Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria
Q3 2017 Earnings Call Transcript

Published: 16 May 2018

[Operator:]

Good afternoon, and welcome to Cresud's Third Quarter 2018 Results Conference Call. Today's live webcast, both audio and slide show, may be accessed through 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's 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 note in the company's earnings released regarding forward-looking statement. I will now turn the conference over to Mr. Alejandro Elsztain, Chief Executive Officer. Please go ahead, sir.

[Alejandro Elsztain:]

Thank you very much. Good afternoon, everybody. We are beginning in Page 2, our presentation on the third quarter 2018. The main event for the quarter, we can see from the Agribusiness side, the sales and development of this part. During the nine months, we have sold La Esmeralda. That was sold for $19 million, and the profit of this will be in the fourth quarter because we are going to finalize the deed and due to receive the payment and to give the position of the farm. So that we'll be recorded next quarter. A part of that indicates of BrasilAgro. BrasilAgro sold a fraction of another farm, a small portion of a farm for BRL 61.6 million, and this will be like $17 million or $18 million and again, will be recorded in the fourth quarter. And from other side, we are developing land, and for next year, we are developing again almost 11,000 acres in the region between the three countries, and we're going to show you later. From the farm activities, we had very good results, and we are finishing the mainly soybeans and later will be the corn. But the one that is closing very good numbers is BrasilAgro through the soybeans, and Argentina, better results because of - mainly because of the prices, not so good in the yields, but the composition of prices made it good yield in Argentina too with good result, not very good in Bolivia. So now we are going to explain you later in the crisis of the countries. So talking about the farming, it's very positive comparing to last year between the four countries. In the Urban Property business, we had good results in the rental segments that we grew 19% comparing last year numbers, and occupancy of the shopping malls, almost 99% and 91% of the office buildings, that mainly because of the inclusion of the new building that was at a 68% occupancy. The rest was at higher level than it was before. In the hotels, we had good occupancy at 72% in the whole portfolio of hotels, so having a good EBITDA on the hotels too. And if we speak about the Israel Business Center, we had very good operational results at the subsidiaries level. We had some financial losses coming from an adapted change at DIC level that gave us a negative number, mainly to Argentina because how we put those numbers when we bought that transaction. Some material events. We were buying back shares, and we approved many boards before, a business retractive plan for ARS500 million. Today, we bought back 78% of that program, and later Matias will explain what we were able to buy. And finally, about some issue, some debt Cresud was able to make in this capital market in February of this year. We raised $113 million at the 6.5% fixed for many years. So this made us - allowed us to cancel short-term debt. Finally, we had net result for the nine months of ARS10.6 billion comparing to ARS6.5 billion last year, and for the attributable to shareholders, we had ARS4.8 billion this year comparing to ARS2.2 billion last year for the nine months. So very positive numbers. If we can move to next page, and here we see bigger explanation of the farms that we sold. La Esmeralda, that will be recorded in last quarter, it's almost 9,000 hectares, 8x the book value. This is giving us - the book value of this transaction was $2.4 million, and today, with the evaluation lower than that. So with this, we are going to record a very important positive number and internal rate of return of almost 18% in dollars. The other two cases, one that is new for the market, we sold recently $10 million in a 10,000 acres sale, but the book value was much lower, and it's like 8.4x the book value. This is a cattle farm in the north, in the province of Chaco, and this will be close the final payment that will allow us to show on the balance sheet in June of this year. So this is giving from a book value of $1.2 million, almost a $1 million book value. So that is internal rate of return in dollars of almost 10%, and we are going to close in June of this year, and this is included in a note of this balance sheet, but it's not included in the result of the quarter of March of this year. And again, a third farm, one in Brazil sale that was done recently after the closing of the balance sheet, we sold for BRL 61.6 million. This is a nominal value per hector of BRL 93,000. This is very high comparing to the purchase price that we paid many years ago. So we decided to sell it, giving us an internal rate of return of almost 16% in reais. The book value of that farm was BRL 11 million comparing to the BRL 61 million, so big times of - comparing to the book value, 660 hectares, so small portion of a big farm that we have in Brazil through BrasilAgro. If we move to next page, we can see the farmland development, and we are planning to improve in 11,000 hectares, include more hectares to production. With that, we are going to arrive to 0.25 million hectares of development in the history of the group. So with 0.25 million hectares that are included from not productive to production or from the not production to higher production. So this keeping doing in Argentina, in Paraguay and in Brazil the 24%, 20% and 60%, something like that compared to 11%. So this is the development per year. So we're increasing again the speed of development because it's, again, very profitable, and we can see the evolution on the sales, and we included in the last year estimation, the 2018 estimation, we are thinking industry sales to arrive to $46 million and from those, almost $39 million of gain, the rest are booked. So again showing the book is much smaller than the price we are selling on the market. So now I will introduce to Mr. Carlos Blousson. Please, Carlos.

[Carlos Blousson:]

Thank you, Alejandro. Good afternoon, everyone. Let's move to the production forecast and the global stocks. Internal soybean production, you can see that Brazil and United States have remained at var, hitting a new record. Brazil production is 117 million tonnes and United States 120 million tonnes. At Argentina, soy decreased 34% due to the significant drought. So the stock consumption has gone down [indiscernible] to 27%. In case of corn, the Brazilian and American production has increased 4%, and Argentina has declined 24% due to the drought as well. So the stock consumptions have decreased heavily from 19% to 17%. Let's go to the Slide 6, well, which is about weather condition and commodity prices. As you can see in the graph, there are two different situations, Brazil and Paraguay have the positive climate conditions, getting very good yields and high production respectively. But on the other hand, Argentina went for a strong [indiscernible] with 50% of the rain level historically speaking, especially in the east coast. Cresud mitigated the effect due to its presence in the north of Argentina, in the northwest farms where the weather conditions were neutral. In the bottom line can you can see the reaction of the commodity prices. The soybean price increased 10.4% year-to-year thanks to the Argentina real, and the corn was increased 6.4%. This low level of price arguably link to the high level of the world stocks. Move to the next slide, Slide 7, planted area, crops, sugarcane production and breakdown. Okay, let's go to the start by planting area. We plant 208,000 hectares in the region, 1.5% more than the last year. We estimate the production, the crop production 536,000 tonnes in terms of crop production is 12.1% less due to the Argentina situation. In case of the sugarcane production, we estimate the production of 1,901 million tonnes, increase the production in 4.8% more than the last year. So last, the crop breakdown is 44% soybean, 24% is corns, 16% sugarcane and 16% other products. Thank you very much. Matias, please take over.

[Matias Gaivironsky:]

Thank you, Carlos. Good afternoon, everybody. So going to page 8, we have the description of our investment being the Urban segment at IRSA. Remember that we control 64% of IRSA today. So when we see the results of IRSA, the net income for the 9-month period was ARS11.3 billion, 74% ahead of the last year. Attributable to IRSA shareholders is ARS9.4 billion against the ARS3.8 billion last year. When we analyze the result, the main impact is the fair value of investment properties as we recognize an important gain in this line that I will explain in the next slide and also the results from Banco Hipotecario and Lipstick that are generating good results. In the case of the Israeli regional segment, as Alejandro mentioned and we explained that in - during September and December that we are generating a loss of ARS1.6 billion that is mainly explained because of the debt exchange at DIC level. So it's a noncash effect that we have to recognize the loss of the value of - the market value against the book value of that debt. So with this, we finished with an EBITDA this year of ARS10.1 billion - sorry, the 9-month period, ARS10.1 billion is 35% more than the 9-month of the last year. Regarding the rental, we grew 19%, nine months against nine months. Occupancy are in very good levels, 98.6% in shopping malls, 91.1% in offices here we have an effect of - that we would see an office building that we bought last year, and we received the building with 68% occupancy. So that is generating a little decrease in the total portfolio. And the hotels in good levels at 71.9%. We're going to Page 10, we enter into our financial segment for the nine month period. So starting with the adjusted EBITDA for our Agribusiness segment, we can see that we are growing in most of the lines. With farmland sales, we haven't had effect of the disposals that we did during the year. So probably most - all of the three transactions that Alejandro mentioned will be included in the next quarter. So last year, we saw land El Invierno, La Esmeralda, so we received a positive result of ARS87 million against minus ARS8 million of this year that are not including any this disposal yet. Regarding the farming, we can see a positive evolution from ARS29 million to ARS738 million in this nine month period. So when we see the breakdown, we can see good results in the grains segment, ARS375 million against minus ARS62 million last year. Last year, remember that we have an effect of a stock that we have at the beginning of the June 30 and then the prices declined. So that generated a negative result last year against this year that we have a very good production in Brazil with better prices and better yields. So - and also prices - the stock in Argentina is generating positive results. So it's the ARS375 million against the ARS62 million negative last year. In sugarcane, also, we have a very good result, ARS53 million last year against ARS246 million this year. Here we have more hectares in Brazil because of the farm that Brazil bought last year and also that they are renting more hectares for sugarcane, so that is generating good results with better prices on sugarcane that is generating the positive comparison. In cattle and milk, here, remember that we discontinued our operation of milk. So going forward, we won't have any results from milk. We already sold all the stock of cows, so now this segment is no longer existing at the Cresud level. So we have an effect of ARS5 million last year, positive, against ARS55 million this year. Basically, the result is generated in Brazil with better prices of our stock there. Last year, we suffered a decline in prices that we see is compensated, so that is the positive result. In agriculture, rent and services also, we increased from ARS33 million to ARS62 million. Here we have more hectares that we are renting to third parties, so that is the positive result. And finally, in the others line that we include the mid-parking facility and our operation of fyo, we improved a little the loss here from ARS41 million last year to ARS37 million negative this year. Basically, fyo is generating good results in line with the previous year, and the mid-parking facility are improving a little the loss, but it's still a loss. So basically, the loss came from our mid-parking operation. So with this, we finished with adjusted EBITDA of ARS693 million against ARS75 million of the previous year. When we go to page 11, here, we include the rest of the operational segments, the Urban segment that includes shopping malls, offices, hotels and sales and development, and our operation in Israel that includes real estate supermarket and telecommunications. So when we see the Urban segment in Argentina in the 9-month period, we are growing - in the nine months and in the three months, we are growing in all the lines. Probably in the three months of the last quarter, we would - our speed was a little lower. This is related to expenses, some one-shot effects that are affecting the quarter. In the nine month period, we are more in line on the trend, on the margins that - on shopping malls and offices, increasing in shopping malls-wide 19%; in offices by 25%; hotels, 5%; and sales and development, 534%, all related to the stock that we are selling. And in Israel, all the lands are in good shape. You can see positive numbers in all the lines. Real Estate go in at 41%, Supermarkets at 35% and Telecommunication up 21% in the nine months, and 34% in the 3 months. To compare the results, you have to take into consideration the evaluation between the shekels and pesos because this information is in pesos. So the evaluation for the nine month period was 22% and for the three months was 24%. When we go to page 12 so we - here, we see the rest of the lines of our financial statement. I already explained probably most of operating income figures. The only line that is not - was not included in the adjusted EBITDA is the change in fair value. In Argentina, we - you know that we are valuing all the investment properties of the Urban side. On the agriculture side, we only value at fair value the farms that we rent to third parties, so our farms that we rent to third parties, the rest remain at book value. So when we analyze, we are recognizing strong results in the Urban segment, ARS11.4 billion gain in this line against ARS2.2 billion last year. So that is probably the main explanation of the jump in the net income of our Urban Argentina business segment from ARS2.4 billion to ARS12.8 billion. The agribusiness net income is ARS22 million positive last year against a loss of ARS99 million this year. Here, it's not only Agribusiness because we are including here all the financial expenses of Cresud is not only the money that we finance the campaign is all the many of our - all the debt at Cresud level. So that is when we exclude that, the operating income of Cresud is growing from ARS255 million to ARS1.2 billion. So it's a positive trend. So going to the net financial results and I think it's better to go to next page in Page 13, we have the breakdown of what happened in this line. Basically, we have until March, an important evaluation in Argentina. So last year was an evaluation of 2.3%, this year it's 21.2%. So that is affecting all our dollar-denominated debt. So we are recognizing net exchange difference in IRSA and in Cresud. So the net financial results, the ARS1.3 billion that you can see in Cresud are related to these exchange rate evolution and also some increase in the interest rate. We are refinancing our debt at a higher interest rate than the debt we are canceling. We issued that debt a couple of years ago in an environment of capital control at a very low interest rate. Now it's more market cost and more in line with the current cost of Argentina. Besides this effect on the net exchange differences, we have also an important effect in IDB and in DIC. One is the debt exchange that we did at the DIC level that generate in a loss of ARS2.2 billion and the other difference is the evolution of Clal shares. Remember that we value, at IRSA, the stake in Clal at market value, last year increased by 46%, this year, increased 7%, so last year generated much positive results. So going back once again to page 12, we finished the quarter or the nine months period with a net income on a consolidated basis on ARS10.6 billion against ARS6.5 billion last year. Attributable to our shareholders is ARS4.8 billion against ARS2.2 billion last year. In page 14, as Alejandro mentioned, we announced a buyback program on our shares for up to ARS500 million. From the total amount of the plan, we already bought 78.4% of the plan. So it remains around 11.6% that we plan to continue the...

[Matias Gaivironsky:]

Sorry, 21% that we plan to finish as soon as possible. So we will continue. We started the plan when we released our financial statement because we are in blackout period. Now that we will release the information when we will be ready, we will continue with the program. In page 15, we have our debt. So the important development here was the issuance of the new debt in the new - announced in February 2018. So we used to have short-term debt from bonds that we issued in the past. So with that money, we have the funds to cancel that short-term debt. So we issue $113 million at 6.5% fixed, maturing 2023. So we are happy to anticipate this financial condition of Argentina. Now we have the liquidity to affront our short-term payment. So with this, we finished with the presentation now. We open the line to receive your questions. [Operator Instructions] Since there appears to be no questions, this will conclude our question-and-answer session. At this time, I would like to turn the floor back over to Mr. Alejandro Elsztain for any closing remarks.

[Alejandro Elsztain:]

Thank you. We are finishing this quarter, the third, and now we are closing very soon the fourth, having a lot of results coming from the Real Estate part of the business. So the last quarter of the year, it's going to be including these three transactions that we expect before and much more transactions on the market. There is more liquidity, the prices of the commodities rebounded a lot and today, are making much profitable the business on the region. The whole region is receiving higher prices. And so we expect good result for the next quarter or for the next campaign too. So just to thank you, everybody, and two, we are closing our annual balance sheet. Thank you very much, and have a very good day.

[Operator:]

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