Cresud SACIF y A (CRESY) 2016 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to Cresud's third quarter of 2016 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 "Teleconference." The following presentation and the earnings release issued last week are also available for download on the Company website.

(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 note in the Company's earnings release regarding forward-looking statements.

Now, I will turn the call over to Mr. Alejandro Elsztain, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good afternoon, everybody.

We have here in the highlights for the nine months period of 2016. And if we go to page number 2, we can understand and there is a big change in our balance sheet. Since this quarter, we started to consolidate the results of our investment of our subsidiary IRSA in IDBD, our company in Israel. So, Matias later will explain how we are explaining and to make it easier to analysts and to investors these numbers.

Here, in the three first lines -- the revenues, operating income, and net income -- we divide it to make it to explain the Argentine business center separated to the Israel business center.

So, revenues grew up to ARS21 billion. From those, ARS5 billion are coming from Argentina agribusiness and Argentina urban business center, the both, the combination of agribusiness and the urban.

In the case of the operating income, we achieved a positive number of ARS3.4 billion; and this is ARS2.6 billion coming from our agribusiness and Argentina urban business center, and the rest from Israel.

And at the net income, we had a lost of ARS1.5 billion. From the lost, we see that there is a small lost in Argentina from Argentina business center and agribusiness, of ARS300 million, almost ARS300 million, and the rest comes from Israel. And to the Cresud shareholders, the lost of ARS936 million, comparing to a loss of last year of half of [9M2015].

And we [delve] a little bit to the details about the agribusiness, as you probably now know the government entered in December directly and changed many measures and improved the sector situation a lot. And the low commodity prices [had] those days, but now we [have a] recovery on the prices, too.

So, there is now a very much better combination, plus a good climate on the region that Carlos will explain later.

So, that's the climate made us to achieve very good results in majority of Argentinian areas and in Paraguay areas. Not the same in the areas of Brazil and Bolivia. Bolivia was almost even to the budget.

We planted in this campaign 174,000 hectares, was 17% lower to last year numbers, and this is mainly explained by the big sale we made of a farm in Brazil, the [Cremac] Farm, and some reduction we have in the leases of Argentina.

And this year, in the change of the environment, we decided to develop less. So, we achieve only 8,700 hectares of developed area for this year.

If we make a summary about the urban investments, we had very positive result coming from IRSA rental companies and sale of investment properties, very good numbers. And we finished our presentation on IRSA a few minutes ago. So, you can go to that page, to that presentation.

And during the quarter, IRSA acquired the minority interest by IDBD, increasing the stake to 68.3% and delisted the Company. So, today, IDBD is not more listed in the Tel Aviv stock exchange.

If we move to page number 3, here the new government measures, the situation why the farmers of the Argentine economy are really now enjoying a very different mood. And this is reduction of 5% in taxes of exports for soybeans; and in the case of corn and wheat, to zero; and to meat, to zero.

And the valuation on the currency, the farmers were receiving ARS8 or ARS9. Now, they're receiving ARS14, ARS15 per dollar. So, really, the change on the margins is impressive.

And so, this is going to decrease the transformation costs for the future, too.

If we move to page number 4, we can see the evolution on the planted, and we explained the decrease of 17% in the planted area in the region, mainly because I told about the leases and Brazil decreased because of the sale of the farm.

And the development, there is a recent good news from last month that we received the new permits to keep developing in Paraguay all the farms. So, now we have the permits to finish all that projects. This is very good news. So, we can keep developing that, too.

And in the farm sales, there is only one news and that is very recent. There was a farm sale money deposit for a farm, of $6 million. That is just we received the 5% payment, but really this is not concluded. But probably will have some news on the fiscal year 2016. This could be happen (inaudible), but there was a reserve coming to Cresud in Argentina for a small farm in Argentina, of 2,400 hectares.

Now, I will introduce to Carlos Blousson. Thank you very much.

Thank you, Alejandro. Good afternoon, everyone. Today, I am going to talk about this quarter's production forecast, global stocks, commodity price levels, and regional climate conditions.

Let's go to the slide 5. Argentina's forecast soybean production for current campaign has reached about 56 million tons, 10% below than the last campaign due to bad weather conditions last month making losses in area and yields.

Regarding corn, production is stagnated at 27 million tons in the current campaign, a number which has been similar for the last three campaigns.

Soybean productions in Brazil continued its upward trend, to 100 million tons. Corn productions decreased 5% due to suffering a decreased area and yields, reaching 81 million tons.

Regarding the 2016/17 campaign in United States, the corn planting area is expected to increase by 4%, as well as soybean is expected to decrease by 1%. Both corn and soybean in the United States keep on their highest production levels, reaching 366 million tons in corn and 103 million tons in soybeans.

As consequence of these good production in soybean and corn, we can see in this slide how was stocks in these grains increased during the last three campaigns. The soybean global stock grew from [21% to 28%], and corn global stock increased from 15% to 22%.

Let's move to the slide 6, low commodity prices but recovering. These very (inaudible) in global stock reflect directly on this low price. The graph show how the soybean price has decreased 6.4% in the last year and the corn one at 68% (sic - see slide 6, "6.8%") in the past year.

However, in the last month, the harvest has been delayed due to the heavy rains in Argentina, resulting in decrease of 5 million tons in the soybean production. So, price have peaked at 16.1% in soybeans and 9.4% in corn. These prices are the highest of the last 18 months.

And in this last year, the prices in terms of reais per [saca] increased by 80% and, in Argentina pesos per ton, by 64%, reflecting the impact of devaluation in both countries.

If we move to the slide 7, we can see how good were conditions in the region allowed a positive [effect] during the summer. In this season, rainfall is above average but we are having the effect of El Nino.

As we can see in the map, Argentina [presented] good weather conditions, in general, but excessive rains in the east. This was not a problem for us, because there was not the high production in this area.

In Brazil, there were good weather conditions, except for the northeast which suffered from drought and affected Brazil area soybean productions.

The regional harvest progress in soybean is 61%: 82% in Brazil, 34% in Argentina, and (inaudible) in Paraguay and Bolivia. And in the regional, [corn 1] is 8%: 40% in Brazil, only 4% in Argentina, 100% in Bolivia, and another 20% in Paraguay.

The estimated grain production is 877,000 (sic - see slide 7, "239,000") tons and 239,000 (sic - see slide 7, "877,000") tons of sugar cane.

The crop breakdown is 47% soybean, 28% (sic - see slide 7, "29%") corn, 12% (sic - see slide 7, "7%") sugar cane, and the rest, others.

Cattle productions in Argentina reached 6,300 tons. This level has been similar for the last three years. There was also a slight decrease of 71,800 in the amount of heads.

Milk production reached 12.6 million liters a year, with less in the milking cows [of] 1,950 heads. An increase in milk production per cow per day, to 22.9 liters [a day] due to an increase in productivity.

Thank you, everyone. Please, Matias?

Thank you, Carlos. Good afternoon, everybody.

So, going to page 8, we have here the description of our investment in IRSA. Remember that we control IRSA with 63.4% stake. IRSA is the leading real estate company of Argentina.

The main highlights of IRSA for this period, as Alejandro mentioned, we started to consolidate IDB. So now, when you analyze revenues as well in IRSA and Cresud, you will have the effect of IDB inside. So, we will maintain the breakdown in different business segments to make easier the analysis.

So, revenues amounted to ARS19.7 billion; from those, ARS3.2 billion came from Argentina business center and the rest from Israel.

The EBITDA achieved ARS4.3 billion; from those, ARS2.5 billion came from Argentina business center.

IRSA generated gain from sales of investment properties in this period for ARS1.1 billion. There was some disposals of office buildings at the level of IRSA.

And then, regarding IRSA Commercial Properties, where IRSA has 94.74%, results were very good. Tenant sales keep growing for the period, 36.3%; 30%, same-store sales. Occupancy, very high; it's 98.6%. EBITDA, growing by 34.7%. EBITDA margin, very good levels of 77%.

The same in offices. Occupancy higher, at 94%. Stable in prices in dollar terms. Remember that we have a devaluation in Argentina of around 60% and prices in dollars remain stable. The EBITDA increased 80% in the nine-months period.

Regarding IDB, IRSA increased to 68.3% stake and did a major event, that we financed or we structured our tender offer obligation in a better condition for IRSA. So, now, IRSA fulfill 100% of the obligations in Israel. We changed the tender offer that was mainly to acquire shares at ILS8 per share. We changed it for a price of ILS2.45: ILS1.25 in cash, ILS1.20 in bonds, and additional contingent payment if we sell Clal or if we get permission to control Clal in the future.

After this, we delisted the company. So, now, IDB is a private company.

And regarding Banco Hipotecario, where IRSA has 30%, generated very good results in the period, 98% more than the previous year.

So, going to page 10, here we have the breakdown on how we are presenting our financial statements. Remember that we started to consolidate IDB in IRSA since -- December was the first quarter. IRSA took control of the company in October. So, after that, it started to consolidate.

The first stage was to consolidate only in the balance sheet. And now, we start to consolidate also results in the financial statements.

So, we are using a lag of three months with Israel. So, where we have we are finishing this quarter in March, we are using results of IDB in December and we are using only three months. So, we are presenting results from September to December. That is three months. So, we are presenting Argentina nine months and Israel three months.

And we will maintain a structure to separate the different business centers. So, we will have one agriculture segment that will include farming, farmland development, and others. And then, we will have under our urban properties and investments, that before was IRSA, we open in two business centers: one the business center of Argentina and one the business center of Israel. And we will have all the information separate by the different segments of IRSA and Israel.

Going to page 12, we have the breakdown of the operating income segment from IRSA. So, the rental segment was strong, 44% increase. Sales and development also increasing, by 22%. And financial and others, a decrease by 51%; that is mainly because of the previous year we have a (inaudible) disposal that we don't have this year.

Regarding IDB, we don't have a comparison with the previous quarter, because we start this year. We have revenues by ARS16.4 billion, gross margin of ARS3.5 billion, and operating income of ARS778 million.

Going back, I passed the page 11. So, going back to the page 11, where we have the breakdown of our operating income of the agribusiness. On the farmland sales, the previous year we have the hectares that we sold in Paraguay. This year, we are not yet selling anything. So, Alejandro comment of a potential transaction that we haven't closed yet. So, hopefully, next quarter we can present results. But this comparison includes the disposal in the previous year against nothing in this year.

Regarding the farming, here we include the four segments: grain, sugar cane, cattle, and milk.

You can see an important improvement in grains. That is mainly due to three different drivers. First, of course, the changes in Argentina, the devaluation in Argentina.

Also, the reduction or the elimination in tax exports that generated holding results for Cresud. So, we are improving significantly from a loss in the previous period of ARS137 million, with a gain of ARS196 million this year.

Also, include an improvement in the production side in Argentina, with better conditions, and a lower production in Brazil and in Bolivia; in Brazil, mainly to the drought and as well in Bolivia and good climate conditions in Argentina.

In sugar cane, we also have an improvement in our operation, from ARS11 million (sic - see slide 11, "minus ARS11 million") to ARS43 million.

And in cattle, the same, an improvement to ARS56 million. That is mainly, as well, holding results and with better prices in the cattle.

In others, the result was flat, from ARS19 million to ARS20 million this year. Here, the breakdown is different. Here, we include our stake -- or the results from our company FyO and the meatpacking plant. So, we have lower results in the meatpacking plant and much better results in the FyO operation.

Going to page 13, here we have the rest of the business lines. So, you can see on the operating income much better results, as we mentioned; better results in the farming; better results in the Argentina business center; and the addition of the Israeli business center.

Then, we have lower net financial results. So, here you can see a big loss in financial results. Most of the results are non-cash. So, here, we have net FX losses that we are recognizing our dollar-denominated debt after the devaluation that generated important losses: ARS1.5 billion. It's not cash. So, we are not recognizing any gain on our dollar-denominated assets. You know that most of our assets are dollar denominated.

Then, we have the net financial costs of ARS1.5 billion that also include Israel.

And then, the fair value of Clal, that we have a lower result on the valuation of one of the most important subsidiaries of IDB that we are recognizing at the price of the shares. So, the shares decreased in September, and we are forced to value this at market price since we don't have the control of the shares, even though that IDB controlled by 55%.

So, considering the equity value or the price that we have been discussing for a potential transaction in Israel, this price reflect probably half of the potential of IDB.

And then, with this, we finish with a net loss in the period of ARS1.5 billion; attributable to our controlling shareholders is ARS936 million, and non-controlling interests, ARS562 million. That is mainly because of the net financial results and the decrease in the price of Clal.

Going to page 14, regarding our debt. So, net debt remained at similar levels than the previous quarter. We used part of the cash to cancel debt. So, we prefer to reduce the carry on the interest. So, now, the debt is a little lower than the previous quarter.

And the debt amortization schedule, there are not any significant events. So, it remains stable compared with the previous quarter.

So, with this, we finish the presentation. Now, we open to receive your questions.

(Operator Instructions)

Showing no questions, this concludes our question-and-answer session. At this time, I would like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks.

Thank you very much. We are closing a quarter that is reflecting a much better environment to our country. The measures to the sector are improving the margins and the liquidity for the market. In the case of the (inaudible) real estate, there are much more players now acting and searching for farms. So, this is becoming much profitable and much more interesting for investors, local and foreign investors.

Argentina with the holdouts results, we were able to achieve our first bond, corporate bond, that we did at the IRSA Commercial Properties level. And this allows the companies of the country to improve their financial situation and to look for the international capital markets.

We were very dynamic on the urban rental, and that was a very positive number and a very good improve on the numbers and very good level of occupancy. Now, we are launching a lot of projects on the region. So, this is a much better environment for the region.

So, we thank very much to the investors, and we see you next quarter in our annual results. Have a very good day and a very good weekend. Thank you very much.

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