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

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the fiscal year 2025 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. After management remarks, there will be a question-and-answer session for analysts and investors. [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 afternoon, everybody. We are finishing our fiscal year 2025. And if we begin in Page #2 we can see the 7 main highlights of the year related to agriculture. 2025 was a very big campaign in size and the combination of leasing and owning land that it's not very big in the comparison. It's close to the 50-50 or a little bigger than 50-50 in leasing comparing to own, but larger in our history, expecting to have a larger next year because the leasing conditions of this year. Related to climate, we have good conditions, but some areas of Argentina and Paraguay mainly suffered very tough, the scarce of water, and that was impacting a lot in the yields of mainly the Los Pozos Farm and Paraguay farms. And the rest of Argentina had a good weather in Central and South, so majority of the country was in good condition, but our position on the North was not very good. Stable -- the year was stable in commodity prices. We had a big drop last year. This year was stable and input cost made in some of them a big correction like crop protection, but in some of them like fertilizers, still the prices were high. So that made us lower margins and that affected their activity in Argentina, mainly. There was a big impact on Argentine macro, and we're going to share with you later about the reduction of grain taxes and exports and [ the gap on the $2 ]. And that is the next where the removal of capital controls in Argentina made a very, very important new move for farmers of Argentina, that in the past, we had 100% or 150% gap and today, close to 0 gap made us to be raising directly dollars or when we do agriculture. Relating to BrasilAgro was good related to production in sugarcane. Some yields were affected because some frozen and some lack of water in sugarcane was more mixed in crops. There -- some of them, mainly soybeans and cotton were affected in yields, the price were almost the same we expected. The inputs went down, but the margins were better comparing to last year, but much lower than in the past, comparing to the best years of Brazil. Related to cattle. The cattle is really spending very good time. We have higher prices, better margins, better production, more stock. So we are intensifying our activity in the 2 farms in Argentina, and we're going to show you a little later. And related to real estate, there was some activity. One was in Argentina, the first quarter of -- the first quarter of the last year, they were affecting -- we have the first quarter in Los Pozos farm, there was a sale, but the other quarters, we had in other farms in Brazil. The other 3 are in Brazil. So we're going to show you the gains that we have in this 4 sales. We are comparing in the plant Page #3, we see the evolution on the crop planting in the region and the combination of the 4 countries. And we can see that we are achieving this close to 300,000 hectares of agriculture. And where main activity is soybean, corn the second, sugarcane the third and wheat the fourth. And we are growing, and we are forecasting a big growth for next year. We are surpassing the 300,000 for next year. What I said in the past, in a combination of more leases and maybe some more purchasing. But for the next campaign, we are forecasting much more volume related to agriculture. In page #4, we can see the prices of the commodities. And here, we can see, this is a long-term 15 years. And we see that in soybean and corn that they are very similar, we see that they were the year of '20 to '24 higher prices. There was -- the '24 to '25 was almost stable and a little rebound, 9% in soybeans, 8% in corn. There was some movement on plantation. They are losing some areas of soybean in U.S. and that is affecting more corn in U.S. So probably more recovery of stocks on corn, less recovery in North America related to soybean, but Brazil, Brazil is forecasting again to plant a lot in Argentina again, too. So the combination of the countries related to corn and soybean is expecting for next year to have good enough quantity of commodities for next campaign. So there are no big news related to prices in the region. If we move to the next page and related to Argentine government measures, they were really very favorable. And the permanent reduction on grain that was announced by the government in July of this year, saying it was not a transition, like it was at the beginning. Now they did permanent before was 33% on taxes on soybeans and now on 26%. The corn went from 12% to 9.5%, wheat and barley the same, sunflower from 7% to 5.5%. Beef cattle depending the categories, cows are at 0 and still is at 5%. So there was a big reduction. But apart of that, the exchange rate flexibilization and convergence, look at before '23, the gap was 100% to 150% after the [ Miles governance ] 20%, 30%. But recently from April of this year, the gap close to 0, 0.5%. So now farmers of Argentina are receiving the real sales of dollars, still with taxes and exports, but the promise of the government to keep producing in the time they will have the surplus in the fiscal deficit. Now they don't want to be reducing the tax before they have the increase on the tax collection. And the government related to that is being serious. So it's doing in steps, and we expect the government to keep doing and finally, to accomplish their promise to go to 0 taxes on networks, but all they were -- almost all the work is in taxes in 0 or subsidizing production as many of the developed countries of the world. So this is really relevant news affecting the margins, operational margins and the real estate margins that we are going to show you later. If you go to Page #6, we can see some of the client conditions, and we divide it in Argentina and Brazil. Argentina, late and scattered rains once again affected yields and mainly in the north, and that affected north of Argentina and Paraguay, the [indiscernible] Paraguay. The 2 regions were affected in case of Argentina, we have the cattle business in the north that was very profitable. And in there, we had much better results because of the cattle business in that part that we didn't have that in Paraguay. Related to the southern areas, Central and Southern, real there, they were much better conditions and the yields were much better compared to the normal. And relating to Brazil, the adverse weather conditions reduced soybean and cotton yields [indiscernible] too, and sugarcane too were affected too. But related to previous issues there were better prices of corn and in corn better yields. So finally, the operational business in Brazil is better than in Argentina in the comparison. So we can go to next page and to look at the volumes -- total volumes, there was a big chunk in a comparable size, a little bigger, but there was a 17% increase on volume in crop -- in crop volumes still lower compared to the yields that we're expecting when we planted, but much better to compare it to last year. And related to the sugarcane the same, there was a big effect in the drought and early frozen in Brazil. So that is affecting a less hectares. There are some less hectares in Brazil and the sugar production. When we compare this of year-on-year, we see a little increase in the corn yield. Last year, we had 5.09. This year, we're having 5.5 in corn. So corn gave us good results in yield, and in the prices, there was a good price in the region for corn, and that was a very positive growth. And in the soybeans, there was a small growth, 2.71 to 2.6. So year-to-year, we have a much normal yield by 2 regions, the Salta and Los Pozos region and Paraguay, they were more affected. Moving to next page, we can see what happened in cattle that it's representing again some importance in Brazil. In some years, cattle was at $2 billion, $3 billion EBITDA business, but these last 2 years was more than $8 million, or close to $9 million gross margin number, '24 and '25, with close to 60,000 heads of cargo in Argentina. And this is becoming a more relevant business, we are introducing as we did in the combination of owned land and lease land in agriculture. We are doing now on the beef industry. We are doing more feedlot, finalization of the animals. And that is in these cases, where the drop of the prices of -- like the corn that we are now spending and the corn went down with the combination of 6, 7 kilograms of corn during a kilogram of beef that is the maximum prices in the U.S. and in Argentina and in the region. We are doing a very good business. And that's why we are intensifying a lot. Argentina is in a much better price than in past and all the regions better price and the lower price of grain with a better price of beef is making a more balanced activity more important for Brazil, the cattle too. So we expect a very good year related beef. And we expect the same -- we are expanding our operations in some 2 fields that we have on farms. In the old past we had forward, professional feed in [ Visa Mercedes ] that was for clients. But now we are doing 2 smaller fieldworks of close to 10,000 [ etch ] of them in the farm of [indiscernible], and the farm of the Los Pozos, and the 2 are very profitable, and that's the reason why this margin of cattle is improving so much in the last years. We move now to Page #9, we see the 4 fractions the sales of the total farm. The kinds of Preferencia farms 18,000 acres, we sold 100% of that activity. The rest are small portions of farms that were sold, and we did finance sales of $60 million, having a big gain on real estate in the year. So when we talk about these 4 transactions, only one in Argentina, Los Pozos that was just land reserve that was in a book value of $10, and we sold to $500 and $600 per acre, huge gain, majorities gain close to 0 on book value. And in the case of Brazil, the 3 are different, so we are, again, reflecting a big portion of the gain of Cresud through BrasilAgro, through the real estate part, that every year, not selling so much, this is our competitors of the hectares of the company, small fractions, but still ready good gains to the balance sheet. We always show only the gain of the pieces that we are selling every year. And here in the next graph, we see this year are 4 pieces, fractions or one that is 100%, $66 million total or in nominal sales, bringing $56 million of gain to big majority in nominal gain. So I look at the -- what we expected and we expressed in the past about the land value, some of the line is decreasing the pricing in the corn bank of U.S. or the best areas of Brazil, but there is some increase in price in Argentina that is a combination of better climate conditions and better operational yields and the gap we spoke, and the taxes reduction, and Argentina is reentering to the price valuation of the world, still very far, but the trend of the year was in the gains of the rest of the countries. So saying that, we can move to the next page, the commercial services. And here, we are seeing the evolution of FyO as our subsidiary, where Cresud owns 51.2%. This company that is in segments of acopio, capital, credits, advisory foods and digital. So helping farmers to improve the commercial part. This is advising to sell and to buy better and not entering into production. The only production is [ amount ] where we sell some fertilizers, but majorities is helping farmers in inputs and outputs. And this company that didn't exist in the past, went to more than 7 million tonnes. This is our record year, 7.25 million. We are expecting to close that represents 6% of Argentine total crop. So the largest broker of Argentina, mainly a very big net income. There was a drop this year because of the inflation and devaluation, but still a very positive number, that it's impacting the balance sheet of Cresud. I will now introduce Mr. Santiago Donato that will share with us some progress related to ESG.

Thank you, Alejandro. Well, here on this page, we can share some of the main achievements on the ESG agenda this year. . On the environmental side, we continue advancing in our RTRS certification program, both in soybean and corn. In this campaign, we certify 7 additional farms reaching a total of 9 in our portfolio in Argentina, almost 36,000 tons in soybean and in corn. This is approximately 25% and of our total production of soy in Argentina and 15% in the case of corn. So we are very proud of this. This is a very well-known certification that implies that the farm was has no deforestation since 2008 and the best agricultural practices in the farm and also relationship with the communities near the farm. In parallel, we maintain our international certifications, including 2BS, Cargill Triple S and the EPA. On the social front, on the highlights of this year was the 20th anniversary of our school at Los Pozos farm in Salta. This is a school found in by Cresud in 2005, which today educates both primary and secondary students in the community. This is a farm that is 350 kilometers far away from the city of Salta. So in the middle of anywhere, that where the company provides health service, school inside the farm. Apart from that more broadly during 2025, we invested over ARS 700 million in different communities in the country, in social programs directly and through Fundacion IRSA, building relationships. We bought an 80 NGOs and coming out like 100 community initiatives. These actions reaffirm Cresud's long-term vision that is produced food responsibly from South America to the world creating positive impact both in the environment and the communities where Cresud operates. I will now give the word to Matias Gaivironsky, the CFO for Cresud Investment in IRSA and the financial chapter.

Thank you, Santi, and good afternoon, everybody. So if we move to Page 13, we can see the results of our stake in IRSA, where we control 54% of the shares. IRSA has a very good year with a net gain of ARS 196 billion compared with a loss last year of ARS 32 billion. There was a strong annual recovery in shopping malls with a 10% increase in peso's terms and a higher increase in dollar terms. Tenant sales finished the year with a small drop of 2.8%, but in very good levels when we measure on a historical records. About the malls portfolio. There was a lot of movement in the portfolio. We acquired a new shopping center during the year. We acquired also a plot of land adjoining Alto Avellaneda to double the size of the shopping mall. And also, we are launching a new mall development is a greenfield in La Plata City in the province of one of our sites. About the office portfolio remained stable compared with the previous year with almost full occupancy, and the hotels suffer a little drop in the margins because of the inflation. Basically, the tariff in dollar terms remain stable. The cost in peso's terms increased by inflation. Another significant milestone during the year was the commercialization of Ramblas del Plata project. Remember, this is the most ambitious project of IRSA for the last decade or probably for the whole history of IRSA. We started the commercialization during the fiscal year, and we already signed 13 transactions that IRSA will receive around 111,000 -- sorry, will receive around 58,000 square meters of sellable square meters in the future. Also, there was a new issuance of a note in the international capital market, you set up the international capital market after probably 10 years. So we issued a $300 million notes that will expire in 2035. And as we already discussed during the year, is paid a significant dividend to Cresud and to the rest of the shareholders with 8% dividend yield and 3.6% of own shares. On the right side of the slide, we can see the evolution in dollar terms of the EBITDA, the rental EBITDA, we can see a significant improvement against last year, 15.3% and shopping malls reaching $169 million. That is a record for the last 10 years. In next page. So as part of the review of this fiscal year, we detected a mistake in the calculation of the inflation adjustment on the share premium from the warrant exercise in fiscal years 2022, 2023 and 2024. Basically, the error duplicated the inflation adjustment overstating the share premium and decrease the net income result for the last year, this decrease was approximately ARS 17.8 billion. So after detecting this error and in line with IAS 8, the company restated the affected items of prior financial statement reached attractively. And the details of the tax is presented in the current fiscal year. So we already -- in this page, we can see already the restated numbers of the previous year. So I will explain the main drivers of the increase that we are finishing the fiscal year with a net income of ARS 224.3 billion compared with ARS 163.8 billion. According to controlling interest is ARS 96.1 billion against ARS 135.7 billion of the last year. So there's many drivers here that affect the result. The main driver is in Line 6, the change in fair value of investment properties regarding IRSA regarding the urban properties every quarter and every year is revalued its investment properties according to different methodologies. Last year because of the evolution of the exchange rate and the inflation, we have to post a significant impairment of the investment properties. This year, we are recovering because basically the shopping malls with better performance and lower cost of capital we improved significantly evaluation of the shopping malls, so that this year generates a gain of ARS 6.6 billion. So when we see the rest of the results, we can see an improvement in the urban properties if the operating income from the lost year was ARS 256 billion to a gain of ARS 180.8 billion. Related to agribusiness, we can see a decrease from ARS 96.3 billion to ARS 49.1 billion gain this year that we will enter in more details in the coming pages. And also, the other important numbers are in Line 13 and Slide 14 related to net financial results and income tax that also we will show in the following pages. So going to the next one. We can see here -- so enter in more details on the operating results on the agriculture business. We can see that the drop this year against last year is basically related to lower results in farmland sales. Although we sold this year, as Alejandro mentioned, the 4 farms. Last year, we sold a little more and generating more results and also adjusting that by inflation. This number is bigger. So this is the reason of the 30% drop. When we see the farming activity on the right side of the page, we can see an improvement from ARS 2.5 billion to ARS 15.9 billion this year. So we can see an important gain in sugarcane related to better prices, more yields and more area under production. Also in cattle, we see a significant increase related to more production also and much better prices than inflation. Last year, the prices increased much lower than the inflation this year, much higher. So that generates results from the holding and also from the production. And about the grains, we see this drop from ARS 3.9 billion to a loss of ARS 5.6 billion that there are different drivers here as well. There is an adjustment in the estimations that we did at the beginning of the campaign that generate a loss because of lower prices and a little lower yields than we expected at the beginning of the campaign. And when we measure some numbers and historical levels without adjusting inflation that is positive, but when then we adjust by inflation since prices increased lower than inflation, we are posting a decrease in the numbers. If we see the breakdown here between the part that came from Argentina apart from Brazil, Argentina is suffering against last year, and Brazil is better than the previous year. Going to next page, and finally, we have the evolution of our net financial results that still positive. So we have here basically all the interest burden of our debt and assets is still positive. We are -- since there is more -- sorry, since there is more inflation than the valuation all numbers related to our dollar-denominated debt, generate positive results. And also, we have the evaluation of our all the liquidity and assets, financial assets that are generating positive numbers. Both finally, with all of this, we are finishing the fiscal year with this gain of ARS 224 billion and attributable to our controlling shareholders ARS 96.1 billion. About our debt. There was 2 transactions in the recent quarter. We issued 2 new ones, 1 for a 3-year tenure, $43.7 million at an interest rate of 8%. The other was a couple of weeks ago that we issued $31.3 million at a rate of 7.25% for a 2-year tenor note. So with this, we are financing part of the amortization of this fiscal year 2026. So there is still a remaining that we are planning to refinance in the local market in the -- during this fiscal year. The net debt remains stable at levels of $354 million. So with this, we finished the formal presentation. Now we open the line to receive your questions.

[Operator Instructions] We are the first that is related to the value of Cresud today. Given that it's undervalued in the opinion of this investor if the management is considering taking an action in order to unlock value at Cresud today, he says that the market cap of Cresud is equal to its value of its stake in IRSA. So the rest of the assets are given for free. So what's the opinion of the management here? And is the management has been thinking to take actions in this direction?

So let me answer the question. So if we analyze what we have been doing during the last 5 years, I would say that both IRSA and Cresud were very concentrated in our own capital structure. So we haven't launched significant projects during the last years because of the volatility basically in Argentina, there's a different environment in Brazil. But we have been selling much more assets than buying assets. And at the same time, canceling debt, paying back to our shareholders through dividends and through buybacks of shares. So I think -- I'm trying to simplify also the structure, our corporate structure. So sometimes I think the question is related more between the arbitrage that you can see between IRSA and Cresud and which one is cheaper than the other. So that part, we can't do the arbitrage more for our investors and for the company itself. What I -- what we can do, and I think we have been doing a lot during the years, this was to pay dividends that our shareholders, if they believe that is cheap the shares, they can keep buying shares or also to launch buyback programs through the companies. That is something that we need probably during the 3 last years, both in Cresud and IRSA. But there, we have some limitations. It's not that the company can buy back all the shares that we want. There are some restrictions according to the CMB about the value or the volume that we can buy. So we can do it through both ways not to distribute dividends and our shareholders will buy or to buy back shares directly.

Next question, is the company thinking in buying farms in Argentina or selling farms in the country? Are they seeing opportunities? And in terms of prices, which is big trends do you -- are you seeing in the local country in Argentina?

Argentina at the time that has been reconnected to the world, it's giving more liquidity to the real estate. And with that, probably we are going to do the 2. We are going to be selling some of the assets that they reevaluate a lot. And we don't see a lot of more potential because of the situation of that land on that region. But at the same time, to be buying again because some farms are very delayed of the price of the world. So yes, I imagine liquidity is going to help us to do the 2, and we are in process of doing exactly that. . In Brazil, liquidity was not a subject and it was not in the past. It's still not in the present little lower prices comparing what they were, but there, we are little waiting for more adjustment on price to buy it again because the adjustment is not enough to be buying actively.