Cresud SACIF y A (CRESY) 2021 Q3 法說會逐字稿

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the Third Quarter of Fiscal Year 2021 Results Conference Call. First of all, I would like to remind you that both audio and the 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, Santi. Let's begin our conference call of the 9 months 2021. We can see in Page #2, the main event for these 3 quarters. The adjusted EBITDA for Cresud is ARS 20.7 billion, that is 40% higher of last year numbers and the division between Agribusiness that is 15% better than last year's numbers. And the gains of IRSA that is 70%, mainly driven by sales and developments, not through the rental segments, but they were lower because of the COVID affection on the activity of the rental segment. So the adjusted EBITDA is much higher than last year.

But when we go to the net results, this year is still a negative number, it's ARS 9 billion net result. And if we go to the net result achievable to controlling company, it's ARS 4 billion, much smaller than last year number, ARS 14 billion. And Matias later will explain it mainly.

About this campaign says that we were planting a lot in through the whole region, we were planting close to 260,000 hectares in the 4 countries. So big, big and record harvest for the company comparing to the years. So a big operational year for Cresud. From the industrial point, we were able to sell and close our packing facility. We sold in the last quarter Carnes Pampeanas with a sale of $10 million for the equity plus all the debt the company has to the buyers kept all and we are not more involved in that activity.

But in the big majority of the years, we're making a negative operational business for Cresud. And today, we have all kind of good operational business in the lines of Cresud through the operational planting areas, soybean, corn, other crops and sugarcane, beans and the real estate, plus the segments of the commercial health, the service area like FyO and Agrofy. They service by part of Cresud through the whole region.

About the system promise, Carlos is going to explain much more detail, but we are in a very strong recovery of commodity prices. This last year was a record in prices, and we are going to see in soybeans and corn. About the main events of the year, we were able to sell to BrasilAgro. And today, BrasilAgro is regard to be the regional player, pure agricultural player or regional expansion for using the farms in Brazil, but only -- not only in Brazil, in Paraguay and now in Bolivia, and that was sold for $31 million. With all proceeds, we increased our stake in the shares that we grew from 33.8% of the company to 34.1% net of the treasury shares. So we kept almost the same rather than increasing the number of shares of BrasilAgro.

And from Agri side, Cresud recently made a capital increase for 90 million shares or $42.5 million plus warrants. And with those proceeds, we were able to increase our shares in IRSA and did a capital increase this date, in May, for 80 million shares or total for $29 million and Cresud kept its participation in this segment. So this first 6 months of the year, we were done with BrasilAgro; second, we went to Cresud; and third, we did a capital increase release.

If we move to next page, Carlos Blousson, our COO of Argentina, is going to explain. Please, Carlos.

Meantime Carlos is connecting, I will begin with the explanation about the commodity prices. I'm pleased...

Thank you, Alejandro. Thank you. Okay. Let's move to the Slide #3 about farming, commodity prices and global stocks. We can see in the graph, the prices keep increasing amazingly, continuing the last year post-pandemic trend. In the last 9 months, the prices continue growing considerably about 124% in case of corn and 27% in soybean.

87%.

There is a strong recovery in 2021, reaching 2012 levels. The reason are following: considering the world supply, the production of the crops in the United States are lower than expected, decreasing lower stocks level like 8 years ago. In case of South America, the production is not coming as thought. The reason is we have not had the best weather condition, especially in the corn well in Argentina and unable to grow soybean in Brazil affecting the suffering of productions. And the exports are higher than usually expected by this time of the year because this higher price is pushing to the exports.

Considering the world demand, we see a post-pandemic increase mainly in China, more than 25 million tonnes of corn and more than 100 million tonnes of soybeans. The export went up to replenish the stock -- the soybeans stocks and the bigger demand due to the growing economy.

Regarding stocks consumed in soybean, we can see in the graph a decrease in the world ratio by 23.5%, especially in United States by only 2%. This happened due to the post-pandemic demand overcomes the offer, particularly in China and returned to the more than 100 million tonnes that I mentioned before.

Talking about corn in relation to stock consumption, the world ratio decreased to 24.6%, especially in the United States again by 9.2%. The reason that the production decrease and the comparison of the forecast and increase in exports, especially to China. In addition to increments in the use of corn for ethanol productions affected by the increase in oil prices in the world because of the post-pandemic demand.

Let's go to the next slide. Farming activity, 2021 campaign progress. About weather, as you can see in the maps on the center of the slide, there was some uncertainty regarding the development of the weather in the regions. Landslide is being affected by La Niña under ominous volume of rain, especially in the corn belt in Argentina. And in the last 2 months, we see remarkable drought in the Matamoros processing area. However, the forecast, there will be a neutral situation after rains happen in the next quarter. This is especially important for the campaign 2021-2022.

The grain regional progress as May, at this month, in 2021, in case of the soybean and corn, there were harvests and no issues, especially in soybean, 77% harvest with yields a little under the budget; and 12% in corn between the expected period. The forecast here are a little under the budget too. Regarding wheat, we finished the harvest 100% with good results. The crop breakdowns as we can see in the left infographic, the breakdown is 48% soybean, 24% corn, 10% sugarcane and 13% other products. The planted area, finally, we can see that we have been in a growing trend of the regional planted are year-by-year, reaching 260,000 hectares in this year, with similar growth in the '21-'22 campaign.

Let's move to the next slide, the good farming prospect for 2021 campaign. The crop production, we can see in the graphic, the forecast of the grain regional production increase of 3% to 852,000 tonnes depending on the good weather condition and how many hectares we are going to lease. About the crop yields, we're also waiting that under weather condition, our yields of soybean and corn will increase by 8% using the best technology for these purposes. About sugarcanes, as you can see in the graph, there is a reduction production of 7% of the productions to 2.25 million of tonnes due to the smaller planting area in Brazil.

Meat productions. We maintained cattle stocks at 77,000 cattle in the regions, 62,000 in Argentina; and we remained stable in Brazil, 9,000; and in Paraguay, 5,000; with generation of 2,200 tonnes of meat. I'm focusing in the best individual efficiency per headcount.

Thank you, everybody. I will hand over to Alejandro.

As Carlos was explaining, we are close to the 1 million tonnes and 2.2 million tonnes of sugarcane. And this gives us a small flavor of the big operational size that Cresud and BrasilAgro are achieving. And the operational business is really becoming much more relevant than in the past. That in the past real estate was the main explanation of the results. But this year, when you study our balance sheet, you are going to see the reflection of very big operational in the region. And really the real estate this year is still shy because we did after the third quarter's field sales. We are optimistic of the mood of the agriculture sector because farmers of the region are very rich in cash, the commodities and they're less sophisticated, are less sell in the future markets. So the profits they are making is huge.

And in some of the countries, the benefit of buying more land is huge because they get tax benefit after investing the COVID proceeds. So in the fourth quarter, we are expecting more real estate. At the same, the operational business of the group is really becoming more important in Cresud. As Carlos said, we are expecting to grow for more hectares of planted area for 2021-2022.

Related to Bolivia sale to BrasilAgro, the 10,000 hectares that Brazil has, we started to give back to BrasilAgro with the intention of planting more sugarcane, expertise of BrasilAgro and expanding through that sale and making the capital increase and making a batch figure BrasilAgro that was what we did.

And we can move to next page. And we can see what the company did, raising 20 million new shares, BRL 440 million plus a secondary offering for some shareholders who decided to sell 2.7 million shares. So today, BrasilAgro is at 82 million shares and probably these days going to increase because of the warrants that they are finishing tomorrow. So this is after 15 years, warrants and Matias is going to explain a little later about the warrants.

So BrasilAgro changed the trading volume per day. Today, if you follow what is BrasilAgro, we are going to see what was the effect of this capital increase today. And here in the next page, we can see this evolution. BrasilAgro was a company of BRL 20 or BRL 25 share -- value per share. And after this capital increase went to BRL 34, BRL 36 as value per day is absolutely amazing. The trading per day to day is -- here we didn't put, but it's more than BRL 30 million per day. So the last 30 days, we saw big values per day. So this company is becoming a big player in Brazil. So Cresud keeping this 34% and after we exercised our warrant, but tomorrow is the expiration date, we are going to be close to 40% of BrasilAgro shares.

So this company will have a lot of cash in its pockets because of the combination of the capital increase, the warrant exercise and debt that they were raising to BRL 140 million. So passing tomorrow, this company is probably passing BRL 1 million cash to make new acquisitions and a lot of pipeline of acquisitions under starting in BrasilAgro. So the way to pure agriculture vehicle of BrasilAgro is really moving along, and Cresud is enjoying its maturity and its activity. And in Brazil, when you combine the prices of the commodities and the margins forecast for the next year, really are absolutely amazing. And the size of BrasilAgro in operational, it's very big. So we are very glad of the situation today.

If we move to next page, we can just finish the conclusion about what we did in Carnes Pampeanas. This results in this balance sheet, ARS 620 million gain was a very small book value remaining. So -- and we canceled debt for more than $10 million in Argentina, debt of ARS 950 million, but they were consolidated in that financial statement of Carnes Pampeanas. So we are not happy because of the sale, but we understood in the conditions that the company was competing, we couldn't make money. Other players know how to deal with that. Every company -- listed companies like Cresud, so formal, didn't do that. So we decided finally to sell it, and we had good offer, good price, 100% cash, all was canceled. So today, we are not more industrialized in Argentina. We had that for many years, fed the Tyson, finally Tyson leaves and we stayed alone, but now we have no more plants in Santa Cruz de la Sierra.

And about our investments in IRSA, we see consolidated shares of IRSA is 62% of the shares. And about the 3 main activities, shopping centers, the stock is the same. Occupancy, it's almost the same, but really building 55 or less in Falabella and Walmart leading the country, and this gave us a 90% occupation. This is much lower than in the past. When we exclude that number, our occupation is 96%. But really this 3, 4 main places made us a big hole. Now we are occupying that, and this is the challenge. But COVID came back and half of our shopping centers again are closed, the ones in the Buenos Aires region. The shopping centers in the current situation is really very affected.

The office building, same stock, some recoveries, no recovery in occupation, but the average rent decreasing slightly. And we sold some assets this year. We finished building of the new Catalinas project, but it's not still very occupied. It's 75% occupied now. So this is a business that is challenged to not shopping centers, but still challenged, some tenants returning square meters because they are home office. So this is much bigger than considering the problem, but we facing a challenge there too, not so as fast like half of the shopping center closed. But this is under sound facility in the market.

Hotels, Llao Llao spending good time. This is a very good result for Argentina spend. No foreigners, entries closed, it's lockdown. And occupation of the other 2 in Buenos Aires are very bad. So the net of the overall hotels is not making a good business. So all the numbers we're going to see in the financial statements in the Urban side are being strongly effective, but we were fast in moving and selling some square meters in the rental properties and that made us surpassing last year numbers.

With that, I will introduce now to Matias Gaivironsky to explain our financial results.

Thank you, Alejandro. Good afternoon, everybody. If we move to Page 12, we have the P&L of the company for the period of 9 months. We finished with a loss of ARS 9.2 billion against the lost last year of ARS 10.5 billion. Attributable to our shareholders, the loss is lower, ARS 3.9 billion, almost ARS 4 billion against ARS 14.5 billion during the last year. If we see here, we have the breakdown between the Agribusiness and the Urban business. Remember that we consolidated the investment of IRSA in Israel. So it's not longer one of our segments. So the Agribusiness, when we see the net operating income finalized with a gain of ARS 7.9 billion against ARS 6.7 billion in the Urban business, that is negative that I will explain in the following pages.

So if we see the main drivers of the period, we have 2 main drivers. The first one is in the Line 6, the change in the fair value. You can see last year that we had a gain of ARS 3.1 billion. This year, we have a loss of ARS 6.8 billion. Also in Line 12, we have the net financial results. That last year, we had a loss of ARS 22.8 billion. And this year, a gain of ARS 1.3 billion that I will enter in more details in the following pages.

In the next page -- sorry, going back once again to the P&L. We have in the Line 15, the net income from discontinuing operations, that also is one of the important reasons of this quarter or this period that we have a loss of ARS 8.1 billion against a lost ARS 1 billion last year. This is related to the consolidation of the investment in Israel.

So now yes, going to the following page. This is more on the operational side. The adjusted EBITDA, we can see the Agribusiness with a better result on compared with the last year, 16% up. The farmland sales is increasing significantly. This is not related to new disposals. It's related from some disposals that BrasilAgro did in the past and collect -- tied to the price of the soybean. And since the soybean is increasing significantly, that trade that we have is now more valuable. In terms of the operation in the farming, we have in the grains a lower result, but it's more related to 2 effects. One is last year, the numbers are adjusted by inflation. And during this year, the devaluation was lower than the inflation, that generates a lower result when we compare.

Then in the previous year, we had some stock at the beginning, but then the prices start to increase and generated holding profits. This year, We have some negative effect on our hedge policy. We have a hedge policy that we began to hedge or fix prices during the process of the campaign and the prices keep growing and that generated a loss. Part is compensated already in the 9 months period because we already recognized, for instance, in the soybean, the forecast of the production. But in the case of the corn, we are just marking here the loss of the derivatives, but not the gain of the corn that will come in the following quarters.

So the following quarter, as you know, for the agriculture activity is the more relevant. We'll finish the campaign during the next quarter. So some of the results will come in the following months. In the sugarcane, as Carlos explained, we reduced a little surface and that is the main reason of the decrease of the 10.7%.

In the cattle, here is mainly related to holding gains, the price of the cattle increase in pesos above inflation and that generated a profit. And finally, in Line 7, we have here 2 effects. One is related to our investment in FyO, and the other one is related to the disposal of Carnes Pampeanas. We are including in this quarter ARS 650 million in -- during the year related to the sale of Carnes Pampeanas.

In the case of the Urban segment, we are comparing a year that was really affected by the pandemic compared with the previous year that was almost normal. We closed some of the operations as of March, probably on 20 of March. So only 10 days were affected and the rest was normal and that generated when we compare with the previous year, of course, significant losses in the shopping malls. In the offices, the operation was normal, so we keep collecting rent as usual. But we have some effects during the year, we saw during -- yes, during this year, we sold some of the square meters. So now we have a lower surface. Then we opened the new building Catalinas that started to collect rent. Also here, we have the effect of the dollars against inflation that we have an appreciation of the peso. So remember that in the office, we collect rent in dollars. So when we compare, that generate lower results.

In Line 11, we have the hotels, which also are affected by the pandemic. Two of our hotels are really affected in the city of Buenos Aires. The frontiers of the country keep close, so we don't have tourism. Only the Llao Llao Hotel is performing well. The Argentinians that can't travel abroad, we have a really good occupation during the summer and the operation is normal. But the other 2 in the city are very affected and the occupancy is very low. Sales and development is related to the disposal of the offices during the year, the office buildings. So that generated good gains for the segment.

Regarding the net financial results, we can see a really important difference between last year and this year. Last year was ARS 22.8 billion negative against ARS 1.3 billion positive this year. The main reason is related to the evolution of FX. Last year, the real devaluation was almost 12%. And this year was some appreciation of 3.5%. That generated a profit during the year and a loss during last year related to our dollar-denominated debt. And the other effect here is the profit from our liquidity portfolio that generated a good profit of ARS 8 billion against ARS 1.4 billion loss last year.

And if we move to next page, As Alejandro mentioned, we already discussed this in the last webcast in the previous quarter. We did a capital increase, very successful at the level of Cresud, 90 million shares. We received $42.5 million. Remember that we did an issuance on a -- it was a preemptive right issuance. So we resisted the shares in the CC and in CMB and extend rights to our existing shareholders. So almost all our existing shareholders of 97% exercised the preemptive rights. And then we have another subscription of 26%. The use of proceeds of the offering, now we have more defined than when we disclosed at the beginning. We already participated in the capital increase of IRSA. So Cresud used around $18 million to subscribe at IRSA level.

The second one was debt cancellation that we are canceling some debt in Argentina and also the -- that is something that we have the intention to exercise the warrants of BrasilAgro. As Alejandro explained, we have a warrant that we received since the beginning of the company, when we created the company, the way to compensate the founders who has warrant that give us the right to subscribe around 14.5 million shares at a price of ARS 22.11. The price in the market is much low. So we will try to exercise all our warrants from today and tomorrow, so that is also part of the use of proceeds of this offering.

The following page. This is a recent new about the capital increase at IRSA level. Basically, it's the same structure than Cresud, a little smaller in size, is 80 million shares, $28.8 million, also was very well received by our existing shareholders with a subscription around 99% exercised their preemptive rights, and then the remaining 1% was subscribed by the accretion rights with an oversubscription of around 20%. So the company already received $28.8 million, and Cresud maintained its stake.

Regarding our debt, the net debt, if you remember, we compare with the previous quarter, we reduced because of the disposal of Carnes Pampeanas and also the capital increase. Probably this in the following quarters will increase a little because of the use of proceeds because we will use the cash of the offering of Cresud. So this maybe will increase a little. The debt amortization scale, we can see that there are not significant amortizations during this fiscal year. We have a debt that'll expire in July, around $60 million that is affected by the rule of the Central Bank that they won't sell us all the dollars to pay. So they are asking for -- to all the companies with amortization during this year to present a plan to the Central Bank. And basically, what they are asking is to refinance 60% in order to have the access to pay 40%. So this is something that we will need to work between now until July. And the rest, we have a debt around by the end of the year, and so nothing else during this year.

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

Thank you. Now it's time for the Q&A session. (Operator Instructions) I have a question here. What was the 2 main reasons, you could not make money with the mid-processing plant as it was integrating your value chain from raising cattle through selling the end product?

We had that theory, too. We are one of the bigger players on the cattle business in the country. But having raising cattle further and see growth. But finally, the $2 affects a lot. We were exported in the former dollar and the informal made to some players much more gain. And so really running this only one packing plant and other players with more than one. And so formally, having another very successful currency for selling made us to lose many years.

So the operational loss was the big majority of the quarters. And we did a lot of adjustments. We improved a lot the plant, gave much more facility. We did much more of the finishing in the cattle arriving to the last boxes, exporting to the best and more profitable countries, achieving the permits to Israel, to China, to U.S., to everywhere. But finally, we are not comparing to other competitors on this market. And we accepted that and we prefer to be more on industry.

So the second question. The offer in July Cresud bonds will be similar to IRSA ones in 2020?

Well, we haven't defined yet the offer. Of course, we have the precedent on what we did in Cresud and also in IRSA last year, that was refinancing very successfully with acceptance. That was the record of all the companies in Argentina. So it's a good precedent, but we are working on that, and I prefer to announce when we have all the details. So we have to have a little more patient.

Any other question? I do not see any more questions. So with this, we conclude the Q&A session. At this time, I would like to turn back to Mr. Alejandro Elsztain, CEO, for his closing remarks.

Thank you, Santi. We are facing a very good period for this commodity play, having a lot of own land in the region, profiting from the operational and the appreciation of the land. As you know, the land worth funds earnings and the earnings are recovering in the whole region. More for sure when there are no taxes and exports, but margins are really very good for next campaign.

We are seeing -- when we forecast the existing prices with the normal yield in the normal campaign and decided we are facing for next campaign, we are seeing a huge operational business for Cresud and BrasilAgro. And the activity on the Agribusiness is much bigger than in the past because of a lot of players making money and having the intention of having more land. This is where the farmer saves its money, farming more.

So I think we are in a very good situation. We are here in a good environment for our commodities and having a lot of liquidity, liquidity in the company to face more activities, to buy more farms and keep developing more as we are planning to do. So we are in an optimistic moment for all these Agribusiness.

After capital raise of Cresud and IRSA, strong balance sheet for the company and increasing our stake in BrasilAgro, we expect very good purchase for the future. So just to thank you, everybody, for the support, supporting the capital increase in the quarter. So thank you very much, and have a very good day.