times in their lives. Recurring income, real estate development, these 2 main segments, how robust that diversification was and the size of these businesses. In all our business, they're all relevant. These are not early efforts. Now we have a very strong portfolio of companies and the synergies and the gains have been translated into growth and positive reception from our customers. Robust margin gains, as we showed you, and also the strength of our brand, when we extend that or include a stakeholder, a company joining forces with us, they can be connected to this unique platform so that they can connect to these customers in a very exclusive way. Thirdly, looking inwards, just like we did when we looked at outwards to customers and activities, looking inwards now, we have improved the quality, the security and the financial structure of the company, over BRL 2.2 billion, recycling our capital, above BRL 700 million, BRL 3 billion when we combine the 2 -- so that has given us an even more efficient infrastructure, which is secure and prepared for the next 10 years. The company is very well positioned to face challenges. We have been investing in developing these businesses and the operational success, the financial success and the capital structure will help us to keep on making those investments so that we can pay out dividends, as we've said, while maintaining the growth of our businesses. Mara, I think that's it. Let's move on to the Q&A session then.

[Operator Instructions] Herman? You can ask the first question.

I have 2 questions. Can you give us more color of JHSF clubs and residents. This is the fastest-growing business. When do you believe you can reach that recurring level? And how big can you get? The second question is about international expansions. Can you update us on the hotel projects and the time frame of the openings and also, if you could explain the capital structure funding, how you've been raising capital.

I'll start and then Mara and Breno can chip in. Thank you, Herman. First off, the clubs business. The strength of this business unit when we compare it to the rest of the company maintains that positive outlook. We believe it will remain relevant. First of all, because of the good performance we've had units that are rented or the clubs, Boa Vista Villa, Surf Club with very good results so far. We believe that these operations will perform very well. Rental units are almost all of them rented in the case of Fasano residents with waiting lists. And the same thing applies to the clubs operation. Boa Vista Villa Surf Club is a unique club with very good feedback from our customers. It will expand because of new operations. We're opening Fasano Tennis Club in this semester. Sao Paulo Surf Club will be opened still this half of the year. Two new operations, 2 new clubs that can bring in even more results to this business and new JHSF residence units that will be delivered and we'll keep on adding to that offer. As I said, it's very -- it's a very important business unit for the company. It's not a one-off effort, but this is something that will be recurring in our results looking forward. The other question was about international expansion. Construction is according to plan. Fasano las Piedras in Uruguay and Punta del Este. With positive operations, Punta del Este has become an international destination throughout the year. Year's in celebrations have become an international benchmark. The Las Piedras project benefits from that movement. That's why we're starting a new hotel connected to Punta. It will be in La Barra by the coast, by the beach. We're now in New York. Today, we are here for the conference. We'll have Fasano Fifth Avenue. It's our hotel operation in New York, a very successful operation. The Michelin Guide recommends the hotel in its addition that was published just this week. It's a very rewarding operation because it's a very competitive city with so many offers and hotel is regarded as one of the best boutique hotels in New York. We have a restaurant operation, which is Fasano Restaurant that is doing very well, too. And we now have Fasano Miami under development. We expect to open that hotel in the second half of 2026. Looking at Europe now, we had Fasano Mayfair in London. Construction is well underway. The project is well advanced. The opening is expected to happen between -- in late 2026 or early 2027. Fasano Cascais was announced. Quinta da Marinha in the Cascais region, a very special region also currently under construction. The expectation is to be opened by or in 2027. And Fasano Sardinia, it's a complex that includes a hotel, beach clubs, some villas, a mall, a connected mall to the hotel. The opening is between '27 and '28. So they're all moving along the pipeline as planned. So we'll be mapping out our products offering within that unit that has become more and more positive to the company, and we'll provide that international expansion, bringing in another important component, a relevant diversification, including other countries and other currencies. So these projects are moving according to plan. As to Capital, JHSF Capital has become important. It coordinates that expansion through funds that are resort to investments. And it also raises fund, institutional single-family office or multifamily offices or direct investors that end up funding the capital for these projects, and they play an important role in supporting the group's expansion. Did I answer all your questions, Herman?

Mathews from Santander asks the next question.

My question is about the Shopping Cidade Jardim sales, very high occupancy rate. What's your take on the expansion of that asset? And my second question is about Faria Lima Shopping Mall. Can you elaborate on the construction and what's the time line for that asset, please?

Well, Cidade Jardim Mall, international companies, well, it's our flagship according to our customers. Numbers are outstanding. In the first quarter, we had a 25% increase, 0 -- almost 0 vacancy. It's performance gains. It's more flow, more customers coming to shop with us. They've been with us for longer. We control that metric very closely how much they are in the mall. This is getting better and better because of the mix we have there. It's for purchasing purposes, but customers do other things in the mall as well. So the performance of that mall is outstanding. Our malls have the highest growth rates and Cidade Jardim is our mall that grows the fastest. International brands that are not yet in Brazil, they look -- those that are in the high-end segment, of course, they come to us because of that success, that very important focus on that mix for the high-end segment, unlike other malls that are more diverse in that sense. So that has been very successful, providing better performance numbers. That's why we have the largest number of flagship brands, and we are about to announce this plan in which 5 new flagship brands will come to Cidade Jardim Mall. They'll provide even more attractiveness to high-end customers. This is an exclusive mix already, and it will be expanded with these new brands. We'll be soon announcing that expansion, telling you what they are and also that wellness area. As to Faria Lima Shops, construction is well underway, and we expect to open it in 2027. It's a multi-use mall in the best location in Faria Lima Avenue. It's the most desired spot Faria Lima and the [ Porkoto Corner ]. Exclusive brands, new restaurants that are not present in any other mall in Brazil and also this architecture and design concepts. These malls adapt to our customers' lifestyles. So our customers have been demanding, our customers that live and work near Faria Lima Avenue. We'll be covering the high-end points, Cidade Jardim, the #1 high-end mall, Cidade Jardim at [indiscernible] Street. And now on to Faria Lima, which will have JHSF quality in the Faria Lima shops.

Juan from XP is up next.

I have 2 questions, actually. The first is about capital structure and leverage. The company has been moving to more recurring income, which gives us more predictability as far as cash generation is concerned. But there are some important receivables from real estate development. So my question is, what's your take on cash generation looking down the road? What is the leverage ratio you are at today to remain comfortable at this level to keep that for a longer period of time or maybe that cash generation can help deleverage the company and bring that down to a lower level? And my second question is more open in the sense of recurring income. We've been discussing the fact that this segment should become more and more relevant in the company. and it's now above 70% revenue from this segment. What's the balance like in the future? Do you believe recurring income will become even bigger, maybe reaching 80%, 90% level of the total company? What would be the ideal number for recurring income maybe in the short term?

Thank you, Juan, for attending the call and for the questions. All right. First, leverage. Let me start with the receivables. We have an important receivables portfolio in the real estate development. We've had positive track record for receivables. It's an almost 100% performance. This is connected to high-end customers. Some of those customers have been with us for quite a long time. Liquidity is almost 100%, as I said. That's how we manage that portfolio. How much of that portfolio will be cash or whether we keep that as a receivable. It's a financial metric. Liquidity, as I said, is almost 100%. It's a large portfolio and provides us with that comfort because of the quality of that portfolio. When we look at the leverage, when compared to the EBITDA, it's 1.78x, 1.8x, and that's the range we have been operating. The way we see it, it's a safe and healthy level. For the mid- and long-term view, of course, we are taking into account the daily results in our treasury. However, we want to preserve the company's business in the long term. So we're very careful in that management decision, 1.78x, 1.8x based on the CapEx investments we've made, the growth of recurring income businesses is the result of the investments we've made. All the projects that are being developed, they will be generating even more cash for these businesses. Anyway, given the size of the investments we've been making and we'll keep on making, the dividends the company has been paying out to be able to healthily grow in the future -- we believe this is a safe, responsible level to maintain all those drivers moving along. And the last question was?

The proportion between recurring income and the other businesses.

Well, before I address that recurring income, let me reiterate that leverage question. The cash projections provides us with that comfort because the more the recurring income segment grows, it's becoming more and more relevant, can help us understand how much cash generation we have in the future. So that helps us have more predictability when compared to the CapEx we are going to be making in the future. That's very different from a company we were when we were more focused on the real estate development. Predictability was not as easy then. As to the sizes of the businesses, well, we believe that ratio is very positive between 60% and 75% of our growth coming from recurring income business. We'll keep on working in the real estate development. It's part of our history. It's part of our DNA. We'll keep on working with it. It's connected to the high-end segment. All our businesses in real estate are high-end focuses -- focused rather. So that takes into account a complete lifestyle to our customers. So that ratio remains positive or is positive the way we see it. So we are likely to remain in that same ratio.

If you have any further questions after the call is concluded, we'll try to reply to them using our IR e-mail or if you're watching it a recorded version of this call, you can get in touch with us through e-mail. Over to Augusto for the closing remarks.

Thank you, everyone. Thank you for attending the call and until next time in Q2 presentation. Have a great day.