Cresud SACIF y A (CRESY) 2007 Q1 法說會逐字稿

Good morning, my name is Lynn, and I will be your conference operator today. At this time I would like to welcome everyone to the Cresud conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the call over to host, Gabriel Blasi. Sir, you may begin your conference.

Good morning everybody. Unfortunately, Alejandro Elsztain is outside Buenos Aires. I am here with David Perednik. We are going to start the conference call first quarter 2007 for Cresud.

Page one, as you know, the Company has been growing for [42] consecutive months. We have, already for next year, a growth granted of 3.5%, with the [drag] that the present situation gives.

Going to next page, also, we are still with a very significant fiscal surplus, and a surplus on the balance of trade, showing the very good momentum and the strength of the economic situation as of today.

Regarding the agricultural sector, in general terms, both the consumption and the production of our most important [corns], are in a very good trend, as you can see from the graph on the wheat, on the corn and on the soy, with the additional push of the increasing importance of the bio-diesel and ethanol projects to this market.

In Argentina, after the strong impact of the severe drought of last year, the figures continue to grow again, regarding the total grain production of Argentina. And, as you can see from the lower part, according to the [UFDA], projections for 2015, the outlook for the production of the country is very promising.

The price per kilogram of the steer in the country is slowly recovering. On the graph of the next page, on page -- on the left side of the graph, you can see there the decrease in the price produced by the intervention of the Government [is in] this market, in spite of which, last month the price has showed a small recovery. This [put in] consideration, is a general pattern in the worldwide economy, of the [recapture] pushing the production of cattle to more marginal areas, and increasing the consumption, the final result is a reduction of the world stocks of beef cattle which, as of today, are not showing a significant variation in the trend.

In the case of Argentina it's important to have in consideration, to explain the rationale behind the measure taken by the Government. Of intervention in the prices of the beef market that the country is a country with the highest consumption per capita of beef, with a total of almost 62kg per inhabitant, with a -- in recent past situation of almost 25kg as a peak. The result of this is a very strong share of the impact of the meat price in the internal index price. And that explains the logical behind the importance of the meat price, for the local price index.

Next page, you can see the average price for the land, divided between the agricultural land and the beef on the cattle -- beef and cattle sold and the [breeding] sold, showing that the uptrend continue to the develop normally.

Going, our highlights of the period, first of all we have to take into consideration that, because of the seasonality of the agricultural production, the first quarter never represents a complete picture of the production of the Company.

On the other hand, in this case, when we compare the figures with the same figures of the previous year, we have to take into consideration that we haven't done any real estate deals on this period and that explains the most significant differences. On the other hand, fortunately, the severe drought that affected the country also for this period, has finished since about a month ago. And, with the outlook for the -- for our production as of today, has changed significantly.

That's the general, now David is going to make a comment on the different lines of our results. We can make all the [illustrates] on the situation of BrasilAgro, we are going to refer later to the evolution of that investment.

Good morning, this is David Perednik. You may have seen that there are some changes in the exposure of the income statement. We have opened the production results, due to an application of the new accounting standards that our local accountant's board has issued for this period. The resolution is the number 22 that was -- what it means is the separation of the sales result with respect to the production results.

I am going to give the explanation of all the lines that are included in this change. The production corresponds to physical harvest of grains to their -- at their closing net realization value. Because the production includes direct and indirect or structural costs in the sales line, we have the volume commercialized in the period as their market value. And the cost of sales is determined by inventory differences. As a result of this new criteria, analysts and investors will observe the Company's productive efficiency from the production results.

I will comment the different segments of the Company. With respect of the grain production results, grain production in 2006 and 2005 amounted to [ARS0.46m and ARS0.53m] [mid and low] respectively. This production is brought both of production of prior campaigns, because no harvest was registered in the present period. The results generated by a total 2006/2007 campaign harvesting will be obtained in the next quarter.

With respect to the grain sales, grain sales decreased by 21.6%. In September 2006, the grain sales amounted to ARS8.4m and, in September 2005, they reached ARS10.7m [sic -- see press release]. This represents a net decrease of ARS2.3m. The decrease translates in lower grain sales volume from 39,622 tons in September 2005, to 20,229 tons in 2006.

Going into the beef cattle production results, the beef cattle production result represented a ARS0.9m loss as of September 2006, compared to a ARS1.4m profit in 2005. This cattle production income represented ARS3.4m in 2006, corresponding to 1,754 tons of beef, and ARS5.8b in 2005, corresponding to 2.5 tons of beef. The lower production income responded to a decrease of 29% in beef cattle production volume. This decrease was mainly due to the negative effect generated by drought which affected grass [offer], therefore, decreasing beef cattle fattening in grazing fields, and also of [debt] produced by the consequence of drought.

Going into the beef cattle sales segment, the sales of beef cattle decreased slightly by 0.8%. By September 2005 sales of beef cattle reached ARS10.5m compared to ARS10.6m in 2005. This decrease is attributable to a 4.6% decrease in the sales volume from 4,578 tons in 2006, compared to 4,800 tons in 2005. And, to an increase in the average price sale, ARS2.3 per kilo in 2006, compared to ARS2.2 per kilo in 2005.

Going into the milk production result, in this case the milk production and the sales means the same, because we are not just talking milk. So the production, the result of production in 2006 and 2005, was the result a ARS0.15m loss, and ARS0.59m profit respectively. Earnings from production and sales, by September 2006, was ARS2.06m corresponding to 3.9m liters and in 2005, ARS1.9m corresponding to 3.5m liters.

We have an increase in the cost per liter produced, and the sales of milk. It was ARS0.5 by liter in 2006, compared to ARS0.3 by liter in 2005. This increase was mainly due to the increase in feeding costs, as the consequence of drought also, and in sanitary costs for the same reason.

Cattle holding results and grain [business] valuation, this is also a change in the exposure that we are making [up] for this balance statement. So we are separating both cattle holding result to the grain [business] valuation. The holding result of September 2006 period reached ARS0.9m profit, as a consequence of the increase in the prices of cattle.

With respect to the grains [business] valuation, at this net realization value of period 2006 and 2005, amounted ARS0.7m in 2006 compared to ARS0.9m profit in 2005, as a consequence of the commodities price increase.

The [selling] expenses amounted to ARS1.6m in 2006, compared to ARS2.4m in 2005. The financial result -- sorry, the [inaudible] result had an increase from ARS2m to ARS3m. This is mainly due to the application of the new [inaudible] law, and also to the change of our systems that we have completed in last October. We have made the migration to SAB German system. So, therefore, we had an increase in our costs in last year.

With the financial results provided a loss of ARS3.1m in 2006, compared to a profit of ARS1.4m in 2005. And the main line that increased was the interest of our loan from -- that it was ARS700,000 last year, compared to ARS2.3m this year.

Going into the result of our control related company, we received the gain of BrasilAgro. We hold the 7.3% of the shares of this company. This brought us ARS1.3m. The result of the company was ARS17.9m for the whole stock. And IRSA gave us also an increase in the result from ARS4.5m in 2005 to ARS5.4m in 2006.

The income tax generated us a profit, because we have accumulated a taxable loss of ARS1.9m. So the last -- the net income for the period was ARS1.9m profit compared to ARS10.9m in last year, and 82% less this year.

Next page, just to review, David has already explained the new [exposition] that we are going to use from now on. Which, by the way, we think would be more favorable -- are -- we are allowed to get a better picture on the Company operations. We have already reviewed the figures of sales on each one of the [cap] operation lines. On the following page, we have the situation of the farms of the Company.

And going to the next page, we can see -- I would like to stress the situation where we can see a total land owned by the Company, which is more than 560,000, including the repaid lease that we get in the last part of last fiscal year under management. You can note from the figures, as of September 2006, on the grey chart that the Company is increasingly significantly the surface [devote] operations, with a total area under the production of 149,000 hectares, as part of increasing this speed of the investment, on the development of our production capabilities.

On the pie chart, you can see how this land is allocated between the different uses that we have, 70% still is the land reserves. Although, on a marginal basis, we have speed up the development of this area. And we have the more significant participation of the cattle and the crop business. Also, you can see how the services have evolved during the last three years.

Going to BrasilAgro, just to mention that the Company is fulfilling its investment plan. It has already acquired two different properties. One property in the State of [Goias] of 2.5 -- almost 2,500 hectares. Today that property is devoted to grains and beef stock. We are going to shift that to cotton and other type of crops in the near future. It will be migrated to sugar again. The price that the Company paid was almost $5m to be paid in three installments.

We also acquired, as part of this development, more than 32,000 hectares in the State of Piaui. 30,000 hectares are already in production, with a significant amount of 16,000 hectares pending for development. In terms of production surface area it is 23,000 hectares. We paid almost $20m for this piece of land, with a huge potential appreciation. This farm, it's important to stress, is near Itaqui Harbor and to the Norte-Sul railway. We are thinking of raising soybean, corn and cotton on that area.

Regarding our financial debt description, Cresud today has the debt of $32m besides the convertibles for the total outstanding of $24.8m. Remember that $12m are held by a controlling entity for Cresud. The increase in the [interim] is related to the increase in the [steer] of the investment of the Company, in the development of the areas and land reserves, and also because of investment in Brazil.

In -- regarding the rest of the capital structure, the outstanding shares is 76.2m shares as of September 2006. Remember that, as of November 2007, on a fully diluted base, the Company will have 329.2m shares.

And I -- also we can see from the right graph the situation already described that, 25m of convertibles is the pending [amount] on the total outstanding of [$50m], meaning that that roughly half of them have been already converted.

Also we have there the price evolution of [inaudible], you can see that the -- in spite of the [evolution], the Company has been very successful in terms of recovering the price of its shares.

Finally, we can review the situation of the convertibles, which are still very deep in the [money]. As we have already mentioned, half of the original issuance of $50m is pending to be converted, and that warrants are still pending to get into the Company whilst they are exercised.

Having completed this, we would like to be open to Q&A. Operator?

Thank you. [OPERATOR INSTRUCITONS]. Our first question is coming from Ben Laidler. Ben, you may pose your question at this time.

Just on the approved bond offering, I was wondering if you could give us some guidance as to size and timing and maybe use of proceeds?

Sorry Ben, will you please repeat your question, I couldn't get you up.

Just the approved bond offering, I think it's $50m, when you might look to do that? And, if you'd look to do the whole thing at once and what the funds would be used for?

Okay thank you Ben. Well, in fact, what we have done up to now in Cresud is listing the program under which the Company would be able to issue up to that amount of debt. We haven't started yet to develop a debt structure under that instrument. I will say that, for the time being, we have listed that for the purpose of having the flexibility in case that, that's the best option to update, or to optimize, our capital structure that, to have the flexibility to do that in the shortest period as possible.

On the other hand, of course, the main use of proceeds for -- in the case that we decide to go further and to make additions under that program, would be in the -- still of the process of development of our land reserve, and the development of the future projects of the Company. We have to take into consideration that, although last year -- last fiscal year and the beginning of this, have been very severe in terms of the weather issues and [in the] impact for the production of the country. Fortunately, the situation has changed, very positively in two ways.

The first one is a very significant increase in prices that will take a pursuit in a much better situation, as the Company has increased significantly the surface area devoted to the production of crops.

And the second one is that, the weather issue, the severe drought, has finished and, today, we are having the climate situation more average to what you can expect on a normal year in Argentina. Having said this, we can expect a favorable development of our business plan for the near future.

Thank you. Once again, the floor is open for questions. [OPERATOR INSTRUCTIONS]. There appear to be no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Okay, thank you everybody. We would like to -- again, to address that the outlook for our projects for next year is very positive. We must take into consideration the significant recovery in prices. And, at the same time, as I already mentioned that we are increasing very significantly our operational capabilities.

We can say that considering the period that has ended, we can see it as a transition period where the Company has invested, invested heavily in the development of the operation of BrasilAgro, and increased the speed of development of its land reserve.

And also, as David has just stated in his comments on the balance sheet, and increasing our capabilities on the [systems] side, by implementing a world class IT platform, for allowing us to increase our operations without significant increase overall of the structure of the Company. Having said this, we will [review] in our next conference call. Thank you very much.

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