Cresud SACIF y A (CRESY) 2010 Q4 法說會逐字稿

Good morning and welcome to Cresud Earnings Release Fiscal Year 2010, hosted by Alejandro Elsztain, CEO, David Perednik, CAO, and Gabriel Blasi, CFO. You may begin.

Good morning, everybody. We are beginning our conference call of fiscal year 2010 that closed on the 30 of June. If we go to page two, we can begin about the net income of the Company, that increased near 50% comparing last year and achieving this year ARS185 million.

The operating income increased from 172% and we are achieving ARS587 million. The operating income directly from the agribusiness segment totaled ARS60 million, showing a strong recovery on a year-to-year basis. The Argentine agribusiness segment recorded an increase in the number of tons produced per hectare, higher beef cattle prices, and improved margins in the milk business.

We agreed the purchase of the interest held in BrasilAgro by one of our Brazilian partners Tarpon. In other side, there was a farm sale in the province of Catamarca that was reflected in this balance sheet and there is a new one that is still not reflected in the balance sheet because it was done after the 30th of June in the province of Buenos Aires.

We continue developing our farms, mainly in Salta and in Paraguay and transforming our farms in the province of Santa Fe. And IRSA, the real estate company that Cresud owns, recorded a consolidated operation income of ARS526 million. Apart of that is an option to acquire more shares of Alto Palermo. If we move to page three, I introduce Gabriel Blasi.

Thank you, Alejandro. Good morning, everybody. Regarding the outlook on the agricultural market, we can see that we have a significant increase in the price of the hard commodities according to Goldman Sachs Commodity Index. And the -- in some extent, we can see also some additional potential for the growth of this agricultural index, too, if we intend to reflect this institution that during 2008 we have on the relationship of the two indexes.

Regarding the institution of Argentina harvested, it has improved significantly with exception of the wheat where we decreased compared to the 2007-2008 season to the present season, a decrease of 18 million tons, 22 million tons of corn, almost the same. And in the case of soybean, from 46 million tons to [55] million tons. It's important to address that we have, at present, the lowest price -- sorry, the highest price of corn in the last two years.

Moving to page four, the local beef and milk prices have increased significantly. Considering the steer prices from June 2009 to June 2010, the increase has been 94% and the milk prices, according to the graph on page four for the same period in the fiscal year, has increased 73%.

On the portfolio of hectares that we are owning and managing today, on page 5, we can see that we have a -- owned in Argentina, 438,000 hectares, in Bolivia, (inaudible) thousand hectares, in Paraguay, 23,000 hectares, short-term leases of 55,000 hectares, the [option] of Paraguay of 48,000 hectares, and the long-term concession in the province of Salta of 132,000 hectares.

We have to add under management, the 175,000 hectares owned by our subsidiary BrasilAgro, the Paraguay partner of 71,000 hectares that we have together with Carlo Casado, with just totalizing the near one million hectares under management of 955,000 hectares.

If we move to page six, we can see there the breakdown of land under production with 34% devoted to beef with slightly over 100,000 hectares, 32% to sheep of slightly 100,000 hectares, too. Another 100,000 hectares devoted to crops and 5,000 hectares for the milk business.

This is without including the BrasilAgro and our partner in Paraguay's interest and the 7,000 hectares leased to third party and neither the stake in Agro-Uranga. This is only the land that practice -- has been operated directly by Cresud. And the land reserve breakdown with the same criteria, 343,000 hectares.

We have a 114,000 hectares in Agropecuaria Anta in Salta, so [50%] of the portfolio or 187,000 hectares, 55% of the portfolio is Los Pozos, 6% with 21,000 hectares in Paraguay, another 6% in the rest of the portfolio of another 20,000 hectares.

If we talk about the land heading to production and development, we brought here some examples of what it's increasing the hectares allocated to crops. In Argentina, we are increasing, in the case of Anta and in the case -- that is Salta here and in the case of Los Pozos.

What we are doing here, Anta and Los Pozos, growing and we see the evolution in the graph on the top of the right, we can see that ANTA, beginning in 2008 with near 4,000 hectares, this year is achieving -- near the close of the year, we are closing near 11,000 and we are adding for next year 2,500 hectares more of -- also in area. But we are keeping the confirmation and we are doing more than that, but this won't be able for this next year, so will be for 2011 -- '12, sorry.

In the case of Los Pozos, the same. Beginning of Los Pozos in agriculture with 1,500 hectares and next campaign we are forecasting to achieve 7,000 hectares of agriculture. In the case of cattle, Los Pozos is keeping stable because the transformation of the land is being finished during this fiscal year so that 50,000 hectares of cattle, they are going to be ready in 2011.

In the case of Paraguay, the transformation will come and we are adding like 3,000 hectares new for the project. And in the case of La Esmeralda, an old farm from the Company, we are transforming almost all the farm to agriculture. In the past was 58% of cattle and 42% for agriculture in 2008.

We are forecasting for 2011, 22% for cattle and 78% of agriculture. So the Company is in that transformation of land. In the whole region, we are going to talk about [grassland] related. That is making the bigger transformation of land. So we are going to intend keeping that base of transformation for the future.

When we look at the statistics of production, we see that the -- there was a small drop of hectares of under agriculture for Cresud this year, like 9%. But if we see about the production, last year was a big drought, but this year not. We increased having a 9% drop in area, an increase of 36% in total tons.

So in agriculture, made a very positive year. In beef, not. The drought that affected last year still affects this balance sheet and the drought is making out to be producing plus the reduction of stock to 56,000 tons of beef production. And in the dairy, almost the same, a small increase from 21 million to 21.7 million liters -- 21,000 liters of -- in production in the year.

So this is total -- in the crops, this was a good year. In the cattle, bad year because the cattle have -- and we are expecting 2011, the recovery of cattle production, because the conditions just today are good for cattle. In the case of crops and milk, are very good conditions for this year, too.

In page ten, we have increased our stake in BrasilAgro, although the transaction is not yet finished. We have reached an agreement with one of our partners, Tarpon Investimentos during this fiscal year, proposing the acquisition of 9,581,750 common shares. Also the acquisition of 6.4 million First Issue of Warrants and 6.4 million of the Second Issue of Warrants that the company has outstanding in its IPO.

We are also completing the issuance of a Level 1 ADR program that has been already filed with the SEC with a ratio of one common share per ADR and filed with the Bank of New York Mellon as an issuer.

The effective transfer and payment of the transactions and warrants is going to repay within 180 days after the transfer of the shares, which is going to take place ten days after the implementation of the ADR program. The full price of the transaction is BRL131.4 million.

It's also important to address that the rest of the founding vehicles related to Mr. Elie Horn Holding remain as controlling shareholders together with Cresud. The BrasilAgro portfolio has reached 174,800 hectares.

These nine farms are -- in the last year we closed in the planted area of 46,000 hectares, which was an increase of 38% comparing last year. For next campaign, we are forecasting to add to the portfolio of planted area, like 19,000 hectares or 18,000 or 19,000 hectares more. So going to 65,000 hectares in BrasilAgro.

In this year we were able to acquire one farm, the Horizontina, that is in the state of Maranhao, at 14,000 hectares. We began the sugarcane supply and we made a silo, a big grain storage of 72,000 tons in the state of Piaui in Cremaq farm. We have consolidated assets of BRL733 million. We have still a cash position of BRL206 million. And for last year, we transformed 18,000 hectares.

Here we can see the land allocation of last year, where crop represented 35,000 hectares, 20%, sugarcane, 9,000 hectares, 5%, and the rest was leased to third parties. Up still a big land reserve, going to be transformed for the next years and this is the evolution of this compound growth of 45% comparing from the fiscal year 2008 to 2010, so a big growth in developed areas in BrasilAgro and [greeting] that pace for next year.

So if we talk about the sense of this year, it was not very active. In Argentina, we sold just one piece, that is Tali Sumaj. That is a farm in the province of Catamarca, 12,700 hectares. The sales price for this was US$4.8 million and the gain is almost all. The profit in pesos was ARS13.7 million. So the book value was very, very small and cheap. That is the gain that is reflected in this balance sheet.

In the case of the second farm that was sold very recently is La Juanita. That is a 4,300 hectares farm in Trenque Lauquen, province of Buenos Aires. And this is going to be reflected in next year balance sheet. This is a sale of US$18 million and a profit of ARS49.6 million. This is a sale of the farm, not the cattle.

From news in the newspapers talk about the cattle included, but it's not. It is just the farm. And this is a farm that is sold in like US$4,500 per hectare and was purchased in -- nearly US$900 in the year '97. So we understood that it was near the top of transformation. This farm was -- many times was suffering floodings, so we decided that was again time to sell the property and move to develop in the region.

In the case of Paraguay, we exercise part of the option. The option is 50,000 hectares and the exercise of this was small -- 3,600 hectares towards the exercise price that is US$350 per hectares. This is part of the farm that is being developed this year. The reason we bought before the exercise of this option.

With respect to the income statement of Cresud after 30th of June 2010, it's important to state that this -- the fiscal year 2009 includes only nine months consolidated data including IRSA consolidation. And during the first three months of last year, 2009, is that results in Cresud were only included in the line of reserve from interest in related companies. Therefore, the comparability of the income statement of both years will be affected by these first three term of last year. For the next years, this won't affect any longer.

With respect to the gross profit, it increased 54.2% from ARS576 million gain for fiscal year 2009 to ARS888.2 million gained for fiscal year 2010. And this was mainly due to an increase in the gross profit from our crop segment from ARS22.2 million loss last year 2009 compared to ARS30 million gain in fiscal year 2010. This was mainly due to higher production volume at the higher yield, lower cost of productions, and higher sales volume.

With respect to the beef cattle segment, we had a decrease in the growth loss from ARS3.3 million gain that we had last year in 2009 and compared to ARS8.4 million loss in 2010 and this -- the main causes of this loss were lower production volume, lower calving rates, higher cost of production, and also higher sales volume, and increasing cost of supplementation of raw materials.

With respect to the milk segment, we had an increasing gross profit from ARS1.9 million gain in 2009 compared to ARS5.7 million in 2010. This was mainly due to higher production volume due to the efficiency in the daily output per cow, higher sales volume, and higher milk prices.

With respect to the other segment, we had an increase in the gross profit from ARS11.8 million gain in 2009 to ARS12.4 million gain in 2010. And this was mainly due to higher results generated by our brokerage activities of our (inaudible).

With respect to the sales of farm segment, we had an increase of 600% from ARS1.9 million gain last year 2009 compared to ARS13.7 million in 2010. This was mainly due to the sale of 12,700 hectares of Tali Sumaj farm in Catamarca with a result of ARS13.8 million gain this year.

We have also an increase in our gross profit from our consolidated real estate business segment of IRSA, a 44% decrease from ARS579.4 million gain in 2009 compared to ARS834.7 million gain in 2010.

Going into the operating income line, we had a consolidating operating income of 172.5% from ARS215 million gain for fiscal year 2009 compared to ARS587 million gain in 2010. This was mainly due to a significant increase of ARS56.9 million in gross profit from our agricultural business segment during 2010. We went from a loss last year in 2009 of ARS3.4 million to a gain of ARS53.5 million in 2010.

This consolidated operating income increase was also due to an increase in the gross profit from our real estate segment from IRSA from ARS579 million gain in 2009 compared to ARS834.7 million gain in 2010. We had our -- sorry we had also significant operating income increase in the agro business from a loss of ARS62 million last year to a fixed, to an increase in our line of ARS60.6 million gain in 2010.

With respect to the selling expenses, we had an increase of 35% due to a higher sales volume of our commercial expenses, we have also an increase in our administrative expenses in the agro business line of 38% from ARS32 million to ARS44 million. This was affected by our increase international operations, in Paraguay, Bolivia, and we also had holding results due to a higher beef cattle prices, of ARS85.5 million compared to a loss last year of ARS1.3 million.

Going to the financial results, our financial results net were -- from last year 2009, ARS44.7 million loss compared to ARS201 million loss for fiscal 2010. The main variations of both years were higher loss of ARS29.2 million in our financial interest for the debt.

I remember you that last year we haven't consolidated the debt of either side in the first quarter. This also is affecting the compatibility of both interest paid in both years. With respect to the foreign exchange loss, we had a loss from last year, ARS80 million to ARS45 million this year.

And this was mainly due to the devaluation that we had last year of US$0.77 per dollar compared to US$0.13 per dollar in this year. And also last year, we had a gain, a repurchase of bonds issued by IRSA and APSA of ARS176 million in 2009 that we hadn't repeat that result in this year.

Going to the results in our related companies, we had an increase of 158.4% from ARS49.2 million last year 2009 compared to ARS127 million in 2010. And we can see that in IRSA we have last year a loss of US$50 billion -- US$48 million compared to ARS154 million gain this year.

This -- I remember you that this year we are consolidating results for 12 months compared to nine months last year. And this is mainly reflecting the shares that we -- that IRSA used to have in Banco Hipotecario and also Hersha, the hotel company that we have also an interest in their shares.

Regard to the Company had a loss of ARS2.8 million in 2009, a loss compared to ARS21.2 million loss this year. And in [Casilardo] we had, last year, a result of ARS1.8 million profit compared to ARS9.5 million loss this year. Going to the income tax, we had an increase in the income tax of 57% from ARS92.7 million last year to ARS146 million this year and this is a reflect of our improvement in our share -- sorry in our profits from this year compared to last year.

And minority interest that is reflecting the percentage of shares that the minority shareholders have on our controlled companies also had a significant increase, a loss of ARS94.2 million last year compared to ARS184.8 million this year, reflecting the good results that we had this year from IRSA stake in -- that Cresud has and also Alto Palermo stake that IRSA has. Net income therefore increased 48.8% from ARS124.6 million last year compared to ARS185.4 million for 2010.

On page 14 regarding the (inaudible) situation, the total debt as of June 13 is ARS122 million on a standalone basis, [when pursued] represented by US$32 million of -- for finance export. Two notes which were placed in the local capital market, the [trench] one and the [reserve] note of [Ollie and fran] of US$6 million and short term financing in the local market also in US$5 million.

The rate is the consolidated debt of IRSA and Alto Palermo. Total life is ARS453 million adding up to the pursued debt and deducting the cash of US$44 million because if the added net debt is US$530 million with a deduction of the note of debt purchased by the different companies because [eliminated] net debt is US$436 million. We have also issued debt in the local capital market after 2010 fiscal year close of US$105 million note and denominated in pesos and in US dollars.

We invite to the investors and analysts to ask questions now if they want. Operator? We welcome everybody to make questions, if the operator is still there.

(Operator Instruction). We have a question from the line of Pedro Herrera.

Hi, gentlemen. Good morning. A quick question. You are now the controlling shareholder in BrasilAgro. There're significant discussions out there in the press, et cetera, that there will be restrictions on foreigners controlling, owning agricultural farms -- agricultural real estate in Brazil. How is this going to affect your strategy in Brazil?

Good morning, Pedro. We're really -- there has not been a change of control in BrasilAgro. If you look at the document of the Company to when it was IPOs and the situations of today. The only situation is one of the BrasilAgro shareholders left the founders group, but the other is still there. Although pursued increased the stake, the controlling group is -- exactly is -- two of the three are still there.

On the second part of the question, BrasilAgro is the company operations in Brazil that pay taxes in Brazil with the management and the employees and the whole operation located in the country. And with Brazilians among the shareholders and the controlling shareholders. So we don't identify any special difference to the situation where the starting point of the Company especially because those restrictions already [restricted] when the company was launched into the market.

Okay. Thank you.

(Operator Instructions). At this time there are no further questions.

We see that demand is very strong in the products we are producing and demand is showing a big growth year to year. Emergings are increasing in the population in the cities, increasing their diet, the big consumption and everything is moving all the products that Cresud and BrasilAgro are doing.

That demand is pushing us to develop as much as we can of the reserves that we have. We are -- there are some properties, but in general net buyers keeping that and developing in each of the countries we are. We are going to have a crop growth for next year. We are expanding agriculture in the whole region, in Brazil, in Argentina, in Bolivia, and in Paraguay.

We expect good prices for all of them and today we see that in Argentina the beef and the milk and the crops are strong and in the rest of the region the same. And the good climate conditions are good, too. So we expect a good year and plus the real estate strength because of Cresud owning this 57% of IRSA. So thank you for having this conversation and we are going to see you in our balance sheets of 2011. Thank you very much.

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