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 2024 Results Conference Call. First of all, I would like to remind you that every play of this webinar, the presentation and the earnings release will be available on our website at www.cresud.com.ar. [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 beginning our closing results of the whole year. Main highlights for fiscal year 2024: This was, I would say, a challenged campaign in the region, mainly driven by the lower commodity prices that really dropped a lot. We are going to see later about the 30%, 40%, from the last 30th of June to this 30th of June or from 2 August to now. And lack of rains and lower production, too, in some regions. Last year, Northern region was good, but Southern region of Argentina was not good. But this year, we have the opposite. And so the combination for this year damaged some part of our results. But comparing to last year, the South is much better because this year was normal for South. In Brazil, the lack of rain and lower prices and the base is affecting the sales made the operational result much lower comparing to last year numbers. And talking about the farm sales, this year, we have 2, at the end of last year in Argentina, a portion of Los Pozos and a small portion of El Tigre that we are sharing in the last quarters. And there is only 1 new in Brazil as fraction of Chaparral farm that was sold on the fourth quarter, main activity of the year and bringing a lot of gain that we're going to share you later. So related to the farm sales was an active mainly in Brazil. And related to IRSA Cresud owning 55% of the stake of IRSA, had a very good adjusted EBITDA related to rental, very good year, and it's 8%, 9% higher than last year numbers. Related to the total results, the net result for this year was a gain of ARS 104,000 million. And from those ARS 84,000 million was to the controlling shareholder and we paid a lot of dividends last year. We had 8.3 in cash and 4.5 in shares of IRSA, plus 1% of the capital stock that we own and we distribute the shares of Cresud. So it was a very active year related to dividends. If we move to next page, Page #3, we can see the evolution of our total number of hectares. We have this year a drop comparing to last year, was not forecast at the beginning, but we had this drop related to some areas that were not planted because of the drought affecting them. So it was a little decrease to close to 280,000 hectares and we are now expecting to surpass for next year 300,000 hectares for next campaign. And Argentina and Brazil balance in size and the rest of Bolivia and Paraguay and some hectares leased to third parties. And related to the [indiscernible] soybeans close to 50%, corn 22%, sugarcane 10%. And so we are expecting a growth -- a combination of growth for next year for some leasing areas for the region. If we move to next page, I will give the word to [indiscernible].

Thanks, Alejandro. Good morning, everyone. In this page, we will talk about the commodity prices. And as Alejandro said, we can see the evolution of commodities prices in this campaign was marked by the down pressure in the international basis. After the peak reach, after pandemic and boosted by Russia and Ukraine war, soybeans and corn international prices have experienced important a huge correction, mainly due to the growth in the supply from South America, the increase in production in Argentina and Brazil, too. And the market is waiting for the demand be re-activated. Soybeans decreased in range of 38% since June 2023 and corn is down 34%. Regarding input costs, they are still at high levels compared to the prices affecting [indiscernible] margins. We are starting to see a correction in some inputs as chemical or fertilizers, but they are still far from the pandemic level. On the next page, we can see the farming challenges that we face in the region, mainly due to the climate effect in Argentina, as Alejandro said, Brazil and Paraguay. In Argentina, although yields and national production improved compared to severe drought in 2023, remember the last year, the lack of rainfall in the North affect our production while the South region had a good [indiscernible]. Talking about this, we can share that in Paraguay, the reduction was dramatic. We can see 90% or close to 100% drop on yield, and this is a comparable return to Los Pozos area. So the Northern part really damaged a lot of Argentina and Paraguay. The corn production suffered to the impact in the disease, Spiroplasma [indiscernible] that affect our production, but the mainly problem was [indiscernible]. In Brazil, the main product areas, [indiscernible] low yields due to the lack of rain and both soybeans or yield decrease compared to the previous campaign. The next page, we can see the regional agricultural production and yields. We show crop production during 2024 campaigned. We produced 707,000 tonnes of grain. This was 7.4% below previous campaign, and as I mentioned, due to the climate in the... Average regional yields decreased by 10% in corn and increased 4% in soybean compared to the last year. Regarding the sugarcane mainly in Brazil, we maintained the production levels similar to 2023, about 2 million tonnes. In the next page, we can see the cattle activity. Our production focus in on farms in Northwest, in Argentina and Brazil, in the fiscal year with high meat production levels and very good results due to the significant price improvement in Argentina. The cattle stock in Argentina had reached from 53,000 to 58,000 heads and represents 76% of [indiscernible] total head in the region around 75,000 heads. The gross margin in this segment was a record in Argentina this year reaching $8.3 million that was 159% above last campaign. Alejandro?

Thus, before changing, we can see the big jump that Argentina did in cattle. We see the blue line that is Argentina, and we can compare Argentina to the rest of the peers. And we see that Argentina surpassed Paraguay and Brazil during this year, and it's a little below Uruguay prices. But this recovery in prices made us so important profit and to Argentina that made more than double last year's numbers. I'm talking about the exchange rate. We can see the evolution that we did in the new government change that was at the end of December last year. So we can see in the green, the official to the blue chip was big, the difference. The gap was 100 or 164 at the peak or more. And after the government devaluation that went from 352 to 800. We have been seen the gap going from 30, 40, 50 today, it's at a 35% gap between the official and the formal dollar. And farmers are receiving mixed of the 2. So the farmers are in a gap of 20% to the blue chip. So really, farmers are recovering a lot their situation related to FX, and that is really helping farming a lot. So later, there was an appreciation of the peso because the devaluation was -- of the formal was 2%. So some appreciation of the peso we had during the year. But really, the main effect for farmers is, it was very, very, very good to the industry. Saying that, we can move to next page, #9. And here, we see the 3 sales, the two 1st are in Argentina and were done in the first quarter. And the last one is the fourth quarter is in this fourth quarter. They are the 2 small [indiscernible] partial, but very profitable in Argentina, internal rates of return of 14%, 16%. Almost all gain, we cannot see the green because it's so small, the book value of those 2 [indiscernible] that appears close to all yellow. So meaning that really our book value doesn't reflect because they are very, very old farms in our book. El Tigre is not so old, but still, we paid much less than we were sold. We were paying $1,000 per hectare, and we're selling at $7,500 per hectare. So really there was small fraction in the dollars at the time of the book makes 2 only yellow bars and only talking about the new one, Chaparral, here a big game to a sale of almost $73 million, $43 million of gain, $26 million of book. This is a really good sale fraction of the Chaparral sell. It's 1/3 of the farm. But with this 1/3, we sold many, many times what we bought comparing the price and the CapEx we did. Here, the dollar internal rate of [indiscernible] is close to 8% because of the time we bought. It was a 2, now it's at 5 and the time to sell, but really a very good transaction, bringing a very good gain to this fourth quarter. If we move to next page, we can see the evolution of the last 10 years. And here, the profit is the yellow. Last year, we made a 48:27 of book selling 75 million, but it's not very far from the media of the last 10 years, the 75 of this year. We can see that the last 5 at the peak of the prices were the COVID time. The company, we're selling close to $300 million of farms. And now, we think the adjustment is coming and here, we see the evolution of prices of the last 2020 graph on the right, we see the prices of U.S. in Iowa, in Brazil in Mato Grosso region, and Argentina. Argentina is connected to the rest in 2012 close to that year. And from that time, Argentina really went very far to convince that we were very close in years before. But now, Argentina is beginning the recovery and we see some points showing a small increase on the price. But in the opposite, we see in the U.S. and in Brazil, a beginning of a drop on the prices of the land. And this is because of the revenues and margins to farmers are decreasing and denominator that is the interest of the debt, it's increasing. So the combination of 2 is making some adjustment, still small but beginning of adjustment on the price on the other areas. But in Argentina, a reconnection to the price that in the past, we were very close. And after what we spoke about the gap decrease between the $2 and maybe some news coming to the taxes of experts that could continue the reduction of the gap between the 2 countries in Argentina. Saying that, I will talk about some figures about FyO, our investment in the commercial services in Page #11. And here, we see that there was a recovery on the harvest of the country and FyO went from the 5.5 million tonnes of last year to close to 7 million tonnes, 6.8 million, more than 6% of Argentine total harvest campaign. And this is really a big generator of EBITDA. This service company is really improving its capacity year after year. So the EBITDA of this company after not having a so important operational in the rest of the region is beginning to be more relevant year after year. Saying that, I will now give the word to Mr. Santi Donato.

Thank you, Alejandro. Here, we can see the ESG progress during 2024 campaign. We obtained new RTRS certifications for soybean and corn production at 2 farms in Argentina, El Tigre that last year, we certified soybean; and this year, we added corn and [indiscernible] part of our farm [indiscernible] certified soybean this year. So in total, we have like 5,100 soy hectares certified in Argentina. This is around 17,000 tonnes of soy and we certified 2,200 corn hectares for total 18,000 tonnes production in El Tigre farm. So we are very happy with these achievements. This certification is very important in the market, in the sector and is very valued by investors and by international markets. Because it recognized the company's commitment to good business practices, the provision of good working conditions, respect and relationship with local communities, care for the environment and production under adequate agricultural practices. And then we did some others like 2BS, EPA and Triple S Soy from Cargill. And then we obtained 1 year more the Responsible Wool Standard certification from our wool production in the [indiscernible] of Argentina and our farm [indiscernible]. On the social front, we increased this year our investment. We did more than 100 social actions. We worked with more than 100 NGOs, and we did an important investment with a focus on education. We have a school there in the north of Argentina, [indiscernible]. Next year, we will celebrate the 20th anniversary of this school. So we are very happy on our contribution to education and health infrastructure in the rural communities near our farms in the country. So now I will give the word to Matias to show the results of IRSA as an investment of Cresud.

Thank you very much, Santi. Good morning, everybody. So on Page 13, we have our investment in IRSA. Remember that we control 55% of IRSA. This year was a special year for IRSA. We started the first half of the year with very good numbers on consumption due to the acceleration of inflation, people tend to use the pesos fast and consumption was booming. And the second half of the year was different and with the new implementation of the new macroeconomic policies, there was a reduction in consumption. Although this volatility, we closed the year with very good numbers. Good results in the 3 rental segments. Our rental segment including offices, hotels and malls, finished the year with an adjusted EBITDA surpassing 8.8% a year ago. Also, we were very strong in real estate activity with acquisitions, sales and swaps. We did many transactions during the year. Also, we announced some new projects and the main project of IRSA that is Ramblas del Plata formerly known as Costa Urbana, we are giving the steps to launch the project in this fiscal year. Also, IRSA during the year was very active in the financial front and distributed dividends in 2 tranches November -- October and November last year and May during this year. That was dividend yield of 13% and 7% and also distributed owned shares for a total amount of 1.7% of the total stock. And also the buybacks for 4% of the total outstanding shares, investing around $23 million of the blue chip [indiscernible]. The rental adjusted EBITDA, if you see in dollar terms, there was 2.3% below last year. This is because of the devaluation during the year, but we are happy with the numbers. If we move to Page 15, we can see what happened with the main drivers on the economy. The devaluation during the year was 255%, but the inflation was 272%. That means that we have a real appreciation of 4% that will trigger some profits when we express our dollar-denominated debt into pesos. And then regarding the blue chip swap, the dollar map, also, there was an appreciation, in this case, by 25%, that is very significant, and that has an effect when we value some investment properties of IRSA in pesos that generated losses during the year. So if we move to the next page, we can see on the operating results better numbers compared with the previous year. We can see a jump of 188% compared with the previous year. We can see better results in all the segments. Grain, we have better results. When we analyzed the reasons, there was 2 different components. In Brazil, we have lower results. In Argentina, we have better. Brazil is related to lower margins, lower prices and higher costs. In Argentina, we have better yields in soy and wheat, lower in corn, lower prices in general in all the segments. And also remember that during the last year, we had the severe draught that affected significantly our wheat production. This year was much better compared with the previous one. So in general terms, good results. This is compared with the previous year. Regarding the sugarcane. This year, this is mainly related to our production in Brazil. We have higher hectare zone, higher production, lower costs, but compensated somehow with lower prices. The cattle activity, as Santiago shown before, was very good results with better production in terms of kilograms produced better prices, better volumes sold and lower cost. But when we express the numbers in real -- adjusted by inflation in the case of Argentina, that triggered some losses, but it's related to this adjustment, is a noncash effect. If we move to next page -- sorry, before there was also an important effect regarding farmland sales. You can see an improvement by 54%. During the year, basically, we sold the 2 farms in Argentina and Chaparral in Brazil that generated very good profits better than the previous year. If we move to the next page, you can see that together with IRSA and all the consolidated basis on the operational income, we have an improvement by 126%. That is leaving a side effect on the fair value of the investment properties that is mainly related to IRSA. When we include that effect, the change in the fair value, there was an important loss of ARS 348 billion. If we analyze that number in dollar terms, it's basically the same than the previous year. We have similar numbers in offices and in the land bank. A little higher in shopping malls, but when we convert those numbers into real pesos that generate that loss. It's a noncash effect, but we will have this kind of volatility every quarter. Then about our -- the financial impact. During the year, we have profit on the financial side of ARS 138 billion. Here, we have different effects. First, the liquidity of the company is basically at IRSA level and in FyO and in Brasilagro triggered important gains in pesos term. Then we have the inflation adjustment that generate the ARS 40 billion loss during the year. And the other net financial results where we include all the impact of the hedge transaction that is basically at FyO, Brasilagro and Cresud level that triggered the loss of ARS 63 billion negative. Regarding the net interest. Here is [indiscernible] but we have a gain of ARS 4.4 billion. This is related also with the composition of the debt when we have some pesos debt that at the interest rate lower than inflation, that triggered gains. But when we analyzed that in dollar terms since the reduction of the debt basically at IRSA level and also at Cresud level, we have lower interest that we are paying and also some reduction in the average interest rate. Finally, the net FX result. This is the impact of converting the dollar-denominated debt into pesos that generated gains during the year of ARS 59 billion. With all of this, we finished the year with a net income positive by ARS 104 billion attributable to our main shareholders is 48 -- sorry, ARS 84 billion compared with the previous year that was a gain of ARS 279 billion and ARS 156 billion attributable to our main shareholders. If we go to Page 19, we can see what we did during the year, we decided to distribute dividends in 2 tranches. The first one was in October, and the second one was in May. In October, we paid in cash and a total amount of ARS 22 billion and in kind with IRSA shares, 22 million shares that was together a dividend yield of 8.3%. And then in May, we decided to pay a dividend in cash of ARS 30 billion, that was a dividend yield of 4.5%. Also during the year, we distributed some treasury shares that we own that represented around 1% of our total outstanding shares. So when we analyze the debt on Page 20, although we paid that significant amount of dividends during the year, we reduced our debt amounting to $298 million compared with some years ago that we used to have more than $400 million. The debt amortization schedule going forward is controlled. We can manage. We have plenty of credit lines and access to the market. So we believe that we can manage very well the next amortizations during the year. The last issuance that we did was in July USD 28.6 million dollar linked note with a maturity in July '27 at an interest rate of 1.5% per year. So with this, we finished the formal presentation. Now, we open the line to receive your questions.

Well, we'll start the Q&A session. [Operator Instructions] Thank you very much. Here we have some questions related more on the financial front. The first one, is Cresud's [indiscernible] to pay dividends this year, this 2024?

Yes, we are thinking that -- sorry, 1 second. Sorry, yes, we are thinking to pay dividends again. This week, we will submit the proposal from our Board of Directors to the shareholders' meeting, so we will announce this week the proposal.

Good. Another one here. The market seems to be valuing IRSA, much more than Cresud. Are you considering any actions to close this valuation gap such as buying more Cresud shares or issuing IRSA shares to Cresud shareholders?

Well, so far, what we were privileging the liquidity at Cresud level and keep paying dividends, so we decided to use all the liquidity to pay dividends and not to buy back shares at Cresud levels, at least in the past months. The last year, we did some buy backs, not this year. So it's something that we will consider if we see such a gap. But we believe that if the IRSA shares are trading well, then sooner or later, that effect should be impacted in our own valuation as well.

Well, there's another question here on similar direction. During the evaluation of Cresud with investment [indiscernible] Brasilagro like the farm in Argentina is attractive, attractive discount prices. How do you suggest to get a fair value of your company in the market? I don't know, Mat, if you have something to add or you have already answered with the previous question.

I think it's part of our strategy. If we believe that there are good prices on the land, we will try to execute and sell properties. It's part of what we have been doing for the last 20 years. Not always the liquidity on the farms is high. In Argentina, the last years were -- because of the macro situation was a little tougher to sell properties, but you saw what we did during the year that we sold 2 plot of land of 2 forms. So it's something that we will continue or if we see opportunities to do that.

Good. One else regarding, do you plan to purchase farmland in Argentina?

Sorry again, Santi.

Do we plan to buy farmland in Argentina?

Yes. We didn't put on the presentation, but at the same time, we sold in Argentina. We bought more than what we sold. We bought a piece of land close to El Tigre. When we sold the 500, we bought 1,250 at 60 kilometers at half of the price we were selling. So the net on that was a positive. And Argentina is attractive in prices, and we saw the comparison to Brazil and United States. Yes, we are searching to make some acquisition in the year if we can to Argentina. And we expect if the adjustment comes to Brazil, and we are seeing some opportunities coming, companies that enter to the business with a lot of [indiscernible] and after many years of not very good results, and pressed by the debt going up, they are forced to sell it. So maybe, yes, some acquisitions on the region.

Perfect. One else related to the farming activity, which is the impact or which is what -- do you expect the impact of the reduction of the [indiscernible] for imports in margins?

This impact is coming a little late for the year. So majority of the farmers are bought -- they bought a majority of the inputs. When you do that in September, Argentina plans in October, November, December, so it comes very close. So that impact will affect some, but not the main at the beginning. But yes, there was a drop of 10% on the cost for importing and this is good, relevant as the gap going smaller to the farmers related to the blue chip, the 2 measures are very good for farmers. So -- but for this campaign, I think it's going to affect not so much because it's a little late. In our case, we have bought more than...

60% at least of fertilizer, maybe 60% of the chemicals, yes.

Yes, so 60% of the campaign was bought before, the next 40% is going to be reflected if the prices are decreasing after this measure of last week. Yes, we are going to see. And with the farmers need that measure because margins are decreasing a lot after the drop of the prices. And -- so everything that will help inputs to be adjusting to the new margins -- to the new prices will be very, very efficient to farmers in Argentina. Next step will be going to 0 that is announced for the end of the year that the tax is going to disappear at the end of the year. And they said a day, they will be able, they are going to be decreasing the taxes on exports. It's a promise that every time that [indiscernible] repeats he's going to do, but he's not forcing as the last time [indiscernible] came to government did that adjustment in the first 2 weeks, and [indiscernible] is not doing. He wants to show the surplus and the unification of the dollars before taking some of taxes on exports.

Good. Here, it's another question related to the number of shares and treasury that Cresud has and I have the other figure -- a little bit more than 1.9 million shares in treasury. And then I see some questions related to IRSA probably those questions, we are more on the IRSA front. So you can -- you have our contact, the IR contract, or other questions [indiscernible] side. There is one related to the public hearing that took place last year regarding Ramblas del Plata that process...

You said last year, it's last week.

No, sorry, last week, last week that took place. It was part of the process in order to be able to launch the project in the coming month. But then if you have some follow-up questions related to IRSA, we can have a follow-up call with the IR team, for sure. I hear there is another one. How do you see Argentine economy developing under this new administration? Are you generally positive on the future economic development? [indiscernible] reduction in inflation and export attrition, et cetera. How do you see the evolution of the economy in the coming -- moving forward?

I think Argentina made really a big change, a very big change. After years and years of spending, I'm not counting on the spending, we're not carrying on that and a lot of distortions in prices, in the things, in the tariffs, in the products. So I think that what the government is bringing is really new air for an economy that really was suffering all kind of problems from the [indiscernible] from macroeconomic problems and devaluation, every -- an inflation of more than 200. So really, the government decided a big change on the direction. But this is not free, and we are seeing part of that. Part of that is the -- there was a big decrease of the GDP of the country, a big impact on sales, but we are beginning to see some new air again and selling of sales. And if we can talk about our own sales on the shopping, we are seeing some new good sales after July, I would say, or August. So there are some rebounds, not as big as probably they like, but they were expected a year of adjustments. And we are passing a year of a lot of adjustments and a lot of bureaucratic change in the country. So the direction that the economy is going, I think, is very good, still very early. After many years the change will take time. And I think the government today is showing to have good measures related to economy, so a lot of criticism from many parts from opposition, from journalists from many others. But I think the country direction is going well. It's going to a real economy with real prices with real things, and I think will take time, but it's -- I'm optimistic that the economy is going to rebound next year. This is a tough year, for sure. But it sounds like next with a normal activity in the [indiscernible] and in the oil industry and the agriculture is not with prices, but it's good [indiscernible] again after the drought of last year in the Pampas affected so much. I think [indiscernible] rules that they are building, that is a constant [indiscernible] fiscal amnesty that will help part of our accounts and a lot of taxes that being paid these days, I think the government is running properly to pay the cost and pay the interest of the debt. So it's going to be a serious government reflecting a connection unlike the price of the land is intending to reconnect the country to the rest of the economies. Matias, do you want to add something else related to the economy?

No, I think you're going very well.

Thanks, Alejandro. With this, we can conclude the presentation. I don't know if you want to add something as closing remarks. I think you ended with the last question, but if you want to add something regarding the prospect for the next campaign, and we close the presentation.

No, the -- I think these situations where the margins are decreasing because how Diego explained about the cost of input not being so cheap like the prices before pandemic prices. So that decrease took time and still takes time plus; the prices of our outputs are very decreased comparing to the last 5 years. So situation for farmers is tougher in the world. What this makes is -- you have to be a better farmer and this is our mission for the year. We are going to plant more than 300,000 hectares and you have to be a very good production manager to run in this new environment. But what I think that our strategy is not to be a pure farmer. It is to be a good farmer in the times, but to take the opportunities when we found them. And this environment probably is more opportunistic for Cresud and Brasilagro where our activity of buying and selling helps us a lot in our mission. So we think this environment probably will help us to acquire more than we would like. We were speaking about this 300 million we sold in the last 5 years and maybe it's time if they appear to be in some of the acquisitions for Cresud related to farming and the continuation of the expansion of FyO to the rest of the region. So we see kind of opportunities for our company, and so, with that, we are closing another year very well paying dividends again and having a company that decreased a lot its debt, and IRSA and Brasilagro and everything, so we are very happy with the situation of the companies today. Thank you for everyone, for all the investors helping and supporting Crused's mission. And we see you next quarter, the 30th of September, that we're going to be probably in November giving the results. Thank you very much.