IRSA Inversiones y Representaciones SA (IRS) 2009 Q3 法說會逐字稿

Good afternoon. My name is Tasha and I will be your conference operator today. At this time, I would like to welcome everyone to the IRSA Earnings Release Third Quarter Fiscal Year 2009 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 session. (Operator Instructions).

I would now like to turn the call over to your host, Mr. Alejandro Elsztain, Vice President; Gabriel Blasi, CFO; and David Perednik, CAO. Thank you. You may begin your conference.

Thank you very much. Good afternoon, everybody. We are going to begin the conference call of the nine first month of fiscal year 2009.

We can see the impact of the financial market who was the more that affected the balance sheet of the company and the one who was more affected was in the consumer finance business. And in the financial results, mainly coming variations from the exchange rate that we get -- that the company has and the results related to the Banco Hipotecario attributable to the decrease of valuation of financial assets.

When we go to the real estate business, we see in the office rental segment that we have leased eight floors of Dique IV, the project that was under construction. We finished it in the end of last year, and now we have rented it at a very good level, at level of $30 per square meter.

In addition to that we were selling offices and non-core assets and we achieved a sale of 52 million in the year-to-date. Part of that is not reflected in the balance sheet as of now, because part of that was (inaudible) after the 31st March.

We can with revenues for the first nine months that rose 0.5% and the operating income decreased 38%. This is mainly due to the losses in the consumer finance segment. When we exclude that, we can see revenues from our real estate segment increasing 6.6% and the operating income increasing 22%.

The shopping DOT BAIRES, the one that was under construction opened its doors -- and I will show you a little later some pictures, and I would talk about a celebration that was done last Tuesday. Today it's occupied of 92% that will be 100% in days. There are no more spaces, the contract's -- the end of the contracts are signing now, so these 100% will be in few days 100% signed, and that is a very big success. It is the largest shopping center in the City of Buenos Aires upto -- near 50,000 square meters in gross leasable area, and 150 stores.

We, in the sales and development we decreased 22% comparing to last year, but in the last quarter we sold a lot, so this is a segment that will grow for the end. In office we rose 46% comparing to last year in shopping centers we rose 12%, in hotels 10% increase.

The one that decreased was consumer finance by 17%. And this -- the consumer finance business has shown a substantial reduction in operating losses in third quarter that you are going to see how the company is beginning to stabilize and Gabriel will explain you the details later. Please Gabriel.

Thank you, Alejandro. Good afternoon everybody. Going to page three, a quick wrap up of the general environment of the economy, construction activity was -- is restabled, although construction costs reached (inaudible) six months, but also the final trend of the construction costs has began to stabilize too. Regarding the sales in the upper right you can see that a [reflection] of the sales chart, which has suffered a very significant growth. Sales of supermarket, shopping and utility are (inaudible) to-date.

On the low left you can see the different surveys on inflation, which nevertheless can give us the configuration that as of March the drag on inflation is in the range of 15% on average according to the survey of different provinces of the country. And on the low right just for (inaudible) you are aware of these, a significant decrease in the Argentine CDS price in the market compared for instance over the Brazilian, which has some impact on the financing of the (inaudible).

Moving to next page, the results of Banco Central are showing a stable trend on the periods, with exchange rate devaluation (inaudible) bringing a significant impact on our debt book. At the same time, a bank deposit and evolution on the interest rates showing a small hike and increased strength in terms of the of the duration of the deposit.

Moving on to next page. You can there was evolution of sales and EBITDA for the different segment confirming that the trends are still very positive. On the sales side, we continue to have a positive growth on year-to-year of 47%, and compound growth for the last four years of 43.

Including the consumer finance sector, the increase has been slightly less than 1%. But excluding the consumer finance, our sales evolutions have shown an increase of 6% for the nine first months of this fiscal year.

On the EBITDA side situation is slightly different. As we can see a similar way as in the previous periods, the consumer finance segment, as Alejandro has explained, has shown an impact on EBITDA generation for the first nine months, showing an increase of 3% for the period. But excluding that, the increased EBITDA, or cash generation is almost 13%.

Move to the next page. Page six we'll see that EBITDA and sales for the shopping malls continue to show a very strong situation, a 65% of increase for the period.

For the period -- for the EBITDA and a contribution, the EBITDA margin on the sales 20% for the first nine months of fiscal '09, when we include the consumer finance. When we exclude that, considering holiday shopping center, you can see that the margin -- EBITDA margin continue to be very strong at 74% in a similar rate than the previous quarter.

Our tenant sales, a 28% growth over the last year, for the nine months consolidated for this fiscal year 13%, up for the same period. And it's important always is that, these are already included Dot Baires, the biggest mall in the city, reaching the GLA by 21% in this year with a vacancy of 1.1% for the total of the company.

We move to next page, page 7, a progressive situation of a credit card company, I would ask you to evaluate especially to the last two lines of the income statement. As you can see, that the current operating results and the net loss was grown significantly, we are continue pulling our measures in place, we assure that this company will be breakeven in a short time.

Also considering the leverage of average portfolio closing, we continue with the reduction of leverage from 18% for this quarter last year, growing at six times leverage in this period, sensing situation of the company, starts with the capitalization as we incur in the prior period.

And regarding the market situation, the monthly sales are beginning to move up and we are beginning to move forward as the delinquency trend is stabilizing and the [sales] of the company are beginning to improve. Okay, and Alejandro?

The amount of the debt was a big party. This was finished last Tuesday and from the 150 stores, that was signed that day, 148, and after the day we opened we hope [for you all], so we could talk about 100% occupied in this quarter, and at the end of the construction, at the end of the terminations will come this date, the party was a big party, and a lot of people of all the sectors came. The Major of Buenos Aires was on the party too. And 9,000 people, and it was really a great opportunity to show, a big building in the country. This will be probably the best -- one of the best shopping centers in the country. And all the tenants were surprised about the quality. It's a state-of-the-art building, and we were so lucky to have fulfilled that in time, in budget, and in tenants.

In next page, page 9, we were selling reasonably some non-core buildings. These buildings were the ones that -- we didn't own the 100% of the building, Laminar, Dock del Plata and Libertador, [Dorrego] we had on those buildings some floors and we were selling at very high prices, and we sold 19,300 square meters. With that we made like more than 40 million from sales on office buildings, and that was to like more consolidation on the financials of the company. We apart of that, we increased 11,000 square meters incorporation of [Dique IV] that was concluded and we leased to (inaudible) building the only part beginning to -- this was the basement where we are now looking for new tenants for having shops. The rest of the building was rented by excellent [Sheraton], [Buenos Aires]. And so today we have a net of 150,000 square meters, and a part of that within a few months we are going to add to the portfolio. The office building that is beside that, at near 10,000 square meters. So, we are still growing basically in office visible area.

When we talk about hotels, we have here the comparison in occupancy and Llao-Llao having a lower level. The Llao Llao probably is one of the more affected hotels of the portfolio because of the environment of the world and mainly for the high-end world that was very effective, and usually one that's not declined so much. And this is a more extensive hotel that's suffering more.

In the case of Intercontinental and Sheraton, [Buenos Aires] has very levels of occupancy and rental recovery, so that are making very, very high profits. But in the case Llao-Llao, it's suffering. And we expect a recovery of using the new seats and that's a part of that is affecting the balance sheet. They are increased amortization the hotel is having, because now we are amortizing a new seat, the new 42 seats by taking from the result like ARS3 million or ARS4 million that David will tell you later.

In the case of IRSA-Cyrela our joint venture with our Brazilian partners. The Horizons project is in progress and we are a 19% in the Rio Complex and 2% in Parque Complex; and this is -- if you remember, the sales that was almost done, and I think total three or four apartments to sell and they are paying perfectly well. So this business is going terrifically well. And now the company is near to launch new projects, probably we are going to announce in financial.

To finalize, on the good wrap up on the sales by segment and sales combined by segments, we can see that although that it has some (inaudible) sales on the consumer financing and development and sales of property of (inaudible) the EBITDA generation would in terms of our consumer financing has been pretty consistent, with addition of the hotel operations of (inaudible), because of the present situation of project Llao Llao, but it is still showing a positive outlook and (inaudible).

Regarding the EBITDA margins breakdown, it's difficult, presently in sales and developments area, a minor decrease in offices, with a increase of surveys that we have already mentioned, on shopping center almost the same figure and here we have the full impact of the consumer finance drop when we compare that to the same period of the prior year. And on this hotel operations, the impact of Llao Llao, as Alejandro explained, and there you are having in page fourth also the breakdown of EBITDA by segment for your benefit.

David is going to make comments on the IRSA reporting.

Good afternoon. With respect to the income statement if IRSA for March 31, 2009, the net loss of the period of nine-month, 19, 2009 was ARS106.1 million low compared to a profit of 22.8 million last year for the same period of nine-months.

And the operating income decreased 37.8% on a gain of 223.7 million for 2008 compared to a gain of 139.2 million in 2009, mainly due to a decrease in consumer finance and operation segment and was partially offset by a increase in development on sales of properties, offices, and other non-shopping center rental property and also shopping center segment.

We expect to the operating income arising from the development of sale of properties. This segment increase 124.5% from a gain of ARS20.1 million last year to a gain of ARS45.2 million in 2009. As Alejandro already mentioned, this was part of our portfolio management strategy that we sold certain (inaudible) office properties, because they are non strategic.

We expect to operating income arising from the offices and other non-shopping center rental properties. This segment increased 58.2% from ARS34.2 million last year compared to ARS54.2 million 2009. Going into the shopping center segment, it increased 5.5% from ARS138.7 million in 2008, compared to ARS146.4 million in 2009.

Our shopping center business is continuing to grow. Its revenues increased from ARS252 million in 2008, compared to ARS283.6 million in 2009, as a consequence of a 13.2% increase in tenant total sales. The total sales for the tenants in these nine months were ARS3,000 million compared to last year ARS2,600 million last year.

The operating income of sale operations decreased 38.5% from ARS19.3 million 2008, compared to ARS11.9 million, 2009. And this difference in this operating income was due to the amortization of one of our sales is Llao Llao that is amortizing for the ARS3 million of improvements that were made last year, and we are now amortizing ARS3.5 million each year. So this is one of the main issues that was affecting our results the Hotel segment.

The operating loss of the consumer finance segment decreased ARS131.3 million from a gain of ARS11.1 million in 2008 to a loss of ARS120.2 million in 2009. This was -- this decrease was due to the results -- in decreasing the results from retained interest in the (inaudible) of ARS47.5 million, the loss of on increasing the valuation of -- from accounts of ARS40 million.

Going into the financial results, we had higher financial results, higher losses from ARS24 million in 2008, compared to ARS207.3 million in 2009. This was mainly due to the depreciation of the exchange rates of the U.S. dollar that affected US consolidated debt, and also from other operations like the cost of our financing operations. These losses were partially offset by the result and the repurchase of our notes, up that negotiable obligation of ARS66.8 million, almost $18 million.

Going into the line of related companies, the losses increased ARS46.3 million from a loss of ARS16.5 million in 2008, compared to a loss of ARS62.9 million in 2009. And this was mainly due to the losses that came from our related company Banco Hipotecario and partially offset by ARS1 million coming from other companies.

The income tax, a minimum pursuant income tax increased ARS78.7 million from a loss of ARS76.8 million in 2008 compared to a gain of ARS1.9 million in 2009, and this was basically originated in Alto Palermo, a gain of ARS78.6 million of which ARS39.3 million were originated by negative result of cash flow that is giving a carry-forward loss. Llao Llao with the gain of ARS25.4 million, and Telecom Argentina gain of 1.8 billion, partially offset by EBITDA with a loss of ARS3.5 million.

The minority interest increased ARS60 million from a loss of ARS30.9 million, compared to 2008 to a gain of ARS29.4 million in 2009, mainly due to our interest in Alto Palermo. The APSA's interest in cash flow by [mostly] Llao Llao.

Finally on page 14, the consolidated debt of the company. Here the total debt of IRSA is over $200 million, the cash net position of $23 million; giving a net debt of 181 million, in the consolidation with Alto Palermo debt, so Palermo [$208 million] with APSA's convertible notes of $15 million that was held mainly by IRSA; cash net position of $16 million, the net debt results $206 million.

The consolidated net debt is $388 million. As part of the acquisitions comps of the company has been doing a (inaudible) in terms of Palermo $32 million and $4 million of Series II notes, the total net position as of today's statement was $351 million, excluding our recent acquisition of Quantum have already made public, with [$6 million] of Buenos Aires has been carried out after the close of the (inaudible) that has been fulfilled after March 31. We can invite investors to make questions now, operator. Operator?

(Operator Instructions). There are no audio questions at this time.

Okay. Gentlemen, we are announcing next quarter at the end of the year, and we are glad about the events of this quarter. So, thank you very much for the conference call. Have good day. Bye-bye.

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