Cresud SACIF y A (CRESY) 2010 Q2 法說會逐字稿

Good morning. My name is Brandy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cresud Earning Release Second Quarter Fiscal Year 2010 Conference Call hosted by Mr. Alejandro Elsztain, CEO, Mr. Gabriel Blasi, CFO, and Mr. Esteban Grinberg, IRO. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. (Operator Instructions).

Thank you. Gentlemen, begin your conference.

Morning, everybody. Welcome to the Second Quarter Fiscal Year 2010 Conference Call.

If we move to page two, we brought to the presentation some long-term estimates that they were published recently in February 2010 by the USDA and in here, we want to show what the USDA expects from South America comparing to the rest of the world. And we can see in page two in the case of soybeans, this is the soybeans, USDA expects that from the exports, the growth 73% of the shares of the new exports will come from South America and in the case of the corn, 25% will come from South America. That is an explanation of how strong South America will become in the USDA view.

And we can see in page three the same, how in the soybean meal and the soybean oil, the two products of the soybeans, where South America will represent 99% of the shares in the export increase and 95% in the case of the oil. So in the USDA forecast, South America is responsible for the growth of demand of soybeans mainly and food in other products.

We can see in page number four how the recovery of the soil we can see comparing last year, January 2009 and January of 2010. And we can see that last year, almost all the countries at this part of the year was red or something like red; the only green part was Cordoba and San Luis. And we can see this year that late rain that began in November, we can see a big recovery on the soil conditions of Argentina and almost all the regions that they are productive with good conditions.

What does it mean? We are coming from one of the droughtiest years since 70 years, that was last year and this year 2010 is becoming probably one of the more rainy years. And this is something that happens in the story of Argentina that after a drought comes a big rain, and this year, we have seen that. But it's in general affecting possibly and we're going to see in next page what is the USDA's forecast in soybeans and in other products.

And in some times, it's becoming some danger to the region. We suffered some of excessive rains. In the case of Bolivia, for example, we are like 4,000 hectares of summer crop but we are not able to sown because this excess of rain. And this excess is coming to Argentina, too. So up to now, the crops are good, but let's see if this rain keeps in Argentina.

So, I will introduce Gabriel Blasi.

Thank you, Alejandro. Taking in consideration page five, the outlook of the USDA on grain in Argentina for our own crops, we can see that USDA is budgeting for wheat increase of 7% from 8.4 million tons to 9 million tons, in the case of the corn from 12.6 million to 17.2 million, 37% of growth in the month of production.

And in the case of soybeans a significant increase, mainly to the recovery with the considerations that Alejandro has mentioned about the weather situation from 32 million to 52.5 million, 66% of growth budgeted by the USDA, but all this considering that we are approaching the critical stage for the yields of the year as defined.

On the right side, according to [Korea] adjust for mention of how different inflation is to prior years, we can see there what was the outlook of the crops in 2007-'8, 2008-'9 on the red and on the green for the current year, considering as we have mentioned that the outlook is pretty good, although it is critical how it develops in the following days.

We go to page six, just a quick wrap up on the portfolio -- no major consideration has been included in this period, the total land under consideration near 1 million hectares, [sorting leak] 70,000 hectares, [10%] of the portfolio, the option of Paraguay 10%, and the owned land [for the rationale] 600,000 hectares of land between Paraguay, the land owned by Brazil Agro and the land in Argentina and Bolivia and the long-term concessions in (inaudible).

The land under production continues to improve, at present 130,000 hectares devoted to beef, 100,000 to sheep, to milk 5,000 hectares, and to crops 149,000 hectares, including 41,000 hectares under production in Brazil through Brazil Agro.

Regarding the owned farms, we come under production almost 50% of the land, 255,000 hectares. And as [Alejandro] said, we still have 239,000 hectares to be put under production. And as you see there, our portfolio is slowly increasing Latin American presence by adding up the other countries, as Paraguay and Brazil will see us over 50% of the portfolio as per consideration.

We move to page seven, the hectares under production of the current year in Cresud shows an increase of 81% with a growth for the last four years of compound growth 41%. We have reached 166,000 hectares of land under crop production. Important to address that for the period for the half of the year on the upper right, we can see that we are in a similar situation in terms of the total size.

We have reviewed the amount of hectares sown, in 4,000 in Bolivia because of excess water that makes aspect of the decision -- this is very, very special year with El Nino to make us take the decision of not growing in that consideration prior to the crops. This portfolio is not including the Brazil Agro states. Also, it's important to show there the current of increasing the amount of land sold, our own land or the leased land.

On the dairy production, we see there same situation in the [eve] cattle in the low part of the graph, the impact of the last year growth as of course, effective performance of the animals and that is special and diverse rate, especially on the rescheduled business, although the situation is pretty stable.

And if we move to page eight --

One consideration in the beef -- Cresud was selling -- the last year was selling beef areas, beef cattle areas, but kept the stock and we considered the stock of the Cresud is near 90,000 head. And there was a big recovery; the last part of the year was a very big gain and we are going to see on the balance sheet the holding result in beef.

We decided to keep the beef and we almost put majority of those beef in areas that have the chance to go to agriculture. We were selling the beef that they were just beef but keeping the size because we saw that there was a good business to keep cattle because the recovery was coming. And now, the recovery was huge and sometimes, this traveling price, the beef from the last year to now.

And if we go to the next page, page eight, because the reasons for what Alejandro was explaining, here you see what was the development of the prices of the steer prices internally and also of vending prices, which reflect the good decisions in terms of -- although the hard weather situation opposing the stock of cows to change in the area because the price increase has been very, very important on the market.

As just as the consideration only for February, we also have an increase of more than 6% for the period. And also, in the milk market, you can see that we will have a total price of [materials 33%] for the period under consideration.

And now, Esteban is going to make some comments on the income statement of the Company.

Thank you, Gabriel. First of all, I would like to point out that even the seasonality features or characteristics of Cresud's business, it would be quite early to make any conclusion on the progress on the income statement.

Moreover, this year's figures in our income statement show six months of consolidation of the IRSA business whereas in the last year, it only shows three months from October 2008 to December 2008. So, I'll try to -- despite the non-relevant changes in agribusiness from one year to another, I'll try to give some color and some comments on the different lines of our income statement for you to understand.

So first of all, the gross profit from agribusiness increased 32% -- sorry, decreased 32% from ARS10 million to -- ARS10.7 million to ARS7.2 million. This was mainly driven by an increase in the gross profit from the crops segment from ARS5.2 million to ARS6 million, plus an increase in the gross loss of the beef cattle segment from ARS3 million to ARS4.8 million.

The main reason for this was in the case for the crops; the gains were mainly driven -- the growth income was mainly driven from the income our international business, agricultural segment and offset by lower sales volumes and higher commodity prices at the same time.

In the case of the beef cattle segment, the losses, the gross profit -- the gross losses were mainly driven by a lower production volume because of casual rainfall in certain areas. This resulted in lower fattening and birth rates and higher death rates. And beyond this, there was also a decrease in the gross profits from the milk segment from ARS2 million to ARS1.1 million and a decrease in the gross profit from the other segment from ARS6.6 million to ARS4.9 million, mainly because of lower results generated by the brokerage activity or subsidiary (inaudible).

As you see, these are slight gains or losses in all our segments and it would be very early at this stage of the year for us to make a conclusion or give any guidance on what results would we get in that area. Regarding the other figures, IRSA real estate business contributed ARS419 million. That's 133% larger figure than that recorded year before.

And now, going into the -- going beyond the gross profit line, brief comment on the selling SG&A and other results. SG&A have increased from ARS10 million to ARS12 million, mainly because of the cost of international expansion and higher salary. In the case of the -- sorry, those are the administrative expenses.

Administrative expenses has increased from ARS13 million to ARS21 million, ARS21.5 million because of the international expansion territory. And the selling expenses have increased from ARS10.9 million to ARS12 million mainly because of the higher commodity prices from where -- on which we calculated the commissions we paid.

On the holding result, we see a ARS21.3 million gain, mainly attributed to a difference in the value of our beef cattle stock that was pointed out earlier by Alejandro and Gabriel and beef plus the -- all this drove an operating income of -- an operating loss of ARS5 million compared to ARS17 million in agribusiness, ARS17.8 million of last year. When bringing in the consolidated results from IRSA, the operating income rises from ARS32.2 million to ARS280.5 million.

Regarding the financial results, there's an improvement for -- from a gain of ARS41.2 million to a loss of ARS63.6 million, all this mainly driven by the one-timer gain we got last year because of the increase in the value of the bonds that we hold in our portfolio of the years financial Palermo owns and the consolidated rate of that total in the portfolio.

And the result from interest in related companies that increased from a loss of ARS56.7 million to a gain of ARS137.2 million, most of this explained by the increase of IRSA (inaudible) state and increase of the sales value. Finally, after income tax and minority interest, net income increased from ARS12.2 million to ARS141.8 million.

And going to page 10 just to wrap up on the debt situation of the Company, Cresud debt amounts to $118 million under the consolidation of IRSA and Alto Palermo, this goes up to $575 million and net in the cash considerations $34 million and the notes purchased by the companies. The total debt went down to $446 million as was our consideration. As I explained only 35% is our Cresud standalone debt consideration.

Having said this, as I here mentioned, remember the seasonality of the balance sheet of several catch-all companies. And we must [dedicate] in terms of future evolution for the year. I don't know if there is any other consideration. If not, let's go to Q&A. Operator?

(Operator Instructions).

And your first question comes from the line of Francisco Schumacher from Raymond James.

Hi. Good afternoon. My question is related to the Bolivian delay of sowing because of the heavy rains. Is this just -- well, is it a delay or it's really a lost area for this year?

All right. In fact, what's happening is because of the very heavy rains, it's a very atypical year, as you know. We have taken the decision of this 4,000 hectares not to be sown because of the rain. The risk involved was too much and it is -- and the -- that was the decision. But having said that, that has been for the past growth. But for winter growth, we are going to see this in advance earlier than expected. Remember that Bolivian operations have slight growth per year.

Okay. And when is the sowing period for the winter growth of soybeans?

Starting planting in May and harvest in November.

Okay. Thank you very much.

(Operator Instructions).

And your next question comes from the line of [Diego Maya] from HSBC.

Hi. Good afternoon, everybody. My question is related to the beef sector. We have been seeing on the news wire that the population in Argentina is very unhappy with the substantial hike in beef prices in the domestic market. So, I just wanted to get a better understanding from you guys what's going on and if you expect any substantial intervention from the government. That's the first question I have. Thanks.

The farmers are not selling. The stock reduced a lot. And the situation -- there was a big increase in prices because of that, a lot of grass, a lot of farmers having a lot of grass because of this recover of rain. So, this is taking some of the -- what it did before with the drought for [fishing] a lot of product into the market, today having almost all the country rain. Farmers can keep the cattle on the farm and this is pushing prices a lot.

But this will -- you know that the cycles are and the problem is only asking for some special cuts for the -- to have keeping small prices but not to the rest of the cattle. I think it is not thinking and intervening the exports of the rest of the prices. And when the drivers come again and probably more for the winter, more cattle will come to the farm, to the market and probably, there will be a decrease in prices.

But this sector was delayed for a long time. And there was a big -- there was so big number of farmers pushing their cattle from the farms to the agriculture that pushed a lot the prices. Today, that is not happening more and that is increasing prices and sometimes double, like this six months. But we think that the government is not intervening just for the cheapest part of the animal.

Okay. Thanks. And the second question I have is regarding operating income from agribusiness. As far as I understood from your comments, most of the drop came from the beef segment. So, I wanted to know when are you guys expecting to become breakeven again in operating income from agribusiness. How long should that take to be positive again?

You know that the company has the first and second quarters more related to cattle. And sometimes when we make some big size of wheat, in this case the cattle and dairy were affected the first semester that at the end began a recovery in prices in both the milk and beef.

But because of the last [autumn], that affected and was negative and wheat was small. You know that this was a growth year. And the price of wheat was not affected, so majority of the crop was dedicated to summer crop. Summer crop is corn and soybeans and those two are going to come in March and June. So, the operational part of the business is coming in the second and first quarter.

But let's hope that the rain stops and we can harvest and the cattle are really (inaudible) normal compares to and in this case, was exacerbated because the drought affecting those two business and having (inaudible).

Thank you.

(Operator Instructions). And there are no further questions at this time, sir.

Okay. Thank you very much, everybody. We expect to have a good harvest this year. We have a lot of land under production and a lot of corn and soybeans are coming. In the case of cattle, we have a big stock, probably one of the largest of the country. And we are going to keep this part of producing food when we expect the world needs a lot of food and we're going to give that to the world. Thank you very much and have a good day.

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