Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (CRES) Q2 FY2026 Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the second quarter of fiscal year 2026 results conference call. First of all, I would like to remind you that both audio and a slide 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 that 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.

Thank you, Santi. Good afternoon, everybody. We are beginning our second -- we are now we're going to introduce the results of the second quarter of '26, and we can see in Page #2, the main events that happened in this first half year. First of all, the conditions on the weather were okay, better than last year in the two in own and lease land and we have, this year, improved the size of hectares in the whole countries. So now with lower margins because of the drop of prices, we were very active to own and lease lands, and we're going to show you in the next page. Related to the prices, the prices were stable this year, no big jumps, some changes between U.S. and South America. But finally, higher cost of inputs, lower margins comparing to last year's, comparing to the COVID times, but we are compensating that through size between the 4 countries. And the only harvest we had in the beginning, that was the -- with mainly for the -- our winter crops, we have achieved a better yield comparing to what we expected when we planned. It was like 10% higher comparing the time we planted. And that was a combination of good yield and more use of fertilizer in Argentina. So we began the yield related to the old agriculture for the company in the first half in a positive way. But in the meantime, prices of the wheat were not so good. So we have better yields, but still now majority of that was not sell. Now we are beginning to sell, and we are compensating through the prices now. So we are having good results in the wheat too. In the rest, we're going to expect for the soybean and the corn that they are coming for the second half, we are in good shape, but waiting for more rains for the future. Related to BrasilAgro, we had lower production results. And that was explained mainly because of sugarcane. We had some cases of some things affecting the yields of sugarcane that mainly affect the first half of the year in Brazil. The one -- very good part of the half of the year was the cattle activity. Here, we had very sustained price, and we're going to show you the evolution of the prices related to this and Argentina with a very big stock and much more investments on cattle, we had very good results in the first 6 months. We are improving our feedlot in south in El Tigre, and in the north in Los Pozos. Related to capital market, we issued local capital market bonds, up $117 million to repay this year debt maturity. And in the meantime, Cresud paid a very big dividend. We paid up to ARS 93,000 million, close to $64 million, 70% was in cash, 30% in kind and IRSA shares. And plus of that, we did like almost 1% of Cresud shares paid in dividends too. So very actively paying dividends in this year. Now we can move to Page #3, and we can see what it was the final planted area a little drop from the last presentation last quarter, we dropped like 6,000 hectares between the 4 countries. And that was done because we were very strict. The margins in some farms was not so big, and we were very strict on the window of planted time. So we prefer to plant a little less but with the areas with enough rain and with a very positive margins. So that was the reason of small reduction area that stayed not planted like 6,000 hectares, we are [indiscernible]. And this is the breakdown between the 4 countries. The main one is in Argentina, second Brazil, Paraguay and final Bolivia. And if we move to next page, we can see the evolution on the prices. The 2 main products, soybean and corn and where we have the 2 main activities in volume, plus the sugarcane plus the cattle. These are the 4 main activities plus the real estate, plus the real estate, plus the service through FyO and Agrofy. So in here, we see the evolution of the prices in the last 14 years. And we did the -- we wanted to show you how cheap is soybean and corn in real terms, nominal terms, but in real terms, adjusted by inflation, you see how cheap are our main products. So with that, we are still making money in this region that is so benefit in production and still farmers of the region are making good without subsidies for sure. And in Argentina, still with taxes and exports. And in the graph below, I wanted to show this stage of changes because Donald Trump announcing China double or China realignment and look at what is happening with Chicago Board of Trade of the price. We see jumps and the time that the jump comes to the price of Chicago, the premium to Brazil goes down and exactly the opposite when the price goes down, premium to Brazil goes up. Finally, South America is very balanced and is not changing its pricing dollars and it is affecting mainly South American prices. So some small changes because of the China and U.S. relation, but finally, not changing the very good shape that the sector spending and the recovery of the stocks that we are looking at the last years. So I wanted to share that the margins for farmers are decreasing because of the long-term trend of this, a lot of new technology coming to the sector, improving the yields. And this is making small margins, and we are having good margins, small margin. This year, we are expecting smaller [ and in a ] bigger scale because of the expansion of the land. And in the next page, we can see weather is in a good condition. We see the graph is in green or is in blue, same accumulated to rains. So small -- very small areas without a good rain. So we are expecting a normal or almost normal crop for the 4 countries. And here, we see the sowing progress, 100% of the corn and soybean of Argentina, Bolivia and Brazil. Brazil the corn is little late. This is called [indiscernible] second corn and this is a little delay, and in Paraguay, too. So we are not achieving up to now 100% of the corn. We expect to arrive close to 100 -- probably not to the 100 because of some lack of rain that affected mainly Brazil and Paraguay. So balanced weather conditions and controlling costs. So normal operation year up to now after us -- up to end of January. Understanding that majority of soybean and corn will come from -- now in Brazil is beginning the harvest on Mato Grosso, but mainly in Argentina harvest of soybean will be April, May and maybe majority of the corn will come July, August, September. So we are in the middle of the good time of the summer crop that is more important for the company. We can move to next page, and we can see some good news. The government is doing what said in the past, decreasing the taxes on exports, small reduction. We saw during this quarter, 26% to 24% in the soybean, 9.5 to 8.5 in corn and sorghum, 9.5 to 7.5 in wheat and barley. Some small drops going in the good direction, not expecting to go to 0, mainly the soybean that is the bigger revenue for the country, but in the good direction, and maybe we can see a surprise in these areas going to 0 that won't go so much. We expect for next year maybe go to that direction and keep reducing the soybean for the future. That's what [indiscernible] announced at the beginning and [ he began from 33, now he's in 24 ]. So he's going in that direction. And the other main achievement of the government in the right part of the graph. The big gap of the past between the $2, the official and unofficial, but now the 2, the blue and the orange going close to almost together. So the former is decreasing taxes and receiving almost the official and the unofficial dollar of the same. So what is that effect? Now partners are really receiving dollars and the taxes are decreasing, and this is affecting the liquidity for the agriculture and cattle areas. So we are seeing more liquidity. We didn't announce up to now 6 months any real estate operation, but we think we are going to close the year having transactions on the region. So we keep that on mind. And we think we're going to achieve the normality. And in Argentina, more than normality, Argentina was close to 0 in the last 1, 2 years, and we expect some transactions too. But in Paraguay, but in Brazil because the liquidity is still there. And a lot of these 2 big news, taxes reducing and the gaps between the 2 dollars, there were 2 news. One is related to U.S. and what is European Union and the third one is China. Related to U.S. United States established a new framework to bilateral to Argentina. So Argentina is very close now in relation with U.S. and that will improve access for beef and other markets, mainly for beef, they are expecting going from 20,000 tons to 100,000 tons. And related to Mercosur that will improve Hilton quota to South America to Argentina too, but this was not signed. Finally, it was delayed, was approved. We need the agreement to the rest the regulatory and parliamentary is not approved still, so we need to wait for that. But U.S. is almost done. And China is the third that China improved what was Argentina from 400,000 tons to more than 500,000 tons, improving 17% what we are now exporting to China, but reducing to other countries, mainly to Australia, mainly to Brazil and improving to Argentina, Uruguay and United States. So the 3 effects for beef are affecting. And probably on next page, we can see the evolution in the Page #7, evolution of the price of Argentina. Argentina was very bad on prices in the past, was the lowest, but now recovered. And today, between the 4 countries, Argentina, Uruguay, Brazil and Paraguay, Argentina is in the highest because of the quality of Argentine beef. And we see that Cresud was preparing and now we are improving our production from the '23 we were 7 million kilograms, 7,000 tons of beef. Now we are going to this year to 10,500 tons to 10.5 million kilograms. And with almost the same stock, what we are doing, we are rotating more the cattle. We are improving our facilities of pass-throughs in the agriculture areas, and we are doing more feedlot. So we are rotating and producing more intensively that is very profitable and it's bringing very good results and Matias will show you later in the balance sheet of Cresud. And we see in the graph on the right that the stocks in Brazil were growing in the last 20 years, but now beginning to decrease from 194 million to 186 million, hence and in the rest in U.S., Australia and Argentina decreased on the stock. So the combination of the decrease of the stock, the decrease of the cows and improving demand of cattle that the population is having is making that increasing price and benefiting our company in cattle. And now you see the new feedlot that we are doing, we are investing money in the 2 feedlot in Los Pozos and in El Tigre. And we're going to have like 2 feedlots of 10,000 of capacity [indiscernible] capacity, each of them that will mean like 50,000, 60,000 [indiscernible] per year in feedlot a part of raising cattle and fattening the [ meal ]. So we are probably one of the largest in this raising cattle with bulls and having a fattening the meal and feedlots later. So we are very not having more of the plant like in the past, but having big stock making a lot of money in all the activity. Saying that the other step of Cresud that we always talked production one side, real estate no news in the first half. The third is FyO evolution on the year. We are closing -- we closed last year with 7.6 million tons of traded tons on FyO, representing 6.5% of total Argentina crop harvest and through advisory, specialties, credit, capital, trading and now beyond that is our branch we are opening in Brazil that this last year did 300,000 tons, small amount comparing to close to 8 million of Argentina. But in Brazil, a lot of room to grow. Brazil is more than double Argentine crop size. So we are expecting beyond to replicate the story of Argentina. So this company is making a very relevant [ EBIT ]. Here, we see the last 4 years in a $26 million [ EBIT ]. And last year with the official dollar that it's very close to the blue chip. So in the past, the gap was here, but now with the [ $26 million and $26 million ], and here, we see that this company recently issued 2 bonds at close to 8% cost. So very relevant company, servicing farmers, light in assets and doing this mission in South America, not only in Argentina. So we expect this company to keep growing as they were doing BrasilAgro and Cresud. Saying that, I will now give the word to Matias Gaivironski.

Thank you, Alejandro. Good afternoon, everybody. So if we jump to Page 9, we can see the main highlights of our investment in IRSA. Remember that today, after the payment of the dividend that we pay in shares of IRSA, our stake went to 51.6%, and we are planning to exercise the warrants that Cresud has from IRSA. So that stake will recover to levels of 55% again after the exercise. During the semester, we saw a positive result of ARS 248.8 million compared with the loss during the last year. This is mainly attributable to the gain in the fair value of the investment properties. Then if we analyze the results from malls, offices and hotels were positive compared with the previous year. We saw a recovery in revenues and EBITDA in shopping malls, 2% against last year; in offices, 15.5% and in hotels, 44.8% due to better margins and rates. Also, IRSA cited 2 new transactions on Ramblas del Plata. So we already signed 15 different transactions for 15 plots of land in Ramblas. So the progress of the commercialization is excellent. And also IRSA tapped the international capital market again during December. So we increased the size of the notes that we issued during March. So we increased by $180 million that will expire between 2033 and 2035. And finally is finished the payment of the dividend that was 10% yield during November. If we go to next page, we can see that during the semester, we have a real devaluation of the exchange rate. Remember that last year, there was an appreciation. So that generates 2 important effects on our balance sheet. First is the negative impact on our dollar-denominated debt that we have to convert those dollars into pesos that generate a loss. But on the other side, on the fair value of the investment properties since we have much more assets in dollars than debt in dollars that generate positive results in that line. Regarding the operational side, I already said what happened about IRSA. About Cresud, we see a drop compared with the previous year. This is basically attributable to the farmland sales. Last year, we had 2 transactions that generated gains for up to ARS 40.8 billion. And this year, we haven't closed any transaction yet. So that is the main difference. If we see the different lines, remember that in the grain line is not so significant this semester. We will have the results going in the coming 2 quarters. But we see a positive evolution. This is basically result from Argentina because of the exchange rate and because of better prices. and lower results in Brazil, mainly driven by the cotton activity. In sugarcane, as Alejandro mentioned, there was -- compared with the previous year, we have a drop in the results with a negative result this semester that we expect that to recover in the coming 2 quarters that it was basically because of some climate conditions in Brazil that affect the production. Regarding cattle, as Alejandro mentioned, we have positive numbers. We see here a drop compared with the previous year, but this is basically related to Brazil activity since we have lower stock of cattle there. So that decreased the production. But very positive numbers in Argentina, where prices increased much higher than the inflation and production was very positive. Going to next page. So with all those drivers about IRSA, Cresud and FyO, we finished the semester, excluding the change in the fair value with similar numbers than the previous year. And the main effect of this semester came in the line of fair value of investment properties basically from IRSA that we can see a very negative numbers last year of almost ARS 300 billion and a positive number this year, ARS 184 billion that if we analyze the numbers this year in dollar terms, prices of our properties remain stable. But when we convert those dollars into pesos, that generate this important positive number. About the other effect that came in the line of the net financial results in the first line of the table, you can see the net FX result that last year was a positive numbers of ARS 48 billion. This year generate a negative number of ARS 45 billion, and that is the main effect on this year, the second main effect this year. Well, with all these different numbers, we finished the semester with a net result of ARS 183.9 billion attributable to our controlling shareholders, ARS 74.4 billion. About the debt. Remember that this year, we had some amortizations that basically are in March. So for that reason, we went to the local capital market in December and January, and we raised it almost $117 million in 2 series, one for a 3-year tenure and the other 1-year tenure. One year was an interest rate of 5.75% and the other, the 3-year tenure at $7.25 million. So with that issuance, we already have all the proceeds that we need to cancel the debt this year. And regarding dividends, as Alejandro mentioned, we finished the payment of dividend that we paid part in cash, part with IRSA shares and part was shares that we did a buyback in the past. So we Cresud paid around $63.7 million this year. Something else to add is the warrant expiration. Remember that in 2021, Cresud did a capital increase that had warrants attached to those shares. And those warrants will expire next week. So the last window opportunity to exercise the warrants went -- will go from the 17th of February to 25th of February. So we expect the shareholders will exercise the warrants. We -- according to the shareholders' meeting, we included a cashless option for the warrants. So the warrants are keeping the money. So there was an option also to exercise in a cashless basis. So basically, shareholders will receive the difference between price of the shares in the market and the exercise price of the warrant. So that will happen in the next 10 days, 15 days. So with this, we finish the formal presentation. Now we open the line to receive your questions.

Well, now is the time for the Q&A session. [Operator Instructions] The first one is related to our stake in BrasilAgro. What is your view on the rather depressed share price of BrasilAgro? Would you consider increasing your shareholding? This is the first one from this investor. And the second one, Okay. Let's answer the first.

I think Brazil is in a special moment. Politically speaking, next -- this year, sorry, now we are in '26. This October is election time, presidential election time. And there is doubt if Lula or [indiscernible] is going to come to government. I think it's an opportunity, Brazil sounds like the capital market is expecting, and we can see that from the currency, the exchange rate of the real, how was at BRL 6 and now it is BRL 5.20. Some expectations of the capital market in a good direction of Brazil. Yes, I think it's a good opportunity in Brazil market and shares of BrasilAgro for sure. BrasilAgro always speaks about what's the amount of the value of the land that the company owns, some valuations the company gives. -- but apart of that, there is a big land lease that we never make this calculation. So the combination of owned land and leased land makes a big discount on the price of the share of BrasilAgro. Yes, for sure. Cresud owns 35% and is always thinking to improve or not. We have a big stake. We began with 7%. We have today 35%, and we are optimistic on Brazil situation.

Thank you. The second question is related to the warrants. Give me one second. Are you -- sorry, -- it comes another question in the middle. Are you going to exercise your IRSA warrants or exchange them in the newly introduced cashless option? Are sufficient funds available to fully exercise the warrants?

Yes, Cresud will exercise the warrant definitely. The idea is Cresud will do it on a cashless basis because basically, when we analyze liquidity at IRSA level, there was significant liquidity after the issuance of the bond. IRSA has more than $300 million in cash. So the idea is that Cresud will do it on a cashless basis. After that, Cresud will increase again to levels of 55%, our stake in IRSA.

Our next question comes from Gordon Lee from BTG. Are there any provisions or conditions in the trade agreement with the U.S. or the [ FTA ] with the European Union that have direct implications, positive or negative for the products that you focus on?

I think the main impact is in beef in the 2 directions in the European -- probably the conditions of European -- it's Hilton quota and the American, it's less strict in the health conditions and the quality of raising the cattle. The 2 are positive for Argentine farmers. Each farmer decides to which countries selling to the packing plants that it's selling to those countries. The 2 are improving. The Hilton [indiscernible] thinking like tabling in the case of U.S. 5x the existing volume, I think the 2 trades are benefiting cattle raisers in Argentina. So yes, I think -- I mean the rest of the products, I'm not sure if it's going to impact a lot in the soybeans or corn, other 2 main products of Cresud.

There's a question. I don't know if it is for us, but what is the chance of the Mercosur agreement with Europe being ratified -- and when could that happen?

This is a political question. This is mainly French and other farmers of Europe. Logical would say, let's try to be better global and produce what is more logical and beneficial and more efficient, but political is political. I would not do that. They approved a small portion, important, relevant, but the final portion was not approved. I think the American is close to be closed. This is easier to be approved.

Thank you. One more related to commodity prices. If commodity prices stay low, what step will you take to lower operating costs to be operationally profitable or more profitable?

They use -- I think the Argentina is, I think, a very good place to learn how to survive in scarcity. Imagine farmers with these taxes on exports, with these caps on the dollars, we're receiving very small amount of dollar to survive. What do you say with that? You have to be scarce with water and with the money because you are receiving much less than the other farmers. So we learned how to rotate less the land to cover crops to improve the efficiency of the lack of water and to be using lower inputs, sometimes not fertilizing the sufficient that the land needs. I think the next step will be for Argentinian farmers in the meantime that Brazilian farmers or American farmers with the $10 or $11 of soybeans are suffering, we with $24 are making money. And the new thing that is coming to the world, to the producers, the farmers is the variable use of the inputs that is coming. What does it mean? Now we are equipping -- we are putting the machinery with some equipment that makes variable use of seeds, of herbicides, of pesticides and fertilizers. And with that, you are going to keep using the place that you need not to use in the 100% of the lot. So deciding and using less variable cost. And Argentina is going very fast and Cresud and BrasilAgro, now we are -- we are now covering all of our farms and majority of our machineries that are working on our farms and using majority of the seed going to the corn is [indiscernible] in Argentina for sure. In Brazil, it's beginning. There is less use, but it's more used in the rest of the inputs, crop and insecticides and herbicides. So variable costs are decreasing to compensate the lower margins because of these new prices. And the technology is allowing Starlink and other technologies coming to the region is allowing to use this variable cost of inputs. I hope I was clear. If not, please ask me again.

There is one related to fertilizer prices, how are affecting Cresud up down lately?

Fertilizers affects more Brazil than Argentina because in Argentina, the land is much more rich. So we fertilize much less than what we do it in Brazil. So prices -- and if war comes again, that will affect again more probably to Brazil. But again, it's part of the cost of farming. And if this goes up again, will affect for sure, farmers of the world.

[Operator Instructions] Okay. If there is no more questions, I will now turn the call back to Mr. Alejandro Elsztain for his closing remarks.

We closed the first half of the year, now comes the main activity in all because in cattle 2, cattle is majority of the kilograms done by the farm, not the feedlot. So it's very positive to the second half. And the rest is the summer crops for Brazil, for Argentina, for Bolivia, Paraguay. We are optimistic on that with these low prices, understanding and the company is really carrying low margins, no subsidies on the region, still taxes in Argentina. Liquidity is coming to Argentina because of these big changes on the market. And I'm optimistic that we're going to show in the second half some results related to real estate too. So I'm optimistic on the balance sheet of Cresud and having the real estate results, too. So we are in a good year. Argentina is plugging to the world. And the world in the agriculture is suffering, but we are in the more benefit region, very profitable and very good in yields. So we are having very good time. So just to thank you very much, everyone, and let's see next quarter. Thank you very much.

Thank you.