Cresud SACIF y A (CRESY) 2021 Q1 法說會逐字稿

Good afternoon, everyone. I am Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the first 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'd like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed note in the company's earnings release regarding forward-looking statements.

I will now turn the call over to Mr. Alejandro Elsztain, CEO. Please go ahead, sir.

Hello. Good afternoon, everybody. We are beginning our first quarter 2021 results in the Page #2. And we can see and begin with the adjusted EBITDA for the quarter that we are achieving ARS 5.8 billion, that is 63% higher than last year numbers. When we see about the comparison of the 2 quarters, it's almost the same at the agribusiness level and Matias will explain deeper later.

In the urban business, there is an increase of 155% in the urban business comparing year-to-year. And if this -- when we compare the rental segment, it's much lower this year, it's 96%. Comparing to last year's, it's dropped. Majority of the last 6 months, our malls were closed. But we had a big increase in the sales of some office buildings that made ARS 5 billion in the first quarter in the urban business.

About the net results, we are finishing the first quarter with an ARS 7.5 billion gain, a little smaller than last year number. And resulting to the attributable to the controlling company, it's much higher. We are in a positive ARS 2.9 billion comparing to a loss of last year.

This first quarter, it's beginning with a strong recovery in commodity prices. We are going to explain deeper with Carlos about what is happening on the market. From other side, the conditions at the beginning of the campaign are not the best. And we -- the last week began to rain and the planting, it's becoming to recover to almost normal. And so -- but the market changed a lot the last 90 days and we are going to speak much more deeper now.

From the other side, there were no new farm sales in the first quarter. I think this is a market that will move a lot in this new environment of prices. A lot of interest of farmers mainly in Brazil because of the situation of the devaluation of their currency plus the increasing on the prices is making a very positive market with the adding value of them that they don't pay income tax when they buy their new farm. We are very optimistic on that market, too. But not only there, in the rest of LATAM in this new environment of commodities.

Relating to the urban business and investments, in September 20 of this year, the court decreased the solvency and liquidation of IDBD. After this decision, the group lost control on the date and conceding the deconsolidation, the financial statement. So we don't consolidate more our Israel investment.

In Argentina, shopping malls are reopened recently after this lockdown for 6 months. We did in a partial way, we began in the interior of Argentina after Arcos, after the rest and now 100% are open. So we are seeing much more development on that area, too. And in the office was almost normally a little more vacancy but stable comparing to the other things.

Relating to financials, we successfully exchanged our bonds that mature this year. We are going to explain much more deeper later.

We can move to next page, #3. And we can see that the region, the 4 countries, remain at similar levels of plantation and I'm really glad of this. In the moment of the decision, margins were very low mainly in Argentina. And thanks that we decided finally to plan and to keep the level, we are facing a very good big campaign with a big increase, huge increase, in the market of the prices mainly in the soybeans and corn. So having this 262,000 hectares of planted hectares of -- planted in the region, we are very optimistic on the operational of the year.

So I will now introduce to Mr. Carlos Blousson.

Okay. Thank you, Alejandro. Good afternoon, everybody. We are moving to the next page to farming, commodity prices and lower stocks. We can see in the graph, the prices keep the high trend. In the last 3 months, the prices continued growing considerably, about 26% in corn and 33% in soybeans. The reason are the following (inaudible) supply and demand. Considering the supply, the production of the crops in the United States are lower than expected, decreasing global stocks to level similar to 5 years ago. In case of South America, the beginning of planting are not happening in the best weather condition due to lack of rain. And the exports are higher than the usually expected by this time of the year. Considering the demand, we will see a post-pandemic increase mainly in China. Therefore, it went up and lowered the [retention] and the (inaudible) stocks. China is taking advantage of our purchase capability for the dollar has depreciated, making this a more competitive situation.

Regarding about the stocks consumptions, in case of soybean, we can see in the graph a decrease in [rewards] ratio by 24%. This happened due to the post-pandemic demand overcomes the offer particularly in China.

Talking about corn, we see that the constant consumption ratio, the work ratio decreased to 25.8%, especially in United States by 40.9%. The reason being that the production increase in comparison to the forecast and increase in exports in addition to increment in the use of corn for ethanol productions affected by the increase of oil prices in the world because of the pandemic.

We are present in the FOB soybean price. And Brazil continued to be more competitive compared with the United States and Argentina, generating a higher demand in Brazil. They have already sold more than 50% of their future projections. The current regional hedge positions, the level in soybean is 67% in over the budget price. And in case of corn, region asset level is 53%, within of the budget in soybean and corn. As long as our planting situation happens, we will continue selling at this good price level.

Let's go to the next page and beginning about the farming in 2001 (sic) [2021] campaign. About the weather, as you can see in the maps on the left, there is uncertainty regarding the development of the weather in the region. A slight delay is being affected by La Niña under average volume of rain. However, the forecast here will be neutral situation after rains happen. This will allow a normal performance in the plantation progress in the region. Our plantation progress, regional progress in case of soybean, the regional progress is 27% within the optimal period of [sowing]. We are awaiting the rainy season to compete successfully during the next month.

Talking about corn, the regional progress is 40% completing the [earth] corn in Argentina and Bolivia. And we complete the planting before the end of the year. Lastly, we will complete 100% of wheat and we started the harvest in Argentina in the next month.

About the other point is the exchange rate. If I look in the graph, the currency depreciation was of 8% in Argentina and 4% in Brazil during the last quarter. Generation and annual devaluation of 33% in Argentina and 28% in Brazil.

Thank you, everybody. I'll hand over to Matias.

Thank you, Carlos. Good afternoon, everybody. So regarding our investment in IRSA during the quarter, we have different results. Shopping malls, as you know, were deeply affected by the pandemia, with the pandemic, with most of our operations closed during the quarter. Since March, the malls were closed. And then we started to open during the quarter. In September, we had around 44% of our malls opened. Now the situation is different. We opened 100% of the operation but it's not reflected yet in the results.

Regarding our commercial strategy. We decided to preserve long-term relation with our tenants and really support them during this pandemic. We waived most of the rent during the quarter. That has a cost for the company, but we prefer to preserve the relation in the long run and give the time for the recovery to our tenants.

Regarding the offices, it's different. The operations were not affected by the pandemic. We have all our buildings under operations. Although most of the companies are working from home, the buildings are under operation.

The stock, we have a slight decrease in the stock because we sold some square meters during the quarter. The occupancy remained stable at almost 92%. And the average trend with a slight decrease to $26 per square meter. We are under -- we are finishing the contraction of Della Paolera 200 (sic) [200 Della Paolera] that we will open hopefully during the next month.

Regarding the hotels. Up to now, the hotels were closed. Now Llao Llao and Intercontinental start with some operations. The Llao Llao opened during this week so we hope to see better results going forward.

Regarding the Israel business segment. As we described during the last quarter, unfortunately, we lost control of IDBD. There was a decision from a judge in Israel that decide that the company is insolvent and started the liquidation process. That liquidation process ended yesterday. The part of the liquidation ended yesterday with the disposal of the DIC shares to another group, to a third party. So the company lost control on the investment and started consolidation of the investment starting in September 30. So the results that we're going to see are not longer consolidated with IDBD. This deconsolidation generated a loss that we will review in the -- when I explain the financial statement.

So let's move to Page 9. And we can see here that the end of September that we are recognizing a net income of ARS 7.5 million against ARS 9.5 million of the last year, attributable to our controlling shareholders is 2.9 against a loss last year of 3.2. When we analyzed more deeply what are the drivers of the net income, the first one came in the line -- sorry, in the line 6, the change in fair value. That is mainly in the urban business that generated a profit of ARS 23.6 billion against last year of ARS 12.1 billion. This is related to valuation at fair value of our offices and land bank that you know that the exchange rate in Argentina, the blue-chip swap increased significantly during the last quarter and we are reflecting on a comparable basis the value of our buildings. And that has a pricing in dollars so when we reflect in pesos generate this profit.

The other important effect is in the line 13, the net financial results that you can see last year, a loss of ARS 18.2 billion against a loss of ARS 2.5 billion this year that I will explain later in the following pages.

The other is in the income tax that is related to the change in the fair value. So when we have an appreciation of our properties, we recognize the deferred tax on that. It's not the current tax so this is not a cash effect. It's a noncash effect.

So if we -- I'm sorry. And then finally in page -- in line 16, we see the net income from discontinuing operations. This is related to Israel. The deconsolidation this quarter generated a loss because in the previous quarter, we recognized it in the solo balance sheet, the investment at 0. But on a consolidated basis, we lost control during September. So we have to recognize the result during the first days or during almost all the days of the quarter and then give impact to the deconsolidation.

There are several reserves associated to our investment, like the conversion reserve and the minority or the controlling reserve, that we have to eliminate in this quarter and that generated this loss of ARS 6.3 billion or almost ARS 6.4 billion. And last year, we recognized it here a gain of ARS 13.9 billion that was related to the investment in Gav-Yam that were deconsolidated, that subsidiary generated the profit.

So if we move to Page 10, we have the breakdown on the adjusted EBITDA by segment. We can see on the total agribusiness results very similar than the previous year. When we see the farmland sales, we see an increase. This is related to the receivables that we have on the disposal of some farms in BrasilAgro. We sold farms with payments in installment associated to the price of the soybean. And since we see here an increasing value of the soybean, we have more receivables. And this is the main effect on the difference to last year.

In the grain segment, in line 3, we see a drop from ARS 666 million to a loss of almost ARS 200 million. Remember that this is the first quarter of the year. It's not the most relevant quarter. We have the remaining stock of the last campaign that we have sold. And the main important effect here is that during the quarter, we decided to hedge part of the production. And since the price of the soybean increased or the corn increased, we are recognizing here a loss that will be compensated with the evolution of the campaign. With the evolution, we will recognize also the production and will be compensated this loss in the future.

Sugarcane remains stable with -- compared with the previous year. The cattle, we have a better result that is related to the price of the cattle here in Argentina in terms of -- in real terms, we have an appreciation of the cattle that was recognized during the quarter.

Finally, in the other segment, FyO and the big cattle facility, we have a drop in -- this is basically related to the operation of FyO that this quarter we are recognizing more costs related to inflation and salaries. And in the last year, we have some extraordinary effects because of the devaluation during the last year.

Regarding the urban segment, shopping malls were very affected by the pandemic. We generated a loss during the quarter with almost all the operations closed. So we expect to recover during the fiscal year to positive results again.

In the offices, we have a drop of 32.9%. We have here a lower stock because of the disposals of offices and slightly higher occupants -- higher vacancy. And also last year, we have the effect of the devaluation that our agreements are in dollars. And we have a real devaluation during the last year that generated a profit during the last quarter of the last year. The hotel is the same trend with the shopping malls with the operation closed. So that is the explanation.

And finally, in line 12, we have the sales and development. This is the part of the offices that we sold. So we -- the gain between the -- all the appreciation of the offices that we sold during the quarter were reflected in this line.

If we move to Page 11, we can see the breakdown of our net financial results. As I mentioned, if you see on the bottom of the page, we have last year a big devaluation, the 36.6% -- sorry, 35.6% during the last year. In real terms, that was 20%. And this year, it's almost flat. And this has an impact on line 3, the net exchange differences that you can see in the part of Cresud and in the part of IRSA that affect the dollar-denominated debt. So that is the main effect on the financial side. The other one is in the results from fair value of the financial assets that you can see, ARS 640 million against ARS 333 million loss last year. This is related to our liquidity and the investment of our liquidity.

Page 12. We mentioned during the quarter that the new regulation of the Central Bank affected one of our payments. Remember that the Central Bank basically asked the companies with amortizations during this semester to refinance debt. In fact, they said that they will only sell 40% of the dollars and the remaining 60%, the company has to refinance. They won't sell more than 40% of the dollars. So we have to go to our existing loan holders and ask for an exchange proposal.

We gave 2 options. The option A gave an alternative to loan holders to collect cash and the remaining in new notes. And the option B for the ones that they don't want to collect dollars now, they can defer the payments up to the next 2 years. The exchange were very successful. We have an acceptance of 88.41%. The people that choose option A collected 96% in dollars. So instead of the 40% that the Central Bank allow us, they collected 96%. And the remaining, the $34.3 million were refinanced up to November 2022.

If we go to Page 15, we can see the debt amortization schedule. So we have optimized payments to do during the next 3 years. And so no major after the payment -- you remember that during the year, we issued $2 linked or $3 linked notes so the idea of the company was to pay all the debt. And this rule of the Central Bank forced us to refinance. The company has a strong cash position of almost $72 million more of cash available.

So with this, we finish the formal presentation. Now we open the line for a Q&A session.

(Operator Instructions) [Octavio de Gregorio] wants to make a question.

I would like to ask you what expectations do you have about the future of the business in Argentina, taking in account the program that the government has to sign the IMF and the consequences that this will have for the future of the country.

Relating to agribusiness, there is a lot of optimism on the market and we saw this increase of more than $100 per ton of soybeans. And this changed, for sure, the market feeling. And we are considering what this affects the results of the campaign and it's incredible. So in some countries, doubled the results -- more than doubled the result, this increase in the middle of the planting time.

So optimism on the food production of the world is coming and we feel this, that it's a new trend. That was the $9 to $10 solution for many years. Now we are going to the 12 level. And this will, for sure, affect the optimism of the farming industry in South America. And this group between Cresud and BrasilAgro is going to profit on that for sure. And not only in the grains, but in the beef demand from China mainly and Asia, it's increasing a lot. They are recovering their stores. And this will, for sure, affect the liquidity on the liquidity on the real estate part of our business because of the increase in the margin, increase in the gains and the intention of increasing the size of farms. So that for sure will profit our business theory.

And [Octavio], regarding the financial side and the IMF, of course, that will have an impact on Argentina macroeconomic situation. We don't know really what the government will do. Probably, what they have been showing is they try to normalize the curve of the debt with the situation on refinancing, all the sovereign debt in local currency and in dollars. So we hope that they will close an agreement with the IMF. We don't know when but we hope that they will do it.

The business on the real estate side definitely will be better than this year. This year was a very unique situation with malls and hotels, some convention centers closed for almost 6 months. So that definitely will be better. We believe that our platform is in conditions again to make attractive the business. And since we supported our tenant, we hope that this will strengthen their relations with them and they can survive this crisis and be ready for the recovery.

(Operator Instructions) There are no more questions. We conclude the Q&A session. At this time, I would like to turn back to Mr. Alejandro Elsztain for any closing remarks.

For agriculture, first quarter is just the beginning. It's a very optimum situation for the beginning, the first quarter. We are planting in good conditions, in good window for farming that is relevant for achieving budget yields. We have a big campaign forward and we are very optimistic on the platform and the portfolio that the company is running today.

So thank you very much. We see you next quarter. Thank you for everybody. Bye.