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 fiscal year 2023 Results Conference Call. First of all, I would like to remind you that both audio and a 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, and 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.

Good morning, everyone. We are finishing our balance sheet of 2023. And we can see in this first page, what happened in the mixed results that we had combining sustained commodity prices. But after the second half, we began to see a drop on those and cost pressure that last year, we suffered mainly in fertilizers and in inputs, that's affected mainly the margins -- the operational margins of the company. And in the same time, there were some effects on climate that affected our production, mainly Argentina, but the rest of the region was affected too. Related to Argentina, everyone knows about the drought that affected the country, but thanks, the company had a big diversification in areas. So because of that, Cresud was not affected as Argentina was. Argentina was mainly affected in the corn belt, but Cresud plants all over the country. So our yields were much less affected than the country. And at the same time, there were agro differentiated effects done by the government. The government was giving some of the taxes and exports through prices. So finally, the effect on Cresud was much lower than the rest of the country. Related to BrasilAgro. BrasilAgro this year had a record farm sales. So we are going to see for -- small pieces. We didn't sell the whole farm. So we're still in pieces, farms, and having a very important result related to farmland sales. But in Brazil, we suffered the lower productive results in there because of prices, costs and some weather conditions affected the main corn, soybeans and sugarcane. Related to acquisitions, this year, we began to buy again. And in Argentina, we had the chance of buying a new property, 1,200 hectares close to El Tigre farm. So this is good news for Argentina. Related to our investment in IRSA, we grew 3% of our stake in IRSA. And so we went from 53.9% -- close to 54%, close to 57%. And buying the shares of IRSA. At the same time, IRSA was really growing a lot its EBITDA. It's office sales and the leverage of the company. So the company was really happy of buying more shares of a company that really was recovering, and we are going to see the results in a few pages later. Related to your dividends. We paid last year, very good dividend yield, 9% and 2.2% of the stock shares that we were buying -- buyback shares. And now we are offering a new dividend proposal that will be ARS 22,000 million, sorry, and 3% of IRSA shares that we -- are going to be traded in the new shareholder meeting on the fifth of October of next year. We can now go to the next page and see here the evolution of prices of soybean and coal and while we are speaking about the drop of the last second semester that we are seeing this drop of not so relevant in the case of soybeans, 9%, but more relevant in the corn. And this is forecasting a new campaign that will be tougher in prices in these 2 commodities. But at the same time, we are forecasting a drop in the costs that is going to have a more, I would say, more normal margins for farmers. Last year, they were affected in the 2 higher prices by higher cost we are now forecasting lower prices and much lower cost because of the drop of fertilizers and inputs mainly. This effect of soybeans is -- in the case of soybeans, it's being affected for some drought in U.S. But the prices are -- today, the situation of America is more comfortable than it was. So between Argentina and Brazil, and [ Bolivia ] we are going to be harvesting more than 200 million plus the 110 million of the United States forecast, we are seeing a big offer coming and demand is not clear if it's going to keep growing as it was. So we can move now to the next page, and we can see the evolution on our planted area. We had this year a record from our history of 283,000 hectares for plantation, we are thinking on growing for next campaign that we're going to see next quarter, but the company is intending to keep growing, reducing our leased areas to third parties to -- not to be renting so much and to be planting more of those surfaces in our plantations. And so the company is intending that evolution of increasing the planted area through the whole region in the 4 countries. We can now move to next page, Page #5, and we can see what happened in the yields for Cresud and comparing Cresud and Argentina. And we can see in the map, we see what happened in the corn belt, mainly and the whole country was really in red meaning that the drought was really severe something that -- in the company 30 years, I didn't see nothing comparable in the 30 years, but this is a drought that I think is much more than the 30 years. It's more than 100 years, the most severe drought of the country. We lost -- the country lost 50% of the soybeans and 35% of the corn that was budgeted, that was forecasted at the beginning of the plantation area -- time, 40% in wheat, so the combination of the on the winter and summer crops. So the whole Argentina was affected, 40%, 35%, 50%, and Cresud was 30% to the 40% of the wheat, 18% to the 35% of the corn, 30% to the 50% of the soybeans, meaning diversification of regions works. And we were in -- we had a bad year if we can calculate this yields comparing to budget. But finally, with the compensation that the government gave mainly in soybeans and finally, in corn, the corn was later this balance sheet, but it's going to come in the next balance sheet because it was on July or August, so it didn't come on the numbers of June. But because of the combination of the 2, our campaign, the seasonal campaign, not the 30th of June, but the real campaign was really very good comparing to the drought that the country suffered. So Cresud kept majority of the soybean and the corn and was finally finishing selling much better prices, so compensating majority of the drought effect. So diversification work in the operational not having the Argentina drop and the prices compensate that, some of them on the next balance sheet on the 30th of September. And here, we see that in Cresud yields, the corn was not very affected 3% year-to-year in the soybean, yields, and this is a combination of the drought plus early frozen that we suffered in the 18th of February that made us -- the majority of our soybean -- second soybean and the first soybean to suffer, the 30% drop is because of the combination of the drought plus the early frozen. We can now move to next page and see the evolution on the tons and the crop comparing year-to-year, we dropped 4% in the whole region, Argentina is close to 10% year-to-year. So last year was not good. Argentina is coming from 3 years of drought. And the good news are the El Nino is coming to Argentina slowly. And this is making rain for the winter, and now we have our winter more normal comparing to last year conditions. So we are now expecting the 3 years drought affecting the country to begin to correct. So maybe this is a more normal year of yields. And we can compare it and here the crop yields of the whole region, the corn was not really being affected in the whole region. The more affected was the soybean mainly because of Argentine effect. In the mid, there was not a big change, almost the same number of [ rates ], a little more production. A portion of that was made by the feedlots more than the production on farms. Farms were affected because of drought. So that made a lower productive cattle activity for this year because of more cost affecting, but not having less production. So -- and in the sugarcane, we saw the effect of lower yields and less area in Brazil mainly. So the operational business of this year was not as good. The were the best comparing to the forecast with Argentina, but in Brazil, Bolivia and Paraguay, operation was much more effective because of prices, costs and yields. And the land, the real estate was the portion of the business that was more active mainly in Brazil, and I'm going to show you a little later. We can now move now to Page #7. And here, we see that in the record year of selling farms, but at the same time, we compare what we began at the beginning of the year with 750,000 hectares of owned land and long-term concessions. And because of the purchase of one farm in Mato Grosso, Brazil and the recent purchase in Argentina, so 11,000 and 1,000 hectares combination of purchases and the small portions of sales 900, 2,000, 5,000, 1,000. Finally, we finished the year almost with the same level, but having $122 billion of sales on our pockets. We can now move to next page. And here, we see these 4 sales. And the first one is in Paraguay. The other 3 small set in Paraguay, $1.5 million. The other 3 portions of farms in Brazil, having internal rate of return of 28%, 42%, 10%, 9%. So very important internal rate of returns. Look at the majority of the yellow shows the gain. So cost on our book value is close to -- it's almost not existing, but we see the majority is again that each of these sales brings. So and in each farm, we show here that we have remaining hectares. So there are smaller sales comparing to what we have on our books. And in next Page #9, we see the track record of the sales of last year's from 2014 to now 2023, every year selling 2, 3, 4 pieces per year. This year, this is 122, a little lower than 134 record in the past in 2015. In that year, there was a combination of Argentina plus Brazil. This is mainly Brazil in this year. And we look at the record level in -- when the price of the land is really very appreciated at $8,000 value of Brazil. And in the right, we can see why we are very active on selling because there was a big increase on the price of the land. In the right, we see the price of the United States corn belt or the Brazilian. The Argentinian is not reflecting because of the effects done in Argentina because of the gaps between the $2 and taxes on exports. So we were very active selling farms in the part that we thought it was very smart to begin to sell and buy again. So again, the company is always the combination of 3 activities operational, real estate, and now we can move to the next page, the service company. The service company through 2 companies, FyO and Agrofy, remembering we have 50% of FyO and 17% of Agrofy. In the case of FyO, that is our service company giving service to farmers outside the farm with inputs, outputs, brokerage, commercial adviser. And in here, we see what this company is making and the first graph shows what is the projection of tons the company is selling. This year, we had a drop from the 6.6 million tons of last year to 5.3 million of this year. But remember that Argentina almost lost half of their harvest. So this 5.3 million represents close to 8% of the market share of Argentine volume, so our record comparing the 2%, 3%, 4%, 5%, 6% market share we had in the past. This company is forecasting an EBITDA close to $25 million so shows the strength of this company that is not only doing this job in Argentina, now expanding its branches to the rest of the region, including Chile and Bolivia, Paraguay and now FyO is going to launch its branch in Brazil to called [indiscernible]. To show the strength of this company went to the capital market, raised a bond at a 0 interest rate for 3 years. And this company has 2 bonds and the whole -- all these financing of this company is at 0. So this expansion is very well recognized in the market. From the other side, Agrofy, this is the e-commerce of the agricultural in the region. This company is still expanding on the region and burning money -- still not achieving the goal of not burning money, but decreasing the burning money a lot the company has cash in its pocket and it's decreasing the burn rate up to the level because the financing of these companies is much tougher in the market. So these companies is adjusting the size of the company, adjusting the payable mainly today, the companies with the less employees that it had, and it's finding the business to using the calves the company raised in the past to survive and to go to be leading this industry that is delaying more than we expected the use of the digitalization for the selling of the inputs of agriculture. And the company, understanding that is delaying its burn rate to wait because this we think it's going to happen, but not as fast as expected. Saying that, I will now introduce Mr. Santiago Donato.

Thank you, Alejandro. Well, moving to this page. Here, we can see the ESG progress for this year. We made a lot of efforts and progress in our commitments that we are assuming in environmental, social and governance fronts. We obtained the RS certification, El Tigre farm, located in La Pampa, Argentina. This year, we certified more than 4,000 hectares, 7,000 tons of soybean production for a period of 5 years. This is a very renowned certification in the agricultural sector and also very valued by the international market. It recognizes the company's commitment to comply with laws and good agricultural practices, the respect and relationship with local communities and mainly the care for environment on the production. On social -- we had some other certifications in Argentina, a wool certification in a farm also [indiscernible] of the country and then BrasilAgro as well is working a lot on ESG and certified its current production this year. On the social side, on the social front that we have it directly and through Fundacion IRSA, we have done multiple initiatives, donations and volunteer with a focus on quality education or rural education. We work with more than 25 educational institutions throughout all the country. And we invested directly and through Fundacion around ARS 260 million this year with the more than 100 social actions, benefiting more than 100,000 people. So we are putting a lot of efforts on this. We'll keep working to make more progress on ESG following our vision of feeding the world from Latin America, meeting the world higher demand coming from the increase of population and the world food needs as well. I will now give Matias for the financial -- for IRSA -- investments in IRSA and the financial chapter.

Thank you, Santiago. Good morning, everybody. So moving to Page 12. We can see our investment in IRSA. During the year, we increased our stake to 57% from 54% in the previous year. We saw a good opportunity to invest in IRSA shares. We can see some of the results of IRSA there in the year, there was a very strong financial and operational performance, mainly in malls and in hotels. The tenant sales in our malls keep growing and keep increasing our occupancy. We reached 100% occupancy in Della Paolera building and the rentals in the office segment. So we are very happy with that. The hotels also shows a very good performance, surpassing the segment of offices, for first time, the hotels is more representative than the office in terms of EBITDA. There was an increase in occupancy and performance. Also, IRSA were very active in the real estate selling a lot -- selling a lot of office floors for up to $163 million and acquiring as well some buildings for $7.8 million. All the refinancing process were concluded during the year. There was a significant deleverage of up to 67% since 2020. So IRSA applied most of the disposals of offices to reduce debt. Then IRSA also was very active in the capital structure, buying back shares for up to ARS 5 billion. This is a new program where IRSA invested around 40% of that during the year and also distributed a significant amount of dividends during the fiscal year for what was a dividend yield of 17%. Also, IRSA proposed to the next shareholders meeting to distribute a significant dividend of ARS 64 billion that will represent around a dividend yield of 15% according to the current prices. The -- on the right side, we can see the evolution of the rental EBITDA. We sold past pre-pandemic levels from $131 million to $167 million. We can see here the evolution of the malls that is the most significant and then the hotels is the other. So moving to our financial statement. Here, we have different drivers that affected the results during the year. First of all, I would like to mention on the macroeconomic side, what happened with inflation and devaluation that has an impact on our financial statement. The inflation during this year accelerated, reaching levels of 116% compared with 64% in the previous year. And when we analyze what happened with the FX evolution during the year, there was a revaluation of 105% on the official exchange rate and 31% last year. That means that during the year, the peso appreciated against the dollar, 5% in the previous year was 20%. On the blue chip swap the dollar map also, there was an appreciation of 10% during the year and 8% last year. That has an impact when we compare figures in dollar terms. So if we translate those dollars of the previous year into pesos and then express again, adjusted by inflation, that will increase the numbers of the last years in dollar terms. So that has an impact on the time to compare figures of the previous year with the current year. If we see the agriculture operational results, we see here a reduction of 85.9%. Some effects are not yet recognized in this year, for instance, the new dollar that the government put for the corn is not reflected yet in our results, so that will reflect it in the next quarter. So that will increase a little, the grain segment. But when we analyze, we can see a drop in most of the numbers, starting with the grains or in the farming, we see a reduction from a gain ARS 23 billion to a loss of ARS 7.8 billion during this fiscal year. So if we see the grains, last year was an excellent campaign, excellent prices, lower cost, very good yields. During this fiscal year, as Alejandro mentioned, we have the drought in Argentina that affected significant our yields that was partially compensated by prices, not on the commodity side, but on the FX side that they're going to put new effects for corn and soybean. So part is reflected already in our numbers, part will come in the next quarter. But the yields are lower this year. The costs are higher this year, and the price of commodities were lower than the previous year, that is the reason of the drop. In the sugarcane also, we are comparing with a record year in 2022. This year, the prices were lower. Remember that the last year, the prices of all the -- all the prices were record because of the war in Ukraine. So this year, there was a reduction. And also in Brazil, the government put a lot of effort to reduce prices of fuel that affected also the segment of ethanol. In terms of surface was stable compared the surface of sugarcane last year with this year. In terms of yield was a little drop, but mainly the results were affected by higher cost and lower prices, as I just mentioned. The cattle segment, we see a positive results in terms of production. But when we compare -- when we analyze in pesos term, in real peso terms since the increasing prices were much lower than the inflation. In real terms, we recognize or we see this decline. But in terms of production was positive. Then the other important effect during the year is the reduction in the farming sales segment. We see a drop of 47% from ARS 19 billion last year to ARS 10 billion this year, although this year was a record in terms of farming -- farm sales. We see this drop that is related to a decline in their receivable accounts that we have for all the past disposals since the price of the soybean declined, and we have a bag of soybeans to collect, we see a drop on that. And then the lower results on some of the farms that we sold during the year. So going to the next page on -- because of all these drivers and on top of that, higher costs on some of the IRSA segment, basically in sales and development and in the other segment where we have an increase on 2 drivers, 1 in salaries and Board member fees. And the other is there -- is related to a claim that we have in Israel, where IRSA make a provision of around $23 million. That is the drop on top of what I just explained on the farming side. Leaving aside -- this is leaving aside the fair value of investment properties. If we analyze itself, what happened with the investment properties, we see a drop. This is more related to the macroeconomic drivers. If we measure our properties in dollar terms, the prices are stable, so should be no negative results. But since we are showing our results in pesos adjusted by inflation, we have this drop of 50 -- or loss of ARS 51 billion. Finally, on Page 17, we have what happened on the net financial results, where we have a gain during the year of ARS 24.2 billion compared with a higher gain last year of ARS 47.3 billion. Here, we have 2 main effects. The first one is the line 1 on the table below the graph. The net FX results where last year, we had a gain of ARS 63.5 billion against ARS 20 billion this year. Remember that the appreciation of the peso was much higher last year. So all our dollar-denominated debt was affected by that or benefited by that. The net interest went down to ARS 18.9 billion compared with ARS 27 billion last year. This is because of the deleverage of the group and also the fair value of the financial assets. This is the investment of our liquidity generated gains during the year of ARS 8.7 billion. Finally, another significant effect during the fiscal year was a positive result on the income tax. During the year, there was a resolution from the Supreme Court, allowing one company to adjust by inflation the tax credits and the tax financial statement. This is something that we have been doing on the tax balance sheet, but not on our financial statement. And during the year, we decided to recognize this gain because the Supreme Court is allowing the company to do what we are doing. So we are recognizing that gain. So finally, with all these results, the company is finishing the fiscal year with a net result positive of ARS 75.3 billion compared with ARS 135 billion last year. About our debt, the net debt, we finished the fiscal year with a net debt of $396 million. The last quarter, remember that was $420 million. So we reduced a little our leverage, the next amortizations are distributed in the coming years. So we feel comfortable that the company can refinance the upcoming maturities without a major issue. The credit rating was updated by Fix that is a subsidiary of Fitch ratings from AA to AA+. About the capital structure, we have been acquiring shares in the market. We did -- well, the Board made -- approved a program of shares repurchased for ARS 4 billion. We just updated the maximum price to $9 per ADR or ARS 720 per share. The program, we already invested ARS 3.1 billion, so we can complete the program that is around ARS 900 million more. And also, we submit for approval to our shareholders meeting a distribution of up to 5.8 million shares. That is around 1% of our capital stock that will be distributed together with the dividend. About the dividend proposal during the year, we paid like -- was like ARS 12.6 billion. That was a dividend yield of around 9%. Now we submitted to the shareholders meeting a new disposal for up to ARS 22 billion in cash plus 3% of the shares of IRSA. So if the shareholders meeting approve, we will distribute around October or November this amount of money and shares. So 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 the first question. What is the reason for distributing IRSA shares?

Well, so every time that we analyze the dividends, we analyze our capital structure, the liquidity and upcoming amortization of debt and the upcoming capital expenditures that we have. So if we analyze what IRSA will distribute, IRSA for Cresud will distribute around ARS 37 billion, and we prefer during the year since Cresud acquire shares of IRSA for this -- I mentioned that we increased this 3% during the year. It's like we use cash for this 3%. And now we will receive from IRSA this ARS 37 billion. So it's like we are leaving the amount of money that Cresud invested for IRSA in cash, and we will use that cash to reduce debt. And since there was this increase in shares, we will distribute those shares for our investors. So that is the reason.

Next question. If you can give me some prospects on the future campaign in terms of size, prices, costs?

We are planning to increase -- we are talking about 6%, 7% growth in area, decreasing the area that we are giving to third parties and increasing that for our own plantation. So we are going to look for a bigger campaign related to tons in the whole region. Related to prices, we are expecting a drop on prices comparing to last year. It's because of what we spoke about the modernization of the regional production, and that is affecting prices. And so -- but a big decrease on the costs, this is maybe fertilizers and inputs, not in seeds. So we are expecting a more normal margins than last year, better operational when we speak about next year will be a better operational than last year because we are forecasting that if the weather is normal, no? So having said that, prices on drop, cost in drop, yields recovering mainly in Argentina and so this is what we are expecting on the operation for the 4 countries.

Next question, what is management's current expectation on the time when Cresud will exercise its IRSA warrants?

Well, the expiration of those warrants are in 2026. So we don't anticipate any reason why we will exercise those warrants before expiration. So no, we are not planning to exercise before that 2026.

Next question, if we can provide more details on the provision or legal proceedings in Israel.

Well, there was during our investment in Israel, IRSA signing the commitment subject to different conditions. And an injection of around -- of 2 installments of $20 million that were subset to different conditions. The company or IRSA understood that those conditions were not fulfilled and there was no guarantees at all to inject that money. On the other side, the claim is they think that we should invested that money and that is the claim. Although the lawyers of IRSA feel comfortable about the claim the Board of Directors decided to be conservative and generate the provision of the half of the claim, for $20 million, and the claim is related to that. That is all explained in our 20-F or in the documents of IRSA if you want to see higher details or deeper details of the claim.

One more question. Do you plan to purchase further Argentine farmland?

Yes, we did some purchase and we are in the objective of rebalancing our portfolio in Argentina on land. Yes, so it's our intention to keep buying in Argentina, if we find the opportunities.

We give some minutes more for any additional questions that you may have.

We, this year, instead of -- we were able to buy something, and we are going to keep doing those swaps of the land. This is what is our mission, no? It's to rebalance always our portfolio. So yes, for sure, we're going to try to do this in the 4 countries that we are. So if there are no questions...

There is one more. Will the cash dividend be distributed as a lump sum?

It's not defined yet. The shareholders meeting will decide all the details about the dividend. The proposal is to distribute up to ARS 22 billion. So that will be decided by the shareholders' meeting on the fifth of October.

With this, we conclude the presentation on the Q&A session. We thank you very much for having participated. And I will now turn back to Mr. Alejandro Elsztain, CEO, for his closing remarks.

We are closing a mixed year, I would say, but facing what we think a very good year for next in growing area. And I think the expertise on the operation is maturing year-to-year. So in some cases, we are seeing so good yields having drought affecting that makes us to be very optimistic in that operational maturity of the company and increasing the size. Meantime, the real estate portfolio and the activity shows this fever the company likes to have where to the day we are ready for selling and buying again in another region. So we are expecting a very good and active new year related to real estate in the region. . And in the service, too, because the expansion of the service is going to the rest of South America. So yes, we are very optimistic facing the next few year having a lot of uncertainty related to Argentine, this is a year of changes, of election and probably a change -- a big change on the rules and the economy. So for sure, this is going to affect our business in Argentina that today is a portion, but is not all the activity of Cresud on the region. So thank you, everyone, for this year that is finishing and let's see and let's keep thinking and working a lot. The next year is going to be better than this. Thank you very much, and have a very good day.