Cresud SACIF y A (CRESY) 2023 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 2023 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 under information discussed today may include forward-looking statements regarding the company's financial and operating performance.

All projections 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 morning, everybody. We are beginning today our second quarter 2023 results. We are going to begin in Page #2, talking about the main highlights for this -- for the half year. And we are achieving a record planted area in the region, and we began to include in our performance, the farms that we own and we are leasing to third parties.

What does it mean? Some funds, own funds, that we rent sometimes to generate a client to sell sometimes directly to share the risk of production in the area. And that's the reason that in the next stage, we are going to see that we are achieving close to 290,000 hectares of total land in the combination of leasing and owning land.

About the compound progress, there are mixed conditions, and we are going to see depending countries and crops. But in general, there is a sustained commodity price and for this campaign, affecting a very important growing cost, more affected in the case of Brazil, and Argentina has affected margins. So we are going to see good and sustained commodity prices. But these growing costs taking a great portion of those margins comparing to last year.

And that's why Matias later will explain some of the lower margins on the first semester, that is the less important in a number of crops, majority counts in summer that will be reflected in the third and the fourth quarter. And the climate has affected mainly Argentina, we are going to see the effect of the drought in Argentina mainly, not affecting Brazil or not importantly in Bolivia and Paraguay, but this is really changing in the case of Argentina.

But we were lucky about some of the impact came to some regions that we have few farms not a lot. And so we are going to show you our map and our location of the farms. So that is affecting a little less in our case. Related to BrasilAgro, BrasilAgro has good great results. So we are expecting very good in corn and soybeans, but most affected mainly sugarcane. So when we are comparing our balance sheet, we are seeing much lower results coming from sugarcane.

Last year, sugarcane had resulted in increasing prices, very good yields and lower costs. But this year, the 3 are affecting negatively. So that is the main change the adjusted EBITDA for the year. And in the real estate, the second effect on the balance sheet, the last year, the first semester was mainly affected by very good real estate sales, a lot of sales done mainly in Brazil, all of them in Brazil. But this year, we are just looking at 2 small sales that I'm going to explain a little later.

So the main 2 effects on the agriculture are related to sugarcane and real estate. Related to IRSA we were buying more shares. So from this semester with 6 months, we're increasing our sales from close to 54% to close to 57% of IRSA. And IRSA had very good results in the semester, the EBITDA is rebounding a lot and the leverage of the company is amazing. We are going to show you later. From dividends, we were receiving dividend from BrasilAgro, from IRSA, from FyO, from company is really receiving from subsidiaries a lot and expecting to receive much more in the future because all of them are in very, very good shape.

And we were buying back shares, and we were paying dividends in the semester that we are going to show you later. So we can move now to Page#3. Here, we can see the evolution of the prices of the soybeans and corn. So there was a rebound recently affecting -- and so that's why the reason I'm talking about better commodity prices. But on budget, they are not surpassing as like last year.

The prices of the crops that you are receiving, they are close to the budget prices, not a gain. Last year, we had like 20%, 30% gains on prices and this year, we are not expecting we are close to budget. And so -- by saying that the corns are fair enough, not reflecting the loss that Argentina had and that main reason it is because Brazil have more than increased what Argentina lost. So the regional balance is good. It's not good in Argentina, but having so much area planted in Brazil that there is not a lack of grace for the next campaign.

And here, we see our evolution and we are showing 8,000 hectares, our 8,000 hectares fro FyO and BrasilAgro own, and we are leasing to third parties. And for example, in Argentina, we have leases in a process in our farm Salta or in La Suiza in a farm in Chaco, where we diversified our production risk or sometimes we are iterating to the client to lease for later saving. That's happened in -- we are doing that, for example, in Paraguay, we are leasing and the one who bought multi portions of the 5,000 hectares is leasing on top of that some hectares of the farm. So really, it's a way of bringing clients to our big projects too. So we are achieving close to this 300,000, we have the expectation of keep growing on that number between the 4 countries between own and lease.

We can make -- going down to Page #4. And here, we see the evolution of the drought in Argentina. And here, we see the red showing big growth. On December, the drought was almost everywhere. But look at the yellow and the yellow reflects our farms area and where our plantations are owned and leased farm. So the points are showing our plantations. And let's see what happens currently 2 months later when the rains came, some of the rains came. So majority of our point are located in yellow to green area where the drought is not affecting so much. The worst of the drought came to the main coordinate north of Buenos Aires or South of Santa Fe or Southeast of Córdoba, but our majority of our points are really better located.

And here, we are expecting not to be affected as Argentina is. In Argentina, the coordinates are about 35, 37, 32, depending the source, but really the big drop from the 49 million tonnes original and we are not expecting to be affected too much. Here, we are forecasting like a 10% in soybeans or 5% in corn, it's a little too early. Today, we are not just having the real numbers. But our areas are not so effected as the country. So we are less negative that the -- now the services are talking about the forecast of Argentina, meaning that we are expecting for March and June results our main soybean and corn and let's see if rain keeps coming.

There is no reserve. What we have in the land -- almost none of the land has reserve and sometimes the land has many limiters that could give to the [profit] if doesn't come the rain. This is not the case this year. So majority of the areas are needing the continuation of the rain for the future. But we are still optimistic on the campaign in Argentina, and in the campaign in Brazil, and the rest of South America is much better, probably not affected or not below budget, maybe up to budget because really rain came to the region.

And in plantation, you can see on Page #5, the plantation of the 2 soybeans is close to 100%. And in case of corn, there is some delay. But in Brazil, that is 29%, it's expecting the collection of these days and comes the safrinha corn that is coming through. So we are expecting to plant this fortune. The budget that probably wheat planting will be the remaining in Paraguay that probably want to give us the opportunity. And in Argentina, we think that will be close to all wheat planting. So it's really -- we are not expecting to be affecting big the sowing part. So let's see what is the harvesting (inaudible).

And to finalize REIT, what in this semester was not very active. The real estate showing these 2 sales were that they were done in the first quarter. In the second, they are not new. The first 2 are, one in Paraguay, small, 500 vectors. The second in Brazil, 1,400 hectares and no room for this first semester, but very optimistic in the second a lot of activity, a lot of activity in Brazil, mainly the liquidity of the farms is huge. But in Argentina, we are seeing some movement. So we are optimistic on the second semester in the activity of the real estate for sure. So first was not very active, but we are exactly much more active in the second one. Saying that, I will give you now the word to Matias Ivan Gaivironsky, our CFO, please Matias.

Thank you, Alejandro. Good morning, everybody. Going to Page 7, we can see some of the results from our investment in IRSA. It's important to mention that during the quarter, we -- or during the semester, we bought shares in the market. So we increased our stake to 56.7%. So we increased by around 2.3%, our stake in IRSA.

Some of the main important issues during the semester for IRSA, there was a very strong operational and financial results, levels of EBITDA increasing, surpassing pre-pandemic levels, increasing the margins during the -- compared with the previous year, so very good margins. The occupancy of the last building that IRSA developed today is 100% occupy. The hotels is generating a record EBITDA. Also IRSA during the last quarter, recently, issued new notes in the local market.

So with that, IRSA solved all the issues with the debt and with the restrictions of the Central Bank and the lack of dollars so now IRSA hasn't more any risk regarding its debt. And we will see that there is a deleverage process that we started in 2020. Going to Page 9 to understand some of the results in the semester, we need to understand what happened with inflation and devaluation. Inflation during the year -- during the semester was 43% and the inflation -- and devaluation, sorry, was 41% means that we have a real appreciation of the peso, 1% during the semester and 11% last year.

That will have an impact on liabilities that all the dollar-denominated liabilities will generate gains because of this. And all the assets valuated in dollar terms will generate losses. If we go to Page 10, we can see there is a reduction in the adjusted EBITDA on our agricultural business. And basically, during this semester, we have different effects. The main one is in the sugarcane. We will -- we can see a reduction from ARS 9.3 billion last year to a gain of ARS 800 million this year.

Remember that last year, prices of the sugar was very high and -- so that generated a record gain during the last year. Now prices reduced and also the climate conditions for the sugar basically in Brazil were not the best. So for that reason, we are generating lower results in this semester. Grains also has a reduction from ARS 1.9 billion to ARS 220 million. Remember that it is still not the best part of the year. So only the wheat -- we have basically the wheat of their results during the semester.

Last year was a very good year. This year, we dropped that Alejandro mentioned, we suffer. We have an impact because of that. And this is the main reason why our results are decreasing compared with the previous year. In the cattle activity, it's more related to the inflation effects. Prices were flat in pesos -- more or less flat in pesos. And with the effect of the -- when we have to express that in real terms, generating losses. And agricultural rent and services, we have a gain, because we increase the size of our funds that we rented to third parties. The results of FyO is very good. We can see an increase of 116% from ARS 1.8 billion to ARS 4 billion during the year.

Going to Page 11, we can see on a consolidated basis, the operating income reducing 44.3%, excluding the effect in the change in the fair value, that is mainly related to our investment in IRSA. On the right side of the page, we can see the decrease from a gain of ARS 44.7 billion during last year to ARS 28.8 billion loss during this year. This is related to valuation of our investment properties that if we measure that in dollar terms, are flat. But when we have to express that in real pesos is generating losses.

Going to Page 12, the net financial results. We can see a gain during the semester of ARS 8.8 billion compared with a gain of ARS 16.2 billion last year. Here it's important to make sure 2 lines, the net interest that we can see a slight reduction, but when we combine the 2 lines, the net interest together with the net affect results. Part of the results are going in that line that is generating gains. So we can see an important reduction compared with the previous year, that is related to our deleverage process in a consolidated basis.

So when we put all these effects together, the net result this semester is a gain of ARS 19.2 billion compared with ARS 74 billion last year. This is a reduction that is -- most of that is related to the fair value of the investment property.

And we can see in the next page, the dividends that we collected from our subsidiaries. During the fiscal year 2022, we received dividends for $40 million this semester. After that, we received a dividend of $34.8 million , $7.8 million from IRSA, $24.5 million from BrasilAgro, and $2.5 million from FyO. And also Cresud distributed dividend in cash, a dividend yield of 3%, more or less $10 million that we distributed during November.

Page 14, we can see the debt amortization scale and it's stand alone. This is only Cresud. So there was a challenge last year to refinance the debt of $113 million at the Central Bank of [Life] to do that. So the exchange offer was very successful with around 90% acceptancy, so there is still a small payment of $14.7 million that we have to do in the next phase, but we believe that we will have access to pay that debt without any problem.

Also during December, there was a new issuance. We issued a $38.2 million linked note with expiration in 2026 with amortizations in the -- 3 amortizations in month 36, 42 and the remaining at the end. The interest rate was 0. So this also reduced our cost of the debt in dollar terms. On a consolidated basis, we can see the net debt evolution with important reduction since 2020 from almost $1.2 billion to $680 million much more diversified in the next years, the expiration. So we are very happy with this evolution.

Regarding the share buyback program, remember that we have approved a buyback program of ARS 4 billion. From that, we executed around 32% of the plan. So we already buyback around 1% of the shares of the company. The investment was ARS 1.3 billion, so we will continue to execute our plan in the future. So with this, we finish the formal presentation. Now we open the line to receive your questions. Thank you very much.

Thank you. While we conclude the presentation. And now it's time for the Q&A session. (Operator Instructions) We're going to take the questions in the orders we receive them.

First question, do you expect farmland sales in Argentina for the next semester or for this year 2023 and also in the region?

Yes, we are seeing some surges of farms, neighbors or people trying to expand and not to -- probably they are not very happy of putting their money in their banks or in other assets. So, yes, some in Argentina, a lot of the liquidity of the rest of the region. But yes, some movement. So I'm optimistic in Argentina too, but much more optimistic in Brazil where the benefit of -- instead of the human being that he is a farmer, not the society, instead of him being paying the taxes on gain, taxes on earnings. They are directly buying new farm, so they avoid directly to pay. So the liquidity there is great. So I'm optimistic on the 2, but much more in Brazil then in Argentina. And I expect the next semester, activity in it.

Next question. Do you think the drought in Argentina will have an impact in commodity prices?

It sounds like the effect of the drought made the prices to keep firmer, that if Argentina would have the normal 50 million tonnes or more would be different. But the 35 more or less that the market is expecting sounds like the market accepted and because of volumes of Brazil, the market is not too afraid and we are not seeing the rebound -- huge rebound of the prices. Like last year, we saw that when 30 million disappeared in the region. Today, they are not 30 million disappearing. Maybe it could be an effect on the mill -- because of Argentina, industrialized majority of the soybean and Brazil not and sales directly as a bean. So maybe it could be a deficit on that in the flower of soybeans. And yes, that could put firm price on that because of the low volume on the factories of Rosario.

Yes, that's a -- good here, we have many questions from our investors if we can explain the reasons for the significant tax credit in the P&L in the latest quarter results?

Yes. There is -- we have been assessing our results, our tax results by inflation in the last quarters, and we took a very conservative approach in our balance sheet recognizing all the losses in the previous quarters. There was a new decision under the Supreme Court that allow the companies to [act] by inflation in the tax balance sheet. So since that was exactly what we have been doing, we decided to reverse the effect of the tax in this semester that generated an important gain. And now we have support a Supreme Court decision. That is the reason why we had the loss in this semester.

There is a question here regarding provision of the lawsuit, that increase in the second quarter. What do you expect of that ruling. And if there can be any other related lawsuits going forward?

Okay. This is related to IRSA's investment in Israel. That was -- that we explained that during the webcast of IRSA. There was -- there is a new claim that IRSA received a couple of weeks ago. It is basically a claim for ILS 140 million. The company IRSA decided to create a new provision, no matter on all the legal defense that we believe that the chances are very high. But the company decided to be conservative and create a provision of 50% of that. That is the -- that provision in this semester. And going forward, no, we don't expect more claims from our investment in Israel.

Related to the fair value losses on investment properties that jumping in the second quarter, if we can discuss reasons for that and outlook going forward. I think some parts you explained Matias, but in the next quarters, what do you expect for that line?

It's also related to investment in IRSA, it's not directly from Cresud standalone. You need to understand how is the procedure. We value the shopping malls with a DCF model and offices and land bank with comparables in the market. The comparables we are using the blue chip swap to convert dollars to pesos and the DCF is a model that is created in using the official effects. When you measure the properties in dollar terms, valuations are the same, so it's not changing.

What happened is that you -- when you have to convert that into pesos, you have to measure what happened with the inflation and what happened with the devaluation. And always, when you have an appreciation of the pesos you generate gains that is what happened last year that generated an important gain. And this year, it's not the same. So when we analyze basically the blue chip swap, there was an evaluation converting that into pesos is lower than the inflation. So that you have to generate a loss in that line.

There's more of financials for Matias. Any guidance on dividend and share repurchase going forward? And also your targets of labor as of Cresud going forward.

Well, regarding the buybacks we have this program approved for ARS 4 billion. From that, we executed ARS 1.3 billion. So we will continue to execute the plan. In the future, dividends, we prefer not to give guidance. We always approved in the shareholders meeting that. So there is no proposal yet to our shareholders' meeting. So it will be, I don't know, in the coming months decision. Regarding the leverage, we can see the deleverage on a consolidated basis that is very positive because now IRSA has much more free cash flow to this yield or to yields in future projects. In the case of Cresud, the guidance is probably the same on what we have. So we will, I believe maintain the same leverage for the year.

A question related to farmland real estate, what would be your average market price of agricultural land per hectares, if possible, separate between crops and cattle in Argentina and Brazil, outlook and prices going forward? And would you be looking to increase monetization of your agricultural lands.

There is not an average for sure, each region has a different price and Brazil is calling impacts of soybeans in Argentina. The nomination is not as [greater]. There was a big rebound on the prices on the lands in Brazil mainly, and that region followed the trend of United States appreciation of the land, not in the case of Argentina because of intervention of the government adding taxes on exports and behalf of the dollars that following the trend of U.S. didn't happen in Argentina.

So there is a lot of liquidity in the farms in Brazil, really an activity that I've never seen. And a lot of interest of other farmers to increase their stake. So they like to be increasing their operation, and they do through buying and paying on installments. They don't buy them paying cash. The normal is to pay 20% to 25% and the rest as 20% per year, many installments for the future inside of soybean.

In the case of Argentina, the equity was less as to last year because of the 2 effects that I said. And so today, the price of the land are much more cheap, and there is not these following American or Brazilian prices. And -- but I imagine the appreciation on the land of Argentina will come because of probably the next government reducing the gaps on the dollars and reducing the taxes in excess too. So I imagine more measures related to farmers. And we are seeing the existing government is improving the farmers situation, giving some special dollars to farmers that it's like an act of taking taxes, so they fix their soybeans. So really optimistic on the price of the land of Argentina and the price of the Brazilian farms is amazingly liquid and attractive compared to the past.

And a lot of realization, yes, for sure, there are years of realizations and maybe this year is more of realizations, where there is so much fuel price for the land. And sometimes, we bought at, I don't know, 10x lower than today's price or much more than that. And Cresud Brasilia, I'd love to do the business and buying when no one is buying and selling with everyone is selling -- is buying and giving the equity to the farm, to the company again to revise in another region later when the opportunity comes. Yes, for sure, this is what I think.

I don't see more questions. (Operator Instructions) Yes, we will -- we'll post a replay today afternoon in the website. [The website] was generated to that. So we're going to be able to see it again.

There is a question if we're going to start again with the repurchase?

Yes, we have started some yesterday with the buybacks. As we have done and been doing.

So with this, we conclude the presentation and the Q&A session. Thank you very much for participation. I will turn back now to Alejandro Elsztain, CEO, for his closing remarks.

Just to finish, we are in the first half of the year. We spoke about the grace coming in the second semester, in this case, expecting the real estate much more healthy, IRSA in a [fear] moment and very deleveraged and risk. Now there are much better results, operational results in IRSA too in the rental properties, too. So in the case of services through FyO, FyO is really a big engine for Cresud too, and we are seeing big results and expecting the expansion of FyO to Brazil that will give us more and more EBITDA for the company, too. So optimistic of the second semester. Thank you very much, and have a very good day.