Cresud SACIF y A (CRESY) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to your Cresud conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to introduce your speakers for today's conference, Mr. Gabriel Blasi, and Mr. David Perednik. You may begin.

Thank you sir. Good morning or good afternoon to everybody. Unfortunately, Mr. Alejandro Elsztain wasn't able to attend to the call, so we are going to conduct the call together with David. First of all, we would like to address the highlights, with covering of the different lines of business, and David will address some comments on the financials of the Company.

The net profit for the nine-month period reached slightly over ARS62m, almost five times higher than the previous period for the previous year. At the same time, we ended the clearing of 6,000 new hectares in our land reserve of Los Pozos for development of the cattle business during next fiscal year.

The corn and sunflower harvests have commenced and the yields are higher than the forecast. The wheat harvest has ended with 4 tons per hectare yields. Also, we have opened a state-of-the-art dairy facility in our farm of El Tigre, which allows us to produce 36,000 liters per day. Although the dairy farm still requires some small fine-tuning, it's very efficient in terms of costs.

Also, we have signed the title deeds for the sale of 30,000 hectares, generating a profit of ARS7.5m. And on the other hand, we also have signed deals for the sale of two other farms, which will generate $7.8m profits, that are going to be reflected in the next quarter and during the next fiscal year.

Considering the degree of detail of the results of the nine months of the fiscal year, as I mentioned, we reached a profit of ARS62m, which is significantly higher than the ARS10m of the previous year. This was due to three main reasons. One is the higher result in our cattle stock holdings. The other is the stronger result in the sale of farms. And the other is the result that we get from the sale of IRSA Convertible Notes held by the Company.

In each case, meaning for the first ARS1.9m, for the second ARS7.7m and for the third ARS68.8m coming from the sale of the IRSA Convertible Notes. We are going to refer later to this issue.

Our operating income also increased by 39%, reaching ARS20.7m of profit. In the case of the results from related companies, mainly represented by IRSA itself, we have reached almost ARS21m profit regarding IRSA Holdings.

Talking of the crops, really the crop advance has been very positive, reflecting a solid increase in the yields achieved. Which, on general terms, have been higher than the price decrease that the market suffered. 100% of the wheat area has been already harvested, obtaining a yield of 4 tons per hectare. This is over our Company forecast.

On the sunflower harvest, with almost 1,800 hectares, we have also completed that harvest, obtaining a yield of 2 tons per hectare compared with a figure of 1.6 tons of the previous harvest. Also, the wheat and soybean harvests are developing satisfactorily. As of today, 82% of the soybean area has been harvested, while the corn harvest reached 39%.

On the beef cattle, we increased our stock up to 93,800 head of cattle, affecting to this exploitation almost 127,000 hectares for this exploitation. A substantial increase, the beef cattle prices have helped also to increase our result. As we have mentioned, there are several opportunities to illustrate this. The gap price between Argentina and Uruguay, which is able to sell to the United States, which was during the first part of the year rates up to almost 26%. Today it's at 13%, because of the recovery of our internal prices.

We have some decrease in the milk production, from 5.3m liters to 4.9m liters, in spite of the opening of the new facility in El Tigre. This is mainly because of the impact of putting in fine-tuning the new facility, like the one we are referring to. If you remember, this was a state-of-the-art dairy farm, where you would generally take 8 minutes to milk an animal, and with an investment of $1m approximately.

Regarding the feed lot line of business, where we have the equity interest through Cactus Argentina, which we own 50% at this time, it's affected by the seasonality of the business. Which affects the occupation levels and the revenues on this business, but we expect to recover these, that went to ARS7m, during the rest of the fiscal year.

We have been -- we have seen a consistent occupation level in the feed lot business quarter to quarter, leaving aside the seasonality, and we are considering the development of a second enterprise of similar characteristics, which may be located only in Argentina or abroad the country. We have provided you a forecast for the next quarter, where we expect to surpass previous occupation levels, reaching 18,000 of cattle heads for that period.

Regarding the sale of farms in this quarter, we have a significant impact of the decline of business. During February we signed the title deeds for Nacurutu, our 30,000 hectare located in the province of Santa Fe. The selling of this property realized a result of about $2.5m in our books. On the other hand, we also went through the same process for San Enrique, which in fact will impact in $4.3m our future financial statements corresponding to the current fiscal year. As I mentioned, this last is yet to be recognized in the results.

Also, in February we also signed bills of sale for El Gaulicho, a farm of almost 6,000 hectares that will generate $3.5m profits that are going to be reflected in the 2006 financial statements. We are in the process of bidding for several properties in different parts of the country currently, to continue with the development of our real estate relating to agricultural business line of business.

On the other hand, we have also added 4,000 additional hectares of cattle beef production in our result of Los Pozos and finishing the clear work for 6,000 additional hectares in that property. David is going to refer to the financials before we go to the results from IRSA.

Okay. We're going to make a comment on the financial statements for Cresud. As Gabriel mentioned before, Cresud increased its results 508%, from ARS10.2m last year as per March 31, 2004 to ARS62.1m after March 31, 2005. We also improved our operating results 40%, from ARS14.7m as per March 2004 to ARS20.6m as per March 2005.

If we go into the main lines of our results, with respect to the crops, we had a decrease in the results from ARS7.6m last year to ARS3.3m this year. And this was mainly driven by lower prices in our crops.

With respect to the cattle business that we have, we registered a loss of ARS1m as comparing the result of ARS5.9m last year to ARS4.9m this year. And this was due to the increase in the direct costs of the cattle that we had to finish in the feed lot, because of the drought that we suffered at the beginning of the fiscal period.

If we see the milk business, we had a decrease of 48%, going to ARS1.1m in this year comparing to last year. And this was due to a decrease in the production of milk that we had, and also an increase in the costs because we opened a new - as Gabriel mentioned before - we opened a new dairy facility called El Tigre.

With respect to the feed lot, we had a decrease in the occupation levels and this affected our results, if we compare last year that we had ARS800,000, to ARS200,000 this year.

If we go into the main lines before the operating result, there was also a contribution of the sales in the farms that also Gabriel mentioned, and this increased from ARS1.7m last year to ARS7.7m this year. And also, we had also an improvement in the holding results of cattle, from ARS1.9m to ARS9.3m this year.

Okay, thank you very much.

Regarding the result coming from our holding on IRSA, we would like to address mainly two aspects. The first one is the income, which grew almost 45.3%, mainly due to the increase of ARS58m in shopping centers, ARS11m in sales and development segment, and ARS13m in the hotels segment and ARS2.7m in the office and other rental property. Hence, as you see, each different line of IRSA is behaving better than it was.

Other very significant developments that we had were the conversion of Convertible Notes in IRSA from third parties, that allowed us a decrease in our tenure of IRSA because of the concurrent dilution to 20.4%. Currently, under the Board's recommendation, the management is evaluating the conditions. But eventually, [we'll regain] that the stock holding, which as of December 31 amounting 26.35%, which is very likely that we'll regain.

We have to keep in consideration that as of March 31, we own 36.5m of Convertible Notes of IRSA, with warrants attached that allowed us to purchase additional shares of the company. If all the convertibles and warrants are exercised in a similar way that third parties have done, Cresud will own 35.1% of IRSA's equity on a fully embedded basis.

Cresud's debt during the same period was reduced by $3m because of the exercise of its own convertible bonds. Also, 3m of warrants have been exercised, which results in an inflow in the Company of $3.5m of cash. That means also that the nominal days of Cresud is continuously decreasing because of the exercise of the convertibles.

During March 2005, the Company sold 8.7m of IRSA Convertible Notes, which developed in a gain of ARS68.8m. For that sale, the Company received $32m. After the end of the nine-month period, ended on March 31, we bought 8.9m of IRSA shares. That is taking our current ownership in IRSA from 22.4% up to 36.6% on a fully diluted basis.

As a conclusion, and before the Q&A, if you wish, we will address that we are currently developing our lines of business in a good way. As you've seen, the result of the Group are being very good. Comparatively, Cresud is having a very good perspective, both in its real estate business and in the production business itself.

And at the same time, the results of the subsidiary IRSA is improving significantly, because the best result is one of the business lines of the business. Also, having a significant positive effect with the sales of the Convertible Notes of IRSA, as I mentioned, that allows us to realize a substantial gain.

The result -- the positive result that came to Cresud because of the result of IRSA, which is almost ARS21m more. If you wish, we will be open to Q&A session. The operator will assist us.

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS]. The first question is coming from Peter [DuPont].

Okay. Yes, this is Peter DuPont speaking from London. A number of questions. Firstly, can you say how the yields compare with the historical situation?

Secondly, can you indicate how you view the prospects in the near to medium term for a reduction in the export taxes on commodities?

Thirdly, can you indicate how you view the IRSA business, looking out over the balance of the current year and perhaps into 2006? Thank you.

Okay. It was specifically of the crops we can make a comparison with the previous year. For instance, in the case of the sunflower, we reached 2 tons per hectare, compared with the 1.6 tons of the previous one. And in the [figures] as a whole - and this is not Cresud figures, but the country as a whole - has a growth in the range of 15% higher than was projected.

I would say that probably that means that the growth was -- has a better perspective, but still I can't give you final figures, because still we have the figures from the soybeans to come, which are the most significant part of [field crops] as up to now. And the country as a whole, we feel that the total will mean 15% on or over the average, but at least the indulgence of the consideration of this figure, as we still have to finish the growth of the soybean and corn, which are the most significant ones.

Regarding your other question, related to the export tax. Well, you know that this is my personal view, referring to the economic policies working. As you know, we have here a combination where we have the currency under-valued. This is by government decision. Probably if the Banco Central, our central bank, would not be in the market buying dollars on a daily basis, the foreign exchange rate would be consistently lower, probably in the region or in the zone like the real, as of today.

At the same time, as a policy that is allowing the government, through the combination of keeping the rate at this level and having the tax on exports as you mentioned, to keep this primary system surplus for the very first time in many, many years. We don't think that, as far as this economic policy is going on, it's likely that the government changes this by reducing the tax. Because it has been shown, up to now, very conservative in the way that the government handles cash.

As I mentioned, it's the very first time for many years that Argentina has such a significant primary surplus, which has been a tool for the government to build their economic policy. So we don't think that on the short run, we should expect reductions of these types.

And your third question was related - if you are so kind to repeat me please?

Oh yes, yes. It was concerning IRSA, and what are the -- this obviously had a very strong performance for some time now, I guess. And I'm just wondering what the prospects are, or what do you think the prospects are for that strong performance to continue, shall we say, over the balance of this year and of this calendar year, and into 2006?

I presume it's largely related to the economy. The prospects look pretty good, but I just wanted to hear your views on that.

Okay. I will try to give you a brief idea. Regarding this, one of the main drivers of the economy is affecting IRSA's business. And on the first hand, you have to take into consideration what we have [this cut] about the fiscal surplus. As far as we have a fiscal surplus, it's very unlikely that we have major effects in terms of economic ups or downs, or a difference in prices, I'll put it that way. On the other -- that's from the stability side of the picture.

Regarding the level of activity, the country is still growing at an extremely good pace. And considering that the level of leverage, both in the companies and in the country, is almost non-existent, if you take into consideration our books and the level of leverage that we have related to the assets that we are handling. All of the prices and all the situations of pricing affecting IRSA's business in particular is on a cash base. There is almost no leverage.

And all the effect of the genuine and good leverage, in terms of allowing the people to buy a new house by a mortgage, is yet to come. This is on the real estate development. On the residential development, we still lack the good effect of genuine leverage that will allow people to change their homes. That effect should come, both in terms of prices and demand. So we think that the outlook for that business is very good.

Regarding the hotel business, as we haven't discussed, they give us both occupancy and the rates are increasing because a significant growing presence of tourism that's affecting consistently good. IRSA's [perfecting] on that business too.

And on the office rental, which was the line of business that was strongly affected by the crisis, we are also in a very good pace of recovering of the occupancy rate. We are planning to end this fiscal year with an occupancy rate on that business of near 90%, and also the prices are recovering for the type of buildings that the Company has.

This is at the end, that we think that we have a very good macroeconomic environment for the development of our business as it is today. And on the shopping mall business, sales are continually growing, and we have our plans in place to take advantage of that strong trend that has started in the country three years ago.

Just as a follow up on the shopping center development situation, have you got any plans in the works to undertake any further developments?

Yes, of course. In fact the Company has -- I won't disclose the locations, of course, at this stage, but the Company has land already acquired for developing two new shoppings. But we also have the plan to develop at least one shopping mall per year, probably in the range of two. I am not able to disclose the locations, but this includes not only the city of Buenos Aires but probably some other cities within the country.

Okay. Thank you very much.

You're welcome.

Thank you. The next question is coming from James Keller of [Braemar Kolis].

Yes, hello. I just had a question about what exactly was the reason behind selling the IRSA Convertible Notes and buying back the -- buying some IRSA shares? I just wanted to get your ideas on that.

Yes. There were two different aspects. The first one is that -- was the market, of course, changed as we are likely to take advantage of. You know, our holdings is very significant. So, on one hand, it was a good way to reach some liquidity [for revealing] the possibility of doing some type of investments. That was the reason [indiscernible]. At the same time, we are having -- we were having our [note] position, our [note] volumes, a very significant gain to realize. But as I mentioned, and I would like to address that clearly, there is no intention from Cresud in terms of not -- of changing the control structure of IRSA.

This is, if you consider our total holding of [indiscernible], the holding of the Company is almost [26%], and it was in the range of 40%. So I would say that, on the margin you may see some type of movement, but as I state, we are considering the way we are going to regain at least 26% of control. That may be achieved by buying shares or by controlling -- by converting convertible bonds, either of the two.

Okay, thank you.

Thank you. [OPERATOR INSTRUCTIONS]. There appear to be no further questions at this time.

Thank you very much.

Thank you. That does conclude today's conference call. You may disconnect your lines at this time and enjoy your day.