Cresud SACIF y A (CRESY) 2005 Q2 法說會逐字稿

Mr. Elsztain, you may begin your conference.

Oh yes. Good morning everybody. We are going to talk about Cresud with regards to the second quarter 2005, that ends on December 31.

We achieved in this semester, a net profit of [like half] ARS10m, 100% above last year. This was mainly explained because of the results at IRSA and Gabriel will explain later.

Apart of that Cresud harvested at December 30, 87% of its wheat area. The wheat is 16% of the total [indiscernible] of the agriculture, and we achieved very good yields, 4 tons per hectare, that is higher 35 high at the market. That 4 tons are very, very good yields, and the same is happening with sunflower, corn and soybeans. This year we are expecting to harvest 35,000 hectares, much higher than last year. It was very, very high yields, and this will be finished in the third and fourth quarters than the rest of the crops - the corn, soybean and sunflower.

Apart from that, we are in inauguration in March of this year, of the new facility for a dairy, and there was to be sales of farms that were made last year, and they are going to be explained in the third and fourth quarter of this year.

So in view of this, Gabriel will explain more deeply the numbers on the balance sheet.

Good morning to all. I want to explain the income statement of Cresud as of December 31, 2004. The net income of the Company was ARS9.5m compared to ARS4.7m as of December 2003, that means a 100% increase, because of the [EBIT] net sales went up from ARS29.3m to ARS35.2m, that means a 20% increase. And the operating result increased from ARS5.5m to ARS7m, that means a 28.6%.

With respect to the set month discussion, the grain margin showed a loss of ARS0.2m, mainly driven by a drop in the price of commodities. The sales of grain increased [indiscernible] 28% from ARS8.8m as of December 2003 to ARS11.2m as of December 2004, and this was driven mainly to increasing the volume of sales from 23.6 tons, sorry 23,600 tons to 31,900 tons as of December 2004. And a decrease in the average sale price of 5.5%.

If we see the costs of grain, the costs went up 59%, and that was attributed mostly to higher initial stocks level of prices.

Going to the beef cattle margins, the beef cattle margin as of December 2004 was ARS4.0m profit, compared to ARS3m as of December 2003, and this ARS1m increase was driven mainly to major sales volume at the higher price in 2004 compared to 2003.

Also to an 18% increase in meat production from 5,100 tons to 6,000 tons as of December 2004, and also major stock levels as of December 2004, compared to 2003 at higher prices.

Going to the milk margin, we have a positive milk margin of ARS0.7m in December 2004, compared to ARS1.4m as of December 2003. This reduction of the gross margin of 50%, was due mainly to a decrease in the production and sales of milk from 3.85m liters, to 3.52m liters, and also was driven by a decrease in the price during the same period.

With respect to all the costs, we have an increase in the costs driven mainly by the investment of the new development of dairy facilities.

Going to the whole results, if you compare 2004 to 2003. In 2004 we had ARS6.2m compared to ARS1.3m and this was due to the increase in cattle prices.

Going to the line of other expenses, other expenses, we had a loss of ARS3.3m, and compared to zero in -- $5,000 in 2003, and the concept of this line is the tariffs on personal assets that our shareholders agreement of October 22, 2004, decided to -- that the Company was going to take part of this cost. And the breakdown of the amounts are ARS1.7m, regarding the previous year, and a provision of ARS1.6m for 2005.

Going to the line of related companies, our Company showed a ARS14m in the line, compared to ARS2.1m, and the reason for this is the holding of shares of IRSA, our related company that produced a ARS14.4m results compared to ARS1.8m as of December 2003, and the participation of Cresud [indiscernible] S.A. at 2004 was 26.48%.

On the financial side it wasn't very significant developments this quarter. On the Convertible Bonds, 1.2m were converted. This is as of today, with outstanding of almost 42m of Convertible Bonds.

On the financial debt, the Company reduced its financial debt from ARS27m to ARS26m, continuing the strategy of financing its growth.

So, what happened in this semester is, we began recovery in prices of beef. We think there is a very favorable semester in this year for beef again. Argentina is opening a lot of markets. We were declared free of foot and mouth disease, but with vaccinations. That allows us to sell to many countries - not to the States up to now - but we opened a lot of markets. And with that we are sending more than 600,000 tons to the exports again, more than 20% of total production of Argentina.

So with that on our mind, and if we compare to Uruguay's prices, we think Argentina has a big gap to achieve Uruguay's, that is today exporting a big part of its production to Europe. Not comparing to the U.S. prices, the Uruguay prices were up 35%. Increase on price is possible, and we expect the cattle will go on that trend. And that is why Cresud today is having that stock of 100,000 head in the farms we have.

A part of that is the beef. In the -- what we are going to show you next quarter, in the third quarter, will appear the results of $2.7m because of the sale of Nacurutu, and in the last quarter we will be seeing $4.3m because of the sale of San Enrique.

So the combinations of these two sales of farms will achieve $7m more of gain, and will come in the third and fourth quarters to the balance sheet of Cresud.

Apart of that the Company continues and is finishing today the development of the second step Los Pozos. Now we are looking for a new [indiscernible] for more hectares, so we are finishing this 6,000 new hectares, but we are adding to 30,000, 10,000 hectares more for production. We are going to continue in 2005 developing more land, and putting the land we develop on production, and in the case of Argo Reigo, we put, for this year, 1,200 acres, so we have to finish that business, we have 500 acres more that we going to do in 2005.

And finally, what we think is in the agriculture perspective, we saw a big drop on prices, driven mainly the soybeans. Soybeans had a record harvest in the U.S. plus the record harvest in Brazil and Argentina dropped 50% in prices, and that was the main explanation of this stock the Company had last year.

But today, because of the drought that is coming to Brazil, to the south region to Brazil, is pushing prices up again. The last week and this sales are going up. So we expect the revenues of the third and fourth quarters to be positive, because of the combination of very positive and very prolific yields in production, plus this short recovery, small recovery on prices, the last quarter will be a positive. The third and fourth quarters will be positive.

Apart of that Argentina is today under discussion, the tax that the government is asking to the producers. You remember that it's 20% to the grain, and 33% to soybeans. And this is a tax that, in the whole world, well the majority of the world receiving subsidies, we are taxing. And after the drop of prices, producers are beginning to ask for the government, a reduction on that tax, and there are many people waiting for that, not to disappear but here to begin the reduction, and probably it will depend if the prices continue on very bad prices, they will campaign something. And if they go back again to good prices I expect not to happen that.

Cresud you will see next quarter, very active in the real estate, in the buying and selling - we are doing both. We are seeing opportunities to buy and sell, and probably we are going to launch, what we want to launch is in 2005, our project in Brazil that we are discussing with the Brazilian players how to do that, and we are going to talk about this soon.

So we are positive in the real estate playing and we think that we should have -- having the largest real estate playing [indiscernible] the asset of having IRSA shares is one of the best place on [indiscernible] of Latin America.

So thank you very much, and we are open for questions.

Thank you the floor is now open for questions. [OPERATOR INSTRUCTIONS]. Thank you, our first question is coming from [Hal Turner] of Dow Jones. Please go ahead.

Hi. I believe that last year, one of your strategies was to expand in the so-called marginal areas in Argentina and possibly in Brazil, but given the fact that commodities prices are low, and that in order to make a profit you need to have high yields, and it's harder to achieve high yields in marginal areas, does this mean that you will change your strategy and perhaps not invest in marginal areas?

No. What we did, we bought -- to talk about marginal areas, for example the farm we bought in La Pampa province that is a west end province in the middle of Argentina, western to Buenos Aires. We bought the farm that was under beef production and we changed that, and we today have 100% agriculture and now we are adding the facility for milk. That farm, that compared to original convert to Argentina in the marginals. But that farm to give you an idea, when we bought that farm we made numbers of, I don't know, [a couple of wheat] and never in life were we making wheat, we put a budget of 22 [kinkas] per hectare to harvest, and this year that farm will harvest 37 [kinkas] so more than 50% of what we budget. And what we budget was something that was not under production 2 years ago in that region.

So that strategy of going to marginal, where we know that we can produce grain or to buy forestry that is not under production, and produce beef, is still very profitable. With the drop in prices too, it's still making very very high yields, so our strategy of moving from the corn belt and today we have a small position in the corn belt, and go to our rest of the regions, where you can achieve good yields, lower than the corn belt, but comparing to the price of [indiscernible] are very still, very, very, better. So our strategy will be to continue to buy in marginals, and improving the yield in that marginal.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. Our next question is coming from [Ben Leiser] with UBS. Please go ahead.

Hi good afternoon. Just a really quick question. I'm just wondering what the delay is on closing these 2 farm sales. I mean, you announced them in the fiscal first quarter, and the bigger one, I guess, you don't expect to close until the end of the year. I was just wondering, trying to get a sense of why the delay?

It's not a delay. What we have is, when you sell a farm, you show the [indiscernible] you give the position to the new owners. So we sold, we for example in the first case, we had 30, 35% of the price and the rest will be charged in June of this year. So we received, for example in the case of San Enrique, from the $5m, [indiscernible] $1.5m, so the rest $3.5m we are going to receive in June. That's why, that was from the beginning, we are going to try to put profit that they will receive, and we will give the position to the new owner.

In the case of Nacurutu, we finished this in January, so today is closed, we are going to show in March numbers. There is not a delay, we [are today] and give the position to the new owner.

Great, thank you.

Thank you. Our next question is coming from Adrian Day of Adrian Day Assets. Please go ahead.

Yes good morning. I'm just asking a question about the position in IRSA. Is there a long term strategy for this? Are you intending holding it a long time?

Yes, Cresud's position is a long term. So today control of the IRSA shares is under the [hat] of Cresud [and we keeping it's hat].

Okay thank you.

Thank you. [OPERATOR INSTRUCTIONS]. There are no further questions at this time. I'll turn the floor back over to you for any further or closing remarks. There are no more questions.

Okay, thank you very much everybody. Let's talk next quarter and I think the perspective that the Company [is great] and thank you very much. Good day. Bye.

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