Cresud SACIF y A (CRESY) 2009 Q4 法說會逐字稿

Good morning, my name is Crystal and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cresud Earnings Release Fiscal Year 2009 Conference Call hosted by Mr. Alejandro Elsztain, CEO and Mr. David Perednik, CAO and Mr. Gabriel Blasi and Mr. Alejandro Bartolome, Managing Director, Cresud Argentina and also by Mr. Carlos Blousson, Managing Director, Cresud International.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. Mr. Alejandro Elsztain, you may begin your conference.

Thank you very much. Good morning, everybody. We are going to talk about the fiscal year 2009 business, annual fiscal year. We are closing the year.

And we have achieved a net income from last year, ARS23 million, this year we went to ARS134 million. This performance was attributable mainly to the impact of IRSA's results that brought our gain with the acquisition and holding of $102 million, in nominal value of notes, issued by IRSA and Alto Palermo in 2007.

The factors more than compensated the adverse effects of the global crisis and the extreme weather conditions for agriculture prevailing in Argentina and Cresud's agriculture and livestock business of this year.

The operating income of ARS215 million comprises a ARS277 million gain from consolidation of IRSA's segments and ARS62 million loss from Cresud's agriculture and livestock segments. These adverse conditions was the worst drought of seven years, and we're going to show you later in maps, what affected the whole country.

And a part of that there was a big drop in prices resulting from the economic meltdown. So that made -- a part of that we didn't sell a lot of farms, we only had ARS21 million less in farm sales. So the whole agriculture had a not very important year that compensated for the increase of the stake of IRSA.

This was achieved at the end of this balance sheet at the 30th of June. We were 55.6% of IRSA shares. So the quarterly operating losses in IRSA's Consumer Finance, that was the more affected business in the case of IRSA, were used along this fiscal year.

And the other segments showed very good results. So with that, and having adding new shopping centers to IRSA and adding new rental business for office building too, so the whole combination of IRSA gave a very positive number that compensated all the negative that Cresud had because of the drought and price.

In the case of BrasilAgro, we increased our stake to 19.14%. And in the case of BrasilAgro, we increased our sown area by 52%. BrasilAgro is still liquid and is still buying very actively in Brazil, more farms. We have more than $0.5 million from cash. And we have reserved a lot of funds and we are deciding which more to add to our portfolio.

In the case of Bolivia and Paraguay, we are able in this balance sheet to buy in those two countries, we bought 12,000 hectares in Bolivia. And we bought 21,000 hectares in Paraguay, making a partnership 50%-50%. That's the reason we are having 42,000 new hectares under management in the case of Paraguay and we began the transformation of those. We have an option to acquire 100,000 more hectares in Paraguay too.

In the case of Los Pozos, we were active transforming more land to cattle. And we have today, 55,000 head of cattle on that farm. It became the largest cattle farm in the country. And we were very active in buy-back. We saw that the share went down a lot, and we were able to purchase 30 million shares, this represents 6% of the Company at the level of $7.18 per ADR.

So, if we go to page three, we can see a part of what's affected Argentina. And these are the agricultural conditions in Argentina.

We can see the red represents drought, very severe drought, absolute drought directly. And we see how almost all the countries was in January and the middle of our summer, very, very dry, and in August still, but recovering some.

And these are the numbers we can see from the USDA forecasts. From 46 million tons, they began to forecast at the beginning of the zone time, we have 32 million tons, 31% drop in the whole country that was affecting almost all farmers and that was combined with a drop of prices. And that combination made a lot of loss in the agriculture sector. That was the reason why there were so many demonstrations, strike. And that was a tough year for farmers in the whole country.

If we move to page four, we are going to introduce Mr. Gabriel Blasi.

Thank you, Alejandro. Looking at the environment for our businesses on the price side, both our production and our assets, on this page we can see the present situation of the price of the soft commodities in terms of US dollars, where we see that apparently we are in an average of high prices.

But when we turn that comparison referring the price of the soft commodity in terms of like soybean, corn and wheat, in terms of oil, gold, or silver, we see a completely different situation that allows us to be pretty optimistic about the price environment as we might see some account money problems with the dollar denomination, in terms of the pricing, allowing us to be very optimistic about the fundamentals for the evolution of our production.

Moving to next page, regarding the price of our assets, there you have information prepared by BrasilAgro, where we can see the comparison of risk return of different assets. Where we see the behavior of the farmland in the United States where we see that it is completely decoupled from inflation environment. And also with the rest of the -- most of the financial assets, which confirms a very positive momentum for the investment in these types of assets, considering the present situation and outlook of the financial market.

On the right side, we see how the price of the farmland has behaved against the inflation environment and market index, both in the United States and Brazil, showing that it's very sensitive to inflation environment, and it has behaved significantly well since 1940 up to now.

If we move to next page, also it's important to address the outlook for the future growth in the world, and the implication that this has on the commodity side. So when we consider how the growth in the world has been reduced in the last years, we can see that it has come, in the period up to the year 2000 from the countries that had a GDP per capita over $10,000. For the period in 2001-2007, and from 2008 on, most of the growth of the world is going to come from countries where the income, the GDP per capita, is smaller than $10,000.

Why is this important? Because the impact that this additional income has in food, is immediate. If we go to the right graph, we see there is a correlation of a kilogram per capita per year and US dollars available per capita per year. And we see that there is a very strong correlation, meaning that the people devotes additional income to be consumed in food. And on the low right, we can see how the people use that additional investment, showing that it is a very significant space to grow in the Asia population assuring the good momentum for our production and the future price of the land.

If we move to page seven, feeding the world like Gabriel explained, will require more production. And we are expecting that these numbers coming from FAO and USDA showing that from 2008 levels, total grains and all cereal from 1,800 millions of tons per year, we are expecting 2 million of tons for the 2019.

This increase of production will come from new areas. We are expecting that this 37% will come from new areas. And the other will be productivity gain increasing of yields and resistance for new diseases, for example, or drought for example.

Being very conservative and in growth of the world, the world will need for at least for 44 million new hectares under production and that is what Cresud is trying to do in the whole Latin American region.

In page eight, we can see that the total land under control today in Cresud is around 1 million hectares. And we divided the owned land that is near half of that, still land under concession; that is the property inside of the [Agropecuaria Cervera] and the project 13%, short-term leases 92,000 hectares, 9%; the Paraguayan option of 100,000 hectares 10%, our partners in Paraguay that have 2%, the BrasilAgro stake also through BrasilAgro 17%.

And when we see that breakdown between the owned farms, we see that near half is developed and near half is in land reserved, in the case of owned land. In the right, we see the breakdown of each activity in crops, in beef, in milk and in sheep. And if we see geographic location, we see that 68% represents Argentina, 1%, up to now, is Bolivia, 14% represents Paraguay and 17% is the BrasilAgro Farms in management of Cresud.

When we talk about the hectares and the crop production in Argentina, this [La Creas Plas] in Bolivia, that was the only part we had, has not been and not including in this graph, Bolivia held, this is just Argentina. Next year we are going to include the whole Bolivia and Paraguay, but this is just Argentina.

We jumped from 54,000 hectares to 116,000 hectares of a crop area. So this is a compound of 41%, but in 81% last year. But finally when we see the volumes, instead of achieving what we budget at 354, a 79% increase year-to-year, we had a 20% increase. So we see that the real was 237,000 tons, so this is a compound of 30%. But the drought affected dramatically, we lost 120,000 tons in total.

In dairy it was a stable year. It was near the same in dairy cows and in thousands of liters, so it was not a big increase. The drought affected, but we were growing, but it made us to be near stable.

In the case of beef, the drought too affected and we see in tons of live weight. But we, at the end, were loading more our Los Pozos farm because of the new areas we were developing through the year.

If we move to page ten, we can see the development status of our Los Pozos farm. This is a unique scale, beef cattle production in the country 62,000 hectares sown with pastures. From those, 43,000 are in use today for beef cattle and hosting today 56,000 cattle heads, the largest farm for heads in Argentina, this means 1.3 cows per hectare, but very highly efficient cattle ranch. From the farm we are now using 4,400 hectares for agriculture. And the total hectares under production this year were 40,000 hectares.

And we expect for next year, to have 10,000 hectares more under production. And these are the evolution of the hectares allocated to cattle. We had a compound annual growth of 28%, exactly the same of this year.

And in the thousand of heads, we grew 52% in thousands of tons produced at the level of the farm. But still this part of the farm is non-reserved and we are adding for the farm new areas every year.

The next page, in page 11, we can see some pictures of the transformation of the farm. We can see the soybeans, 4,000 acres of agriculture. We can see the corn. And let's see how high is the corn. This corn achieved a 4.5 tons per hectare of yield. And we see the cattle quality, this that we are loading at this farm in the north of Argentina.

When we talk about agriculture real estate activity, this year the main acquisitions were 44,000 hectares adding 9% more to the portfolio of Cresud. We bought near Buenos Aires 115 hectares, for making a neighborhood finally like [La Dayla] project.

We bought 11,000 hectares adding for sheep, project in Santa Cruz, we bought the 12,000 hectares of Bolivia farms and we bought the 21,000 hectares of Paraguay.

In the same year, we were selling two small pieces, 3,500 hectares, with what were book of $7 in the case of Los Pozos, $320 per hectare; this is gross area, not developed. In the case of Recreo, the same, we sold 1,800 hectares that they were a good value of 29, and we sold at $200. So this reflects a very small portfolio sale of the portfolio, but so huge gains that we made every time we sell some piece of [Brazil].

In the case of BrasilAgro, we increased the stake, and today we are achieving 19.14% coming from the original stake of 7.3%. We have consolidated assets of $679 million cash and equivalent, BRL264 million, and the net cash is BRL230 million. BrasilAgro posted BRL950,000 in the net income last week, was the conference call, we expanded 54% of the planted area, and 80% on grain sales.

We acquired Preferencia Farm in Barreiras. We are holding eight farms, 165,000 acres, and there are a lot of more entering to the buy plan. We are closing new deals in BrasilAgro, soon, these are the breakdowns of activities.

In the case of Bolivia, we explained in the last quarter, here are the four farms, 180 kilometers from Santa Cruz de la Sierra, the investment is $29 million at $2,400 a hectare. We are doubling crops in this case, double soybeans, back in Argentina, we can, and we can make wheat and soybeans, but in the case of Bolivia, we are doing double summer crops. We harvest 10,000 acres the first year. Our main crops, 80% corn, and next plantation will be 11,000 acres for winter crops, 65% of that soybeans, 30% is corn, and the rest are sorghum and sunflower.

These are the pictures of the crops, and this is really amazing how the returns we are achieving in Bolivia in yields and in profit, they have no taxes on the prices, so they have no taxes on exports, like Argentina, that represents higher value return for the crops, and the yields we are achieving are great.

We are seeing here the pictures of the new farm. In the case of page 16, the Paraguayan project, we bought these in the Boqueron area. This is the Chaco Paraguayo area and we bought this 21,000 hectares at $250 per hectare. We made this partnership with Carlos Casado, and we are running 50%-50%, with an option for 500,000 acres more and we have the $50 per hectare option for five years.

And the potential of this is soybeans, sorghum, corn and livestock. We have already developed these 3,000 hectares that we're going to plant for next campaign, and we expect to grow at the pace of 5,000 next, and 13,000 the other one. So this project will take us many years, but we are going to plant this September-October, first time. We are beginning with -- start with grain production.

In the case of page 17, we had stated in August of 2008, a buy-back program. We purchased 30 million shares. That represents, like, 6%, 5.98% of the capital stock, we invested it here, $21.5 million. The average price that we bought was $7.18 per ADR.

In the case of Cactus Argentina, we acquired, at the end of this balance sheet, the 30th of June, 24% stake from the former stakeholder of Cactus Feeders, the owner of Cactus Feeders, sorry, with that pursuit, we'll be a shareholder for 48%, having Tyson Foods the other 52%. The price paid for that was $2.4 million, and with that, we have contributed $5 million, by Tyson and Cresud, to increase the capital of that company and to reduce the burden of interest that the Company was paying to the banks.

And the Company suffered this year, it was a tough year because of strikes and it was very positive in the Cactus, in the feedlot, but not positive, very negative at the packing plant, and probably that was the decision of our parent group to leave, probably suffering the combination of losses in the United States, too. We decide it is the time, because we expect the exports to open for the future, and Argentina. Now it's exporting better, this 2009, 2010, the packing plant, so we expect that packing plant recovery since the feedlot is making a very good job, and we are thinking on expanding for the second feedlot in the country and that company.

With respect to the financial statement of Cresud, as of June 30, 2009, I would like to state that Cresud's income statement is including IRSA's results only from October 1, 2008, to June 30, 2009, in a consolidated way, that means for nine months, while Cresud's comprehensive financial statements as of June 30, 2008, did not include IRSA's consolidated data. We have included IRSA's figures as an investment company, as a related company in 2008.

With respect to the gross profit, it increased 572% from ARS85.7 million gain during 2008, to ARS576 million during 2009. That was mainly due to a ARS148 million decrease in the gross profit from our crops segment, from ARS46 million, gain in 2008, to a loss of ARS22 million in 2009. Then we had a 53% decrease in our gross profit from our beef cattle segment from ARS7 million gain in 2008, to ARS3.3 million gain in 2009.

We had a 53% decrease in the gross profit from our milk segment, from ARS4 million gain in 2008, to ARS1.9 million in 2009. We had also a 40.8% increase in gross profit from our other segments, brokerage activities and services to third parties, from ARS8.4 million gain in 2008, to ARS11.8 million in 2009. We had a 90.7% decrease in the gross profit from our Real Estate business in Cresud, the sale of farms, from ARS20 million gained in 2008, to ARS1.9 million gain in 2009, as Alejandro already mentioned.

We had ARS579.4 million gained, resulting from the real estate business of IRSA, as of June 30, 2009.

Our operating income increased 393.9% from ARS43.6 million gain in 2008, to ARS215.4 million gained in 2009. That was mainly due, 572% increase in the gross profit from ARS85.7 million gain in 2008, to ARS576 million in 2009. With respect to the operating income of real estate of IRSA in 2009, we had ARS277.4 million, which includes nine months of IRSA operating results from the second quarter to the fourth quarter included, due to the consolidation of the financial statements of IRSA and Cresud in the last year.

Our financial results, our net financial results were ARS52.3 million loss in 2008, compared to ARS44.7 million gained in 2009. The main variations between both fiscal years were, first of all, ARS176.6 million that was a gain generated by the repurchase of IRSA and IBSA negotiable obligations; ARS32.1 million gain, generated by financial operations, a higher loss of ARS106.9 million in our financial interest, a loss of ARS58.6 million generated by foreign exchange difference.

Then the result from our interest in related companies, our result increased 28%, from ARS38.4 million gain in 2008, to ARS49.2 million gain in 2009. That was mainly due to an increase of ARS24.2 million loss between both fiscal years, as a result of our investment in IBSA. These results were ARS31.5 million gain in 2008, compared to ARS42.7 million loss for the three months previous from July 1, to September 30, 2008.

We had then, in Cactus, our investment in and Cactus and [Elasa], we had a loss of ARS2.8 million in 2009, compared to a loss of ARS500,000 in 2008. In BrasilAgro, we had a result of ARS1.8 million in 2009, compared to ARS3.1 million in 2008. And in Agro-Uranga, we had a profit of ARS2.9 million in 2009, compared to ARS4.4 million in 2008.

The net -- sorry, the minority interest, our minority interest was ARS0.3 million loss in 2008, compared to ARS94.2 million loss in 2009. And the net income of the result of all the above-mentioned, our net gain increased 443%, from a gain of ARS22.9 million in 2008, to a gain of ARS124.6 million in 2009.

Regarding the debt situation, moving to page 19, you can see there, that the consolidated debt of Cresud as a whole, is $337 million, reaching a total amount of $418 million, but a net to the debt -- to the cash of $49 million.

And to the repurchase of notes of AltoPalermo and IRSA, it goes down, up to $337 million on a consolidated base for the whole Group, showing that the very low leverage that the Company has at present considering the consolidated portfolio.

We invite participants to make questions, please, now.

(Operator Instructions). Your first question comes from the line of Francisco Schumacher from Raymond James.

Hi, good afternoon. Well I have several questions. You stop me when it's too much. One is that, well, according to my channel checks during the last months, farmers had difficulty to lease their farms. Are you specifically planning to decrease the leased area in this new fiscal year? And besides, how much should we expect effective lease prices to decrease in this fiscal year in your case?

We are not expecting to reduce our stake, and maybe Alejandro can answer that.

Yes, (inaudible) Argentinian Manager, I would say the decrease in the rates of leasing farms is about 20% to 30%, but also helps us that we expect other conditions in the climate, and at the same time, there are some [areas] that we are taking advantages of buying fertilizers, mainly, and some prices in the seeds that are much more better than the year before.

We are changing back some farms that we leased in some marginal areas years before. Now we are gaining in more central areas with a little bit less risk in climate, so perhaps we are trying to reach the same figures than the year before.

This figure is in hectares.

In hectares, yes.

Okay, my second question is, on the pictures you presented in the presentation, I see that Salta's hydro condition is still adverse. One of my questions is, has it improved in the last month, because these pictures are from August; are you optimistic regarding the use for this year? And if not, is this the explanation why you're not developing new hectares in Agropecuaria Anta this year?

No, no, the rain season in the north part of Argentina are normally beginning in October, not now, so that figure is just -- you can have much better information some pages in the national service or in another service that we use.

But in the case of Salta, we -- the rain begins normally in October so we -- and we begin to seed, in fact, in October, November, December. We don't use these months to begin the seeding in Salta. So we expect more or less a better year than the years before in Salta.

I know there is announced El Nino, you know, what we call Nino, for this year, a normal Nino, and not a huge Nino that was said one month before. So we are positive in the future rains in Salta.

We are having for that project, for the Anta project, 35,000 hectares this year, so we are going to increase the plantation on the north of Argentina.

Okay, I thought you weren't going to. I have another question. If you have a percentage you would like to achieve from IRSA, as you have been acquiring shares after the closing of the results, and if you have, like, a limit of indebtedness for Cresud, that you wish to protect in all this acquiring of IRSA, BrasilAgro, et cetera -- when you would stop acquiring more shares.

Regarding the -- as you have said, we have increased our holding in both companies, but this has been extremely opportunistic, because here in the market situation. Having said that, if you look at the total debt book of Cresud, it's very, very conservative, the Company has historically, kept very low leverage figures, and is still in that way.

Probably we cannot refer to a unique equation of capital -- of debt level, because the capital varies so significantly in Argentina. But when you consider -- on the other hand, you must take into consideration that Cresud, on a consolidated basis, has a much different behavior than a pure agriculture company, because here Cresud pure agriculture operations that is only $50 million. When you consider the consolidated debt, well, this balance sheet shows very clearly the huge potential in terms of result that the consolidated book brings, so the analysis must be different.

Next question, please?

(Operator Instructions). There are no further questions at this time.

We think that we are going to have more growth in Latin America, Brazil, Paraguay, Bolivia, Argentina, maybe Uruguay next year purchases. We are going to develop the lands we purchased. We have a plan of being very active in every country in the transformation, and begin the production of crop and beef in all of them, and forestry and sugar cane in the case of Brazil, too.

Within this year, with a combination of the very good relation between input and output, can increase the margins, and maybe the climate will be a normal climate that will allow us to have a very positive result in operation in the farming.

We think we have a very, very well balanced portfolio. We bought back shares and [debt], and with that shows a year like this, when the farm is not very good, our portfolio shows strength that Cresud showed this year.

We think we were very -- the basis of investment was very clever, and with these years of very high volatility in the market, doubt about currencies, possibilities of inflation, we think that the possibility of having real assets, like we have today, and having food like Cresud is doing, is the kind of asset our shareholders have to have, and that is why we think this 2009 has a -- 2010, sorry, will be a very successful year for Cresud. So thank you very much, and have a very good day. Thank you.

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