IRSA Inversiones y Representaciones SA (IRS) 2010 Q2 法說會逐字稿

Good morning. My name is Janet and I will be your Conference Operator today. At this time, I would like to welcome everyone to the IRSA Earning Release Second Quarter Fiscal Year 2010 Conference Call hosted by Mr. Alejandro Elsztain, Second VP and Mr. Gabriel Blasi -- I'm sorry, that's Blasi, CFO and Mr. Esteban Grinberg, IRO.

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)

Thank you. You may begin your conference.

Good morning, everybody. We are going to talk about the second quarter results 2010 that closed at the 30th -- the 31 of December of 2009. We achieved a net income of ARS264 million profit comparing to a loss of ARS99 million of last year.

This was mainly driven by operating results at all the lines, almost all the shopping centers and the office buildings mainly, but not the hotels. We were up year-to-year and we grew from ARS49 million to ARS292 million profit this year. The one -- the business that grew more was the shopping centers, where the EBITDA increased 36.6%, occupancy level keeping very high at level of 98%.

This was a combination of the original shopping centers and the increase of the Dot that was opened this year that gave to the company a big growth in size too. In the consumer finance, that last year damaged a lot -- the results -- this year, there was a big recovery of results and the EBITDA sales margin, again, was at levels of 19%, like in the past, not last year, but before.

We had a consolidation of holding and business lines. You know that 80% of our shops is under sales process to Banco Hipotecario, the other 20%will remain at Alto Palermo level. There was a big increase in the participation of Banco Hipotecario, reaching near 27% of the shares of Banco Hipotecario and we recently signed an [option] to acquire Parque Arauco's stake in Alto Palermo. They have 29.5% of the company and they gave to IRSA an option to buy this 29.5%.

This year we paid 20 -- ARS31.7 million that was a dividend yield for 1.7%. This was first time that we were able to pay a dividend because of the covenants of the old bonds is current but recently, because of the good results, and not having those covenants, was able to buy -- to pay. And we decided to have a policy of dividends to pay 20% of the rental or, as Gabriel will explain later, what are the keys of this dividend policy, not to make any mistake.

If you go to the page number three, we can see at the sales evolution and the EBITDA evolution by segment and what I said before, we can see a very big growth in sales, in development and sale of properties. This is mainly driven by the sale of non-core office, that we decided to sell at level of 3,000 [pampas] and now we are selling floors of [Deluedo].

Deluedo is the round building where IRSA had not majority of that building -- we didn't have all of that. And we were able to sell a big percentage of that and now we are selling each square meter at levels of US$3,700 per square meter, something like that. So this is a -- we are selling old buildings at much higher price than it cost to us to make a new building.

We are going to show you, we were able to buy a piece of land in downtown, very recently, that was done, I think in November, December. The government of Buenos Aires decided to sell a piece of land in front of BankBoston building and we paid for that US$850 per square meter for the land. And if you add the construction, you will achieve much less than what we sold and we are selling pieces of the Rio building.

That is a more than 30 years building. So the difference is so huge that it's pushing us to go and slide to 100% buildings and flight into quality. So I will explain to you later, in the office segment, what we were -- that business is part of the explanation of why the sales evolution of the development and sales properties grew so much, growing 116% comparing year-to-year.

In the office and other properties we grew 11% in sales, but selling part of that, we are going to explain, and I will explain in the last quarters, about the sales. We dropped -- our drop in total square numbers, square meters, was like 11%, but with that improved, we grew in sales the same.

In shopping centers, we grew 29%, in hotels we have a very small drop in sales, 13% and in consumer finance, a drop of 10%. But what we see in EBITDA, in sales and development, we grew 700 and 800 -- 785%, a small decrease in office EBITDA, a big increase, 37%, in EBITDA, comparing year-to-year in shopping centers.

Out total operations that were fully the more damaged the first semester, because of the flu, dropped 32%. And the consumer finance went from a very negative ARS100 million -- ARS108 million to ARS31 million positive. When we see the margins, the margins are very high and there is something to consider.

The 19% of consumer finance that we recovered from a loss of near 90% last year, and the others, the shopping centers, of a 33% going to a 73% -- going to 78% these six months of this year. And here we see how we changed, and EBITDA, from ARS116 million, growing this first half, to ARS373 million.

When we talk about each of the segments, we see shopping centers' performance and the compound growth in sales of this semester was 29% and -- but this is -- big part of this semester was explained by the geo -- the Dot -- the opening of the new shopping center and in the EBITDA, 36.6%, going from ARS143 million last year to ARS186 million this year.

When we see in the graph -- in the financial crisis, the sales of our centers were similar to the year before. In the time of the flu, there was a decrease in tourism and consumption and the growth was very small comparing year-to-year.

But the last quarter, September, December, we see that the recovery of the sales was important and we see that line of the sales of our centers growing and January and February are still very strong in sales.

We are seeing a lot of tourism come to Argentina and Argentinians spending money again. IRSA received an option -- closed an option, with Parque Arauco to acquire the stake for a price of ARS126 million, for that option.

IRSA paid ARS6 million and this represents 29.5% of the Alto Palermo company and the -- and this option expires in August and has a possibility of expanding after November. And that is the time that IRSA has that option to buy and to increase its stake to near 93% of total centers. This is by (inaudible).

If we move to page five, you can see in the office rental segment and here we can see that the increase of the first semester was 11% in revenues in pesos. In EBITDA they are even, but we see that the monthly revenues grew a lot in pesos.

Because of the valuation and because of the increased price of the flight to quality that I was explaining, that we were selling market with lower value price committed, keeping the best part of the portfolio at higher value per square meter.

We recently bought, and I said before, we bought this piece of land in downtown. We paid for that, ARS95 million, almost all will be paid soon, we pay a small percent at the purchase, but before June we are going to pay the rest, this ARS95 million.

And this is a piece of land beside BankBoston that allows IRSA to make a new building that will represent, like 29 -- almost 30,000 square meters of usable land to add to the portfolio of very good quality in middle of the Catalina area, that is downtown Buenos Aires.

This is US$850 per square meter for the land. So IRSA will pass what it has, like service of before that we would have to sell, the assets that we didn't control 100% and we thought that was good to be selling at very high prices of the market.

If we move to page six, we can see what happened at the hotels level. This is a consolidation of the three, and we made here a comparison of the first quarter to the first quarter of this year and the second quarter to the second quarter of this year.

What this shows, it's first quarter of this year was very bad, levels of occupancy of 49%, the room rates at US$168 per square -- per room, so that was a big drop comparing year-to-year. The second quarter, it's more comparable levels of 77% going to 74% of occupancy and the rate of US195 to US179.

So on the hotels, I would say, from the rental part of the business was the more damage, because of that combination of tourism and the consumer doubt of going and spend money everywhere. So this was probably, in the rental business, the more damage and we expect the second semester of this business going much better because the situation, mainly in the Llao Llao that was the more damaged, is recovering very well.

When we talk about the developments, in the case of Horizons, the project that was launched with Cyrela, this is at 65% of progress. This project is beginning to show results [clear as a level], up to -- at where we sold with the fee up front, we didn't charge that every time, but we are receiving the money that the new buyers are paying, this is going to gain, this project was very positive.

I mean, the balance sheet of IRSA this 2010 results, this is bringing gains. There are new projects launching this year. We are finishing the purchase of a Uruguayan project that is very large. And the case of Abasto, it's near to begin the construction of that too. So the IRSA-CYRELA company is consolidating its position not only in Buenos Aires, but in Uruguay too.

In the case of Caballito, we received the apartments. Half of the apartments of Caballito, we sold, 49% of that, and the degree of products of that process is 95%, so we are finishing this project too.

There are more sales. This year represents some important, but there were more sales like the docks in the office buildings, small business in each of them, but here we said they're more representative. So I give the word to Gabriel Blasi, our CFO.

Thank you, Alejandro. Going to page eight, a couple of consideration about our financial segments. Regarding Tarshop, the turnaround is paying off. As you see in the graph on the left side, the leverage as of June 2008 was 31 times, it has decreased to five times, thanks to the capitalization of the company and also the reduction on the loan portfolio, mainly through getting rid of the worst loans.

And at the same time by changing the speed of growth, focusing on the best part of the portfolio only. This means that the total portfolio decreased 41% and the total net worth of the company to 180%.

At the same time, because of the improvement of the general situation of the economy, delinquency rates have gone down almost 60% from 9% of the loan portfolio to 3.890% of it, and the reflection on the operating income of the company is that for the first half of 2010, we find a recovery of ARS18 million compared to the loss of ARS111 million that we significantly suffered last year.

The revenues of the company for the period have -- have been from ARS123.6 million to ARS111 million. And this slight decrease is explained by the impact of the decrease in sales at retail and supermarket level, but also by -- its more account issued because of the strong upgrade policy that we are applying from now.

As you know, Alto Palermo has sold the 80% of the stake of Tarshop to Banco Hipotecario in this process of consolidation of the different holdings in the group. This transaction, remember, is subject to [BCRA] consent plus other -- among the main -- the most relevant conditions.

Regarding the bank results, as we have already mentioned, IRSA has achieved almost 37% of the total stake of Banco Hipotecario. Here you see a quick wrap up on the main figures. Remember that all the bank figures are released because of the publication in Buenos Aires, it's not going to change as a result of the financial statements of the bank.

The deposits have increased 42% in the period. The financial margin has improved more than two times, from ARS187 million to ARS581 million. The net income of the bank for the period has gone up from minus ARS23 million to ARS198 million, showing the much better situation of the whole financial system and the bank especially, during this period.

Esteban will give us a quick wrap up of page nine of the income statement of the Company.

Thank you, Gabriel. The total sales increased by 21%, mainly due to an increase of ARS70 million in the sales and development segment, attributable to the sales of the different office buildings that Gabriel and Alejandro have both mentioned, plus almost a ARS50 million increase in the sales of our shopping centers.

Regarding the cost of sales, they have increased by a 5%, a very slight increase, and -- sorry, they have -- the cost of sales have decreased, right. It was an improvement to our results, mainly attributable to a best cost management at our subsidiary, Tarshop, partially offset by an increase in the expenses of our shopping centers, attributable to the opening of the buyer.

This led to a gross profit increase to 43%, the -- below this line. We see SG&A, the SG&A have improved by ARS45 million. That's a 22% improvement, mainly attributable to the better selling expenses experienced at our consumer financing segment. Here we incurred in less bad debt, a decrease in salaries and contributions and a decreasing advertising and awards that were given.

Also from that segment, there was an impact in the line of results from interest in securitized receivables, mainly attributable to improvement in the risk profile of the financial trusts and the decrease in their interest expenses of the -- of this trust. Of -- all this led to an operating income in five-fold increase from ARS48 million to ARS291 million.

Below this line, we see the financial results. These financial results were mainly improved in ARS90 million because of the -- last year there was a huge difference in exchange rates between July and December that was not experienced this year, so that's the main reason for the bad results last year and the better results this year.

The results on equity investments and others went from ARS48 million negative to ARS135 million positive. Of course, attributable to our participation -- to the better results of the Banco Hipotecario and our increasing participation in the bank.

Finally, after income tax and minority interest, our net income went from a negative ARS99 million to a positive ARS264 million. Gabriel will continue with the debt.

On page ten, regarding the debt, the debt profile is total debt consolidated for the company in the period is US$488 million, net to US$29 million of cash and that amounts US$458 million, deducting the amount of [one] that have been acquired of the Series 1 and Series 2 notes -- the Alto Palermo, give us a total net debt consideration of US$402 million.

As you can see for the graph, most of the debt is represented for the notes that have been issued and are starting in the market, the US150 million notes maturing in 2017 for IRSA, there are US420 million notes of Alto Palermo and with the short-term debt of the company amount is ARS31 million at IRSA level and only ARS22 million at Alto Palermo level.

Okay. I don't know, Alejandro, if you want to make any comments? If not, we are going to questions. Operator?

Okay. Thank you. (Operator Instructions). Our first question comes from the line of Anne Milne.

Hi. This is Anne Milne at Deutsche Bank. Thank you very much for the call and congratulations on your good results. I guess I have two questions. One is on Tarshop. I know that you're in the process of transferring 80% of it over to Banco Hipotecario, but I was wondering if you could comment a little bit about what your expectations are for the next 6 to 12 months.

It looks like you might actually be considering increases in credit again, if that's the case? I guess, just overall, what your expectations are for growth in that segment? The second is on other business lines, where do you expect to -- what do you see your investments for the next six months and in which areas do you think that will be focused to?

Okay, Ann, good morning. Well, going first to the Tarshop question, we are budgeting a modest growth, much more focused. I think that we have a very significant decrease in the portfolio and we have decided to put the company together with the bank operations, because in some extent, remember, that Tarshop is not aimed as a creditor, it's like a first entry level to the financial system for individuals.

So that's create a very good synergy with the bank because as you are developing a good track record in your credit profile in Tarshop, you can be targeted by the bank as a second stage to be acquiring other parts, or more sophisticated products, among them the mortgages.

That's why we think that there is a lot of -- it makes a lot of sense of these two things working together. Regarding the future growth, although the financial situation, as a general consideration, is much better for Argentina to hold in terms of the consumer financing segment, we are not thinking in massive growth in the segment again.

Much milder than what we have seen the past, especially because of all the -- I will say, all the additional clarifications that we still -- the Argentina market is waiting in terms of a long-term financing, thanks to the issue of the hold-out and all the treatment of that. We are thinking in a mild growth of this segment, very focused to good credits mainly.

In the case of IRSA on the real estate, we expect, for 2010, to begin the construction of a small shopping center in Buenos Aires city and one in (inaudible) of Argentina in the interior of the country, and not in Buenos Aires. So we have two projects to begin in 2010, plus the refurbishment of many of them, like Paseo Alcorta, that we are planning.

We are doing now in Cordoba shopping. So we have plenty of projects that are existing, plus new shopping. We are thoroughly beginning the plans to have the marketing for the new office building that I explained before.

So we have plenty of activity in the case of future Fibesa, beginning the new office in Buenos Aires in Abasto, and beginning the budgeting and planning for Uruguay, so I think it will be a year of a lot of construction for the company.

Okay. Do you have an estimate of what the investments will be? Minimum?

This is under discussion details, but we have -- we are thinking in -- going to the market to issue new debt for the company, the banks are offering and maybe we are going to go to that market (inaudible).

Okay. So in other words, it will sort of depend on how much and what type of funding you can get, how much you end up investing?

Especially, Ann, on the getting suitable finances.

Yes.

Not only in size, but also in cost.

Sure, understood. Thank you.

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

Okay. Just to finalize, just to complete the explanation about the dividend policy, as Alejandro mentioned, after nine years, the company has begun to pay dividends again. This policy provides that the parameters are going to be settled between the 20% of the revenues from the office and other segments, as of June 30 of each year, or 20% of the net income as of the same day, the bigger of the two.

That's the most relevant parameter that the company is going to look at, to look after, to provide a stream of dividends in the future as far as the results of the company entitles us to do so.

Finalizing the conversation, we are closing a first semester that shows a recovery in almost all the segments. We expect to keep that growth in the second and the real estate is showing in our country that it's very unlevered. That it's a safe place and a lot of people are trying.

And everytime that we sell a piece we state and we show proceeding value this company have, that it's having a lot of assets and that -- very good located in a country like Argentina.

So, thank you very much, everybody, and with that, next quarter. Bye bye.

Thank you. That concludes today's conference. You may now disconnect.