Cresud SACIF y A (CRESY) 2015 Q3 法說會逐字稿

Good morning everyone and welcome to Cresud's third-quarter 2015 results conference call. Today's live webcast, both audio and slideshow, may be accessed through the Company's Investor Relations page by clicking on the banner Conference Call. 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 also have 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 information discussed today may include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties. The 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, Second Vice President. Please go ahead sir.

Good morning everyone. We are beginning our third-quarter 2015 conference call and we are beginning on page number 2, the main highlights for the period.

We are in a season that is receiving very good climate condition in almost all the region this year, and we are going to see later, and mainly in the fourth quarter how our yields that we are achieving in grains are very, very, very good in almost all the products we are harvesting. At the same time, we are seeing record corn and soybean harvest in the United States that affected last year prices, and we are seeing that drop of prices in all of our main products.

This is affecting mainly our balance sheet in the agricultural segment and the high productive yields that we are harvesting and in some cases we are almost finishing, we are comparing year to year, we are sometimes doubling the yields like in the north of Argentina in Salta province.

If we talk about the financial result for the nine months, we can see that revenues grew almost 30% comparing last year, achieving almost ARS4,000 million of revenues. The operating income went to ARS1,700 million, an 87% growth comparing to last year. And if we exclude the sale of investment properties, it is a 15% growth year to year.

The net income, we have a loss of ARS452 million comparing to ARS530 million, almost ARS30 million last year, and to the shareholders of Cresud, a loss of ARS487 million compared to a loss of last year of ARS494 million.

So -- but at the net income level, we are going to show you later explaining the main difference and affected mainly for financial results on the Company.

The operational of the business, we planted this year 210,000 hectares. We developed almost 12,000 hectares for total land in South America. There was only some sale in Paraguay that Brasilagro did, a sale of 24,000 hectares in Paraguay and for the last quarter, we didn't make any sale of land for this period.

If we move to next page to page number 3, we can see the evolution on planted area and breakdown on crops, stating the soybean is 52% of the crops, 24% the corn and the others 3% or 4%, being the sugarcane 4% of the total crops.

And if we go to page number 4, we can see the evolution on the development of the land. And this is affecting the Company because of the less development in Brazil because land bank of there is smaller and in Argentina and Paraguay we decreased the pace of development. We are finishing with almost 12,000 hectares.

And up to the change of the environment, we are not expecting this to grow again to the levels of the 30,000 hectares or 25,000 hectares we had. In Argentina, for example, today with this environment, cost too much to develop comparing what cost in the past. So we are delaying the development for next year. So this is affecting not only this year, probably next year too.

If we move to page number 5, we can start talking about this that was happened in many quarters ago, the 24,000 hectares of sale and very profitable sales that Brasilagro did in Paraguay. But in this period, in 2015 in the last quarter, we didn't make any new. We are expecting some in the last and the fourth quarter, but nothing up to now is closed.

So let's move to page number 6 where Carlos Blousson is going to speak. Thank you, Carlos.

Thank you, Alejandro. Good morning everyone.

If we then move to the slide 6, the annual appreciation of farm portfolio, as can be seen in the graph, there has been a solid appreciation in the region with a slight decrease in Argentina. This appreciation in Brazil in the last year was 6% to 8%, the appreciation in Bolivia was 6% and Paraguay was 11% in developed land and 67% in undeveloped land.

If we move to page number 7, the climate condition in the region, as was seen the weather conditions were positive in the regions with good rains in quantity and also well distributed in the area. Temperatures were normal for these seasons. Both rain and temperatures generated good production conditions. As we can see in the map, Argentina presents good weather result in general allowing good yields and productions.

Weather condition in Brazil were normal in the last quarter and remain stable through the productions. Rains in Bolivia returned to the normal level during the summer crops and Paraguay also presents normal rains.

Consolidated harvesting progress in the region is near to 66% in this present month, finishing in the next two months.

Let's go to the page number 8, USDA estimations for the crop productions. Argentina soybean production for this campaign is expected to increase 9% reaching about 59 million tons. This is a record in soybean production in Argentina.

With regard to corn, the production is established at 25 million tons for this campaign, a number which has been similar for the past three years. This is a directed consequence of high production cost and the low prices making this crop unattractive to the productions.

The soybean production in Brazil continued its upward trend. And a 4% rise is expected reaching 99 million tons. Corn production decreased by 3% reaching 78 million tons, also due to the price factor, which was mainly affected Safrinha corn productions.

Regarding 2015-2016 campaign in United States, the soybean planting area is expected to increase slightly compared to the corn because of the better serving price. Both production, soybean and corn, in United States contribute to their goods levels, reaching 105 million tons and 346 million tons, respectively. This positive increase in productions would improve the relationship between supply and demand, thus continue to affect commodity price. This commodity price as we can also see in this slide, soybean and corn price during the last quarter maintained the low levels, a decrease near to 5%. This price levels are a consequence of a good production in South American sales.

Finally, the regional head status of campaign 2014-2015 campaign is 59.6% (sic - see slide 8, "59.5%") in soybean and 19% in corn.

If we move to the next page, the milk and cattle productions, and cattle production -- the milk cattle production in Argentina increased to 5,900 tonnes due to the improved weather condition and the good management decisions. The cattle stock is 71,000 heads and prices in pesos increased only 10% remaining below inflation rate. The milk productions reached 13.3 million liters, daily milking cows reached 2,200 heads and individual production per cow per day increased to 21.9 liters. The milk price increased just 14% below inflation rates.

Thank you all. Matias will continue with the presentation.

Thank you very much, Carlos. Good morning everyone. So moving to the next page, here we have the investment in IRSA. Remember that we have a stake of around 65% in IRSA and we consolidate all the results in our financial statements.

So the different segments of IRSA generate very good results. We are very happy with the performance of our rental segment, shopping centers and offices grew 29% in shopping centers and 26% offices in revenues term and the EBITDA 28% and 31%.

Sales on development also generate very good results during the nine-month period, generating an EBITDA 368% more than the previous year. This is mainly because of the sale of certain office spaces at the IRSA level.

And then in the international, we sold in the last nine-month period a building in Manhattan in Madison Avenue 34 that generate very good results for the Company. So EBITDA margin of shoppings and offices remain stable at very good levels, in shopping center at 78%, in offices at 71.7%. And in terms of the breakdown of the different segments in our EBITDA, shopping centers still the segment number one followed by offices.

Going to the next page, here we have the breakdown of our income statement. I'm trying to explain the main difference against the previous period of nine months of 2014. So we started the year with a net income with a loss of ARS527 million and then when you see the evolution of the different segments, I will say that probably the common denominator in the different segment is the prices. We have lower prices than compared with the previous year. So that affected mainly the sugarcane and grain segment.

So this segment was driven -- the reduction was driven by lower prices, somehow compensated with better yields, but at the same time better or lower expectation of devaluation that affected the devaluation of our biological assets. So we estimated at the beginning of the year a higher devaluation and finally the devaluation in this nine-month period was only 8%. Remember that the last year, we have a devaluation of around 49%, so that generate a big difference between this year and the previous year.

In the beef cattle segment, we have better production yields and better prices that driven an important increase in revenues. We increased revenues by 67.6%, but then we have lower holding results the last year and due to the devaluation, we recognized the important gains that compared with this year are lower, so that generate this slight decrease by ARS2.5 million in this segment.

In the milk segment, we have better prices, a little lower production because of lower stock of milking cows. So that generate lower production but better prices so that generates this increase by ARS4.5 million.

Land transformation, this is ARS18.2 million more than the previous year. Here it's basically that we sold (inaudible), a portion of land in Paraguay, at the beginning of the year in Brazil compared with the previous year that we haven't sold anything. So that is the reason of this difference.

Remember that the sale of the land in the previous year was in the last quarter, so in the nine-month period we haven't sold anything in the previous year.

Other segment ARS29.1 million lower than the previous year. This is mainly because of the result of our meat packing facility plant that generate lower results and also with lower results from our subsidiary [field]. Basically when you compare results of fields from this year to the previous year, we sold less product and less, we generate lower brokerage fee than the previous year and that is the main reason of the decrease.

The real estate segment, IRSA generated ARS38 million more than the previous year. Here there is a different combination of the different segment that I shall start to explain in the slide before. And then the ARS20 million lower in the participation in joint ventures that this is mainly Banco Hipotecario that affected our stake in Banco Hipotecario that generate lower results from the previous year to this year. The main explanation was the financial results in Banco Hipotecario. So those are the main difference on the operational side.

When you go to the big difference in this year is the net financial results that generate ARS812 million more than the previous year. Remember that here we started with a loss in the previous year of almost ARS2 billion, ARS1.927 billion of loss in the previous year mainly because of the devaluation of 49% of the peso against a loss of ARS1.1 billion this year mainly driven by the devaluation of 8% of the peso plus our interest expenses. So that is the main composition of this line.

And finally, taxes that we have lower or we have to pay more taxes this year compared with the previous year by ARS590 million and this is mainly because of the sale of Madison building in Manhattan made by our subsidiary IRSA.

So with those explanation, we finished nine-month period with a loss of ARS452 million compared with ARS527 million of the previous year. Attributable to our Cresud holder is ARS447 million (sic - see slide 11, "ARS487 million") and the non-controlling interest is ARS34.6 million.

Going to the page 12, here we have the breakdown of our debt. Today net debt of the Company totalled $842.2 million. We have a net debt to asset ratio of 51.5%. Remember please that this ratio is calculated with book value and most of our properties has a very low value according to the accounting method. We are valuing all the assets at the acquisition cost plus the CapEx that we did in the past so that value is totally different than the fair value of the property, so the 51.5% I would say that is not representative of the real loan to value of the Company.

So news in the last quarter, we issued new debt at the Cresud level in order to restructure some short-term debt. We did it very successful, we issued two tranches. One in dollar terms that we paid very low interest rate, we paid a yield of 0.5% in dollar terms for a two-year term note and also we issued debt at pesos, one year fixed at a rate of 27.5% and the rest Badlar plus 350 we issued ARS187 million, so with that we would restructure most of the short-term debt of the Company. We have a debt amortization that mature in the next week that we have the cash to repay the debt. So we will cancel, so we are very confident with this debt structure.

Something also that I would like to comment that in this quarter, we launched the new website of the Company. So you have new tools and new features that we include trying to simplify the structure, the information and do it more friendly. So visit the website, you will find all the information of the Company there. And also we launched a new communication platform with Twitter. So follow us on Twitter.

So now we open for questions.

(Operator Instructions). Federico Rey, Raymond James.

I have a question regarding the crop segment. I would like to understand the decline that we see in devaluation of the biological assets is basically as a result of the lower-than-expected devaluation or if we can see other type of factors? Thank you.

Thank you, Federico. The main explanation is that we at the beginning of the year expected a higher devaluation and finally we assessed that our estimations and for that reason, we reduced the biological asset estimation. Regarding yields, we remain very confident on the expectations.

Okay. Thank you.

Rodrigo Mugaburu, Morgan Stanley.

I am Rodrigo Mugaburu from Morgan Stanley. My question is in your view, where do you think we are in the cattle cycle in Argentina? Are you starting to see some female retention probably expecting some improvement on the basis next year onwards? And what are you doing in that respect? Thanks.

There is a better environment at the cattle farmers not at the backing plants. But the cattle farmers are having better margins comparing to agriculture. And so there now there is a recovery probably on the stock. But for that, we'll need the recovery for the industry too that the recovery for the industry is not clear up to now. You need to open clearly the markets and to have more competitive dollar for the exports, and that has to happen. So a lot of backing plants, that will reopened mainly the export-driven. But today they are suffering a lot and making big losses like we show you in our numbers. So at the farmer level, I am very optimistic and a lot of retention and a lot of demand for cows and cattle coming to the market, but from the other side we need to reorganize the exports and domestic markets better for the future that that needs to be done and that is not clear up to now.

Great. Thank you Alejandro.

This does conclude the question-and-answer session. At this time, I would like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

Thank you very much to everybody. Have a very good day and we are going to finish next quarter with the annual results. Thanks and a pleasure. Bye.

Thank you. This does conclude today's presentation. You may disconnect your line at this time and have a nice day.