IRSA Inversiones y Representaciones SA (IRS) 2010 Q1 法說會逐字稿

Good morning. My name is Whitney and I will be your conference operator today. At this time, I would like to welcome everyone to the IRSA Earnings Release First Quarter Fiscal Year 2010 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).

Now, I will turn the call over to Gabriel Blasi, CFO, and David Perednik, CAO. You may begin.

Good morning, everybody. This is the call for our first quarter for fiscal year 2010. The income has developed great [four years], amounted ARS131 million compared to the ARS70 million of the same period last year, mainly impacted by Banco Hipotecario results and also higher operating income. The operating results also improved to ARS111 million from almost zero on the same period, reflecting the recovery in the consumer finance sector after the adjustment that we have made during the last six months.

The revenue from offices also increased 35%, making the EBITDA increase 31%. Regarding Banco Hipotecario, we increased our sales to 24%. At the same time, the bank recovery has been great as we are going to see during the call. On the shopping centers, both revenues and EBITDA increased around 20% with an EBITDA sales margin over 77% and occupancy rate over 98%, confirming the good moment of this business life.

As you know, for the first time in more than seven years, IRSA resumed dividend payment of ARS31 million according to the shareholders' meeting held in October 29, representing 20% of the net income of fiscal year 2009, according to the dividend policy that was disclosed in the last month. In the same period, we currently develop investment in the USA with the acquisition of an indirect interest in Hersha Hospitality Trust, a REIT that has 73 hotels becoming the principle shareholder in that company.

Moving to the second page, page three, as we frequently do, the evolution of our sales had EBITDA at Hersha, confirming the good moment of the company with a compound growth in sales for the last five years of 35% and for the same period on EBITDA, 23% in almost all the business lines and including the recovery of the consumer finance sector.

As you can see, the comparison for the first quarter of the year, [121%] increased and 400% increase in EBITDA and with the only lag of the hotel as we are going to analyze, from ARS42 million to ARS29 million in sales. The rest of the sector has behaved very significantly.

Moving to page four, going to shopping center segment, the EBITDA evolution continues to be positive in the period we compared to the same period last year. We have an increase of 19% from ARS74 million based on EBITDA and for the last five years, the compound growth has been 21%, 16% in the last year.

On the revenues, the revenues for the sales, the first quarter of 2010 is clear. We have an increase of 20% from ARS95 million to ARS114 million. For the last five years, it compares our average rate of growth of 24%, 16% for the last year. The rental income breakdown continues as it has been in the last five years with the basic rent reaching 51% of the total income of the company. The variable supplement is 15% and others including the members fee of the [general] of the renewal reaching 34%.

We move to the next page, a couple of considerations about Tarshop. Remember that we get involved in a strong plan to restructure the operation of the company. We made a strong evolution of the cash lending plans, our financing plans for the company. We changed the loan origination policies, expressed the collection management teams, and also we worked strongly on new funding tools.

As a result of that, if you look at the graph in the low left, you see that the new business has been more stable with RS loan origination in the range of ARS80 million on a monthly base. The loan balance has decreased as part of the adjustment that we made, delivering the company and increasing the strong loan flow and the delinquency also improved significantly.

We capitalized the company, as you might remember, with ARS60 million and ARS105 million at the financial assistance that subsequently was capitalized, reaching 98% stake in the company. We'll reduce 60%, the bad debt and financial trust from ARS740 million to ARS297 million and we have now a strong equity and financial base.

The result of this, we move to next page. On page six, you can see that quarter to quarter, the evolution of the company has improved. Now, we have revenues very similar to the same period of last year, which is from ARS49 million to ARS43 million. The operation lost -- was reduced of ARS44 million to ARS28 million. The general expenses from ARS54 million to ARS33 million. The results from Financial Trusts have a 100%, accounting for 24% -- minus 24% to plus 24%, an operating result concurrently is positive, making assets comfortable with all the measures that we have.

On the key financial ratios, finalizing on Tarshop, we have the solvency that improved significantly to 43% as you can see in the low left graph. The leverage was decreased, as I mentioned, significantly, and the liquidity with a very significant improvement with all the combined effect of the measures.

The total book, as you see, delever from 28 times to 6 times, much more appropriate for the present situation of the cut of the financial markets locally and abroad. So then, ARS100 million of exposure to almost ARS600 million with a reduction of 34% and the equity went from ARS32 million to ARS100 million, reaching a much more stable structure. We continue to develop measures to improve this and to align the results of the company to the loan trend that this has shown during the last 10 years.

On the office rental segment, going to page seven, the revenues of the segment continues to grow. For the last year, grew 45%, reaching for the last five years 66%, a profound rate of growth. And for the period, first quarter 2010, we went from ARS30 million last year to ARS41 million, an increase of 36%.

On the EBITDA side, very similar of the upper right graph -- 31% increase for the period from ARS22 million to ARS28 million. And this is important, having consideration that the market has flattened in terms of prices, but we will continue to re-price our portfolio, reaching for the last five years a compound rate of growth of 87%, 33% for the last year.

The leasible area had a significant movement between what we include new in the portfolio like [ligequatro] of the sales that we made. We decreased the total sales from 164,000 square meters to 152,000 square meters, selling non-core assets, as you can see, in the lower right graph, where you see Dock del Plata and Libertador and we sold some units.

The reason we sold these units is that they are mighty expensive. They are non-core and we do not own the whole building. So, it's more efficient to have that. As the important to consider that when you see that the determined area is almost really the same with a decrease of 7%, the leasible area of the company, we were able to cash in $60 million.

If you move to page eight, other segments of the business on the development side, we continue with the development, with the joint venture with Cyrela, of the six buildings in Vicente Lopez, 99% of them are sold. Degree of progress over 30%. They are going to be delivered in 2011. And also, we have Caballito Nuevo. Caballito is the center of the city. There, we have sold 45%. The degree of progress is 87%. They are going to be delivered in 2010.

Going to the hotel business, business was severely affected because the flow of tourists to the country decreased 32%. The reason of that decrease was mainly the financial prices plus the flu. That made occupancy rates of the hotel, especially in the Llao-Llao, which are more dependable from foreign tourism, drop from 73% to 49% and the rooms with a significant decrease also in the room rate.

Of course, with the normalization of the flu and also with the flow of tourists that is coming back slowly to the country, we expect these business are going to improve. Resulting in sales and EBITDA, the impact of the flu, as we have mentioned, made a decrease in sales of ARS42 million to ARS29 million and the EBITDA from 9 to 1.

Going to the following page on the financial side, the result of Banco Hipotecario that impacts IRSA, we see there are some indicators of the back on the upper left side. The positive evolution of the bank in the period increased 59%. Net service income increased by 69%, ARS41 million to ARS69 million. The corporate and government notes results increased more than 3 times from ARS29 million to ARS134 million. This is, of course, related to the recovery of the general environment of the financial asset prices.

The net financial margin of the bank also improved significantly. It's important to risk that this improvement from ARS20 million to ARS95 million was achieved in an environment of decreased interest rates. And the efficiency -- administrative expenses, compared to the net financial margin plus the net service income also improved significantly from 168% to 65%. And as a result of all this compiled, the net income of the bank went from minus ARS47 million to ARS36 million for this period.

On the final approach to the different business lines, confirming the moment if you move to page 10, the sales evolution by segment showed significant improvement with the exception, as I mentioned, of the hotel, where we see that, on the consumer finance, we almost have the same fears.

In the upper left bar graph, you have an 11% decrease for the consumer finance sales, according to our policy in terms of tightening our credit. Hotel operations, a decrease of 31%. Shopping centers increasing 20%. Office and other rental properties, 26% of improvement. And development on sales of properties, an increase of more than 30 times.

In the case of EBITDA in the upper right, you have EBITDA evolution development from minus ARS1 million to ARS28 million. In office and other rental properties is at 31%. Shopping center is 19%. Hotel operations, a drop of 87%. Consumer and financing recovery showing positive figures for the first time in the last three quarters. And this is very relevant, showing that our balanced portfolio is giving us good results.

EBITDA margins continued to be pretty consistent on development of sale of properties, 76% compared to the 48% of the same period last year. Office and other rental properties continue to have EBITDA margin over 70%. Shopping centers, 77%, almost the same as last year. Hotel operations dropped significantly, as we saw, and we see here the recovery in consumer finance. Then on the EBITDA breakdown, as we have stated, the positive impact of all the business plan with the exception of the hotels operations.

David will comment on the capital statements of the company for the following page.

Good morning. With respect to the IRSA's income statement for the first quarter of 2010, we see that in total sales, we have improved 20.5% from ARS218.4 million first quarter of 2009 to ARS263.2 million in 2010. That was due to the fact that Gabriel already mentioned with respect to the improve in most of our different segment lines. The cost increase -- less than proportional increase -- only 7.8%. Therefore, the gross profit grew by 31% from ARS119.9 million to ARS157.0 million in 2010. Our operating income also increased significantly from a minus ARS0.9 million to ARS111.6 million.

With respect to the financial net results, we -- here we see that the loss is decreased from a loss of ARS61.7 million in 2009 to a loss of ARS41.5 million in 2010, mainly due a decrease in the gain on financial operations from a loss of ARS14.3 million in 2008 to a gain of ARS6 million in 2009, a positive expense difference brought by a lower depreciation during the current period of our Argentine peso against the US dollar from ARS3.797 in 2009 to ARS3.843 as of December 2009, as compared to the position of Argentine peso that we had in that period from ARS3.025 to ARS3.135.

The fluctuation in the exchange rate and being the company's total debt in foreign currency greater than the total part generated a lower net loss in fiscal year of ARS14.9 million. This case were partially offset by the increase in our line of interest expenses and others of ARS15.1 million. In the line of result from equity investments on others, the gain from our related companies increased from a loss of ARS28.6 million last year to a gain of ARS97.2 million, mainly due to the valuation and acquisition of Banco Hipotecario, which generated a gain of ARS95.9 million compared to a loss of ARS28.6 million during the previous year.

The income tax on minimum presumed income tax increased from a gain of ARS2.4 million in 2008 to a loss of ARS26 million in 2009, mainly due to the fact that we have last year losses, subject to tax, and this year we have gains. With respect to the minority interest, increase from a gain of ARS19.4 million in 2008 to a loss of ARS5.5 million in 2009, may be due to the interest in our subsidiaries' positive results.

After financial statements were positive, we are reflecting here a loss. With respect to the -- for the above mentioned, our net income for the three-month period ended 2009, December, it increased ARS201.7 million from a net loss of ARS73 million, 2008, to a net income of ARS131.4 million in 2009.

Okay. Thank you, David. Moving to the next page, finally, making a report on the debt situation on the consolidated for IRSA, we can see there that the total debt appears to a level is $210 billion, mainly composed by the [Oisha obligations] that we should appear at the 10-year's note that we issued in 2007.

We have there the seller's note of Banca Republica building. Loan acquired by Argentinean hotels, our subsidiary in Seracom, let's start with those. Mortgage balance on the El Rancho, the land that we acquired near the Llao-Llao, and the balance on the acquisition of Palermo invest three years ago with a short-term debt of $25 million we paid.

At the [Toparmos] level, the total debt of the company was $185 million with the two notes, ARS120 million note and the ARS50 million lien that now has a balance of $24 million. The sellers note of [Baruti plus] acquisition besides Alto Palermo shopping of $4 million, Tarshop debt of $7 million and the short-term debt of $11 million -- $19 million, sorry for that. We have also the convertibles that are held by [Ursas].

But remember, because of your debt, $411 million with a cash of $47 million and deducting the notes that have been acquired and held by IRSA and Alto Palermo has been ARS44 million of the Series I note until Series II notes, ARS13 million. IRSA total net debt after bond purchases of ARS300 million that, compared with EBITDA ratio of the company compared with financial estimates.

As conclusion, we can see that, assuming that the worst of the financial crisis is over, we're seeing the significant recovery in our financial segment businesses for the consumer finance and Banco Hipotecario. EBITDA and operational improvements of the figures with the exception of the hotels due to the one-time effect of the flu. And the company continues to take advantage of the arbitrage opportunity with the high cost of the square meters in Argentina compared to other opportunities like [Porista], the one that we conducted in the same.

Thank you very much and operator, we are open to Q&A.

(Operator Instructions). And there are no questions at this time.

We are very happy to have announced dividends for the first time and thank you very much for the support we note here.

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