JHSF Participacoes SA

BOVESPA:JHSF3

Earnings Call Transcript 2022-Q3

[Cleidiane Elias, executive]

Good afternoon, and welcome to the webcast of JHSF Participações to discuss the results of Q3 2022. Today with us are Mr. Thiago Alonso de Oliveira, CEO; Nilson Exel Nunes, CFO; and myself, Cleidiane Elias, IR coordinator.

We today have interpretation in sign language. And this is all to make the presentation more inclusive. The presentation is being webcast simultaneously on YouTube and on our webcast from our site. [Operator Instructions]

Before proceeding, we would like to clarify that any forward-looking statements that may be made during this presentation relating to the company's business outlook are based on assumptions on the part of the company's management and on information currently available. They involve risks and uncertainties as they relate to future events, which may or may not occur, changes in macroeconomic policy or in legislation may affect the outlook and projections.

I'll now turn the floor over to Thiago to begin the presentation.

[Thiago de Oliveira, executive]

Good afternoon, Cleidiane. Nilson, thank you for being here today with us, and thank you all for attending this conference call. I would like to give you a little bit about the operational view of our real estate division relative to Q3 2021. We saw a growth in sales by 12.4%. And I would like to highlight the greater diversity in terms of the projects we are now selling, a different mix and also in different geographies.

We again are growing more strongly in São Paulo, which now accounts for 33% of our total sales. And in Q3 2021, it was below 10%. So from the point of view of the company's strategy, we have been operating in 3 large areas. And this allows us to sell in different areas, where our projects are doing really well.

This distribution between real estate products and land bank has some impact in terms of the recognition of revenue. And for those who have not following us for a long time, once the development happens, the revenue is recognized in terms of PoC, percentage of completion. That is we recognize the revenue as the project progresses. Whereas when we sell land, we recognize the sale at once, once the sale is made. So on Page 4, we have a table that shows you the PoC in these different projects and the PoC that you see here in gray is the percentage that has to be executed. So this is revenue that will be performed, will be recognized in the next few quarters, and this has to do with what has been sold.

Our real estate business remained stable relative to Q3 2021. And if we take into account that there was a growth in those businesses where PoC is used as a metric, this is a highlight. Relative to the third quarter of 2019, the growth was 260% relative to that period.

In terms of adjusted EBITDA, we see here a stable scenario with a slight drop. And I just wanted to highlight the impacts of PoC and add that with a larger number of projects ongoing, we have more general and administrative expenses than last year. And these administrative expenses from our point of view are associated with a larger number of projects. And as these projects are progressing, we see that the level of administrative expenses is in line with what is going to be recognized in terms of revenue. And here, also, if we compare this figure with Q3 2021, there was a fourfold growth in terms of adjusted EBITDA, nearly fourfold.

And now moving to retail, malls and digital. We saw growth by 13.1% in sales, BRL 1 billion of total sales in the quarter. And I would like to highlight that shopping malls such as Cidade Jardim and Catarina have a very relevant rate of growth. When I look at our sales in digital, 9% growth relative to Q3 2021. And again, this attests to the success of our strategy, especially in retail. This is contributing substantially to sales as a whole in the company.

Looking to the malls operational indicators on the right-hand side, we see a similarity between the S indicators. But in terms of converting sales into revenues, we saw an improvement in SSR and SAR relative to SAS and SSR, respectively, when we look -- when we compare Q3 2022 to Q3 2021.

If we compare this to 2019, we see the same thing happening. So there is an improvement in terms of the rents that we are being able to capture in view of the sales to tenants in our malls. In terms of occupancy rate, slightly above 97%, and this has remained stable relative to Q3 2021. The cost of occupancy is in the region of 9%, which is very competitive and healthy.

When we think in terms of gross revenue, it was at 12.5% relative to Q3 2021, but we have doubled the size relative to 2019. In terms of adjusted EBITDA, what we see here is a drop by 3.7%. And especially in the investments that we are making in the digital area, they are being expensed now in a more direct way instead of allocating them to fixed investments. But if we exclude that value, we would have had a positive number. Our decision, however, was to be conservative and to expense these amounts.

Looking at hospitality and gastronomy. Average daily rate, a very strong growth, nearly 19% relative to Q3 2021, a 79% growth relative to 2019. In terms of RevPAR, 32% growth relative to Q3 2021. If we go back to 2019, this has practically doubled.

In terms of number of sold couvert year-on-year 14% growth or nearly 28% relative to 2019. And as regards the average value growth by 27% or 42% relative to 2019. All of this have been contributing to our revenue growth. In terms of gross revenue, 32% year-on-year or 78% relative to Q3 2019. But the most important thing is for us to look at the adjusted EBITDA. The nominal growth was 1.5% and relative to Q3 2019, it was 108.4%.

Looking at the Executive Airport, we see that it is becoming increasingly known to international operators. We grew the number of flights by 3.5x. In terms of international flights, the newly open hangars are practically all full. They're all occupied. So we have been adding capacity in a gradual manner, and we see that this is a very accurate theses in terms of giving us a return on the capital invested. So the airport now has operated more than last year by 27% in terms of landings and takeoffs.

The number of international flights, which has grown exponentially, brings more larger planes to operate in the airport and the number of operations by flight, I mean larger -- a greater number of liters. So this has grown by 7x. And as we speak, we have 8 hangars in operation, 4 new hangars are being built and the taxiway for the circulation of the planes is also under construction.

So the point of view of the airport, the gross revenue more than doubled 165% of growth year-on-year and the EBITDA practically tripled from BRL 1.9 million to BRL 7.4 million in Q3 2022. So the concept has been proven in the airport. When we look at the operational indicators, we see how they translate in terms of financial indicators.

On a consolidated basis, our gross revenue grew 8.3% relative to Q3 '21 and practically doubled relative to Q3 2019. In terms of operating income, and here, we see an effect that has to do with the mix of products that is real estate has a slightly lower margin than products that have to do with land. But despite that, we are nearly 55% above Q3 2019 in terms of operating income.

In terms of adjusted EBITDA, it has remained practically stable. And here, we considered also the effects of the expenses of the digital business and slightly higher administrative expense in the real estate business, which has to do with a greater amount, a greater number of projects and an increase by 300% relative to Q3 2019.

In terms of net income, we had more financial expenses this quarter than in the same quarter last year, and we paid more deferred taxes. So these are taxes that have no cash effect and there was a reduction by 25% in net income. But in terms of the comparison with Q3 2019, we grew 80%.

And before we open for the Q&A session, I would just like to leave you with some messages. The first one is to stress that 8.3% growth in terms of gross revenue is a very good result. The adjusted EBITDA was nearly BRL 260 million.

The company is extremely happy and proud for receiving the certification of Great Place to Work. This is a time when we are bringing back to the office people who were working from home, and we are recognized as a healthy and good environment to work. And this is very important for us, makes us happy and proud that our team thinks of us in those terms. And we have been able to deliver growth with quality for the employees as well.

In terms of real estate development, a 12.4% growth in terms of malls, a very robust growth relative to last year and even more robust relative to 2019. All the S indicators are very healthy, above inflation levels. In hospitality and gastronomy, all of the operational indicators are extremely good and the same happened in the airport.

And with this Cleidiane, I turn the floor over to you to send us the questions and Nilson and I are here available to take the questions for those who are here live, but those of you who are watching this conference or watch it later in the replay, if you require further clarification, please access our channels from the company's website or call us, and we will be more than happy to provide clarifications.

[Cleidiane Elias, executive]

Okay. I have some questions. And some of them have been answered during the presentation, but I have some questions having to do with the increase in consolidated expenses on business by business.

[Thiago de Oliveira, executive]

Okay. So as regards real estate, our real estate business, we now have more projects than before. So it's just natural for us to see administrative expenses grow because we have to support those projects. Then most of the revenue of these projects, which are causing these expenses will be recognized under the PoC system. So it is included in the budgets of the projects. We are following that from a very close range and we see the consistency and the alignment of these administrative expenses with the projects.

As regards -- the malls, retail and digital, we have 2 effects. The main effect is the expense -- is the expensing of investments made in the digital area of the company. And the second effect is that we operate more shops in retail than we used to in the past. So there is a revenue from rents that is seen here. But when we look at the malls, retail and digital, there is no greater impact in terms of adjusted EBITDA.

And then thirdly, under the holding, when we have the demonstrations for the market, we have the appropriation of the stock option programs under the holding. And what we saw in this quarter is a growth of expenses that has to do with the expensing of the stock options, which was done in Q3 2022.

[Cleidiane Elias, executive]

I have also some questions about the gross margin in the real estate business. This quarter, there was a reduction relative to the mix, but is there any other factor that explains this reduction between the margins?

[Thiago de Oliveira, executive]

No, that is the answer. The gross margin in percentage terms for land is larger than for built products. If you allow me, I will reiterate that we make money in nominal terms, not in percentage terms. And what we have been trying to do when we manage the company is to improve the nominal gross margin which we generate in our businesses. So when we look at the operating margin of the real estate development business, we have 4x more income on a nominal basis than we had 3 years ago. So we have to look at the film not at the snapshot. Those who follow us should understand that the distribution, the mix of what we sell has an impact on the margin, but I draw your attention to look essentially at the nominal margin that is less the percentage and more the amount of money that stays as a gross income.

[Cleidiane Elias, executive]

Another question about the airport and expansion for the airport. What is in the pipeline? How many more hangars are you going to add? And what is the expected CapEx for this expansion?

[Thiago de Oliveira, executive]

This is a very good question because it allows us to remember what the airport is as a whole. It belongs to the company. It's our property. It's not under concession, which is what normally happens. It was built to serve executive aviation in the metropolitan region of São Paulo. And this is the main market in Brazil. It concentrates approximately 40% of the Executive Aviation flights in Brazil, and Brazil is the second largest market in terms of executive aviation. So our process in terms of growing capacity in the airport, this is something that -- and mind you, we have been operating for 3 years, we have been able to increase the hangar capacity 4x and it should grow 50% more than we have today. So we moved from 2 hangars to 12 in the short term. In the medium term, we should have 17 hangars. So more hangars in the airport means more revenue from the space, greater use of the port, obviously, with the fees and then more fuel sold.

So some of the numbers I have just shown you, and I would like to show them again. So this is what I have shown you. In terms of operations, we grew 27% relative to Q3 2021. And this comes from the greater number of hangars and other planes that come and land and take off when they are flying to São Paulo. We grew approximately 30% in terms of takeoffs and landings, but we grew 150% in terms of fuel, number of liters. So more hangars means more planes. And this, in turn, brings also more planes that just use the airport but not the hangars. So we receive fees and we sell more fuel. So there was a 27% growth in terms of landings and takeoffs, but 290% in terms of adjusted EBITDA. And we now see a growth in terms of the EBITDA margin, which went from 20% last year and is now near 30%.

This is everything that we expected. But if we look into the future, the operating margins in the airport should be closer to the operating margins of what we see in the malls business, for example.

[Cleidiane Elias, executive]

Thank you, Thiago. So there are other questions as well about how we plan to expand other businesses, not only the airport. So could you give us a little bit more color about that?

[Thiago de Oliveira, executive]

For those who haven't met Nilson, 3 months ago, Nilson took over as CFO of JHSF Participações and he's also the CFO of JHSF Malls.

[Nilson Nunes, executive]

The plan of expansion that we have been executing this year in addition to what Thiago said, in terms of the construction of new hangars in the airport and the taxiway, we also have a plan to expand the malls business. In terms of expanding current operations, especially the expansion which is very advanced in terms of execution and sale in the Cidade Jardim and in the Catarina fashion outlet malls.

In the case of the Catarina fashion outlet, which is a great success, we are nearly doubling the area. In addition to those brownfield expansions, we also have in our plans, the construction of 3 new malls, these are in the beginning stages, Faria Lima, Boa Vista Village and Real Parque. But once these malls have been completed, they will allow the company to more than double the gross leasable area. So our mall business is going to more than double in size once these projects have been completed. And this is going to generate cash for the company. Of those projects, which are at a more advanced stage, we are going to see an impact in terms of cash next year, but the orders will depend, obviously, a little bit on the execution schedule.

[Thiago de Oliveira, executive]

And just to add to what Nilson said the investment program that we have for the airport, for the malls and for the company as a whole, we have been working on this program since 2019. And to be able to invest like that, the company has increased its capital in 2019 and in 2020. And we are now continuing to work on that long-term plan that we have for the company. The funds are within the company. The cash generated from the company's business is very healthy as well. So this adds further capital to our cash position. The capital structure has been strengthened because we have a debt schedule that has been improved, that profile has been improved in the last 3 years. So we see that the company is well prepared and well positioned to continue to invest. We have been following the operations and the macroeconomic scenario from a very close range so that we can make adjustments if needed.

[Cleidiane Elias, executive]

Thank you, Nilson. Thank you, Thiago. These were the main questions. So I'll now turn the floor over to you for your final remarks. Thank you.

[Thiago de Oliveira, executive]

Thank you, Cleidiane. As I have been doing, I would like to thank our shareholders for the trust placed in us, all of our efforts, all of our initiatives, the initiatives of a team of 4,000 people, a team that wakes up early, goes to sleep late, and very proud to be part of the team. And every day, they come to work thinking in terms of quality and excellence to our very special clients. We are convinced that we work every day to deliver quality of life to the families of our clients. So once again, to all of you, a big thank you. I'm honored to be part of the team and to have you all working together so that we can build a better company every day for all of our stakeholders.

[Nilson Nunes, executive]

Thank you, Thiago, for the introduction, for the trust placed in me. I hope I will be able to contribute for us to face these challenges together, the challenge to improve the quality of life of our clients and generate value to our shareholders and to the community where we operate. Thank you so much. Have a great weekend. And we remain available to take any questions you might have from our website, e-mail and telephone. Thank you very much.

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