Cresud SACIF y A (CRESY) 2021 Q4 法說會逐字稿

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the fiscal year 2021 results conference call. First of all, I would like to remind you that 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 are also available for download on the company website. After management remarks, there will be a question-and-answer session for analysts and investors. (Operator Instructions)

Before we begin, I would like to remind you that this call is being recorded, and the 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, CEO. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. We begin today our fiscal year 2020/2021. And we can begin speaking in Page #2 about the main events of this very full year, a year that was very affected with the COVID from one side. But for the agriculture business, for the Agribusiness in the world was a very good year in general. Prices recovered a lot. So this sector was changing in a very positive way.

Main events for this year, this was a record regional campaign of planting 260,000 hectares, we achieved 844,000 tons of crops. On top of that, it's sugarcane. We achieved the highest the record EBITDA of our history, achieving $138.5 million. And I would like to point about this breakdown. This year, BrasilAgro represented 59% and Cresud and FyO in Argentina represented 41%. And something else to show is how important was farming for this year that was 70% of the breakdown.

And this year, farm sales were not so important. Normally, and more in the past, was the opposite 70-20. But this year was a good example of the maturation -- the maturity of Cresud planting the land and using the land properly. And today, the operational business became the much more important. And the second was the service business through field, the brokerage and the service -- all kind of service to the farmers, the 2 giving good results, too. So this is a good example of how good year we are finishing.

But when you go to the right part of the page, we can see that the net result of the year was very negative. The net result of Cresud is ARS 24.5 billion negative comparing to ARS 30 billion positive last year. And when we go to the part attributable to controlling company, it is a negative of ARS 12.6 billion comparing to a ARS 5.9 billion positive of last year. And these are a lot of noncash effects. And the two main are the fair value of the investment properties of IRSA, and there was a decrease comparing to inflation. So we have a very negative number this year and a very positive last year in fair value of the assets.

And the second one is the deferred tax. That is the calculation of the deferred tax that every asset you make. And this year, the government of Argentina changed from to 25% to 35%, the tax rate. So that effect made a gain and a big loss. So a record in the Agribusiness EBITDA, but a loss in these two main effects.

When we speak about other things on the year, sales, again a sale in Argentina, we saw a fraction, not a whole farm, we sold the fraction of San Pedro farm with a small sale of our stake in, Agro-Uranga too less than 1%. To remember that we paid for that $20 million, and we sold in a valuation of $80 million, a big gain in the revaluation of Agro-Uranga too.

So 2 sales in Argentina. The sale of Argentina to BrasilAgro of Bolivia farms. One sale in Brazil, one sale in BRL 67 million, one fraction of Jatobá, the big gain in Brazil. And a very relevant decision of not having more the packing plant. We sold at the beginning of 2021 our meatpacking plant base in Santa Rosa, La Pampa. That company was formed with Tyson Foods, a long time ago, 2007, but a lot of the crisis of the Agribusiness sector of the capital submit Tyson to leave. They left the country in 2010.

And from there to now, we are running that. And we couldn't make a stable profit in that business, and it was not enough big on scale neither, only one meatpacking plant competing to other players with a lot in many countries. So we finally sold a $10 million plus the debt. And that made us really a big gain and not comparing to all the investment that we lost in the past, but comparing to the broad value at the end and comparing the result that we had in the past, I think it was a very good discussion and decision to sell after we did all investments, openings of markets, but finally was not a profitable business for Cresud.

Canceling that negative number plus the good year of Argentina in (inaudible) prices made so positive price and gain for the Agribusiness in this year. And related to capital markets, we did three important things. One was the capital increase in Cresud $42.5 million plus warrants. Capital increase that was done before in Brazil for BRL 440 million, plus BRL 60 million in secondary market. And Cresud kept a grew after the warrant, we exercise our warrants that we had from foundation of BrasilAgro 2006. So 15 years later, we exercised that, and we went to 39.4% of stake of BrasilAgro today.

This included the stakes in the treasury of the company. So very important year with a lot of activity in the agro and the financing. So let's start in Page 3, looking at the portfolio evolution. That -- this year was a good year in size comparing to last year. We kept almost the same. And when we see the total surface is almost the same, the total crop is bigger than last year. And we -- here, we have the breakdown of surface from [625] and rented and leased. So the combination of the three, we are running almost 880,000 hectares in the region.

And when we talk about the surface and dedicated to production, we are here showing a new graph that shows year-to-year how the agriculture grew year-to-year in 9,000 hectares group and 2,000 hectares in cattle. And in the -- we sold some -- we sold 3,000 hectares of productive area. So the combination makes a total growth between capital and crop of 3% year-to-year, 307,000 hectares to almost 300,000 the year before.

When we compare our stakes, and here showing that we sold the 100% of Carnes Pampeanas, we decreased a little in Agro Uranga with the small sell that I explained before, that made us to be close to 35% of the stake of Agro Uranga. It's a family business running two farms in Buenos Aires and in Córdoba state and selling specialties and commodities. In Agrofy, we decreased a small decrease because of some capital increase. In FyO, we stay with 50% in BrasilAgro after -- and we are going to explain deeper, we went from 33% to close to 40%.

And in IRSA, we kept at the same level of last year. If we move to next page, in Page #4, we can see the big change of the year that was the increasing on the prices of soybeans and corn, something not expected by the market, but middle of last year, August began to grow the price. And we went from levels of $300 ton of soybeans to $530, and in case of maize $130 million to $180.

And recently, after this balance sheet, we saw some drop on those prices. There was a rebalance on the price, but still a much higher price to budget. And every country now beginning its budget, is beginning in a much higher level because last year, we were budgeting in May, June, prices were much lower in those days, soybeans were at $200 and some in Argentina. So imagine what the change surpassing the $300 per ton in Argentina these days.

Stocks of the world, the world needs good campaigns. And today, American campaign is not working so well. So we need to see what happens in South America next quarters and after that, we are going to see what happened in prices but the stock consumption ratio is tight. So we are forecasting good price for this campaign and probably for next, too.

We can move now to Page #5. And in here, we can see the crop breakdown of our main and more important soybeans but with some others being relevant like sugarcane, not too big in size, 10%, but very relevant in the EBITDA generation of the sugarcane.

The second is the maize with 26%. And I would like to remember people that we are beginning to increase our specialties in the portfolio we began with chia, barley, rice, chickpeas, sesame, peas and the company is intended to increase on that margins are a little higher than commodities. So the company is working on that and increasing the square meter hectares dedicated to that because of better margins to the farms.

The conditions for the crop of this year were in Bolivia good. In Argentina and Brazil depending between neutral and I would say that Paraguay was very bad in a very dramatic drought that made us to lose almost all the crop. So we, in the case of the main 2 that they are Argentina and Bolivia -- and Brazil, sorry, the neutrality on production that made a little better, a little worse maize, very balanced soybeans made us to have almost budget crops but much better prices. And that was the key reason that made us to have a very important EBITDA on the Agribusiness in the region.

And here, we can see that the two main are Argentina and Brazil. I'm not sure if next year who will be first or second. Brazil is growing. After the capital issue, they are looking for more leasing and more purchasing and developing land. So this is going to be more balanced or in favor of Brazil, too.

We can move to next page and see in the Page #6, how there was an increase of 2% in volume. When I speak about the normality of the volume, 844,000 tons between the 4 countries, close to budget and look at the yields increasing a little bit the 621 to 638 or in soybeans, the really -- I think the company using much more tools of the firms like variable seeding and keeping the management and maturing the land is making a better job in farming.

And the 70% of this year represents very well -- how well organized was the campaign for the company. When we speak about sugarcane, there was a small drop. We decided not to plant in some areas like the [central estate] and -- but it was growing in the new project in the Maranhão region. So the sugarcane was a very profitable business because we are using less land and very high margins breakdown on the year. In meat, we decreased the number of heads. We -- mainly in Argentina, we decided to [cut product] and later came the restrictions to exports on the beef. So we have the chance of decreasing our stake before because we were not very optimistic on cattle in this year for Argentina.

About the sales in the next page of farms. The Bolivia, we transferred the stake at $31 million to BrasilAgro. And today, BrasilAgro is running Brazil, Paraguay and Bolivia. And in the case of the packing plant, I explained before, Jatobá is a partial sale that we are selling every year. And this is a good example of how with Jatobá we bought at BRL 1,000 and we invested up to BRL 4,000 per hectare. And we were selling at BRL 30,000, BRL 40,000 per hectare. So huge gains. And in a small portion, we made a very important gain in Brazil.

And in Argentina, we decided to sell San Pedro. San Pedro is based in an area that the clay makes not to be so stable in the production. So our story of production was not so profitable. So we sold this property, not even a very important gain comparing to the price of paid few millions more. But really, when we prefer to cancel debt or to do other things, we decided to sell in this region. So we sold close less than half of the farm. And now we are -- this was loaded with a castle and whole houses. So it was not an easy finding for a client.

But finally, client decided to buy because like to enjoy this castle with the palace and the gardens. And now we're going to sell the rest. And we want to invest in other regions with more revaluation and with more operational business. So the company is doing that job of increasing the places and decrease in other places.

And look at what happened in next page, look at the evolution of sales per year. Every year, Cresud BrasilAgro and all other countries sell some. Here we see that the average in our history is 2.4 farms per year, 17,000 hectares per year, 3% of the portfolio every year. And this year is not a very important $21 million total sales to farms -- partial farms. The 2 cases are not total farms.

So this is a good example of a lot of appreciation that appears the day we sell and probably next year will be much more active with this better environment to our business. We are much more optimistic on the next year '21/'22 to sell much more farms than this year. And this -- but again, majority is a gain. Book value represents a very small amount, and we show that the day of the same.

The investment in BrasilAgro, 15 years of history, a track record of a history that began with a business case, no firms at the beginning, raising BRL 570 million. And from that, the company grew, began to buy. And after 15 years, we, this year, were able to many very relevant stakes. First of all, Cresud began BrasilAgro with 7% of the company. And before the capital increase that was done in this year in February, the share was at 22%. And we were able -- before we arrived to the 33% of the shares. And after the capital issue, we kept almost the same. We didn't change our stake in BrasilAgro in the capital increase. We sold some shares in the market, 2%. Later, we exercised the warrant for $61 million that they were the price of a region plus adjusted by inflation, no discounting dividends.

So without discounting the whole many dividends with this exercise price, the company decided to exercise because we know how much value there is on the company, the net asset value done by third party is more than 40%. So we understood that our mission was to increase our stake, and we went to close to 39% of the shares. And the evolution of the share after this capital issue was very good. Today, the company is trading at close to 30%. There was a very big creation of value.

When look at market value to Cresud before June of last year was $94 million, and after the capital increase, the warrant exercise, using the today market value, our stake represents $227 million. From those -- for Q1, our net gain are $92 million are the investments through farms of capital that we issue in the warrants when we exercise the warrants. When we will do that through the net asset value of the farms of BrasilAgro, this could be a stake of $320 million. And this is a much bigger value creation. And the company is doing the job and recently decided to even to pay like a 10% dividend yield because half the money has the profit and that is doing that.

So after this year, BrasilAgro matured a lot, changed and today after emerged with another company that paid with shares, a capital increase and the warrant exercise is a company that is trading at BRL 2.6 billion. So it's much BRL 2.7 billion. It's beginning to be a material player in that market.

And I would stay a few minutes speaking about what is FyO and Agrofy in next Page #10. As you know, we have 50% of FyO and we have close to 20% of Agrofy. FyO is a history that began like 20, 21 years ago, is a service company. We understood that Cresud having the size of commodities in the region would need to move to the service and to the helping farmers of the world to commercialize, to administrate, to make their logistics, to think about the business of agriculture. And FyO was founded in Rosario, close to Buenos Aires, and that company that began only beginning at the digital market changed its idea of the beginning and became in the helping the farmers to make a better best business.

And in that idea, this company that didn't exist 20 years ago became the #1 broker of grains of the country, surpassing 6.5 million tons, representing a lot of Argentine crop and not only selling the commodities, but selling futures and options, selling services, advising farmers. Look at the evolution, this company that 5 years ago was close to breakeven and the first year was burning money, began to be some interesting case. Look at the evolution of this year, we are forecasting for this year $14 million EBITDA and this is a relevant company beginning to work in the inputs and the outputs.

In the inputs is a company that sells fertilizers and some other inputs. And this company began only in Argentina and now it's expanding in inputs in the rest of South America. And in outputs, is thinking to go to the Brazilian market, too. So FyO began to be a relevant service provider for Argentina and for the region and is intending -- using its cash that generates to keep growing on the region.

Recently, a few years ago, Agrofy grew and expand with a historical idea of FyO, but now only to be a marketplace. And the Agrofy story began again 4 years ago with Cresud not been controlling shareholder. Here, Cresud began with some 30% and today is at 20%. And this company with some other international investors from U.S., from Argentina, from all over the world, it's expanding to be the place -- the marketplace for the region, for the Americas and look at how many flags that we have in Agrofy, intending to go to Mexico, too.

So this company being marketplace and being adviser for farmers and to give the publicity for all the products -- for all the companies, B2B marketplace. So this is a company that is in the time, expanding its operation. Look at what is the annual visits of this company in the last 4 years. the monthly context, the revenues. This is going to be the fintech of the agro. They place to pay of the agriculture and in -- only in the web.

So the two are relevant parts of Cresud's strategy, and we are seeing the growth. And today, with a materiality, we speak about them a lot. But today, Agri became the first in their arenas. The 2 of them, they are much more relevant to explain to the shareholders. Seeing that we can speak about IRSA, but I will introduce Matias Gaivironsky to speak about IRSA and the financial part.

Thank you, Alejandro. Good afternoon, everybody. If we move to Page 11, we can see the results of the different segments of IRSA. It was a very tough year, very affected by the pandemic. We suffer closures in our shopping malls during most part of the year, with different stages, but was very affected. When we compare the size of the operation was almost equal to the previous year, the occupation, we were able to maintain the same levels of occupation than previous year at 89.9% if we exclude two big spaces that 2 international companies that left the country leave us that number is around 93.4%.

We see the real sales during the quarter. We start to see a recovery, but we are comparing with the previous year that was closed because of the pandemic. Now this quarter was open. So when we compare the whole year, we have retail sales that were 28% below in real terms than previous year, and we will start to see a recovery in the coming months.

Regarding the office buildings, the same surface, but better quality. We opened one new building in Catalinas. And we sold these two different buildings for $170 million. So we were very active in selling some properties and do the replacement with a better quality office. In terms of occupancy, we suffer a little the impact of the pandemic. There are some companies that reduce space and our occupancy in the A and A+ went to 80%. And the average trend remained stable at 20 -- almost $26 per square meter. The hotels, were very affected by the pandemic, is still affected. There is still restrictions for foreigners to visit Argentina.

So our hotels are suffering that, with occupancy very, very low at levels of 12%. Probably the Llao Llao is the hotel that recovered -- the first to recover because we have tourism from Argentina, but we are waiting for the opening of the frontiers to receive more tourists.

If we go to Page 13, we can see how our P&L looks. There was, as I said, a very tough year to compare with the previous year. We have some effects on the inflation from on one side, on exchange rate on the other side, change in the fair value operation that was in the urban business affected. The Agribusiness was very good. We can see the net income, the agribusiness generated ARS 13.3 billion compared with a loss in the previous year of ARS 4.3 billion.

When we see the net income, the total net income, consolidated, this year was ARS 24.5 billion loss, against a gain of ARS 30 billion last year, attributable to our controlling shareholders is ARS 12.6 billion loss against ARS 5.9 billion gain in the previous year. Trying to see the main effects on these numbers. The first one is in the Line 6, the change in the fair value that last year bring a gain of ARS 51 billion, and this year was a loss of ARS 2.2 billion.

This is basically the valuation of our malls using a DCF model. And the portfolio of offices and land bank that last year, we started to use the blue chip swap as a relevant exchange rate and not the official exchange rate that generated a big profit last year. And this year, when we compare those numbers adjusted by inflation compared with this year number, that generate the loss. The other important effect is in the Line 14, the income tax. The government of Argentina increased the tax rate of the income tax in Argentina, passing from 20 -- there was the actual -- the current rate was 30%. There was a promise to reduce to 25%. And the government announced an increase from that 25% to 35%, that generate a direct impact on the deferred tax because we -- when we value at the fair value of the properties, then we recognized the loss of the -- potential loss of the tax and that is in the Line 14.

A positive effect is the Line 13, the net financial results that we see a loss of ARS 30.7 billion last year and this year was a gain of ARS 6.2 billion. Basically, here, we have different effects, but the main one is the FX losses. Last year, there was a devaluation -- a real devaluation of 16%, adjusted by inflation, the valuation was almost 66%. This year, the devaluation was 36%, but the inflation was almost 50%, and that generated a positive result on FX net exchange differences against the loss of last year.

In terms of interest paid, we have a little increase this year because the composition of the debt was more in pesos than dollar than the previous year. And that because of the level of the interest rate in Argentina generate more losses, but in terms of the net debt then you dilute part with the devaluation. Finally, the other important effect is in the Line 16, the net income from discontinuing operations that here, we have 2 effects. On the Agribusiness, we have the deconsolidation and the disposal of Carnes Pampeanas, the mid-parking facility.

And in IRSA, we have the deconsolidation in the first quarter of fiscal year of the investment in Israel (inaudible). So going to Page 14, we can see the effects on the operational side using the adjusted EBITDA. We see the Agribusiness with very good results in almost all the lines with better margins and better results on grains and sugarcane, the cattle also with good results on -- because of the increase in prices. This was generated.

The surface was almost similar than the previous year, but we have better prices in -- of the grains and the sugarcane. So that generate better results, as Alejandro explained before. And the farmland sales, here, we also have the impact on the receivables. BrasilAgro sold some farms that will be paid in soybean bags. And since the price of the soybean increase, we are receiving more results because of that and it's not generated directly by sales. It's more from the receivables. And the urban segment. Here, we have the impact of the pandemic. So to compare with the previous year is not the best comparison, but we are happy to see positive results even in this scenario. So the shopping malls generated some positive EBITDA with almost all the year closed. And the office is a little lower than the previous year, but we sold some square meters there and replace at the end of the year with a new building, so we will see a better comparison going forward.

And the hotels very affected. And sales and development is the result from the disposals of the properties. So if we move to Page 16, we were very active on the financial side, increasing capital in almost all our subsidiaries. So we increased at Cresud at BrasilAgro and IRSA level, very successful. We -- in the case -- in the 3 transactions, the market really support the companies and we received more money to keep expanding our portfolio in BrasilAgro. In Cresud, we use part of the proceeds to subscribe our proportion of IRSA and reduce debt.

And in IRSA, we use it so far, the proceeds to reduce debt as well. The performance of the shares after the capital increase was very good. So we are happy with the outcome. Also on the debt side, we were forced to refinance one of our debt because of the Central Bank resolution that forced the company's to -- that has to pay hard dollars to refinance part of the debt, is what we did. And we were able to reduce the cost of the existing debt or the previous debt that used to have a coupon of 9%.

We did a new issuance at the market support and that reduced the cost to 9% -- to 7%, sorry, 6.99%, with a new maturity of 36 months. Here, there is a typo in the right part that said maturity 30 months, is 36 months as well. So we did 2 different issuance with that coupon and that helped us to reduce the cost of the debt.

Finally, in Page 18, we have the breakdown of the remaining debt. The net debt today or as of June 30 is $420 million. We issued a new bond last Friday, we raised it $41.9 million in the local capital market. We did it with a structure that is dollar-linked. The coupon was 3.5%. That is the same coupon of the bond that expired in November. You can see in the table the fourth row that is $74.2 million. From that, we already raised $42 million at the same coupon. So we maintained the cost of our funding.

So we are happy with that. And we also extend the maturity until part in 2023 and part in 2024. Also, very good news regarding our credit rating. The Fitch ratings fixed -- the affiliate of Fitch rating increased our rating from A to AA so we are very happy with that. So with this, we finished the formal presentation.

Now we open the line to receive your questions.

(Operator Instructions) Yes, we have the first questions, crops. The input cost, seed, fertilizers, pesticides and transportation costs have risen by a large amount in the last 12 months. Please quantify how that price increased negatively affects the margin per hectare. That is in the crop side. And do you want to repeat that one?

Yes. This, as usual, after the big rebound on prices, there was -- the first to move was fertilizers and that made a very big jump. And later, the freights did a very big jump too in the cost of transportation of the crops. Yes, it's affecting and -- but the year-to-year when we begin the campaign, we are beginning with a much higher price comparing to last year's budget. So there is an increase in cost, but an increase -- higher increase in the sales.

So it's making a positive effect comparing to the existing. It's close to neutral to the existing. It's a very positive to the budget of last year where we were budgeting much lower prices and much lower inputs. And it's true the adjustment on the input costs always come, and it came again, but with very good results for the farmers because makes the margins to be comparable to the ones that we are closing this year. And maybe the yields are better, so maybe margins are better to last year, too.

There is a second question on the cattle side. Do you plan to further reduce the meat production in Argentina as a result of the export restrictions. Would you consider transforming a part of pasture land to crop producing or other land.

Yes. We did before the restriction to the exports. We, as a philosophy, we keep in the farms -- and if it's available to agriculture, we put in agriculture. Some farms in the graph that you received, there is a transformation of like 9,000...

11,000.

But from cattle...

Yes, 9,000.

9,000 from cattle going to agriculture.

Yes.

Yes. So yes, part of the why we did that, it's much higher the margin doing crops. This is mainly the farms in the North, much more profitable and less capital because you don't put the heads of cattle. So yes, we are putting the minimum amount of capital in the firms that they are needed because they have now the availability or the ability to do agriculture. But if they have, we move to agriculture.

Next question, did you oversubscribe the IRSA capital increase?

No, we participated by our pro rata. So we control around 65% of IRSA. So that is -- sorry, 62% of IRSA. And this is a part that we subscribe it. And obviously, we received the warrants as well as all the rest of the shareholders.

Any additional question? If there are no further questions, we conclude this fiscal year results on Cresud, and we turn back to Mr. Alejandro Elsztain, our CEO, for his closing remarks.

We are facing a very good next campaign. We are finishing a record in our history in agriculture -- in Agribusiness. But we are facing a very good one -- next one, having a comparable size implantations a little lower in cattle that is not so relevant with a very good environment, for example, for the sugarcane. The sugarcane was affected in Brazil because of a frozen that made to lose a lot of areas in southern parts of Brazil, but we plant our sugarcane middle to north part of Brazil so we are not affected by the frozen. And yes, by the prices. So margins for next year are very good.

And in the crops, too, having said -- what I said before about better prices, but higher costs as someone asked, in a big size and I hope and I expect a lot of activity in the farms buy and sales. In the buying that we need because we raised the capital in Brazil and the sales, in the mature farms that I'm very optimistic that we are going to do.

So we are facing a good campaign for next year. And every year, the past, every farm is more mature and every team is more mature. So I'm very optimistic for next campaign and with the capital raise to do much more business related, in the service area like FyO and Agrofy and in the agriculture like BrasilAgro and Cresud. So thank you very much to everyone. We see you next quarter. Bye. Thanks.