IRSA Inversiones y Representaciones SA (IRS) 2010 Q4 法說會逐字稿

Welcome to IRSA earnings release fiscal year 2010 conference call hosted by Alejandro Elsztain; Second VP; David Perednik, CAO and Gabriel Blasi, CFO. Please go ahead.

Good morning, everybody. We are going to talk about the results of the fiscal year 2010 which closed on the June 30. If we go to page two we can see that the net income increased in this year by more than 100% from -- to achieving ARS334m. The EBITDA of the Company rose 63% and we are achieving ARS700m. The Shopping Centers business, our biggest in size, recorded high occupancy levels and the EBITDA that the Shopping achieved was ARS380m, 26% higher than last year.

This year we acquired an option to purchase Parque Arauco stake in Alto Palermo but it's expiring soon. On the other hand, Alto Palermo sold 80% of Tarshop to Banco Hipotecario, and the consent from the Argentinean Central Bank has been recently obtained, so this is new subject that was after the close of the balance sheet and we are receiving the funds from here. So that is closing these days.

Office Buildings, we sold non-strategic office buildings too, small lots, not big operations. And in the same time we purchased a plot of land in Catalinas for making a new development in a premium building to make a AAA building too.

In the case of Banco Hipotecario, this year that we increased our stake in Banco Hipotecario and because of their result we received a contribution of ARS151m from our investment in the bank.

Now I give Gabriel to talk about the Argentine economy of this past year.

Thanks, Alejandro. Good morning, everybody. Moving to page three we can see that the recovering on the growth pace of Argentina has also gone very positive recently for this year in the high one digit achieving 8.5% according to estimates of [Broda] of growth for 2010. Still we keep a very good and positive situation on the fiscal side with a fiscal figure revenues of ARS22,000m for 2010, also keeping the foreign trade balance on the positive side with $11.5b, and a stable and good situation in terms of foreign exchange rate and Banco Central reserves achieving almost $50b of reserves with a ARS3.93 of foreign exchange rate.

If we move to page four, it's interesting to address what's the market perception about the risk implied in Argentina. If you compare Argentina figures with a different group of countries including developed countries, some developed on the blue dots, and countries which are facing progress, we can see that in relative terms the price that the market is giving to Argentina because here in the debt to GDP ratio and the fiscal deficit compared to the GDP, as a percentage of the GDP, we are really outside of the track and completely mispriced. Also in this consideration according to this, yesterday Standard and Poor's has increased the note of Argentina one notch thinking that these figures will adjust in the medium term.

Going to the IRSA main drivers in the medium term, as you can see, we continue with a very positive trend in terms of revenue with a growth of more than 8% for the fiscal year and a compound growth for the last five years of 23%. Even more on the EBITDA side the growth from '09 to fiscal year 2010 has been 63%. This is due to the very important recovery on the consumption segment, and the compound rate of almost 27% of growth for the last five years.

Going on a quick wrap up on each business line that we are going to review, this development on sales has shown ARS22m -- ARS26m of sales. Offices and office rental ARS154m compared to the SRA148m of last year. Shopping Centers has achieved ARS518m of revenues. In the case of Hotel Operations although figure is almost the same, and Consumer Financing sales that are having slightly higher but with a very significant recovery on EBITDA generation.

Moving on page six to the left -- to the right side, you can see that the EBITDA has grown on each of the business lines with a small exception of the Hotel Operation but a very significant recovery for Consumer Financing. And even the EBITDA margin by segment is in very good position. 62% in Development and Sales, 63% on Office, 73% on Shopping Center, Hotel Operations 13% and Consumer Financing has gone from minus 51% to 23%, confirming the very good momentum that all of the business lines have. And with the spread of the increase of EBITDA by segment, well, we see that the biggest contribution comes from the Consumer Financing and from Shopping Centers.

If we move to page seven we can speak about Shopping Center's performance. And here we can see the evolution on revenues growth of 30.7% for Alto Palermo. When we see the tenant sales from the old shopping center there was a growth of 22.4% and when we add The Dot, that is the new shopping center that this year was 100% open because opened in May of the previous fiscal year, in this year this add ARS764m. So with the combination of this new Shopping we grew in tenant sales in 37.7%.

With this we have 11 and in next page we're going to explain the 12 that entered to the company July 1. But talking with 11, here we see the EBITDA that grew from ARS302m to ARS381m and we can see that Dot it's in the group of the biggest, we can see that it's in the four, the Alto Palermo, Alto Rosario, Abasto and Dot are the biggest shopping centers of the Company. So we enter a new operation, a large operation to the Company. The occupancy rate is very high; we are talking about 98% of occupancy.

If we move to page eight we can talk about Soleil Factory, the 12th shopping center. This is 40 minutes from downtown. This will be the first premium outlet in Argentina. We are making the transformation of this old property into this premium outlet but open, we are not going to close this and this we recently received and it's really amazing how good it's going. This is an operation of near $20m and so it's generating a very positive EBITDA.

We have this option to acquire our partner's stake, the 29.5% of Alto Palermo. We have the convertible bond for $126m, from those we paid $6 to acquire this option, and with that we are consolidating our leadership on the industry of shopping centers.

We are launching two new projects for this year. One is Arcos Gourmet, that is not exactly a shopping center, this is a urban space, this is comparable to something like High Line in New York, it's a space in an old train area in the middle of Palermo, that is one of the best neighborhoods of City of Buenos Aires and Alto Palermo is beginning the work on this very soon in Palermo area and this is a new concept for new clients. This is many blocks of Alto Palermo I think like 35 blocks -- 30 blocks or less than that.

In the Shopping Neuquen this is a plot of land we have from the past. The building work starts. This is in the city of Neuquen, very good located plot of land and this is in a very growing market in the Patagonia area. So these two shoppings plus the new that we received are expanding our portfolio to 15 -- sorry to 14. The 12th is Soleil and these two are rising to 14 shopping centers.

If we move to page nine we can talk about Office Rental segment and here we see the evolution on revenue, a small growth of 4.3% but remember we had a drop in size. We see in the graph that we reduced our size from 156,000 square meters to 140,000 square meters. And we near copy the EBITDA of last year increasing, from one side increasing occupancy, and increasing some of the rate. So with that drop on size we were able to almost copy the EBITDA of last year.

In the page 10 we were selling some non-core assets. We sold six units of Dock del Plata for $2,700 per square meter and we finish that property, we have nothing else. In Libertador we sold some floors at levels of $3,200 or $3,300 per square meter. We sold 3,000, [halfway percent] like five floors. Six floors sorry. We have still like five floors of stock. We sold one old entire building that is the Costeros Dique II for $2,800 per square meter.

At the same time we still were selling old building sometimes not 100% owned by us, we bought a piece of land in Catalinas, the Catalinas the more expensive and high end AAA area of buildings and we bought a piece of land for making 35,000 square meters, so more than the 14,000 we sold at the level of less than $700 a hectare -- or square meter sorry, $700 per square meter of [incident] for the land. You have to add that the construction but [maybe] you are going to achieve the level to $2000 but not the levels of $3000 or more for building for 30 years or more. So we fly to quality we can say from buildings that they were not 100% from us to 100% ours and in the middle of Catalinas area. Here is going to begin the construction probably next year.

Going to the Hotel segment, there you see that on page 11 the statistics for the tourist arrival and spending of 2010, although we are still lacking of the figures since June, the official figures. But in some extent we're beating the seasonal pattern of last year. Regarding the evolution of the segment, the occupancy's almost the same as last year at 70% compared to 66% in this fiscal year with a drop of less than 2%. And the price, the average price per room is almost the same of $166 compared to $169. And the sales and EBITDA has increased slightly from ARS159 to ARS160. The EBITDA margin dropped from 17% to 13% due to the cost increase on a base of local inflation, and the EBITDA has decreased from ARS27m to ARS22m.

Moving to page 12, during this year we consolidate our investment in Hersha that is Hospitality Trust REIT, which is listed in New York Stock Exchange. There we invested $47m that we have valued in our balance sheet at historical cost. As of June 30 the investment value is $105m. Also here in the option that we acquire and also the shares the company has been strongly capitalized and repackaged all its debt also with a significant recovery in the occupancy rate and with a dividend, a strong dividend payment. And the Company has assets of 77 hotels located in the Northeast coast of the United States.

Going to page 13, some updates on our residential development and sales. There you see the picture of our project Horizons that we are currently developing with Cyrela in our local joint venture. At June 30 we had sold 99.2%, as of today it has been completely sold and we are going to deliver the first units for next fiscal year.

In the case of the El Encuentro on the upper right are 2.5 hectares located in the greater area of Buenos Aires, which have sold 7% of the 110 plots. This is located 55 kilometers from Buenos Aires.

In the lower left, Cabillito Nuevo, in a very dense populated area of the city of -- in the center of the city of Buenos Aires, we have sold 65% of this building, with 98% progress, also to be delivered during next year of this building of 118 apartments.

In the low right, Pereiraola plot, located in the Hudson Province of Buenos Aires, 130 hectares. We sold this at almost $12m, with a gain of ARS21m against the book value.

If we move to page 14, a quick brush-up on our investment in Banco Hipotecario that results in ARS151.6m for fiscal year 2010, confirming the very good situation of the financial segments in the country. There you see the evolution of the asset side of the bank, where the mortgage is representing slightly less than in the past and we are transforming the bank into a more diversified business. Same situation with the financing sources, where you can see on the upper right that the share on deposits is growing significantly for the last year, being the biggest part of the financing of the bank.

Regarding our credit card business, Banco Central authority has approved the final sale of Tarshop to Banco Hipotecario. The company is going to have a wider space for growth due to the ability of the bank to better finance this company than on a tag-along basis in the market. And also, the strategy of capitalizing the company has proven to be right, with the full recovery of the EBITDA margin of the company, the [renewals] and the cash generation, with a very significant decrease in the delinquency rates, as you can see from the graph.

With respect to the P&L of IRSA of June 30, 2010, we have obtained a net gain of ARS100 -- sorry, of ARS334.5m compared to ARS158.6m of last year. That means almost 11 -- a 111% increase. With respect to the operating income, it has increased ARS244m, or 82.5%, from a gain of ARS295.7m in 2009 to a gain of ARS503 -- ARS539.7m in 2010, mainly due to a recovery in the Customer Finance segment, and increases in Shopping Centers and the development of sales of Property segment, and partially offset by decreasing Hotels and Offices and Non-Shopping Center Rental Property segments.

The operating income arising from the development and sale of Property segment increased 15%, or ARS18.3m, from a gain of ARS121.2m in 2009 to a gain of ARS139.5m in 2010. The operating income arising from the offices and other non-shopping center rental property segment decreased 3.9% from ARS76.5m in 2009 to ARS73.5m in 2010.

Revenues keep rising from ARS147.7m to ARS154.2m. The operating income from the Shopping Center segment increased 24.7% from ARS214.9m in 2009 to ARS268m in 2010. The operating income of Hotels decreased ARS3.2m from ARS8.6m in 2009 to ARS5.4m in 2010. And operating income of the Consumer Finance segment, that means our Tarshop company, increased ARS178.7m from a loss of ARS125.4 in 2009, to a gain of ARS53.3m in 2010.

With respect to our financial results, they increased ARS28.7m from a loss of ARS136.4 in 2009, to a loss of ARS165.1m in 2010 and were due, mainly due, in our current year, 2010, the absence of non-recurring gains realized by our repurchasing of obligations issued by Alto Palermo for ARS105.9m. Also to an increasing interest expenses of ARS25.4m, and due to a ARS115.1m reduction in foreign exchange losses, because this year we had less depreciation than last year. This year we had depreciation of $0.13, while last year we had depreciation of $0.77 of pesos to US dollar.

The gain from related companies increased ARS98.9m, from a gain of ARS61.5m in 2009, to a gain of ARS160.4m in 2010. And this was mainly due to our stake in Banco Hipotecario, and also the result of our investment in Metropolitan 885.

With respect to the income tax, meaning our presumed income tax, it increased ARS68.1m, from a loss of ARS80.3m in 2009, to a loss of ARS148.4m in 2010. And this was due to our better results this year towards last year.

The minority interest decreased ARS68.8m from a gain of ARS25.3m in 2009, to a loss of ARS43.5m in 2010. And it was also due to our subsidiaries' positive results. I remember you that this line, we are showing the minority interest that we are not -- it does not belong to our company. So when our companies are getting profits, these lines are showing the losses to the company that we present.

For the above mentioned, our net income for the fiscal year 2010 increased ARS175.9m from a net income of ARS158.6m in 2010 -- in 2009, sorry, to a net income of ARS334.5m in 2010.

Regarding our financial situation, moving to page 16, you see there the total debt of IRSA which is, as of June 30, ARS266.1m, mainly represented by the note issued in 2007 of $150m, plus the debt of $90m denominated in pesos, $20m of the balance of Edificio Republica acquisition another (technical difficulty).

On the consolidated basis, we have to add, on top of that, Alto Palermo debt represented mainly by $120m of the note issued by Alto Palermo in 2007, $20m of short-term debt denominated in pesos, and local notes issued in the local capital markets, that totalize in the rate of $40m.

Deducting the note, both of IRSA and Alto Palermo -- sorry, the cash of IRSA and the notes of Alto Palermo that we have acquired, the total net debt goes up to ARS361m. It is important to address that after the end of the fiscal year, we were the first Argentine corporation testing the global financial market, issuing $150m of international 10-year, 144A bonds, maturing in 2020, under the conditions of our program, that give us room to increase our rate up to $250m, including this issuance.

We welcome to investors for questions now.

(Operator Instructions). And your first question comes from Celina Merrill with Credit Suisse.

Hi. Thank you so much for the call, and a great fiscal year. Congratulations. I had a quick question regarding expected capital expenditures for fiscal year 2011. Can you talk a little bit about what you expect that number to be, especially related to the expansion in the shopping centers and in the Catalinas, or the office building?

We have not exactly the numbers, but to give you an idea of range of numbers the two shopping centers [clearly state] the rest of the payment of Soleil for the future, the very future. In the case of the two shopping centers under construction, they are two shoppings of, I would say, ARS20m each. And the number of the office building will be in the level of a ARS40m investment. But not everything of this is going to be in next fiscal year, 2010-'11.

In the case of the shopping centers, none of them is finishing this in this time. And in the case of the office building, it is going to begin near next year's fiscal year. So for this campaign, we are just beginning the two shopping centers and the two total amounts that they are project, like two years of preparations, is ARS40m.

Okay, understood. It will be spread out. Okay. Thank you. That's it for my questions.

(Operator Instructions). At this time, there are no further questions.

Okay, if there are no more questions, we can finally say about, there was a very important consumption recovery, and that affected the shopping centers and the Tarshop company, too. The real estate became and is still very appreciated, and is a place that everybody, Argentineans, are pooling its money and probably bringing a lot of money that is abroad. So there is a lot of movement in real estate, buildings under construction, and a very good value for that and very good prices, without mortgages.

Still, without any finance, the country shows that the real estate is a very good place to be. The EBITDA of this year was strong. There are a lot of projects under construction, and we are going to keep that growth for the future. And the strength of the combination of the land bank, the development, and finally the rental gives to IRSA the opportunity of being a big player on the real estate market, not only in Argentina, but abroad, too.

So thank you very much, and have a very good day. Thank you.

This concludes today's conference.