JHSF Participacoes SA

BOVESPA:JHSF3

Earnings Call Transcript 2020-Q3

[Mara Dias, executive]

Good afternoon. Welcome to the teleconference for JHSF Participações on 3Q '20. We have Thiago de Oliveira, Director of IR; and myself, Director of Investor Relation. The presentation will be recorded. [Operator Instructions] This is being transmitted simultaneously to YouTube, by our page via webcast and may be seen on our website in ir.jhsf.com.br-english. And by our platform where you can download. Please make your questions by webcast. Please ask the speaker.

And declaration that can be made during this teleconference related to business perspectives, projections and operational goals are only promises of the management as well as information -- based on informations that we have now. They involve risks and uncertainties because they have to do with future events and depend on circumstances that may or not occur. And also operational factors and laws and et cetera, may interfere and reduce results that are different from the ones here expressed.

Now I'd like to give the floor to Thiago, who will start our presentation. Please, Thiago, go on.

[Thiago de Oliveira, executive]

Good afternoon, Mara. Good afternoon, everybody. It's a pleasure to be here with you to present the results of JHSF for 3Q '20. It's a quarter where we saw an operational context in the activity of real estate. We saw a commercial rhythm that is accelerating. It's possible to grow sales, 190%. And I also like to thank [indiscernible] for this division that we did 2 additions in land bank during the third quarter. These 2 land banks are strategic for our growth plans of the company. And in the complex Boa Vista, [ 66,000 ] square meters that we bought in August. A little bit before that in July, an area around Cidade Jardim. So it's a division that is growing well in sales, and we are paying attention to land bank management.

In recurring income, the third quarter of this year, presented a good recovery in relation to what we had seen in the second quarter. And this improvement has to do with the process of reopening -- gradual reopening of the shopping malls as the cities where we operate, we're opening those activities again. And with that, we saw not only a resumption in sales but also in flow in the levels of sales that we are seeing right now at the end of the third quarter. And in October is already better than the same period from 2019, with the exception only of 1 shopping mall we have in Salvador, Bahia where the city still has some restriction, and that did not allow us the same level of sales that we had last year.

On this quarter, the company decided not to do any type of linearization of discounts because of Covid. And I also would like to emphasize that we did not have any problems, any issues related to delinquency and being quite objective in September. We had what we call a negative delinquency. So we recovered delinquency from the previous quarters. What -- for that -- for us, it's very encouraging, showing the strategy that we adopted with proximity with our partners. It's healthy for them and for us, that's important in the sense of preserving the mix and of our relationship with those retailers.

We -- during the third quarter, we launched Boa Vista Market, which is a way that we took to Fazenda Boa Vista, the operations that are very similar to a shopping mall. The project has been working in a very good way. And we also followed with the expansion of work of Cidade Jardim shop. And if we will inaugurate it this year and our calendar points to inauguration in November, Cidade Jardim shopping is still expanding and also Catarina Fashion Mall.

And talking about hospitality and gastronomy, it's a similar situation from the standpoint of resumption as we are seeing in recurring income. And also a resumption of hotels and restaurant operations by the end of October. So right now, all the hotels are already opened. In those hotels, there are more for tourists leisure hotels have higher occupancy rate than last year on the third quarter.

What makes us believe that the situation brought by the pandemic has led to a growth in the internal or domestic tourist sector in Brazil. And we can see that looking at the occupancy rate of the hotels. Restaurants have also been reopened and we are dealing with -- we are changing the operation in Rio. So not all our restaurants were reopened.

And we still have delivery, working a lot and I will detail a little bit more the figures that we found in the digital platform, including delivery. And for the airport operation, the hangars had 100% occupancy as we told you in our last call. We were already expanding 3 new hangars. Those hangars have been finished. The patios are in their final phase of being paid. So by the end of the year, this additional capacity of 3 new hangars for São Paulo Catarina Executive Airport, will be available for our clients.

Clients that had the highest level of operation of lendings and takeoffs and also of gas throughout the third quarter. And I had talked about our digital strategy. Cidade Jardim Fashion has 400 brands already, with which we are working in the portfolio. It grew in sales as compared to last year, 146% and the number of requests, 87%. CJ concierge is a service that we added to the platform of CJ Fashion grew quite a lot. It has been very much used by our clients that want to do their -- want to buy in a comfort way through a team of people that help us. Not only we grew sales that was expressive since last year, but also as compared to the second quarter, we grew 72%.

In CJ Food that had just been launched when we had our last call, it has more than 20 restaurants that are operating and hence, we're able to take to the house of our customers the best of gastronomy through that app. Talking about gastronomy, about 15 days ago, we launched the Fasano app that integrates hotels platform and gastronomy platform.

And in terms of delivery, they are being processed within the platform -- e-commerce platform. For Fasano, we had a very important growth in the orders in the year-to-date. And our real estate sales also grew a lot, almost 2,600% of users year-to-date. And the platform is consolidated itself as the pathway by which the clients have accessed our inventory and done digital transactions in the real estate part of the company.

Now I'm going to be talking a little bit about each one of the business units. I'll start by real estate, and we see higher sales. They have grown 190% vis-a-vis the same period of last year. The gross revenue grew 220% and EBITDA -- adjusted EBITDA, 423%. Here, what we want to emphasize is an important growth and higher sales in Fazenda Boa Vista. Adding to that, the launches from Boa Vista Village and we see the countryside of São Paulo with an important contribution in our sales and as a consequence, in revenue and also generate EBITDA.

Now on Page 6. We will check the indicators for recurring income. We saw the retailer sales in this recovery process from 2Q to 3Q grew 352%. In the annual comparison, we're 16% below what was seen in 3Q '19. In terms of occupancy rate, no variation from last year -- from last quarter. So the levels are quite healthy 96%, 97%, 98% of occupancy rate.

In terms of occupancy cost, quite a reduction as compared to the second quarter. I always like to emphasize that occupancy cost is a sensitive item for retailers as more sales happen, the effect of occupancy rate and the dilution of the cars improves, and this is quite clear as you compare the 2 quarters.

And when we see year-to-year, there is a growth of 0.4 [ percentage ] points from one period to the other one. I would also like to underscore that in total sales, Cidade Jardim shopping and Catarina shopping are a positive already as compared to what we saw in September last year compared to September this year. And this trend goes on in relation to October.

So we are seeing actually resumption of the sales levels even better than last year. Now going to -- or better before I change this slide. I want to emphasize that the sales indicators and rental indicators are all positive as compared to the same period of last year. And we start to see the rent indicators converging towards positive levels.

Now talking about recurring sales quarter versus quarter, second versus third, 188% of net revenue from 240% of gross profit and 82% in adjusted EBITDA. I would like to emphasize that the company decided not to do -- not to count any linearization effect of discount as we had decided to do on the second quarter of 2020. What brings the reading of this, especially of DLE, that's closer to the truth in cash flow from what we are seeing in this period of having our business impacted by these restrictions imposed by COVID-19.

On Page #8, talking about hospitality and gastronomy, we compared just like as we did in a recurrent profit we compare last year to this year, and I want to emphasize growth -- average growth when we see an important growth as compared to the second quarter. On the third quarter, this is increasing because the hotels are opening and the point of reopening and also looking to the third quarter of last year, we had a decrease here and we can attribute a part of this to the business hotels with occupancy rates that are lower than what we had last year, also rates that are lower.

And our expressive growth of the number of couvert sales. However, at a level of almost half of what we did in the last -- or third quarter of 2019. From the standpoint of average couvert, it was stable from second to third quarter, but a difference around 11% as compared to the average couverts from last year.

It's worth emphasizing that occupancy rate was almost 58%. While in the second quarter, we had 47% recovery, as I have already mentioned, in leisure hotels. Here we point out for Boa Vista has 34% points above the same occupation that we saw in September '19. And also a growth of 1104% in Delivery Fasano in the year-to-date.

Also hospitality and gastronomy, the net revenue grew 260%. There was an improvement of 70% in gross profit and 40% of adjusted EBITDA. We still are not in a breakeven situation. But we are going towards breakeven and maybe we'll pick up profitability in this business unit that was quite affected by the closing of the restaurants. And even so during the third quarter, restrictions in terms of times, they could be open and a number of people that could be there.

Page 10, we'll talk a little bit about the airport operational data. 90% more landings and takeoffs in the third quarter as compared to the second quarter. In September, vis-a-vis, August 111% in relation to gas sales or fuel sales. It grew also and that talks directly with the number of flights and the volume of fuel commercialized expansions are very well.

These pictures here help to show you what is going on and to complete the pictures that I showed before. And the commercialization of the spaces of these rooms is going forward. So in relation to operational aspects of the airport, it was a quarter with advances. Advances in terms of operation, assisted flights, also the airport is going to where we planned except for being more ahead in area occupation. Everything else is making us quite satisfied in relation to the investment that we are still doing there.

In terms of net revenue, we're comparing only to the second quarter. Just to remind you that last year, the airport did not exist on this time, only on the fourth quarter. So we cannot compare in a different way. Therefore, we compare to the second quarter, 82% of growth in net revenue, 71% gross profit, 31% almost in adjusted EBITDA.

At last, I would like to emphasize that in terms of consolidated results for JHSF Participações, this quarter, vis-a-vis, the third quarter last year, 92% growth of net revenue. Gross profit grew almost 200% going from BRL 90 million to BRL 265 million. Adjusted EBITDA in here -- just to remind you that our adjusted EBITDA always excludes from the effect -- any effect of the lands for investment as other small ones that might make sense that are expanding our releases.

It grew 232%. We got BRL 229 million of adjusted EBITDA. For those of you who also look at cash operational generation, ours was BRL 210 million this quarter. So we have a level of adjusted EBITDA, very close to the cash generation. As we tried to show in terms of net profit, we emphasize here of the total net profit, the total grew 87%. However, the realized grew from BRL 51 million to BRL 175 million.

And the profit to be the effect of the net result of the lands for investment.

If you want more details on that, we brought more information this quarter in terms of results, et cetera. Now to talk a little bit about cash position during the third quarter. The company did a primary offer of shares and that resource of this primary offer came to support the growth plans that the company has for the coming years and brought a situation of viability of cash. That today, when we look at our gross debt, we extract from it adapted mandatory of BRL 120 million.

We look at our cash and cash equivalents and interest -- and interest earnings and understand that we have receivables that are in our balance income, especially from real estate. They take us to a situation that is quite comfortable as far as liquidity, but also a comfortable situation of negative net debt. This is how we interpret these figures that are here.

There was also during the third quarter, a talk, a negotiation, absolutely constructive with one that has half of our debt, and that gave us longer term. And also brought a reduction in the financial costs associated to that debt. And with that, we also saw that the cost of the debt reached 35%, vis-a-vis, the previous period.

In terms of amortization framework, it's -- we have very little 200 -- in '21 and 22, BRL 230 million and BRL 1 billion from 2023. Just to remind you that we have debt that will take 15 years.

And at last, before we go to Q&A, I would like to emphasize that the net income growth was 87% from BRL 223 in adjusted EBITDA and gross revenue, BRL 87 million the growth of the real estate sales, 190% in sales and 423%, adjusted EBITDA. Recurring income in clear process of resumption of operations. Going back to the stance that we had before COVID. And we see that in the indicators of same-store sales, as we said in September, especially in Cidade Jardim and Catarina, those figures are quite encouraging. And hospitality and gastronomy, what we want to emphasize here is for the occupation of hotels occupancy. And at last to say that the airport has presented significant advances in its operational aspects.

Before we open for Q&A, I would like to invite those who are watching to join JHSF in solidarity actions that we have sponsored -- we have been sponsoring. These are some of the entities that we chose to support or to whom we decided to join in movement and thought. So if you were able to contribute, this is our invitation and our thanks. I'm going to leave the screen on. So if you want to use your cell phone, to read the QR code, feel free to do it. Mara, shall we go to Q&A?

[Mara Dias, executive]

Thank you, Thiago. We'll start Q&A. Should you have any question, just to the speaker and the webcast, and we are gathering the questions.

Thiago, we have a question. On the digital segment perspective of the segment and whether you believe -- the company believes that it will be stabilized, the sales volume.

[Thiago de Oliveira, executive]

Today, we have in the agenda -- any company has in the agenda, this combination of physical and digital. We believe a lot in the -- that the mix is better than 1 single way. So our approach to digital is very much associated to -- through those stores. To take more comfort to the customers, we believe that the customer that will be better solved than one that has a physical and a digital. We are a company that we serve our clients in the physical aspects, and we're investing in digital since 2016. So I believe that this is a tool that it comes to stay in to coexist with the other forms, traditional forms of doing business.

[Mara Dias, executive]

There is a question here in relation to the shopping malls. And what are we seeing in October that gives an idea of the fourth quarter? Is it going to be closed to pre-COVID?

[Thiago de Oliveira, executive]

Well, we have to look. We have to be careful just as we're looking at the fourth quarter, especially because the issue of shopping malls is very much associated with the number of hours they are open.

So what we can achieve right now or just can anticipate right now is that looking at what happened in October, it's a confirmation of the trend seen in September. So sales that are in comparison -- comparing to the last year that are becoming positive.

[Mara Dias, executive]

And now about real estate. We talked a lot about farms and how do we feel -- Fazenda, we talked a lot about Fazenda. How -- what do you think about the other 2? Is it on the rhythm you were expecting? And how long does Fazenda last -- going to last?

[Thiago de Oliveira, executive]

Looking at Fazenda Boa Vista, we still have a level of stock that we consider adequate so that together with terrains that will be sold in Boa Vista Village will serve the demand while we prepare. The other one that's going to be constructed in that land bank that in the beginning of the presentation, I put into context for you. I think in relation to sales, current sales of Boa Vista Village, it's aligned with what we were imagining when we launched the project, we are satisfied. This project is amazing. It's under construction. And soon, we'll be seeing not only in animation, but we'll see in real life the first units being handed out. And Fazenda Boa Vista, the strategy -- we did a modification for those who know in detail the project. Initially, we had imagined an area that would be dedicated to shared property, and we modified that.

And at the same time, we developed some plants with larger areas and that has made it more attractive. Now on the third quarter, we sold 3 or 4 fold. If I'm not forgetting anything, what was sold on the second quarter, there was a period that we stopped to make those changes from the standpoint of shared property and those units that are larger.

[Mara Dias, executive]

Now talking about airport, they asked us how the process of internationalization is? And how much will this impact in the operation?

[Thiago de Oliveira, executive]

It's difficult to say how much it will trigger value. There is no objective figures. What we can say is that airport being -- if it becomes international, it will add 1 more service for the flights that will go or come from abroad. Right now, to be honest, and it's a moment that we have a few international flights happening because of restrictions that we have in many countries, neighbor countries or even other countries. We have seen because international flights, generally speaking, have dropped a lot. And we are working to finish all these tasks to become international. The part of infrastructure that has to do with electronic reading of passport, accommodation is already installed in the airport. So we are following with this -- we're following this and aiming at becoming international. As soon as we have more details, we'll make it public.

[Mara Dias, executive]

About the project of expanding shopping malls. Could you talk a little bit about the perspective? If it's on time?

[Thiago de Oliveira, executive]

Yes, generally speaking, it's within the time frames. We are very satisfied with sales, the levels we showed just a moment ago of occupation rates in the 2 actives that are -- 2 assets, Cidade Jardim, Catarina, not only occupation but also the occupational cost that we have been able to deliver to the retailers. And at the same time, sales are quite solid for them, and this is generating for ourselves good arguments to go on selling that part.

[Mara Dias, executive]

In Fasano segment, how are international units going?

[Thiago de Oliveira, executive]

the expansion right now, we are very much focused to pick up the plans we had for New York, Manhattan. For those who are not following that the city was very much impacted in relation to the functionality of many things, including the construction you had for the restaurant had to be reduced in an important way. The residential part was ready in the beginning of the year. What COVID impacted was the speed of sales.

On our end, we want to understand a little bit better in the next months the impacts -- more definitive impacts that COVID may bring for tourism segment so that we can follow in our assessment of destinations to expand that brand.

[Mara Dias, executive]

I have a question whether volatility per dollar effects in revenue and expenses.

[Thiago de Oliveira, executive]

The answer is yes. It affects a bit our revenue and our expenses. In retail, we operate a retail that is for important products. So yes, it impacts there. In relation to flow -- tourism flow from abroad if the dollar is strong, that's good for that activity. So each one of our businesses behaves differently in relation to the dollar volatility. I don't know if I understood the question well. So volatility versus higher dollar. Volatility is not good for any business in the long run. But in the short run, it may bring opportunities, bunch of opportunities.

[Mara Dias, executive]

There's 1 more question that they always ask us. If we can expand to other states?

[Thiago de Oliveira, executive]

Actually, we are present in other states like in Amazon, where we have a shopping mall operation. In Bahia state, we're besides the shopping mall. We have some stock, not much something in Salvador city. In Salvador, we have Fasano hotel. In Rio city, we have the operation of hotels and restaurants, and were those raised? Likewise. So these are the states beyond São Paulo, where we are present right now.

As some main guidelines. We may do some business in states that are not São Paulo, but the core of the current activity and of what we see for the company in the near future is much more associated to São Paulo state than to the rest of all the other states of the country together.

[Mara Dias, executive]

One last question about the land. We bought close to Fazenda Boa Vista. Do we have plans of accelerating since resident sector is quite warm. So what's the perspective?

[Thiago de Oliveira, executive]

Now we don't have a date to launch that we are following a sequence of that have to be done so that we can prepare the product and present the product to our customers. If the question is, do we intend to accelerate that business? Yes, but we have to respect this sequence of events so that they happen. I think it's important when you look at what's happening in the countryside of São Paulo, this is not situation that is particular to this place. In the large cities of the world and even other capitals in Brazil, what we saw was that with this digitalization of communication of work, of study, some families, well, many families looked for quality of life in cities that are relatively close to those large cities. And I believe that in this sense, JHSF is well positioned in terms of having established products for that and also having a land bank that is quite expressive, which is in Boa Vista complex and Catarina Park on both sides.

[Mara Dias, executive]

Thank you, Thiago. I think we can close our teleconference. Thanking all those on Q&A. Thiago, it's with you.

[Thiago de Oliveira, executive]

Mara, thank you for helping with Q&A. And also, I want to thank heartly the team of JHSF. It's a team of 3,000 people that could work more during the third quarter more than during the second quarter. To follow with the advances of our entrepreneurial activities. So on behalf of the administration Board, of the steering Board and of the directors, I want to really thank you for the dedication, for the energy. And for 1 more quarter of good results. Stay safe, and we'll keep focused on doing the work that we have ahead of us, not only until the end of this year, but next year and many years ahead.

And at last, I also want to thank for the trust you have, 130,000 shareholders that the company has right now. And reinforce that any doubt you have in relation to the company, the official communication channel is through IR. Mara is here with us, and she's the head of that area for us. She can be accessed by email [e-mail] or by the telephone [phone]. Thank you again for your participation in this teleconference and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]