IRSA Inversiones y Representaciones SA (IRS) 2019 Q1 法說會逐字稿

Good morning, everyone, welcome to IRSA's First Quarter 2019 Conference Call. Today's live webcast, both audio and slide show, may be accessed through the company's Investors Relations website at www.irsa.com.ar by clicking on the banner Webcast Link. The following presentation and the earnings release issued yesterday are also available for download on the company's website. After management's remarks, there will be a question-and-answer session for analysts and investors. At that time, further instructions will be given. (Operator Instructions)

Before we begin, I would like to remind you that this call is being recorded, and 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.

At this time, I'd like to turn the conference over to Mr. Alejandro Elsztain, Second Vice President. Please go ahead, sir.

Thank you very much. Good morning, everybody. We are beginning our first quarter 2019 results. And we can see on Page #2, the consolidated financial statement. The net income attributed to IRSA reached ARS 9.4 billion comparing to ARS 0.5 billion last year. When we see the adjusted EBITDA, we reached ARS 3 billion. That is 31% higher than last year numbers. Remember that we divide between the Argentine and the Israel business and you can see the Argentine Business Center, we had a gain of ARS 7.6 billion, and this is mainly explained by higher rental results and from other higher results from the fair valuation of our investment properties. That was offset by part of -- because of the financial losses related to devaluation that came to Argentina last quarter. Related to Israel Business Center, there was a gain of ARS 3.5 billion, and this is mainly explained by the increase in the share of the Clal shares that increased a lot in this quarter. Related to dividends, we recently announced dividends at IRSA and we paid ARS 1.4 billion in kind, we paid with IRSA Commercial Properties shares at -- we gave to shareholders, we are going to give this week in the 12th of November, 5% of IRSA Commercial Property's shares to the shareholders, in the intention that we have to give liquidity to the shares of IRSA Commercial Properties. Related to the Rental segment, and Danny is going to explain later in more details, we grew 31% year-to-year and occupancy stayed high in the 2 businesses, and in the hotel, there is a recovery in the occupation too. Related to Israel Business Center, we've sold an additional 5% of Clal shares through again a swap transaction like in the past. Today the stake that we are running reduced to 25 -- 29.8%, sorry. And during this quarter, Clal shares increased 34% in price.

If we move to next page, #3, we see the main events that Daniel Elsztain is going to explain us now.

Thank you, Alejandro. Good morning, everyone. Here we can see the main events of the first Q of fiscal -- this fiscal year, starting with the rental operation figures. Shopping mall sales grew by 24.1% in this Q, and occupancy remained at very high levels, that's the number of 98.7%. And the average rent for the office portfolio remained stable at $25.7 per square meter per month. And the office portfolio occupancy reached 93% -- 93.4%. This is lower than the first Q of 2018, where we had 96% occupancy, and this is mainly explained by the incorporation in our portfolio of the Philips Building that came with an occupation of 69%. But nevertheless, it was higher than the previous quarter -- of the last quarter of 2018, because we did some leasing, mainly on the Boston Tower, we occupy 1 floor. The CapEx on this Q was the acquisition of Maltería Hudson with a construction capacity of 177,000 square meters in Hudson. It's in the province of Buenos Aires, in the intersection of very important highways. The acquisition cost was $7 million to develop a mixed use of -- mixed-use project and this acquisition was done in a July 2018. Also, we acquired 14,000 square meters of Catalinas building under development from our controller IRSA for a total amount of $60.3 million. This was recently done. This happened in November 2018, few days ago. Also during this quarter, we started the construction of the expansion of Alto Palermo Shopping, our flagship shopping center. This is total construction of 3,900 square meters, that are supposed to be finished by fiscal year 2020. Also we have plans to develop 15,000 square meters of expansion malls during this fiscal year. Maybe not all of them will be completed, finalized by -- for this fiscal year, but we will going to be under construction of this amount of square meters. When we go to the bottom of the page, we see adjusted EBITDA by segment. We see on the Shopping segment that we only grew 10.3%. This is mainly explained because our revenues did not reach inflation, but our costs, yes, were following inflation and this explains the shrink of this EBITDA in the Shopping segment. And in the Office segment, we can see the opposite effect that our rents are in dollars, we collected in the revenues the total amount of the devaluation and our costs were only going up as following inflation. When we see the net income, we see a tremendous growth. The net income grew 303%,. This is reaching a total net income of 7 point -- approximately ARS 7.8 billion, and attributable to the controlling company, it's about ARS 7.08 billion. This is an increase of 277%. This is mainly explained by higher operating results and higher results from change in fair value of our properties that more than compensated the financial losses on the devaluation. Also we -- on October our shareholders meetings approved a cash dividend for the total amount of ARS 545 million. This is a dividend yield of 1.9%, and that is November 9, which is actually today but the money will be disposable as of tomorrow -- I'm sorry, today, it's -- sorry, today is the ninth.

On Page #4, here is a good news on the company. We have this land for 20 years. This is in the neighborhood of Caballito. We have been dealing with the city asking for permits for a long, long time. But finally, we got the permit to do a mixed-use project in this plot of land. The idea is to do 76,000 square meters of residential development with a -- the ground floor dedicated to retail having approximately number of 11,000 square meter of retail. The company is looking the right developer to swap the -- or to do alone the swap on the residential component and to keep the retail component that we think has a very good opportunity because there is nothing on this neighborhood, and it's a very -- an excellent location for retail in the city of Buenos Aires. This is really the center of the city of Buenos Aires. So we are very happy with this news, and we are going to be working so we have good results in plot of land.

Also on Page #5, we can see a recent sale of Catalinas to the subsidiary IRSA Commercial Properties that we mentioned earlier. This was a sold -- or IRSA sold 14,000 square meters at this building. The total price was $60 million, the price was -- when it is about approximately $4,200 per square meter, and this includes 12 floors and 131 parking spaces. Ownership was split in 3, previous to this transaction there was IRSA had a part, IRSA Commercial Properties and Globant, that is the third party that bought from IRSA more than a year ago. And now the current ownership is 87% belongs to IRSA Commercial Properties. So there's no other rental properties now that belong to IRSA. And Globant owns 4 floors, it's 13% of this construction. The construction is going really on time. And it's now growing about 4 floors per month in terms of construction. The estimated opening is for fiscal year 2020, and this transaction was made and approved by both independent boards in both of the Board of Directors of the 2 companies.

On Page #6, we can see the business in hotels. Occupancy remains very stable, good numbers, 64.5%. The average rate remains also stable, about $189 per room. But what we see here is a big impact that had devaluation on this business. We can see on the bottom top-right chart that revenues grew 64.5%. This is we are collecting dollars. The city of Buenos Aires attracting people, we have gains for, like, Olympics for youth. We have the B20. Now we have the G20 and as of Buenos Aires is also starting to become cheaper to the -- our neighbors cities, we're starting to see more tourists. And as we collect in dollars and our costs are growing as inflation, we see here a tremendous impact. We see EBITDA that in the first quarter of 2018 was only ARS 2 million. Now EBITDA is ARS 88 million. So this is one of the businesses that is really benefiting from devaluation.

If we move to Page #7, we can see about the corporate structure of the investment in Israel. The main few issues to remain to talk about is one, was the sale of Shufersal, that in the past we had more than 50% of the shares. And today, after the sale we did recently, we have only 33%, 33.5%. And we are not more consolidating Shufersal in our balance sheet. So that was our most recent. The thing that we're working now related to the IRSA is we need to reduce one more layer of public company before December of 2019. It is the concentration law requirement, and if we are working for that because of the DIC, PBC and Gav-Yam, Mehadrin layer, we need to reduce one more of those, and we are working for that in this year. And if you move to next page, and to show some of the examples of what we are doing in the real estate through Gav-Yam, that is the pure rental company that runs properties, mainly office buildings and logistic in Israel. These are some samples of the buildings that we are doing now. One big building, the one on the top right, the ToHa building is almost 95% leased. It's going to open now at the end of this year or the beginning of next year, 2019. And it's almost leased. It's 95% leased. So it's almost finished. And 57,000 square meters of rental properties but Gav-Yam owns half. The other examples are Rehovot. We are doing a fourth building in Rehovot. 70% is leased. Matam-Yam in Haifa, that is finished and Amazon is 100% tenant of this building, taking 100% of that building. Now it's opened, is going to be open very soon. In the Negev, we are making the fourth building. We are doing logistics, and we are beginning a big project in the north, this is in Haifa Bay. And we are launching the first 7,000 square meters logistic center that we see in the right picture. So this company is doing today 8 projects, almost 200,000 square meters of construction at the same time, all in Israel. So this is kind of an example of doing more rental and achieving almost 1 million on Gav-Yam level, square meters of rental properties in Israel. If we move to Page #9, you can see main issue of the balance sheet. That was the Clal valuation of the shares. It was a rebound of the quarter and still has a discount on -- related to the book value, which had a 74% of book value, but recovery, that affected a lot our balance sheet. We sold this last quarter another 5% of Clal shares through another swap transaction. Today the stake that we are running is 29.8%. And we recognized a big gain on this quarter because of this increase on the share price of the 34% of the shares. Recently there was a new commissioner that was appointed that is probably going to bring good news and news to this company. So I think with that, take the main issues of the Israel for the quarter.

Now I'll introduce to Matias Gaivironsky.

Thank you, Alejandro. Good morning, everybody. So going to Page 10. Here we have the -- our stake in Banco Hipotecario. Remember that we control 30% of Banco Hipotecario. We can see the evolution of the price of the shares and the value to IRSA that decreased because of the volatility in Argentina. Now it seems to have touched the bottom in the 30th September. On the one hand you have $136 million, and now it's recovered a little to $146 million. And when we see the results that we are receiving from Banco Hipotecario, here there is a new rule, IFRS 9, that is basically the way that the -- that we should have provisions in our financial standard. It's not the same than Banco Hipotecario is using. Banco Hipotecario is under other rules that the central bank impose them. So IRSA has to do an adjustment on their figures to comply with IFRS 9. So for that reason, when we see the evolution of the results, we see a decrease from ARS 371 million to ARS 160 million of results coming from the bank.

If we move to Page 12, we can see our financial statement divided by the Argentina Business Center and the Israel Business Center. So starting with Argentina. We can see that the net income for the first quarter was ARS 7.6 billion against ARS 2.2 billion 288 billion (sic) [ARS 2.288 billion] in the last -- in the same quarter of last year. The main explanation here is the change in the fair value that this quarter achieved ARS 16 billion against 2.4 -- sorry, ARS 2.482 billion of the last year. Then in terms of revenue, our revenues increased by 30%, and then we will see a breakdown in the different segments. The following important line to mention is the SG&A. Our cost increased by 67% from ARS 267 million to ARS 447 million, but when we combine the 2 lines between cost and SG&A, we see an increase of 34% that is in line with inflation. During the quarter, we decided to reclassify some of the concepts that used to be included in the cost line to the SG&A line. So for that reason, we see an increase of 67% on that line, and also some one -- other effects that also affect higher than the inflation.

Following that, we will have a breakdown on the net financial results. I will explain later. In the Israeli business segment, we see a gain during the year or during the quarter of ARS 3,485,000,000 against the loss of ARS 2.2 billion in the last year. Basically here we have the increase in the shares of Clal and also there used to be a negative result on the financial side regarding a swap that we did last year on DIC points. So finally, well, we finished the quarter with a net income of ARS 11 billion against ARS 74 billion -- ARS 74 million of the last year attributable to IRSA's shareholders, it's ARS 9.4 billion against, again last year of ARS 553 million. So if we move to Page 13, here we have a breakdown in our net financial results. So here we can see on the bottom left the evolution of the exchange rates. Last year, the valuation in Argentina was 4% against the valuation of 43% during this quarter, from 28.8 to 41.25. Remember that today the exchange rate is more in the line of 35.5%. So this decreased then after the quarter. So that effect in the -- the valuations generate a net foreign exchange losses on all our dollar-denominated debt. So you can see that during the quarter, we increased the loss from ARS 412 million last year to ARS 9.5 billion this year. And also generate more interest payment because we are paying more pesos because of our dollar-denominated debt. And also increased during the year the debt on IRCP. So we increased by $175 million, the debt -- the gross debt of IRCP and also some of the IRSA level. And in the Israeli business segment, we can see net interest expenses that went from 1.4 -- ARS 1.5 billion to ARS 1.1 billion

ARS 2.1 billion.

Sorry, ARS 2.1 billion, that is in pesos terms. If we see that in shekels, we are reducing the interest payment. And regarding Clal, in the bottom right, you can see the evolution on the Clal share that last year was flat, 1% increase to a 34% increase during the quarter. That is reflected in the line of fair value gain from financial assets and liabilities that this quarter generated, a gain of ARS 4.6 billion against ARS 70 million last year.

If we move to Page 14, on the operational side, in the Argentina business segment, we can see that the shopping malls, the adjusted EBITDA increased by 11%. The explanation here is that our revenues increased at lower level than inflation, and our costs remain -- follow inflation level. In the offices, we increased by 90%. Here we have dollar-denominated revenues. So the devaluation generate good results in pesos term. The cost remain -- we allocated a little more cost through to segment, but the EBITDA grew by 90%. And in the hotels, as Danny mentioned, we see a significant increase from ARS 2 million only last year to ARS 88 million this quarter. In the Israeli business segment, reinstate -- here it is important to mention that the devaluation between the shekel and the peso during the year was 50%. So to compare the results, take into consideration the devaluation. So above 50% is real growth or the real decrease against this -- in shekel terms. So real estate grew at 70% and telecommunications, a negative result -- a negative comparison of 3% lower than the previous year and other segments increasing from ARS 2 million to ARS 196 million.

Finally going to Page 15, we have here the breakdown of our net debt as of September 30, was $337 million. This is before the operation of Catalina, that Catalina -- IRSA sold to IRSA Commercial Properties. So IRSA is receiving cash this way, reducing some -- the net debt. So the breakdown of amortization schedule, we have the amortization next year $205 million that we will be working in the coming months to refinance this. So with this, we finish the presentation. Now we open the line to answer your questions.

(Operator Instructions) Ladies and gentlemen, at this time, it's showing no questions. I'd like to turn the conference call back over to Mr. Alejandro Elsztain for any closing remarks.

Just to finalize, I think the IRSA is doing very diversified activity, developing some assets like the office buildings that now we are doing, keep developing shopping centers. And in these times of change of Argentina, the office building is showing more strength because the dollar-denominated contracts. And the diversification helps, not only in activities and portfolios, but in countries too, where we are we are seeing a lot of development today in Israel. So I think the portfolio is working well and the company keeps growth in all of the lines of activities. So we expect this growth to keep going in every -- in Israel and Argentina. And we are optimistic that these times of changes in Argentina is -- they are beginning to calm. We are seeing more financial calm these days. The valuation went up to 4 -- 41 or something like that, today it's at 35, 36 level. So this is calming the capital markets. And we expect the company to open the markets to keep growing, using their own profits and the capital market profit. So we thank you very much, and have a very good day. Bye.

Ladies and gentlemen, thank you. That concludes today's presentation. You may disconnect your lines at this time.