Cresud SACIF y A (CRESY) 2008 Q1 法說會逐字稿

Good morning my name is Nelson and I will be your conference operator today. At this time I would like to welcome everyone to Cresud's first quarter fiscal year 2008 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period.

(OPERATOR INSTRUCTIONS).

Thank you, it is now my pleasure to turn the floor over to your host, Alejandro Elsztain, CEO. Sir you may begin your conference.

Thank you very much and good morning everybody. We are going to talk about the first quarter of this year 2008, and as every time we explain the first quarter in the agricultural company doesn't mean a lot as you probably remember, Cresud is very loaded in agriculture and agriculture results will appear in wheat in the second quarter and mainly of course the grains, the soybeans, sunflowers and corn, but they are the biggest part of the operation [official], the third and fourth quarter.

So if you feel the first quarter of the results are showing negative numbers, mainly explained because of the losses of (inaudible) and we are going to enter the details that Gabriel Blasi, our CFO and David Perednik, our Chief Administration Officer are going to explain. Please Gabriel if you can begin.

Good morning everybody, moving to page two, it is just to illustrate the excellent momentum that Cresud business had both in the production of (inaudible) environment and also with the land. As a couple of examples, if you own the land available for production in the bigger [world] reserves which are Indonesia and South America, [are fed] into production that means only the (inaudible) of 1% per total surface available for production.

Looking at the left graph you may see that South America is showing a clear leadership together with Africa in terms of the (inaudible) on the capability to add a productive land to the market. On the other hand, as a result of these and on the practices, South America is the leader in terms of the annual average growth in food production that can be shown, the comparison between the different parts of the world, in the right upper graph. And on the other hand Argentina and Brazil are typical gainers on the worldwide market in spite of the trade barriers, both from their capability and their competitiveness in terms of placing their production in a costed way in the commodity market.

When we see the picture of farms we see the evolution of the farms from the origin of Cresud and today we have 17, but one more, that is not here shown, that we have 18, because the land that we pre-paid for this 15 some years, that 162,000 acres is the point that it's beside the number 17 in the (inaudible) [province]. So we have 18 farms, near 600,000 hectares in the country and we see the evolution today of hectares and heads of cattle and the [food] numbers.

So in the next page, in page four, we can talk about the highlights. And the net results are mainly loaded by the negative effect that Easter brought to the balance sheet, that last year was very positive, and this (inaudible) year being negative and in this year not having any sale of a farm in the first quarter, but yes in the second and we are going to see later that after September 30, we show -- we closed a small deal in Los Pozos, 5,000 hectares of [sale]. So we have all the negatives but not the positives because you remember the first quarter it's always very small.

So let's move to the page five where we can see a part of the budget of the year, and we see how will be the evolution. In the first quarter -- in the first graph in the upper left we see how in beef we'll reduce in the first quarter a little in production. But part of that is explained because our sale of the (inaudible) operation, you remember that last year we had 50% of that (inaudible) so we consolidated those numbers in our balance sheet of the beef production in the (inaudible). But this year because of the sale we made to Tyson we went from 50% to 24%, so we are not consolidating that in the production numbers, so that is part of the explanation of the beef drop.

In milk we had a gain, we opened a new dairy in La Juanita and we are growing in (inaudible) and in volume. So the first two productions of the first quarter are good, and are good but really don't explain much of the balance sheet of Cresud. Where we see the budget of the year, the growth, we are growing in this year in crops 15% in hectares, so we are near 60,000 acres of crop for this 2008. We are growing 6% in hectares of beef and we are growing 64% in hectares of milk. So all of the budget is showing a growth in operational business for this year, adding to that, that the prices we are expecting for all the products are higher or much higher, like in the case of soybeans or wheat, that they are the (inaudible) of prices of the (inaudible) of the world.

So we see in the page in the last graph how the (inaudible) competition was done, you know that the wheat is 100% down, so it means we had down up until now 25%, in corn 90% and in sunflower 80%. So the campaign that is higher than last year is going well, that (inaudible) is coming well so we expect a very good budget in crop production, and much more prices for next campaign.

In the real (inaudible) you know perfectly well that Cresud (inaudible) only the gains off the assets when we liquidate them, so we cannot explain what is the [depreciation] of the portfolio, that is huge. And as you know last year we closed a sale of 14,000 hectares of Los Pozos, the big property we purchased in the past, that it was 262,000 hectares and we sold 14,500 hectares, but they were a book of $7, last year it's been $160. That made us a profit of near $2 million in the balance sheet, that growth in June.

This year we achieved 63,000 hectares [cleaned], prepared for production and that all of them near the end of this fiscal year are going to be all production. And we received an offer and we sold after the end of September of this year, a piece of near 5,000 hectares in an average price of $225 per hectare. That was a sale offer $1.2 million and almost all of that is gain because you remember that it's book value $7 per hectare instead of 225. And the thing is happening, today the price that is in the market is more than $300 but we are doubting if we need to keep that in the portfolio or to show to investors. And [without it] we'll clean the land and we have [a cow] in that land, we are achieving [a cow] in less than $1,000. To give you an idea of what's happening (inaudible). In the rest of Argentina, you need to put a cow in more than $1,500 [per cow], and we are achieving that with $200 in that farm and the price that we are talking about, the cleaned land in that region is near a $1,000 per head. So our doubt is, do we keep that in the portfolio or do we keep selling at $300 or a little more in undeveloped? And it's something that the market -- the Board is considering if we have to keep selling some or we keep all in the portfolio, because the appreciation on that asset is so huge, that the gain we can be making is dramatic.

So we are going to have more than 60,000 heads in this 60,000 (inaudible) clean, so that gives you an idea of how profitable is that business to the company. To give you a year where we are purchasing, a part of (inaudible) we paid last year, we bought in (inaudible) Argentina, we are very actively purchasing land in Brazil. Now we are achieving 120,000 hectares of land in Brazil, but that is probably 4% of the IPO profits, we were able to buy in many states of Brazil and we are, like two new operations from the pipeline, the company is really active and able to purchase very good assets there at very big discounts, prices of $500 or $1,000 per head, we are being able to purchase big pieces of land there.

We made a split recently in (inaudible) as you probably know when we began in May 2008 -- 2006, we issued shares that represent a BRL1,000 per share and we split that into 100 times, so today trading instead of 1,200 that was trading in 12 shares -- BRL12 per share that is allowing the retailers to begin to buy and that is because in the beginning they did allow that because it was a very new story without assets. And now we have because we were able to have real assets, we were authorized to make that split and today trading to the (inaudible).

So David Perednik will explain the balance sheet of the first quarter.

Good morning. Going into the production revenue, we had an increase of 84.4% in that line from ARS6.1 million in 2006, to ARS11.3 million in 2007. The production income of the company had an increase of 3.4%, that's a slight difference between comparing year-to-year, a ARS1.53 to ARS1.58. The sales line increased 63.8%, we sold more in 2007 of [ARS38.2 million] compared to 2006, ARS23 million.

The sales income had also an increase of 78.4% from ARS1.7 million last year, to ARS3 million this year. The gross margin had an increase of 785.7% from ARS152,000 to ARS1.4 million. The operating results had an increase from a loss of 2. -- almost ARS8 million last year, to ARS7.2 million this year.

The net financial results had a decrease of 38% from ARS3.1 million lost last year to ARS1.9 million lost this year, and the line of results for related companies that had an impact of 137% negative, is due mainly to our stake in (inaudible), we had last year an increase -- a gain of ARS6.27 million compared to a loss this year of ARS5.27 million.

That means in the last line, the decrease in our results of 754% from ARS1.9 million that we had last year, to a ARS12.6 million loss that we are having this year, mainly explained by the results that are coming from our related companies and other companies, that we expect that will come back here with a profit in the next quarter.

Thank you, David, on page nine you have the evolution of (inaudible) showing its composition with it's (inaudible) financing long term and short term debt. (inaudible) and doing the convertible bond we have the total debt of ARS453 million as of September, it means that compared to the previous year it has ended with a decrease of 13% in total terms.

More into next page, page ten, the company has almost completed the full dilution allowed by the convertible bonds and (inaudible) meaning that from the original $50 million of securities issued, as of September only $2 million was pending to be converted into equity. At the same time the amount of share is, as of September, is 313.4 million shares, with a total dilution pending to return is 321.2 million shares as of November 14, with the convertibles and the [warrants] attached.

(inaudible) the result of these has been that the market cap of the company during the same period has grown from $64 million to $797 million of November '05, with a price recovery of $5 to $24.82. In spite of the strong dilution the company has been able of get a much stronger capital base to continue growing.

In the same extent, we have been authorized by the (inaudible) of the company, you can see this in page 11, to issue up to 180 million shares of original capital, roughly will present at the closing price of $24.82 per ADR, [$147 million] of additional capital. The offering is going to be conducted as the right offering with approximately 1.78 shares to get a coupon for this right offering and the coupon will be -- will provide the right for -- the [preference] right and the (inaudible) rights on the new shares. And at the same time do a [warrant] to roughly to one-third of the [warrant] that will allow you to get a new share.

We have exercised a period of five years exercise for (inaudible). The final future like [warrant spiked price] and the conversion -- and the conversion rate is -- the second one is pending to be defined. And the conversion rate is pending to be finalizing the [evolution] of the previous convertible bond. But as we still are waiting for the final approval of the ACC, we are not going to make further comments on the use of proceed, other than the intention of [Brazil] is to at least keep its stake in (inaudible) which is also going to reach with new capital and continue the original expansion of this agricultural business.

So we can tell you more things that happened yesterday to the market, and something that unfortunately passed and we didn't -- we expected it and for that we hedged more than normally our production because we expected that the retention, that is the tax exports were going to increase and yesterday the government announced an increase on the export taxes. To give you an idea of size, the soybeans grew from -- say from 27.5% to 35%, the tax, and the case of corn from 20% to 25%, and in the case of wheat, from 20% to 28%.

About yesterday when you see what happened to the market only in the case of soybeans there was a reduction on prices in local market of $7, but in the case of corn and wheat there were no taxes but there was an increase of prices because the market was unclear that the exporters were keeping part of the price. And yesterday, the day of the retention announcement, they grew $3 to $5 each.

So the government announced that part of the tax surplus is going to be coming from (inaudible), that was something that Cresud was very aware and we were hedging more percentage than the previous year. But that is not good news at all, but it 's something that the government is thinking that it's how to push part of the economy.

So we can wait for the questions if you have, so please operator if you can ask. Operator?

Thank you. (OPERATOR INSTRUCTIONS).

Our first question comes from Pedro Herrera of HSBC.

Good morning gentlemen, I have one quick question on the issue that you were just discussing, on the announcement yesterday, on the increase in export taxes. Is there any way to, at this point, quantify going forward how this is this going to affect you over the next 12 months, not quarter-by-quarter, but over the next 12 months how is this going to affect you?

Really it's going not very deeply because first we hedge in the case of (inaudible), for example, like 70% of the crop production for next year, so only the 30% the rest is not hedged, and that -- the drop that yesterday we had was $7. But we cannot tell you, our budget is lower than today's prices because you saw what happened in the case of the Chicago prices, that went too high and higher today at 10.50 or something like that. So really it's not affecting, and in the case of the corn and the wheat, there was an increase of prices yesterday, having said that announce. So in the case of all of the commodities, today we are passing our budget so the recovery of commodity is so huge, that doesn't change and it will be a very, very good operational year again.

So the bad news is that the government is using that but in the results we're expecting to have a higher result compared to last year because of growth of prices and growth of sizes. So the potential for the year, it's higher and in the real estate it's not affecting at all because you see operations out there in the market and the prices for the land is huge. That we are not sure it's going to reflect, if we're going to sell, but the demand for land is absolutely incredible and these taxes are not affecting at all, the demand is very [same]. And we know that each part of the company we put on the market we're going to be [sell], so we are not worried because of that.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS).

Okay operator, I think, [Alejandro talking].

To conclude I think what we have, the portfolio of the 600,000 hectares in Argentina and the 120,000 hectares of [fields not] growing, we expect to grow in next quarters and we expect to finish the year with much more land in the portfolio. Having that portfolio in a place where the recovery of prices is huge, and we saw in the case of Los Pozos, but if I show that would be explained in almost all of the assets of the company, going from 5 times to more than 20 times. Plus the possibility of developing areas, that in the world you can have more, the demand that is growing everywhere and the potential growth area, it's only in this region and in the rest of the region the areas are reducing.

We think the combination is really very, very good, that they don't change, the bad part of the news, the big part of the news that the area is going to be the supplier of the (inaudible) and the food, plus the fuel, we're seeing that the portfolio will be going to show in the next quarter a very positive result.

(inaudible) in the real state and in the operational, so let's talk in our December numbers. Thank you very much and have a very good day, bye.

Thank you, this does conclude today's Cresud's first quarter, fiscal year 2008 earnings release conference call. You may disconnect your lines at this time and have a wonderful day.