Cresud SACIF y A (CRESY) 2012 Q2 法說會逐字稿

Good morning, everyone, and welcome to Cresud's Second Quarter 2012 Results Conference Call. Today's live webcast, both audio and slideshow, may be accessed through company's investor relations website at www.cresud.com.ar/ir by clicking on the banner Teleconference. The following presentation and the earnings release issued last week are also available for 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). You will have also the possibility of sending a question via webcast by clicking on the question to host tool.

Before we begin, I would like to remind you that this call is being recorded and that the 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 note in the Company's earnings release regarding forward-looking statements.

I will now turn the call over to Mr. Alejandro Elsztain, chief executive officer of Cresud. Please go ahead, sir.

Good morning, everybody. We are going to make the conference call about the second quarter of 2012 results. If we move to page number two and we see the highlights of the quarter. The crop production of this quarter grew by 813% comparing to first six months of last year, reaching 800,000 tons.

This -- big part of that is thanks to the consolidation of BrasilAgro, where we increased our stake last year, and today we are like 36% of it. And we are consolidating the results of BrasilAgro in Cresud.

From this 800,000 tons, 619,000 tons are of sugarcane, and the rest -- this year we had a lot of late harvesting, mainly of corn plantation in Argentina. So there was a big increase in corn, and here we show from 50,000 last year we achieved this year 120,000 tons of late corn. So the way we are planting, it's making us to pass part of the crops from June and we are showing in this balance sheet. So the explanation of the sugarcane and this late crops make this big change on crop size.

The operating income of the Company totaled ARS404 million, a 12% increase comparing to last six months of last year. The net income was ARS41.5 million comparing to the ARS107 million of last year. The reason of this decrease was mainly explained by the net financial losses and a net loss from other financial assets.

Many questions were received about the climate. And during this quarter the core agricultural regional of Argentina experienced severe drought conditions, caused by La Nina. The Company foresaw this weather effect has postponed planting, applying -- we applied specific processes and mitigate -- to mitigate the impact of this drought.

And a very small portion of our crop area was affected, almost 20,000 acres of the portfolio of Argentina. Near 20% of what we are planting in Argentina are located in that part where the drought affected. And the rest of the region is not in the country and is not affecting Brazil, neither Bolivia and Paraguay.

So for Cresud, the drought is affecting mainly -- in one part of the list area mainly, where we are suffering. That will be damaging part of the soybeans and the corn [is] for those area, but in the total of the crops is really not relevant at all. It's just 20% of Argentina and it's not affecting in soybeans and corn as majority of the farmers of the country.

During November of this year the Company paid a cash dividend of ARS63.8 million, equivalent of ARS0.12 per share and 0.31% -- $0.31 per ADR, giving a dividend yield of 2.62%.

If we move to page number three, we can see the outlook of prices. Here you see that the one side is soybeans and the other side are wheat and corn prices. There was some recovery after drought of Argentina, but the prices are stable. So better pricing comparing last year, much better pricing comparing the last year prices. There was a [some] drop at the beginning of this year, but there was a recovery of this over the last days. In the steel price there was an increase of 10%, and in the milk price there was an increase of 10%, too.

If we move to page number four, the area under crop production, as you remember, the total surface that Cresud -- through Cresud in Argentina, through Bolivia and Paraguay and through BrasilAgro, we are achieving 205,000 hectares of crop area. Biggest still is Argentina. Second is 65,000 in Brazil, 24,000 Bolivia, and 8,000 hectares in Paraguay.

And here we have the breakdown of ownership being big majority owned or long term lease, and small percentage being leased from third parties. Having 50% of surface being in soybeans, 21% in corn, 4% in wheat, 4% in sunflower, 5% in sugarcane, 7% in other crops, and 9% of our surface is -- we are leasing in a fixed payment to third party, mainly in the north part of Argentina that we are leasing our farms and fixing part of the rental to Cresud.

And if we move to page number five, we see the milk and beef production. In the beef we are increasing a lot production. We can compare last year where we are achieving 3 million tons of -- 3 million kilograms of production last year to 4.5 million kilograms this year, so an increase of production of 49%. Having almost the same stock, from 73,000 heads we increase to 78,000 heads, and we were feeding with corn everywhere because the gain was huge. The price of corn is cheap comparing to price of beef, so there was a very big increase in production.

In the case of milk there was a drop in production from 12 million liters we went to 9.2 million liters. This was because of the sale of La Juanita that sold to dairies. We were milking more than 2,000 cows. Plus we sold some of the cows we put in El Tigre.

We decided to reduce stock of milking cows but increase individual production, and that's why the average went from 19 liters per cow per day to near 23. So we are reducing area for milking and increasing productivity and having better yields having that equation. So that was the explanation of drop in total production but increasing individual production per cow.

If we move to page number six, we can see the area under development and in the three countries that we are developing land in Paraguay. Now we have 3,500 acres under development. In Argentina we are doing almost 8,000 hectares under development and in Brazil almost 20,000 acres under development.

If we move in the regional portfolio evolution of developed farm, how the last years we were in 2008 achieving 14,000, 2009, 22,000, 2010 24,000, 2011 30,000, and this year 31,000. So developing and putting on production and mainly in crop production majority of that land. And the stock of land we have for future development, the 120,000, this is separating the reserve land that won't be under production. This is plan that it's available for future development. 120,000 more in Argentina, 50,000 more in Brazil, and 60,000 more in Paraguay.

If we move to page number eight, we see we sell -- this quarter, this semester we only sold one property in Brazil. This is through BrasilAgro where we sold Sao Pedro Farm. This farm was located in Chapadao do Ceu, Goias. Was September 2006 purchase and we sold it. We make big gain. We sold -- we made 153% gain comparing to price. So we decided time to sell.

And we are going to show you later that in the real estate segment we have smaller result this year. Last year we sold La Juanita. That was a bigger farm and the gain we made last year was a $13 million gain and ARS45 million. Comparing to a -- no, the gain of this farm is like ARS22 million, no?

ARS20 million for (inaudible - microphone inaccessible).

ARS22 million. So that's the explanation why in the real estate you are going to see a drop. The sale of only one property in Brazil this year comparing to La Juanita. But was old property we owned for more than 12 years in Cresud stock.

So I will introduce now our new CFO, Matias Gaivironsky was working for us for more than 15 years. He was head of capital market and the investor relation. And Gabriel Blasi, who was our CFO, became the CFO of Banco Hipotecario, our mortgage bank. So I will introduce Matias that will keep informing us in the Company from now.

Thank you very much, Alejandro, for your introduction.

Going to page nine, we have our hedge position for this fiscal year. In the case of the soybean, we have a consolidated position of hedges position of 64% and 36% remain open. The different breakdown between countries in Argentina, we have 83% already closed, in Brazil 56% already closed, in Bolivia only 5%, Paraguay 14%.

In the case of the corns, we have a consolidated close position of 37%. In Argentina 55%, Brazil is open 100%, and in Bolivia we already close 67% with good price.

So going to page 10, and remember that (inaudible - background noise) starting June 30, 2011 we started the consolidation of BrasilAgro. So to compare the previous fiscal year without the consolidation of BrasilAgro is more difficult. And this new consolidation affect the comparability between the different balance sheets.

So going to page 10 and I will avoid to enter into line by line detail, but I want to highlight two or three different figures. The first one is that our operating income increased by 12.5% from ARS359 million last year to ARS404 million this year. In the case of and below the operating income, the financial results, we have an increase in financial results of ARS180 million from ARS121 million last year to ARS300 million this year.

And the main explanation are the ForEx effects, the valuation of the dollar -- of the pesos affected our dollar denominated debt and the valuation last year was only 1% compare with this semesters of almost 5%. That affected our results by ARS86 million.

In the case of the interest results, that affect the higher debt and the high interest rate affected our results by ARS52 million. Another holding of financial asset result affected our results of ARS41 million. So on a consolidated -- the net financial results is ARS180 million below last year.

So going to page 11, here we have the difference between the previous fiscal year that there we recognize our result of ARS107 million, and this year ARS41 million. The main explanation, as I said, is the financial results. But then we have better agriculture business operating income of ARS9.7 million, lower sales of farms, as Alejandro mention. Last year we sold a bigger farm of La Juanita that would recognize higher results, and this year we only sold Sao Pedro. So that affected in ARS18 million.

Then the feed lot and the slaughter operation that we start the consolidation this year, and that generates a loss of ARS13 million of our operating income. In this segment we are suffering with different drivers. In the feed lot, the occupancy of the feed lot is below their potential. And also in the meatpacking facility we are suffering the price of the input against the cost of our production. So we are working towards improving these losses in the next quarters, and we expect in the future to reverse or to mitigate these losses.

Then we have the ARS66 million of better operating income from IRSA of real estate operations. That are the main explanation to achieve these ARS41 million this year.

So going to page 12, we have our total debt. And here you have a breakdown between the different companies. Cresud on a standalone basis we have $232 million of debt. In the case of IRSA $467 million of debt. And in the case of Alto Palermo $153 million of debt. That give us a total consolidated debt of $852 million. And deducting the cash and the debt repurchase that is in our hands, we have a net debt of $707 million of debt.

On the right side of the slide we have the breakdown on amortization schedule for the debt of Cresud on a standalone basis. This year we have maturities of $117 million. And remember that we have a consolidated cash position of $130 million. Then on 2013 $54 million. And then in 2015 the remaining $60 million. So that give us a net debt to EBITDA ratio of 3.1 times.

And remember that not all our assets are generating EBITDA, so this ratio if you consider fair market value of the farms and the real estate assets, is much lower. And the debt to asset ratio the same. We have all of our assets at book value in our balance sheet. So if you consider the fair market value of our asset, this 31.7% is much lower.

Now we are inviting investors to make questions. Operator, please for questions.

(Operator Instructions). Your first question is from Pedro Richards, Raymond James.

Alejandro, Matias, thanks for the call. And congratulations, Matias, for your new position. My first question is regarding the impact of the drought in your operations. The press release states that you expect the drought impact on crop productions to be of less than a 10% decline on crop productions. What would be the impact on corn and soybean yields, if you can share with us?

And should we expect to see breakeven or even negative gross margins in the case of your lease land farms in the core area of Argentina, taking into account that leasing costs are quite high over -- were quite high over last year? Thanks.

As we mention in the beginning of the conference call, the drought is mainly affecting a small percentage of Argentina. So it's 20% or something like 20% of Argentina. Argentina is almost half, so is affecting small portion of the crop area.

Is true that is affecting mainly the leases. We are calculating that we are almost planting 40,000 acres of leased area, and almost half of that is affected by drought. There are few -- these 20,000 hectares could be negative numbers. What does it mean? Combining the price of the sales of the crop we are achieving and the rental we pay, half of the lease area probably will be in the negative number.

In the total number of crop area for Cresud, the 200,000 or more hectares won't represent. But in the lease area, half probably will be a negative margin. And it's affecting mainly soybeans and corn. Didn't affect sunflower and wheat that surpass our budget in yields. And -- but remember that the owned area is not affected by drought. So total effect in both, in soybeans and corn, is not big, neither in Argentina, and not affecting Brazil, Bolivia and Paraguay.

Okay, thanks.

Your next question is from Pedro Herrera from HSBC.

Hi, gentlemen. Good morning and congratulations again on the earnings. A quick question regarding the law that passed at the end of the year restricting foreign purchases of land in Argentina. This should not affect you as an Argentinean company, but what effect is it going to have on land valuations? Is essentially the market that concentrated on domestic buyers and sellers that the nonparticipation of foreigners will not affect land valuations?

Pedro is very tough to answer to you. Up to now and what the market is showing, the prices are very [same]. Not in here, in Brazil, in everywhere in South America price of the land. And you are going to see some sales that probably are going to show some sales of assets we are selling. The prices of the land is very same.

A lot of investors of the world, locals and foreigners, finding the way because you know that always there are ways of splitting the assets in small pieces, making [there] players that they are doing good, too. So what we can tell you is price of the assets are same in all the region. So we are not expecting a drop in the prices soon. If this is a long term and really nobody can buy nothing else, that didn't happen up to now.

The law didn't finish. The law was approved in Argentina, was not finish in Brazil, but was not ruled. So nobody knows how would be apply. Up to now there are still sales and so and the prices are very same. So the assets we are sitting on are very same.

And in general our story of sales, majority of the clients are locals. And that's the story of farming industry. And look at the story of Cresud, majority of the sales were done to Argentineans. They have good [cares], and when they can, they buy more land.

Thank you for that. In Brazil, no law has been passed yet. How do you see things are going to play out in Brazil?

They are more optimistic than in here. The comment on Brazil, it's the finance of the sector is made by (inaudible). The big companies are financing farmers. And so the discussion, if they don't allow them to keep the farms because they have the mortgage of the funds to finance those companies, how they are going to finance farmers.

So the comments I receive in Brazil about how the law is going to come, it's much better than what Argentina is doing about restriction on size. But nobody knows, is still under discussion. They were talking about February, but really you don't know when it's going to be decided.

Okay. Thank you very much.

(Operator Instructions). There are no further questions.

So I would thank you, everybody. I expect you remember that in agriculture company the main quarters are the third and the fourth, where majority of the soybeans and corn comes. So I expect to see you there. I hope the rain still comes. And I hope this won't affect at all majority of the 205,000 hectares of Cresud planting.

So and really the concern about food still is in the table of discussions of the world. We are producing food, that it's very needed. So we think our assets and our activities are going to be very good the next quarters and next years. Thank you very much and have a very good day.

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