Cresud SACIF y A (CRESY) 2009 Q1 法說會逐字稿

Good afternoon. My name is Brandy, and I will be your conference operator today. At this time I would like to welcome everyone to the Cresud earning release first quarter fiscal year 2009 conference call hosted by Alejandro Elsztain, Executive VP; 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 session. (Operator Instructions) Thank you, you may begin.

Good afternoon, everybody. We are going to talk about the first quarter fiscal year 2008. As you see, the results for the first quarter of this fiscal year showed a net loss of ARS37.4 million comparing to the ARS12.6 million lost that we post same period of last year. This was mainly attributable to lower results from interests in related companies.

We have the interest in IRSA under the scope of the plans previously described. During this quarter Cresud increased its interest from 42% to near 48% in IRSA shares. And after this quarter we will continue purchasing -- because of the drop of prices we're able to buy cheap shares -- reaching 50 -- near 54 -- 53.7% as of to date. This -- according of this passing 50% of the stake of IRSA, the next quarter we will present the results consolidated, IRSA results in Cresud results [too].

In the sowing prospects of the Company, now we are planting 105,000 hectares, near 74% more than the numbers intended of last year at the same quarter. As November of this year, we've sown all the wheat that is needed to be harvested in -- the end of November and December is the harvest of this wheat, 5% of the total of soybeans, 65% of the total hectares of corn, and 85% of the sunflower, and all of them are today under excellent conditions.

We were able to repurchase -- because of the current financial context, we were investing and investing in our own shares through a repurchase plan. And as of the date of the earnings release, the Company investment in these shares we account for 2.6% of the equity of the Company.

In the international expansion, we have agreed upon the purchase of 12,000 hectares in Bolivia and 21,000 hectares in Paraguay as part of our international expansion strategy. We expect to complete the due diligence process and close these deals in the next month.

And in dividends, we -- after the closing of the first quarter of this year, the General Ordinary and Extraordinary Shareholders' Meeting dated in the 31 of October approved the distribution of ARS20 million as cash dividends.

If you move to page 3, we can talk about the use of the land the Company's to date, of this 2008-2009, we are exceeding 700,000 hectares under management. From this we have short-term leases, 95,000 hectares, 13%; land under concession, the Salta, province of Salta Forestal, the Cervera project in Salta, 162,000 hectares, 33%; and owned land 452,000 hectares.

We have here the breakdown of activities, you shall see what is on production, and from the owned what is land reserve. The only acquisition we made this quarter was a part of 11,000 hectares. This was a neighbor of 8 de Julio farm in the Santa Cruz province, so we are having -- we are passing 100,000 hectares on that property. And we have now a lot of the river, so we have the better land that we couldn't buy at the beginning, so we were finishing the purchase of that property that we have at the beginning.

In page 4, we can see the evolution, and we see that the hectares under crop production this year is growing by 74%, growing to 105,000 hectares. This is combining 33,000 owned land, and 63,000 leased land in third [parties], and 8,000 hectares on the -- our farm, the leased farm. So we have 41,000 in owned land, and 63,000, if I talk about owned, the leased land we have for 50 years. So 41,000 in those farms, and 63,000 leasing farms from third parties.

Here we see the grid of sowing completion that I said before. The evolution in dairy, we grew 25% in a dairy cows -- in 19% in dairy cows, and in thousands of liters we grew 9% comparing year to year. So we grew 9% in thousands of liters and 13% in cows the first quarter. The number I said before was the whole year that finished in June. So 13%, it's the first quarter, and 9% in thousands of liters.

In the beef cattle, we -- the first quarter we have less production of beef because of drought in the north, and a little more heads. We are moving heads from farms, we have in the past, to the [La] Salta, to our farm in Salta. As you know we are developing that property, and every new part that is developed it receives more cattle. So the farms we are selling, like Tapenaga that we sold a year-and-a-half ago, and every farm that we are closing, in cattle we are not reducing the heads because we are loading this Salta farm, the -- named Los Pozos.

And here we have brought a map to show you those two properties. These are two images of these two big properties we have in Salta, the right is Los Pozos, the left is Agropecuaria Cervera. The Agropecuaria Cervera is the leasing, and Los Pozos is the property. And here we can show the graph of the limit, not the developed. These are not of today's maps. These are old from Google Maps. But this shows the limit of the property.

In the case of Los Pozos we were selling a -- some of Los Pozos, and we sold in this -- we are recently selling more, 1,600 hectares more at $0.5 million, this is at $320 per hectare. And you remember that we have in book value of $7 per hectare. So it's almost all gain.

From this here you see the small percent that is developed. It's the left top part. But the reality if we see the actual, not the old four years' page that Google gives, we developed not this 14,000 hectares that you see in the map, we developed 62,000 hectares. So whole of that block, that is in the low part, it's developed. So 62,000 hectares are developed from Los Pozos farm. Not all of them are loaded with cattle. But at the end of next year they are going to be load, and we are expecting to be pulling there more than 80,000 heads of cattle on top of that.

From Los Pozos, a small percentage [began] at crop production. We see here that this season we are forecasting 4,200 hectares of owned land on crop production. So we are beginning the transformation of this, that original was forestry, and after went to beef, some is going to crop production.

In the case of Cervera, Agropecuaria Cervera, these -- the left parts, it's almost developed. And we talked last time, but here you can see how near they are between them, and how important are these two properties. There they are going -- first Cervera is going directly to grain. And in the case of Los Pozos it's going first to cattle, and lately for grain.

Gabriel Blasi, if you want to talk about the industry --

On the price environment, as you probably know, the commodity prices have grown significantly from the maximum. But as of today we are having the same price situation as in the middle of 2007. If you look at the lower part of page 6 you see that the net effect of the tax still gives a positive margin in most of the crop, except for the wheat.

And having said this we must consider that the decrease in the prices of the oil, and the general deflation environment on a worldwide base might affect positively this in the long run. Also considering that the fundamentals of the sector, thinking in the stocks, physical stocks continue to be in very, very low levels on an historical basis.

With respect to the income statement of Cresud as of September 2008, the production revenues increased by 28.3% from ARS11.3 million to ARS14 million. The production profit was a loss of ARS2 million in 2008, 2.1, regard -- with respect to ARS1.6 million in 2007, that was an increase in the loss of ARS33.4 million (sic - see Press Release).

The sales this quarter increased by 95% from ARS38 million in 2007 to ARS74.7 million in 2008, while the sales profit increased 314% from ARS3 million in 2007 to ARS12.5 million in 2008.

Our gross profit increased 624.9% from ARS1.4 million in 2007 to ARS10.4 million in 2008. It was -- this gain was mainly due to an increase in the gross profit from our crop segment, from ARS0.5 million loss in 2007 to ARS9 million gain for the three months of -- as of September 30, 2008. That was due to higher production volumes, higher harvest yield area. And we have also had higher cost of productions, and lower commodity prices.

Also this was due to an increase in the gross loss for beef cattle segment. In 2007, the first three months, we have a loss of ARS0.7 million while in 2008, as of September the 30th, we have had a loss of ARS2.7 million. The principal reasons were that we had low production volume, also we have had lower sales volume, and lower beef cattle prices, and we have suffered the effects of drought in our farms.

With respect to the milk, we had a decrease in -- of 11.8% in our gross profit in our milk segment, from ARS1.2 million gain for the three-month period ended as of September 2007, to ARS1.1 million gain for the three-month period ended as of 2008. We have had a higher production volume, increase in the average number of dairy cows due to the opening of the second milking yard in La Juanita farm, and we've had higher sales volume.

We have had also an increase of 128.7% in the gross profit from our other segments, from ARS1.4 million gain as of -- 30th of September 2007 to ARS3.1 million gain for the three months ended 2008. And that was due to the result generated in our progress activities of our subsidiary Futuros Y Opciones, higher services to third parties in the irrigation leases and other lines.

With respect to the operating income, the operating loss increased 12% from ARS7.2 million loss in 2007, to ARS8.0 million loss in the three months ended in September 2008.

Going into the net financial results, our net financial results were a loss of ARS1.9 million last year in 2007 compared to a gain of ARS6.2 million in 2008, and the main variations between those periods were a higher gain of ARS9.3 million generated by foreign exchange rate between both periods. You know that our exchange rate of the peso towards the dollar increased by $0.11 this year compared to $0.06 last year.

And we have had also a higher loss of ARS1 million in our financial interest costs from ARS2.5 million in 2007 to ARS3.6 million in 2008. Our incomes from our related companies have had a decrease from ARS5.3 million last year to ARS34.1 million this year and this was mainly due to the loss of EBITDA of ARS30.9 million, and other related companies, ARS3 million.

The net loss of the period, as a result of the above mentioned, increased by 196.8% from a ARS12.6 million loss last year to ARS37.4 million loss in the third -- in the first three months of this fiscal year.

Regarding the debt of the Company, same page on the lower left, there is a typo there, the total is the sum of the peso figures, ARS69 million plus ARS22 million plus ARS25 million is ARS117 million, which equals $37 million of total debt meaning that the Company reduced the debt at the end of fiscal year 2008 from $63.8 million to $37.4 million.

The Credit Suisse loan (technical difficulty) that we canceled is -- but that was canceled so it was not -- was canceled at their original maturity rate, was paid in full, $8 million exposure. And the cash of the Company as of the end of the period was $105 million. The general shareholder meeting held at the end of October approved ARS20 million dividend.

Upon the hedging activities of the Company, the Company has gotten a long US dollar position, by its holding of dollar received from the capital increase plus the acquisition of forwards agreed with local banks according to Argentina regulation. That's all the derivative activity in foreign exchange that the Company has.

And on the commodity side, on page 9, our (inaudible) activities, we have the commodity futures selling position that's allowed us to have a net gain by taking advantage of the decreasing prices. That's our exposure as of then. And the options relevant to the rates that also were part of our hedging -- our hedging activities directed to protect our result from the decrease in prices.

Going to next page, on page 10, the detail on our buyback program. According to Argentina regulation, we have to make certain a specific criteria to be able to buy back shares. Due to the general situation of the market, the Company decided to move forward in that direction. We acquired -- initially intended to acquire up to 10 million shares with a price range of ARS3 to ARS3.5. The -- later the decrease in the market price -- remember that the Company made a capital increase in May at a price of [BRL15] and present market price is below BRL5.

The minimum price per share was -- after that moved in October 8 and October 10 from ARS2.40, ARS2.13, and ARS1 in October 23 with the amount of -- maximum amount that we restated is up to 30 million of shares, and at the same time, this -- it is up to -- limited as to December of this year.

And at -- during this period, our local authority, the CNV is the threshold, the maximum capital stock buyback limit was eased over 10%. The time for this is 70 trading days, and there you have the activity meaning that, as of November 11, the Company has already buy back and disclosed a total of 2.67% of the outstanding share by totalizing $9.17 million.

Next page, the increase in IRSA holdings, one of the most -- sorry, the most relevant use of funds that the Company disclosed in its projected -- the capital increase in the projected use of funds. The Company has increased the stake in IRSA up to 53.7%. The important consequence of this is that, as Alejandro has already mentioned, next quarter Cresud will consolidate its financial statement. The company has invested up to -- reaching 310.8 million of the total outstanding of IRSA.

If we go to page 12, we can see the evolution of purchases that BrasilAgro, our company based on Brazil in Bovespa market have made recently. Today we are achieving near 160,000 hectares in total farms. We have still the same percentage of the company, 14.4% -- 14.39%.

We, in September of 2008, purchased one more farm in this Bahia region, Preferencia farm that is near 17,000 hectares at levels of BRL600 per hectare, and this is for cattle and for lake transformation like in the Los Pozos case for crop at the end.

Today, this year, for 2008-2009, BrasilAgro will allocate 25,800 hectares to production, mainly soybeans, corn, sugarcane and rice, and we have applied near half of the proceeds for purchasing land, including the amounts committed and paid.

We were really able to purchase price -- and there is a graph that I didn't bring here that we did in the presentation of BrasilAgro about the timing of when BrasilAgro bought, and we were very active before the increase of prices of soybeans; we bought almost all of the grain farms when the prices were at levels of 8, 9 or 10. The days of 16 we went from the market, and from there we went to the undeveloped areas.

So we were very good at the timing of purchases in the case of BrasilAgro. So we have these properties, and we have a lot of cash in pockets. And the lack of the liquidity in Brazil is huge, and we have a lot of liquidity to purchase.

What we are doing there, we are now looking for debts that the government subsidized. We are taking as much debt as we can, taking levels of 8% or 9%, BRL16, and we are keeping as cash as we can to purchase what we are seeing opportunities that we are going to appeal in the Brazilian markets.

The -- when we made the breakdown of lands, we only talk about the land that Cresud owns in Argentina, so it's not included our stake in Brazil through BrasilAgro. And neither is not including what in page 13 shows the Cresud international expansion that we are doing now in Bolivia and Paraguay. We have -- in the case of Bolivia we have a purchase agreement for four farms, representing 12,000 hectares of land. Location is in the Santa Cruz state, north -- little northwest of Santa Cruz.

The belt -- we can talk about the corn belt of Bolivia. We are talking about an investment of bear $29 million paying some first year, and second and -- one in second year, so in two installments with no interest rates. We are calculating a value per hectare of 2,400, not discounted. So this is the total value paid in two years. So we are buying at levels of $2,000 a hectare in the best parts of Bolivia. Hectares that can make 1.8 or 2 crops per year, and we are in due diligence, and we are very near of closing this deal in the few -- next months.

In the case of Paraguay, we purchased 21,000 hectares at $5.2 million which represents $250 per hectare. This we are going to contribute to a partnership at 50-50 with Carlos Casado, that is the existing owner. So we are going to combine a 42,000-hectare farm, and this partnership of 42,000-hectares farm will have an option to acquire an additional 100,000 hectares more. So we can talk about Cresud will run in this partnership, 50-50, 142,000 hectares of land.

This is in the Chaco Paraguayan, this is an area comparable to Los Pozos on Cervera, this is undeveloped land. We are going to be the company that runs this company, we are going to manage this project, we are going to charge fees to Carlos Casado because of doing that. And this is the beginning of our Paraguayan investment. And again, we can say that the Company at the timing of purchasing land not [talking] the worse days of markets.

So in the case of Argentina, you know that all the purchases were done in the past. We recently only bought in the marginal areas, so we bought [sheep] land. And in the case of Bolivia and Paraguay, we were not [pressed] like the recent purchases were done in the market. Cresud had the timing of not going to the market in those days of incredible prices of commodities. But still we're seeing that commodities are still a good investment for the future.

Up to now there is nothing, but it's showing a reduction in consumption in emerging markets. Exports are very thin. Today we are seeing harvest time, our harvest time in the United States is the time of pressures for prices. But in the next year, we are going to put pressure for the sowing area; if not there are farms that are going to be sown. And we expect some recovery -- some recovery, not what we saw, in the commodities. And we are seeing that the investment in land still is scarce.

And we think that we were active in this business for 14 years, and we didn't think the last year was the normal, we thought this is an investment for long term. I thank the Lord we were not buying, paying those premiums that those prices asked to the new buyers. So we have still the commitment of making the highest and biggest portfolio of land in this region like we are doing.

So I invite to questions please. Operator, we are ready for questions.

(Operator Instructions) We'll pause for just a moment to compile the Q-and-A roster. (Operator Instructions) Your first question comes from Francisco Schumacher with Raymond James.

Hi everybody. Well, just a -- trying to understand your strategic view on your position in Bolivia. What is the added value that you're going to make there in terms of development of the land?

This is a good case of -- in general we buy land for developing, but not always. We have cases in Brazil, and we have cases in Argentina too that we only have the chance of buying a developed like in the case of Bolivia that we are buying, and you can buy at the level of $2,000 and a comparable land in Argentina, the [corn] belt is $10,00 to $15,000.

The productivity of this land is huge. And so just to give you an idea of volumes, this is a farm that you're expecting to pass 70,000 tons of production per year. The return -- the operational return of the farm is huge, but a much huge -- much higher than the margin compared to Argentine numbers on price earnings we are paying. And so we are bringing our Argentine management, we brought from El Tigre our managers, that is a farm we have in La Pampa province. And bringing this management and purchasing a developed, increasing the yields.

We are going to have a very, very high productive gain, and that's the reason we went to the kind of project like that, because it's so cheap comparing to the corn belt of Argentina. In the case of the other, in the case of Paraguay it is undeveloped 100%. And this is a whole transformation like we are doing in the north of Argentina.

But if I see opportunities, I don't think I am seeing that, if there is possibility of buying a developed, a very big distance like we are buying in Bolivia, we like to buy developed too, it's not that we hate that. In general, we think the biggest gain is developing. But when you can't combine things like these, that it's a good climate, the best region of the country, the very productive land, without doing nothing, you bring only productive people, and you make a huge gain in production, we'll take it too. Like in the case of when we bought [Cruziman] in the Santa Fe province, that was cheap at $2,000, and we sold three years later at $5,000.

Okay. And what kind of political risks are you observing in Bolivia?

What we're seeing in Santa Cruz is, the region is the more prosperous region of them, and productive. There is no risk. And here there is -- the retentions are calculated in the [models] because they're having corn. So the reality is we are buying a small piece of land, it is not huge, 12,000 hectares is not a huge property. And so we're seeing that the risk there is not dramatic, nobody thinking that the government is taking their land from owners.

So maybe the higher risk is increasing taxes on exports that we are calculating the corn in our model. So we are seeing that production is not a very big risk neither. So we feel comfortable with this kind of discount on price to take the risk of buying the best land of this country.

You mentioned there is export taxes in corn?

In the export of corn, yes.

And what rate is it?

I have here not exactly -- I have not the international manager in here, but next presentation we will do with [that part of our] operation. But operational [return] here we are budgeting is so huge compared to other parts that it's towards the risk.

Okay, thank you very much.

Your next question comes from Pedro Herrera from HSBC.

Hi, gentlemen. I had a quick question about the political risk in Bolivia as well, but question, is that -- does that risk also pertain now with the new administration in Paraguay, one? And two, in Argentina, have you seen deterioration of land values because of the current uncertainties in the pricing? Have you seen in your -- you've been -- by being present there that there are -- and there are transactions that have been taking place in the last two, three, four months that land is not appreciated as much or is depreciated because of prices and political, economic uncertainties?

What I see now, instead of that, we were active selling, and we sold La Esmeralda at the end of last year, we sold some part of Los Pozos this year. Do you remember we began to sell two, three years ago at levels of 150, up to 200, 250, 300, 350? So the -- up to now there is nothing that shows a drop on prices of farms. And in our case that we purchased the farms since 1994 to 1997, lately we stopped, we bought again after the [compatibility] dropped. Our book value of farms is so cheap that could be -- if the price of farms still be at book value they have to drop so many times that we are very far.

But up to now it's a place of saving money and a lot of foreigners and Argentineans are trying and they keep their farms, because they don't want to have their money in the banks. And the farming, they don't give a higher return like last year, because it was higher, the crop. But it's still positive and so they are -- they have no debt at all. So with that combination they are not being forced to sell.

And everybody is expecting the world eat foods, eat [again]. Up to now it sounds like they are not going to eat more, but the stocks is still very tight. So farmers are quiet with their farms.

Okay, thank you.

Your next question comes from Francisco Schumacher with Raymond James.

Hi, just one last question, regarding -- there is a strong increase in leased land for crops for this year, and I wanted to know if that was obtained recently or at low prices, or it was already agreed from previous months before the growth in prices? And if it's variable or it's fixed?

Part of that is made with the drop of prices and half was made before. And what it has -- I think maybe this year it's not going to be a huge business, but have two choices. First, it's freeing cash that we can use for what we want that at the end of this campaign we are going to receive and doing what we want.

And second, instead of paying -- purchasing farms at those prices, we're using for the liquidity of the business, and we are growing -- we are becoming one of the largest owners of the country. So we have the possibility of growth, of using that cash if you want to use it for another purpose. And if not, if we increase the size, of being the largest sowing company of the country. We -- some of them we have achieved. Long-term leasing at levels of crop that you don't pay fixed, but you adjust with crop prices. So we have the chance to be big market shares of business.

And can you give me a breakup of how much is it related to the soybean bag or a quintal, and how much is fixed?

I have not exactly here. If you can send me the question I will look for it, because maybe I'd make a mistake. I will look and I will answer you.

Okay, thanks.

(Operator Instructions) You have no other audio questions at this time.

Okay. To finalize this conversation, we think we have the best portfolio of land to develop, undeveloped, in the region. We have the ability to transform the land, that we are going to keep doing, to sowing the hectares, and to go to new regions like we are going to Bolivia, Paraguay and other regions of Brazil, researching and understanding where the crops are growing. And I think there are few regions of the world that have the possibility that South America have, and we are building this portfolio of [fertilized] assets in that country.

The financial turmoil is affecting the shares, but the real assets is what the people are looking for. And we have what we think is the best portfolio of [our] assets. Thank you very much and have a great -- good afternoon. Bye-bye.

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