Cresud SACIF y A (CRESY) 2011 Q3 法說會逐字稿

Good morning, my name is Sara and I will be your conference operator today. At this time, I would like to welcome everyone to the Cresud Earnings Release Third Quarter Fiscal Year 2011 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). I would now like to turn the call over to Alejandro Elsztain, CEO, Gabriel Blasi, CFO and David Perednik, CAO.

Good morning, everybody. We are beginning our third quarter fiscal year 2011 conference call. Welcome everybody. We'll begin on page number two. The Company sales rose 23% to ARS1.4 billion and the operating results of the Company increased 23% to ARS513 million. The net income of the Company totaled ARS142 million compared to the ARS185 million, sorry, of last year and the difference was mainly due to the larger financial expenses resulting from the issuance of debt done in IRSA and lower income from our equity investees.

The operating results from the agribusiness segment amount to a profit of ARS110 million, comparing to ARS33 million of the last nine first months of previous year. In the case of the international agribusiness activities, that is Bolivia and Paraguay, not including up to now BrasilAgro, these have shown in this balance sheet a very good result because of the good performance of the harvest of the Bolivian farms and the Paraguayans are going to be reflected in the fourth balance sheet. In the case of the end of April of 2011, we were able to complete the payment of the purchase of BrasilAgro shares and Cresud achieved almost 36% of the shares on the Company. We move to next page and we introduce Mr. Gabriel Blasi.

Thanks, Alejandro. Good afternoon. As the information included in page three, we can see that we continue with a very strong environment for the soft commodities and this was very favorable in terms -- in offsetting the expected production reduction due to La Nina effect that it was felt in the region affecting on a marginal base most of the crops. The price effect more than compensated that between 10% to 20% decrease on the expected production.

Regarding the season forecast for the country according to the USDA circulars, on the wheat the expectancy for the 2009/2010 period was 30.5 million tons compared to the 15 million of the prior year. In the case of the corn 26 million tons for the period 2010/2011 compared to the prior one of 22 million of tons and in the case of the soybean, 53 million tons compared to the 49.5 for the period 2011/2012 estimated according to the USDA.

If we move to the next page, on the size we can see the increase on the areas under production that the Company has reflected in thousand of hectares including our subsidiary BrasilAgro.

On the upper graph of page four, we can see the ownership breakdown regarding the own part of the portfolio which is the biggest one doing also the least remember that we have only one single farm asset, very long term lease, 30 years, we're on option for another period, which is very similar to the acquisition and the -- sorry not the lease that under concession is that piece -- is that single farm and the lease -- and the lease to third parties that in the first quarter reach 52,000 hectares of land.

The ownership increase -- the ownership land affected to production was increased by 24% from 24,000 hectare to 116 and in total 22% of growth going for 147,000 hectares to 179,000 hectares.

Regarding about the companies, with some criteria the hectare devoted to production, BrasilAgro increased from 46,000 hectares to 58,000 hectares, 26% since fiscal year 2010 compared to the first quarter of 2011 and Cresud and all its operation increased from 101,000 hectares to 121,000 hectares. An increase of 20%. About the use of the land -- regarding the crop production, 55% of that was devoted to soybean, 4% to wheat, 23% to corn, and 5% to sugar cane on a consolidated basis, 13% to other type of crops and uses.

About the other business segment, the beef cattle and the milk production, moving to page five, we continue to have this very strong situation in terms of steel prices evolution in the country, 24% growth considering the evolution from this state to the last 12 months. This is a strongly benefitting the result of holdings of cattle, but at the same time, is putting significant pressure on the industry side of the business, meaning the feedlot and this lottery firm because of the very high price of the raw materials required for production of meat.

Regarding the production on the left down graph, we see that we have reduced the amount of cattle from 86,000 head to cattle to 74 during this period and at the same time, increasing the [delivery rate] by 20% for 4,300 tons to 5.1 thousand tons.

According to the milk price evolution on the right side of the graph, again, we find a very strong situations in terms of the price of the milk in pesos with an increase of 30% for the period looking the last 12 months, beginning the count on March and the milk production, we keep it pretty steady in terms of the average milking of a cow. We are milking 3000 cows on a daily basis, considering that Cresud has sold one of the operations and the milk production went down only 2% during the period.

So thank you very much, Gabriel. When we page -- we'll go to page number six. We can see the situation of harvest comparing to planted and we can see that in the case of soybeans at the 31 of March, just the 20% of soybeans was harvest, 31% of corn, and 100% of the wheat that is reflected on the balance sheet. What this page means is majority of the main crop are coming on the fourth quarter and the situation of the planted area is very good, we are expecting the very good year. So they are not concerned on production and neither at all in prices. So we expect a very strong quarter the fourth quarter on agriculture.

When we move to page seven, we can see this not only in Argentina that was explained in the last page, this is in Argentina what is harvest, it's the 31% comparing to the rest that it's going to be harvest -- majority [is up] on June. So some part will be through July but majority will be closed on June of this year. In the case of Bolivia its 54%. In the case of Brazil 9%, in the case of Paraguay 0%. So majority of agriculture that is main activity of Cresud will come fourth quarter.

This is evolution of tons in wheat that is close, we grew 41%. In sunflower that it's close onto, we grew 88%. In soybeans, just the beginning of harvest and we are reflecting a growth of tons of 44% from 18,000 tons last year to 26,000 at the 31 of March and in the case of corn 60% growth at the 31st of March, 63,000 tons compared to 40,000 tons.

If we move to page eight we can see that the gross profit reflecting in this season of the third quarter, we can see that the crops of this year are reflecting a gain of ARS33 million when last year were reflecting ARS2.2 million. In the case of crops in Bolivia and Paraguay from near ARS4 million, we grew to ARS9.8 million, 152%. In cattle from a negative number to near ARS13.4 million gained. And in dairy, from ARS3.4 million to ARS6.4 million, so 87%. So all the activities are reflecting big and strong recovery year to year.

If we move to page nine and we make an update of BrasilAgro, there was an appraisal of the farms that BrasilAgro bought and that appraisal done by Deloitte shows BRL816 million, 100%, 103% over the acquisition and the CapEx of those funds. This -- the last nine months -- the net sales of crops increased like 19% to BRL22 million. The sugarcane grew to a number of net sales of BRL21 million.

So beginning of sales of sugarcane very strong and the area under production that Gabriel will explain, we are achieving these 58,000 hectares. The large part of that will be the last quarter and what we have recently done is we've finished the acquisition of this 16.4% stake from Tarpon and the warrants they had and that was truly settled on April 11 and today Cresud's stake in BrasilAgro is 35.75%. I'll introduce Mr. David Perednik that will explain the income statement.

Good morning, the gross profit increased 16.1% from ARS621.5 million gain for the period 2010 to ARS721.4 million gain for nine months ended 31st of March 2011 and this was mainly due to an increase of ARS37 million in gross profit from our crop segments from ARS6.1 million gain in 2010 to ARS43.1 million gain in 2011. That was due mainly from our higher production volume, higher harvesting service and higher commodities prices during the third Q of 2011.

Difference also due to an increase of ARS14 million in gross profit from our beef cattle segment from ARS0.7 million lost in 2010 to ARS13.3 million gain in 2011. An increase of ARS3 millions gained in gross profit from our meat segment from ARS3.4 million gained in 2010 to ARS6.4 million gained in 2011 and also from ARS49.4 million gained in the gross profit from our sale of farm segment due to the sale of La Juanita farm with a result of ARS49.4 million gain.

It's important to mention that on December 2010, Cresud has increased its ownership in Cactus Argentina from 48% to 80%. Cresud's consolidated income statement therefore is including the consolidated results with Cactus and also with [regards to] the slaughter [refund] since January 1st, 2011 to March 31st, 2011. That's the news only for three month period.

The -- that three month period generated a negative impact of ARS2.9 million in gross profit from our slaughter and feed lot segment in the period that ended in 31st of March 2011. We had also a 0.5 decrease in the gross profit from our consolidated real estate business segment of IRSA from ARS605.2 million gain in 2010 to ARS602.3 million gained in 2011.

The operating income increased 23% from ARS416.6 million gain in 2010 to ARS512.6 million gained in 2011. This was mainly due to a significant increase of ARS77.2 million in the operating income from our agricultural business segment 2011 compared to ARS32.6 million gain for -- sorry, from ARS32.6 million gain in 2010 to ARS109.8 million gained in 2011.

Our financial results net were ARS91.6 million lost for the exercise 2010 compared to ARS234.4 million lost in the nine month period of 2011. That was mainly due to a higher loss of ARS28.1 million generated by the foreign exchange net due to the issuance of new negotiable notes in (inaudible) foreign currency in US dollars. Also to a higher loss of ARS68.2 million generated by financial interests also from this negotiable notes and also due to a higher loss of ARS50.1 million between the both period that are coming from the valuation -- less valuation of the Hersha options and also from the loss in the recognized for the sale of [Tar accounted] in the sale of Tarshop.

We expect from the results of our interest in related companies it has decreased 29.4% from ARS140.2 million gained in 2010 to ARS98.9 million gained in 2011. This was due to a decrease of ARS22.9 million gains between both periods as a result from interests in related companies from our real estate business of IRSA that there were mainly due to Banco Hipotecario and Hersha, a higher loss of ARS9 million between both period of our investment in Cactus Argentina that includes IRSA, our slaughtery farm a decrease of ARS8 million between both periods as a result of our investment in BrasilAgro and an increase of ARS1.3 million between both periods, due to our investment in Agro-Uranga S.A.

The income tax expense was ARS105.3 million loss in 2010 compared to ARS89.1 million loss in 2011 and our minority interest was ARS175.7 million loss in 2010 compared to ARS143.5 million lost in 2011, that this is mainly including our minority interest from our investment in IRSA. Therefore, our net income decreased ARS42.9 million from ARS184.7 million gain in 2010 compared to ARS141.8 million gain in the ninth month period ended 31st of March 2011. Gabriel, please.

Thank you very much, David. Going to next page, page 12. There you have the consolidated debt of all the companies, beginning with Cresud with total debt of $206 million on a consolidated base, you have to add the $190 million for Alto Palermo $410 million for IRSA, totalizing $808 million on a consolidated base, netting the cash concentrated position of $111 million, the debt repurchase on a consolidated base of $19 million, the Cresud net debt on the consolidated position is $677 million at all.

As the most relevant aspects of the debt book at Cresud level, we should mention that Cresud saw during this first nine month operation the IRSA 2017 notes that were held the portfolio for a principal of $33 [point] million of nominal value, receiving $34.1 million, accounting for principal and interest coupon.

At the same time, Cresud had paid dividend of ARS69 million and we have issued in the local capital market, three new series of notes for a total amount consideration of ARS255 million which has been the biggest issuance in local currency and longer tenor for the last years in Argentina. We -- with a maximum tenor of three years.

The increase of debt on the period of reconsideration compared with the same date last year is mainly related to the acquisition of the Tarpon interest in BrasilAgro, totalizing $75 million. Alejandro, I -- want -- you want to go to questions or make any type of consideration?

I will invite shareholders, investors to make questions now, please operator. Operator?

(Operator Instructions). You do have a question from the line of Pedro Richards.

Good afternoon, Alejandro, Gabriel, David. Thanks for the call. I have a few questions regarding the land transformation business of the Company. First, if you can share with us how many hectares you are planning to mechanize next year following the 17,000 hectares mechanized this year. Also, if you can give a guidance of average investment per hectare in land transformation and expected rate of return from this business. And finally, what is your opinion on the impact on Cresud's operations from the possible law limiting farmland acquisitions by foreigners in Argentina. Thanks.

Thank you for the question, related to the development of land, every country will keep that business working. In the case of Brazil, that development, I think it's something like 15,000 hectares to include -- increase the size of hectares and the crop. In the case of -- in the case of Paraguay, its arounding four, 5000 hectares. In the case of Argentina it's like five, 6000 hectares. So we are talking about 25, something like 25,000 hectares adding for next year the crop area.

That business has the first part of the graph. Its negative when you begin the transformation, the yields you achieve is not the highest, you need to mature, but you make two businesses. First, you are making the gain of the asset gross were much lower than when its developed and so when the yields are achieved after the third or fourth year the margins are very high. So their rates they are doing in that development are very high. Much higher than the average the Company's making -- the average of what Cresud did in the past it's like a 17 or 18 percentage per year between the operation and the development.

In the case of development it's much higher because comes on the cheaper number of the land and when the land, it's developed -- worth much more and we have many examples. There is an example of Paraguay. We bought in Paraguay for example for Casado we pay the first part, we bought for $250. The -- we began the development of that. Now we know that Casado sold to another part in another -- another company in Paraguay after seeing what we developed, the growth area, they sold for $500.

Okay.

So we bought for 250. We have an option for $350 for the last 50,000 hectares, we're going to pay in 2013 but they are selling now at $500. Why? Because just showing the development and when the land gets developed inside the province, for example the Anta area where many companies have -- like other listed companies have, it worth $3,000, $4,000 [the Anta] and so -- and that was development of land. So you see the development of land has a lot of gain from the origin of the price to the price when it's on the production.

Okay.

The investment of per hectare for that depends on country, depends on what you are doing, if just correcting this whole fertilizing or -- so you have from $200 to $1000 per hectare margin.

Okay.

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

Please make sure again the question, if there are some of more questions, if not we are going to close please. Can you repeat the question please?

(Operator Instructions). You do have a question from the line of Pedro Richards.

Okay, yes, my last question was regarding your opinion on the positive impact from the low proposal of the low limiting farmland acquisition by foreigners. What's your view on the impact on the Company's operations?

It's something that it's in newspapers, but it's not in the loss. It's something that's beginning to be discussed, probably there is a concern in South America about foreign countries investing on the region and we are not sure if its foreigners or foreign fans. So that is going to be ruled. So there are many comments about if it's just going to be for the investors of Mercosur, the same of the people abroad the Mercosur. So it's something that it's under discussion on the whole region, not in Argentina but in Brazil, in Uruguay.

So we're expecting the governments to rule about that. We expect to be not a concern. We are buying more land in the region and up to now we didn't have any concern. So we are expecting to the government to explain exactly what are the measures and the (inaudible) -- the scope of these measures that nobody up to now knows very well. So -- but we are not very concerned being the Company how it is, listed companies in Brazil and argentine, we are not concerned at all.

Thanks a lot.

Thank you very much gentlemen. We can talk about -- we explain about production, that production went very well in milk, in beef, but mainly in crops that will come the fourth quarter. We saw the prices recover. We see the assets and I explained the example of this Paraguay example about the assets that they are going up. The industrial is going down, this is suffering a little, the packing plant is one of the few business the Company's having losses. We expect through the reopening of the exports and their recovery of that but today is because of the high price of the raw material is making big losses.

But we are going to keep the development of new land in all the countries. We are increasing the price and the production of all the activities we are doing. So we are very optimistic on the past because we see that the developed, the regions underdevelopment -- not the developed. The regions under development are increasing in salaries, keep the growth of those countries and that growth is just translated in more beef, more grain, more proteins, more all of the products that Cresud is doing, so we are very optimistic on the future of whole south America region producing the food for the world. Thank you very much and have very good day.

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