Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (CRES) Earnings Call Transcript & Summary

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the third quarter of fiscal year 2023 Results Conference Call. First of all, I would like to remind you that 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 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. All the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's earnings release regarding forward-looking statements. I will now turn the call over to Mr. Alejandro Elsztain, CEO. Please go ahead, sir.

Thank you very much, Santi. We are beginning now the third quarter results, and we can see in the Page #2, that the company's record planted area in the region, combining the 4 countries, combining between the ones that we own, the ones that we lease, and the ones that we lease to third-party tools we have like 28,000, 10% of the funds that we rent, generally with the mission of bringing clients, giving some stability at the beginning of development of farms and bringing clients to the selling to the real estate part of the company. Related to the campaign progress, we have this year more mixed conditions than last year. Last year was a big increase on the prices and some good deals. But this year, there is prices, we could say that they are sustained and all of them, soybean, corn and some of the sugar cane. But the high cost pressure that we suffer from the very beginning, mainly explained by the fertilizers and some other input costs make margins to decrease. And finally, the adverse climate conditions is affecting the yields on the region, mainly Argentina, the one more affected is Argentina for sure, and we're going to show you a little later. This separate growth in Argentina biggest of the -- I think, from my history, more than 30 years of Cresud, but it's really to see something like this is long term in Argentina is in part in the crop yields but not only winter crops regarding with the wheat and barley, later came to soybeans and corn affecting a lot the yields of the country and some of Cresud. In the case of Argentina, there is a recovery that is going to come in the future because there's a new announcement of the government about the new soybean, the third soybean of the country in a different price, so some of the drought effect on soybeans is going to be compensated because of that effect will be reflected on the third -- fourth, not in this one. This one is not reflecting, but in the fourth will be reflected the detail of the soybean, but with the new price because of the new effects. Related to BrasilAgro, there is lower productive too, but some farmland this year probably will be very relevant in farmland sales, mainly in Brazil, some in Paraguay too and one in Argentina, and this going to come, so we are expecting -- so we have a lot of activity in the farmland sales and this is -- we are going to show you one big transaction that it's not reflecting on today's balance sheet that Matias will explain, so to be in the fourth quarter. Related to the investment in IRSA, we had an increase of 3% of the shares of IRSA. And in IRSA, we are recovering a lot of the EBITDA of the past and leveraging product portfolio of the company. We received a huge amount of dividends from IRSA, from BrasilAgro and from [indiscernible] $125 million. And in the case of dividends, we have to pay again recently last week and this week, we are paying 6% dividend yield, and on top of that, we were sharing to the shareholders, 2.2% of the capital stock on shares to distributions. Related to prices, we can see that after the pandemic, there was a big decrease in the price, achieving more than $600 per ton. But later this price went to the $500 level, and we are seeing that price decrease on the future too. So some less pressure on the prices of oil, the soybeans and corn. We are in this area, 284 between the 4 countries, 2% increase last year comparison than being made soybean, corn and sugarcane, the 3 main between the 4 countries. About drought of Argentina, we can see in this graph, the -- where Pergamino district shows Pergamino is in the middle of corn bed of Argentina, probably is one of the more famous areas of the corn bed of Argentina and the drought made to have a rain in the total year of 336 millimeters comparing to the normality that Argentina has many regions of a 1000. So the proportion of this drought affected so big proportion of Argentina and mainly the corn bed to the country, a big decrease on the yields. Here, we can see in the other graph on the right, the production current forecast where Argentina is expecting because really it's not finished, this is under process today. The harvesting today on the farms. So this country is expecting 47% drought comparing to the -- compares a yield that was done at the beginning of the campaign. So almost half of what Argentina was expecting, but there are some analysts talking about more than half growth for soybeans in Argentina. In the case of corn, the expectation is 28% below and in the way that it was finished in December last year was 40% Here, we are seeing some of the forecast of Cresud. And here, we can see on the map where the farms of Cresud are, the globes are old farms and the small points are the released farms. So we can see that our areas are not exactly the corn bed that we have the province that represents almost 1/3 of Cresud really explain a big recovery of the -- not lost -- not the recovery, but our loss in service is the 26 compared to the 47. So this represents the difference of areas that Cresud the drought that it's not raining as normal, but really not so dramatic like the corn bed of Argentina. So the map of Argentina shows in red, the bad areas of and the drought is not finished. It's not done. And some effects of these are probably coming to wheat. If the rain doesn't come to the country, wheat is going to be effected for next year, too. So really, the situation of farmers of the country was very bad. And this year, Argentina -- in the past, Argentina drought, the prices recovered a lot. But this year, because of retail yield, mainly explained by Brazil, made that the loss of the 25 million tonnes of Argentina were more than compensated by the yields of Brazil that grew like 30 million tonnes year-to-year. So really, there was not any main effect on prices. So the part that is coming is because the government has in some of the situation of farmers in the country. If you move to the next page, on Page #5, we can see that the harvest progress in soybeans, Argentina is close to 42%. Bolivia is done. Brazil is close to finish. And Paraguay is 0. Paraguay is going to begin this day. So the total is 71. As of corn, majority of the corn is Safrinha Brazil or in Argentina, the combination of the 2 makes like 7% advanced large area for harvesting of corn for the region. So all our projections, but we are optimistic that the effect of the bad climate of the region in case of major for Argentina affected but not so much like the rest of the country. We can now move to Page #6. And we can see here, we are expecting like a drop year-to-year of 4% in yields. So the 798,000 tonnes to the 765,000 tonnes for the whole region. So that the main effect is Argentina, but the rest is not so affected. So the total crop is not so ready. But the operational margins are worse than last year because what I explained at the beginning, the effect of higher cost, the prices last year made a very big rebound and really there was a big effect of the increase in the prices. This year is not, the opposite. It's even or below the price of the budget. So really, the effect of prices of this year is not helping like last year, so not yields, no prices and costs going higher. So that is why today, 9 months reflecting some of those effects is mainly comparing last year, so different. Sugarcane is a little lower, but not so important. We can see the yields on the region that they are stable when we compare the corn at 5.6 tonnes or soybeans at 2.6 tonnes. So really, the effect of having done in the region made us more stable than having only in one region. In the meat, nothing is special to compare 78,000 heads of cattle, 7 million kilo tonnes of meat in the company. About real estate, up to now, the explanation of the 9 months, there were 2 small farms, one in Paraguay and one in Brazil. There is a subsequent sale that is not reflected on balance sheet that BrasilAgro made the relevant fact later that was done, I think, in April. And here, there was a big sale in a total valuation of BRL 409 million and comparing to the purchase price and CapEx of close to BRL 60 million, so really a big gain that is going to come on the fourth quarter. We [indiscernible], one was the 330 hectares of total area of and the other of 500 hectares of total -- 2000 hectares of total area. The combination of the two made a total of BRL 407 million really a big gain, and it's going to be -- it's like BRL 260 million to BRL 270 million that are going to come on the fourth quarter. So related to the operational business, there are 2 real estate in the fourth, a lot of activity, having the operational like the soybean price is going to come on the fourth quarter. If we move now to the page of our service part, not the operation and not the real estate. Service area, the 2 companies that we run, [indiscernible] is almost 50% of the shares. We see the evolution -- long-term evolution of trade of this company that last year in a normal campaign, not very good but normal company, did 6.6 million tonnes. And last year, the EBITDA of $28 million. This year, because of drought, the campaign of Argentina is much lower. So the company is only intending to increase the market share to Argentina, but not increasing the tonnes comparing year-to-year because Argentina will be close to half of the campaign of compared last year. So the company is very positive. It's going to keep making a lot of money, having lower volume because Argentina evolution. And this year, till another bond -- 20 million new bonds again at 0 interest rate for 3 years. This company is growing, not only in Argentina, giving service to farmers, in inputs, in outputs, in consultancy and in futures and options, but now it's doing this process in Brazil too through a company that is launched recently called [indiscernible]. Now related to our profile residents, close to 18%. This is a marketplace for agriculture. The company is stable in revenues. This is not growing because of the effect of drought in Argentina, and this effect is having the company and the decision of the company in this environment to the companies, the high-tech companies, is to decrease the to keep the sales stable and to look for the breakeven. The company is a mission decrease some of the number of employees to have this situation, understanding the change on the timing, on the -- we're seeing -- thinking that this is going to happen. The marketplace for is coming, probably these delays a little. So we have decided to burn the money or the company to here to arrive to the breakeven point with the cash recovery raised in the past. And these are the maps where our locations are in South America. This is more big marketplace of our agriculture products. Now I will introduce Mr. Matias Gaivironsky that will speaking about.

Thank you, Alejandro. Good afternoon, everybody. Going to the results of IRSA first. As Alejandro mentioned, result during the quarter increased by 3% stake in IRSA. So today, we control IRSA with 56.8% of the shares. IRSA has, during the quarter, a very good results. The 9-month period, we saw an excellent performance in the operational and the financial results. Tenant sales are growing, higher occupancy. IRSA reached historical levels again after the pandemic that went down to level of 89%, now it's again a level of 97%. The offices as well, 100% occupancy in the AAA buildings. We finished the occupation of the Della Paolera building. We also sold a lot. We sold 7 floors of the Della Paolera building at very good prices, and there was some revaluation of the remaining square meters of the building because the price now is higher than what used to be in our books. Hotels as well are performing very, very well. There is a huge recovery after the pandemic with probably record EBITDA on our portfolio. Very good occupancy. IRSA keep the deleveraging during the 3 months period. Remember, that was a big challenge of cancellation of pay during March. IRSA paid 100% of the debt. So now there is no more challenges regarding the central bank regulation. And also, IRSA paid a very high dividend during the last month or the last day was a 13% dividend yield that Cresud collect part of that. If we saw the graph, we can see the EBITDA, the last 12 months EBITDA of the Rental segment increasing and surpassing pre pandemic levels, reaching $162 million. If you move to our financial results, first, it's important to understand on the macro side, what happened with the different drivers, FX and the inflation generate important results in our results. So first of all, to understand that the inflation was 74% during the 9 months period against a devaluation on the official exchange rate of 67% and on the blue chips of 59%. That means that in real terms, we have an appreciation of the peso, the official exchange rate of 4%, and in the [indiscernible] of the blue chips of 8%. That will have different impacts in our results. So going to Page 12. On the operational side, as Alejandro mentioned, this is a very challenging year to compare 1 year to the other. Now the last year was a record campaign, excellent results in Brazil and Argentina, excellent production, prices, costs that were much lower than this year. And this year, when we compare, we have many effects on the negative side that the in Argentina, higher cost in Brazil, lower production that is generating that the comparison, you can see this drop of 89%. Here, we don't have many results that will be recognized in the next quarter, would have a different exchange rate for our production in Argentina for the soybean that in March, we haven't. So it's not recognized yet. The farm that we sold in Brazil that is not recognized in this 9-month period will be recognized next quarter. So probably, this picture is not the best picture to analyze what will be our results in the 12-month period. But of course, this year is worse than the previous one. In terms of our forecast and our budget, we are more or less in line on what we forecast this year. But of course, compared with the previous year is lower. If we go to the next page on the Operating income, including the IRSA, the previous one was just the farming activity, including IRSA, we see a drop of 59.2% compared with the previous year, mostly in the agricultural part, better results than the previous year. Other important driver of line in our balance sheet is the change in the fair value of the investment properties is 100% almost all related to IRSA that we -- a loss of ARS 34.8 billion, same, again, loss as well in last year of ARS 20 million, is more related to what I said at the beginning, the drivers between inflation and devaluation in dollar terms, the investment properties are increasing slightly. Shopping malls remain stable. The offices will increase a little because of the revaluation of the building and the land reserves remain stable in dollar terms. We convert that in real pesos that generate that loss. Regarding the net financial results, we can see a gain of ARS 16.4 billion was a higher gain last year of ARS 34.5 billion. If you see in the table below, you can see in the first line, the net FX results that last year was a gain of ARS 40 million. That is related to the appreciation of the peso. We convert the dollar-denominated debt into pesos in real pesos and the appreciation of the peso generate this gain. This year is lower than the previous year. But again, in the net interest, we can see an increase -- slight increase in the net interest this year compared with the previous one. This is more related to the composition of the debt, Cresud has a little more debt in peso terms that generates an accrual of higher interest in that line, but then there is compensated because of the devaluation and the dilution of the peso debt is recognized in the first line in the net final FX results. So just trying to understand that the net income, all these drivers has some effect on the net income line. But finally, we posted a gain of ARS 36 billion attributable to a controlling interest is ARS 20.4 billion compared with again last year of $64.7 billion and controlling interest of ARS 40 billion. If we see the evolution of our debt, during February, we canceled the remaining part of the bond that we have to refinance because of the central bank regulations. So we canceled that. Also in April, we issued 2 new notes, one, a dollar link that we issued $30 million at an interest rate of zero that will expire in the next 3 years. And also, we raised money in pesos terms for 1.5 years. We raised $20 million. One good news here is the credit rating upgrade fix increased our rating from AA to AA+. Regarding the dividend, we announced and paid a dividend for ARS 9.5 billion that is ARS 16.52 per share or ARS 165.2 per ADR. This is 6% We already paid in pesos, and we are in the process to pay to our ADR holders in dollars. Also, we decided to distribute the shares that we bought from our buyback program that we, at the same time, not the dividend we distributed those shares. So that was already distributed. Regarding our buyback program, we decided to extend the timing for our program. The original expiration was this week, and we decided to extend that out to -- for the next 180 days. From our program, we already bought almost 80%. So there is a remaining of 20%, more or less ARS 800 million. And we also adjusted the price in pesos terms to 425 and in dollars still $8.5 per ADR. I think with this, we finished the formal presentation. Now we open the line to receive your questions.

Well, now is the time for the Q&A session. [Operator Instructions] Yes, we have some questions from [indiscernible]. The Argentina land price chart that you used to show in your presentation earlier was used on official FX rate or parallel FX rate?

This is probably when we show that those are real dollars and we show the price of Argentina land of around $14,000 or $15,000. The hectares is always on a real dollar but that is in Argentina. That is the corn belts. Cresud owns farms across Argentina and lot of marginal areas in the north. So in general, margin areas follows the corn belt in terms of prices real dollars.

Yes, like all real estate and farming real estate in Argentina, everything is in real dollars then pesos, but we always fix prices thinking in real dollar.

And he asked as well, also your farmland sales for Brazil, if you can indicate an outlook for Argentina, farmland prices and possible sales in the near future.

Yes, there are some possibilities of transactions in Argentina. Prices are not decreasing so much. As we would be thinking because of the exchange rate, difference between the [ blue ] and the official. Really, from the top prices of the corn bed in a few years ago that was at $18,000, today, you're talking about $14,000, $15,000. So there was drop to the peak. What happened in the last of Argentina was didn't follow the trends that U.S. and Brazil and other areas of the world increased dramatically this year. So -- but still, there are not a big drop to the highest prices a few years ago. And the -- what we expect is probably next government, I'm not sure what will be the election, who will be the candidate, but how will be the measures related to dollars and taxes are, we are expecting some decrease on the gap of the $2 and maybe the decrease on time in the taxes on, we expect as farmers. This is different to the farmers of U.S. and Brazil are really damaging a lot farmers of Argentina. And so we are expecting that to be decrease on time. And if that is the case, price of the land of Argentina will grow a lot because today, they have been prices of Argentina corn based to the other areas highest of the history.

Thank you. We have next question come from Shores Wurman. When can ADR investors expect to receive the cash and stock dividend?