IRSA Inversiones y Representaciones SA (IRS) 2011 Q4 法說會逐字稿

Good morning, everyone, and welcome to IRSA's Fourth Quarter 2011 Results Conference Call. Today's live webcast, both audio and slide show, may be accessed through the Company's investor relations website at www.irsa.com.ar/ir by clicking on the banner conference call. The following presentation and earnings release issued last week are also available for download on the Company's website.

After management's remarks, there will be a question-and-answer session for analyst and investors. At that time, further instructions will be given. (Operator Instructions). You will also have the possibility of sending a question via webcast by clicking on question-to-host tool.

Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed note in the Company's earnings release regarding forward-looking statements. I will now turn the call over to Mr. Alejandro Elsztain, Second Vice President of IRSA. Please, go ahead, sir.

Thank you very much. Good morning, everybody. We are talking about the fiscal year 2011 that closed the third year of June. In the page two we can see highlights of the Company for this year, it's a very good year. Our revenues grew 24% and our EBITDA grew more to 31%, reaching 72% of the revenues and 86% of total EBITDA, the rental segments, that they are the cash generation for IRSA.

The last line, net income, was ARS282 million, comparing to ARS334 million of last year, but the reason of that was the higher financial burden and the lower contribution from Banco Hipotecario.

In revenues we grew 9% from ARS221.4 billion and EBITDA up to 9% to ARS760 million. The shopping centers that is the largest by size grew and the revenues went up 30%. EBTIDA sales went to77% from 73% and occupancy went above to 97%. This year we were able from IRSA to purchase near 30% of Alto Palermo from Parque Arauco and now today we are controlling 94.9% of Alto Palermo's shares.

This year Soleil factory our 12 shopping centers improve itself, but this year, in 2011 and '12, we are in -- we're restarting that shopping center, so we delay a little that restarting and we're doing this year, but recently after the close of the balance sheet of the 30 of June we receive the 13 shopping center, we started operation of a 13 shopping, that is La Ribera but it's based in the province of Santa Fe, in the capital city of Santa Fe, not in Rosario where we had Alto Rosario, no?

In the segment of sales and development, we acquired 16 hectares of land in the district of San Martine that is exactly in front of the capitol of Buenos Aires, is in the canal pass that it's the highway surrounding Capitol City and we are intending that for commercial and residential use, we are going to show you later.

During the last quarter sales and development activity show a strong recognition of revenues because we swap Caballito and Horizons. Caballito Nuevo where we make a swap, [have a new partner] and Horizons we're making the contracts for selling the apartments we were selling before and we approve, in the case of Alto Palermo in a general meeting on May of this year, the reopen for making a new capital issue for Alto Palermo. So I will introduce Mr. Gabriel Blasi that will enter to more details of the balance sheet.

Thank you very much, Alejandro. Good morning, everybody. Going to page three, a quick glimpse on the construction activity for the country confirming that still the trend is highly positive and we have a growth of 11% for fiscal year 2011 compared with the prior year which is grew only 4%.

As a comparison to show an idea of real estate prices evolution, we consider the new apartments in the Recoleta area, I think we see one part of Buenos Aires City where the price per square meter go up to three point -- more than $3,000 per square meter, a growing for the same period of 2011, 12% in relative terms.

Moving to page four, regarding the commercial real estate when we will look at office market, A plus and an A in the Buenos Aires City, we see that the rental price per square meter per month has been pretty stable and although slightly increase in vacancy in the market on the calendar year, we have a good evaluation in our case with an increase to $25.2 and a reduction of the vacancy to 7.5% for the period. Important to add that this trend has also gotten better after the finalization of the fiscal year.

When we consider the shopping industry sales, all the evolution on 2011 has been extremely positive with a [grow] for the period under consideration of 35% compared to the prior year.

Regarding our behavior in terms of sales and EBITDA on page five, we can see that the revenues per segment also have a very positive behavior in the period with 30% of growth for revenues in shopping center in the upper left, reaching ARS675 million, 7% for offices and other reaching ARS165 million, 21% growth of revenues for hotel operations going to ARS193 million, giving an average for the rental segment of 24% of revenue growth and 51% for development on sales, peaking ARS341 million.

Same rationale on EBITDA evolution on the upper right, 36% growth for shopping center, reaching ARS518 million, 12% for offices and another ARS109 million, 23% growth for hotel operations, ARS27 million, the compound of the rental segment EBITDA evolution is an increase of 31% for the period.

In the case of development and sales, with a smaller activity we only sold ARS85 million and 39 dropped -- 39% drop for the period in terms of cash generation. When we consider EBITDA margins for the period we see what we have already described in shopping centers, a very strong evolution, 77% EBITDA margin for the period, offices 66%, hotel operations 14% and development and sales lagging a bit only to 25%.

And the variation, the break down by segment, explaining that the ARS60 million of growth of a cash generation for 2011 from ARS700 million to ARS760 million is explained positively by shopping centers, offices and hotels and we see that they -- we have a well behavior in development and sales. And consumer financing which in fact is affected because of the deconsolidation with the comparison to the prior year, it's not a problem of bad behavior of the business but because simply we are not comparing same type of figures.

Moving to page six on the shopping center performance, the revenues for the period have increased 30% which is ARS660 million -- ARS675 million and if you look at the break down per quarter in the upper left you see that each quarter the Company reached strongly the same quarter on the prior fiscal year. Same situation with the cash generation with a very impressive 36% growth of EBITDA, reaching ARS518 million as total EBITDA for the period.

Regarding how was the evolution of our tenant sales, we continue with a very positive trend, 29% for the period going over ARS2.2 billion for the period. We have increased our GLA in this period with an operational -- with a surge of Soleil which has been including our portfolio as Alejandro has explained. Next year we will also have the -- also an increase of 8,000 meters regarding our new investment in the province of Santa Fe.

Moving to page seven, the office rental segment, revenues have increased 7% in the period, after a certain stabilization of the market during the 2011 we are seeing a better trend that is also slightly reflected in positive trend of prices. EBITDA evolution after a small decrease for 2010 mostly referred to some sales on non-core asset as we did reach 63% of margin in the upper right graph.

Now we are having again 66% of EBITDA margin, a 12% increase in cash generation with a purchase stable portfolio as you can see in the lower left graph with this area pretty similar to last year, the vacant area with is -- which is they are represented by 9% of the portfolio is mostly referred to the [dolt] building which you have the case in the low right graph explaining how we have evolved since the finalization of this building as this would put the building to the market but -- and for the last day of July, this is after the closing of the fiscal year 2011 we have reached 100 occupancy in that building.

Going to the hotel segments our recovery in page eight we have increased our occupancy rate to 73% and also a guarantee the effect on the [ARS] price per room we have increased to $174. In the case of the sales and EBITDA generation it has increased 21% and 23% from the cash generation with EBITDA margin of 14%.

It's important to address that we still had positive figures in this segment in spite of the very strong effect that the eruption of the volcano in Chile is that affects very strongly our air transportation and concurrently the incoming of tourism to Bariloche area where the Llao Llao is located and also the ashes strongly affected the city, but in spite of that very strong event, we've managed to get positive results for the business line.

But it's still affecting after the balance sheet and the hotel is still not occupied because of that lack of planes going to Bariloche.

Going to page nine, regarding sales and developments, as you probably remember, our project the Horizons in the northern area of the surroundings of Buenos Aires with the 4,400 square meters of construction we have delivered the first unit, we are in the process of delivering the rest of the unit from now to the year end and the constructions have been completed only with minor details are pending for delivery of the whole apartment.

Regarding barters and sales in the upper right, we have sold this year Beruti -- Terreno Beruti and Caballito to TGLT in exchange for residential units in future developments, we have sold four plus in Rosario -- in the city of Rosario near our shopping mall for developing additional construction. They are capturing the stronger evaluation process that the new shopping, we construct several years ago, has brought to the area and also we are in the process of selling noncore assets in [Levata Au 498], also stressing again the very strong situation that our real estate market has.

In the low left you have the gain from [valuations as NRB] for the different products that we are currently under development. And on the right, the development status where we have started the construction of additional residential properties in Rosario and we have -- sorry 85% of the construction completed and we have started the sales of the first project there. And achieving more than 81% of the sales in the Nuevo Caballito project, completed the selling of Horizons and 64% of the plots in El Encuento in the northern area of Buenos Aires.

We move to page 10, a good glimpse to Banco Hipotecario who wants -- those who want a more detailed information about the bank we encourage you to go to the disclosure that the bank does on its own base for Buenos Aires stock exchange. The bank has been moving forward with its strategy of diversifying its funding base as you can see from the left -- upper left graph.

The presence of a foreign currency debt as part of the bank financing has reduced steadily to 24% of the whole book and 76% of the whole book is funded in -- with local deposits, a very good behavior in terms of interest in collection from part of the bank with also on a smaller participation of the mortgage segment, stressing the strategy of the bank of being turned into a more integral bank providing other type of financial services to the community. And with a stable situation in net financial margin for the period and very good behavior of the loan portfolio as you can see in the lower right graph.

If we move to page 11, we can see a picture of the new shopping center, the 13 of our portfolio. In August of 2011, after the close of this balance sheet we bought 50% of the shares of the Company that has as concession of shopping center in Santa Fe province and Santa Fe city. Alto Palermo is going to manage -- is now managing that shopping center and it has another partner that its one of the former partners who stayed like partner for Alto Palermo and we are now beginning the restyling and the completing -- completing the tenant mix for this shopping center.

This will add to our portfolio 8,000 square meters of gross leasable area. Today it's with the 59 stores. We paid for that $4.5 million in installments, we have to pay majority of that, so we didn't pay up to now, we just pay some part of that. That represents $1.1 thousand per square meters. We think it's a good opportunity of growth in the interior of the country.

Apart of that, we were able -- in next page, in the page 12 to acquire a piece of land in San Martine, but it's great when decided. We bought 50% of the actual piece of land, 16 hectares, an area to be built 120,000 square meters which has a part of that like 6000 square meters of office buildings with the rental -- existing rental this year is paying $3 million of rental for next year, not because we acquired in May of 2011 so it's in a full year base it's a $3 million rental for this office building that you see in the picture.

We paid 400% of that, not [450%]. The whole partnership pay -- it's going to pay in installments $33 million. So half of that would be IRSA investments and it's I think, I'm not sure, but I think its five years installments, we can assure you later.

In page 13 we see the project we are beginning this year, 2011, we began some of these projects. The big operation of that is in 2011/2012, we began with the movement of land for the shop in Neuquen and shop in Arcos did the construction of Arcos is beginning in the end of September, shopping Soleil is the restyling of the shopping center that we are recently beginning because we had two problems of approvals, but now we are doing this that will be a half a year restyling period will be for March of next year.

We are beginning the office Catalinas in Catalinas area, that is a 33 -- 32,000 square meter building new. So a lot of projects under the beginning of this year, they are projects of two years in general, so they are going to add to the portfolio of rent and two years later.

Going to page 14, we want to share with you how the structure of our share services agreement between our parent company [Pursuit] it is in Alto Palermo behaves. At present Pursuit provide services to Alto Palermo and IRSA and allocated the cost to each of the company. So we share on the structural management, it's in a centralized way and achieving cost synergies by this mean.

The common structure areas that we are referring to are human resources, finance, institutional relations, administration and control IT, procurement, risk and processes internal auditing and contract. And then the cost and salaries of each area are allocated to each company according a formula and measurable parameters that are each on a quarterly base audited by Deloitte on a separate basis.

Going to page 15, a quick wrap up on our income statements in fiscal year 2011. As we have already mentioned, we have a 9% increase in sales. Our revenues reach ARS140 -- ARS442 million -- 1000 -- sorry ARS442 million for the period. Our cost of sales reached ARS600.8 million.

The different figure compared with the prior year is that we have a different behavior in our sales and development segment as we have sold with lower margin and with different type of assets sold and also is the consolidation of Tarshop as we have explained this bring up a gross profit which has been aligned pretty much with last year with a [7%] decrease.

But we were able by reaching a better behavior in sale and administrative expenses with a percent in variation of almost 20% compared to the prior year and we gain from recognition of inventories of 34% reaching ARS45 million for the period. We reach an operating income of over ARS585 million or 8.5% bigger than in 2010 period.

Below this line, the strong impact of the financial result is explained mostly by the increasing debt. Remember that we increased our debt by the issuance of a new bond of $150 million, related to the acquisition of the minority package of Alto Palermo, but this was partially offset by the gain on equity invested like Banco Hipotecario but because of the performance it was half -- the result of compared to last year to ARS76 million instead of ARS151 million.

IRSA were investment in the hotel REIT in the United States yield ARS56 million for the period and another minor result ending with an income before taxes of ARS444 million in total, is slightly 15% below that prior year most explained by the different behavior of Banco Hipotecario. And total [license] is an income of ARS282 million, 15% lower than fiscal year 2010.

According to the debt structure, if you move to page 16 as I mentioned, the most significant event has been the issuance of a $2,020 million note which we issue $150 million, totalizing $552 million of total debt for IRSA, most of them more than $300 million is long term debt.

On the consolidation base, we need to add to that $167 million of debt of Alto Palermo, mostly represented of $120 million note maturing 2017 and other notes placed in the local capital market and the remains of the 2012 peso-link note with only [10 million] of exposure. Totalizing the total consolidated debt of $620 million as a whole with a cash consolidated position of $76 million and repurchase debt of $14 million on a consolidated base.

We end with a consolidated net debt of $529 million on the consolidation with Alto Palermo, 77% of the total debt is in US dollar, 23% in pesos, and there you have the profile of maturity with a comfortable structure for the financing capacities of the Company.

We invite you to -- investors to make questions now. Operator, please?

(Operator Instructions). Your first question comes from the line of Clara Quiroga of Raymond James. Please go ahead.

Hi, good morning everyone thanks for the call, and congratulations for the results. I have to questions. The first one is related to the shopping centers segment. During the quarter you obtain a great improvement in terms of EBITDA margin, do you think you can maintain this level going forward? Or do you see any room for further improvements? And my second question is regarding the sales and development division, if you can give us the breakdown of the EBITDA for the quarter. Thanks a lot.

Sorry, will you repeat the second one?

Yes, if you can give us the breakdown of the EBITDA sales and development division for the quarter.

Okay, give a second.

Okay, thanks.

Regarding the first part of the question, you know that although we have a very strong inflation process in Argentina and that affects most of the industry in terms of the ability to keep the costs low as most of the cost of the shopping centers are expendable. And at the same time, we receive the percentage of sales of the tenants which related our income to inflation.

It can be said that in a normal environment in terms of sales evolution we don't expect significant changes in terms of this margin. Having said that, I -- the cost of structure of the Company is mostly related to salaries and some energy and that type of costs. So, probably that will be related -- this has been -- or this part of the year has been an election year and you know that pressure of salary becomes bigger in that event.

So probably that pressure might go downwards after the election process for the second part of next year, we think that we can keep on track regarding our EBITDA margin evolution, which by the way, if you look at the Company history in the last -- about eight years has not have significant variation, never has gone below 70%. So we consider that is pretty stable. Regarding the second -- the second part of the question, give me a second.

Yes (inaudible - multiple speakers).

It is refer mainly to four different deals, one is the sales of land in [Prairie Llaola] in March of -- this is last year, 24, the offices what we call popularly [El Rularos], the round building in Buenos Aires downtown [Veritude], down [Vel Platta] 28, another office building, and [Costeros] another office building 47. That reach ARS96 million.

And regarding the different deals has been the exchange that we do with TGLT of Beruti in [Tarageeto] and Beruti lost the one that we exchange with TGLT near Alto Palermo and then units of [Sirsa] that is Vicente Lopez, Rosario, the first tower that we are building near the shopping mall, units of [Carajito] and in El Encuentro which is the gated community that we have in the northern area of Buenos Aires.

The main difference of margin year-to-year, its last year we sell less, but we sold rental properties. This year we sold more but majority of that was residential and that gave us lower margin than the rental that was purchased like 15 years before.

Okay, perfect. Thanks a lot.

(Operator Instructions). Your next question comes from the line of [Ronnie Seskin] of SI Advisors. Please go ahead.

Yes, congratulations about the numbers. My question is how come we are not seeing IRSA buying back its own shares with such a discount to your own book value?

Well, thank you very much for the question. You know that probably in Argentina if you look at the history of the country and you look at the behavior of the corporations, you will find out that most of Argentine listed companies established buyback programs under certain specific circumstances which are roughly mentioned as stress situation.

So if you go for instance to the last financial crisis you saw us at Pursuit level and that moment and different other three, four companies going to that type of strategy. It's very difficult for a corporation to simply go on an outright base to the market and it's not so flexible that in the state to go there and buy back their shares. You have to apply for approval for a buyback program which is very -- probably granted when you are under certain type of distress.

Like for instance, if you can really justify that the price of the share put in risk the sustainability of the company that's really a cost that makes that authorization pass very easy. But it's not the case, it can be very time consuming, very costly and it cannot be granted. That's why we are not involving that.

And on the other hand, when we established those type of buyback programs, you have to go and they're very, very specific metrics and the way to do that that at the end is not necessarily the result that you expect for instance with a typical buyback program that you might see in a US listed company. That's the reason why, although the price might be very attractive and compared to asset base, you can [sink] in a deep discount, the instrument that we have are in some extent or in somehow limited.

Okay, thank you very much.

You're welcome.

Your next question comes from the line of Jacob Steinfeld of JPMorgan. Please, go ahead.

Hi, good morning. Congratulations on the results. I just had a quick question. I was wondering if you could give an update on your plan capital increase at Alto Palermo and what the use of proceeds would be?

Well, as Alejandro has described, we have a very strong growth plan and pipeline of project that we are currently moving forward and definitely we are going to finance those projects in the most suitable way according to market conditions. As you probably know, we have completed the filing process, but of course because of market situations we have not decided to move forward and there's such a strong volatility.

Right, but I guess if market conditions improve would the -- at the pipeline of projects primarily in Argentine or are you looking outside Argentina?

Both. Company intends to grow. In Argentina, we have a lot of land bank, as you probably know, a lot of land bank in the Company. But a part of that, we could be buying existing and buying outside our plan it's LatAm and the rest of the world because we think that in distressed countries like US we are able to buy recently office building and Europe probably too we could be buying. So a part of Argentina we are thinking of going in other countries, not thinking in Brazil, but yet in the developed countries and the rest of LatAm.

Great thank you very much.

(Operator Instructions). I'm showing no questions at this time, sir. Do you have any closing remarks?

Yes, thank you. Thank you very much gentlemen. We are happy of closing this balance sheet having an occupancy of our rental segments almost 100% because all of them are near an office building that didn't show that last year. Today they are almost 100%.

We have still problems on Llao Llao. Llao Llao needs the opening of its airport and if not will be affected for next year. Today the occupancy is very low because of that. The assets revaluate a lot, we are seated on a very good portfolio of real assets and every year they're showing recovery in prices, each of the lines, and we are beginning lot of construction. So we think we can show the growth in all of the lines for next year. So thank you very much and we see you next quarter. Have a good day. Bye bye.

This concludes today's conference call, you may now disconnect.