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Edited Transcript of CRES.BA earnings conference call or presentation 12-Nov-19 3:00pm GMT

Q1 2020 Cresud SACIF y A Earnings Call

1086 Buenos Aires Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Cresud SACIF y A earnings conference call or presentation Tuesday, November 12, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alejandro Gustavo Elsztain

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

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Conference Call Participants

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* John Durso;Kahuna Capital;Analyst

* Wesley Lawrence Golby

ALPS Series Trust - Seven Canyons Strategic Income Fund - Portfolio Manager

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Presentation

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Operator [1]

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Good afternoon, everyone. Thank you for standing by, and welcome to Cresud's First Quarter 2020 Results Conference Call. Today's live webcast, both audio and slideshow, 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 in the earnings release issued yesterday are also available for download on the company's website.

(Operator Instructions)

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 the forward-looking statements.

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

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

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Good morning, everybody. We are beginning our first quarter 2020 fiscal year, and we can begin in Page #2.

We can see that we are achieving a gain of ARS 6.8 billion and adjusted EBITDA that is at 7.6% better than last year numbers. When we divide between Agribusiness and urban in Israel, we have a 20%-80% breakdown. When we divide between Argentina, urban and agriculture, we have almost half and half.

We are achieving a gain of ARS 6.9 billion net gain compared to last year, that was a ARS 5.4 billion gain for the first quarter. Attributable to the Cresud shareholders, we have a loss of ARS 2.3 billion, a gain of ARS 0.9 billion last year. The main explanation of the biggest result of the quarter, it is the deconsolidation of Gav-Yam in Israel that Matias later will explain a little.

Relating to agriculture forecast for next year, we are recording again an increasing from last year that was with our record inside of plantation. We are -- this year, we are increasing more, like 10% more, we are planting 268,000 hectares between the 4 countries, and we are developing 7,400 hectares between the countries. And from the other side, we begun the real estate in the first quarter through sales in BrasilAgro that we are going to explain later.

Related to a plan of repurchase shares, we launched a new one in August for ARS 300 million. Up to now, we didn't buy from that repurchase plan. And a few days ago, we had an assembly, and in the assembly, we had approved our distribution of shares. We are distributing to shareholders what we bought last year. That was a 2.6% of the capital stock that is going to be delivered to the shareholders in November 14 of this year.

From other side, we are collecting dividends from BrasilAgro. Cresud is receiving soon $5 million because of the approval of BrasilAgro. And IRSA approved a dividend in kind per IRSA share, we are receiving a 1.2% of IRCP commercial properties, almost $5.5 million through shares.

If we move to next page, to Page #3, we can see the evolution of planted area. Now we are talking about the 268,000 hectares. The 14,000 in orange are hectares that we are not planting from our stock, but we are giving to third-party to plant in our farms. So the -- and the rest we are planting. And so we are growing again year-to-year, passing again to a record year of planting between the countries. Having own land and a leased land in each of the countries, mainly not in union because not -- we are not doing that in Bolivia and not in Paraguay. We are doing that just in Brazil and in Argentina. And also, we see how big are the 2: Argentina, 140,000 hectares; and Brazil 104,000 hectares. The rest is between Bolivia and Paraguay and the leasing of our farms.

The -- related to the farm sales, we can see that up to the first quarter, we just showed only one, that is the Jatobá, a small sale of a farm. This is 1,000 hectares. Remember that Jatobá was a lot of thousand hectares, but we sold a small piece again from those 1,100 hectares, 900 are productive, and we are selling at levels of 300 bags per hectare, and it's a nominal sale of BRL 22 million that gives us an internal rate of return of 14% or 15% in reals or 7% in dollars because of devaluation in Brazil.

Later, after the 30th of September, we had a recent sale. Smaller, it's a 65 productive areas. But in here, we are selling up to 1,100 bags per hectare. This is in Alto Taquarí, in an area that we bought like 3,600 hectares. So selling small, very small. We are having huge gains, but they are going to be reflected in the second quarter of 2020.

So every year, every country intends to sell, and the first quarter up to now, there are 2 -- the first 2 quarters, there are 2 in Brazil.

We go to Page #5, and we are going to introduce Mr. Carlos Blousson. Please, Carlos.

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

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Thank you, Alejandro, and good morning, everybody. Let's go to Slide #5, Farming: Commodity Price & Global Stocks. We can see the graph that was price -- the soybean price increase of 4% due to the different factors. One factor is because the harvest in the United States is delayed due to the planting was delayed. The yield forecast is -- are not encouraging. Normally, under different circumstances, prices should go up even more, but it's not so because of the ongoing commercial war between United States and China.

The other factor is we see that the soybean price will be defined from now by the end of the United States' current campaign. The soybean stock consumption ratios have been reduced in the United States by 10%, and the evolution of the swine fever in China related to the demand. And the last fall, the planting in South America in these periods.

While we see the corn price, the prices are maintained low due to the big offer of corn that happened in South America despite the low production in the United States. And repeat to the soybean harvest, corn harvest was also delayed. We need to analyze the FOB price -- the soybean FOB price in the United States, Brazil and Argentina that will be strictly related to the commercial war, China and the United States. The regional hedge, the current regional hedge level is 40% in soybean and in the budget price. In case of corn, the regional level is 45% -- 41%, will mean a 6% over the budgets.

Let's go to the next slide, the good prospects for farming activity in fiscal year '20. As you can see on the left of the slide, the evolution of the weather in South America is normal. We need to rain to continue at the same pace for the next 60 days so we can keep up with the planting. The other point is the competitive exchange rate in Argentina and Brazil. The evolution rate has been increasing in the last 3 months. We can see 8% in Brazil and 36% in Argentina.

Here are the regional planting progress. It's attributable to the regional soybean planting is of 24%, which is usual of this time of the year. If we pay attention to each country, the develop is between the positive margin in all case. In relation to corn, the regional corn planting is of 14%, everything is happening as expected. Lastly, the case of wheat, we only produce it in Argentina, and we have started the harvest. Prospects were very encouraging.

Let's go to the Slide #7, investment in Agrofy. Agrofy, our e-commerce Agribusiness company, which is a pioneer in the sector, made a capital increase of $12.9 million in October '19, from which Cresud subscribed $2 million and BrasilAgro, $1 million. Today, the company's net worth is of $42.9 million, and Cresud owns 27.4% and Brasilagro, 2.3%.

We can see on the right of the slide the developed plan that Agrofy intends to implement in the Latin America in the next 3 years. We plan to start operating in 9 different countries, from Argentina to Mexico.

Below of the slide, you can see the same -- you can see sales indicator that show that Agrofy growing in the last year.

Matias, continue with the presentation -- Alejandro, will continue with the presentation.

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Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, & GM [4]

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If we go to Page #8, we can see the main events of the urban from Argentina. And here, we can see that the shopping malls had a small drop adjusted by inflation of 14.5% because of the reduction in consumption in Argentina. But a recovery in the last quarter will come from months of almost 15% drop, and now the last quarter is a 5% drop. We are seeing a lot of improvement on the consumption in Argentina.

From other side, the office building is 62% higher to last year. This is a combination of more square meters because of the introduction of the Zetta, plus the dollar-denominated business of the office building. So the combination made it much higher adjusted EBITDA in office. And in hotel, there's more drop. This year, we had -- last year, we had received a payment of an insurance that we are not this year. And this is the main effect of the difference. So finally, the Argentine business center is a lower level -- in lower level than last year, adjusted by inflation combined with 3 aspects that I spoke before.

If we move to Page #9, we can see the relation in Israel, what is happening, the main issues of the quarter for Israel. And in here, the nomination of the new CEO, Eran Saar, to be the CEO of IDB & DIC. That is an Israeli with a lot of experience in holdings.

We were selling more Clal shares. Today, we are running 30% of Clal through swaps and through direct stake. We were solving a part of the concentration of those situations through selling shares of Gav-Yam and the consolidation that we spoke at the beginning. The deconsolidation of that in our balance sheet made us this ARS 15 billion gain in the IRSA balance sheet. And now we run a little less than 35% of the shares. The privatization of Ispro public debt. Now we need to solve the last one that is Mehadrin that will run 45%. And we are discussing what to do to not to have that third layer of companies in Israel. But it's going to be done very soon, before December.

If we move to next page, we are going to begin to explain about the financial segment. That is Matias Gaivironsky, the one who is going to do it.

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Matias Ivan Gaivironsky, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Chief Financial & Administrative Officer [5]

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Thank you, Alejandro. Good morning, everybody. So if we move to Page 11, we can see the breakdown of our financial statement. We finished the quarter with a net income of 7 -- ARS 6,942 million against ARS 5.4 billion of the last year. The part attributable to our controlling shareholders is negative income of ARS 2.3 billion against ARS 900 million positive of the previous year. When we analyze the main impacts on these results, the first one is related to the Line 16, that is the net income from discontinuing operations. This is related to the deconsolidation of Gav-Yam when you -- according to the accounting rule, when you deconsolidate, you have to value your stake under fair value, and since that point, we will start to recognize results under the equity method. So that result is a one-shot effect that generated a gain of ARS 15.1 billion that is recorded in this year.

The other important effect is in the Line 13, net financial results, that I will answer in more details in the next slide. And the other one is related to the Line 6, that is the change in fair value and mainly in the Argentinian business segment. In Israel, this quarter, we don't have results that came from this line. It's only in Argentina that is related to the shoppings and offices and land reserve of IRSA that last year generated a gain of ARS 9.9 billion. And this year, the gain was ARS 8.8 billion.

The other important figures related to the Line 11, the operating income, that you can see that in each of the business segment was positive. In the Agribusiness, 4% against last year; in Argentina business segment, 10.7% below last year; and in Israel, 32% above last year.

If we move to next page, in Page 12, we can see these in better detail. And we can see in the -- by segment, in the Agribusiness, the first line is related to the farmland sales. This is related to the farms that last year we sold much more in Brazil than in this quarter. In the farming, we see also positive results, 26.3% above last year. The grain segment, that -- this is not the most relevant quarter because we started the planting season, so the results would come in the following quarters. But the drop here is related to the production.

In the Sugarcane, we have better results mainly in Brazil and mainly because of higher yields in the Sugarcane of Brazil and compensated with lower results in Bolivia. But we see here very good results, 36.8% above the previous year. The cattle, we see a decrease in the loss, from ARS 124 million to ARS 35 million, related to the holding prices of the head of cattle. This year, that compensated inflation, and in the previous year hadn't.

And finally, in the Line 7, the Others segment that include our meatpacking activity and FYO -- the results from FYO. We see a drop that is mainly related to the lower volume in some of the segments of FYO and better results from the meatpacking facility.

Regarding the urban segment, Alejandro already commented about the results that we can see here, better in offices and lower results in malls and hotels.

And finally, in the urban Israeli -- in the Israeli business center, we have better results in real estate. Remember that, here, the information is in pesos, so the devaluation between the shekel and the peso was 20%, so above 20% are good results. We see this in real estate, 23.9% above. In telecommunications, much higher. This is related to the implementation of IFRS 16. Now all the leases of equipment and facilities of telecom is included in the amortization line. So in the EBITDA, when we exclude the amortization makes -- that would generate a big jump in the results.

So finally in Page 13, we can see the breakdown of the net financial results. We see that in Cresud plus BrasilAgro, in the left part of the table, we have lower losses. This is related to the devaluation. The devaluation last year was higher than this year. Last year was 43%. This year, 36%.

In the interest line, we have higher interest payment because of the increase in the cost of the debt of Cresud. In IRSA, we have the same effect. The devaluation last year was higher than this year. And in IDB, the important part is in the Line 4, that we see last year a gain of ARS 7.4 billion that is related to Clal. We value Clal at market value, so last year, the increase in the price was 34%. This year, we have a decrease of 14%, and that generates the difference in that line.

If we move to Page 14, we see here the breakdown of our debt and the debt amortization schedule. During the quarter, we issue a new note for almost $60 million at 9% interest rate that expire in July 2021. So we will keep working in this year to refinance the amortization that we have during the year that are basically bank debt, not capital margin.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from John Durso of Kahuna Capital.

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John Durso;Kahuna Capital;Analyst, [2]

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I was wondering if you could provide some additional detail or insight on how you're thinking about capital allocation at this point, given the events in Argentina, your debt profile and your current share price.

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Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, & GM [3]

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Thank you for your question. So if you see what we did in the last years in Argentina and mainly was related to our urban part that we decided to accelerate our CapEx and development. So we launched 2 office buildings and some expansions in the shopping malls, and that was because Argentina was in much better shape than what is today on the financial side.

So, of course, what we will consider going forward will be the situation of Argentina and if the return of each of the investment will make sense or not. Probably, what you'll see -- what we did in Cresud during the last years, we have been purchasing our own shares. Sometimes that is more profitable to invest in a new project. So we will see according to our liquidity and the opportunities that appear what will be our capital allocation. But definitely, under this scenario, we will be more conservative.

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Operator [4]

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(Operator Instructions) The next question comes from Wes Golby of Seven Canyons.

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Wesley Lawrence Golby, ALPS Series Trust - Seven Canyons Strategic Income Fund - Portfolio Manager [5]

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A couple of questions. The first is just your outlook for shopping malls. In Argentina, what's the mix of inflation and tenancy trends? And what do you expect for the next quarter and into the year?

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

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We are waiting for the new government to come. You know that the election finished a few days ago and in 10th of December we will see a new President that we expect to be very proactive to consumption and local production. I think, in the past, the Peronist party was always in favor of that. So we -- and we are beginning to see some of that. When we begin to see the situation of consumption of the last month began to consume more, we expect that they're going to launch plans, probably relating to decrease the inflation. I don't know what kind of plans, but for sure, they are going to attend that.

And in the past, they came -- it's not easy to compare, every time in Argentina is different. The last time of their government, the consumption on the shopping centers was very, very good. So today, the situation of the shopping centers, it's a drop comparing to the dollars of the last year, but not so big. And we are seeing some signs of recovery on consumption. And for sure, they're going to work on decreasing the interest rate and inflation. Not sure how, they didn't decide what is the cabinet they are going to form, but this is going to be very soon.

Meantime, we have a good occupation in the shopping -- very good days on the street. We are really collecting very well. For the tenants, it's not expensive to be paying us, because today in dollars, it's cheap, their rent. So we are very optimistic from the bottom we are in the shopping center.

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Wesley Lawrence Golby, ALPS Series Trust - Seven Canyons Strategic Income Fund - Portfolio Manager [7]

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Great. That's helpful. And then my second question is around the debt profile at the Cresud level. You have maturities coming up over the next 2 years. And how will you approach this? And the other thing is the split, of course, of working capital related to the Agribusiness versus kind of more traditional debt or leverage of the underlying property. Could you help me understand a bit the debt profile of the company, because it has increased quite substantially in the last few years?

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Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, & GM [8]

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Okay. So if we do the breakdown between what is working capital and what we call the long-term debt, you see that most of the bank debt is related to working capital. Up to now, that was the most efficient credit line because the cost was cheap and is related to our production. We can access to that credit lines because we sell our products to exporters. So the banks are only allowed to lend money to exporters or export-related. So for that reason, we have been using that credit lines as the most efficient, was in the short run, but the cost was cheaper.

The long run, we try to always financing with the capital market. It's what we did in July when the market was still open, we issued a $60 million to refinance debt. So we will keep working in that direction. We will -- it's too soon to see what will happen in Argentina during the next year, but at least my guess is that we will have some capital markets, some local capital market at least. There will be -- and if the capital controls continue, will be a lot of pesos in the country that probably will be also an opportunity to finance part with that or doing some dollar link like what we did during the previous year.

Also something to comment here is that our shareholders' meeting in the last 15 days ago approved a capital increase in the way of playing capital increase or convertible bonds for up to approximately $100 million. That also is an alternative. So we will keep working in all directions, like what we did in the last 25 years of history of the company.

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Operator [9]

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(Operator Instructions)

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Alejandro Gustavo Elsztain, Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria - Second Vice Chairman, CEO, & GM [10]

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Just to remind something that I didn't mention before, and I think it's a very good know for the company. We were trying for many years to find the permit to export to China, and finally we, this week, were approved, the beginning of exports to China. We opened the American market, the Israeli market, the all-over-the-world market. The last one is China. And China, really, in our packing plant, it's a relevant issue. Now the numbers, they were positive. But with this new, are going to be much more positive because of prices of China for the beef. So this is a very good relevant story for the year. Plus, the big plantation area that we are doing all over the region, plus the real estate that we are going to keep selling farms at very low cap rate to buy and develop again.

With that, we finish our first quarter. We'll see you soon in the second. Thank you very much, and have a very good day. Bye.

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Operator [11]

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