Cresud SACIF y A (CRESY) 2008 Q4 法說會逐字稿

Good afternoon and welcome to the Cresud earnings release fiscal year 2008 conference call hosted by Alejandro Elsztain, Executive Vice President; Gabriel Blasi, CFO; and David Perednik, CAO. 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)

It is now my pleasure to turn the floor over to your host, Alejandro Elsztain, Executive Vice President. Sir, you may begin your conference.

Good morning everybody. We are going to talk about the results of the fiscal year that is ending 30 June 2008. We have achieved in the [Phase II] results of 60% higher the gross profit comparing last year and that was a combination of more crop that gave us a better result year-to-year mainly.

If we see the other lines, we can talk about BrasilAgro. The Company this year increased its stake. We went from the original 7.4% of the company bought at the beginning of the company in 2006 to 14.4% of the shares at June of this year.

In the case of BrasilAgro, BrasilAgro -- the company is dedicated to farming in Brazil topping the model of Cresud, began its reflection of selling a farm, selling one small piece of 2000 hectares making a gain of 120% year and a half later of purchasing the land.

When we see about production of this year, we were near 200,000 tons. We had increased 14% comparing the fiscal year 2007. In milk, we grew 25% and in beef it was a year that we didn't grow. Instead of that, we were selling beef properties and [we were loading] our property of the North, Los Pozos farm.

In the land portfolio, the Company sold a small percentage of its stake. We sold the fifth of La Esmeralda. We're now beginning to sell pieces in (inaudible). In this case we sold the fifth and we sold for more than what we paid for the whole when we bought this property like 10 years ago.

We make eight times the book value of this property. And in the case of Los Pozos, we sold 5000 hectares at $250 per hectare. That was 25 times the 10 original dollars we paid for the gross land.

This is the undeveloped land and we have [remaining] in the property 240,000 that from those we have 50,000 heads of cattle today on the [site] only using 33,000 hectares and we are adding for production 26,000 hectares more that we're going to increase the load of cattle for that property. Today that property has become the largest cattle raising of the country.

In the case of the international expansion, we -- after the follow-on that we issued this year where we raised $288 million that was fully subscribed, we began the international expansion that last week we announced the purchase of 20,000 hectacres in Paraguay that we're going to explain a little deeper later. So I introduce Gabriel Blasi.

Thank you Alejandro. Good morning. A quick comment on page 3 of the general environment of the industry in Argentina.

The crop reached 95 million tons during this year as result of 5% increase in the sown area but at the same time partially offset this increase because of a weather issue. During this year, as surely you know, the export taxes increased on wheat from 20 to 28%, on soybean from 27.5 to 35, around corn from 20 to 25.

This also produced significant part of the year, almost four months, a huge discussion between government and the industrial sector regarding the size and the shape of this tax. We have also a recent drop in the commodity prices but during the year, the rising crop has more than compensated increases in the export tax for the three biggest production of Argentina as you can see in the graph, on the wheat 42% increase, on the 43% on soybean and 40% on corn; showing the increase in the net prices after discounting the effect of the tax export which is the orange part of the graph.

What we see in page 4, the land allocation, the Company today is controlling in Argentina 666,000 hectares. From these 66% is owned land, 10% are short stand leases that are generally -- this is capital and grains. They're listed for one to three years period in general. And we have a concession in the North of the country, the 162,000 hectacres that the Company had in Salta Province that it's transforming to agriculture this year recently.

When we see the breakdown what is each part dedicated, you'll see the breakdown of activities in the 270,000 acres on production. From the owned farms we have under production 48%. Part of 6% -- 27,000 hectares, they are the land that I said before that in Los Pozos, they are ready to be loaded with cattle so this will be launched between 2008 and 2009, will be full with cattle because we are preparing wires and fences for these cattle. And we have still from the owned land 200,000 hectacres surrounding that that is land reserved.

And in the case of the leases, here we have the breakdown that almost all of that is reserved, 89% is reserved. And we began the transformation of this land reserve. From that we're going to put new areas of [8,500] hectacres this year (inaudible) were last year on production and we were renting from third parties 5000 hectacres that we instead of producing less, we give at a fixed price to a third party to producing that area. So this is the beginning of the transformation of this property that will continue in the next year.

Going to page 5, some production figures that might be interesting to review. Regarding the volumes, we have an increase in the last of 13% (inaudible) growth for the last five years of 27%. Of the hectares under crop production, the (inaudible) growth has been 24% and the increase in the last year has been 18%.

The dairy production has also increased significantly. You have seen that result --it's increasing its spread in the industry with the construction of more dairy sites with that increase of 18% during the last year, reaching 20,000 of liters a day.

In the case of beef cattle production, we see the evolution of the stock of the Company even grew. That represents how our intention of not growing in this sector in size. We prefer to focus in a very positive farm that was Los Pozos farm. So we were selling actively those farms the last years.

And if you remember the story of (inaudible) we had (inaudible); so many farms that we decided to sell, we kept almost the same stock going to the farm. That is very positive and not only positive in grain, in cattle; part of this farm, it is today becoming a grain farm too.

From Los Pozos, to give you an idea, today we are transforming (inaudible). We have 1500 hectacres of land for our (inaudible) and we're now doing 4000 acres for our (inaudible) from this farm. And when the farm isn't cattle, it's very positive too. That's the reason we were [loading] and today from this 80,000 heads, 50,000 heads are in Los Pozos farm.

Our other production, the harvested hectares from 2007 and 2008 have decreased in wheat of 20%, on corn an increase of 2%, on sunflower an increase of 20% and on soybean, a decrease of 5%. But as you'll see, the (inaudible) cost per hectare were positive in our production.

The production of wheat increased 30%, of corn 16%, 37% in sunflower and 3% decrease in soybean. The total per hectare in spite of what we have seen on wheat have a positive outcome of 62%, on corn 14%, on sunflower 13%, on soybean 2%.

Regarding the gross margin and the revenues of our main activities, on the crop side, you see the gross margin increase 69% from fiscal year 2007 to 2008. In spite of the cost increase, 62% from year to year of the beef cattle, (inaudible) 5% on the gross margin compared to the 23% (inaudible) and the milk 70% increase. As Alejandro mentioned, we're growing our process (inaudible) gross margin grew 70% with a cost increase of 68%.

Going into the income statement of the Company as of 30 June 2008, we may see that the net income for the period decrease 53.5% from ARS49.3 million to ARS22.9 million and we're going to explain the main lines.

With respect to the gross profits, it increased 59.4% from ARS41.2 million during 2007 to ARS65.7 million during 2008 and that was mainly due to a 71,7% increase in gross profit from our crop segment from ARS26.9 million in 2007 to ARS46.2 million profit in 2008; also from a 14.7% increase in gross profit from our beef cattle segment from ARS6.1 million profit for 2007 to ARS7 million profit during 2008.

Also we had an increase of 64.3% in the gross profit for our milk segment from ARS2.4 million in 2007 to ARS4 million in 2008 and in the gross profit from our other segments we had also an increase (inaudible) of [53.6]% from ARS5.4 million in 2007 to ARS8.4 million in 2008.

Going into the net gain on the sale of farms, we had a net gain of ARS20 million for fiscal year 2008 compared to ARS22.3 million in 2007 and that was due to the sale of La Esmeralda farm that generated a gain of approximately ARS16.8 million and also from part of the Los Pozos farm that we received in a gain of ARS3.2 million.

With respect of the operating income, it increased 14.7% from ARS38 million in 2007 to ARS43.6 million due in 2008. That was the outcome of a 59.4% increase in the gross profit from ARS41.2 million in 2007 to ARS65.7 million in 2008. And this was partially offset by a 45.4% increase in selling expenses from ARS10 million in 2007 to ARS14.5 million in 2008, also by a 57% increase in [infrastructure] expenses from ARS16.6 million in 2007 to ARS26.1 million in 2008.

We are going into the net financial results. Our net financial results were ARS10.5 million lost in 2007 compared to ARS52.3 million lost in 2008. This increase was mainly due to an exchange difference. We had a loss of ARS13 million in the exchange difference due to the decrease in the exchange rate in the last month of the year of the dollar rate compared to a gain in that line of ARS2.8 million last year.

And also in the interest line, we had an increase of ARS8.7 million from ARS13.3 million of interest on our debt last year compared to [ARS32] million this year. We also had a decrease of 4% coming from our related companies mainly from our shares in (inaudible) and Brazil Agro.

Last year we had a ARS40 million gain and this was diminished by ARS1.7 million to ARS38.4 million this year. Adding the line of others, we had a decrease from ARS18 million lost last year to ARS6.8 million this year. It was basically a decrease in the income tax, a decrease in the administration fee and also in the tax on the personal assets that we paid on behalf of our shareholders.

Regarding the debt structure on the same page, you see that Cresud has a short-term debt of ARS146 million equal to $44 million, meaning that the total debt in pesos is $63 million as of the end of June with total cash position of $177 million. At present we have reduced significantly the amount of debt for the time being.

If we move to the next page, we feel we can see what we did with the land portfolio and there were two purchases in the year. We bought near one thousand hectacres in La Pampa adjacent to one farm that we had. A part of that, we purchased 11,000 hectares adjacent to (inaudible) the farm in Santa Cruz in Patagonia. So we increased the portfolio near 3%.

In the farms sales we just sold only 1.6% 7,400 hectares, making a huge gain in the case of La Esmeralda, 700 margin; in the case of Los Pozos, 3000% margin. So that reflects only selling less than 2% of the stock. We made this ARS20 million gain, like $6.5 million gain that reflects how valuable is the stock of land that the Company has under management.

In the case of Los Pozos, we here made the breakdown about the farm. Only 14% was reflected in production, 11% is grassland that's prepared now to load in 2008 and 2009 and 1% was in agriculture production. This is the very good (inaudible) of this farm.

We're selling at 250 or more gross land. But when you have the preferred lands that have more than -- with 1.4 heads per hectare, in (inaudible) Argentina that represents I would say $1500 or $2000 per hectare per head of cattle. And you add that you have the coming (inaudible) production with very good yields in soybeans and sorghum, this reflects what is the kind of transformation we're doing in properties in the Company. And we're not reflecting the sale of that developed. We only sold the [gross] part. (inaudible) some important issues about our capital base.

During November 2007, all the convertible bonds that the Company issued five years ago were exercised and also those warrants converted and exercised with total outstanding shares assets (inaudible) of 320,774,772 shares. During March of this year, we raised $288 million in additional equity, meaning an increase of 56% of outstanding shares.

There as a reminder, we put the offering size was 180 million shares with the use of proceeds of approximately one-third in additional investment in IRSA, working capital for $40 million and an additional $100 million for the North American expansion.

We also -- the issuance of warrants which we have already completed the filing on NASDAQ where it can be traded on a daily basis. Also the Company launched because of the severe drop that the market suffered and especially for Argentine assets affected by the very poor evolution of [sovereign] bonds, the Company launched under Argentinian and SEC regulations a buyback shares.

It is important to address that in Argentina, there are significant restrictions for buybacks. This is not as common. We have to comply with very specific objectives to be allowed to do so.

The Company announced during August 26 the possibility of repurchasing shares for up to $10 million. All the acquisitions of shares taht are being made are filed on a daily basis on the SEC and on the local [CNV] (inaudible). Just to give you a quick consideration, the Company has invested in the rate of $600,000 with acquisition of roughly over 50,000 (inaudible) 50,000 ordinary shares from the market.

Also, we have completed an increase in our IRSA position according to our use of funds acquiring additional 22 million shares, 22,630,620 shares, growing our stake in IRSA from 37% to 42%. And also we have increased our stake in BrasilAgro. Remember that BrasilAgro is the way that Cresud chooses for developing its investment in Brazil, acquired 1,956,300 shares in BrasilAgro. We're increasing the stake of the Company in the Brazilian subsidiary reaching 14.39%.

To explain some about BrasilAgro, today BrasilAgro is running 145,000 hectares. Yesterday we announced BrasilAgro the new purchase -- that the new agreement there we are achieving in the Bahia state for a new farm of 17,000 hectares for $600 per hectare but will be passing 160,000 hectares of land in Brazil.

And we have a lot in the pipeline that we're going to enter to the Company. From the 145,000 that we had year-to-date, near 110,000 we're going to be arable land, we're transforming and we are doing for the four main activities that there are -- the sugar cane, the grain crops, forestry and cattle.

And this year we closed the 30 of June, beginning the harvesting and we have 37,000 tons mainly of soybeans and we're growing the steps for the transformation of this 110,000 acres. It's needing like four or five years period that we're doing really very fast.

We sold a property. We had made this -- sold the property, it was very small one -- it was a 2000 hectares property and we made this 116% gain and we received a valuation recently made by Deloitte that gave us a very huge gain about the properties we purchased since two years ago. They made asset gain of BRL280 million [with respect] to price we paid from two years before to now.

So today we are a lot of farms under due diligence. So we expect to keep growing the site. And with this and the transformation of these farms, we are passing this 80% of the IPO proceeds. But the Company has a lot of cash in its pockets to keep growing because we are looking for new debt that we're finding in the country that the country gives to producers debt and the Company is taking that debt too.

In the case of page 11, we see the picture of the investment we're going to look for in the rest of the region. We began with Paraguay. We're near in Bolivia and so I will explain some about Paraguay's case on page 12.

We achieved a deal with the Carlos Casado Company where Cresud bought 21,000 hectares at $5.2 million. That represents $250 per hectare. And this 21,000 hectares are going to partner with 21,000 of Carlos Casado is going to add. We're making the partnership 50-50 in the state of Boqueron in the Paraguayan Chaco and here we're going to make both grain and cattle.

And this company, the one we launched together, the 50-50, has an option of purchasing another 100,000 hectares more that will be 50,000 of Cresud and 50,000 of Carlos Casado at $350 per hectare. That is an option for five years period.

And that we are going to run this company. We're the management company and we're going to provide advisory and we're going to charge to Carlos Casado fees for Cresud to make this company work, transform from nothing -- today's natural forestry. We're going to transform to something similar like we in Los Pozos and (inaudible) farm in Argentina.

I think after these comments, we can wait for your questions please.

(OPERATOR INSTRUCTIONS) Pedro Herrera, HSBC.

First, congratulations on your results for the year. Second, I have a couple of questions.

One is, can we assume going forward for into the fiscal 2009 your breakdown by hectares of crops will be relatively the same, one. And secondly is do you have a target of your participation in one, BrasilAgro and two, IRSA that at which time you will stop increasing it?

In the case of the crop, we are budgeting for next year growing from 60,000 hectares to 90,000 hectacres. So it's a very big increase in size. This is a combination of owned land and leased land.

A lot of players, they went from the market and we took those places. So we're growing like 50% year-to-year in size. In price, we're budgeting -- there was a very big increase in price but there was a drop after that.

We are expecting to have something like similar in prices year-to-year. So margins we are expecting not to change a lot. Maybe it depends on the oil prices if the (inaudible) change a lot but they did but now they have to drop but after that they didn't. So that can increase the cost of -- increase the cost of production per hectare.

But we expect that to (inaudible) very important input. In the case of the listings, the listings are cheaper than last year so that increases the margins. In the case of the targets, we can increase more in the case of (inaudible) we have 42% and if the price keeps (inaudible) like it is, we think we're going to keep buying.

And in the case of BrasilAgro too, today we (inaudible) 15%. We have provided the money after the IPO to do more. Now we recently we didn't, but maybe if there is a case we can, because the Company is really overpassing our expectations.

So we think that -- we would like to grow in this company to maybe more stake of that company or growing that company for higher -- bigger size. In the case of IRSA, remember we have a third of the proceeds to purchase more IRSA. So we didn't use that at all.

Thank you.

(OPERATOR INSTRUCTIONS) Francisco Schumacher, Raymond James.

Congratulations on the results. Basically my questions were already answered. Thanks.

Operator, no more questions?

(OPERATOR INSTRUCTIONS) Francisco Schumacher, Raymond James.

Actually, I have one more question. Regarding the Paraguayan expansion, are you planning to do all your work in Paraguay under the joint venture or this is specifically for this project?

It's specific to this project. We are looking and researching for more land that we have not the right. We have not any idea of doing more with this partnership. This partnership brought the land but for the rest we're thinking of going alone like we're doing in Bolivia and in the other countries of the region (inaudible) Brazil with our partnership BrasilAgro. So in the case of Paraguay, the other [search] is independent. But in the case of Bolivia, we are very near a finding something.

There appears to be no further questions at this time. I would like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

Thank you very much, operator. We are optimistic we're growing in size. We (inaudible) growth 90,000 and maybe near 100,000 hectares under production for us because of this year in Argentina, the transformation the Company is doing in Brazil and the purchases there too.

The rest of LatAm that we are going to buy, this is -- we intend to do at least two countries from the three we have intended in the IPO. We expect to close at least two from these three with purchases of land.

We're going to grow in milk. We're increasing the size because the facility we had, they allow us to grow like 15 or 20% in cows in and our existing facilities. In beef in the case of Los Pozos farm with the transformation of the area, that they are today in the end of preparations for receive the cattle.

So we think -- and showing some of the (inaudible) like last year 2%, maybe this year we can show some more of these hidden value that the Company has because of the stock keeps the original price, we think the combination for this year is very good. We understand that there was a big drop in commodities, but with these prices, the Company is still very positive we make gains and with the size of production we have, we think the combination of (inaudible) and production will be very positive.

And with the rest of the expansion in the region, we think Cresud is poised to be one of the best investments for land in the world. You can calculate how many hectacres we're running and you're going to see that (inaudible) the Company probably the largest farmer -- one of the largest farmers of the world. So thank you very much and let's see next quarter the results. Have a good day. Bye.

Thank you. This concludes today's conference call. You may now disconnect.