Cresud SACIF y A (CRESY) 2004 Q4 法說會逐字稿

Good afternoon and welcome to the Cresud conference call. [OPERATOR INSTRUCTIONS].

It is now my pleasure to turn the floor over to your host, Alejandro Elsztain, CEO, and Gabriel Blasi, CFO. You may begin.

Hello. Good afternoon everybody. We will need to talk about the results of the fiscal year 2004, that ended in June 30 2004.

Cresud had a net income for this year of Ps. 32m, $11m. We had a gross profit for this year of Ps. 23m; it was 11% higher than the previous period.

We had in this balance sheet result for sales of fixed assets of small amount of money of Ps. 1.6m. It was small compared with last year, but we closed 2 operations after the end of this balance sheet. That was 2 sales of like - one was of $5m and the other one was of course $5.6m. These 2 sales, they are not reflected in the balance sheet of June. [They will be] reflected in 2004/2005, when they will return 100% in one case and 750% in the second.

To give you a certain number it's 2 operations of $10.5m but they're giving results of $7m gain. And so that, those 2 operations are not reflected in the balance sheet of June of this year.

Apart of that, the Company had in that balance sheet in the status [figures] a 33% increase in occupancy, was really very occupied the whole year. 24,000 head has made a very positive cash flow. So it's concerning the trend that we had a few years ago and is performing a very good business in the life of Cresud.

Apart of that, we developed last year an important-- We began the development of part of Los Pozos, which has yielded 600 hectares. And we finished in the Agro Riego achieving the level of - we have 4,000 hectares under irrigation. So what's your extrapolation of land reserve? We had [the stock] and we are going to discuss a little more about the results of the year.

If we talk about the balance sheet, the balance sheet of this year shows a lower profit comparing to last year. If we see in the sales, we see lower sales of 13%, mainly explained by slower sales in grain. In fiscal year 2003 the sales of grain were with a lot of stock coming from 2002, because the total volume of production of last year was 70,000 tons where this year it was 74,000 tons. So the lower sales are explained mainly because only last year we were selling stock of the year before, 2002.

Apart of that, the [grain] result is still the same. We see in the light that the crop is giving the same profit as last year, apart from that reduction of volume.

If we talk about beef, the beef improved in sales a lot, 58%. But in cost too, mainly explained by the drought that happened in the North of the country that put us in the position of selling more cattle to the feedlot. And remember that the cost of production in the feedlot is higher, so improved costs.

So made a lot of sales but not in the better gain of last year. So that the beef showed a decrease of 27%, because of more use of what was only budget. We were expecting to have more cattle gain and because of that drought we had to send before. So we didn't produce in the farms and we produced a lot in the feedlots, and that is the explanation.

In the case of the dairy, the year was very good in prices and in volumes, and made a very positive year in dairy numbers.

So if we talk about the gross income, the Company improved at 11% year to year. When we see the holding result of beef, last year we had very good results coming from level of 80 cents of peso/dollar, of the compatibility, going to levels of 1.80 last year. So [referring] last year. And this year was an adjustment mainly [done] in the [steers] but not in the cows. We think that the cows in Argentina are still very cheap and that is the reason that's making us to improve our stock.

In the past Cresud had [150] or more thousand animals when the prices were very high. We sold part of that stock and we went to a level of 80,000. And today we are at levels of 100,000 head. In Argentina today, because of the kilograms is at level-- The price per kilogram of the steer is at levels of 70 cents. And that is a very bad price when in the States it's more than double that price. And in Uruguay the price is more than a dollar; in Chile it's more than a dollar.

So within Argentina, because of the foot and mouth disease that makes close mobility of the [experts] reduce a lot of its price. And our investment of increasing the stock of cattle, coming from 80,000 to 100,000, was because of that. At that time, the price was at 40 cents. Today it's at 70 cents, and it's still cheap in dollar terms.

That is making Cresud to still invest more in [clearing areas] and putting more cattle, like the case of Los Pozos. We cleared 6,000 hectares last year. We're going to bring 10,000 or more hectares this year, to put a net level of 1 animal per hectare. So we are going to put more cattle in our farms that we're going to develop.

In the case of the new developments for last year, we did the Los Pozos, we did Agro Riego. Agro Riego was an investment of 1,200 hectares, cleaned and put through irrigation. Today we are renting that to Monsanto and [Mobartis]. As part of that we are making [commodities] at very, very high returns.

The projects we are opening, they're giving us returns of 12% to 15% in dollar terms. So this kind of investment is the one we are doing. At the same time we are selling the assets where we think they [are appreciated], like the ones that I explained at the beginning.

We sold these 2 farms because with those prices the operational return was very low. One of the farms we sold at 5m. The return will be 3%. We gained 4m or more selling that, so we said we decided to sell this kind of asset and go into more marginal. So [some of you] will see soon more sales in the site. We think there's not more appreciation operationally and more investment in the marginal or developing the land reserves.

Cresud is expecting to purchase more land. It's now negotiating in both sides - buying and selling more assets.

Talking about the future, Cresud is beginning to study the region. We think there is a potential in South America, mainly in Chile and Brazil, to launch projects like Cresud or Cactus here in Argentina. And we are starting now to do that in the near future.

The Agro was a clear beneficiary of the valuation. It's a sector that helps a lot in the economy of Argentina. The bad news is that the government is taxing the exports and is taking part of the profit from the producers, who are not expecting tax to grow from the levels of 20% or 22% like yesterday's levels. But it's something that we'd like to see reducing for the future.

But what we think is that we have a very big [shielded] value in the Company. We saw in those last 2 sales, where we gained 70% of the total price or 75% of the total price. So we think Cresud can move in this business buying and selling, and meantime operating profitably like we're doing in the last few years.

So we are glad with the result of Cresud. We have a big portion of [beef] in our stock and we think that it will give us good results for the future too. So we think that the [play], in this case of commodities plus real estate, is one of the best [plays] of real estate of the region. And we're going to use our expertise that is something that's not normal to buy and sell farms, like Cresud did in [the past]. For the future, not only Argentina, probably more in the regions.

So thank you very much. I think I'll wait for your questions.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question comes from [Gilman Gunn].

Hi. Can you please go into more detail on the type of projects you're looking at in Chile and Brazil?

We have a [view to that] for the reasons of launching our purchase of land in Brazil. [Brazilian] wasn't building in Argentina, going to areas [and to develop]. And now in the process of research that, and we think that Brazil has a lot of potential and Cresud has the expertise and [will use] probably soon in Brazil. Specialty in land and cattle and marginal [indiscernible], like we did in Argentina.

In the case of Chile, we are studying the possibility of launching a [figurehead] company to approach the possibility of [indiscernible] that Chile has. Chile has all the market everywhere and [is opening] for the rest of the countries. So we think that the potential that can be exported from Chile is very big, and that is making us to be thinking of launching there too. So this is the kind of investment we are studying at this moment.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS].

Our next question is coming from [Mark Fuller].

Hi. You note the unusual appreciation of valuable land in your press release, which measured in dollars exceeds valuations prior to the peso crisis. In your opinion, what's driving this and do you believe it is sustainable going forward?

In our view it's increasing prices of the compatibility and I think it was driven mainly because of the [service] price. That said, we made the peso the highest price of $250 in Argentina per ton. The farm price is affected but in total not because the return operationally is not very bad comparing to the rate. You are receiving today levels of 3%, 4% or 5% depending how good you are.

And there were a lot of foreigners coming to Argentina and a lot of Argentineans who - they put their savings or their [new] money as there's a lot of players that are making a lot of money now, and they're putting their savings on farms. That is a limited - you know you cannot increase the number of investors [if we wanted to]. Instead of that it's reducing year to year, because of the [Eurofund] development.

So there is a trend of people going and a lot of foreigners coming to Argentina, and that means that Argentinean producers, that they're making a lot of profit. And you know that the producer, when he generates cash growth and buys more land. One of the sales we did was to a farmer. He used the cash generation of a group and they bought a farm. For us it was not enough to stay with a 3% return, we thought it was good to grow.

For the future, I think the marginal will appreciate more than the central. They will develop a cheap price for me in [April]. That is the reason we are selling on those regions. And so I think the appreciation will go more to the areas that are worth a little less as they are more far from Buenos Aires. So the appreciation will be stronger there than in the [corn belt].

But players that want to have land, they are paying those kind of-- And I don't think that the price of the land will drop a lot. Maybe it will correct a little, 10% or 20% lower, but no more than that because it's a place to put savings in a world that is uncertain, where the rates are uncertain and the currencies are uncertain. And with the land, you know you have a thing that appreciates in the long term, and Argentina has-- And remember that we're in a cash basis business, and there's not mortgages and there's not bankers giving money.

So it can continue appreciation if the market goes to more liquid in the banking system. So I think it's part of Argentina with foreigners buying, and assets that show that part of the crisis and it's still profitable. And I think it will continue being strong in the future too, and that's the reason we're going to continue buying probably more developing land than buying the more central, where for us the return is not enough to put our capital.

But there will be coming players to this business too. There are a lot of foreigners now, they're wanting to buy more, and we're receiving more offers to buy more farms [apart from] ourselves. So it's a very, very [thin] market.

Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS].

There appear to be no further questions at this time.

Thank you very much, gentlemen. Next quarter we'll talk about the results. We are optimistic for the results of next year and we thank you very much for this conversation. Bye.

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