IRSA Inversiones y Representaciones SA (IRS) 2005 Q1 法說會逐字稿

Good morning and welcome to the IRSA and APSA conference call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions following the presentation. It's now my pleasure to turn the floor over to your host, Alejandro Elsztain, Director of IRSA and APSA. Sir, you may begin.

Thank you very much, and welcome everybody. We are going to talk about the first quarter results of 2005, when our net income for the first quarter was ARS17m, comparing to the loss of last year 2004. The operating income grew 83%, going from ARS10m to ARS19m, and mainly reflecting higher sales, mainly driven by shopping centers.

The EBITDA was ARS38m, 61% higher than the same quarter for the previous year.

I will try to summarize in each of the lines of business, first going through office and other rental properties. When here we saw a sustained rise in the demand for the rental space and we saw a recovery going from levels of 70 to 83% in occupancy.

And in this we're still optimistic because we see that there's not new office space in Buenos Aires and we're thinking to go to levels of more than 90% at the end of the year. This, backed with the low price, and you saw that we were coming with the very, very low prices per square meter, in the past we had like $20 to $25 per square meter. And today we have levels of $7, that with a scale going up next year and the [third]. And so we see a recovery from that and we are optimistic in occupying, not all but near all at the end of this year, and in price it's seeing a small recovery going to levels of $8, $9 or $10 per square meter.

In this segment we are trying to 2 things. 1 is to build a new office and second to purchase existing offices, because we're seeing the square meter value mainly in the construction is very attractive to grow from the 84,000 square meters that IRSA today has.

If we talk about shopping centers, the shopping centers at the start of the quarter and during the last 2, 3 years, we saw a very impressive growth in the EBITDA. The 3 months are giving us ARS33m, that is a 34% increase comparing the EBITDA for that same period of last year. And at the same time, there was a recovery of 31%, nominal increase on the sales of our tenants. That is allowing us to charge them very good key money, as we are very occupied, we are 99%. We could be 100%, but we have this 1 to try to improve the tenant mix of each shopping center.

In the shopping center segment, we have 2 new businesses. 1 is we bought, in September of this year, near 50% of the shares of Perez Cuesta, where we were a shareholder. We were in the past passive shareholders, we had 19%. Today we are going to control 69% of that business; the rest is in the hands of Falabella, a Chilean company.

This is a big shopping center located in Mendoza province, in the capital city, which is 37,000 square meters of gross leasable area, 140 stores, and today is at 97% occupied. And this is waiting for the Antitrust Authority's authorization, because we purchased a society. And we think that will be soon authorized and because we have not any assets in that province I would think it will be a positive authorization. And that will add to the Company the ninth shopping center.

You have to remember that 2 days before, on Tuesday, we opened the Alto Rosario Shopping, November 9 we opened the first step, the first part of the shopping center. We opened 20,000 of the square meters of that shopping center. And that will be again a big shopping center will be opened -- be finished in April of next year. It is a shopping center that includes Coto hypermarket and has Museo de los Ninos, has cinemas with Showcase that they will open in April too.

So we opened in November the first step and the second step will be December 10 the supermarket and will be in March and in April we will finish them all and we will open the cinemas. It was a very successful opening, with the better local players like big [strong] players, [indiscernible] and the models of the city. It was a party of more than 6,000 persons coming and we think we made a very good launching.

At the same time, a month ago the competition [Central Food] opened a second shopping center in Rosario. And we think our launching was more positive and now we're going to be in a very competitive position with them. And it opened on Wednesday and it's a very good market in the Rosario population.

So Alto Palermo, we talk about it's very occupied [indiscernible] and we're trying to continue growing. Today we are going to be at 9 and our intention is go into more shopping centers in the country.

Tarjeta Shopping, the credit card company of Alto Palermo, is having a very good time too. The favorable context made a very successful performance and the income went to ARS1.3m to the first quarter, 170% increase compared to last year. And the credit portfolio grew 100%, ARS52m last year to ARS106m this year.

Tarjeta Shopping is having a very, very good time, and it's growing at like 8,000 new credit cards per month. And now, it's opening a society with [Metro Villa], the [indiscernible] company, that will make faster growth for next quarter too.

If we go to the Sales & Developments, we are on construction on the 3 of the projects we swapped. And we are going to begin the third of these properties, but they are not reflecting gains up to now in the balance sheet. I will show the day we are going to begin the sales. And so that is where the movement of that line of business began.

We're still reviewing more offers, for the land which IRSA had, and now we are in the process of researching land for more positive for IRSA. We think that the opportunity of purchasing more and developing more land, not only Buenos Aires city but in the rest of the country too.

About hotels. The income in this segment for the 3 months showed a 28% recovery in the income comparing to last year. That was explained -- 22% was explained in the occupancy, that went from 58 to 70% in occupancy. And rates improved a little, 3%, but we saw in October and November better rates too. So the segment of hotels is making a very positive EBITDA.

And in the case of the Llao Llao, we are beginning, probably in the month of December, the construction of the new 40 suites. That will begin in this year and will be finalized probably in June 2006.

I will give to Gabriel and David the explanation of finance and administration. So please, David.

Yes, good morning to all. First, I will begin explaining the financial statements for IRSA, and I will try to do it by line -- business line.

With respect to the Shopping Centers, the sales had an increase from ARS31m to ARS45.3m, 45%. That mainly reflects the good [market] of our shopping centers. With respect to the costs, the costs increased from ARS17m to ARS18.9m, mainly to our Tarjeta Shopping credit card business, in APSA, in Alto Palermo.

The gross profit increased from ARS14.1m to ARS26.4m, 87%. Selling expenses increased from ARS1.8m to ARS4.3m, 39%, due to higher advertising expenses in our credit card in APSA, in Tarjeta Shopping, and to a higher amount of [profit] tax as a consequence of higher revenues, both in shopping center business and Tarshop.

But the administrative expenses in EBITDA increased from ARS4.3m to ARS5.1m, principally due to higher salaries, and all within the Tarjeta Shopping business. The operating result increased from ARS7.8m to ARS17.6m, 125%.

In the business line Hotels in this financial statement, sales of this segment increased from ARS15.5m to ARS18.8m, 28%. The costs from hotel operations increased also from ARS9.1m to ARS11.2m, 23% less than our sales. So the gross profit increased from ARS6.5m to ARS8.7m, 34%. The administrative expenses also increased from ARS3.3m to ARS4.2m, 27%, mainly due higher fees and higher costs.

With respect to the offices and other segment, the sales during the first quarter of fiscal year totaled ARS4.3m as compared to ARS3.7m in the same period of last year, mainly reflecting the increase in occupancy levels of our buildings. The gross profit increased from ARS1.6m to ARS2.4m, 50%. Administrative expenses increased ARS0.9m to ARS1.1m, 22%.

With respect to the development and sales business line, the sales decreased from ARS6m to ARS1.4m, mainly due lower availability of units for sale, but we expect to launch sales in our new projects during the next months. The gross profit decreased from ARS2.9m to a loss of ARS0.1m. Administrative expenses had a slight increase from ARS1.2m to ARS1.6m.

With respect to the line of equity gain from related parties, the net result derived from affiliated companies increased from a loss of ARS0.2m to a gain of ARS22.5m, principally due to the gain recognized in relation with the share of Banco Hipotecario, that in the past was shown in the line -- or in the financial line, because we changed the valuation method.

Other expenses, [income net], the other expenses net decrease from a gain of ARS1.3m to a loss of ARS0.7m. Basically due to a charge of ARS1m recognized by Alto Palermo during the present period. The decision at the shareholders' meeting held in October 2004 and a lower recovery of allowances for [indiscernible].

The ordinary gain before minority interest and taxes, this line increased from a loss of ARS9m to a gain of ARS28m.

With respect to the income tax and asset tax, income tax increased from a loss of ARS7.3m to a loss of ARS8.9m, and this derives mainly because of the increase in Alto Palermo due to the increase in the sales.

The minority interest decreased because the results related to related companies were higher, so the minority interest decreased from ARS3.1m to ARS1.1m. And the net income for the period increased from a loss of ARS15.2m to a gain of ARS17.2m.

With respect to the financial statement of Alto Palermo, net income for the 3-month period was ARS2.5m compared to a loss of ARS3.9m in the same period of the previous year. The revenues were ARS45.4m as of September 2004, compared to ARS31.1m as of September 2003, 45% higher.

With respect to the gross profit, the gross profit shows a significant increase of [86.2%], from ARS14.3m in the first quarter to ARS26.5m during the first quarter of fiscal year 2005.

Thus our consolidated operating result for the period reported a profit of ARS17.8m compared to ARS8.1m.

Now we are going to analyze the different lines of business of the Company.

With respect to the shopping center business, revenues increased 36.9% from ARS24.9m to ARS34.1m. The costs did not rise in respect to the same period, so the gross profit increased 90%. Selling expenses increased from ARS1.3m to ARS1.8m due to increase in the [profit] tax. Administrative expenses show no increase, were exactly the same. So operating income increased 137%, from ARS6.6m to ARS15.8m.

With respect to the credit card company Tarshop, it mainly had increasing in every line, showing an increase in the operating income of 43%, from ARS0.6m to ARS2.1m during the same period of 2005.

In the other income, the company -- the shareholders' meeting accepted today the tax on personal assets for [1 point million]. And the final line of net income was a result of ARS6.3m from ARS3.9m loss for the first quarter of fiscal year to ARS2.5m gain for the same period of fiscal year 2005.

Gabriel, please?

Good morning. Speaking on the financials. After -- on September 30 warrant issues of the Company were exercised, a total of $5.15m par value. $5m of them exercised by Cresud, 1 of the main shareholders. The result is the issuance of 9.45m shares. The total proceeds from this transaction were $6.18m that comes to the Company.

As of that date, the amount of outstanding Convertible Bonds and warrants was $87.1m and $87.7m respectively, while the number of outstanding shares totaled 258,252,533 shares.

On November 15, the senior management for the Company will participate in a roadshow over the United States for 10 days in order to discuss the current performance and future development of the Company with investors and analysts. On November 23 Mr. Eduardo Elsztain, Chairman of the Company, will participate in the New York Stock Exchange closing bell, because the Company is reaching 10 years of being listed in the New York Stock Exchange.

Speaking of the financial results, the net financing result also contributed to the increase of the net income. It decreased from ARS19.3m loss as of last year to ARS12.3m loss to September 30. The main cause of this difference was due to the lower depreciation of the local currency against the dollar, which impacts severely on our net results.

We have announced for October 22 a General Ordinary and Extraordinary Shareholders' Meeting for the distribution of a dividend of ARS17.9m in cash, which will be available from November 17.

In connection with the 120m Convertible Notes maturing in January 2005, on August 6 APSA and Shopping Alto Palermo SA bought back 13,7500,000 units at 1 par value. The transaction has allowed APSA to reduce its financial cost, as such notes accrued interest at a rate of 8% plus CER, which at the end is about 15% on an annual basis. That retirement resulted in savings of ARS1.3m and implied a disbursement of ARS10m by Alto Palermo and ARS10.7m by Shopping Alto Palermo.

Regarding the conversions of Convertible Notes in APSA, during this quarter the holder of our Convertible Notes exercised their conversion rights. A total of 1,735,659 units at 1 par value were converted, giving rise to a reduction in debt for an identical amount, while 51,301,000 common shares were delivered in this regard. The conversions include conversions made by IRSA and [indiscernible], our principal shareholder, for a total of [1.7m units], in line with our strategy of maintaining their interest in the Company following the dilution of their holding as a consequence of the conversion made by third parties.

Finally, the rating. Fitch Argentina Calificadora de Riesgo upgraded the rating of our structured debt from BBB to BBB+.

To finalize this quarter [as it is], I would say that the environment in Argentina is more favorable. Yesterday we saw numbers about the perception of the population about confidence and it was very positive. It was a recovery of like [10 points] comparing to last month. So Argentineans are more optimistic in the economical aspects of their government.

That is, we're waiting for the last quarter very positive in sales and that is pushing us to see and to search in all of the lines of businesses we have to buy more, probably in the office, to begin the construction or to buy. We're going to continue seeing more in the shopping centers. We're beginning to talk about the project of Neuquen. That is the land reserve we have on stock, and probably in 2005 we're going to begin the construction of that shopping mall.

And we are, as part of that, seeing in the hotel more developments too. So we think that with this environment of low cost of construction and more optimism in Argentina because of probably the restructuring of debt coming from the government, and the floods of money coming from emerging -- coming to emerging markets. Not just the regions of Argentina but part coming to Argentina too. But it's making us to be positive and more investing in more of our assets.

And considering that the companies are today -- have today a small indebtedness because if we consider that our bonds are very [deep in the] money. So if this is the situation, a lot of money will come because of the exercise of the warrants. That could be making us, instead of being a leveraged company we'd be a positive cash company, and that is making us and pushing us to have a smaller debt in the Company. And we are receiving offers from banks and from pension funds to take part of debt, and we are considering doing that and using these proceeds to grow more in the real estate business in Latin America.

So we are glad because of the results of the quarter, and we are expecting more for next. So thank you very much for this conversation and we wait for your comments and your questions. Are there questions from the floor?

[OPERATOR INSTRUCTIONS]. Our first question is coming from Steve Trent of Smith Barney.

Good morning gentlemen. Steve Trent from Smith Barney. First of all, I wanted to say congratulations on a solid quarter. And I just have 2 questions pertaining to the hotel segment.

The first question is, you said something about construction in Llao Llao, and I didn't quite hear you.

My second question relates to occupancy rates. The occupancy rates were a positive surprise in my view, especially for the properties in Buenos Aires. I was wondering if you can tell us if any specific segment drove that, that is, tourists or business travelers or a large confluence of corporate conferences or what have you. If you could just give us some sense as to what may have drove this stronger rate.

Thank you.

Yes, a pleasure. And about Llao Llao, what I tried to explain is we are going to begin the construction on December of this year of 40 new suites. Remember that the Llao Llao is a hotel of around 160 rooms, so we're going to add 40, achieving like 200 rooms. And that is a construction that will take us a year and a half, more or less. So with that we're going to use the cash generation that the hotel is making. The EBITDA of the Llao Llao is more than $3m a year. So we think that the total investment will come from the proceeds of this hotel.

That will be a very exclusive 40 suites, looking at the lake. So it will allow us to receive more conventions, but today the size of the hotel doesn't allow us to have so much. We have a lot but we could have more. So we are doing -- we are growing in what we think is the best resort of Latin America, and I invite you to come once to Argentina to go there.

And in the segment of the hotels, the recovery in the occupancy comes both in corporate and in tourism. And I can tell you that this week the hotels of Buenos Aires are at 100% occupancy. They are corporations making seminars in Buenos Aires, and a lot of ships are beginning to come, so a lot of tourism is coming from abroad. And that's the combination of both is making the segment of hotels, and the first quarter is not so good as the second quarter.

Because I can talk about what's happening, in October and November will be months that you will see numbers of occupancies near 80 or more than 80%. So incredible levels of occupancy at very better rates in Buenos Aires City. And that is because a lot of tourism is coming to Argentina, combined with seminars and they're making here because they're cheap -- still cheap. At rates of $100 they're cheap and that is pushing a lot of companies to do in the region.

So thank you very much.

Great. Thanks for the color.

[OPERATOR INSTRUCTIONS]. Mr. Elsztain, there do not appear to be any questions from the floor at this time.

Okay, gentlemen. So we were very clear or we are very boring. But in the things we are going to see next quarter, and we hope to continue growing like the Company is doing now. And thank you very much for being in this conference. Thank you very much. Bye.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.