Cresud SACIF y A (CRESY) 2021 Q2 法說會逐字稿

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the Second Quarter of 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. Our 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.

Good morning, everyone. We are beginning our first half of the year second quarter 2021. And we can begin in Page #2, we can see that the adjusted EBITDA for this period, we are rising to a ARS 8.9 billion. This is a growth of 10% compared to last year numbers. And we divide it into 2: the urban, ARS 7.5 billion; and the agribusiness, ARS 1.4 billion.

And related to the net results, we achieved a negative number these 6 months of ARS 3.3 billion compared to the gain of last year. We are going to explain that in details. And this is related to the net result attributable to the controlling company. We achieved a ARS 3 billion comparing to a loss at last year of ARS 6.5 billion.

We are record in planted area, and this company is going to show the main results the third and the fourth quarter because mainly, soybeans and corn, that they are the main agricultural issues of the company. In the meantime, of this beginning of this year, we began with the sale of Carnes Pampeanas, our meat-packing facility for $10 million, and we are going to explain in more details later. This campaign began with a very strong recovery in the prices of commodities. And we are going to see the stocks of the world and what is happening in demand. Some of that is being affected by climates, and it's affecting some of our yields. But the commodity rebound is much higher than the yields dropped because of the weather conditions. Relating to some subsequent events, we sold Bolivia farmland that was under Brazil control to BrasilAgro for $30 million. We subscribes some -- the capital for an increase in our stake. There was a capital increase in BrasilAgro, and we moved from 33.8% to 34.1%, net of treasury shares of BrasilAgro shares. And recently, a few weeks ago, we finished the capital increase for $42.5 million with the issuance of 90 million shares plus 90 million warrants. So now I will introduce Mr. Carlos Blousson.

Thank you, Alejandro. Good morning, everyone. Let's go to the next page, Page #3, the global agricultural outlook. We just see in the graph in prices with the high and low trend. In the last 6 months, the prices continued growing considerably, about 59% in corn and 54% in soy. There is a strong recovery in 2020, reaching to 2013 levels. The reasons are following. Considering the world's supply, devolution of the currency in the United States are lower than expected, increasing corn stores to the level 7 to 5 years ago. In the case of South America, the evolution is uncanny as thought. The reason is we haven't had the best weather conditions, and the exports are higher than usually expected by this time of the year.

Considering the world's demand, we see a post-pandemic increase mainly in China of more than 2 million tons of corn and 100 million of tons of soy. The export went up in order to finish the strategic structure. China has taken advantage through their purchase capability for the dollar hasn't changed, making these lower covenant situations. Regarding soybean's total consumptions, we can see in the graph was increasing in the award reaching by 22.8%, especially in the United States by only 3%. It is having to include the post-pandemic demand and our currency offer, particularly in China. We're trying to have 100 million tons of the annual products as measured before.

Talking about corn. We see that the corn's consumption regime, the world's ratio increased to 24.6%, especially in United States by 10.6%. The reason is a devaluation increase in comparison with forecast and increase in exports even into China in addition to the increment in the use of corn farming operations affected by an increase of oil prices in the world because of the post-pandemic.

Let's go to the next Page #4. Farming activity beginning with '22 company. Weather. As you can see in the maps in the center of the slide, there was some uncertainty regarding the development of the weather in the new regions. Landslide has been affected by La Nina under ominous volume of rain especially in Argentina. However, the forecast, there will be a neutral situation after rains coming in the next quarter. This is an important for the next campaign for the June -- in June campaign.

Grain regional progress. In case of the soybean and corn, we were planting 100% of the budget area within the optimum yield showed. Regarding wheat, has been harvest by 100% in the good results. We're -- are now on the beginning of the harvest season especially in Brazil with 25% of the harvest are reduced in the budgets. In Argentina, we are making progress in some form of harvesting concerns and we are indeed, with the current corn harvest, are harvesting [again].

The crop breakdowns. As we can see in the left infographic, the breakdown is 48%, soybean; 24%, corn; 10%, sugarcane; and 13% of other productions.

Among the quality area, finally, we can see that we have been in strong trends in the regional Atlantic area year-on-year, reaching 160,000 acres this year -- 260,000 acres this year. Similar growth in the next campaign for the [102 campaign]. Let's go to the Slide #5, among the Bolivia farmland sale on this slide. This sale has been of the utmost importance for the regions of the company. We have sold 100% of the Bolivian subsidiary, which has advantage for us, with a total surface of 9,900 hectares in Santa Cruz de la Sierra, the Bolivian corn belt. The price was $30 million. The transaction was approved by the Board and Audit Committee of Cresud and unanimously by the Board and shareholders within this slide. We see potential growth in the sugarcane due to the local scenario, and this will be boosted by the new $30 million in the company. It is this area of the company continued to promote residential expansion and consolidations of stability through BrasilAgro, maintaining all ownerships of this financial agreement. Alejandro?

If we move to Page #6, we can talk some about the capital increase that was done in BrasilAgro in February, and the company raised ARS 440 million. And there was a secondary offering of ARS 60 million more. Without the company issued 20 million of shares, today, BrasilAgro has 82.1 million shares, this with the new capital stock. And BrasilAgro intends to keep probably buying more land in Brazil and in the regions, expanding its vision. And there is huge agri-land to address in Brazil, mainly the transformation of capital areas to agricultural areas with the gains. And BrasilAgro has a big pipeline with a lot of acquisitions as going to do it now. The team running the company is like 15 years since the inception of this company in 2006. So we found the opportunity to grow and BrasilAgro did that, and Cresud kept its stake almost the same, increase from the 33.8% at 34.1%. So this is the new issuance at BrasilAgro be -- to grow in the region.

A few months later, a month and a half later, we did a sale and we can see that in next page, Page #7, the sale of Carnes Pampeanas. And some of you, shareholders with us since long time, Cresud began this story a long time ago. The origin of this began in 1998 when Cresud had the partnership with Cactus, and we made the feedlots together with Cactus Feeders, an American company.

In 2007, we had the chance of purchasing a packing plant together to -- with Tyson. And Tyson, Cactus and Cresud, this would be a minority at our time, 24% of the shares, we began the story of meat packing. But the story didn't grow as expected. Argentina entered to some troubles in the cargo business, so the foreign partners decided to leave the country. They do in different moments and the final Cresud, both from them from Cactus first and finally when Tyson decided to leave, I think that was in 2010 or -- 2010. And from there, Cresud was running the packing plants. Having only one packing plant in the middle of the country, the middle size, not so huge, and Cresud couldn't make money in that investment. It was not profitable. It was a good plant, very good for exports, was very driven for exports. But finally, our size, our way of working, didn't make a profitable basis. So after many years, investments, studies, and we finally decided to leave this business. And we sold a few days ago for the $10 million payments abroad and including a lot of debt the company has. The buyer stayed with a debt of almost $11 million the company has. So this gives us an accounting result of ARS 620 million. And now this will be reflected in the third quarter.

So finally, we sold and we finished the integration. So today, we have the capital and we have the people that don't work the packing plant. The company is going to focus more in the main activities that are going to come through agriculture and specialties.

We can move to the next page. And we can see a short summary of the rental properties of IRSA in Argentina. The first 6 months of shopping centers, the stock is the same. Occupancy is going down. We are finding some small tenants, but the problem that we found this quarter was mainly because of Walmart in the past, but recently Falabella to be anchored at less the shopping centers, so the vacancy is mainly explained by these. This is Falabella main effect. Meantime, we are renting smaller tenants, Argentinian tenants to replace. At 6 months, our shopping centers were closed, Buenos Aires mainly. The interior of Argentina opened before, but now we are comparing a big rebound. You can see that there is an increase of 277% compared to the first quarter. So we began to open but still very low compared to last year numbers. So we have this challenged during these COVID times, but now all the shoppings are open and they are all recovering on sales.

About office buildings, here, we have almost the same, a little more strong, explained by the new building that we finished, that is Catalinas, where our office is now. Our overhead was moved to this office. So we are using 2 floors in different building. Here this, an increase too in vacancy. The occupation is close to 80% and mainly is explained, we sold some buildings that were fully occupied and we included Catalinas, that is 75% occupied already. So this is the main explanation. And some vacancy, it was decreasing of the size of the offices because of COVID. Some companies are decreasing their size. And this is the effect on the office building. And the hotels, there's 3 5-star hotels. The one that is recovering better since November is Llao Llao. A lot of Argentinians using the resort, the other 2 located in Buenos Aires, still suffering because of the lack of foreigners coming to the countries so corporate is very low. So the travel is still very low. So these are the main 3 cases. And if you want more details, you can go to IRSA with the IRSA commercial products website to know more.

Saying that, I will introduce Matias Gaivironsky.

Thank you, Alejandro. Good morning, everybody. If we move to Page 10, we have the breakdown of our P&L. We faced the quarter, the semester with a loss of ARS 3.2 billion against a gain of ARS 2.3 billion in previous year. Attributable to our shareholders is minus ARS 3 billion against minus ARS 6.4 billion.

If we see the main reasons of our results, we can see different noncash effects that I will try to explain in detail. So first of all, the line 6, we can see the change in the fair value of our properties that is mainly for our urban businesses. This is the shopping malls and the offices and the land bank, that we can see that we have a gain of ARS 9 billion against a gain of ARS 5.1 billion in the previous year. This is mainly attributable to a change in the determination of the fair value of our offices and land bank. The malls will be recognized in the fair value with a DCF model.

The second important effect is in the line 13 that we can see that the main net financial results. The loss decreased from ARS 15.7 billion in the previous year to ARS 789 million this year that I will explain in the following pages.

And then in the line 16, we can see the net income from discontinued operations that last year, we recognized a gain of ARS 7.2 billion, and this year, a loss of ARS 7.1 billion. This is related to the consolidation -- or the deconsolidation of the investment in IDB, the [usually] holding company that we did consolidate it in the first quarter this year. That generated a loss of ARS 7.1 billion.

If we move to next page, in Page 11, we see the opening of the adjusted EBITDA by segment. We can see in the agribusiness that in line 1, the farmland sales, we generated a profit of ARS 1.4 billion against ARS 680 million. This is all related to the credit that we have in BrasilAgro from sales asset disposal, farms disposal, that the company has a credit in soybean to collect in the future. And since the price increase, we are recognizing this gain.

In the line 3, we have here also an effect that is related not to the performance of our business. It's more related to our hedge policy. During the quarter, we decided to close some position from our production. So we closed -- we faced the price that was above our budget but since the price keep increasing, we are recognizing now the loss of that derivative. But we are not recognizing the gain from the production, the gain that came in the following quarters, the third and fourth. And then fourth quarter, when we have the harvest, so we will see the results going forward.

Sugarcane declined with the previous year with that little lower surface, better prices and better yields. The cattle also generated better results. This is above inflation and the holding results from our cattle store increased above inflation. So we are recognizing that gain in line 5. And then in line 7, that we used to consolidate up to December, we consolidate the meat-packing facility going forward, that won't be anymore part of this slide. So we will have only the result from our subsidiary field and the result from IFRS as well.

In the urban segment, we are comparing in the previous year was a normal year. This year was really affected by the pandemic. So it's not comparable at all, but we start to see a recovery quarter-by-quarter. So if you remember, in the first quarter, we had a loss in the EBITDA from shopping malls.

Now we recovered positive numbers. The offices, although it's not affected by the pandemic, we have some disposals of 2 buildings. And that generated lower results during the semester. And hotels is really affected by the pandemic. And sales and development was a result from the disposal of the 2 buildings, the office buildings.

If we move to Page 12, the other important effect on our P&L was the net financial results. And we can see that basically, this semester, we have 0 real devaluation against a devaluation of 12% in real terms in the previous year that affect directly in the line 2, the net exchange differences, that is the recognition of our dollar-denominated debt and of the FX changes. So last year, we recognized that a loss of ARS 10 billion. And this year, it is almost [ARS 167 million] loss. The other, also the effect in the financial results is in the line 5, the profit from fair value of our financial assets. So our portfolio generated good results to remain of ARS 4.3 billion against a gain of ARS 217 million.

So if we move to Page 13, this is a real new event that we announced last week. We finished the capital increase for Cresud. That was a milestone for the company. We did the previous capital increase was in 2008, and the previous one was in 2002. So a similar cases of crisis in Argentina, our international crisis, and the company decided to strength the capital structure, raising $42.5 million. We had a very good reception from our investors that subscribed 97% of their rights in the first right, in the preemptive rights. And the accretion rights, they asked for much more.

So it's a smaller subscription. So we finished this last week. We already delivered the shares, so they are already outstanding. We already delivered the warrants. The warrants are already listed in the Buenos Aires Stock Exchange. We are doing the process to lease the warrant in the NASDAQ. So we expect to announce this soon. And then some numbers of the capital increase, the price was fixed at $4.72 per ADR or USD 0.472 per local common shares. And together with the shares, the people that subscribed, we see the warrant that we give the rights to subscribe additional shares for the next 5 years at a price that is 20% below their subscription price. So the strike price of the warrants will be $5.66.

The use of proceeds is divided into 4 different -- 4 different uses. We have the equity investees. That will be the exercise of the warrant of BrasilAgro that we have, the investment in IRSA, capital or debt cancellation, agricultural services to keep expanding our portfolio and also exposure to agricultural services with FyO and Agrofy.

The next page, Page 14. There is a new rule from the Central Bank. Remember that we have to deal with this in November last year. The Central Bank forced the companies with dollar-denominated debt and dollars to refinance part of the debt in order to be able to have access to the official exchange rate and to pay. And we did that in November. And now they extended again their role. And now the rule is up to the end of December, and this will affect one of our bonds, a bond that mature in July for almost $60 million that we will need to work in order to fulfill the rule.

So Page 15, there was -- this is what we did in November. This is an event from the quarter that we already discussed. The company was very, very successful in refinancing the debt with 88.41% acceptance. Basically, what we did was to offer 2 bonds, one with a bullet amortization and the other one with amortization salary. And the people that would subscribe or subscribe for the option A, that was the amortized model, they receive cash as well. So that was very, very successful.

Finally, if we go to Page 16, we have the breakdown of our debt. That was as -- up to December 31. After this was different development, the disposal of Carnes Pampeanas will generate generated $10 million of debt and also canceling -- sorry, $10 million of cash and also a cancellation of ARS 950 million of debt, so this number will reduce because of that. And also because of the capital increase, now the company has $42.5 million more of cash. So with this, we finished the formal presentation.

Now we open the line to receive your questions.

(Operator Instructions) If there are no questions, we conclude the presentation. At this time, I would like to turn back the floor to Mr. Alejandro Elsztain, our CEO, for closing remarks.

Thank you, Santi. We are now in the middle of the second-- fourth quarters of the campaign. And the main -- and the more important for the summer crops where we're now harvesting. And agriculture, that was essential in the pandemic moment and kept working as usual. Now with the new prices in the market and the activity that the market is receiving, activity in both products, farmers and the less sophisticated farmers, the one that didn't hedge are making more profits because of the rebound of the prices. So we expect the next quarters a lot of activity in the harvest of our salary, that is the main, and in the real estate, because of the very good situation of the market to the farmers of the region. So we are happy because of our activities, the capital raised in Argentina, the capital raised in Brazil, the activity -- the farming activity in the region, the service activity that is growing the services through fee and through [RFI], that is growing in the region. And finally, the real estate that we expect the last quarter's activity. So we thank you very much to the analysts, to the investors and the shareholders, the support of the company, and we see you next quarter. Thank you very much, and a very good day.