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Cresud S.A.C.I.F. y A. (NASDAQ:CRESY)
Q4 2020 Earnings Call
Sep 30, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Santiago Donato -- Investor Relations Officer

Good afternoon everyone. I am Santiago Donato, Investor Relations Officer of CRESUD, and I welcome you to the Fiscal Year 2020 Results Conference Call. First of all, I would like to remind you that both audio and 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 are also available for download on the company website. After management remarks, there will be a question-and-answer session for analysts and investors. If you want to make a question, please click the bottom labeled raise hand.

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

Thank you very much. Good afternoon everybody. Welcome to our fiscal year, we are finishing our balance sheet of 2020, June 2020 results. First of all, I hope everyone is safe and well in this rare and special occasion of the COVID-19. We are closing the balance sheet in page number 2, and we can see that the adjusted EBITDA that we are achieving is ARS33.4 billion. That is 21% higher than last year numbers. And something to remark, we can see related to the agriculture, the agribusiness, the adjusted EBITDA for the year is 31.3% higher to last year numbers adjusted by inflation. We have a very record planted area for the whole story of the Group, this is 264,000 hectares through the four countries, that did represent 6.5% higher than last year plantation areas.

Related to agribusiness, we can see that the main issues of the balance sheet, we sold 6% of the stake of Brasilagro, that represented for us, $15.6 million. A part of that in the middle of the period, Brasilagro made a merger between Brasilagro and Agrifirma, that was a company formed in Brazil to replicate our strategy, that finally decided to leave the business and gave us the option of merging through shares -- we paid them through shares and we added to our portfolio 29,000 hectares of farmland in Brazil in the Bahia region. This year, we had normal operation in the region, because this is an essential activity, so the agribusiness was normal. When we look at the net results of the year, we can compare -- and we see again in this year of ARS20 billion comparing to a loss of almost ARS41 billion last year. And if we go to the net result attributable to controlling company, we see a gain of ARS3.9 billion pesos comparing to a loss of last year of almost ARS27 billion pesos.

There were some sales. I will talk later about the sales that were done, all in Brasilagro, the rest of the region didn't sell, BRL84 million in Brasilagro. In the urban business and investments abroad, we had the shopping malls and hotels, the last quarter, suffered a lot since 20 of March, we have the COVID-19 that locked down the country and we shut down all the shopping centers and hotels, and so we are going to see the main effect in the last quarter of this year, and the first quarter of next year. There was a normal operation in the office net segment.

And here, not only normal operation, but many sales that we did during this quarter of last year and the first quarter of next year of 2021, representing $145 million, that at a very low cap rate, we thought it was clever to sell, cancel debt, and begin new constructions, that today are much cheaper to do. And in Israel in this time, negotiations with the IDBD holders reached at the Tel Aviv district this court, ordered the opening of the liquidation procedure against IDBD. We are analyzing the resolution and evaluating the course of action for the future. We are going to the go to more details a little later.

So we can move to next page, and we can see that in the year, we began with a total surface of 731,000 hectares between owned and long-term concessions and we did some small sales. So the four sales done in Brazil are small, in hectares. This shows us how small we did in the middle, the merge of Agrifirma and the purchase of Serra Grande in May for 4,500 hectares. So we grew in the year, so we had our highest production level, selling less than buying, so we grew 4% comparing last year numbers.

Talking about this, the merge with Agrifirma. Here we show, their farms are very adjacent to Chaparral and Jatoba to existing farms that we were selling in parts in the past in Jatoba. In Jatoba, we were selling portion and portion many in the last years. In Chaparral, we didn't begin the sales, but this is majority still ours, and we have the chance of merging these assets in that same neighborhood of Bahia, that gives us more scale, synergies because we don't hire no one to operate these. We have the G&A dilution. We did merge through net asset value to net asset value, considering Brasilagro at BRL31.5 per share. So we issued these shares, and with this issuance, Cresud diluted a little, because of the merge and after the sale that I explained before, that we sold 6% of the shares, we went from the 43% to the 33.6% of the company. So this is the first transaction we did in our history, issuing shares, and we think we are going to keep doing this in Brazil, because this is a very good way to grow and to give synergies to the company.

If we move to next page, in the page number 5, we can see the four small sales, all of them, then in Brazil, and the profit is the yellow part of the orange, majority of the sale are gains, so book value is very low, so we see $14 million to $34 million to $7 million to $46 million, $7 million to $67 million, $2 million to $19 million. We can see the total surface of the sales, net of the earliest is 2,400 hectares of arable land that we sold, with huge gains. So the total is sales of $19 million, with cost of $2 million. This is the kind of internal rate of returns that we are achieving in reais and in dollars, 15% or 20% more in reais, and adding 5% or 15% in dollars, some of them because of the valuation in Brazil affected our internal rate of return in dollar terms. So with that the company is adding -- the company in the meantime had the chance of buying another asset called Serra Grande, that it's an area for 4,500 hectares. 2,900 hectares to be developed, and from that we are doing -- adding, not only, only new land, but adding rental. This owner gave us 5,700 hectares land of rental for 12 years and an option in the real estate. That's the reason why we did this transaction in Brazil, in the state of Maranhao.

So, we can move to the next page; and we can see the evolution in the planted area, and we can see that we achieved our record in size arriving to the 264,000 hectares, main two countries, Argentina and Brazil, after that, Bolivia and Paraguay, an increase of 6.5% comparing last year. Soybeans being more than half, 51%, corn 24%, 11% sugarcane, it's relevant and the investment in sugarcane is very big, so it represents more than 11% in size of investment. So we see how this year, the company had big size in real estate and big size in operation. And the combination of the two, we're going to see later, made us very good, and a record in operational, combining a less important year for the real estate. Small sales, but the two included made us to have a record in the EBITDA too.

So, we are going to now introduce Mr. Carlos Blousson, who's going to go more into the details.

Carlos Blousson -- General Manager of Argentina & Bolivia

Thank you, Alejandro. Good evening, everybody. Let's move to slide number 7; farming, commodity prices and global stocks. We can see in the graph in the top right of the graph, the prices keep the low trend, but after finished the fiscal year in the last two months, the prices started to increase considerably, about 12%, 14% in corn and soybean. The reasons are the following; that's considering the supply, the production of the crops in South America performed very well in general, generating an increment in the global stocks and the production in United States is also coming well. Let us not overlook the fact that stocks in United States has started to fall down, due to increase on the demand post-pandemic. This is casually related, to the fact that agreement with China and United States began to refortify.

Regarding soybean stocks consumptions ratio, we can see in the graph, a decrease in the world's ratio. This happened due to the demand overcounts the offer, particularly in China before the pandemia. Talking about corn, we see that the corn stock consumption ratio, the world's ratio increased, especially United States, awaiting to achieve the second record in consumption of about 340 million tons in this campaign. This meant a low in the use of corn for ethanol production, affected by the decrease of oil prices in the world, because of the pandemia. We are appreciating -- the FOB soybean price in Brazil continued to be more competitive compared with United States and Argentina. The reason of the delay, we have two reasons; one is the delayed in agreement to United States and China, was that China's demand was focused in Brazil market. Another reason is the devaluation of the currency in Brazil, generated very good price to the Brazilian farmer sell at good prices.

Let's move to the next page, the slide number 8, the good productivity result for campaign 2020. As you can see in the graph, the crop producing was a record, obtained a production -- we have a good weather condition and the record planting area. The crop was a record obtaining a production of 828,000 tons, increasing 2% in relation to the previous year.

Related to the good years, in the line of the budget, we have 6.1 tons for corn and 2.7 tons for soybean. The sugarcane production was also a record, achieving 2.4 million tons, increased by 12.1% the total years, very good, especially in Brazil. Lastly, the meat production was quite stable, despite the fact that Argentina reduced 20% of the cattle stocks, obtained profit on the stocks.

Let's move to the next slide, number 9, the COVID-19 agribusiness working, as a necessary activity. Protocols used by Cresud on these farms, because Cresud is an agribusiness company. It's considered essential during the pandemic. We make different protocol. One is security and hygiene protocols, control the farm access, suspension of the visits to the farms, reduced transport use and changes in the way of teleworking.

Move to the next slide; we're talking about meatpacking facility. If you look at the last year, it was a record volume of slaughtered cattles, achieving 116,000 heads, due to the investment to make in the plant and to increase the export business. There were 66% more in kilograms and 39% in value, including China's market, as well the kosher business optimization for Israel, and the United States market too. The activity generated the first positive EBITDA of $1.5 million, after the last five years of losses.

Let's move into the agriculture, both competitive agricultural service. The third one is our brokered company, future and options continue growing in the local market, and into the trade corn's evolution over to the 5 million tons. A market share of 5.3% in corn, 3% in wheat and 3.7% in soybean was obtained, because it places itself as the leader grain broker in Argentina.

Agrofy, our business e-commerce platforms continue evolving the annual visit to 41 million visits and monthly contacts, 1.2 million contacts. Overall year to year more than 100%. The revenue also increased by 43%, $2.6 million, and we continue to spend it in LATAM.

Thank you everybody. Let me hand over to Matias.

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

Thank you, Carlos. Good afternoon, everybody. If we move to page 12, we have a quick summary of the performance of our operation under years and years of commercial properties. If we see in shopping malls, we are suffering the lockdown in Argentina. So our malls are closed since March 20, in the city of Buenos Aires. We only have one shopping center open, and some malls in the interior of the country that have reopened under strict protocols and safety.

If we see our stock, remaining stable at 332,000 square meters. The occupancy was slightly down, decreased to 93.2%, and our retail sales decreased significantly, because of the lockdown, with 92.9% during the quarter and 25.9% during the year.

If we see the office building, the office remained under normal operations. Rent collection was normal. There is a slight increase in the vacancy, but [Indecipherable] Buenos Aires city premium market, 200 Della Paolera, our development, is under construction and unfortunately the construction was delayed because of the pandemic. Now, it's already under development and we are estimating to finish the construction, more or less, by the year end or at the beginning of the following year. The work is almost ready, 95% work has progressed and 61% is already signed into commercialization, so will be occupied at the beginning of the operation.

If we see the hotels, also affected by the pandemic. There is, all the hotels were were closed since March 20. So we still have the same rooms and occupancy is almost zero, because of the virus.

So if we move to page 13; we have here, the description of our investment in Israel. As Alejandro mentioned, there was a negative resolution of the court district in Tel Aviv. Although we have been negotiating with bondholders of the three series of bonds of IDBD, the company entered into a negative NAV because basically, they decreased the price of the shares of the underlying assets, and also there was a financial challenge to achieve the payments during the year, that the company basically needs to sell an asset that was the airline company or shopping in Las Vegas, and due to the pandemic, it was impossible to sell. And in that situation, well, here we have the description of the three series of bonds that where one of the series is without any collateral and the two others has some collaterals in the case of Series 14, the 70% of the shares of DIC and in the Series 15 to the 5% of the shares of CLAL.

So, after several rounds of negotiation, where Dolphin tried to reach an agreement that benefits all the parties, the creditor rejected the offers and decided to ask to the Tel Aviv District Court to order the opening of a bankruptcy proceeding against IDBD. On last Friday, the court resolved that IDBD is insolvent, and there has therefore resolved to grant all the three orders requested by their bondholders, and issue an order of the initiation of a proceeding or litigation of -- sorry, procedure liquidation of IDBD, and has appointed a liquidator to the IDBD, and interim receivers over the pledged shares of the DAC and CLAL, to preserve the rights of Series 14 and Series 15.

This happened very recently on last Friday. So, as of the date, we are analyzing together with our local and international advisors, the traditional decision, our alternatives and our course of action. In the meantime, it's important to mention that we already value our investment in IDBD at zero. So in our financial statement, at IRSA level and at Cresud level, the investment in Israel is already reflected that zero value, so it won't have any other impact for our financial statements. For these financial statements, as of June and the numbers that we're going to see, we consolidated our investment on accounting basis, both in Cresud and IRSA. But it's very likely that from the next quarter, we will have to deconsolidate our investments, since this order happened. So, if you want to see more detail about IDBD and the on investment and the impact at IRSA level, there is more information on the website of IRSA, and also there, we just have a conference call at IRSA level and you have the replay on our website as well.

If we jump to page 15, regarding the numbers that we just presented last Friday, we are finishing our fiscal year, with net income reaching ARS20 billion in fiscal year 2020, against a loss last year of ARS40.7 billion attributable to our controlling interest or to our shareholders. The net income achieved ARS3.9 billion, against a loss last year of ARS26.7 billion almost ARS26.8 billion.

If you see on Argentina business sector and the agribusiness, were the lines with extraordinary results. We see the first impact in the line six, changing fair value that we can see in the Argentina business segment. that this line contribute with a positive result of ARS33.2 billion against a loss last year of ARS38.6 billion. This is basically attributable to the valuation of our investment properties at IRSA level and IRSA commercial properties level, basically the offices and the land bank that is valued at pesos according to its fair value. This valuation also is supported by all the operations that IRSA did and IRSA commercial properties did, selling assets at values according to these valuations.

Also, the other important effect is in the line of the net financial results that we will see in the following pages, and also in the line 12, that is related to the results of associates and joint ventures, that is reflected -- that here will reflect the result of the situation of the Lipstick building, where IRSA decided not to afford any more, the ground lease and the rent of the land of that building that we already -- we revert all the results that we have on that investment, that generated a positive result of almost ARS7 billion.

If we go to next page on page 16, here we can see the results, more on the business side. We have excellent results on the agribusiness, all the lines were positive, so according to what Carlos and Alejandro showed, we are in a record -- comparing with a record of surface with prices and yields in the grain line and in the sugarcane that help us to improve our results compared with the previous year. So, all good news in almost all the lines, including the meatpacking facility, including FYO. So the only line that shows a decrease is in the farmland size, but is more related to the amount of farms that we sold in the previous year, that compared with this year. But this year also we have good results on that. So we are very happy on this performance.

In the urban segment, we see a decrease in the shopping malls because of the pandemic basically. Offices with better results in real terms, that here we have -- that our revenues are in dollars and also we have one more building under operation, the hotels with a deep decrease because of the pandemic and sites on developments without any important measure here.

If we jump to page 17, we see the breakdown of our net financial results. Here the main impact is the evolution of the FX. This year we have the valuation higher than inflation, that impact on the line number three, the net exchange differences, where this year we have a loss of ARS3.9 billion at the level of Cresud and ARS6.5 billion at the level of IRSA, compared with again last year, because last year we have an appreciation in real terms of the peso.

Regarding the Israeli business segment, the effect was related to CLAL, that as you know, we have been dealing with that situation since the beginning of our investment, and every time we value our shares at market prices, and the price of the shares decreased significantly over the years.

Finally, on page 18, we have the breakdown of our debt. There was a very active quarter and year for Cresud. We issued debt in the local market, basically dollar link notes for $83 million in June, and after that subsequent event, we issued $25 million more for a three year tenure, at a rate of 2% fixed. So we are canceling debt, with a lower cost of interest for the company. There is a new event after we have been prepared ourselves to cancel the debt that expired in November, that you can see here in the line two, the $73.6 million that expired in November.

There is a new regulation of the Central Bank, that established that companies must refinance the principal maturities that expire between October and March 2021. So the Central Bank will only give access to cancel up to 40% or only will ask us to buy dollars at the official exchange rate to cancel up to 40% of the principal that happened during this period of time. We are one of the companies affected by this regulation. So we should present a plan to the Central Bank, in order to refinance the remaining 60% of the debt for a tenure of at least two years of average life. So we are working on that and we hope that we can reach an agreement with our creditors, in order to fulfill with the regulation.

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

[Operator Instructions]. Asus Ganin [Phonetic] wants to do a question. Please go ahead.

Asus Ganin -- Private Investor -- Analyst

Hey, good afternoon. What is the total amount of the net investment in IDBD and DIC that's been written down to zero in U.S. dollars, please?

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

Sorry. I'm not sure that I heard your question. Your question was about if our investment in IDBD was written down to zero in dollar terms, that was the question?

Asus Ganin -- Private Investor -- Analyst

What was the total amount of the investment that was written down to zero?

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

There is -- our investment has started since 2012. So this last quarter, that was after the resolution of the court, the investment that was written down was around $20 million in our financial statement, that was in the last quarter. Previously, there was different losses and according to the consolidation of our results, we have been writing or posting losses during the year, and basically related to the valuation of CLAL, and the CLAL shares that we have to give impact on our books.

Asus Ganin -- Private Investor -- Analyst

Okay and one follow-up please. Does Cresud have any interest in the Elsztain project with Yamana Gold?

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

No, no. That is under the ownership of our Chairman, it's not related at all to Cresud.

Asus Ganin -- Private Investor -- Analyst

Okay. Thank you.

Santiago Donato -- Investor Relations Officer

Any other question? If there are no more question, we conclude the session. At this time, I would like to turn back to Mr. Alejandro Elsztain, CEO, for any closing remarks.

Alejandro G. Elsztain -- Chief Executive Officer

We are closing a very rare and special year, not to agribusiness, that is really essential and is showing the strength and the rebound that we are seeing the last two months on prices, which has been a more interesting place to the business related to the agribusiness. In the case of Brazil, we see a lot of interest. Farmers in Brazil are finishing a beautiful campaign in yields and in prices, and they have a lot of gains and in their cases, the reinvestment on land it's makes them to save some taxes. So, we expect a very active real estate campaign in Brazil for the next. We expect that some movement on the rest because agribusiness is keeping attention on the rest of the region too and our companies in the service companies are keep growing and want to keep growing on the region. So we are very bullish on that too.

Related to the urban, we are expecting the opening and we are waiting for that soon. We are in our spring and we are expecting the opening of some of our shop is opened. The ones that they are in the interior of Argentina, we are still waiting for the opening of the majority of the shopping in Buenos Aires and greater Buenos Aires and the hotels. So, we are facing a special year. And in the case of Israel, we are seeing what our generosity gives we have. So we hope to have a good 2021.

We thank everybody for supporting and coming to the Company, so safe and have a very good day and better year for 2021. Thank you very much and have a good afternoon. Bye.

Duration: 35 minutes

Call participants:

Santiago Donato -- Investor Relations Officer

Alejandro G. Elsztain -- Chief Executive Officer

Carlos Blousson -- General Manager of Argentina & Bolivia

Matias I. Gaivironsky -- Chief Administrative and Financial Officer

Asus Ganin -- Private Investor -- Analyst

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