IRSA Inversiones y Representaciones SA (IRS) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen. My name is Alexis and I will be your conference facilitator today. At this time I would like to welcome everyone to the IRSA conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Alejandro Elsztain, Second VP and Gabriel Blasi, CFO. You may begin your conference.

Thank you very much everybody. We're going to talk about the results of the 12 months, the period that ended on the 30 of June 2005. We are glad to announce our results that they increased by 17.5% comparing last year. When we see the consolidated net sales of the period, we see again a growth, a big growth of nearly 42% higher than that year. We are seeing a closing (ph), a good (ph) and a recovery period of the real estate sector in Argentina and we would love to announce that our portfolio is the largest in real estate and is receiving the benefit of this recovery. We're going to talk about the lines of business in each of the lines we saw that recovery.

In the past (ph), the first move (ph) was the shopping center, but after that we saw a recovery in the segment of the real estate and selling of apartments and lately, we are seeing the recovery in the office rent too. So we are going to introduce new in the description of the lines of business where we say an operational result that grew at 34% comparing (indiscernible) an EBITDA (ph) that grew 62% comparing year to year.

When we enter directly to the office this period we went to a 19.4 million pesos rent comparing to 16.1 of last year. This was mainly because of occupancy and probably you've come (ph) from other conferences when we had -- at the worst, we had 60% of occupancy and this year, we are achieving 97% in the triple-A buildings. That shows that the market is recovering mainly coming from exporters that's growing in size again. They are today a lot of asking of new place (ph) for 4000, 5000 or more square meters ad up to the now, there is no (indiscernible) building under construction. That made us to recover and today we're asking in our new construct (ph) levels of $14 per square meter the month.

You remember that before the (indiscernible) collapsed, our numbers were at levels of $25 per square meter, and today, achieving this 14 and having contracts that have scales of first year of 14, 15 take on of 16 and 30 of 17, 18 we're going to be a big recover (ph) comparing to this 25 of the past.

That allows us to the (indiscernible) zero (indiscernible) and that is pushing us to grow in this segment. We purchased in this balance sheet (indiscernible) Tower; that is a 18,000 (ph) square meters of premium livable area. We paid for that near $25 million. That is $1600 per square meter. We think that in this kind of a pricing (ph), we're going to grow as much as we can in the market. That is really giving (ph) other of near 10% or more only operationally and that (indiscernible) is going to be (indiscernible) to try to buy, and now we are under the discussion of purchasing more buildings of this premium segment to be like we today are the dominant players of these buildings.

So if we're comparing last year at this time of 3rd of June, we had 83% of total office occupied and today, we have 94%, not only triple-A but the whole portfolio of the Company. So from 83, we went to 94. And to give you an idea with the new purchase we did, we grew 18% of size on premium offices.

If we go to Alto Palermo (ph), that is the star of the company and is the largest in assets, largest in the (indiscernible), we see in Alto Palermo a very substantial improvement. Here we can compare a 77% improvement in net income (indiscernible) 100%, the operational income 100% and 53% the EBITDA going to 140 (ph) million pesos. The (indiscernible) leases of service grew 46%. That's a part of the growth of our old shopping centers. We increased the revenues because of the purchase of (indiscernible) Plaza shopping; that is the largest shopping center in Mendoza (ph), that is a province of Argentina. In the week grew to 86% of the total of that Company (indiscernible) Society (ph) and we claim (ph) all of debt from that Company too that it's --. To give you an idea, we purchased for that asset like (ph) $33 million and is giving like a 15% return operationally.

Apart of that, we grew in Alto Rosario (ph), we finished 100% of the construction of this shopping center. Today it's almost fully occupied and is getting a very good return. So the total (indiscernible) occupancy of our group of shopping centers is 99%, near 99%. And there is a lot of demand, a lot of list of people waiting to enter to our shopping center that is guaranteed consolidating (indiscernible) and we are the largest (indiscernible) remember. And now we are -- after the two new purchases, we're planning to launch a few more in the near future.

If we talk about sales and development, we are glad to announce that we didn't fail (ph) at the beginning of the collapse of the compatibility (ph) our land (ph) reserve. And instead of that, we sought our land reserves for a building, for a new apartment. We're now receiving the apartments a lot of them (indiscernible) in the (indiscernible). In all of these projects, we swapped (ph) and we were receiving apartments. Today, the average price, to give you an idea -- in Palermo, we're discussing the sales of $3000 per square meter. In the Porto (indiscernible) area, we're talking 2000 to 3000. So we're going to see a lot of large return (ph) that will enter again to the cash flow of the Company that purchase the shares of this. To give you an idea, in the case of Cruceros (ph), we have begun (indiscernible) last few months ago. And the first two weeks we put this project on sale, we sold 45% of the office at very good prices from (indiscernible) we swapped (ph). So we're going to collect a lot of sales in the near future and we have begun the reimbursement of that.

We have begun the purchase of a project in Cordova province. We purchased a 400 hectares (ph) project with a partner (indiscernible) of Cordova, so (indiscernible) to the company because of the sale of the apartments, we have begun a small investment of 1 million and something in this province of Cordova, and now we're starting to reinvest the large reserve purchase again. Meantime, we're buying shopping centers and office.

To give you a short idea of hotels, this (indiscernible) settlement (ph) of the Company, here we see again a recovery, a recovery in occupancy and a recovery in (indiscernible) sales. The occupancy went to 75% comparing to 68% of last year. And when we see rates, we see an increase of 18.5%. So both they are generating cash and in the case of the (indiscernible), we're investing, reinvesting that money, making 42 (ph) new rooms, new suites, and we have a refurbishment of the shares (indiscernible) that needs an investment of near $3 million, that it's going to be done with the cash that the Company's generating. So I give the words (indiscernible), our administrative officer, that will explain (indiscernible) of the balance sheet.

Good morning. I will explain the improvement in the last line of the balance sheet of the financial statements. The net income increased from a gain of 87.9 million pesos to a gain of 103.2 million pesos. That means 17.5%. If we talk to the first line of the financial statement, the sales increased from 260 million pesos to 369 million pesos (indiscernible) for the 1.8 million pesos. I will explain each line of business. Beginning with the shopping center business, the sales increased from 143.2 million pesos to 230 million pesos. That means 60.6% (indiscernible) from our subsidiary (indiscernible) shopping in (indiscernible) also increased significantly 114.9% to -- from 54.6 million compared to 30 million in the last year. The cost in the shopping center increased from 32.4 million to 92.2 million, 27.3% primarily due to increasing (indiscernible) from the Paqueta (ph) Shopping, 77%. The gross profit increased from 30.8 million to 137.9 million, 94.7%.

Going to the hotel line, the sales of the segment increased from 71.3 million to 87.1 million. That means 22.2%. The cost also (indiscernible) operation of the hotels increased from 40 million to 48.9 million. That means 32.2% and the gross profit finally increased from 31.2 million pesos to 38.2 million pesos, also 22.2%.

Going to the office and other line, sales from this segment increased from 16.1 million to 19.4 million, 28.3%. The cost also increased -- I'm sorry -- decreased from 8.3 million to 7.7 million. That means a decrease of 6.4%. We saw the gross profit increase from 6.9 million to 11.7 million, 70.1%.

In the development and sales line of business, the sales increased from 30.3 million to 32.3 million, mainly through the sale of the (indiscernible) of Buenos Aires trade on finance of 23.6 million. The cost of this segment decreased from 25.8 to 16.9 and the (indiscernible) profit increased from 4.4 million last year to pesos 215.4 million.

Going to the restart from (indiscernible), these new lines that we have in our balance sheet, this line was generating during the current year arising as a result of (indiscernible) inventories of which we have received advanced, these are fixed prices, and that means the Buenos Aires trade parcels (indiscernible) 17.3 million pesos.

The results of operation and the holding of real estate assets decreased from 54.3 million that we had last year to 27.9 million; that means a 66.6% decrease. And this was due to a lower amount of recovery of the allowance for the apartment that we had of the fixed assets from which (indiscernible) is taking 13 million, the office (indiscernible) 12 million pesos at the hotel, 2 million pesos.

Amortization of goodwill, we had a loss in this line of -- sorry -- 1.6 million compared to 2.9 million last year. When compared to the equity gain from related parties, the net result (indiscernible) companies increased from a gain of 26 million -- 26.7 million pesos to a gain of 66.9 million pesos, meaning 151% increase principally due to the gain recognized in relation with the equity valuation method of (indiscernible) that was applied during the year. (indiscernible) represented 55 million pesos for the use (ph) of this year. The ordinary gain before minority interest and taxes increased from a gain of 126.4 million pesos to a gain of 179.6 million. That means 42.1%. Minority interest increased from 10.3 million pesos from a loss of 12 (ph) million pesos to a loss of 23.2 million pesos. And income tax increased from a loss of 25.7 million to a loss of 53.2 million from which Alto Palermo (ph) represented 33.6 million, but that's subsidiary of (indiscernible) meant 12.5 million. And the others, tax was (ph) 2.3 million from Llao-Llao Hotel.

(indiscernible) financial results, they decreased from 10.5 million gain to a 12.2 million loss at June 2005. The decrease of 48.7 million was due to the change that we had in the way we accounted (indiscernible) that last year were included in the financial resource while this year are included in the equity gain our loss from related parties that we started to value in this year (indiscernible) by the equity method showing as I said in the other line, equity gain that I explained before. I'm going to pass the conversation to Gabriel Blasi.

Thank you (indiscernible). Regarding our financial highlights, (indiscernible) the company go through a very significant (indiscernible) by this (indiscernible). Our first stage, we repaid the first and the second principal payment of secured and unsecured loan in our total amount of $3 million. At the same time, the Company received because of the conversion of the convertible bond and the exercise of the (indiscernible) of $37 (ph) million of cash. This is by the exercise of $30.5 million (indiscernible) and $29 million of convertible bonds that were exercised. All this we saw in our issuance of 53 million of shares. This mainly (indiscernible) means that the debt-to-equity ratio for the company went from 81% during the previous fiscal year to 66% during this year.

Also we have a very good year in terms of our hedging strategy. We decided to hedge our LIBOR resulting that in a fixed rate for the total debt of IRSA, the floating debt of IRSA (indiscernible) 6.27% as (indiscernible) as a result of that swap. Regarding the (indiscernible) as we have already (indiscernible), we went into a (indiscernible) to where we (indiscernible) in order to provide our subsidiary with equity (indiscernible) to allow the restructure of that debt. At the same time, we increased our interest in our subsidiary Alto Palermo by buying together with our partner (indiscernible) almost 6% of the -- 6.2% of (indiscernible) base (ph) of the total interest of the Company. (indiscernible) have received an upgrade (ph) in local rating for (indiscernible) to be reclassified (indiscernible).

Regarding our subsidiary Llasa (ph), we restructured part of (indiscernible) by taking a small (indiscernible) $6 million which were applied to acquisition of our interest in (indiscernible). The expiration (ph) of the U.S. dollar and peso (indiscernible) that it ended April in 2005 with the collection of $5 million plus interest accrued. And with the expenditure (ph) of the 50 million pesos there (ph), which was maturing in (indiscernible) to two years longer payout at 50 million pesos at a rate of slightly less than 8% in peso terms.

Also, our APSA (ph) rating was upgraded to locally to 8-plus being one of the higher ratings in the country. All this result in a very significant reduction in terms of financial cost, cutting it by half.

To give you a short hand of today's presentation, we are now under a duration of our (indiscernible) in the Company. We are planning to do in the year 2005 and 2006. That has changed that we (indiscernible) of the Company and we are going to apply the rules of Sarbanes-Oxley. So finally what we think the portfolio consolidated sales, we're using the proceeds we're receiving the cash generation the Company is doing and all of the recovery to reinvest in the country. We're very optimistic in the real estate in this country because here the leverage is very small, it's still very small and with this situation, the slightest (ph) recovery, so we think it's a very fair (ph) market. And we hope for this new (indiscernible) 2005, 2006 recovery in the growth of the GDP of the country and recovery in the salaries of people that they are recovering. So more (indiscernible) to the apartments and more fare (ph) from shopping centers. We're going to try to keep it to try to buy more office. We're now under the discussion of many more office in the country and we expect to keep this growth of Company being the leaders on the real estate in the countries. And so we are glad to announce this result and we hope next year will be so good and more. We're expecting a big recovery in the office because office have a like a delay and we're now putting new prices to the contracts or we need to want to (indiscernible) put this for 18, 15, $17 (ph) per square meter. So we are (indiscernible) big recovery in that segment too. So in all of the lines we're seeing, we're optimistic and we expect to offer a good balance sheet for next period too. So we're ready for your questions and thank you very much.

(Operator Instructions). Santiago Petri, Templeton.

Hi, good morning to everyone. I would like to know, looking at your development properties segment, it is very difficult to predict going forward what kind of revenue are you going to generate for there. So I would like to know if you can give us a hint on what kind of properties are today or what -- how much area do you have for sale in the next two to three years and if you have any projects coming forward in the next two years? And my second question will be related to CapEx. If you can tell us what are your plans for capital expenditures for next year and the year after? Thanks.

That's okay, thanks for your question. And about the projects (ph), the (indiscernible) company owns is huge. Mainly the largest asset is Ciudade (ph) (indiscernible) and the Maria del Plata (ph). That is a project of 70 hectares (ph) in Puerto Marerro (ph) area that up to now we didn't agree with the actual government the kind of project to do. So we (indiscernible). We are expecting that final (indiscernible) project that is for 700,000 square meters to be done. In this case, that is probably the largest land reserve.

What is happening, Puerto Marrero is being full (ph). Last year and next year will be an explosion of construction and there are a few pieces of land to the done and (indiscernible). So the only land reserve will be (indiscernible). And to give you an idea of the projects in that region, the last sales of land they're talking about 800 or more square meters of incidence of construction. So it will give you an idea of value for the property that today is kept at cost in the company. That is a $40 million something like in our balance sheet.

Apart of that, we have land reserve in Alto Palermo (indiscernible). To give you an idea, land reserve (indiscernible) land reserve in (indiscernible), land reserve in Cabajito (ph) in Buenos Aires City (ph). So part of that is going to be under production this year. In (indiscernible) fez, we have five hectares and we are expecting a swap for this year for a hotel. The part will be (indiscernible) for the hotel that comes to Rosario (ph) project and (indiscernible) under discussions today to swap four square meters. We have land reserve in the Abasta (ph) region too. So I think next balance sheet, you will see something like what you saw this year of swapping land to new construction in the assets we're not keeping and we're going to construct more for (indiscernible) land reserve we have in Puerto Marrero, we are launching projects of 12,000 square meters of office to be done.

So the land -- I think from our line of businesses, the less predictable the land reserves and (indiscernible) because it depends on the market operations and opportunities that you will see a growth on that segment probably for next year because of the swapping and (indiscernible) of no project in the whole country. When you -- the other question was related to?

CapEx.

The CapEx mainly comes from the shopping center and we are expecting of a mere $12 million CapEx for the balance sheet on the shopping center. That is in the former (ph) shopping center. So the renewal of them and we're updating on a $12 million investment in the office building that is going to a go to office rental. So the CapEx, not new opportunities, not so big, but trouble in the investment in new opportunities will be bigger than that.

One clarification if I may. So essentially is it fair to say that the (indiscernible) for the government properties revenue is the one that you have been producing like 30 to 35 million pesos per year without the development of Ciudad Santa Maria Plata (ph)?

No, it's hard to say (ph) that (indiscernible) will depend this year was with Puerto Morrero, next year maybe with Alto Rosario (ph) and other more (indiscernible) projects (indiscernible) bigger. So that is (indiscernible) -- I would say from the other it's easier to predict shopping, office and hotels. This line will be (indiscernible) opportunities if only we do the old projects, but we put one new (ph), we think you will see a very big change of numbers. To give you an idea, the sales of Cordoba project that we purchased at 1.5 million (indiscernible) for half of the project with an investment of $5 million more in infrastructure is a project of sales of more than $50 million. So you will see huge numbers depending the projects (indiscernible) in this balance sheet. And they appear only the day (ph), or we may enter into a swap or a sale (indiscernible) see when we purchased the asset. So that segment of (indiscernible) will depend on the realization of each year.

Thanks a lot.

(Operator Instructions). There appear to be no further questions at this time.

So if there are no more questions, someone wants to talk something more? Okay, if there is no more questions, no more comments, we are glad to the announcement of this statement and we hope to keep the growth that the Company had this year for next future. So thank you very much and have a good day. Thank you.

This concludes today's IRSA conference call. You may now disconnect.