Cresud SACIF y A (CRESY) 2007 Q3 法說會逐字稿

Good afternoon. My name is Henry and I will be your Conference Operator today. At this time, I would like to welcome everyone to the Third Quarter Fiscal Year 2007 Cresud Conference Call hosted by Gabriel Blasi, CFO and David Perednik, CAO.

(OPERATOR INSTRUCTIONS)

It is now my pleasure to turn our floor over to your hosts, Gabriel Blasi, CFO and David Perednik, CAO. You may begin your conference. Sir, you may begin your conference.

Thank you. Good morning, everybody. Sorry for the delay. For those who may have some degree of difficulty in accessing the presentation, you may refresh call and that will solve the issue. On page two, Argentina has growing close to 9% in the last five years in a row, which is almost 50% of growth as you know. And the outlook for the growth in the next three years continues to be very positive.

Moving to the next page, we continue to have positive balance of trade and you have there the -- how our exports are split, showing a very strong presence, 71% of our exports related to commodities or prices including volume and 53% of total related to our [culture].

It is important because the outlook price for the production of the country continued to be very favorable. But, as you can see, on page four, the fiscal surplus and the current account surplus are continuing to be very positive, and also we have a strong growth in the international reserves because [Banco Central] acquiring dollars almost on a daily basis.

Moving to page five, our employment continues to be very positive and the installation has grown, reaching a -- with below two digits, probably in a way to keep track on the growth trend, allowing a certain degree of inflation.

If we move to page six, going through our business. On the agriculture side, here you have a comparison as of 2005 productivity for the soy production, the corn production and the wheat production, showing that in spite of the tax -- to the export tax we have, the country is still extremely competitive according to the FAO report in terms of its ability to make this production.

We move to page seven. We would like to address the strong recovery of the steer price, according to the price set by the government. The good news about this is that it has begun some degree of ease of this policy, allowing the internal prices to grow, at the same time allowing an increasing export of the segment. On the lower part of the graph, we have the price evolution on the United States for the steer price, showing that we continue to have a very positive trend on outlook for this production.

Next page, page eight, the comments or the highlights of our nine months. We have a net profit of 36.7 million, which means an increase of 57% compared to the same period of last year. We have already executed a preliminary agreement for the sale of Tapenaga farm, at $7.2 million. The result of these transactions, as always, is going to show once we sign the deal and we collect the price.

But roughly we can anticipate that compared to the book value, this means a profit in the range of almost $5 million. During the -- this period, it's (inaudible) contributed, 30 million pesos. [To our] result, we continue to establish that the outlook for this business is excellent.

We opened a second dairy farm in La Juanita, increasing our production of milk by 24,000 liters daily, generically, in that sales more than 40,000 liters of milk per day. As of the end of this period, we have invested 100% of the sown area of the wheat, and sunflower 31%, on the corn 21%, and the soy bean 18%.

Now, David is going to make the highlights on the income statement for the company.

Good morning. With respect to the income statement, as of the 31st of March, 2007, we had an increase of 57% in the net profit line from 23.3 million pesos last year to 36.7 million pesos this year. We had production results that had an increase of 153% from 6 -- from 7.6 million pesos to 19.2 million pesos. We had a gross profit decrease of 50% from 15.7 million pesos to 23.5 million pesos. And now we are going into the segment lines.

With respect to the grain, the grain production results in March 2007 amounted to 9.8 million pesos, compared to 2006 of 1.3 million pesos. The production income was 30.8 million pesos in 2007, corresponding to a total production of 66,600 tons, compared to 15.1 million pesos in 2006, that corresponds to a lower production last year of 49,000 tons for 2006. That means that we had an increase in production, up now that is 104% value [right in] pesos.

The average price per ton produced amounted to 329 pesos by 2007, compared to 306 pesos per ton in 2006. The increase is due to higher price -- to higher prices in commodities and also in changes in composition of our grain harvest. Due to the seasonality of our activities in 2007, as of March, we had 100% of the wheat [surface] area harvested.

The corn surface was harvested only 21%, sunflowers 31% and soy beans 18%. That means that the result generated by the total campaign, 2006, 2007, the harvest will be obtained in the next quarter. With respect to the cost of production, that includes direct and indirect costs, they were 20.9 million pesos in 2007, compared to 13.8 million pesos in 2006. This increase is due mainly to the higher crop production levels in the current period compared to last year.

Now we're going to the grain sales line that is, if you want to follow-up also, page number ten. The grain sales decreased in this period 46.6%. In 2007, the grain sales amounted to 16.9 million pesos, compared to 31.6 million pesos in 2006. This decrease translated into volumes, means that last year we sold 94.9 thousand tons, compared to 40.5 thousand tons this year.

If you remember, last quarter we explained to you that the main reason for the decrease in the sales this year is due to the fact that in last we had initial volumes of [stock or] grains that were sold during the first part of the year. So that's the explanation of the lower sales if we are showing the picture up to this quarter.

Going into the beef cattle segment, the production result represented 6.8 million pesos profit in 2007, compared to 3.25 million pesos profit in 2006. That means that we had a result 82% higher in this year. Production income represented [13.2 million] pesos in 2007, corresponding to 8,000 -- 8.1 thousand tons of beef, and this compares to 17 million pesos of production income in 2006 that corresponds to -- 10.7 thousand tons of beef last year.

The higher production income corresponded to a 4.6% increase in beef cattle production volume between both periods, and also due to the increase in prices we had this period. Going into the sales, so you can turn to page number ten, sales of beef cattle decreased 17.5% in 2007 the sales of beef cattle reached 20.6 million pesos, compared to 25.02 million pesos in 2006.

This decrease is attributed mainly to a decrease in the sales volume. That means that we sold 8,000.7 tons -- 8.7 thousand tons this year, 2007, compared to 10.8 thousand tons in 2006. If we see the prices, there was an increase in the average sales price of 2.38 pesos per kilo that we sold this year in the nine months as of March, compared to 2.31 pesos per kilo, compared to the nine months of 2006.

Going into the milk segment. The milk production was 2.5 million pesos compared -- in 2007, compared to 2.5. It was almost the same, 2.54 million pesos in 2006. We had 15.7% increase in milk sales, going into page number ten, and also the production volume. And we had a slight decrease of 2% in the price per liter from 0.54 pesos per liter in 2007 -- sorry, in 2006 compared to 0.53 pesos per liter in 2007. So the meat sales increased 15% from 10.8 thousand liters last year, to 12.57 thousand liters this year.

If we go to the [capital] holding results, and also the grain net realizable valuation in 2007, holding results reached 1.4 million profit as a consequence of the real increase in prices. And with respect to the grain valuation, the [BNR], we had 2.14 million pesos in 2007, compared to 3.13 pesos million in 2006 as a consequence of the commodities and raw material price increase.

Going into the selling expenses line, the selling expense in 2007 amounted to 3.2 million pesos compared to 6 million pesos in 2006, and this can be attributed to the less volume of sales that we had in this nine months as of March 2007 compared to last year. But we see the selling expenses as a percentage of sales. It decreased for crops and slightly increased for beef cattle and milk.

Going into administrative expenses. The administrative expenses of this year were 11.5 million pesos compared to 6.35 million pesos last year, that means an increase of 5.2 million pesos, an 82% increase. The main reason of this increase is that you'll remember we had invested in the change of our systems, so we had implemented SAP, and also we are implementing the SarbOx rules of controlling of our company internal controls, the change in the laws.

And this meant an increase in fees from 1.6 million pesos that we had last year. We had a total of 4.2 million pesos this year. Salaries and social contributions also increased from 3.02 million pesos to 4.76 million pesos. That means an increase of 100 -- sorry, it's a combined increase of 35%. This is also due to the fact that we hired people to implement assistance and that cost us -- that increase [has] the cost of the salary. And also we had an increase in the taxes and contributions from 0.1 million pesos to 0.57 of debits and credits and taxes.

Going into the farm [space] and acquisitions, this year as (inaudible) closed, we hadn't had the sale any farm, but we had signed a preliminary agreement that is not accounted yet in our books of 29,000 hectares of Tapenaga farm and the sale price was $7.3 million.

Going into the line of financial results. The net financial results provided a loss of 8.8 million pesos, compared to a profit of 15.2 million pesos last year. This period's lower financial results are mainly due to loss that is coming from short and long-term debt interest and also slight exchange difference that we have. And last year, we remember you that we had a profit due to the sale of convertible notes that gave us a profit of 14.8 million pesos.

Going into other expenses we had the accrual of the tax on personnel assets that as of 2007 amounts to 2.79 million pesos, compared to 1.37 million pesos in 2006. And the line of results of controlled and related companies, we are having a profit of 40.19 million pesos that compared to a profit of 11.46 million pesos, that is mainly coming from the holdings of IRSA, with 25.6% holdings, 33 million pesos, compared to 10 million pesos last year. (inaudible) with 10.4% holding is giving us 2.9 million pesos, and (inaudible) with 35.7% is giving us 3.5 million pesos

When we compare the income tax, we have now an amount of 348,000 pesos loss, compared to a loss of 18.1 million pesos last year. We will remember you that the related -- the results [of] related companies, it's not generating income tax. So, the small loss that we are having, we presume that with the finish of the harvest, it's going to gain -- to give us a higher amount of income tax to be paid as -- at the end of the year. So the income for the period had an increase of [67.1%] from the 23.3 million pesos, to 36.7 million pesos.

Okay. Thank you, David. Moving to the next page. David has already address the [result of acceleration] of sales. As [he has the] price related to inventory shifts, with an inventory, [less] inventories for the beginning of this period, compared to the higher inventories on the [remaining] of the previous ones. In the case of [the beef cattle], we have increased our stock and that's the main source of the difference, and this is due to the different price environment.

If we move to the next page, we haven't had significant variations on our land research and land properties. We just keep the [prices there] for your information. We still have [70%] of land to sell. And the total area under production is in 130 -- is held on hectares of owned land and 40,000 hectares of leased land.

If we move to the next page, on page 12, you will find out the separation of our new project regarding the joint venture with Cactus Feeders and Tyson, for our subsidiary Cactus Argentina. And remember that we made acquisitions of the slaughterhouse in the province of La Pampa. The feedlot is working at full capacity, meaning that we may increase our investment in terms of adding up more capacity there.

In terms of the evolution of the slaughterhouse that we had just acquired, we are in the process of turning around. We have been assigned 250 tons per [month] from the government a quota to make -- to begin to export, meaning that this is roughly 2,000 head of cattle. And the industry is starting to normalize as the agreements signed by the government and the committee of the livestock committee is reaching new price agreements and having a degree of increasing the internal prices.

Going to the next page, we continue and open the dairy farm. The second dairy farm in La Juanita and also La Pampa facility that which allows us to milk 48 cows at a time, 1.2 thousand cows per day, almost doubling our capacity with investments slightly higher than $1 million.

On page 14, you have the update for our controlled subsidiary, BrasilAgro. The last acquisition that BrasilAgro has made, the last three farms, has acquired Jatoba farm, a 31,000 hectares of land in association with Madea Group. Maeda is the biggest cotton producer of Brazil, likely the biggest in the world. [It] has a 10% interest in this operation. The company is going to start the large scale production of different crops and cotton, with the price of $17 million.

We also signed agreements on the acquisition of Araucaria farm, who is slightly higher than 15,000 hectares. This transaction was made with Brenco. Brenco is an investment banker related to [Telecorp], which as focus on [Violisto] ethanol production. They have 35% of this firm, which is going to be the [intended] for sugar cane production, aiming to the ethanol production.

And also out of the Alto Taquari farm of slightly higher than 5,000 hectares, which is going to be related to sugarcane production. There you have also the previous three farms that we have already acquired, meaning that the company is completely on track of these investment plans, having a really [compromised] $100 million to this acquisition, from the $280 million that together with investment required will mean roughly that's in the range (inaudible) for the business.

And for the outlook of the company continues to be excellent, and we are really happy to announce that we are over our objectives in terms of the speed of investment and that we have been extremely successful in terms of acquiring property at very competitive prices. Finally, the debt situation for Cresud as of the [prioritization] of the third quarter of 2007, showing a net debt of $60 million and the strong cash position that the company has is due to almost the full exercise of the warrants.

If we go to the next page, you will find out that the warrants and the convertible bonds have almost been completely exercised. Meaning that only $3 million of sales value are pending to be converted both for the convertibles on the warrants. And this is a very, good news for us, it shows that almost all the potential share has been already issued. And the next page, page 17, you can see that the price since the issuance of the convertibles has been able to fully recover on the price, in spite of the strong increase in the amount of shares.

Moving to the next page. We have the term sheet of the convertibles, showing that the balance on them is almost a balance of 3.1 million outstanding of notes, and 3.4 million of convertible payments to return into equity.

Thank you, very much. Now if the Operator, Henry, helps us, we may go to the Q&A session.

Thank you.

(OPERATOR INSTRUCTIONS)

Your first question is coming from [Constance Hunter] of Corona Capital. Please go ahead.

Hi. Great call, and thank you very much. It was a good quarter. I just have a question about your income. On the final net income, because it appears to be different on your website, the press release you have on the website versus the slide show. So I'm curious as to -- if why there's a discrepancy?

Let us take it --.

Because on the -- you have net income here on the slide show of 37, 011, 080 for the quarter. And let's see --.

Before the income tax and minority interest right?

Well, yes, but it's not the same as on the slide show, you have 36, 999, 958. I mean it's probably just a rounding error, but I was just wondering which is the more accurate number?

The final line is 36.7. That means that's the net income for the period. The 37.01 that you have is net income before income tax.

Okay. Great. Okay.

That means as of March 31, 2007, right?

Yes. But still net income before income tax, you have 36,999 on the website, and 37.01 on the slide show. But that's fine. The real number we need is 36.7, so that's great. And then I guess my next question is why -- what happened in your tax situation that it was so significantly different from '06 to '07? Obviously that's a big -- you have a big difference there that made up for a lot of change in income?

Last year we had paid income tax due to the profit that we received from the sales of the convertible notes.

Okay.

That's way it's so different. And once we finish our harvest this year, its [probable] that this line, the income tax is going to be increased because from our [operating] results, we have to pay 35% of taxes. So in this case, we expect that we will have an increase in the income tax when the final harvest is going to be finished in next quarter, okay? In the yearly fiscal year.

Okay. Great. Thank you, very much.

You're welcome.

Thank you. Your next question is coming from [Jeffrey Emanuel] of Cresud. Please go ahead.

I'm not really from Cresud, there's a confusion there. My question is have you guys done an analysis of taking the land holdings and marking them to latest market prices based on recent transactions and how that compares with how -- the values you're currently carrying on your books?

No, we haven't released any announcement regarding that. We -- in fact we don't -- it's close. The market valuation for our land, because it may be different according to the use that you are thinking on that land. But I can't confirm that we have made any public announcements regarding a revaluation of our property.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS)

Thank you. There appear to be no further questions at this time. I'll now turn the floor back over to your speakers for any closing remarks.

Thank you, very much to everybody for your attendance.

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