IRSA Inversiones y Representaciones SA (IRS) 2004 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the IRSA and APSA second-quarter results conference call. At this time all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host Mr. Alejandro Elsztain. Sir, the floor is yours.

Thank you very much, and good afternoon everybody. We will talk about (indiscernible) The operating income for the first six months totaled 31 million compared to the loss of last year of the same period last fiscal year. A part of that, 5.6 million were erased (ph) after the execution of the warrants of the convertible bonds we issued on December a year and a half ago. The conversion reduced our debt in 5.5 million. We increased in this quarter the stake in Banco Hipotecario. We began construction of shopping centers in Prosario (ph). In the first semester our (indiscernible) rose in the case of Alto Palermo to 51 million pesos, a record in (indiscernible) Palermo. A part of that we received an award in Europe (ph) because of our Investor Relations that was (indiscernible) trying to explain how hard it is (indiscernible) Argentina. And we began many projects in this quarter that I will explain now.

Beginning with the results, you see that the results are smaller than last year 22, 32 million compared to 165 million. And this is mainly explained because of financial results; last year the devaluation impacted the appreciation of the peso and this year the contrary. And the operational part of this year was very positive. We came from a negative operation of near half a million to a 21 million pesos positive. And that is a combination of all the lines of business and I will explain each of them.

If we talk about offices, that is not the biggest of our portfolio but having (indiscernible) activity the land (indiscernible) we say the worst part was the highest vacancy and the worst payment this (indiscernible) and that made us to be at 7.2 million compared to the 10 million we had last year. This is the combination of growth. Last year we were with better prices and reducing occupancy and this year was achieving the 60 percent, but was the lowest and we are now recovering from the 60 percent slowly. And we expect to be up near 70 at 30th of June. We see small operations one floor, two floors and that is making a small recovery. Not in prices, up to now the price is still the same; we are still talking about 7, 8 or 9 dollars per square meter, no more than that. But we see that we could be able to occupy part of our vacancy soon. And every week we add a little.

The average of the company is better than the average of the country. So the recovery is coming, but the company is reducing its prices faster to try to occupy faster and after that, improve the value of their square meter. Talking about shopping centers and Alto Palermo is the star of the semester and probably the year. In here the revenues grew a lot -- 24 percent comparing year-to-year and this time the Company achieved was 51 million pesos, and that is to us a recovery of the revenues from the leases and in the Tarshop case, too, the two parts of the Company improved a lot, its operation. In the six months the sales grew a lot. The tenants are really in very, very good moment. We have no vacancy. We have like two percent; we could occupy everything but we are now -- we are making fine-tuning. We are trying to put the best tenants for each place so that shows that there is a lot of demand on that side.

The shopping centers really are making very positive cash flow in months. We see here an average of 7 million pesos free cash flow to (indiscernible). We remember that only a year and a half ago that was near zero and now that is really allowing us to invest in the project of Prosario (ph) like we are doing, buying debt that we were buying or thinking of new projects but now we are thinking to grow new projects in Alto Palermo, too. If you know that in the case of Alto Palermo a percentage of the rent coming from complement (ph) allows us to adjust to inflation. And that is allowing the company to achieve very, very good results. And that is continuing after December results. We saw in January, January-to-January we saw 38 percent improved in sales in the shopping centers.

To give you an idea of January, the January of the devaluation the company sold total shopping centers sold 32 million pesos. On January of 2003, we sold 57. And on January in 2004, we sold 78. That in December numbers it shows 62; the devaluation here 100 last year and 133 last December. So that shows that there is a lot of good time in there. And our tenants are trying to grow with us. They are coming to the projects of (indiscernible) and we have a lot of demand for that, too.

And for people (ph) shopping last year affected negatively because of the bad debt. And this year gave us positive results and all of demand is giving very positive and we are growing because credit card business. Because we have the money -- it is very liquid market. And we can improve the quality of amount of money that we are giving to the stake shareholders. So the start of the semester was Alto Palermo. And in the sales and development area we began the launching of the new projects. Up to now, they are small stock. We are selling the last part of (indiscernible) the last stock (indiscernible) of 90 lot at very good prices. We recover a lot, prices have (indiscernible) like $30 per square meter and we're talking about 70, 80 or 90 today.

(indiscernible) We have good prices (indiscernible) office so we are selling -- we sold, we gave an option to one of our lots to make a development on top of that. We gave another sale of one part of (indiscernible) 40 percent of the square meters of (indiscernible). We see movement in this land reserves that the last three years was tops, and we see that in 2004 we began the construction and probably the number results of that won't be on 2004, because we are going to begin the selling of those early in 2005.

Going to hotels, the hotel is another market that was benefited by the devaluation and we have a possibility that the last year we make a $5 million positive EBITDA, and we had better occupancy from 36, 7 (ph) to 53. We have little better rate $90 compared to $84, not in pesos, but is in dollars. That made positive, and we think we are optimistic for next year, too. We are thinking on the 2004 levels of a (indiscernible) similar or a little better rate improving because tourism is coming and corporations is moving a little more. That is mainly in the shau shau (ph) case, that is the more benefit by the devaluation but the other two are positive, too.

In the case of Hotel (indiscernible) in debt; we are discussing the debt with (indiscernible) We did not closed that but we are in (indiscernible) of the debt that hotel has. Maybe this year we're going to close that. We acquired more shares on the Banco Hipotecario; we felt after the restructuring of the debt that was a very positive asset to be buying. And we (indiscernible) debt. We now are offering to the banks to buy more debt. We have put an offer of $15 million at 7 2 (ph) percent price, and we are waiting for the response from the banks, we feel someone on the part of the banks will probably come.

We are receiving dividends from Alto Palermo for (indiscernible) that we received (indiscernible) half and half (ph) million pesos. And we are part of that (indiscernible) headquarters. We moved from Plateau Camacho (ph) to one of our buildings. The building is the Intercontinental, (indiscernible) and we moved to here. And we are really very happy because of that. We changed the layout and we think we're going to be very productive in this way of (indiscernible). So finally, what I think assuming Argentina is spending good time where is helping Argentina the rates are very, very low where commodities are very high. Depression is showing good reflects at the time of up to now, he was fighting each of the battles. And he has a very positive mission from Argentineans. We think next year he can be solving part of the restructuring of the debt of the government and the type of the privatized companies.

And so the economy is having a benefit of the devaluation that is pushing the lot agriculture system is pushing a lot with the savings at the top, the highest is moving a lot the economy and a lot of small companies are growing. So we think will be a scenario and this present scenario of growth, we are embarking on operations related to high-income sector mainly, with the large budgets like developing our shopping centers in Prosario or trying to update hotels. We are thinking making more in the shau shau (ph) or making buildings in that old neighborhood surrounding Buenes Aires. So we think will be very positive year for IRSA and Alto Palermo, a year of growth and consolidation so these six months are beginning to show, and we are very optimistic for the next (indiscernible) semester. Thank you very much, and I'll wait for the questions.

(OPERATOR INSTRUCTIONS) Katie Blacklock (ph) of Thomas River Capital. (ph)

I just have a question on the Rosario project. Could you tell us just what size you anticipate the investment in the project will be this year? And can you also give me an idea of whether you have already negotiated both the key rates and the revenue sharing, and how that compares to the existing key rates and revenue sharing agreements at your shopping centers?

The size of the investment will be depending the size of the assumption that we're discussing -- if we go to full size or mid size, but will be from 15 to mid $20 million. Will be all extended to I would say 2004 or beginning 2005. In (indiscernible) of revenues we have seen that the commissions -- the percentage of the rent will be exactly the same. Percentage (indiscernible) will be 7 or 6 percent, exactly the same as (indiscernible). The sales force (indiscernible) won't be the same (indiscernible) has not the capacity of Buenos Aires. And the commission and the key money up from what we are discussing is two rents of key money for the whole contract. So it's not comparable to I would say to Alto Palermo shopping, but it is better than Alta Noah (ph) (indiscernible). We are expecting to that investment more an average of 10 percent return from an investment of $20 million.

And the financing of the 15 to $20 million, you were talking about the cash that is being generated from ops that are currently booked, what portion of that investment will be self financed?

Yes, the Company has this money and the profits basically and the cash is generating return to (indiscernible).

Victor Galliano (ph) of Falcon Securities.

Just a quick question on Banco Hipotecario, you were mentioning I don't think I heard very clearly, it wasn't a great line. You were mentioning that you were putting in an offer for more shares. Could you repeat or expand upon that?

We bought shares from the Banco Hipotecario we thought it was a good option to be improving the position on that company that was restructuring its debt. That's what I said.

Okay. Sorry, you are not buying any more post the debt restructuring?

I don't think no more after now.

You got a stake now of about 29 percent in Hipotecario, isn't that right?

IRSA has not so much, (indiscernible) have 90 million shares, something like that.

Nineteen million, okay. I thought it was about 28.9 percent. Okay, I will redo my numbers on that. All right. So for the moment you are happy with that stake?

Yes, we think its a good asset. It is a bond that is one of the higher in liquidity and has restructured a majority of its debt. So we think that that is one of the probably one of the biggest banks in the country, so it is a good investment.

And you were happy with the way the debt restructuring went?

We think it was good, yes.

Thank you.

(OPERATOR INSTRUCTIONS) Katie Blacklock.

I just wanted to get an idea of what the company strategy is with the APSA convertibles that you hold? Just given I think the street prices at 32 cents and market price is closer to $1.30. Can you just give me some idea of what the strategy is with those convertibles?

Like Alto Palermo, we have no strategy there. The shareholders effect on (indiscernible) converting the day he wants have five years, and in the meantime he can wait until receiving the coupon. Up to now we are not thinking on converting, up to now we did not convert.

In the near-term we can expect you just to hold on to those convertibles and receive the coupon?

Yes, up to now, yes, because no different to have it or not. Up to now it is better, yes, we are not thinking on converting now.

And finally I just had a request rather than a question. I think that the headline or the net income number for the second quarter results came out on the 10th of February, but the actual full press release wasn't actually released until the 12th of February, which just leads to a little bit of confusion in the market, I think. Can you just either explain to me why there should be that delay between the numbers going to the Exchange and actually the full publication of the press release?

I am really not involved in that part but I can answer it. I will ask the administration. Diana (ph) will send to you, please tell me to find the name and we will respond to you because I did not know that.

Okay, thank you.

Sir, we have no other questions. Do you have any closing comments?

If there are no more questions, I would like to close the conference saying that I am optimistic in the asset value of IRSA and the portfolio IRSA has and the economy recovery. So we think the combination of the three will show very, very good results. We thank you very much, and we talk next quarter again.

Thank you, ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.