Cresud SACIF y A (CRESY) 2011 Q1 法說會逐字稿

Good morning. My name is Ginger, 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 2011 conference call hosted by Alejandro Elsztain, CEO; David Perednik, CAO; and Gabriel Blasi, CFO.

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 your conference.

Good morning, everybody. We are beginning our first quarter of fiscal year 2011. And in page 2, we can see that the sales of the Company, of Cresud, increased by 42%, to ARS470 million. The operating income rose 100% by ARS94 million to ARS184 million.

The prices of all the segments have recovered and increased a lot impacting on the margins of our agribusiness segments, and we are seeing a lot of demand coming mainly from Asia that is pushing, and we are seeing very strong demand and the offer of the region is being exported every week strongly.

One cell of one farm, a small farm of 4,000 hectares, that was sold in $18 million got the gain of ARS49 million.

In the net income, we had a small growth, near ARS52 million comparing to the ARS62 million the last year mainly due to lower income coming from our investment in IRSA, and in the case of IRSA, driven mainly because of the lower impact of Banco Hipotecario.

The planted hectares of the country, of the region of Argentina, Brazil, Bolivia, and Paraguay, this year increased 24%. We are reaching 189,000 hectares in the whole region. This included 100% of the portfolio of BrasilAgro. And after the end of this quarter, Cresud increased the holding of BrasilAgro achieving almost 36%, expanding our exposure to regional portfolio and mainly to Brazil through BrasilAgro.

If we move to page 3, we can see that in this balance sheet from the June of this year, there was a very important increase. And here we see soybeans and corn. But we are going to see, in every product that Cresud produces, that there was 58% increase in corn and 37% increase in soybean. This is because of there were some reductions in the US and still very conservative numbers in South America. And having this consideration, there was a very big increase in prices.

When we see stock consumption, the numbers are very tight. So these prices are not considering what we saw in 2008. These are smaller than 2008, but the stock consumption numbers are much more tight. And these are higher in 20 years. The situation is very tight, and considering that South America will have favored production for next campaign, but some reduction in the United States numbers.

This is very good to see when we see the evolution of our fourth page. We see the breakdown of agriculture, and we can see that Cresud plus BrasilAgro is growing 29%. In a compound growth, we are achieving 189,000 hectares. Majority is in own land, 124,000 hectares; 52,000 are leasing, short-term leasing, in Argentina mainly with only in the rest of the region and 13,000 are the long-term lease that we have in Argentina, the 50 years lease that Cresud owns Salta.

So combined all of this, we are achieving 189,000 hectares of crops in the region. From that we can move to next page, we can see that the same happens in the other big important products of Argentina. In beef and in milk, we can see that there is a very important increase in prices. On this year, we see the evolution is 136%.

We see in milk, it's 44% in prices of the milk, and we see that our production is not growing in these two. In the case of the beef, we were selling some of our products because the price recovery was so important we are selling some of our stock and we are now surpassing prices of the states in some cases.

So we have decided to sell part of our big stock. And that's the reason we are passing from near 85,000 to near 70,000 heads of cattle in Argentina. And in the milk, the same. We sold one of our milking facilities. We are reducing some of the milk production and we are -- now we are going to show that the milk is going to explain the last quarter.

We are staying with the milk production up to December, and in January we are reducing from two farms of milking production to one. But we are increasing -- we are putting full capacity, we are passing from 2,000 heads in the El Tigre farm to 3,000 heads. We are sending one part of the cattle that was in La Juanita farm to El Tigre, and will be full operation.

So this will be more than two [works] per day. It's going to be fulfilled 100% of the capacity of that facility in the El Tigre farm.

So in every product of Argentina, we have very good prices. And up to now the conditions of climate are normal. We are sowing perfectly well, the corn, and the soybean is going well too. So I would say that production side, everything is going well.

If we move to page number 6, we can see the confirmation of the land. There was a big moment to the -- from cattle to grain. And using like we said before, prices of cattle are very high, so we can sell some of the beef. And transforming to milk, that have more margin in long-term. This is the evolution of La Esmeralda farm.

From near 50% last year, its going to -- majority go into agriculture, and will go next year 100% of agriculture. We can see evolution of area for grades in Los Pozos, 3,000 hectares go in next year to agriculture, 5,000 hectares in ANTA, 6,000 hectares in Paraguay.

So a big part of the land reserve go into production for agriculture during this year. The same in Brazil, we can see in page number seven, how BrasilAgro, moving from 46,000 hectares, is going to 66,000 hectares of agriculture. Majority go into grain; some go into sugarcane, and some go into pastures.

So a big transformation, something that is not appearing on our balance sheet, but a lot of hectares entering from no production to production or from lower production to higher production.

So this is kind of movements that the Company is intended to do at a higher pace in the whole region. I introduce Gabriel Blasi to talk about BrasilAgro.

As of October 20, we actually [start] purchase agreement that we have celebrated with Tarpon on April 2010. We have already paid BRL25,236,224, and we are committed to pay BRL105,206,000 as of April 27, 2011. Once we complete that payment, Cresud, we held 35.75% of BrasilAgro equity. Although the shares have been already delivered from Tarpon, but they are pledged as guarantee for the transactions because the ratio of price for the transactions is BRL12.50 per share.

If we move to page 9, we can talk about the sale of the milk product farm, La Juanita in Trenque Lauquen. This was purchased in less than $1,000 per hectare and was sold in $4,500 per hectares with no -- the animals were not included on that price, that we are making an auction on December of this year. And some of the cash will go into El Tigre to fulfill the capacity of that cow sale for 82 cows in a second.

So we decided to sell this property. The gain was an upbeat. The yields that this farm today was achieving was like 4% and we understood the increase of yielding in hectares was the best year of production, and today there is not a flooding. But in the past, we had this farm, half of that farm, under flooding.

Today, this is in a very better situation, and we showed a perfect farm that is 100% on production. So we said this is not good, and we went selling this 4,000 hectares and we received $18 million, majority of that was received. To start, $1 million we're going to receive on January of this year. And we bought, instead of that, our participation in BrasilAgro that we think that the potential is much, much higher than this farm itself.

And good morning, this is David Perednik. With respect to the Cresud's income statement of the first quarter of 2011. Cresud is consolidating the balance sheet of IRSA. And so these figures are consolidated.

We have a gross profit increase by 21.1% from ARS151.7 million gain to ARS259.4 million gain as of September 2010, and these increase was mainly due to an increase in the gross profit from our crop segment for ARS1.2 million loss last year to ARS6.9 million this year, 2010, a 33.4% decrease in the growth loss from our beef/cattle segment from ARS4.7 million lost year to ARS3.1 million lost this year, an increase of ARS2.6 million gain in gross profit from our mixed segment from ARS0.1 million loss to ARS2.5 million gain in 2010.

A 19.9% increase in the gross profit from our other segment, from ARS2.7 million gains to ARS3.3 million gain, mainly due to higher results generated by our broker's activities of our subsidiary futurosyopciones.com. And we have also ARS49.4 million gain, as I had already mentioned in the gross profit for sale of the farm segment in 2010 due to the sale of La Juanita.

And we also have a 29.3% increase in the gross profit from our consolidated real estate business segment of IRSA from ARS154.9 million gain to ARS200.4 million in 2010.

The operating income increased 103.4%, from ARS90.3 million gain to ARS183.6 million gain in 2010 mainly due to a significant increase of ARS62.3 million in the gross profit of our agricultural based segment during the first quarter of 2011 from ARS3.3 million loss to ARS9.1 million gain. As we already said, a 9.3% increase in the consolidated business of EBITDA.

Also we had a 22.9% increase in results from valuation of assets at net realizable value, from ARS10.9 million to ARS13.4 million gain, and a significant increase in holding results, from ARS2.3 million gain to ARS11.9 million gain in 2010.

With respect to the financial results, our financial result, the net financial result were ARS42.4 million loss in 2009, compared to ARS74.3 million loss in 2010, and these can been playing by different means. A higher loss of ARS11.7 million generated by financial, net financial interest between both periods due to higher debt, a low cost of ARS2.6 million generated by foreign exchange between both periods, and also a loss of ARS20.3 million due to impairment, not sale, of 80% of outside interest in Tarshop that they were compensated by operating results in Alto Palermo in IRSA.

With respect to the result from interest in related company, the result from equity investment decreased 83.7% from ARS93.6 million gained in 2009 to ARS15.2 million gained in 2010, and this was mainly due to a decrease of ARS75.5 million gain in Banco Hipotecario stake that IRSA is having in the real estate business.

Also Cresud had a higher loss of ARS2.2 million between both periods in our investment in [Katsu] and [Yasta]. This result -- the result of the investment was ARS0.5 million loss in 2009 compared to ARS2.7 million loss in 2010.

We had the decrease, slight decrease in our result of our investment in BrasilAgro from ARS0.3 million to ARS0.6 million gain in 2010, an increase of ARS0.8 million gained between both period as a result of our investment in [Udanga]. Then our income tax expense was ARS15.4 million loss in 2009 compared to ARS23.9 million loss in 2010, and the net of the result of the above, the net income was ARS51.8 million gained in 2010 compared to ARS61.8 million in 2009, the first quarter.

Going to the Company consolidated debt, on page 11, as you can see there, the consolidated standard on debt has not been modified significantly in terms of business structure. We have over $40 million, which are directly related to the agriculture production financing, which is represented by pre-exports financing, two local small notes relating in the Argentine capital market and short-term loans from our banks in Argentina.

The rest of the debt book is related to the consolidation of IRSA Alto Palermo financial statement, mainly represented by the bond issued outside Argentina, 217 -- 2017, sorry, 220 notes.

Total, I think for $540 million of consolidated net debt, at Cresud level it's $146 million. And with the deduction of the corresponding bonds that have been acquired by the Company, the total net debt consolidated is $149 million. It's important to address that if a board of directors has called a shareholder meeting to allocate up to ARS69 million as payment of a dividend in cash. The source of financing for this dividend is mainly coming from a similar amount that is the amount of dividend coming from mutual, Cresud is trying to receive because of its holding.

Operator, we now can invite investors to make questions.

(Operator Instructions) We'll pause for just a moment to compel the q-and-a roster.

(Operator instructions) And your first question from the line of [Raghu Gareem], private investor.

Yes, good morning, sir. The reason I am calling is I wish to know what's the sale value of our land holdings Cresud owns as of today. Under the current prices, I am having difficulty estimating the value of the Company. I hear from different sources, the Company is very undervalued, but I'm having difficulty to estimate. Can you tell me what's the fair value of our land holdings Cresud wants as of today? Thank you.

Well, regarding -- we do not make a public statement on the real market -- on the market price of Cresud land. The reason it does, because of the some volatility started. Yes, like for instance the foreign exchange volatility, we don't want to be misleading to that extent.

Typically, what the market does, and there are several research you can check for that, the approach for the evaluation of the Company, trying to establish its [ID], which is more appropriate as a evaluation tool, does probably discounted cash flow because of the type of activity that we take into consideration is a thing of the past.

You can buy at market (inaudible), which roughly represent half of Cresud's assets. And regarding the farm lands, there are several third-party agencies in Argentina that might provide, I will say, very good proxy evaluations to the type of farms that the Company has which are completely disclosed in terms of the region and the amount in the 20 years of the Company.

And on top of that, you have the foreign investor, which is represented by the share stake in BrasilAgro, a very good proceed, the price that we paid for the last acquisition. That's a very good approach towards what we consider evaluation of the Company. And in the case of our international agriculture operations, as the investment has been done, a very short time ago, you might consider that as a fair evaluation, and that is disclosed in our 20 years.

Yes, thank you. I will ask one more quick question, and then I will join back in the queue. What are your plans to increase number of acres per crop land going forward? Thank you.

In the case of every country, it's different. You saw that in Argentina, we have two lands, big land reserves in the north that we are going to keep continue transforming at the pace, I would say, like, 10,000 hectares per year. No more than that.

In the case of Paraguay, we are thinking 6,000, 7,000 hectares per year. In the case of BrasilAgro, the pace is like 20,000 hectares per year. So this is more or less for each country. For the existing land maybe we can buy more and develop more.

Thank you.

And at this time we are showing no further questions. And --

If there are no further questions, we would like to close this talking about our brokerage firm, Futuros y Opciones. It's achieving very big size. We are surpassing the million tons of originating of grains. So it's becoming one of the largest trading companies of the country.

Cresud, with the combination of big scale, this 189,000 hectares of production coming to next year with very high prices having scaled in all the segments, in grains, in milk, in meat, in sugarcane, and good prices in all, having the real assets in a very uncertain time, time of inflation of the world, Asia coming to the region, beginning to buy land and output, it seem to have a very good portfolio and we expect to keep that for the next quarter. Thank you very much, and have a very good day. Bye-bye.

Ladies and gentlemen, this does conclude today's conference call. At this time, you may now disconnect.