Cresud SACIF y A (CRESY) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Ian and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Cresud first quarter fiscal year 2006 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer period. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the floor over to your host, Gabriel Blasi, CFO, and David Perednik, CAO. Gentlemen, you may begin your conference.

Thank you. Good morning to everybody. First of all, I would like to apologize because Alejandro Elsztain, our CEO, was not able to be part of the call. We are going to make a wrap up of the highlights of the period. David is going to comment the main business issues and at the end we can discuss some perspectives on the Q&A session.

Regarding the result for the first quarter, the Company registered a net profit of ARS11m, compared to the ARS1m of the previous year period. This was mainly due to the sale of land, which gave almost $10m of profit.

The consolidated sales for the period reached ARS25m. That's 22% higher than the previous period, mainly because of higher volume of crops and cattle being sold during the period. As a result, the gross profit for the first quarter amounted to ARS5.5m compared with the ARS2m of the same period the previous year.

As a remark on the period, the outstanding performance of the milk production, which increased 137% during the quarter, reaching 1.5m liters as of September compared with 3.5m liters of the previous period, thanks to the putting into production of the new facility in El Tigre, the dairy farm, the biggest facility for the purpose built in Argentina.

Regarding the purchase and sale of farms, we have mainly two events. In February we sold the -- the sale of El Gualicho, a farm of 5,700 hectares located in Roca, and Presidente Roque Saenz Pena in Cordoba. The sale price of that property was $5.7m, with a profit of $3.4m.

On September 2005, we acquired San Pedro, which is a 6,000 hectare farm located in Department of Uruguay in the province of Entre Rios in the eastern part of the country. The price was $16m. $9.5m of that was cancelled and the remaining $6.5m will mature in September next year. That farm is a very promising farm in terms of the agricultural area. Application with also a historic farmhouse of 150 years old and the original bill of the property also has 160 years old. It has an extension part and we are analyzing the possibility of developing touristic activity there.

On the future development, the Company is considering the possibility of making a significant investment in Brazil. For that purpose, we are awaiting the approval of the prospectus put into the CVM, the original authority of the market in Brazil, and we are awaiting the outcome of that prospectus in the next 15 days.

Regarding IRSA holdings, our holdings as of today is 21% of the total interest of IRSA. And with the convertible bonds that Cresud held for the company in an amount of $36.5m of face value, that holding speaks to 36.6% of the shares.

The result of IRSA contributed with ARS18.6m profit for the quarter compared with a ARS17.2m result of the same period in the previous year. That result was strongly influenced by the operative result, which grew 70% from ARS19m to ARS33m. That also was due to the better performance of income, which grew almost 50%.

Regarding our debt, there was not significant development in the period. Just as a reminder, from the original issuance of 50m convertible bonds, the percent outstanding is $40.2m.

David is going to cover the main highlights of the business.

Thank you, Gabriel. Good morning to all. We're going to explain the profit and loss charts for the period closed as of September 30 of this year.

The net profit for the first quarter was ARS10.9m compared to ARS1m as of September in 2004. That means almost a 1,000% increase.

Sales increased 22%, from ARS20m -- ARS20.5m, sorry, to ARS25m. And the gross profit went from ARS2m to a profit of ARS5.5m in this year.

With respect to the grain, the grain margin represented a ARS2.5m profit compared to a loss of ARS1.9m in September 2004. And this was due basically to a larger commodity stock position and the higher average closing price when compared to September 2004.

With respect of the grain sales, grain sales increased 36% in pesos, amounting ARS10.7m compared to ARS7.9m in September 2004. That represents an increase of ARS2.8m. This increase translates in larger grain sales volumes, from 19,350 tons in September 2004 compared to 39,622 tons in September 2005.

The cost of sales decreased if we compare the two periods. It was ARS9.8m in September 2004 compared to ARS8.2m in September 2005.

If we go into the beef cattle business, the margin of the beef cattle was ARS1.7m profit compared to a loss of ARS1m in September 2004. And this was due mainly to higher beef cattle production. We produced 2,324 tons in 2005 compared to 1,727 tons in 2004 in the first quarter.

38% of production corresponds to the feed lot, while 62% of production was finished in Cresud's own field. The beef cattle margin as of September 2004 was ARS1m loss, mainly due to major beef cattle production in feed lot.

The ARS2.7m increase is attributable mostly to lower sales volume at a higher price in 2005, a decrease in direct costs per ton produced in 2005 because we finished much volume in our feed compared to the feed that is the alternative, and also lower stock levels by the end of 2005 compared to 2004 at a higher price.

With respect to the sales, the sales of beef cattle increased 3.6%. As of September 2005, the sales of beef cattle reached ARS10.6m compared to ARS10.3m as of September 2004. This increase is attributable to a 5.5 decrease in the sales volume, from 4,863 tons in September 2004 to 4,128 tons in September 2005, and also due to an increase in the average sales price from ARS2.09 per kilo to ARS2.21 per kilo during 2005.

Going into the milk business, the positive margin of milk activity was ARS600,000 as of September 2005 compared to ARS300,000 for 2004. This increase in the gross margin responds to an increase in the production level, 2m liters of increase. If we compare the production of 2004, it was 1.5m liters compared to 3.5m liters in 2005. This was due to the beginning of activities in our new milking facility this period that allowed us to increase 1.8m liters in this quarter. Net margin per liter increased during the present period, from ARS0.10 to ARS0.21 in 2005.

With respect to milk sales, the milk sales were increased by 195%, amounting to 2m in 2005 compared to 0.7m in 2004. This responds mainly to higher production volume and also to the same amount of sales.

With respect of the line going out of our business lines, with respect to the cattle holding result, this was ARS1.49m profit as a consequence of the real increase in prices in 2005 compared to ARS6.3m that we registered in last year for the same reasons, the increase in prices.

With respect to the selling expenses, the selling expenses as of September 2005 amounted ARS2.4m compared to ARS1.6m, 52%. And this was due to an increase in the volume of sales that is directly in proportion due to the increase in expenses.

With respect to the administrative expenses, they had an increase of 24%, from ARS1.6m to ARS2.06m. And this was mainly due to increasing salaries, third party fees, shared services, and also taxes.

If we see the line of sales of farms, we see that on July 25 we signed the sale of the El Gualicho establishment, 5,727 hectares. This price was -- sorry, this farm was sold at $5.7m and generated a profit of ARS9.9m.

Financial result provided a profit of ARS1.4m as of September 2005, compared to a loss of ARS1.3m last year, mainly due to differences in the exchange difference.

With respect of other expenses, they reached ARS0.5m, due to the tax on personal assets that in September 2004 was amounted at ARS1.7m.

The line of result of related parties companies, we received the contribution from our holding in IRSA of ARS12.5m on the 21.13% of shares that we have on the total shares of the company.

Income tax was ARS5.7m. Most of it is coming from the disbursed tax method, ARS5.5m, compared to ARS1.6m that we had last year.

Okay. As a brief comment on the perspectives for the Company, in respect of our subsidiary IRSA, which in spite of business is behaving well with perspectives in the whole process that we are facing, recovery of occupancy and prices. In the profit building, also occupancy and prices are climbing. Shopping centers are facing constant improvement in their operational result. So we -- and also we are waiting for sales development, cash flow, in the next few years. So we are very comfortable with the outlook of the result of the subsidiary.

But specifically speaking on the farming business, the sold hectares of wheat is 30%. It's really high above the budget forecast. And in the rest of the specialties, we have completed 20% of the soybean, 85% of the corn and 100% of the sunflower, which has all already been sold.

As a general comment on the outlook of the market, speaking about the cattle, the beef exports of the country have increased during the first nine months of 2004 compared to nine months of 2005 more than 30%. We still have a significant price gap with Uruguay and with Spain. The country has reached again the state of free of food and mouth disease. Recently, Chinese and Russian markets have been opened for Argentine meat, and the country received the [green sheet] of the U.S.A. inspectors, as a probable analogy of the possibility of operating the American market for us.

Also, a consistent consolidation in the slaughterhouse market is taking place. Surely you remember the investment a couple of years ago we made in this sense. And during the last couple of months [Freemont] from Brazil has also acquired one of the biggest slaughtering operations in the country.

Regarding the outlook of our project in Brazil, just to give you some reference of why we are thinking on that, 33% of Brazil GDP came south of the Brazilian agribusiness, and also 42% of the total exports of the country. Brazil is the first world producer of citrus juice, of sugar, and the second world producer of soybean, bovine cattle; third world producer of poultry. So -- and as well of corn. So really, we are very excited with the possibility of replicating our business model there.

Having said this, I would like to thank you for your assistance, and wait for the Q&A session.

[OPERATOR INSTRUCTIONS]. Our first question comes from Ben Laidler with UBS.

Just two quick questions. One, could you just give us a recap on where we are with meat exports access?

And secondly, just I was reading in the local press, there's some commentary that you might be interested in, going into the meat packing business and maybe looking at these bankrupt assets of Sepa. Just wondering whether you had any comments there, or really just whether that was part of the medium-term strategy.

Hi, Ben. How are you? Regarding the first issue, that situation, for the meat exports today that has not changed this period. Of course, I would say that as a general practice you can resemble what happened in the oil exports in the country.

As far as if the prices go very, very high, that may have an implication on the local inflation because of the impact of the meat consumption within the country. We can expect that the government can post some type of tax in the future, but that's not the situation as of today. We have to take into consideration that the consumption per capita internally is 70% of the meat is consumption internally in the country. Argentina has the highest consumption per capita in the world of beef.

So we might foresee, is that the expense, in the case that the country begins really to, as it seems, to have a very, very significant export move in the cattle business, which may be the driver driving mainly because of the huge differential price with the United States and some other regions. But mainly with this case -- in the case that that might have a strong impact locally, the inflation rate, we can foresee some movement in that direction.

If that's not the case, we think that things are going to be as they are as of today, with a market which is very efficient for producing and to reach a profitable export operation.

Regarding the comment, the Company is always analyzing new businesses or operations around our core business in the agriculture and the operation of the farms. But I don't have any specific comment on a certain operation regarding a slaughterhouse that we may be considering.

That's great. Thank you very much.

You're welcome.

[OPERATOR INSTRUCTIONS]. We have a follow up from Mr. Laidler.

Sorry, yes. If I could just follow up. Just on Brazil, do you have any rough guidance as to what sort of capital commitment Cresud would be making?

We are banned. I really would like to answer you, Ben, but we are banned because of the local regulations of the CVM. What I recommend is that you may probably get the prospectus which has been filed because we cannot -- until the censors banned it, we cannot disclose any additional aspects of the transaction.

Okay. Great. Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS]. Okay, gentlemen, it appears we have no further questions.

Thank you very much. Anything you may need, please, we will be very happy to assist you. Have a good day.

Thank you. This does conclude today's Cresud conference call. You may now disconnect your lines and have a great day.