Cresud SACIF y A (CRESY) 2019 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the Cresud Second Quarter 2019 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 by clicking on the banner Webcast/Link.

The following presentation and the earnings release issued today are also available for download on the company's website. (Operator Instructions)

Before we begin, I would like to mention -- to remind you that this call is being recorded and that information discussed 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 afternoon, everybody. We'll now begin our 6-month conference call 2019, and we can begin looking at Page #2, that this is the first balance sheet that we are adjusting for inflation. Argentina adhered to these rules, so this is the first time, and Matias later will explain in deeper explanation how this affects the balance sheet of Cresud.

We can see that the adjusted EBITDA for the 6 months, we reached almost ARS 10 billion. From those, ARS 1.7 billion came from the Agribusiness, a very big, a very important, probably the biggest in our history. And from other side, the ARS 8.3 billion from the urban in Israel and urban in Argentina.

We can see that the final -- the net income, the final is a loss of ARS 5.6 billion comparing to a gain of ARS 11 billion last year. And this is mainly explained by the loss in the changes in fair value of IRSA investment properties in Argentina. So because of the environment of inflation, we have recognized the growth, and this is the biggest event of the balance sheet of this semester.

And attributable to Cresud shareholders, it's ARS 3.9 billion.

We can see in the right part of the graph, this is the record planted area of the group in the region between the 4 countries, 258,000 hectares between Argentina, Brazil, Paraguay and Bolivia. 100% of the wheat was harvest, just only 16% of the soybeans and only 3% of the corn. So the operational part of the business is going to be mainly the third and the fourth quarter of the year.

We keep developing land, and we did last year 8,500 hectares of developing in the region. We have closed 2 transactions of real estate. The 2 are in Brazil. I'm going to explain later. And this is a sale -- a nominal sale of BRL 185 million of 2 farms -- 2 portions of the farms that we sold in last semester. And when we see the Agribusiness adjusted EBITDA, we can see a growth year-to-year of 432%. And the pure farming EBITDA, just the grains parts, it's 60%, being just 2 quarters the smallest. So now comes mainly the soybeans and the corn.

And finally, the Argentine rental, the urban, grew 6.2% in real terms, the year-to-year, the 6 months to 6 months. And in Israel, rental grew 12%.

From other side, we approved and we almost closed this new share repurchase plan for up to ARS 300 million. The company did almost 94% of this repurchase as of today, so the company was buying out shares.

We can move to the next page. And in the next page, in Page #4 -- sorry, Page #3, we can see the evolution of planted area. Here, we see the record that I spoke before, the 258,000, representing a growth of 24% year-to-year. And we can see the main crops, that there are -- main are in size (inaudible) 50% soybeans; 29% corn; 11% sugarcane. So this comparing to our history is the record by far, and we have enough good climate conditions. Carlos will explain later.

From other side, the development of land. We can see that this 8,500 hectares, coming 2,000 from Argentina, almost 2,000 from Paraguay and 4,500 from Brazil, so the company accumulation of developing land surpassing the 200,000 hectares in the whole region.

If we move to next page, we can see the 2 sales -- Brazil's partial sales. And this is explained on the graph that in the case of Jatobà, we are still 21,000 hectares remaining to be sell. Part of them are leased and part of them are not leased, but the idea is to keep selling. So selling the [third], we closed the deal for BRL 177 million. This is (inaudible). No, this is not the total value. This represents a very important sale, so imagine what is the total sale of this farm comparing to the size of BrasilAgro. And this is very important, and this has a lot of room to reinvest in new other things.

The other sale site. We sold a farm, very small, 100 hectares, a small portion of Alto Taquari. Alto Taquari still owns 5,000 hectares, so we sold a very small amount of hectares at a very big price, BRL 8 million, representing a profit of almost BRL 6 million.

So this, and we see on the graph the evolution on the years. This year, in half year, we are in one of the big number of sales comparing to the past, the last 10 years of sales. We can see that this year, we are still selling more than $50 million and majority gain. The $47 million gain is in nominal but in real terms, bringing the money today, it's more than $30 million. So this shows again the strength of the company related to the buying and selling land.

So with that, I will introduce now Mr. Carlos Blousson that will explain in detail the situation of the company in Argentina and Bolivia.

Okay. Thank you, Alejandro. Good evening, everybody. Let's begin with the Page #5, about commodity prices and the global stocks.

As you can see in the graph year-to-year, the prices remain low. The soybean price decreased by 3%, and corn increased by 14%. The decline in soybean price is mainly due to the conflict between United States and China keeps going. That has made the world stock growing, as you can see in the graph, and especially in the United States, where the stocks rose up to 23.26%. Very, very high.

The price of corn, blue-colored, were due to higher demand. But this remained at low level because the available stocks are too high. Also, the group production or the group forecast of production of the total in this year in (inaudible) also puts pressure on the world prices.

Let's move to the next page, #6. This is regarding our view today. We have good prospects for 2019 campaign in Argentina. Argentina weather conditions have recovered from the strong drought, and the climate terms with good prospects, especially in Argentina. Corn belt at the northwest of the country, you can see in the map in the left of the presentation.

The planted area increased by 3% in Argentina, achieved a record in planting. Our productions regarding wheat productions, we expect to grow by 6% to 19 million tons, the corn by 40% to 45 million tons and the soybean by 51% to 53 million tons. For total, the productions increased by 25% compared with the last year, reaching 140 million tons. It's a record in Argentina. The production mentioned before are easy to achieve under the right weather conditions.

Now Matias will continue with the presentation. Thank you.

Thank you, Carlos. So if we move to Page 7, here, we have a breakdown, a short version of results -- operational results on IRSA -- commercial properties on IRSA. So we can see that the shopping malls, the sales of our tenants decreased in real term in the last quarter by 16%. So basically here we have our results are affected by the use of purchasing power of the people. The salaries haven't adjusted at the same pace than the inflation in Argentina, and inflation accelerated during the last 2 quarters in Argentina. So we can see that in nominal terms, our sales grew 23.8%.

In the case of our offices, the rent per square meter increased a little from the last year to $27 per square meter. Our occupancy is 90% as of December. So we have a vacancy of mainly 4 floors in 2 different buildings. Going forward, our real estate people has confirmed that we will recover similar occupation levels than the year ago. Also, including the Zetta Building in Polo Dot that we will open soon, probably in the next 2, 3 months. The occupancy will go up to 93%.

In the case of our hotels, the occupancy was 68.5% and we will see later much better results in our operations since the evaluation. And also you can see here that the rent -- or the rate per room increased to $205 against $195 last year.

In the case of our shopping centers' occupancy, occupancy went down to 95%. Here basically, we have one cancellation of a contract. Walmart resigned their contract in DOT shopping center. So leaving aside that store, that is a big store in DOT, the occupation would have been 98.7%. And also Walmart paid a penalty for resigning their contracts or it will be last time to rent again without losing profitability.

Also, an important event on the semester was at the end of the concession of Buenos Aires Design. So for that reason, our total stock decreased to 332,000 square meters.

In the case of the offices, the size of our portfolio remains stable compared with the previous year. Basically, we sold 1 floor in 1 building, so we grew to 83,200 square meters, but we expect to almost double the size of our portfolio in the next 2 years because of the incorporation of the Zetta Building in Polo Dot and 200 Della Paolera.

Going to Page 8. We can see the main event on our operation in Israel. So in IDB, the main news are regarding Clal. We sold -- we did 2 more swap transactions in August 2018 and January 2019. So our current stake in control is 25.3% of the shares, but the economic rights remains in 94.9% (sic) [54.9%]. Remember that in the beginning, we used to have 55% of the shares, so we remain in the same levels like at beginning of our acquisition. So we are trying to avoid selling the shares in the market.

Regarding DIC, we have been very active in working in our structure, so we sold shares in Shufersal. We reduced our stake to 26%. And we acquired shares in other subsidiaries like in PBC, in Elron and in Cellcom, so we were active on that. Also, we did -- we announced our share repurchase plan of up to ILS 120 million in DIC, so the remaining stock is currently no less than 10%.

And also, we did a distribution in dividends of ILS 100 million. ILS 60 million were in kind and ILS 40 million were in cash. We will remain active in working in this structure. We have to solve the Concentration Law Phase 2, and we have to reduce one more layer by the end of this year. So we have to work on that.

Also, in the case of IDB, we are in the process of selling Israir. It's our airline there in Israel so we are in the process of that disposal.

Going to Page 10, an important note regarding our financial statement is the adjustment for inflation. Argentina surpassed 100% of inflation accumulated during the last 3 years. And according to IFRS rules, any country that surpassed that threshold has to start adjusting their balance sheet by inflation. So the Argentina passed that during last semester, and the CNV now allow the companies to adjust, and it's an obligation for us.

So we uploaded in our website an explanation of all the effects on inflation adjustment here. I will mention some of them, but we have more details if you need to have more breakdown on all the details in our website. So basically, you have here 2 main effects. One is regarding our comparative figures, that now all the 2018 numbers were adjusted to reflect the current nominal value of their currency. So basically, we adjust all the figures of the previous year by 47%. So first of all, the quarter of the previous year, we have to adjust the inflation of that quarter and then we express that figures into current figures, multiplying the result by 1.47% that was the inflation.

When we see the different assets that we have, we have the obligation to adjust all monetary -- nonmonetary assets in Argentina. So all our assets abroad, Brazil, Bolivia, Paraguay, United States and IDB in Israel were not adjusted by inflation. Only we need to express previous year figures to the current purchasing power of the peso, the nominal value of the peso.

In Page 11, we can see the main assets in Argentina. Remember that all our investment properties that are basically shopping center, land reserves, offices and farms that we leased to third parties are valued at fair value in our financial terms, so we don't need to adjust by inflation. Only the result from the difference in the fair value before were all reflected in one line that was the appreciation of the fair value of investment properties. Now that effect is divided in 2. One goes to the line of inflation. And if we surpass the inflation on the appreciation, we're recognizing that line. And if not, we have a loss. That is what happened in this semester, and we will see a decrease or a loss in our investment properties. That is basically the main explanation of our loss in this year.

Regarding other assets, we have to adjust for inflation. If we go to Page 12, we have our farms that were valued at historical values, so acquisition cost plus CapEx. So we used to be at $27 million as of June 30, 2018 without adjusting anything. Now that is in $87 million in our books. That is lower than the fair value. So we are not in the middle, but we adjust some, but it's not the fair value of the properties. So we only need to adjust the inflation, not to reflect the real value of that. The real value here, we have the appraisal that we have as of December 31 that was in the order of $260 million.

And then in Page 13, the rest -- all the liabilities. Monetary liabilities we don't have to adjust because they're monetary. The shareholders' equity, yes, we have to adjust our equity by inflation. And the effect of that is a loss in our income statement that if we don't adjust the asset at the same pace, then we will have a loss. So part of that -- of the investment properties in peso term generated a profit, but the result, you will see that is in the IRSA case, and it is our commercial properties, a loss in the line of inflation. In Cresud, since we have also the farm, it's a profit in our financial statement.

So when we go to Page 14. As Alejandro mentioned, we have our net income loss of ARS 5.6 billion against a gain of ARS 11.5 billion at the previous year. Attributable to our controlling shareholders is ARS 3.9 million against a gain of ARS 5.3 million.

So the main effect we can see by segment. The Agribusiness, the performance was very good. We have an operating income of 9% higher than the previous year. Remember that this year when we compare with the previous year, we're already adjusted by 47%. So on top of that, Cresud record a gain of 89% more than inflation.

In Argentina business segment, we can see a drop in our results in operating income from ARS 10.6 billion to a loss of ARS 3.8 billion. Basically, you have the main difference in the line 4, the change in fair value, that in the last year, we posted a gain of ARS 8.3 billion against a loss of ARS 6.3 billion of this year.

In the Israeli business segment, to understand or to compare the results, you need to also consider that the real appreciation or depreciation between the shekel and the peso, that was 17%. So to compare the previous year, if you see numbers ahead of the 17%, it's better performance or lower if it's in the case of costs.

We can answer in more details in the following pages. So if we move to Page 15. We can see, the figures for us reflect better our operational performance, that is our adjusted EBITDA. Here you have a breakdown of all our segments starting with the Agribusiness. We can see farmland sales, that increased significantly. And here we have an accounting effect that is important to explain that in the case of Jatobá that we saw, then here is reflected the gain of Jatobá. When you go to our financial statement, since we have part of that farm rented to third parties, we have to value at fair value. So when we sell the land, we are not posting a gain because we already recognized part of the gain when we valued that property. But here in the adjusted EBITDA, we are including the gain against our historical cost.

In the case of the farming, you can see that we have very good results. Something important to mention, there is also a change in the -- when we come to [adjust] by inflation -- is that all the holding results, that before were included in the lines of the segment. For instance, if we have a stock of grains or if we have a stock of cattle, we recognize the difference in the value of the product. In that line now, with the inflation adjustment, you have part of the results in the inflation line and part that surpass the inflation here in the segment. So to calculate, our gross margin will be difficult because we will have part of the holding results in the financial line and not in the operational line. Sorry for that. It's not something that we decide. It's the rule that we need to fulfill.

So for instance, in the line 5, that we can see a drop or a loss in the cattle activity. It's basically because the holding result were excluded in this line.

Regarding the sugarcane that you can see a drop here, 14%, it's related to the farm, San José, that we acquired last year that at the beginning, we received some plantations that we don't have to plant this year. So last year, we had better results than this year.

Regarding the other segment, it's basically our operation in FyO, the brokerage firm, agro-industrial, the meat packing facilities. FyO posted very good result this year. And the agro-industrial, we reviewed the loss but still generate a loss for that service segment.

Regarding the urban segment, as we explained in IRSA, shopping mall decreased by 10% basically because of the lower consumption in Argentina during the last 6 years -- 6 months, sorry, the acceleration of inflation and the lag on salaries that had an effect on people, who lost some purchasing power. So that is affecting all metrics of consumption in Argentina. Offices, very good results since the revenues -- or the agreement are in dollars. Hotels, very good results. Probably, one of the best in the last year, 563% more than the previous year. And sales and development, that is this semester we haven't sold important units yet. So in the last year, we sold Baicom and other properties, so it's why we have this improvement.

And regarding Israel, real estate, very good results 36%. Telecommunications, in shekel term, lower than the last year basically because of the competitive environment in the telecommunications sector in Israel. So therefore, the main effects on the operational side.

On the financial line, the net financial result, remember that this year, in Page 16, this year, we have an important devaluation. We have the graph of the exchange rate in the bottom left. That this semester, the devaluation was 30% against a devaluation of 12% during the last year. So that generated a higher interest payment and higher net exchange difference since all our debt or most of our debt is dollar-denominated.

And then you can see in the line 5 all the effects of inflation goes to this line, the adjustment for inflation. Here we have all the impacts of the different lines. In IRSA, it's quite the same, so basically, we have dollar-denominated debt, so we are paying more interest in pesos term and more net exchange differences.

And in Israel, if we see that figure in shekels, the net interest loss is decreasing, so we are paying lower interest because we reduced some of the debt and also we refinanced part of the debt at a lower interest rate, so that is decreasing.

And also the other important effect is regarding the fluctuation of Clal shares. Last year, increased by 4%, and then we will restate that figure by 47%. So you have higher profit in the line 4 last year compared with this year.

And also, there was another important effect in the line 3 that was the swap that we did at the DIC level, swap of restructure of debt. So we issued new debt. And at the beginning, we had to record a loss. That was last year. That is reflected in the 6 months of 2018, ARS 3.5 billion in the line 3 against a gain of ARS 113 million this year.

If we move to Page -- finally in Page 17, we can see our net debt as of December 31. Our current net debt is $395 million. In the net debt amortization schedule, we were able to issue a new bond at the end of the last semester. So we have a debt amortization schedule, the different breakdowns in different years. The short-term is basically because in Argentina, the banks are forbidden to lend dollars to companies. Only they can lend dollars to exporters or exporter-related. And since Cresud exports or sells the products to exporters, can access to that financial line, and it's one of the most attractive in Argentina in the current scenario. So for that reason, we will concentrate bond in the short term.

So with this, we finished the formal presentation. Now we open the line to receive your questions.

(Operator Instructions) Seeing that there are no questions, this concludes the question-and-answer section. At this time, I'd like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

Thank you. We did only half of the year. The next third and fourth quarters are very active in the agricultural activity mainly. We expect new conditions for that. From other side, the real estate is developing in Argentina and in Israel a lot and occupying those rental properties, too, so we'll keep working a lot in the whole region.

So thank you very much, and we'll see you next quarter. Have a very good day. Bye.

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