Cresud SACIF y A (CRESY) 2012 Q1 法說會逐字稿

Good morning, everyone, and welcome to Cresud's first quarter 2012 results conference call. Today's live webcast, both audio and slideshow, may be accessed through the Company's Investor Relations website at www.cresud.com.ar\ir by clicking on the banner "conference call." The following presentation and earning release issued last week are also available to download on the Company's website.

After management's remarks, there will be a question-and-answer session for analysts and investors. At that time further instructions will be given. (Operator instructions).

Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed notes in the Company's earnings release regarding forward-looking statements.

I would now like to turn the call over to Mr. Alejandro Elsztain, Second Vice President of Cresud. Please go ahead, sir.

Good morning, everybody. We're beginning the conference call of the first quarter 2012. If we move to page number 2, we can see the highlights of the quarter. We have been observing good soil moisture conditions and that is very important for the whole portfolio. We are surpassing the 200,000 hectares of agriculture, and agriculture began with very good moisture almost everywhere.

Production income increased thanks to the consolidation of our subsidiary BrasilAgro, the late harvesting of corn crops in Argentine farms and higher beef cattle production. The operating income totaled ARS191 million, 4.4% increase to the third quarter of last year.

The net income amounting to ARS1 million comparing to 52 -- almost ARS52 million last year, and that was caused mainly by higher net financial losses and loss from other holding results, mostly due to the revaluation at market values of certain assets held by our subsidiary IRSA.

On September 21st we acquired under a private transaction an additional 5% interest with an investment of near ARS30 million, we increased our interest to 63.2% of IRSA. In October of -- 31st of October the General Meeting resolved to pay a cash dividend of ARS63.8 million and that -- with a dividend yield of 2.62%-- and that will be during -- the payment of that will be during November of this year.

If we move to page 3, we can see a picture of the moisture, and almost all of the Argentine core belt is in good shape. And the points are showing our own and leased farms, so we are in a very good situation of -- any deficits not anywhere -- so we're planting very on time. That is very important when you begin the plantation, because the yields that you can achieve is much higher than you do exactly as you plant.

If we move to page 4, we can see the evolution of Chicago Board of Trade prices with the evolution for soybeans, cotton and wheat. And what we can focus about the same situation that this market is in the fundamentals having. The market is following some of the volatility in the S&P and other volatility of the market, but the fundamentals are still very same and the demands of food is still same. And prices dropped some, but not a lot. The top of this year was at levels of $14 and we keep observing today its trading at levels of $12. But the fundamentals are still same for the food demand for the world, mainly to Asia.

This is the forecast of Argentina in the main products, wheat, corn and soybeans. And the USDA is forecasting a very thin year in corn, March production of Argentina for corn, and something comparable in soybean of last year, some rebound, better, 52 million tons to the 49 million tons of the last year that closed Argentina.

If we move to page 5, we can see the area under crop production. This is crop, just agriculture, not sheep, not beef, not milk. And here we see the evolution of the Company from the 2008 year, 82,000 hectares, we grew to 204,000 hectares next year. This is a combination of growth of new countries and the growth in each country.

In the first part, it's country breakdown, biggest still Argentina with 110,000 hectares. Second indeed 61,000 hectares of Brazil, 23,000 hectares of Bolivia and 9,000 hectares of Paraguay.

When we see in ownership, we can see that majority of that is own or long-term concession, that is the project of [Sarca], that is a 50-years concession. So 163,000 hectares, majority of the portfolio in almost own land, that is 80%, and 20% in leased land. We are leasing mainly in Argentina and we began to lease land in Brazil. But leasing land it's a small percentage of our strategy.

In the crop breakdown in hectares, nearly half of the hectares are soybean, 21% are corn, 6% are wheat, 3% sunflower, 4% sugarcane and 8% are others. The last 9% is farm that we own or we have the long-term lease, and we are leasing to third-parties to have a fixed rent to compare to our own production. Sometimes when we found that the third-parties are paying us a comparable or bigger price than producing ourselves, we are leasing to third-parties to reduce risk and to increase the minimum fixed rent of the Company.

If you move to next page, to page number 6, we can talk about the area and the development of the Company. We are forecasting -- we are projecting to transform 6,000 hectares in Paraguay, almost 11,000 hectares in Argentina and 20,000 hectares in Brazil. This is developing land from bare to agriculture or for cattle. So remember that big portion of our strategy is development of land that was not under production, beginning the production, increasing from cattle to agriculture or to sugarcane.

And that is a big portion of the change that is not reflected in our balance sheet. When we reflect it just -- it happens -- we are investing on that land and the portfolio is growing, and we see a lot of examples of growth of value of the portfolio of Cresud was done because of that transformation of the land.

If we move to page 7, we are showing this page because of analysts asking us the hedging position, and mainly for soybean that is the biggest product that we are hedging because the future market is very available.

In the case of Argentina -- this is the hedge for Cresud Argentina -- we hedged 67% of the volume of the Company for next year, which 33% is still available. The sales price that we hedged is at the levels of $313 per ton. This is for Argentina's crop production, not including BrasilAgro and other companies of rest of LATAM, where the market price today is $295. So we were able to hedge in good times and we are expected to the sell the rest in the near future.

And if we move to page 8, I'm talking about beef cattle and milk production. In the left we see the beef. Here we see the evolution of steer prices, and this increase we were suffering in the last 2 years; 158% increase 2-years period. The last part of the year that's an 11% growth in price in peso sense.

And the beef production that we achieved, we have almost the same stock of last year, 73,000 heads. We had a very big increase in production; we went from 0.9 tons to 1.3 tons in the first quarter. The first quarter is not the biggest, it's probably the smallest. So an increase of production for the quarter was 37%. And so, we are confirming as accurately as we can to keep the best relation of these two grain of the story. So we are stocking as much cattle as we can. The beef is very good margin, and we are making very good profit on the beef industry.

Not in the packing plant -- the packing plant the Company owns is suffering like the whole industry of packing plants in the country. The situation itself is the negative numbers announced. So restriction on exports and some sales in domestic market without very good prices is making small sales per month. We are slaughtering like 3,000 or 4,000 heads, less than half of the capacity of the plants, and stemming back like the rest of the industry is stemming.

In the case of milk, we see here again a recovery in price, 14% comparing last year, and we have decided to reduce some of our stock. The price of the cows was very high. We decided to sell some of -- where we sold the La Juanita farm. We sold big portion of the production, and we moved to the farm of El Tigre some of that stock. But we decided because of very good price of the cow to sell part of that stock with very good price. We reduced our stock. And today, milking less cows -- now we are milking 2,000 cows instead of last year we were milking 2,800 cows.

But increasing the yield because we sold the worst part of the portfolio of the stock and now we are achieving 22 liters instead of 19 liters of last year. So we are reducing production but increasing the margin and increasing the agricultural area for that farm. So we decided to make more quality and more increasing the cows instead of keeping all of the cows. So we are increasing margin of the milking industry of that farm, of El Tigre farm. So the milk industry is spending good time and good margins too.

If you move to page 9, I will talk about the real estate part of the play of Cresud and BrasilAgro. Cresud this year didn't sell in the first quarter any farm. The only farm of the portfolio that was sold in the third quarter was in Brazil, in our subsidiary BrasilAgro. The farm called San Pedro that was acquired in September 2006, that is 2,000 hectares, from those 1,700 hectares were under production. But on agriculture, we didn't achieve the sugarcane production so we're still in agriculture. And we sold. The gain we did was very big. We bought for almost BRL10 million, and the CapEx we invested was BRL0.4 million. The sale price was 34,800 tons of soybeans -- yes, sorry.

Considering the price as the date of transaction was agreed at a price of BRL26 million, comparing to almost the BRL10 million of acquisition. The gain over the sale of our acquisition was 153%. So like always, when we think we stand to sell and buy in other area, that's what we did in San Pedro in Brazil.

Now on the corporate side, during the period we shall increase our stake in IRSA, which is 63.22% of total stake. Mainly through a private transaction we purchased more than 2,960,302 ADRs, roundly 5.1% of the total interest of the Company at an agreed price of $30.1 million. For the first time in the history of Brazil we tapped international debt capital markets, with the issuance of a note of $60 million at a fixed rate of 7.5% that was placed in the month September with a single bullet payment and maturing in 2014. We reached a B rating by Fitch, which is affected by the ceiling of the sovereign.

Regarding dividends, our General Shareholder Meeting by the end of October resolved to pay a cash dividend of ARS63.8 million, ARS0.138 per share, a dividend yield of 2.62%. And in the Shareholders Meeting of IRSA in the same day, the Company resolved to pay a cash dividend of ARS211 million, ARS0.365 per share, which means that IRSA will pay a dividend yield of 8.6%, and of course, Cresud will be benefiter of that.

With respect to the income second -- of first quarter of 2012, we are consolidating since the 1st of July our financial statements we've built of BrasilAgro for the three-month period. Last year the results of BrasilAgro were shown under the item gains from related companies. So therefore, these factors are affecting the comparability of our income statement.

The gross profit of Cresud increased 11.6% from ARS259.4 million gain in 2010 to ARS289.5 million gain in the period closed, that's September 30th, 2011. It was mainly due to an increase of ARS29.1 in gross profit from our crop segment, from ARS6.9 million gain in 2010 to ARS36 million gain in 2011. We had also an increase of ARS2.8 million in the gross profit from our beef cattle segment from ARS3.1 million loss in 2010 to ARS0.3 million loss in 2011.

A decrease of ARS1.9 million in the gross profit from our milk segment from ARS2.5 million gain in 2010 to ARS0.06 million gain in 2011, and this was mainly due to low production from the sale of La Juanita farm.

We had also an increase of ARS4.3 million in the gross profit from our other segments from ARS3.3 million gain in 2010 to ARS7.6 million gain in 2011, mainly due to our brokerage activities of our subsidiary [Centro Commericale].

And we had a decrease of ARS16.1 million in the gross profit from our sale of farm segment from ARS39.4 million gain in 2010 to ARS34.3 million gain in 2011, and this was due to the sale of San Pedro in BrasilAgro, as Alejandro has already explained. So we had a result of ARS34.3 million gained and last -- in 2011.

And last year, 2010, we had the sale of La Juanita, that gain -- that resulted an ARS9.4 million gain. We have a 5.5% increase in the gross profit from our consolidated real estate business segment of IRSA, from ARS224 million gain in 2010 to ARS211.5 million gain in 2011.

The operating income increased 4.4% from ARS183 million in last -- in 2010 compared to ARS191.7 million in 2011. We had a decrease of ARS14.1 million of the operating income from our agriculture segment from ARS48.9 million in 2010 to ARS34.8 million in 2011.

We had an increase of ARS16.3 million in our selling expenses from ARS11.5 million in 2010 to ARS27.8 million in 2011. And the administrative expenses also had an increase of ARS21.5 million from ARS10.6 million to ARS32.1 million in 2011. And these comparisons are not quite showing the picture of our Company because we are -- we have changed the position of the financial statements due to the consolidation of both BrasilAgro and Cactus (inaudible) our Feed Lot Slaughter activities.

We have, in the financial results, a difference of ARS92.9 million loss. We have ARS74.3 million loss in 2010 compared to ARS167.3 million loss in 2011, and this was due -- this difference was due to the-- we had more financial charges, we had also different exchange from our debt and other financial activities coming from IRSA.

The result from interest in related companies decreased 40% from ARS15.2 million gain in 2010 to ARS9.1 million in 2011, which was mainly due to a decrease from Banco Hipotecario coming from IRSA of ARS10 million. And we had the income tax of ARS23.9 million loss in 2010 compared to ARS23.8 million in 2011.

Our minority interest was ARS47.3 million loss in 2010 compared to ARS16.4 million loss in 2011. And our net income after result of the loss mentioned decreased ARS50.8 million, from ARS51.8 million gain in 2010 compared to ARS1 million gain in 2011.

Regarding the debt structure, on page 12, there has not been significant development at IRSA and [Alto Palermo] level in terms of the debt. Exclusively going to Cresud, as you can see from the right graph, we have rescheduled the 2010 maturities into a more sensible schedule, with the issuance of the bond that we established in September maturing in 2014 of $60 million.

The rate of the debt is mainly represented by a capital market security up to a term of three years and with export pre-financing and a short-term debt of ARS48 million in the local market. The total consolidated net debt for the Group at present is $715 million, after tax considerations.

So, operator, we have the questions now. Operator?

(Operator Instructions). Pedro Richards, Raymond James.

My first question was regarding the possible law limiting foreign ownership of farmland in Argentina, if there has been any recent news on the bill that is in the Congress?

No, nothing new. The government said it was thinking of doing before the change of the government, December of this year. But nothing happened. So it's still under discussion, but nothing new to talk.

Okay. And the 37,000 hectares that you are planning to mechanize over next year, are you planning -- will those 37,000 hectares be completed, fully mechanized for the 2012 to 2013 season?

For the '12-'13, yes. Not to the '11-'12. So it's not included in [212,000] hectares that were in the plan last year. But yes, it will be I think 100% of that included next year.

Okay. And could you give a guidance of transformation cost on a pro-rata basis for transforming those sectors from minor reserves to cattle raising or to agricultural production in any of those countries; Paraguay, Argentina, Brazil?

Depending on the dollar exchange rate, but in Argentina it's a level of $900 or something like that. In Paraguay it's a level of $600 or something like that. In Brazil it's lower than that. It's more a correlation of the soil. I think it's on the level of $660 or $700, no more than that.

But what has changed the value for the land is huge. You know that price of land from zero when it was not producing and today (inaudible) is not taken note of but the federal farms have begin to stabilize. They are increasing the value for the farm and you saw many operators' plans.

And to give you an idea, operators about -- I don't know -- Los Pozos talk about for a cattle area of more than $2,000 for agricultural areas, more than $3,000 -- what's it -- at book value of 10 or 11 -- possibly at 7. A growth -- today you have (inaudible - microphone inaccessible) of the growth part of -- so the change of value is very, very dramatic. Book value of the farms of Cresud are very small comparing to operators of their farms.

Okay, thanks. And my final question is regarding the beginning of the current season. How have the main crops developed so far since the planting and what is your outlook for the coming months?

Planting is going very well. I told you just wheat was enough good, not very good. But for us wheat is not the important crop. The main crops for the Company in price and in size are soybean, sugarcane and corn. And the conditions of the fall for the whole region is good. So we are expecting to have a very good harvest year if everything keeps as it is today.

And what about La Nina phenomenon expected for the end of the year?

La Nina in Argentina affects the corn belt area, more the region of Buenos Aires surroundings. That's what we expect, so maybe it will be affected some part of this or near Buenos Aires. The north of Argentina is expecting rains bigger than the average. So our portfolio in average comparing -- Bolivia probably will be a little lower than the average. Paraguay higher than the average. So Brazil higher. Argentina not higher. Paraguay higher, and lower the corn belt and Bolivia. Average is better for our portfolio.

Okay, very clear. Much appreciated. Thanks.

Rodrigo [Magaburo].

Hello. Do you hear me?

Yes, we hear you.

Hi, Alejandro. Thank you. So I had two questions. One is related to the lease land. I know you mentioned that it was not the key strategic business area, but I wanted to understand which were the target margins that you are looking for because on the earnings release you were saying that at this point it was hard to find your target margins?

And the second question was related to the recent news in Argentina about the closing on the imports of chemicals and fertilizers. I guess that by the time of the year, you must already have bought all the fertilizers, but I guess chemicals might affect prices for the soybean crop. If you can give us an idea of potential impact on Cresud?

The majority was done, the majority of those closings are done, the problems will be delivery. I think we have to see what happens to delivery of those storages, which affect delivery and the chain is affected because of the measure.

The margin for the leasing areas, before 2000 we are expecting -- we are trying to -- in case of Brazil, apart of doing leasings, we are taking options for purchasing land. And we are expected to do that in the rest of LATAM. In Argentina that is not common, just you have a leasing. And what we do in leasing, we are expecting returns of more than 15% in dollars. That is the minimum we have kept to do it. If not, we don't.

But it's -- we know that the activities to adjust it, a good year the farmer have to much higher rental. So the margin you can do it. You have to be very effective. So we do very quietly. We're not expecting not very more than 20%-25% comparing to our own areas in the leasing areas. And the number we have is more than 15%.

Thank you very much.

Thank you. Pedro Herrera, HSBC.

Just a quick general questions. Would you say that in your fiscal year '12 are you going to be buyers of land or are you going to be selling land in Argentina? And second is, can you also give us a brief overview on how is the mix, the Argentinean peso affecting you? The volatility in the peso, is that affecting you guys and how it is affecting you?

In respect of Argentina, we are in process of, like always, selling the very matured and developing and buying to develop. And you're seeing that we are developing much more than what we are selling in number of sectors. Always what we sell is in general very valuable, like the San Pedro farm in BrasilAgro, and we buy the area that is undeveloped and we develop that.

So to buy land, we buy land in Argentina will be for developing, and in size, considering the part that we're going to develop from the existing portfolio, and probably buying some more for developing if we find opportunity and selling some of the very matured.

And Pedro, regarding the foreign exchange rate and the peso evolution, as you probably know and you have noted in the last years, we have -- all the farming industry was in some extent affected by the huge increase in cost on dollar terms, which have not been necessarily relating to an increase in the foreign exchange rate.

So probably, if a stronger peso devaluation affects economy of the country, that will not result in a poorer situation for Argentine producers. Probably, if we have, as Alejandro has explained, a good situation in Argentine pesos international prices of the commodity, the outlook in this sense is positive in terms of the margin for the local producer.

Okay. Thank you very much.

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

Okay. The -- to finalize this conversation, we are -- in our balance sheet probably we are reflecting many assets that were with losses like the [Fitch], not the assets that we own are not reflecting the gain they did, not the developed, not the rental, not the plants, nothing what we calculated or we showed in the balance sheet part, that part, and makes the analysts tougher to take that separate.

But all of the assets that the Company owns, the urban and the agriculture, were increasing prices year-to-year. We are expecting a very good area of planting, sowing area for next campaign with good conditions, with an absolute prices, some of them hedges. We have a good diversity of products, areas and countries and we have the cash of our rental business coming from our subsidiaries. So we think we are in a very good shape to front this new campaign. Thank you very much and have a very good day. Bye-bye.

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