Cresud SACIF y A (CRESY) 2018 Q4 法說會逐字稿

Good morning, everyone, and welcome to Cresud's Fourth Quarter 2018 Results Conference Call. Today's live webcast, both audio and slide show, may be accessed through company's Investor Relations website at www.cresud.com.ar by clicking on the banner Webcast/Link. The following presentation and the earnings release issued yesterday 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. I will now turn the call over to Mr. Alejandro Elsztain, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good morning, everybody. We are beginning our fiscal year. We are closing our annual report and the main event for the year. We can see that the adjusted EBITDA reached ARS 11 billion that is 58% compared to last year's number. And when we divide, we can see that the Agribusiness made ARS 2.1 billion comparing to ARS 0.2 billion last year, and we are going to see through the presentation that we had good operational results and farming activities plus some farm sales in many countries. Related to the urban and investments, we had a good year [too] ARS 9 billion and mainly are explained by good operational results, very good in the rental segments. And in Argentina and Israel, and in the mainly explanation of the balance sheet of IRSA because of the fair value of the investment properties that in Argentina we're re-evaluating the assets and made the big gain in pesos not in dollars. But this is the explanation on the balance sheet. Something that affected a lot the balance sheet of Cresud was the discounted operation of Shufersal. Shufersal, we had more than 50% last quarter, but we recently we sold a stake of almost 16% and with that sale we began the debt consolidation. So this brings 2 effects, one brings liquidity to our DIC, the company of Israel like ILS 850 million, plus the debt consolidation brings a bigger amount of the asset to the balance sheet of Cresud and to the IRSA too. So this is the main effect that makes us to have a net income of ARS 17.8 billion that is a 250% comparing to last-year number. And when we see the attributable to Cresud, we have a balance sheet reflecting a gain of ARS 5.4 billion comparing to last year ARS 1.5 billion. Related to the agribusiness, there are some -- the main important things that we can consider. During the last year, we sold 3 farms, 2 of them are partially sold, you know that we buy big pieces and we divide them into pieces and we sell them. So the total sales of last year were $46.5 million. And after the balance sheet, after the 30th of June there was another sale of Jatobà in Brazil for BRL 178 million, so this is not reflected in the numbers we are going to see now. The last year, the whole year, we were developing land, we developed almost 11,000 hectares in the region considering the 3 countries, Brazil, Argentina and Paraguay. Related farming activity, we had good results mainly in Brazil and Paraguay, Argentina some good, some neutral, some negative because of drought. Carlos will explain later and bad results in Bolivia. We are planting more than 200,000 in the region, producing 532,000 tonnes of crops, this is just crops a part of that is the sugar cane. And related to urban investments the EBITDA for the rental segments grew almost 25% comparing year-to-year, occupancy at 98.5% in malls, 92% in office, 70% in the hotels portfolio and there was a big rebound on the -- in the hotels because of tourism coming to the region. In the Israel Business Center, the last year we were selling stakes every quarter so we sold 20% of Clal during the fourth quarter. And in all of the cases, we did swap transactions in the sales of that to take the profit of the economy of that sale. And today, we have 29.8% of the shares of Clal, and what I explained before the sale of 16% of Shufersal that gave us a lot of liquidity. And during this year, we had -- we launched buyback shares, we were able to repurchase ARS 900 million, representing 4.1% of the capital of the company that we finish on July of this year.

We can move to next page, in Page #3. And this is something that didn't affect last year numbers [as of June] but is going to affect next year's numbers. And the government after a lot of devaluation, we're to see devaluation that came to the company this year the company moved a lot the dollar from 17 or 15 to [38] but there was after that big devaluation later. The government decided to put again and to put a new measure of bringing taxes to the exports. These -- and we explained different in the soybean, the corn and wheat. The soybean was at the 26%, 27% taxes because market was reducing taxes and exports, and we can see on the graph of the soybean that the blue is showing what he was promising decreasing the deductions on the exports of the soybean. They did directly a reduction to 18% instead of the 24% that was up for this moment, but increasing on the taxes and exports in peso, tax, [fixed] and a maximum of 12%, so the combination of the 2 makes at 28%. Today, tax with a maximum of 30% for the taxes for the soybean, and in the case of the corn that was at 0 that was one of the first measures that the government gave. Now they put this for pesos that represent in a 40% -- $40 -- ARS 40 per dollars at 10% and if this goes to 33 will be at 12% and there is a maximum of 12% taxes for exports for the corn and the wheat. So there is some good news because the revenues for the next year are going to be much higher, but bad news, taxes on the exports again.

If we move to Page #4, this is the evolution of the total service of Cresud combining the own and long-term leases, and we can see that last year's number was 764,000 hectares. And we sold La Esmeralda, finished La Esmeralda so this is not partial, this is finishing this farm, no more La Esmeralda on the package. Partial sale of La Suiza 10,000 hectares, partial sale of Araucaria 1,000 hectares in Brazil. Today, we are running 744,000 hectares, there was a subsequent that I explained before, 10,000 hectares in Brazil, so today we are running 773,000 hectares in the region.

We can move to next page, and here we can see that for the book value of the balance sheet of our company reflecting $256 million book value for the farms of the 4 countries. Argentina at its very original buying farms has $29 million. When we make the fair value that [cut] in Argentina makes brings it to [$289 million] and for the other countries Brazil, Bolivia and Paraguay we can see that there is a $701 million combined valuation of fair parts, and so it's 2.7x what the book value reflects. And the part the stake of Cresud considering the portion that Cresud runs represent almost $500 million.

In the Page #6 the [expense] of the year, the 3 reflected the balance [sheet sales] giving us very good results internal rate of return of 18%, 9.5%, 12%. So big gains in [the rates] that is a big portion of the business of Cresud and BrasilAgro, 8x -- 8x, 6x of the values so a lot of gain reflected the day we sell.

If we move to next Page #7, we can see the one that is not still reflected on the balance sheet and will be on September of this year 2019 fiscal year. This is a partial sale, this is a farm that we bought for ILS 900 per -- sorry BRL 900 per hectare. And after the development and doing almost from 0 this was nothing developed, and today we are selling after many years we can see that this is the book value of that is very low, book value is 18 with the sale -- nominal sale of almost BRL 118 million, so a very profitable sale. And this a farm that was not very profitable operational, but yes, this year with good conditions and maturity of the land and we began the sale. So closing the cycle of the farm, making a very good return, and we have still the remaining area of 22,000 hectares of that farm.

And if you can move to Page #8, we can see the development and the sales per year. Again, 2018, an active year, and we know after what I explained before next year is much bigger than this. So we are expecting buying and selling very active of the company, and the development we are -- we developed 10,000 hectares last year. And we are keeping development in 3 countries again for next year, so actively doing the 2. And so this an explanation of the real estate activities. Now I will introduce to Mr. Carlos Blousson related to the markets and the production of the company.

Well, thank you, Alejandro. Good afternoon, everyone. Let's beginning with Page #9. About farming, production forecast and global stocks. In term of soybean productions, you can see that Brazil and United States has remained upward. Brazil 6%; and United States 7% hitting a new record. However, as mentioned before, Alejandro, Argentina, a decrease because we have the significant drought. Production decreased 36% and so that the world stock consumption has gone down to [72.30% to 27%].

Regarding corn, Brazilian and American production has decreased 4%, and additional Argentina has declined production by 20% due to the drought as well. So the world stock consumption has decreased from 90% to 40% sales, these 3 countries are the most important ones.

Let's move to the Page #10, regarding farming activity in the fiscal year 2018. The Argentina weather conditions were drought mainly in the East Coast and the central area, Cresud mitigates part of this effect that was present to the northern of Argentina where the weather conditions were neutral. In relation to crop production, it has decreased 23%, and [in the concept] for the cattle production in the northern area increased [16%] that these areas have good weather conditions. Bolivia weather conditions were with several flooding and summer cause the lost crop production by [14%]. Begin Brazil and Paraguay, the positive weather conditions were very good, so with high production with great campaign. The crop production increased 38% in Brazil and 26% in Paraguay, while the cattle production increased significantly 307% in Brazil and 171% in Paraguay. The crop breakdown was [45%] soybean, 25% corn, 17% sugarcane and [40%] other products. Regarding commodity price, as you can see in the graph in the lower graphic the price decreased 8.9% in soybean, 5.5% in corn, being the lowest price in the last year.

Let's move to the next page, 11, the farming activities. The planted area increased 2% to 209,000 hectares because Brazil grew 11,000 hectares, and we estimate the production of 532,000 tonnes decreased 12.8% due to the Argentina weather conditions as I mentioned it before. And in sugarcane, we estimated a production of 1,901,000 tonnes increased 4.8% [in] more than the last year. The regional yield the evolution shows a continuing [up] trend especially with the good weather conditions such as in Brazil and in Paraguay.

Let's move to the next page, the cattle activities. The meat production increased 27% year-to-year because Brazil grew up in the [bay] area by improving livestocks. And in Argentina, in the north area, has a good weather condition to increase the production. In the bottom line, you can see the cattle price per country in USD per kilos in carcass weight. In Argentina and in Brazil the price went down 29% and 19% respectively, while in Paraguay it increased 1%.

Move to the next page, the slide number -- the Page #13, the other segment. [fyo] [the role as] company continued growing in grains traded to 3.8 million tonnes, making the market shares stronger 4.2% in soybean and 2.4% in corn. The results in the fiscal year 2018 are ARS 79.4 million growing 50% year-to-year.

Agrofy, the agribusiness global marketplace [continuing operations] reaching more than 5,000 agribusiness suppliers. It’s operating in Argentina and recently expanded to Brazil. Carnes Pampeanas, the meatpacking plant has low results as a consequence of the cattle price going up, the exchange rate remained stabled, local market could not transfer price to the higher costs. The results fiscal year 2018 loss ARS 62.5 million. However, in the last 3 months because of the peso devaluation, results become positive]. Matias is continuing with the presentation.

Thank you, Carlos. Good morning, everybody. Going to Page 14, the main event for our investment in IRSA, we control 40 -- 64% of sales, and we consolidate in our financial statements. So the main result of IRSA that net income was ARS 21.3 billion attributable to EBITDA of ARS 15 billion with an adjusted EBITDA of ARS 9.3 billion better than the previous year. Main events, I will explain later, the main accounting events in the next page. On the operational side, the rental grew in the rental segment in Argentina, 24.7% year-to-year, the occupancy 98.5% in malls. Stable compared with the previous year 92.3% in offices, a little below last year and a hotel portfolio at 70.1%. Main events on Israel was disposal of Clal that we have done, 4 swap transactions, 20% disposal that we did through total return swap transactions, so where we keep the economic rights on the shares but we lost the political rights. And also during the year we sold 16.6% of the shares of Shufersal, so with this disposal we don't consolidate anymore Shufersal, and we're recognizing an important gain of ILS 853.7 million, that in pesos is around ARS 8.5 million.

So going to Page 16, we have the breakdown of our financial statement. So we finished the year with a net income of ARS 17.780 million, again, ARS 5 million of the previous year attributable to our shareholders increased like 257%. So try to explain the main effects in the financial statements. You know that we divide our segments in the Agribusiness, the urban in Argentina, the business center in Israel that include all the segments in Israel. So in the agricultural business, I think I will show the -- a breakdown of the operational side. But I think the main effect this year is the farmland sales that we grew compared with the previous year that we sold the 3 farms that Alejandro explained. In the urban Argentina business segments, the main effect is the change in the fair value that we have a result of ARS 20.5 billion compared with ARS 4.3 billion of the previous year. So here, remember we have the malls and the offices or malls we are using the DCF model, offices, we are using comparables. All the valuations are performed by a third-party, we are using [new work] as a broker to evaluate the value. And also the other important effect is the result from associates and JVs. Here we have a negative effect on an impairment in our Lipstick Building compensated with better results in Banco Hipotecario and good results from a subsidiary that has a plot of land, so we reevaluated that plot of land that is [quality] in San Martín.

And in Israel, the main effects came from the financial -- the net financial results that I will explain in the next page. And in -- also the other important effect in our -- in the total result is the net income from discontinued operations. As I mentioned, we deconsolidated Shufersal, and we recognized the gain, the ARS 12.5 million during the year, again, ARS 4.1 million that was related to the disposal of [Adama] in the previous year.

Now going to Page 17, we can see the breakdown of the net financial results, so Cresud and BrasilAgro [debt] has the impact on the devaluation. You can see in bottom left the evolution of exchange rate in Argentina. So last year, we had a devaluation of 10.6% from 15.04 to 16.6. This fiscal year, we had a devaluation from the 16.8 to the 28.85. Today, the currencies have limits of 37, so we will recognize for the losses in the next quarter.

So that -- the impact is directly in our dollar denominated debt, so you can see in the second line of the table, the net exchange differences that went from ARS 469 million of the previous year to the ARS 4.3 billion this year. Also the net lost interest increased, one of the reasons was the effects because we have dollar-denominated debts, so our payment is in dollar but in pesos it's higher and also a higher cost on our debt. So this year, they -- all the interest rate in Argentina increased, so our debt -- the short term debt that we have increased also.

In IRSA, the same results, so the same effect in the debt, so the ARS 9.9 billion in the line of net exchange difference is explained by the dollar-denominated debt reflected in pesos the same in the interest. Then in the last line, the profit from fair value of financial assets and derivative instruments is the performance of our liquidity, so we have cash -- important cash positions that generate results on ARS 2.3 billion against ARS 535 million last year. And in IDBD and DIC we have 2 main effects that 1 is the debt swap that we did at the level of DIC that generated a loss of ARS 2.2 billion, and the second effect is the [fluctuation] of Clal shares. We recognized Clal at market value, so last year increased by 51.9%, this year decreased by 13.5%. That generate the difference in the results.

And it's important also to mention when you go to the line of net lost interest in Israel that although here you see an increase from ARS 4.5 million to ARS 5.5 million, the devaluation between the peso and the shekel was 27% during the year. That means that IDBD and DIC are paying less interest in shekel term and that is the result of the [restructuring] that we did there. And at the new debt on the different companies that are at lower rate than the original debt.

So going to Page 18. The breakdown of our adjusted EBITDA more focused on the operational side. So the farming, we have a very strong year in terms of results in pesos although the big drought in Argentina. You can see very good results in all the lines in grains increase from a negative result of ARS [167] million to a gain of ARS 837 million. Remember last year, we have a decrease in the holding of our crop that at the beginning of the year was a very high price and then decreased, so we generated a loss there. This year, it was the opposite so that this year increased. Although we have lower yields in Argentina, the price and the FX made a difference. And also in Brazil and in Paraguay, we have a strong year that is reflected here.

Sugarcane the effect is in Brazil with better prices and more [service], we're highly compensated with a little lower result in IRSA as Carlos explained. Cattle and milk, remember that we discontinued the milk activity in the second quarter of this year but the last year we have some, so increase also a little there, mainly explained by the cattle activity. And Agricultural, rental and services and services on farm that we rent to third parties also increased by 58%. And finally, the other segments, our stake in [fyo] and the meatpacking facility that are generating losses, fyo compensate part of that but still a loss. But we finished with a -- probably it's a record in terms of return over the value of our assets. When you include here the farmland sales probably the return of the assets is around 10% with a $75 million in EBITDA so it's a very strong year for our EBITDA.

In Page 19, the performance of the other segments, so there is -- the adjusted EBITDA in the rest of the segment. You can see good results with probably a little bit below inflation in malls, offices by 21%. This segment will grow next year a lot because of the devaluation, we collect here rent in dollars. Hotel is the same, so probably with the new exchange rate in Argentina, Argentina will receive much more tourism and the rates are in dollars, so it will increase. Sales and development, this year, we sold a plot of land at the IRSA level. So probably going forward, we will see what happens with the land bank and what we have but it's not material as it's shopping centers and offices. And in Israel, good results in real estate, good results in supermarkets, telecommunication is still challenging. It's a competitive environment there, so the company is trying to improve other business lines like television and Internet. But the environment in the Cellular segment is very challenging. So on the other line is mainly related to the costs on G&A, on the corporate level.

On Page 20. We have the -- what we did in terms of the share repurchase plan, during the year we announced share repurchase plan of up to 9 -- at the beginning was up to ARS 500 million then we increased it by ARS 400 million more, so it's ARS 900 million in total. So we already finished, we bought 4.1% of the shares of the company. We thought that is a very good way to deploy our excess liquidity, this challenging environment for all the market in Argentina. So the average price that we paid was $18.50 per ADS, ARS 43.27 per share, the common shares. So you can see the evolution on the shares of the company since the beginning of the year and to date and the price that we paid for the acquisitions.

On Page 21. We have the breakdown of our debt and debt amortization schedule, the net debt of the company. Today as of June it was $349 million. Most of the debt is in dollar terms. In February, we were able to issue a new bond for $113 million at a fixed rate of 6.5% that matures in 2023. Today the current environment, the level of rates is much higher in Argentina unfortunately. Regarding the 2019 debt that we have $190 million, so the main composition of this is a credit line in Argentina that is refinancing of the exports that the banks are allowed to lend dollar. The only way that the banks can lend dollar is to exporters or exported related, so since we sell our productions to exporters we are able to achieve those lines that the current environment in Argentina probably is the cheapest way to finance so we are using that short-term debt because of that. So with this we finish the formal presentation. Now operator, we open the line to receive questions.

(Operator Instructions) And our first question comes from [Rodrigo Mudabaro] from Newfoundland Capital.

I want to hear your views for the upcoming '18, '19 crop season in Argentina. Last year was a tough one and as you know for the macro of the country is really important the results on the upcoming year. So I would like to hear your views, I know it's too early but we already have the wheat on the ground, so any views you can share would be super helpful.

I think that we are facing campaign that changed a lot. Every time that we see devaluation coming to the country, you're planting in a price and harvesting at a different and this is going to happen in many cases and mainly to Cresud that was able to buy before and is going to probably harvest at a very different price, so we begin a campaign with 28, today we are at 36 or 37, less taxes that is affecting [for] so it's a -- the devaluation coming and something that is a part of the macro that is changing. It is the inflation that is going to affect probably slower than devaluation and the climate conditions. We are comparing last year very bad climate conditions for the main areas of Argentina. So we were lucky that we had the north that was almost budget but the rest suffered a big drought 20%, 30% drop in yield. So we expect -- we are going to plant a lot, Argentina for next year is a big size is a 120,000 hectares of plantations. So we expect normal for the -- climate for the year, and we expect the situation of higher revenues because of devaluation. Prices are going to -- now we saw some effect on the prices, taxes and exports made the decrease on the prices in dollar terms for the crops, so we saw that the first moment, that this is long-term, we have to move, you have seen China and USA event that it's going to affect these price of the market for the whole year. So I think you have pros and negs in the years, but we expect a good [year] for the farmers in general because of devaluation and every time of devaluation is a benefit for farmers for this year .

(Operator Instructions) And at this time I'm showing no further questions. So I'd like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks.

Just for finishing, Cresud will keep doing what it makes that it's developing, selling, buying again when we see the opportunity. We expect a big campaign. We have some business growing outside like Agrofy that is beginning to be a multinational going to Brazil and later to the rest of South American countries. The rest of the business are growing well, internationally speaking and the urban and Israel too. So we are forecasting a very good year for 2018, '19, and we thank to everybody and we see you next quarter. Thank you very much, and have a very good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.