Cresud SACIF y A (CRESY) 2003 Q4 法說會逐字稿

Good afternoon, and welcome to the Cresud conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation.

It is now my pleasure to introduce your speakers for today, Alejandro Elsztain; Gustavo Mariani, the Financial Officer; and David Perednik (ph), Administration Officer. Gentlemen, you may begin.

Thank you very much, and good afternoon.

We will talk about the results of the end of the fiscal year 2003. In Cresud, we obtained a net income of 65 million pesos comparing to the loss of 62 of last year. The operating income improved from 60 million to the 28 of the previous year. Our seedless (ph) company went to full capacity from the beginning. It's their first year. And we're planning now to expand the first one. And now we're thinking of purchasing and building the second one.

We began the clearing of more hectares for re-culture (ph) and cattle raising. We moved along the production chain and will began to slaughter part of our cattle. And in IRSA, we had a very big improvement.

So I will introduce Gustavo Mariani, and he will explain a little about what happened in our finances this year.

Good afternoon.

Without any doubt, one of the main achievements in terms of financially speaking was the issuance of the convertible bonds back in November 2002. We were able to place $50 million basically these notes were purchased by our shareholders, 75 percent, and 25 percent was purchased by a new investor. This was done in a time of very difficult economic and a lot of political uncertainty.

With this $50 million, we used it to purchase use (ph) of convertible bonds, so Cresud remains (inaudible) company because this two convertibles are alike, same maturity and same coupon. And this liquidity helped our subsidiary to restructure their financial situation, and exit the crisis in a much stronger position.

I will introduce, I think it's short but enough, what Gustavo was saying about the finances. Today we have positive position and we're thinking of what to invest. And I will go afterwards (ph) to explain what we could invest at the beginning of this year and what we are planning for the future.

I want to introduce David (ph) and he will explain about the new (inaudible) in the balance sheet and how hard it's to understand the rating of this balance sheet that it adjusted the inflation.

Good afternoon.

As you may know, since last year in Argentina, we have a (inaudible) procedure of adapting for inflation on our balance sheet. And this had very critical changes in the way in which we show our figures.

Apart from that, this year the inflation has dropped very - at a very high percentage, because last year the inflation, the average inflation were up around 90 percent. This year we have already had inflation of 12 percent. That means that in the comparables of the two years, fiscal year 2002 and 2003, the figures are a little bit difficult to be explained, but we'll try to show the main differences.

The company this year in Argentina had to apply new accounting rules. These accounting rules mainly have introduced the deferred tax asset practice that we hadn't before in Argentina and it's an (inaudible). And we have also discounted all our long-term assets and liabilities, the interest rate, so that those changes have made some big important figures in our way of showing the results, mainly the financial results.

Anyway, if you see the main important - the main - the main differences between the two years, we have 116 million pesos of difference that can be explained as the shares that will soon have a near (inaudible) 2.65 percent that during last year have given us a laws of 41 million pesos while this year mainly due to the recovery of the year's results have given us 68 million pesos of profits. That's the main differences in the - in these difference - in this line. We can explain mostly differences about this, the result of profit between the two years.

Other changes in the figures are also in the cattle that the (inaudible) results of the last year have given us a loss of 20 million pesos. This year, the prices have recovered and gave us a profit of 12 million pesos.

Thank you, David, for trying to make it easier. And our goal is trying to give you an idea of what is happening in the sector of the agriculture in Argentina.

Probably as you know, that was one of the sectors that was not benefiting from the new economic situation. There was a big dilution of cost, and a big part of our (inaudible) are coming from this sector, mainly from agriculture, not a lot coming from the cattle.

(inaudible) talked about the recovery of prices of cattle that gave up the holding (ph) results of like 12 million. But at the end, the cattle is still at 60 cents a dollar (ph) per kilogram. Whereas today in the states is like 180 (ph) so we are like at a third of the states.

It's true that Argentina, while suffering the foot and mouth and is today not clear the short future, but at the end, this downward trend is going to reduce. This is a year-and-a-half or two years ago before the (inaudible) collapse, we had a moment that the beef was $1.30 or $1.50 which (inaudible) today we're talking 60 cents, and in that line of business, we think that again, not soon, because Argentina has still in the foot and mouth problem and many markets have not opened up to now. But we think that it's still an opportunity. And today, having a total of like 80 or 90,000 heads, we are thinking on growing (inaudible).

We have last year very good numbers in operation, but having smaller operations, we were very cautious in the time of listing and we know, coming from very big numbers of hectares in some areas, that we don't want to have big size but not very profitable.

So we were very cautious (inaudible) and in operating. And we saw that with lower volumes in all of the segments, in beef, or grain, or milk, we made very big gains because we were very keen in the production and in the cost side, we were very successful in the selling. So we're seeing that that shows that the operation if not too big can be more positive than bigger, we are going to (inaudible) grow again. Now we are launching projects of (inaudible) in beef and grain, having this operational profit of the last three years coming from negative in the (inaudible) before.

So we have last year two sets of funds. We sold an average of $3,000 per hectar. We purchased new farm in May of this year at the thousand per square per hectar. And that is again part of the strategy of Cresut not being in the (inaudible) where the land today is still very expensive. A lot of players trying to buy. And we were most - we were more selling than buying in that region. And we were moving more toward regions that we will change in activities also in forestry to agriculture or forestry to cattle or cattle to agriculture. And that's the example of the farm we purchased in the La Pampa (ph) region. That farm was with cattle, and today after three months, with 100 percent on agriculture and going to the (inaudible). To give you an idea of that purchase, we purchased it for $1,100 per hectar and we will see the rent for nearly half of that farm (inaudible).

So we think that property today has a better value that the price would (ph) take (ph). And again, we're going to transform land, and we're going to continue and try to finish this year through 2003, the Agro Riego San Luis (ph) project, finishing and achieving the 4,000 hectares and the (inaudible). Very profitable project that today is producing seeds for (inaudible). And we are again transforming more land of Los Pozos (inaudible) to develop. We are doing 1,000 hectares more of agriculture and a project of 20,000 hectares more for cattle. That was very successful. We closed the year of like 12 percent return in dollar terms in the cattle production on that farm inside the region.

So we are going to grow, trying to finish projects that we haven't stopped and trying to find opportunities like the one we found this year in May. We have like $6 million in cash in our pocket (ph), and we are trying to be very attentive to opportunities the market is giving. In the meantime, developing the things we (inaudible).

The Cactus (ph) company was very successful. It's making a very positive cash flow, having full occupancy and today we have stand-by people waiting for entering next month. We are launching 5,000 heads more before the end of the year. We'll be prepared for receiving this number in those actual (inaudible). And now we're starting in our region to launch a new project with our partner.

So (inaudible) company we went to positive from negative last year. And now we are beginning to (inaudible) we're giving services to producers. And that is growing (inaudible) line of business for the next balance sheet. We'll have to grow more deeply because this is giving the services as part of the strategy that we should (inaudible) in the future to leverage what (inaudible) and try to take a profit from revenues from third (ph) other producers.

So we are very optimistic in Cresud. We are, in combination of (inaudible) operation, very big appreciation on the land, transformation of hidden value, and looking for more opportunities, plus having the portfolio (inaudible) of recovery a lot. So we are very optimistic for the future of Cresud. And we would like, if you want more questions, please ask us. Thank you very much.

Thank you.

The floor is now open for questions. If you do have a question or a comment, please press the numbers one, followed by four on your touch-tone telephone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. And we do ask that while posing your question, that you please pickup your handset to ensure proper sound quality.

Please hold the line while we poll for questions.

Our first question today is coming from Ricardo Cavanaugh (ph) of Raymond James. Sir, please pose your question.

Yes, hi - good afternoon, Alejandro and Gustavo.

My question, I'd be interested to know your outlook on land prices and range for the next year. You refer that land prices weren't that significantly on the current area. What are you expecting in terms of more marginal areas in terms of appreciation.

In the - the strategy of moving from the corn to the margin mainly explain because the corn today, you are talking about four to $5,000 per hectar. Whereas, the marginal - depend the marginal you're talking. The one that we bought in La Pampa, we paid 1,100 and that is, in my view, is more possible to double price on that region because of the achievement of (inaudible) having (inaudible) or 60 or 50 (inaudible) of (inaudible). Then doubling price from the (inaudible). And that is why we moved to those regions. This is one marginal but that is still in the (inaudible).

The other marginal, like (inaudible) were investing like two or three million in each of them. In that region the change of value to the (inaudible) today we are talking about would we purchase in $10 (inaudible) today is talking about 80 to $100 per hectar and - before development. And the number of after developed, we have no numbers because we are pioneers in that region.

So that's the reason we're moving because we can change the numbers a lot and that's the reason why the company's moving to the regions (ph) that the normal (inaudible) didn't go in the past.

Today there are a lot of - you know that the producers diluted the debt and they cancelled the majority of the debt after devaluation when they had (inaudible) and (inaudible). Today they're very liquid and they're moving to other regions. And a lot of people from Santa Fe (inaudible) Buenos Aires are moving to the north and the west because of the same reason. And that is good news. The old players are moving to the region and that makes more clear the area. So we think with the case we're going to make in the marginal would be very important in the near future.

Thank you. And I have another question, regarding your outlook on grain prices, particularly soy. What are you expecting for the next year?

We're thinking on the (inaudible) again because of things of the state (ph) of not having the best harvest. And in Argentina, it's growing again. But with the growth that we're planning, we think, again, having numbers of soybean that makes very profitable. The soy beans that, again, makes to sold to the producers everywhere and we see a growth in the area of Argentina and Brazil. And a part of that, we're seeing that there would be enough good price that will make us still very profitable, the margin the on the soy bean area. We're talking about 260 per hectar or ton for the next campaign.

OK, thank you very much.

If there will be any further questions or comments at this time, please press the numbers one, followed by four on your touch-tone telephone.

Gentlemen, there appears to be no further questions at this time.

OK.

Thank you very much for everybody. And we think that Cresud that will continue to showing the combination of the results of all the lines (ph) it has. And we thank investors for being on the conference call.

Good afternoon. Thank you. Bye bye.

Thank you for your participation. This does conclude this afternoon's teleconference. You may disconnect your lines at this time and have a great day.

Thank you.