Cresud SACIF y A (CRESY) 2011 Q2 法說會逐字稿

Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Cresud earnings release second quarter fiscal year 2012 conference call.

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) Today's conference call will be hosted by Alejandro Elsztain, CEO and Gabriel Blasi, CFO.

Mr. Elsztain, you may begin your conference.

Thank you very much. Good morning everybody. We begin the conversation in the page 2 with the highlights of the Company and we see that sales of the Company rose 22% to ARS956 million. The operating result increased 28% to ARS359 million and the net income went a little down to ARS107 million.

There is a very positive trend in crop, beef cattle and milk price and this is unusual that all of the products that Cresud produces altogether are higher this year.

The operating results from agribusiness segment amounted a profit of ARS65 million compared to a loss last year the first semester and you always know that the second semester of Cresud is more important because the main activity of the Company is agriculture and in agriculture [cause grains] that they come in the third and the fourth quarter.

This year the planted area is increasing 20% comparing to last year to 184,000 hectares when we include 100% of planted area of BrasilAgro. We increased this year the holdings in BrasilAgro to near 36% augmenting our exposure to regional portfolio with high potential for development and that is why we are doing more in Brazil, Bolivia and Paraguay.

The international agribusiness activities have shown improved results and we are begun the harvest in the case of Bolivia that it's a double-crop country, we harvest the winter and it was very positive and today we are very good in the plantation of summer and very good prices. So we expect the whole international having very good results.

This year we distributed to shareholders dividends for ARS69 million that they were paid in the month of January.

If we move to page 3, we can see the commodity price outlook and you see the soybeans increase 46% in soybeans, 67% in wheat, 83% in corn. So there is a very tight relation between supply and demand and the world is producing enough goods, but not enough for the growth of the emerging markets. Emerging are growing and emerging growing are increasing food and the food is not grown at that pace. So having that -- this relation of demand to supply is very tight in case of many of them, are below 5% that it's not usual and this is the worst case of the last years.

If we see the forecast and we see what is happening in Argentina and the country didn't recover in production of the main crops. Mainly in the soybeans, the forecast at the beginning of the year was higher, but we see that there was a drop because of the effect of a drought. The drought La Nina affected some main areas, the corn belt mainly, not affecting Cresud. Cresud has small percentage of its crop in that area, but the country is not growing comparing to the last year. And the world was needing that growth that Brazil is having, but not Argentina. So the demand is asking for more food and the countries are not giving. So that is the situation why the prices are so [high].

If we move to page 4, we can see our breakdown in each of the segments and we see how majority of our planted area is soybeans and corn. In Brazil, we are growing in sugarcane too. So we see this evolution of 22% higher and 44% higher compared to last year, Cresud and BrasilAgro. So we're planting much more in a very good year for crops.

And we saw -- and the good news for the breakdown of activities, up to now there is very small harvest, just wheat. But majority is coming for the third and the fourth, but the evolution of the crops of the Company are normal, so could be some reduction to the forecast was very small. And we would talk about 2% or 3% or 5% in worst-case, but not severe like the forecast of the whole country and that is because of the breakdown of areas that the Company is planting. And they are not affecting the areas that the Company is planting in none of the countries, not in Bolivia, not in Paraguay, not in Brazil and neither in Argentina.

If we go to page 5, we can see the steer price evolution and here too there is a very important increase of prices of the cattle. We are achieving near $2 a kilogram and in the price of the milk the same 38% increase comparing last year. And we are increasing our production in the case of beef. Having lower stocks, we reduced the stock at higher price, but we are increasing the production. The year is normal. We have no drought like the last two years that droughts were affecting beef production. It is not the case of this year.

In the case of milk neither. There will be some effect of the milk production in the next quarters because of the sale of La Juanita. We closed the dairy facilities on December. But we were milking 2,000 cows in La Juanita and 2,000 cows in El Tigre.

And we decided instead of selling all of the cows, we sent thousand of those cows to El Tigre. We achieved full capacity for that facility, the current sale of [82] positions, we are going to milk 3,000 cows on that farm. So this is going to increase its production and we are going to see the decrease of La Juanita. But not all, to half of that decrease. So we are going to reduce the stake of milk, but not the total of La Juanita.

The only thing that happened in this quarter was in the case of the steers, this system of -- this increase of price for the steer is making the packing plants to be on trouble. Our investment of Cactus Argentina where we have a packing plant. We had 48% of the shares of that packing plant and the feed lot. This segment began to suffer because that increase of prices and some lack of exports of the country. And the combination of that made big losses on that business.

And our partner, Tyson Foods, decided not to increase its capital for this company that was losing money every month. So having that situation, Cresud increased putting $4 million capitalization. We increased our stake and we went from 48% to 80%. So next quarter, from March, we are going to consolidate that business. That is going to add sales not positive now, they are going to show losses because that segment is losing.

But we expect that the beef industry that was Argentina leading this industry for 100 years up to 1980, and the last 30 years it is in trouble, won't disappear. So we decided to increase our stake and resist these days of storm. We expect this year not to be positive, but we think that this will reverse. And we are now controlling that company.

If we move to page 6, we can show about what is the development pace of Cresud. This is -- we are going to keep development of Anta, of Los Pozos transforming some cattle area to agriculture, La Esmeralda going 100% to agriculture, Cresca in Paraguay we are going when we receive the permits to keep growing like the last year of 6,000, trying to do the same next year.

So every area that we can increase because of the situation of lack of food we are going to do. This is in the case of Cresud. And BrasilAgro, our investment in Brazil, is exactly doing that. We are thinking on doing a big development for next year.

We -- in the case of BrasilAgro, you remember we bought 175,000 hectares and we are near half developed. But there is another half that needs to be developed and we are doing it ever year. And so we are in process of doing that too in the case of BrasilAgro.

We recently did an appraisal of our portfolio BrasilAgro and what we bought and we invest in CapEx that it was near BRL400 million, was appraised for BRL816 million, this is done by Deloitte. And we are seeing that we were very happy of what we did, the transformation of the land and some [sold] sales. We did one, and we are expecting to do some more else in the market, are showing that we were actively buying and transforming and developing good quality of land and achieving scale. We were actively planting sugarcane and now we are selling a lot of sugarcane and we sold the first semester.

We have achieved 58,000 hectares of summer planted area and we have the first EBITDA positive this semester. Again, having the second semester, the more important semester because corn and soybean is coming. So we -- that's the reason why we increased our stake in BrasilAgro. We expected that and we went to near 36% of our Company and we are still in the process of paying that. We paid majority of that.

We paid majority of that in the last quarter. The last payment will be in the next quarter -- no, in April. April of this year, we have to pay BRL52 million more. And this is -- the price we agreed was BRL12.5 per share not including warrant. So we think the Company potential of being the largest of the country and we showed that we are doing exactly what we did in the business plan. We are surpassing that business plan. We are developing faster than we expected. And we are producing with high margins, faster than we expected. We are not expecting to be EBITDA positive this year, but we are achieving.

There was one sale again. We are active buyers. But when we think that there is no more room for appreciation, we sell. This is the case of La Juanita, the 4,300 hectares we sold. We bought for near ARS4 million and we sold for ARS18 million. We made a profit of near ARS50 million, ARS228 million over book value. This is 1% of Cresud's own portfolio in Argentina and Bolivia and Paraguay again developing, increasing value, achieving EBITDA, and selling later.

We moved the cattle that I explained before to El Tigre to lose not all of the milk we are producing in the farm and we have -- probably there is more efficient plant of the country having this 3,000 cows in a milking facility, 100% occupied.

So I introduce Gabriel Blasi to talk about our balance sheet.

Thank you, Alejandro. As you might see from the income statement on page 9, the most relevant in that the gross profit of the Company. We had really shown the results of a bigger agricultural activity. We had increase -- a significant increase in sales of crops of almost 70% and with that our gross profit increased to ARS85 million compared to the ARS7 million of last year.

Concurrently, this shows an increase in the operating income of ARS65 million compared to minus ARS5 million of the prior year. And with the real estate segment aligned with ARS10 million higher than last year and impacting Cresud's balance sheet.

Going to the consolidated operating income, we see there the reflect of these significant increase in agriculture results, [30%] ARS80 million of increase reaching almost ARS360 million of operating income for the period.

Regarding the financial results, we see there an increase of [ARS121] million of financial charge. This is mainly related to the increase in debt because of the new investment that we have done, being BrasilAgro the most significant. Result of related companies, there we see a ARS57 million income which has net ARS12 million which is the impact of what Alejandro has described regarding the new capitalization of the slaughter plant that we currently have together with Tyson Foods in Argentina.

And after the deductions, the Company reached a net income of ARS107 million for the period. We move to next page on page 10. We see the biggest development in terms of debt is the increase at user level with the appearance of 2020 maturing note of $150 million of new debt.

At present, Cresud has filed in the local market a prospectus for the issuance of a local bond which is going to be launched probably during the next 30 days. That's going to be a local issuance and it is going to replace short-term debt (inaudible) debt in the range of $76 million. Because of a seasonal issue of the local capital market, we are not able to do that during January or February.

Regarding relevant operations, we have sold IRSA 2017 bonds that we held in our portfolio accounting a principal of $33 million receiving $34 million for that principal. IRSA has paid dividends which I have already mentioned recovering this slow, these many years of not being able of doing so. That means that Cresud received ARS50.7 million for all that consideration. And Cresud, at the same time, paid dividends of ARS69 million during the period.

Thank you very much.

We invite investors to make questions now.

(Operator Instructions) Pedro Herrera.

A quick question regarding your land price scenario in both Brazil and Argentina. Have you seen -- what is the trend in terms of pricing to buy land in Argentina? How are you seeing it under the current scenario of high grain prices and positive fundamentals? How are you seeing land prices develop both in Brazil and Argentina from your point of view?

Pedro, you know that land is related to the price of the commodities, in general has an inertia. And the trend of commodity prices is increasing it -- into it. Few are trying to sell their properties in general. In the case of Argentina, in general, they try not to sell. And we have to look for opportunities, but they are not so easy. Brazil has more land -- more areas to develop. And in areas to develop, it's easier to find but it is (inaudible) the land value because of this situation. And when you see that the sacks of the bag of soybeans or the corn price [today] or for sugar increases the prices of the land.

In the case of Argentina, the taxes on exports have a big upside for the land value because they are calculating that one day they can disappear. In the case of Brazil, sometimes they are thinking of devaluation coming to the country. So it's true that it's the most good asset when the price of the food goes up.

But we are still finding opportunities. We are closing deals in many countries. So you are going to see in the next quarter more assets on the balance sheet of our Company.

Okay. Thank you.

Pedro Richards.

My question was regarding slide number 6 on land development. If you could give any guidance and estimated range of the cost per hectare needed to mechanize the land in Salta and Paraguay mainly. Thanks.

Cost of transforming land that goes from cattle to grain, it's surrounding $500. Land that goes directly to grain like -- that's the case of Los Pozos transforming so which from cattle to grain.

In the case of Anta going from close to directly to grain is a little more expensive $700 or $800 in Argentina, cheaper in case of Paraguay. Paraguay, Cresca project -- price we closed was $535 per hectare. So that is the number of development of the land.

In the case of Brazil, transformation is cheaper. The problem is the correction of the soil that is more expensive and the fertilization of the soil. But the transformation of the [savannahs] is cheaper than in Argentina.

Excellent. Thanks.

Pedro Herrera.

Do you -- you had an independent land valuation in your BrasilAgro assets. Will you consider doing something similar in Argentina?

We do not every year. We try to do sometimes. Now we are not in the process of doing that, but maybe. In the case of BrasilAgro, we are thinking and the Company providing [role] and that's the case why we did that appraisal.

I had -- the comment that I said -- with trying to tell you in the past question, the former question was the effect of the revaluation of the commodities affects more the developed than the undeveloped because the undeveloped needs more money to develop. So that's why we are able to buy and the more developed regions are tougher. So probably to buy in the coal belt of Argentina will be much tougher (inaudible) than going to Bolivia, Paraguay or Brazil, so you are making a (inaudible).

Okay, thank you.

Pedro Richards.

Yes, you talked about further acquisitions in the rest of the regions coming in the next months. Do you expect to sell additional farmland from your portfolio in Argentina?

As always we can -- the day we think that there is no more room and we are achieving that feeling and the return is not enough for us, probably we are going to move. Maybe that the case, we are not hurry. But maybe one property that is near the ceiling of production and margin maybe, yes. But again to sell 1% and buy 10% more. And we are expecting to grow more than to sell.

Great. Thanks.

(Operator Instructions)

There are no more questions. We expect a good harvest in good price in the food portfolio keeping transformation and having food on the table. So we will see you next quarter and have a very good day.

Thank you very much.

This does conclude today's conference call. Thank you for participating. You may now disconnect.