U.S. Markets open in 1 hr

Edited Transcript of CRES.BA earnings conference call or presentation 10-Sep-19 2:00pm GMT

Full Year 2019 Cresud SACIF y A Earnings Call

1086 Buenos Aires Sep 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Cresud SACIF y A earnings conference call or presentation Tuesday, September 10, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alejandro Gustavo Elsztain

Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, Acting President & GM

* Carlos María Blousson

Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - CEO of International Operation and GM of Argentina & Bolivia Operations

* Matias Ivan Gaivironsky

Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Chief Financial & Administrative Officer

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to Cresud's Fourth Quarter 2019 Results Conference Call. Today's live webcast, both audio and slide show, may be accessed through the company's Investor Relations website at www.cresud.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 website. (Operator Instructions)

Before we begin, I would like to remind you that this call is being recorded and that 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 notes in the company's earnings release regarding forward-looking statements.

I would now turn the call over to Mr. Alejandro Elsztain, CEO. Please go ahead, sir.

--------------------------------------------------------------------------------

Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, Acting President & GM [2]

--------------------------------------------------------------------------------

Good morning, everybody. We are beginning our conference call of the fiscal year 2019, and we can begin the main event in the Page #2.

If we see the adjusted EBITDA for the company was almost ARS 23 billion, that is a 21% higher comparing to last year numbers. When we divide the Agribusiness segment to the rest, the Agribusiness this year achieved ARS 3.8 billion. And if we compare that number to last year, that was ARS 2.6 billion. So we have a growth of 46% comparing year-to-year related to the Agribusiness segment, and that is mainly explained by the sales of farms and a very good operational year that we are going to see in more detail a little later.

Talking about the net loss of the company. This year is a big net loss, ARS 28.5 billion comparing to a gain of last year of ARS 19 billion. And if we see they are attributable to Cresud directly discounting the IRSA shares that we don't control, it is a ARS 18.7 billion loss. The main explanation of that loss come from the changes in fair value of the investment properties in Argentina in the Shopping Center segment that we are going to see later. If we see the [rate] of the segment, majority of them are in much better situation.

In this balance sheet, we have the shares repurchase plan. We bought ARS 600 million, that represents 2.6% of the capital stock that we did in the whole year. And recently, we've launched a new plan up to ARS 300 million in August of this 2019. As you know, we began to adjust for inflation on our balance sheet and thus the numbers are all reflecting an inflation for more than 50% in the year.

Relating to the planted area, this year, we did 242,000 hectares, a little decreased from the forecast because we were very tough in the planting area, and that probably was one of the -- why the operational was very good. We were very strict on the windows of opportunity to planted area and that made us to have a gain operational all over the region.

We achieved 800,000 tons of total crops, that is 50% more than last year numbers. We developed 9,300 hectares in the -- between the 3 countries that we develop plant. The sales of farms was only achieved in Brazil, not in the other 3 countries, but a lot of sales in Brazil, we are going to explain later. The Agribusiness adjusted EBITDA went up to $93 million, that is a 41% increase in dollar terms comparing year-to-year, a big and biggest of our history in dollar-denominated numbers.

The farming -- the 4 countries farming, just a pure operational, we achieved $48 million, that is almost 28% comparing to last year numbers in the operational. So 3 of the countries surpassed budget, only 1 was a little bit low of the budget, that was the case of Brazil, but a very small decrease in dollars. So made a very positive number in dollar terms in the whole region. So related to Argentina rental, we had a 6.8% increase and this is adjusted EBITDA growth. And related to Israel at 25%, related that we'll explain -- later, we'll explain a little more back here.

We can move to Page #3, and we can see the portfolio evolution. And here we can see the sales of farms, the 3 [area] between the columns are the 3 sales of 2019 fiscal balance sheet. And the last one in the right, it is the one that is going to be included in next balance sheet '19/'20. The 3 that we did, there were 2 in Bahia, Jatobá II and Jatobá III, a small sale. As you remember, the strategy is to buy in big pieces and to divide it in small, finance long-term and made a gain on that sale and that was we did -- we did 2 portions of Jatobá. Still, we remain a lot of the farm of that is keep still a lot of that value.

Here, we make the calculation of what this means in a nominal -- in present value and the internal rate of return we did in dollars because of the valuation in Brazil from our [indiscernible] of -- purchase of BRL 2 and indiscernible into BRL 4 per dollar made a return sometimes of 7%, 8% in dollars or sometimes 17%. So -- but we are making a lot of gains, we're going to show you later. In this last year, we make like BRL 150 million gain between all of the 3 sales.

Talking about present value. Probably, in the long term, we are going to be collecting will be bigger, if we keep recollecting the amount of stock. This is adjusted by the soybean sacks -- soybean bags. So the adjustment of the price is related to the price of the soybean.

And we have a recent sale, smaller, that is BRL 20 million, but it's recently done in a small stake in Jatobá II. So a lot of activity in this market in Brazil. In the rest, a lot of things under negotiation that were not closed now.

We can move to next page, and we can see what is the gain that we make every year when we show the sales. We [sold] $67 million in nominal value, and we made $60 million nominal gain. So the book value is close to 0 comparing to the $67 million, only $7 million book value. So the majority of the gain comes in the agricultural business the day we sell it. And in the development of land we did, this year we improved our development in 9,300 hectares; 3,000 in Argentina and 2,000 in Paraguay and 4,500 in Brazil.

If we move to planted area, the last year that we are closing today was the highest in size between the 4 countries. We dropped a little between presentations because finally, we planted a little less than budget. So there was a small decrease, but we did a very good job. I think because of that, sometimes in north of Argentina that we didn't plant or some other areas because of flooding or drought, we decided not to plant. And because of that, the operational was successful as we have seen before.

So now we are going to introduce Mr. Carlos Blousson that will explain what are the prices today on the mark -- on the commodities.

--------------------------------------------------------------------------------

Carlos María Blousson, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - CEO of International Operation and GM of Argentina & Bolivia Operations [3]

--------------------------------------------------------------------------------

Good morning, everyone, and thank you, Alejandro. Let's go to the Slide #6, commodity prices and global stocks.

As we can see in the graph, we continue year-to-year with a trend of low prices. We mainly see a price drop of 12% in soybean due to 2 factors. The first factor is the ongoing commercial war between United States and China, generating an increase in the U.S. soybean stocks of 22% in the [stock consumption ratio,] that you see in the graph down and to the left, provoking year-to-year fall in prices that decrease. But others second factor, the second factor is the swine fever in China. These provoke reducing the amount in China near to 10 million tons in the year because they decreased the stock of the pigs. And the demand of China coming to Brazil and Argentina provoked that increase, the prices [indiscernible] related to historical compare with United States.

When we see the corn price, the [level] was not as [around] as the soybean due to the fact that the world stock remain constant with an increased demand. We are waiting the new [USDA] report this week to confirm the possible decrease in the production due to the late planting because of the rain. If this report shows some drops in the [position,] it may result in the level of potential increase in commodity price.

Let's go to the next page, Slide #7, the record campaign in Argentina. As we can see in the indiscernible graph, this was Nino neutral year, generating rains about average and well distributed. In the past, there was a drought campaign with a low production. All these factors result on 31% increase improving the yields in [the span] and little [planted area] in the campaign 2018/2019. Wheat increased the plant area in 16% generation and an increase of the production to 19 million tons. Corn increased 9% the planting area and the production by 59% to 51 million tons, a record in Argentina. Soybean keep the plant surface but improved yields due to the great weather conditions increasing production 60%.

Next Slide #8, farming: crop and cattle productions. While the increasing grain production due to the stable condition as mentioned before are increased the area. In the region, we are expecting a production close 812,000 tons, increasing by 51.5% year-to-year, as mentioned in the comment before. Today, the [original] harvest is down. There is only the (inaudible) of the production level. Grain production was as we can see in the picture, the yields evolved in positive manner in the region. The corn yield grew by 50% from 5.5 tons per hectare to 6.3 tons per hectare.

In the case of soybean, there was increase of 12% from 2.6 tons per hectare to 2.9 tons per hectare. In sugarcane production, you can see -- observe there is an increase of 15% due to growing production in Brazil and Bolivia. Brazil increased yields 11% and Bolivia growth in area and yield increasing 46% the production. About meat production and cattle heads, it shows an increase in production meat of 11,100 tons, resulting in 5,000 head count in the region. So in total 99,000 head count in the regions; in Argentina 78,000, Brazil 15,000 and Paraguay 6,000 heads.

Let's move to the Page #9, the investment in FyO. We can appreciate in this slide that our brokerage company continued growing regarding the commercialization of our most important products reaching a grain trade volume of 4.8 million tons. The market share is of 5.3% in relation to corn, 3% regarding wheat and 3.7% related to soybean. The operational results rose by 177% (sic) [176%] year-to-year, reaching ARS 450 million. The net income increased by 231% in the same year, achieving ARS 284 million. We are able to confirm that FyO's is the Argentina top grain broker.

Let's go to the next page, the Slide #10, other agricultural investments. [Concerning] regarding Agrofy, the online business platform which we have 35.2% of equity stake, we can see growth according to plan due to the increments in visits and contacts. The fiscal year shows revenue of over 21%. Today, it is present in seven country in South America and by the end of the year we also include Colombia and Mexico and have nine countries in the portfolio. [The last one, the meat-packing plant facility, Carnes Pampeanas, has suffered] small losses due to higher exchange in Argentina and slaughter at the record volume, 110,000 heads in the year, increasing export per month. Increasing different -- export in different country and the net income loses of ARS 90 million.

Thank you all. And Matías will continue with the details.

--------------------------------------------------------------------------------

Matias Ivan Gaivironsky, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Chief Financial & Administrative Officer [4]

--------------------------------------------------------------------------------

Well, thank you, Carlos. Going to Page 11. We just had the conference call on year's results. So you have much more information in the website of IRSA. So I will do just a very quick summary. As Alejandro mentioned at the beginning, shopping malls lagged inflation this year. So metric of consumption in Argentina lag inflation. So you're going to see that in the graph in the bottom left. The square meters in the [indiscernible] remained stable, 332,000 square meters. We increased in offices to 115,000 square meters, and we will add 30,000 more next year with the opening of the Della Paolera 200.

The occupations in offices in AAA remained very good at 97.2%. The B portfolio decreased to 80 -- or the total including the B portfolio decreased to 88.3%.

So going to Page 12, at our investment in Israel. Here, also you have much more information in the website of IRSA on the presentation that we just we did in IRSA. This year, we had basically 2 main challenges. One was related to Concentration Law. Here, you have the structure of the company. And in the blue part, painted in blue, you can see that DIC, PBC, Mehadrin, Gav-Yam and Ispro are the companies that are affected by Concentration Law. So we saw most part of the concentration loss selling shares of Gav-Yam. So now we have only 35% of Gav-Yam. So we no longer control the company. With that, we are in compliance with the rule. Ispro, we also are in compliance with the rule, and we had a remaining challenge to solve before the year-end on Mehadrin, that is much easier to resolve than the Gav-Yam situation. So we expect to define, before December, the structure. So we will be in compliance with the law by the end of the year.

On the other side of the graph, on the IDB part, we have our investment in Clal. You'll remember that we used to have 55% -- almost 55% of the shares that we have been trying to avoid selling the economic rights on the shares. So we did some swap transactions. Now we have the 15.3% direct stake plus 20%. So we decreased from 55% to 35%, our investment in Clal. We did it 5% through an exchange of bonds of IDB for shares, that is implicit like selling the shares of Clal at 90% book value. That is much better conditions than before. On the rest, we enter in agreements with third parties to sell to basically 2 important families, an stake of 5% and 8%, and another 5% to a former CEO of one of the main insurance companies in Israel. So we believe that those disposal will help us also to improve the performance of Clal and the valuation of Clal.

So at the end, or recently IRSA signed a commitment with IDB to inject $20 million that we already injected. And then IRSA also committed to invest another ILS 70 million by next year and another ILS 70 million in 2021. So the remaining commitments are $40 million that are subject to certain conditions, but before the conditions are in place, IRSA is obliged to inject $40 million for the next 2 years.

So let's move to Page 14. So here we can see our financial results. So we here, we have the divisions between the Agribusiness segment, the Argentina business segment, that is basically the investment of IRSA, and then Israel business segment that is our investment in IDB. So the net income was a loss of ARS 28.5 billion attributable to our controlling interest is ARS 18.7 billion.

When we divide -- when we analyze the result, the main effect of the losses is in the line 6, that is change in fair value, that you can see that in Agribusiness, basically, we don't have an effect. In Argentina business segment, we have a loss of ARS 27 billion. This is basically how we value our investment properties in Argentina, the offices and malls. Offices are value-add comparable value, so haven't suffered this year. But the shopping malls, we value at DCF model and with the macro situation of Argentina and the increase of the cost of capital, we marked down a big impairment on our valuation. To give an idea in dollar terms, we decreased from $1.4 billion to $800 million. So is the drop in the valuation. That is basically when you compare our net income with a change in the fair value, most of the losses explained by this line.

So if we move to Page 15, we can see the performance on the operational side. And for us the most relevant figure is our adjustment EBITDA. And you can see by segment, the Agribusiness. As Alejandro and Carlos explained, we have a record year, very good results in all the lines, so you can see an improvement. Remember that we have our figures adjusted by inflation. So even adjusting by inflation, we surpassed in all the figures in the Agribusiness the last year. So Carlos and Alejandro explained the reasons in each of the segments and in each of the lines. So if you want to answer in more details, you can see our press release.

In the urban segment, as I mentioned, shopping mall decreased by 15% compared with the previous year due to consumption levels. Offices surpassed inflation by 116%. So much better performance. Here, we have dollar-denominated revenues. So we have better results because of the devaluation. Hotels also much better results with a dollarized tariff and cost in pesos. And sales & development dropped because of the last year we sold more properties than this year. So this is nonrecurrent over the years. And finally, the urban segment in the Israel Business Center. We have the Real Estate that was 39% up, that is basically related to the recognition or the implementation of IFRS 15. So we started to recognize results on the development of the residential properties. And telecommunications with an increase of 12.7% with a real devaluation between the shekel and the pesos of 22%. So we are below the levels of the last year.

Finally, on Page 16, the other important effect is in the line of net financial results. So here, we open between the different business segments. So in Cresud, we have better results, that is basically related to the line 2, the net exchange differences. You can see in the graph on the bottom left, that last year, we had a devaluation of 74%, with an inflation on average of 29%. So we have a real devaluation of the peso that generated the losses of -- that is in the line 2 for ARS 4 billion against -- again, last year, although we have a devaluation of 47% since the inflation was 55%. We have a gain in that line of ARS 970 million.

In IRSA -- sorry, in the line 1, the net interest losses, we have higher losses because we are paying more interest because of the devaluation. So in pesos term, we are paying more. In IRSA, it's the same, the same effect in the net interest losses and the net exchange differences. So it's the same effect than in Cresud.

And finally, in IDB and DIC or the Israel business segment, we have net interest losses that increased by 11%, but remember that the devaluation was 22%, so we are paying lower interest. They are because of the decrease in the cost of the interest and the cost of the debt and also reduction on the debt.

And then the line 3, that is the -- sorry, the line 3 that is the swap that we did in debt of DIC last year that we had losses last year because of that refinance of debt or the issuance of a new bond and canceling an existing bond. That we recognized a loss of ARS 4.3 billion last year.

And the last one is related to the evolution of Clal shares that you can see in the line 4. This year, we are recognizing a gain, and you can see the graph that this year increased by 20% by the end of June and a reduction of 14% in the last year, that is the loss that you see in the line 4 of ARS 2.7 billion.

So other important financial event of the year was the share buyback programs. We did 2 buybacks -- sorry, 3 buybacks during the year. One was at the beginning of the fiscal year that we finished and then 2 new ones this year that we bought around $8 million and $7 million in each of the buyback programs. And now we approve a new buyback program of up to ARS 300 million that was recently approved. So we haven't acquired shares in the market yet but it's approved by the Board.

Finally, in Page 18, we have our debt situation. So Cresud's net debt is today at $436 million, and the debt amortization schedule that we have the debt that expire between this fiscal year up to 2023. Something that we did during June was to issue a new bond at Cresud level that -- to refinance part of the short term to 2021. So we will keep working to refinance this year payments.

So with this, we finished the presentation. Now we open the line to receive your questions.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

(Operator Instructions) If there are no questions, this completes our question-and-answer section. At this time, I would like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

--------------------------------------------------------------------------------

Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, Acting President & GM [6]

--------------------------------------------------------------------------------

We are finalizing a year that was very good in the production side of the Agribusiness segment. We are keeping the size or increasing for next year a little, the size of plantation for the region. The company intends to keep the real estate working a lot the year to selling and buying again. So in small portions as we did last year, selling 100 hectares or 1,000 hectares in Brazil or in the region. So the company is very happy of the results of the Agribusiness. And in the rest, a lot of challenges in Argentina and in Israel relating to the real estate that they are being addressed. So we expect not to have impairments like this year that affects a lot mainly in the case of the Shopping Center segment, and we are going to keep developing the things that we are doing, the shop -- the office buildings that we are finishing all over the world.

Thank you very much, and have a very good day. Bye.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.