Cresud SACIF y A (CRESY) 2020 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 2020 results conference call.

As you know, today's live webcast will be held in a new format through Zoom. Nevertheless, both audio and a 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 issued yesterday are also available for download on the company website. After management remarks, there will be a question-and-answer session for analysts and investors. If you want to make a question, please click the button labeled "raise hand."

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.

Good afternoon, everybody. Welcome to the third quarter 2020 results. This is a special conference call. You know the different -- difficult times that we are spending, and I hope that everyone is well and safe. As you know, Cresud agribusiness is operating relatively normally, being an activity that is essential in Argentina and all over the world. Not the same in other segments. We can see that in the urban segments. We had suffered a lockdown since March 20 in the case of Argentina so the shopping centers were closed and hotels were closed. We are going to see that the main results of this lockdown is going to affect the fourth quarter and -- because it's only 10 days of the third quarter.

In Israel, the lockdown and the quarantine made different situations. Some companies like the supermarkets like Shufersal and Mehadrin were in essential activities, so working or better-than-expected sometimes surpassing the results of the past. Some of the others were affected but much lower because of short term of quarantine of Israel.

Later, we are going to see the results in details, but we are going to explain a loss of ARS 7.4 billion for the 9 months comparing to 14.5% of last year numbers. The adjusted EBITDA reached ARS 26.6 billion, comparing a 41% increase to last year numbers. The EBITDA from agribusiness increased almost 45%. And this is mainly due to higher productivity in the operational of agriculture, grains and sugar cane mainly. And the urban segment, there was a small decrease of 2.7% comparing to last year's numbers, and the main decrease coming from shopping centers and hotels. In the case of Israel, there was an increase on the EBITDA. We are going to see later.

So let's move to next page, the Page #2. And here, we can begin speaking about the main effects that we had in BrasilAgro through a real estate acquisition that we did through shares. We were lucky to begin to do this mechanism, first time of our history, and we began to buy assets through the shares -- sorry, this is the first time that we do an acquisition through share -- issuing shares. There was a company that failed in the past. It was a big company that was trying to copy the model of BrasilAgro. But after many failures, they sold majority and the remaining they gave us, and we issue shares to pay them. This is a package of 29,000 hectares of total surface for making mainly grains and cattle. That will be a dilution of cost, G&A and the operation because you can see on the picture, they are neighbors of our existing Chaparral and Jatoba farms. So with this and using fair value, so we calculate the net asset value of BRL 31 of the share of BrasilAgro to make the merge. We made a dilution that represent 8-some percent of the shares. So with that dilution, now we have more shares of BrasilAgro, grew in size. Now it's a company of a portfolio of 214,000 hectares. And so there was an increase of this number of shares that we can see here on the graph on the table. And so from one side, we have this dilution of this 8.5%, almost that, of a percentage of dilution because of the mission for making the merge. And from other side, we recently sold 6% in the Bovespa market. So Cresud, after these 2 events, went from the 43% to the 33.6%. On that sale, we raised almost $16 million that we have on the pockets of Cresud today. So this is a new vehicle through shares, and I'm very happy with that. I think this is the first of many of -- because this is giving liquidity to people that wants to leave their business but wants to remain in a much more active vehicle like BrasilAgro is.

If we move to next page, we can see one purchase that we did recently. We did a normal acquisition. This is a 4,500 hectares that we did in Brazil, 2,900 to be developed. And this is for grain. And this is a BRL 25 million purchase. 8,500 -- this is per acre -- per hectare, sorry, not millions. This is per hectare. This is a mistake. We paid an initial BRL 11 million of payment. And what it has -- this for us, very good. It's not only buying the land. We are leasing a big portion of land, 5,700 hectares adjacent. So here, where you see the graph, this is the part that is not developed, and the adjacent has to be developed. The 2 -- and the developed, they gave us the rental for many years, plus they gave us like a fixed payment like a call. This is an option for us to buy. So we like very much because the day we're going to sell, it's not going to be sell only our piece -- the developed piece. It will be a combination of our piece plus the rented with the option that they gave us for 12 years. So this -- the combination of the 2 makes so attractive business to do in the region of Piaui.

If we move to next page, we can see the evolution of the year that we are finishing. Next quarter, we are finishing the campaign. This is our historical record of planting area. We grew 9% year-to-year to 271,000 hectares combining the 4 countries, Argentina, Brazil, the 2 main, Bolivia and Paraguay. Breakdown of soybean being the major; second, the corn; and very relevant, the sugarcane. And this is the -- we are running in the whole region 885,000 hectares between the 2 players, Cresud and BrasilAgro.

The sales this year that we did, they were only in Brazil, a lot of liquidity. Brazil is closing a very good year, devaluation, helping a lot to the normal farmers, they're not sophisticated farmers, not hedging their crop. They found that the real went from BRL 4 to BRL 5.70. Today, we have seen some reduction on devaluation, but still could yield good price, good devaluation, make them a lot of gains. And the Brazilians are very active in the real estate arena. We see up to the third quarter only $11 million between the small sales, but sales that show more than 10x the book value.

This is the kind of gains we are seeing. We are finding -- selling small to the retail financing, making a huge gain, $11 million, book value of $1 million. So this is the kind of what we dream at the beginning of BrasilAgro. To buy huge pieces to resell, finance and make the money and buy again. So we are showing a lot of the real estate evolution on the year in Brazil. Not in the rest, we want to have -- in the rest, we are trying, but we are thinking that BrasilAgro is going to find more because of the liquidity of that market this year.

So if we move to next page, we are going to begin the explanation of Carlos Blousson, our Manager of Brazil -- sorry, for Argentina and Bolivia, who will explain some details about the commodity prices of the market.

Good evening, everybody. Thank you, Alejandro. We'll continue with the presentation. Let's move to the Slide #7 about farming, commodity prices and global stocks. We can see in the graph the prices keep below trend. The reason are the following to considering the supply and demand. Considering the supply, the production of the crops in South America performed very well in general, generating an increment in the global stocks. Let's not overlook the fact that the stocks in the United States, especially in soybeans, are still high because of the delay in exports due to the tardiness in agreement with China. Regarding the demand, despite the agreement, Phase 1, has been signed between the United States and China last January, export continued to be delayed due to the impact of the global coronavirus outbreak in the last 3 months as a consequence of the logistic issues.

Regarding soybean stock/consumption ratio, we can see in the graph a decrease in the world ratio. This happened due to that the demand overcomes the offer.

Talking about corn. Talking about corn, we see that the corn stock/consumption ratio, the world's ratio increased, especially in the United States. They are waiting for a great record campaign this year in the United States and expecting production to achieve the record of 340 million tons. This matches with the low in the use of the corn for ethanol productions, affected by the decrease of the oil prices in the world because of the pandemic. We appreciate that the FOB soybean prices in Brazil were more competitive than in the United States and Argentina, the reason being the delay in the agreement in the United States and China and the Brazil's national currency devaluation.

Finally, about the regional hedge campaign, the current hedge level is 78% in soybean in the overall budget prices. In the case of corn, the regional level is 89%. We mean 4% over the budget in the soybean and 2% in the corn. It's clear that this high hedge happened because we're disciplined to our usual strategy, foreseen that the market was going down, especially in Argentina.

Let's go to the next slide. Slide #8, good farming prospect for 2020 campaign. As you can see in the top of the graphic, the evolution of the weather in South America was normal, except from the Northwest area in Argentina and in Paraguay that suffered heavy drought during the finishing of the yields.

Related to the exchange rate evolution, you can see that the evolution rate has increased in the last 3 months. We can see 30% increase in Brazil and 8% in Argentina, allowing an improvement in the competitivity in the export sectors. The regional harvest progressed, soybean 97% and in corn, 26%. We are harvesting the safrinha corn in Brazil and Argentina in the coming month.

Let's move to the next page. It's about the COVID-19 agribusiness working as an essential activity, protocols used by Cresud in farms. That is the discussion of all the protocols. The one is the security and hygiene protocol, farm access control, suspension of farms visits, reduced transport use and the last one is change in the way of working. Teleworking was implemented in different position and functions.

Let's move to the next page, good farming prospects for the '22 -- 2020 campaign. As you can see in the graph, the crop production is expected to increase by 1.3% year-to-year period, achieving a record in the productions to 833,000 of grain. The expected crop yields are stable in 6.2 tons per hectare in corn and 2.7 tons per hectare in soybean. Regarding sugarcane productions, the growing trends continues, and we expect a record of 2,373 tons in 2020.

Finally, the meat production remains stable in 8,700 tonnes despite of a sale low in cattle stocks. In Argentina, after the end of March, 20% of the livestock was sold, taking advantage of the good market price.

Thank you. Matias will continue with the presentation.

So when we move to -- good afternoon, everybody. And when we move to the investment in IRSA, we see different results. The COVID situation will impact the company after March 20. So when we see as of -- to March 31, the impact was limited. After that, the impact will be much more important since the operations are in lockdown since March 20. So up to March 31, the stock of shopping malls remained stable. Occupancy remained stable as well. And the tenant sales already include the 10, 15 days that the operation was affected and generated a decline of 12.9% against inflation. But when we see this number before the COVID impact, that number was positive.

We have some positive news. Recently, we opened one of our malls in Salta, another one in Mendoza. There was an administrative regulation in Santa Fe 2 days ago about the opening there. So we expect to open also in Santa Fe soon.

In the offices, as of March 31, there was an increase in stock, and we are working to finish the development of a new building in the Catalinas area. The occupancy was slightly down to 93.9%, but nothing important. Rent remains stable. We have normal operations after the COVID so we -- the collections are okay. Our buildings are under operation, although most or some of the companies are doing home office. The offices remain open and under operations.

And as I mentioned, the Della Paolera 200 building that we are developing, we have to stop the development because of the virus, but we almost finished. The project is under 95% progress. So we need around 60 days more to finish the building, and we expect when the development was -- will already open to finish soon. There was a good progress of commercialization with 61.5% of the agreements already leased. That is a good -- very good news.

In the hotel segment, there is no major news up to March. The occupancy went a little down because of 2 reasons: one was the reflag of one of our hotels that used to be a Sheraton. And now it's our own brand and also the -- some days of March, that the operations were affected by the virus.

So going to the next page. Alejandro will keep going. Alejandro, I think you are on mute.

Sorry. About the Israel Business Center, we can see very short summary about what each company is spending these days of coronavirus. We can see in the real estate PBC, Gav-Yam and Ispro. These are the real estate of the group. And they are normal operation in office and logistics segments. This is 0 effect. And in the case of the malls, the effect -- almost half of the tenants are essential. All the rest, 50-some percent, is not essential, has a very short time of closing, but we opened all. And so the effect on the retail on Israel, it's much smaller than in the Argentina case.

Case of Shufersal. Shufersal is one of probably the winners of the coronavirus time because these having 338 stores in Israel, supermarket and pharmacies. The 2, remember that we have be -- at its pharmacy too. The 2 are winners, a lot of sales, increasing a lot the online sales. 14% of the total sales are online. Own brand, 25% of total assets. And the record sales of the time and the trend is expected to remain in the second quarter.

Mehadrin, the fruit story, citrics and avocado and dates. This is the -- again, this is almost normal. It didn't affect so much. We're able to pack to peak and to send to Europe with higher prices. This year was lower level of supply, was the low level years of on and off. This was an off year, less volumes at very good prices. So not very affected by the coronavirus.

Cellcom. The Cellcom, the cellular company of telecommunications. This was moderate decrease in the revenues because of the roaming -- decrease on the roaming and the sale of the devices. And reduction of labor costs and suspensions of marketing expenses, came in new CEO. So the company had made a lot of cuts. So he's restructuring the cost of the companies.

In case of Elron, this is a leader in investment in early-stage companies and specializes in medical devices, cybersecurity and information technology. Here, there is not a lot of impact. This is a company that is researching and launching companies. So this was -- give you a flavor of the effect on Israel Business Centers.

So if we move to next page, we can begin about the -- speak about the financial results that Matias will explain.

Thank you, Alejandro. So if we move to Page 14, we see our 9-month period financial statement. We finished the period with a loss of ARS 7.4 billion. When we compare with the previous year, that was ARS 14.5 billion. Attributable to our controlling interest, the result is almost the same, ARS 10.2 billion against ARS 10.1 billion.

So if we see the main components of this result, so starting with the operating income, we see very good results in the agriculture segment. So ARS 4.4 billion against ARS 1.7 billion. I will add some more detail in the next page.

In Argentina Business Center, at the level of the operation, the operating income was also very good, ARS 7.2 billion against ARS 3.2 billion loss last year. This is mainly attributable to the change in the fair value when we see -- last year, we rolled down a significant impairment in our investment properties that generated ARS 8.8 billion. And this year, we have a gain of ARS 2.2 billion.

Then in the Israeli business segment, at the level of the operation, also, we have a loss of ARS 377 million against a gain of ARS 2.4 million. It's also attributable to the change in the fair value. When you see the change in the fair value, this year, we have ARS 2.6 billion against a gain of ARS 386 million. This is related to our HSBC building in Manhattan.

So the other important difference that we have in this 9-month period is in the Line 13, net financial results, that I will explain in the following pages -- sorry, and finally, the other important effect is in the Line 16, the net income from discontinuing operations that, this year, we marked a very important gain for the deconsolidation of Gav-Yam, a subsidiary of PBC in Israel, that we sold shares of the company. Since we don't have the control -- we don't longer control the company now, we have to value the operations at the equity method and not longer on a consolidated basis.

So entering to more detail in operations. When we see the adjusted EBITDA by segment, as I mentioned, we have very good results in the agribusiness in general. The only line with a drop is in the farmland sales, and this is because we sold more up to March. We sold more last year than the previous year. But as Alejandro mentioned, we have very good news in that line as well. So we're very happy with the performance.

In the farming, we have good results in grain, 49% above last year. Here, we have a combination of different factors. Better -- at the beginning of the period, we had a significant stock compared with the previous year, a more important stock that -- with good prices. Also a good advance in the campaign of this year compared with the previous year for the time of the year. We closed our campaign in June. So in June, we will have the final results.

In Sugarcane, also better performance, better prices. So -- and so compared with the previous year, we are better. Cattle as well, we have better prices. So all the lines are generating good profits in agriculture. In the Others segment, also the meatpacking facility and operations of FyO and Agrofy generated good results.

In the urban segment, the Argentina business segment. In the shopping malls, we see a drop in the adjusted EBITDA. Against inflation, 16.6%. So this is before the impact only with limited impact of the virus situation. So probably definitely, the next quarter will be worse than this quarter. In the offices, we were able to maintain or increase the levels of the previous year. Now we have a new building under operations and the contracts are in dollars. So we have good results. The hotels, we see a decrease. As I mentioned, it's related to the reflag of one of our hotels that generate lower revenues. And also, last year, we had a collection of an insurance that is incorporated in the 2019 numbers.

In Israel, the real estate segment performed better when we said the real devaluation between the shekel and the pesos is 13%. So to compare the previous year with this year, we need to incorporate this 13% as a reference. So devaluation, so above 13% is in -- or increase in shekels term, so we have better results in real estate. This is more related to cost than revenues. Here, we -- as I mentioned, we doesn't -- we don't consolidate anymore Gav-Yam. So it's only related to the operations in PBC. And since now, also with -- sorry. Sorry, it's only PBC operations.

In telecommunications. In revenues, probably, we have a slight drop. But in EBITDA, big sum. This is more related to the implementation of IFRS 16. So we don't recognize anymore the cost of the leases of the infrastructure. So this is why the line increased so much.

The other important effect is in the next page, Page 16. There is consolidated -- the net financial results. So here we have different effects. One is in the IDB plus DIC or Israel segment that we have the drop in the Clal shares, the insurance company that last year, the decline was 3%, and this year was 51%. Although we have less shares now of Clal, the drop was significant, and we are recognizing a big loss from ARS 1.9 billion to ARS 9.2 billion.

And the other important effect is in -- of the devaluation of -- in Argentina of the peso last year, the devaluation was 50.8%. But the real FX was -- or the real devaluation was 23.3% against 26% this year. That affects the line of net exchange differences. Also, the net interest loss is higher because of the devaluation. And also, our cost of the new lines that we took during the year were more expensive than the previous year because of the volatility of Argentina.

And finally, regarding our debt structure, there was a subsequent event on June 9. We issued a new series of debt. This is -- last week, we issued $83 million of a new bond at a very competitive cost, 3.5% fixed with maturity in December 2021. So with this issuance, we were able to increase our liquidity and have much more flexibility for the oncoming amortization of our debt. So we are -- with that good liquidity to face the amortizations.

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

Okay. We'll start the Q&A session. If you have a question, please click the button labeled "raise hand." We will take it in the order we receive the questions. Again, if you have a question, please click the button labeled "raise hand." No questions?

Well, we conclude our Q&A session. I will now turn the call back to Mr. Alejandro Elsztain for any final remarks.

Just to finalize, we are finishing next quarter the annual balance sheet. In the agriculture, we are going to finish our harvest, still pending the corn and the beginning of the sugarcane in the case of the sugarcane in the region. Being essential is not affected. So the thing that is affecting for the next campaign probably is the taxes and exports that last year didn't affect us very much but is going to affect more -- a little more the next campaign because the whole year are implemented. And related to the real estate, we expect to keep that buying and selling more farms, buying the bigger pieces and selling smaller pieces. So we expect to see that next quarter is doing the same.

Related to urban, the Northern Hemisphere opened. The Southern Hemisphere is beginning to open, we hope soon, but still majority closed. We saw only 2 shoppings. Later will come the hotels and the exhibition centers. So that delay is going to punish probably the next quarter. But we see, when they open, consumption comes and the rental comes again. We are seeing that in some of our properties in the Northern Hemisphere. And we keep constructing, keep building. So the company is doing its job. So just to thank you, next quarter, we'll be finalizing the annual report. And we'll see you there.

Thank you very much. And I hope next time to be all of us closer without the pandemia on the region. Thank you very, very much.