Cresud SACIF y A (CRESY) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to Cresud's Second Quarter 2018 Results Conference Call. Today's live webcast, both audio and slide show, 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 the 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.

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

Thank you very much. Good afternoon, everybody. We are beginning our second quarter 2018 results, and we can go directly to Page #2 and see the main events for the 6 months of this fiscal year. And when we speak about the agribusiness, we sold the Esmeralda (sic) [La Esmeralda] farm. We didn't -- the profit is still not registered in the balance sheet. It will be in the fourth quarter of this year when we give the detail with the account of the farm. We did that for $19 million, and the book value is much more less. I think it's almost ARS 50 million, something like that. So the big result is coming in the fourth quarter when we do the deed. We are in the middle of some new farm sales, this second semester in Argentina and the region. So we expect to have more new farms under sale in this second semester.

In the development, we are planning to do 4,500 in the region, between Argentina and Paraguay, for development of the region.

In the farming activity for the first part of the year, we concluded the sowing in the region. And we expect a similar to the previous year in the whole region. And we have discontinued our daily activity in El Tigre that we had for many, many years. But because of the adverse conditions of the sector, we decided to close, to sell all the cows, and now we are in more agriculture and feedlot of the place.

In the other segments, November, we recently sold 9.5% of FyO, of Futuros y Opciones, our company -- our service company of inputs and outputs. We had from the very beginning 60% of the shares, and we sold 9.5% for a valuation of ARS 32 millions. This is a cash out. So Cresud received all this amount. And we brought 2 strategic investors to the partnership. We are going to show you later.

And from the Urban Properties business in Argentina, we had an EBITDA from rental segments that grew 18.4% comparing to last year numbers. The occupancy, 99%, in malls, 90 -- almost 94% in the office, 71% of the hotel portfolio was occupied. So very good levels of occupation on the portfolio of the rental. And in Israel, the Business Center, the consolidation of 100% of investments in IDBD under Dolphin. So we bought 100% of the shares, Dolphin bought it. So today we have very good results in the operation of the subsidiaries.

And in the debt side of Cresud, we recently, in February of this year, we issued a note in the local capital market for $113 million, paying a fixed interest of 6.5% due to 2023. And with that, we transferred some short-term debt that Cresud had.

And in consolidated financial results, the net results for the 6 months registered a gain of almost ARS 10 billion comparing to a gain of last year of ARS 6.7 billion. And attributable to Cresud was ARS 4.6 billion compared to ARS 2.2 billion last year numbers.

So now I will introduce to Mr. Carlos Blousson about the development of the land of the region. Thank you very much.

Thank you, Alejandro. Good afternoon, everyone. Let's begin by the Slide 3: Farmland development and farmland sales. As you can see in the bar graph, we continued to develop on different farmlands in the last year, 4,500 hectares, 2,500 hectares in Argentina and 2,000 hectares in Paraguay.

In term of sales, we sold, and rather, like Alejandro mentioned it before, the farmland in Argentina for an amount of $19 million, getting a profit of $16 million, as you can see in the graph.

Turning around your attention to the next slide. And as I mentioned it before in the first semester of fiscal, we sold La Esmeralda farms at a price of $19 million. In July, we signed an agreement and payment for $4 million with a balance of $15 million financed with a mortgage in 4 installments at 4% fixed tax rate due 2022. The results will be recognized in the fourth quarter in 2018. We expect to create new farmland sales during the second semester of the fiscal year 2018.

Let's move to the production forecast and the global stocks. In term of soybean productions, you can see that Brazil and United States have remained upward, hitting a new record. And in Argentina has sustained. So the stock consumption has grown up to 30%. In case of corn, the Brazilian and United States production have decreased 4%. And Argentina has remained stable. So the stock consumption has decreased slightly from 19% to 17%.

We move to the Slide 6, well, let's talk about the climate condition and commodity price. As you can see in the graph, there are 2 different situation. Brazil had a positive climate condition but on other hand, Argentina went through a slight linear with low rain levels. In the bottom line, you can see the reaction of the commodity price. The soybean price decreased 3.1% year-to-year. The corn remained stable by increasing slightly 0.3% year-to-year. These low prices levels are directly linked to the high level of the world stocks.

Slide 7. You can see the planted area, crop and sugarcane production and breakdown of the productions. We will go to start to the planted area. We planted 196,000 hectares in the regions, quite similar to the last year. We estimate 568,000 tonnes in terms of crop productions. And in sugarcane, we estimate a production of 1,000,884 (sic) [1,884,000] tonnes of sugar.

So the crop breakdowns is 46% soybean, 25% corn, 16% sugarcane and 13% other products, like sugar and like sunflowers, wheat and other seeds.

Let's move to the Slide 8: Sales of a stock in FyO. We sold 9.5% of the stake in FyO, our brokerage company, resulting in Cresud's stake reductions from 59.6% to 50.1%, keeping the control. It represents an amount of $3.04 million, and profit will be recognized in second quarter of 2018, ARS 42.6 million. Let me tell you that this transactions we execute with a new strategic partner in the company.

Thank you very much. Matias?

Thank you, Carlos. Going to Page 9. We can see that the results on our Urban business and investments. So as Alejandro mentioned, net income for IRSA in the 6 months in 2018 achieved ARS 10.8 billion, that is 58.9% higher than the previous year. Attributable to IRSA shareholders, it's ARS 8.9 billion against ARS 3.8 billion. The Argentina Business Center gain was ARS 12.1 billion. The main reason, and I will explain later, is the fair value of our investment properties, the higher results on our rental segment and also the result from Banco Hipotecario and Lipstick Building. The Israeli Business Center (sic) [Israel Business Center] generated a loss of ARS 1.3 billion from which ARS 2.2 billion is related to a debt exchange at DIC level that is a noncash effect but we recognized, remember, in the previous quarter. So the adjusted EBITDA reached ARS 7.2 billion, that is 38% higher than the previous year.

The -- regarding the Argentina Business Center, the rental segment grew by 18.4%. The occupancy of shopping malls achieved 99%, 91 -- 99.1%, 93.2% in the offices and 71.5% in the hotels. We have a slight better results on the sales and developments because of the sales of Beruti, Maipú and Baicom plot of land.

As you remember, IRSA paid a dividend of ARS 1.4 billion in the previous quarter, so Cresud collected 64.5% of that. Also -- sorry, also IRSA sold in the secondary market $138.2 million of IRCP shares that represent -- that represented an stake of 8.5%. So today, the free float of IRCP today achieved 13.5%.

In terms of the Israeli Business Center (sic) Israel Business Center , there was -- we complete the Concentration Law requirements. So we fulfilled all the transactions. So today, we have more time until the next step that will be at the end of 2019. Also, with the -- we acquired from Dolphin the remaining stake of the shares of IDB that used to be from -- used to be at the level of IFISA. So today Dolphin control 100% of the shares of IDB. And also an important development was regarding Clal, that we sold another 5% of the shares through a swap transaction. So today, the stake in Clal reduced to 39.9%. But we still maintain the economic rights over the original stake that was 55%.

So going to Page 11. We have good results in this semester. We started with a gross profit 27% more than the previous year. The important effect that we have during this semester is regarding the tax reform in Argentina. You remember there was a new law in Argentina that established a reduction in the tax income of the company from 35% to 30% starting this year and 25% starting in 2021. So that generate an important effect over the valuation of our shopping malls that we value at the DCF model, and so now we changed the tax rate from 35% to 25% and that generate an important gain. And you can see in the middle of the graph, the result from investment property, the blue bar, is related to Argentina, and it's mainly through the shopping centers and offices and generate a very important improvement. So with this, we finished with an operating income 149% better than the previous year. So we already analyzed what happened with the rental segment at IRSA level.

Regarding the agribusiness, farmland sales, you can see here a reduction in the result that is basically because, in this year, we haven't recognized yet the disposal of farms. And in the previous year, we sold El Invierno, La Esperanza that generated a positive result. So at the end of the year, we will see an improvement in this business -- in this segment as well.

In farming, we can see a good evolution when we compare with the previous semester. Basically what happened here is that, at the beginning of the previous year -- so starting in July 2017 -- in '16, sorry, at that moment, prices of the -- of soybean and grains was much higher than what happened at the end of December. So we recognized the effect on the lower prices of the grains during the last year. And in this year, we have an improvement in prices so that generate a positive result. And also in sugarcane that you can see here a big jump from ARS 22 million to 217%. This is basically related to the farm that we acquired in Brazil and also the farm that we rented in Brazil that incorporates 15,000 hectares of sugarcane production. That generate much higher results than in the previous year.

Regarding the other segment. Here we have the corporate expenses and early -- the industrial meat-packing facility and FyO. We still have losses in our meat-packing facility that is affecting this segment. Little compensated by FY that we are generated good results, but still a negative impact when you compare all the effects together.

So finally, in Page 13, you have the rest of the important drivers of the net income. The net financial results, we have lower results from ARS 2.9 billion in the previous year to ARS 6.9 billion this year. Here are mainly 3 drivers: the first one is debt exchange at DIC level that generated ARS 2.2 billion of losses; then we have the -- a higher devaluation of the peso that affected all our dollar-denominated debt consolidated; and also lower results that came from the appreciation of the shares of Clal. Remember that we value Clal at market value. Last year in the last semester, we have a big improvement. This year, keep growing but slower pace. So we recognized lower result.

Regarding taxes. The income tax, you can see a gain in the semester against last year. Here, we have the effect also of the tax reform. Remember that we revalue the investment properties, automatically we generate a deferred tax using the income tax of that moment. So we used to have 35%, and now we are using 25%. So that 10% difference, we are recognizing a gain that is one short gain during this semester.

So with this, we finished with a net income of ARS 9.9 billion against ARS 6.7 billion of the previous year, attributable to our shareholders is ARS 4.6 billion.

Going to Page 14. You can see the evolution of our debt. The net debt of the company we've used a little. Remember that we collected a big dividend from IRSA and Cresud paid less dividend than what we received. So that generated a cash positive for Cresud. So today, the net debt is $298.2 million and an important development that is the subsequent event after the closing that we issue a new bond at Cresud level. So we issue $113 million that mature in 2023 wallet with a fixed rate of 6.5% in dollar terms. So all the bond will be used to refinance short-term debt. Here you can see that in 2018, we have $234 million of amortization, so we will use these $113 million to refinance part of the debt. And the rest, we plan to maintain short-term debt that we have here in Argentina lines, very attractive in terms of cost, in short-term. So probably we will use that part to roll over that debt, but maintaining in the short run and not expanding for the long run.

So with this, we finished with the presentation. Now, operator, we are ready to start with the Q&A session.

(Operator Instructions) This concludes our question-and-answer section. At this time, I would like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

Thank you very much. Just to finish, we had a very good semester. Now comes the second semester where our harvest of grain comes. We expect a lot of movement in the real estate part of the agribusiness for the second semester. And so we have good conditions in general, some drought in Argentina, but a little, not affecting too much up to now. So we expect to have a very good year.

So thank you very much, everybody, to participate in this conference. And we see you in next quarter. Thank you.

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