Cresud's CEO Discusses F2Q12 Results - Earnings Call Transcript

| About: Cresud S.A.C.I.F. (CRESY)
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Cresud S.A. (NASDAQ:CRESY) F2Q12 Earnings Call September 14, 2012 11:00 AM ET


Alejandro Elsztain – Second Vice Chairman and CEO

Carlos Blousson – General Manager of Argentina, Bolivia and Paraguay

Matias Gaivironsky – CFO


Pedro Richards – Raymond James

Tom Fryer – Total Charity Wealth


Good morning everyone. And welcome to Cresud’s Fourth Quarter 2012 Results Conference Call. Today’s live webcast both audio and slideshow maybe accessed through Company’s Investor Relations website at by clicking the banner teleconference. The following presentation and the 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 analysts and investors. At that time further instruction will be given. (Operator Instructions). You will have also the possibility of sending a question via webcast by clicking on the question to host tool.

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. Our projects 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 would now turn the call over to Mr. Alejandro Elsztain, Chief Executive Officer of Cresud. Please go ahead sir.

Alejandro Elsztain

Good morning everybody. Today we are summarizing our fiscal year 2012. And we’re going to begin in page number two, with the main highlights of the year.

The operating income of this year totaled 654 million pesos, 10% lower than last year. The severe drought affected our core agricultural areas in South America, mainly in Argentina and Brazil and probably the combination of such drought that first came to South America and later came to the States we’re going to see later, made a big change on prices of the commodities that is not reflected in this fiscal year 2012.

The lower operating income, because of this came brought to this partnership is mainly explained by this drought, and that levered the result from our beef cattle and feed loss segment and the losses from holding and derivative in BrazilAgro. But these are going to be recovered next fiscal year. We are going to explain you later that some affects of those hedges are affecting these existing balance sheets too.

The result was offset by a 27% year to year increase in the operating income from our real-estate segment, coming from ISA and Alto Palermo Banco de Crédito. The net income for this fiscal year 2012 was 78 million pesos. The production grew by 153% reflecting the consolidation of BrazilAgro.

The beef cattle segment increased 76% in production result, thanks to the 38% increase in beef production and the higher market prices. Our concerned milk production, it produces 16.6 million pesos reaching an output of 21 liters per day a cow, 12% higher than last year. This partnership (inaudible) in BrazilAgro to almost 40% and our safety in meat stuff reaching 64%. We paid a cash dividend of 64 million pesos, and as we gave a dividend here of 2.6%.

So, I will introduce to Carlos Blousson, our General Manager of Argentina, Bolivia and Paraguay.

Carlos Blousson

Thank you Alejandro, good morning everybody. Let’s go to slide three. Here you can see the nearby revolution during the last year in America. On the left, Argentina Brazil experienced overall conditions during the last fiscal, which reduced dramatically soybean and corn production. North America also suffered a similar dry condition which affected productions compared for the next fiscal.

On the next slide, we can see the utilization and see further South. On the top of the slide, you can see what happened to Argentina and Brazil. In Argentina, corn production reduced 24%, and soybean productions reduced 23% and in Brazil affected 4.7% of corn productions and sample sales of soybean production.

On the bottom you can see the drought affecting the major states, which produce corn production 27.5% at 103 million tons and soybean production was 18% and 16 million tons.

This slide shows how the condition mentions the poor affect grain price. Soybean price increased 73% in the last nine months. Corn and wheat price increased 52% and 112% respectively. On the graph, in the note, we can see that while grain price increased, it’s still meat price remaining stable during the same period.

Rice basically shows the fiscal season for 2012 a 12% in consolidated procedures and corn 51% in consolidated procedures. The well known rice is sold at basic price the start will be seen well this past year.

In page number seven, you can see the area and the gross production, the evolution of the company since fiscal year 2008, last year we closed 205,000 exits, the country’s breakdown Argentina being the largest of 108,000, 65,000 Brazil, 24,000 Bolivia and 8,000 Paraguay. We are extending the growth of almost 4% for next year, maybe in (inaudible). And this is the combination of all land, 150,000 acres owned, leased from third parties, 40,000 acres, long term concession too.

In the breakdown of last year, not next year, this – the breakdown of crop of 2012, 59% was soybeans, 21% was corn, 9% was leasing from two third parties, and the fourth was sunflower and sugarcane. This year, sugarcane is growing more we are beginning our sugar production in Bolivia. So, we expect of growth of that crop for next campaign too.

On page eight, we can see what happened with the beef production over the past year. We were the highest under production with low cost and good prices, inclusive of production for the year 21%. And we make the regency to reduce more by 18.7%, in this way and higher profits. Regarding meat production, we focused only on a dairy farm and fields. The existing production, of dairy cows and milk production that increased from the milk production and cow a day, in this way, the increase in productivity, these two activities generate profit integrate with the drought condition on the crop production.

In we move to page number nine, we – I’m going to talk about the meat packing facility in Santa. In the last two years, the higher input cost that the cost of the cattle and retention of this export in Argentina is a very complicated operation. In line with that, after a series of capital contributions and finally to a mutual agreement, we are repaying the associated holder of the facility concluding our partnership with I think who decided to retire from Argentina.

We decided to support the operations and seen 2011, we focused ourselves by the tweeting local market share. The high quality standards which are capture, made more difficult the situation, this is why we had to make the difficult decision to see the team from December of 2011 up to August of 2012.

Finally, after many negotiations and agreements with the Argentine government, the Governor of Province of La Pampa and the (inaudible) employees of the meat industry of La Pampa, we agreed to new conditions from which our facilities will re-operate and think all those of this year when we start activity. We hope that the future market conditions will be more favorable for the industry to return to profitability.

We are beginning to slaughter and in the first month we were near 1,500, first month sorry, the second month we are going to be near 3,000 where we are recovering the full capacity of this, packing plants that are 9,000 pairs per month.

If we move to the weak part of the strategy of the company that is plan confirmation and development, and we see the evolution. Last year we closed with 27,000 hectares of development and we are expecting 28,000 for next campaign, having a very large share of lunch, 122,000 hectares of Argentina, 50,000 in Brazil, and 60,000 hectares of Paraguay. So, not all of that is developed and put on production so here, so here we breakdown two thirds enter to production and we will enter to next year 2013 and 2014.

If we move to page number 11, we see ourselves off the fund, one of the best is South Pedro that is that we did in Brazil in real. We sold a firm that had a good value of 10 million real and we had a gain of near 13 million real, 125% return. We see the second, that is the case in Bolivia, a good value of $2.6 million and a gain of $2.2 million, this was done in two years prior, not two and half year prior in Bolivia.

It’s almost very (inaudible) property, it’s very close to Buenos Aires, it was a good volume with $2.5 million, and were sold at $9 million at a gain, and was forced in the company to Alto Palermo. And 61% of that was not recognized as gains, because it was post while subsidiary, Alto Palermo. And this was sold because what repeat the approvals for making shopping centers and residential. And it was sold to our subsidiary Alto Palermo to do that. So, and make a gain of 260%, did in Buenos Aires strongly.

I would introduce our CFO, Matias Gaivironsky, who will talk about our income statement.

Matias Gaivironsky

Thank you very much Carlos, good morning everyone. If we move to page 12, here we have the evolution of our income statement. As Alejandro and Carlos described, this was a challenging year for agriculture in the region. And when you compare the net income of our current fiscal year compared with the previous one, we see a liquid of around 140 million pesos from 221 million pesos last year to 78 million pesos this year.

The main driver for this decrease, are mainly our decreasing our operating income of 72.6 million pesos. The breakdown inside the break in income, we have different impacts. First, from our agricultural operation, we saw an increase of 190 million pesos, explaining my different drivers. The first one is the impact on yields of the growth that affected the reason mainly the operations in Brazil, and some parts of we ran from third parties in Argentina.

The second driver is some hedge activities as we close before June 30, 2012, that are related to the new campaign, and probably we’ll see that recur of those negative impact in the next quarter that affected in this fiscal year of 50 million pesos.

The third affect is the consolidation of BrazilAgro. We see a – not very good, we saw inward of consolidation in revenues and in production due to the growth in Brazil, but we are receiving all the administrative expenses on our cost. So that affect impact of our 172 million pesos in this fiscal year.

So, with this affect, we conclude this year with a negative impact in the operating result of around 180 million pesos. Then, regarding sales support, we have an increase of 12 million pesos compared with a result of – we recognized it last year. And mainly are because we sold in terms of volume or in terms of money, more farms less than the current year.

Then we received a negative impact this year of 22 million pesos from our (inaudible) and the slaughtering house. As Alejandro described, this was a really challenging year for the industry. And then, the real-estate operations from (inaudible) from the agriculture, we would receive a possibly impact of 152 million pesos this year that compensates part of the results of agriculture. So, result affects with really our operating income would fall lower of 72 million pesos compared with the previous year.

Then, we have 211 million pesos of financial resource, a higher than the previous year. And the main driver are the exchange grade that affect our dollar denominated debt, this year we saw the evaluation of the pesos of 7% compared with the evaluation of 4% in the previous year. So, we received and we generated 158 million pesos of exchange rate fluctuation. Then, we have 80 million pesos of higher interest payments due to our high level of debt this year compared with the previous year. So, with this we finish our results of 78 million pesos lower than the previous year.

If you go into page 13, this is an important development. We are in the process of IFRS implementation. This was our last financial statement that we presented our Argentine Government starting July 2012 we will show our results under IFRS. So, we will see a lot of difference in the next financial statement due to changes in the accounted matters. So, here we include some of the explanations but if you want to see a detail breakdown and explanation of all of the impacts and all of changes in IFRS or in the new accounted matters, we will upload a file on our website that will show each of the difference.

So, here we include the main one, and also we have to include a note in our financial statement showing the difference of our net worth in Argentine government again, IFRS jobs, IFRS rules, sorry. So, this year, we finish with a net worth of 2.1 million pesos under Argentine government. And that figure under IFRS is 2.6 million pesos. The main driver that affects the net worth, such one is the good way.

Remember that optional all the acquisitions that we did in the past and where we stayed below the far market value of those assets, we don’t recognize, we don’t recognize as any gains. So, under IFRS, we have to value that at market value. So, the first impact from the acquisition of fields of more shares of Alto Palermo with more shares of Evista and produce shares of Brazil, generate this impact of 700 million pesos that will go against network. We won’t recognize any gains on that. But at the first impact, we have to recognize this is different than Argentine government.

The second important change is the financial instrument, optional then this is mainly the shares the fields that has from clear and additional fees that we used to value at historical price and acquisition costs. Right now we have to show it at market value. So, that’s their rate. And a positive impact of 140 million pesos.

The third important change is the equity investments. And here we have different impact. The main one is the investment that Evista has in a building in United States where we have ground lease that has a step up close that we have to assess year by year. Under Argentine Gov, we only amortize the impact of each of the years. Right now, under IFRS, we have to flatten in the whole contract and recognize the impact in the first year.

So, those are the main important impacts of the change – of the accounting methods. But there are many more so I might view to review the file in our website. And if you have any doubt, please send an e-mail to our Investor Relations department or call us directly.

If you go into page 14, here we have the breakdown of our consolidated debt. Cresud SA long debt, right now at June 30, was $238 million PS long debt was $426 million and Alto Palermo was $158 million. So, with the term of whole debt is $823 million, then if you deduct the consolidated cash and the debt that will record taken in the market, we ended the fiscal year with a debt consolidated net debt of $682 million.

On the right you have the debt amortization schedule and remember that at the beginning of the year, we had most of our debt in short term. So, we were able to extend part – extend our debt for the fiscal year 2013 and 2014. And we will remain to do that, in fact today we are closing local bond placements of local bond in the local capital market of around $10 million to $30 million that we will close in the next hour.

So, net debt to EBITDA is right now 3.5 times. And remember that not all of our assets generate EBITDA right now. So, we have a lot of language sets that are not generating EBITDA, so this ratio should be lower if you include some cap rates or some yield from the retro fee assets. And net debt to net asset but at book value, not at market value, has been 33.9%.

So, I invite you, if you want to make questions. We will be more than happy to answer that. So operator?

Question-and-Answer Session


(Operator Instructions). Your first question comes from the line of Pedro Richards from Raymond James.

Pedro Richards – Raymond James

Hi, thanks for the call. My first question is regarding the IFRS immigration. When you talk about Matias, the 700 million pesos seen back in goodwill, how much comes from the rich payment of the value in the sake of EBITDA in BrazilAgro and how much if this is the case, comes from the repayment of value of nominal portfolio? Thanks.

Matias Gaivironsky

Thank you Pedro. A 400 million pesos gain from EBITDA, the acquisition of Alto Palermo. And 300 million pesos came from BrazilAgro and the acquisition of shares of ease of progresses.

Pedro Richards – Raymond James

And what would be the impact of IFRS with familiar portfolio at the book value of their land?

Matias Gaivironsky

You know, Pedro that we have an option to keep valuing our portfolio at book value. The is the vision of the company so we will keep showing the book value of our properties, at book value at (inaudible) plus CapEx. What we have to include starting in the next quarter is a note in our financial statement with an estimation from the management of the fair market value of the portfolio. So, we have to include that in the next quarter.

Pedro Richards – Raymond James

Thanks, thanks Matias. And a follow-up question to Alejandro or Carlos maybe, regarding the fair land market in Argentina, which has been the impact so far from your experience after the foreign currency restrictions in the Argentine Fair land market in terms of transactions and prices and do you see in the rest of the regions in terms of fair land value? Thanks.

Alejandro Elsztain

There are very few operations on the market. And these that that the term market is not public but the real estate is ruled by real estate, and suddenly these restrictions on dollars will affect because of the size of the operations in the farming industry. But after now, that I think there is a gap between the options on the right. So, these offers are not very close today I think.

But some analysts are expecting some drops in dollars but in the foreign dollars. So, in pesos that is in the case of research much higher prices. But there are very, very few operations recent operations in the market. And the market is thinking very close to go.

We have to calculate and decide that the prices they cross keeps much higher because of drought in the United States. So, that is breaking for higher prices again, because of that new margin for next campaign. So it’s under consideration, I think there are going to be some articles about prices around this weekend. I was talking to the brokers of the market of Argentina they are expecting some small drops there, talking about the 5% to 10% in dollars. Not the formal dollars. So, this is kind of expectation for the market.

Pedro Richards – Raymond James

Okay, thanks a lot Alejandro.


Your next question comes from the line of Tom Fryer with Total Charity Wealth.

Tom Fryer – Total Charity Wealth

Hello, I had a question on your operations in Paraguay. We noticed that you’re expanding there but the soybean yields appear to be low. Is this due to lack of rainfall or is it a soil fertility problem. And if it’s lack of rainfall, had you, is irrigation an alternative?

Alejandro Elsztain

No, this was not a very drought here in Paraguay. It was normal here in number of millimeters a year. Not a rigid area, this area where we are, it’s enough water on the ground to irrigate. We’re seeing that affected some but not very much in the yields, because it was a positive comparing to – that comes from their land. So, we’re developing land from zero to crop.

And the main explanation was there is not enough crop that covers the land. So, a portion of the rain doesn’t stay on the land. So, we are increasing year to year, we increase like 15% of the coverage of the crops that covers the land. So, affected from the yield that we were expecting of 16 quintals to 14 quintals in Paraguay so that needs to mature the land, we have to keep growing more cereals. And when you put cereals, you put more coverage to the land and you can resist more the drought in that region.

So, we are growing year to year in yields. Last year, do you remember, Carlos, what was yield of Paraguay in Soybean? For nine something like that. Last year, the average yield of the area, over nine and this year I think it was one per four. So, it was a big gain comparing year to year but we are beginning from zero. This was a natural quality and becoming agriculture area.

Tom Fryer – Total Charity Wealth

Okay, thank you.


Your next question comes from the line of (inaudible) with HSBC.

Unidentified Analyst

Hi, good morning gentlemen. Quick question in the same land evaluation, it seems in Argentina, clearly land market has slowed down significantly and valuations are probably going to be or already being affected. In Brazil, how do you see when the evolution of the legislation to address a concern behind foreign ownership of land. How do you see that playing out in the next six to 12 months?

Alejandro Elsztain

It starts to produce because this we would talk many times Pedro. And everybody still is very optimistic on the situation coming to Brazil. There were a lot of comments of analysts that companies like BrazilAgro will be turning to buy. But really didn’t change, that didn’t change. The price of the land is very thin and local enough field to buy. And so, we are seeing the evaluations of brokers and analyst about the price increase year to year shows a very fair market.

In older Brazil, it’s a market that calculates number of bags soybeans per hectare and the price of the bag has increased a lot. So, we are increasing the yield. So, the combination of developing lands that comes from there to a big production, with bigger prices of the sacks is increasing the price of the land. And their operators, there are more operations done each year. And found a big growth in price in real. But the legislation didn’t change, everybody is waiting for that approval but nothing has changed.

Unidentified Analyst

Thank you.


(Operator Instructions). And there are no questions at this time. And this concludes the question-and-answer session. At this time I would like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks.

Alejandro Elsztain

We are closing the year where crops have bad yields in South America. We have some good news that the listing of our company that in many other cases were very negative, in our case where it’s more positive. We have but not to make a negative number. We have very good perspectives of prices. We tunnel the results we show in our balance sheet didn’t reflect some crops that came delayed, I mean, the 30 June, we had some corn and some sugarcane who came very recent after that. So this results are going to be reflected on the 30 December.

So, we will fetch a very good yield because of the price of activities, because of prices of the crops, because of the prices of the lands, we are going to keep doing more development for next year if it’s bringing up good results. And we are still keeping our historical prices of the (inaudible) when we show our debt at fixed in price. So, the balance sheet are showing some of the pictures, not this, not the whole picture. So, we are very positive for next campaign.

We thank you very much. And we expect to see you in the results of the September 2013. Thank you very much and have a very good day. Bye-bye.


Thank you. This does conclude today’s presentation. You may disconnect your line at this time. And have a nice day.

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