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Cresud S.A.C.I.F. y A. (NASDAQ:CRESY)
Q3 2020 Earnings Call
Jun 10, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Santiago Donato -- Investor Relations Officer

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud. And I welcome you to the Third Quarter 2020 Results Conference Call. As you know, today's live webcast will be held in a new format through Zoom. Nevertheless, both audio and a slide show maybe 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 issued yesterday are also available for download on the Company website. After management's remarks, there will be a question-and-answer session for analyst 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 risk and uncertainties and actual results may differ materially. Please refer to the detailed note in the Company's earnings release regarding forward-looking statements.

I will now turn the call over to Mr. Alejandro Elsztain, CEO. Please go ahead, sir.

Alejandro G. Elsztain -- Chief Executive Officer

Good afternoon, everybody. Welcome to the third quarter 2020 results. This is a special conference call. You know the different -- difficult times that we are spending, and I hope that everyone is well and safe.

As you know, Cresud's agribusiness is operating relatively normally, being an active that is essential in Argentina and all over the world. Not the same in other segments. We can see that in the urban segments. We had suffered a lockdown since March 20 in the case of Argentina. So, the shopping centers were closed and hotels were closed. We are going to see that the main results of this lockdown is going to affect the fourth quarter, and -- because it's only 10 days of the third quarter.

In Israel, the lockdown and the quarantine made different situations. Some companies like the supermarkets like Shufersal and Mehadrin were in essential activities, so working better than expected, sometimes surpassing the results of the past. Some of the others were affected, but much lower because of the short-term of quarantine of Israel.

Later, we are going to see the results in details, but we are going to explain a loss of ARS7.4 billion for the nine months compared to ARS14.5 billion of last year numbers. The adjusted EBITDA reached ARS26.6 billion, comparing a 41% increase to last year numbers. The EBITDA from agribusiness increased almost 45%. And this is mainly due to higher productivity in the operational of agriculture, grains and sugarcane mainly, and the urban segments, there was a small decrease of 2.7% comparing to last year's numbers, and the main decrease coming from shopping centers and hotels. In the case of Israel, there was an increase in the EBITDA, we are going to see later.

So, let's move to next page, the page number two. And here, we can begin speaking about the main effect that we had in Brasilagro through a real estate acquisition that we did through shares. We were likely to begin to do this mechanism first time of our history, and we've begun to buy assets through the shares -- sorry, this is the first time that we do an acquisition through share -- issuing shares. There was a company that failed in the past was a big company that was trying to copy the model of Brasilagro. But after many failures, they sold majority, and the remaining they gave us and we issued shares to pay them. This is a package of 29,000 hectares of total surface for making mainly grains and cattle. That will be a dilution of cost, G&A and the operational, because you can see on the picture, they are neighbors of our existing Chaparral and Jatoba farms.

So with this and using fair value, so we calculate the net asset value of BRL31 of the share of Brasilagro to make the merge. We made a dilution that represent 8-and-some percent of the shares. So with that dilution, now we have more shares of Brasilagro grew in size, now is a company of the portfolio of 214,000 hectares. And so, there was an increase of this number of shares that we can see here on the graph on the table.

And so, from one side, we have this dilution of this 8.5% almost that -- a percentage of dilution because of the emission for making the merge. And from other side, we recently sold 6% in the BOVESPA market. So, Cresud after these two events went from the 43% to the 33.6%. On that said, we raised almost $16 million that we have on the pockets of Cresud today. So, this is a new vehicle through shares. And I'm very happy with that. I think this is the first of many of -- because this is giving liquidity to people that wants to leave their business, but wants to remain in a much more active vehicle like Brasilagro is.

If we move to next page, we can see one purchase that we did recently. We did a normal acquisition. This is a 4,500 hectares that we did in Brazil; 2,900 hectares to be developed. And this is for grain and this is a BRL25 million purchase, BRL8,500 -- this is per acre -- per hectare, sorry, not millions. This is per hectare. This is a mistake. We paid an initial BRL11 million of payment. And what it has this for us very good. It is not only buying the land, we are leasing a big portion of land, 5,700 hectares adjacent. So here, what you see in the graph, this is the part that is not developed and the adjacent had it to be developed the two [Phonetic]. On the developed, they gave us the rental for many years plus they gave us like a fixed payment like a call. This is an option for us to buy. So, we like very much because today, we're going to sell is not going to be sell only our piece, a developed piece, it will be a combination of our piece plus the rented with the option that they gave us for 12 years. So this, the combination of the two makes so attractive business to do in the region of Piaui.

If we move to next page, we can see the evolution of the year that we are finishing. Next quarter, we are finishing the campaign. This is our historical record of planting area. We grew 9% year-to-year, 271,000 hectares combining the four countries: Argentina, Brazil, the two main, Bolivia and Paraguay. Breakdown of soybean being the major. Second, the corn, and very relevant, the sugarcane. And this is the -- we are running in the whole region 885,000 hectares between the two players Cresud and Brasilagro.

This is -- this year, we did -- they were only in Brazil, a lot of liquidity. Brazil is closing a very good year. Devaluation helping a lot to the normal farmers. They know the sophisticated farmers not hedging their crop. They found the real went from BRL4 to BRL570 [Phonetic]. Today, we have seen some reduction on the evaluation. But still, good yield, good price, good evaluation, make them a lot of gains and the Brazilians are very active in the real estate arena. We see up to the third quarter, only $11 million between the small sales, but sales that show more than 10 times the book value. This is the kind of gains we are seeing.

We are finding -- selling small to the retail financing, making huge gain, $11 million [Phonetic] book value of 1. So, this is a kind of what we dream at the beginning of Brasilagro to buy a huge business to sell, finance and make the money and buy again. So, we are showing a lot of the real estate evolution in the year in Brazil, not in the rest. We want to have in the rest, we are trying. But we are thinking that Brasilagro is going to find more because the liquidity of that market this year.

So, if we move to next page, we are going to begin the explanation of Carlos Blousson, our Manager of Brazil -- sorry, for Argentina and Bolivia, who will explain some details about the commodity prices of the market.

Carlos Blousson -- General Manager of Argentina and Bolivia

Good evening, everybody. Thank you, Alejandro. We'll continue with the presentation. Let's move to the slide number seven about farming, commodity prices and global stocks. You can see in the graph, the prices keep the low trends. The reasons are the following to considering the supply and demand. Considering the supply, the production of the crops in South America performed very well in general, generated an increment in the global stocks.

Let's now look at the fact that the stocks in United States, especially in soybeans are still high, because of the delay in exports due to the tardiness in the agreement with China. Regarding the demand, despite the agreement, Phase 1 has been signed between the United States and China last January, export continues to be delayed due to the impact of the global coronavirus outbreak in the last three months as a consequence of the logistic issues.

Regarding soybean stock consumption ratio, we can see in the graph a decrease in the world ratio. This happened due to that the demand of accounts they offer.

Talking about corn. Talking about corn, we see that the corn stock consumption ratio -- the world's ratio increased, especially United States. They are waiting for a great record campaign this year in United States and the respective production to achieve the record of 314 million tons [Phonetic]. This matches with a low in the use of the corn for ethanol productions, affected by the decrease of the oil prices in the world because of the pandemic.

We appreciate that the FOB soybean prices in Brazil were more competitive that in United States and Argentina. The reason begin the delay in the agreement between the United States and China and the Brazil's national currency down reach.

Finally, about the regional hedge campaign, the current hedge level is 78% in soybean in the over the budget prices. In case of the corn, the regional level is 89%. We remain a 4% over the budget in the soybean and 2% in the corn. It's clear that this high hedge happened because we anticipate to our usual experiment, foreseeing that the market was going down, especially in Argentina.

Let's go to the next slide. Slide number eight. Good prospect -- good farming prospects for 2020 campaign. As you can see in the top of the graphic, the evolution of the weather in South America was normal. As said, from the Northwest area in Argentina and Bolivia suffered extreme drought during the finishing of the yields [Phonetic].

Related to the exchange rate evolution, you can see that the evolution rate has increased in the last three months. We can see 30% increase in Brazil and 8% in Argentina, allowing an improvement in the competitivity in the export sectors. The regional harvest progress is with soybean 97% and corn 26%. We are harvesting the safrinha corn in Brazil and Argentina in the coming months.

Let's move to the next page. It is about the COVID-19 agribusiness working as an essential activity, protocols used by Cresud in its farms that is an exclusion of all the protocols. The one is the security and hygiene protocol, farm access control, suspension of farms visits, reduced transport use and the last one is change in the way of working. The working was implemented in different positions and functions.

Let's move to the next page. Good farming prospects for the '22 -- 2020 campaign. As you can see in the graph, the crop production is expected to increase by 1.3% year-to-year, achieving a record in the productions to 833,000 of grain. Expected crop yields are stable in 6.2 tons per hectares in corn and 2.7 tons per hectare in soybean.

Regarding sugarcane productions, the growing trends continues and we expect a record of 2,373 million of tons in '21 [Phonetic]. Finally, the meat production remain stable in 8,700 tons, despite of sale low in cattle stocks. In Argentina, after the end of March, 20% of the livestock was sold, taking advantage of the good market price.

Thank you. Matias will continue.

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

So, we will move to -- good afternoon, everybody. And then, when we move to the investment in IRSA, we see different results. The COVID situation will impact the Company after March 20. So when we see as up to March 31, the impact was limited. After that, the impact will be much more important, since the operations are in lockdown since March 20. So up to March 31, the stock of shopping malls remained stable, the occupancy remained stable as well, and the tenant sales already included the 10, 15 days the operation was affected and generated a decline of 12.9% against inflation. But when we see this number before the COVID impact, that number was positive.

We have some positive news. Recently, we opened one of our malls in Salta, another one in Mendoza. There was a -- administrative regulation in Santa Fe two days ago about the opening there. So, we expect to open also in Santa Fe soon.

In the offices, as of March 31, there was an increase in stock. And we are working to finish the development of our new building in the Catalinas area. The occupancy was slightly down to 93.9%, but nothing important. Rent remained stable. We have normal operations after the COVID, so we -- the collections are OK. Our buildings are under operation. Although most or some of the companies are doing home office, the offices remain open and operate -- under operations.

And as I mentioned, Della Paolera 200 building that we are developing. We have to stop the development, because of the virus, but we almost finished. The project is under 95% progress. So, we need around 60 days more to finish the building, and we expect when the development was -- will really open to finish soon. There was a good progress of commercialization with 61.5% of the agreements already leased. That is a good -- very good news.

In the hotel segment, there is no major news up to March. The occupancy went a little down because of two reasons. One was the reflag of one of our hotels that used to be Sheraton, and now is our own brand. And also, there is some days of March that the operations were affected by the virus.

So, going to the next page, Alejandro will keep going. Alejandro, I think you are in mute.

Alejandro G. Elsztain -- Chief Executive Officer

Sorry, about the Israel Business Center, we can see very short summary about what each company is spending these days of coronavirus. We can see on the real estate, PBC, Gav-Yam and Ispro. These are the real estate of the Group. And their normal operation in office and logistics segments is zero effect.

And in the case of the malls, the essentially -- almost half of the tenants are essential. All -- the rest 50-some-percent is not essential, has a very short time of closing, but we open all. And so, the effect on the rent retail on Israel is much smaller than in Argentina case.

In case of Shufersal, Shufersal is one of probably the winners of the coronavirus time, because these having 358 stores in Israel. Supermarket and pharmacies the two remember that we have been at its pharmacy too [Phonetic]. The two are winners, a lot of sales, increasing a lot of online sales, 14% of the total sales are online, own brand 35% of total sales and the record sales on the time and trend expect to remain in the second quarter.

Mehadrin, the fruit story, citrics and avocado and dates. This is the -- again, this is almost normal, didn't affect so much. We're able to back to peak and to send to Europe with higher prices. This year was lower level of supply was at low level, there are years of on and off. This was off year, less volumes at very good prices. So, not very affected for the coronavirus.

Cellcom business. Cellcom, the cellular company of telecommunications. This was moderately decreasing the revenues, because of the roaming -- decrease on the roaming and the sale of the devices and reduction of labor costs and suspensions of marketing expenses, came in new CEO to the company and made a lot of cuts. So, he is restructuring lot -- the cost of the companies.

In case of Elron, this is a leader in investment in early stage companies and specialized in medical devices, cyber security and information technology. Here, there is not a lot of impact. This is a company that is researching and launching companies. So, this, of course, will give you a flavor of the effect on the Israel Business Centers.

So if we move to next page, we can begin about the -- speak about the financial results that Matias will explain.

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

Thank you, Alejandro. So if we move to Page 14, we see our nine-month period financial statement. We finished the period with a loss of ARS7.4 billion. When we compared with the previous year, that was ARS14.5 billion. Attributable to our controlling interest, the result is almost the same, ARS10.2 billion against ARS10.1 billion.

So, if we see the main components of this result, so starting with the operating income, we see very good results in the agriculture segment. So, ARS4.4 billion against ARS1.7 billion. I will answer in more detail in the next page. In Argentina Business Center, the level of the operation -- the operating income was also very good, ARS7.2 billion against ARS3.2 billion of loss last year. This is mainly attributable to a change in the fair value. When we see last year, we've rolled down a significant impairment in our investment properties that generated ARS8.8 billion. And this year, we have a gain of ARS2.2 billion.

Then in the Israeli business segment, the level of the operation, also we have a loss of ARS377 million against a gain of ARS2.4 million [Phonetic] is also attributable to the change in the fair value when you see the change in the fair value, this year we have ARS2.6 billion against a gain of ARS386 million. This is related to our HSBC Building in Manhattan.

So the other important difference that we have in this nine-month period is in the Line 13, net financial results that I will explain in the following pages. Sorry, and finally, the other important effect is in the Line 16, the net income from discontinuing operations that this year, we did -- we marked a very important gain for deconsolidation of Gav-Yam, a subsidiary of PBC in Israel that we sold shares of the company since we don't have the control. We don't longer control the company now. We have to value the operations at the equity method and not longer on a consolidated basis.

So entering to more detail in the operations. When we see the adjusted EBITDA by segment, as I mentioned, we had very good results in the business in general. The only line with a drop is in the farmland sales. And this is because we sold more -- up to March, we sold more last year than the previous year. But as Alejandro mentioned, we have a very good deals in that line as well. So, we are very happy with the performance.

In the farming, we have good results. In grain, 49% above last year. Here, we have a combination of different factors that are at the beginning of the period, we had a significant stock compared with the previous year and more important stock with good prices also a good advance in the campaign of this year compared with the previous year for the time of the year. We close our campaign in June. So, in June, we will have the final results.

In sugarcane also, better performance, better prices. So -- and -- so compared with the previous year, we are better cattle as well. We have better prices. So, all the lines are generated good profits in agriculture. In the other segment, also the meatpacking facility and operations of FyO and Agrofy generated good results.

In the urban segment, the Argentina business segment, in the shopping malls, we see drop in the adjusted EBITDA against inflation, 16.6%. So, this is before the impact only with limited impact of the virus situation. So probably -- definitely, the next quarter will be worse than this quarter.

In the offices, we were able to maintain or increase the levels of the previous year. Now, we have a new building under operations and the contracts are in dollars. So, we have good results. The hotels, we see a decrease. As I mentioned, that is related to the reflag of one of our hotels that generate lower revenues. And also last year, we have a collection of an insurance that is incorporated in the 2019 numbers.

In Israel, the real estate segment performed better. When we see the real devaluation between the shekel and the pesos is 13%. So to compare the previous year with this year, we need to incorporate this 13% as a reference of devaluation. So, above 13% is an increase in shekel's term. So, we have better results in real estate. This is more related to cost than revenues. Here, we -- as I mentioned, we doesn't -- we don't consolidate anymore of Gav-Yam, so it's only related to operations in PBC. And since now also in May -- sorry, it's on the PBC operations.

In telecommunications, in revenues, probably, we have a slight drop. But in EBITDA big jump, this is more related to the implementation of IFRS 16. So, we don't recognize anymore of the cost of the leases of the infrastructure. So, this is why the line increased so much.

The other important effect is in the next page, Page 16, that is a consolidated net financial results. So here, we have different effects. One is in the IDB plus DIC or Israel segment that we have the drop in the Clal shares, the insurance company that last year, the decline was 3% and this year was 51%. Although we have less shares now of Clal, the drop was significant, and we are recognizing a big loss from ARS1.9 billion to ARS9.2 billion. And the other important effect is in the -- of the devaluation of -- in Argentina of the peso last year, the devaluation was 50.8%, but the real FX was -- the real devaluation was 23.3% against 26% this year. That affect the line of May exchange differences. Also, the net interest loss is higher because of the devaluation and also our cost of the new lines that we took during the year are more expensive than the previous year because of the volatility of Argentina.

And finally, regarding our debt structure, there was a subsequent event on June 9. We issued a new series of debt. This is -- last week, we issued $83 million of a new bond at very competitive cost, 3.5% fixed with maturity in December 2021. So with this issuance, we were able to increase our liquidity and have much more flexibility for the oncoming amortization of our debt. So, we are in with that good liquidity to face the amortizations.

So with this, we finish the formal presentation. Now, we will open the line to receive your questions.

Questions and Answers:

Santiago Donato -- Investor Relations Officer

Okay. We will start the Q&A session. [Operator Instructions] No questions. Well, we conclude our Q&A session. I will now turn the call back to Mr. Alejandro Elsztain for any final remarks.

Alejandro G. Elsztain -- Chief Executive Officer

Just to finalize, we are finishing next quarter the annual balance sheet. In the agriculture, we are going to finish our harvest still pending the corn and the beginning of the sugarcane in the case of the sugarcane in the region. Being essential is not affected. So, the thing that is affecting for the next campaign probably is taxes and exports that last year didn't affect us very much, but it's going to affect more -- little more the next campaign because the whole year are implemented. And related to the real estate, we expect to keep that buying and selling more farms, buying the bigger business and selling smaller business. So, we expect to see that next quarter is doing the same.

Related to urban, the northern hemisphere opened. The southern hemisphere is beginning to open. We hope soon, but still majority closed. We saw only two shoppings. Later, will come the hotels and exhibition centers. So, that delay is going to punish probably the next quarter. But we see when they open, consumption times and the rental comes again. We are seeing that in some our properties -- our properties in the northern hemisphere. We are keep constructing, keep building, so the company is doing its job. So, just to thank you, next quarter, we're finalizing the annual report and we [Ends Abruptly]

Duration: 0 minutes

Call participants:

Santiago Donato -- Investor Relations Officer

Alejandro G. Elsztain -- Chief Executive Officer

Carlos Blousson -- General Manager of Argentina and Bolivia

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

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