Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY) Q1 2023 Earnings Conference Call November 14, 2022 10:00 AM ET
Company Participants
Santiago Donato – Investor Relations
Alejandro Elsztain – Chief Executive Officer
Matías Gaivironsky – Chief Administrative & Financial Officer
Conference Call Participants
Santiago Donato
Good morning everyone. I’m Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the first quarter 2023 Results Conference Call. First of all, I would like to remind you that both audio and a 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. If you want to make a question please click the bottom labeled Raise Hand or use the chat.
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. Please go ahead sir.
Alejandro Elsztain
Thank you very much. Good morning, everyone and everybody. We are beginning our first quarter results 2023. And the main highlight for this quarter, but the strong commodity prices are still, and the sustained margins per acre that have received some impact because of cost of inputs and lower — sometimes lower prices of output. But in general still keeping good margins per hectare for the overall agriculture in South America. The climate is affecting us something. And the climate mainly is affecting Argentina, not the rate, not Brazil, not Paraguay, not Bolivia. But in Argentina the effect on the climate was enough strong and we’re going to show you in the map what is the situation for the country.
Related to real estate, this quarter we were able to acquire a farm in Brazil, close to 11,000 hectares from those net of 5,500 acres of arable land and in some sales not in the first quarter but in later, we are seeing a lot of movement related to the real estate in the selling. So we are seeing that movement on the market.
Related to our service company FyO, we are achieving very good results. In the commercial services, very good EBITDA in the year related to the sales of outputs and the commercialization of inputs mainly in Argentina but expanding to the rest of the region. And this is really growing a lot.
Related to the Urban business, we are going to see some small pictures related to IRSA that closed a very good quarter, mainly related to the rental properties, mainly to the shopping centers that they were recovering a lot comparing to the 2019 numbers before pandemia. So the EBITDA from the Urban and the — mainly the hotels are recovering too, so the two are bringing very good results. We have successfully exchange offered this quarter. We are going to see later. And we are doing a share buyback program. And we began again to pay in cash these days. Cresud paid a dividend for the shareholders.
And so we can move now to page number three, and we can see these two representations of our size that we are increasing against size. Last year we are planting 255,000. We are this year planting 260,000. Comparing I think next year Brazil will show past Argentine size, because Brazil bought some new land and rented more new land from cattle to grain, but comparable sizes in the two countries much smaller between Bolivia and Paraguay, keeping this breakdown of crops, mainly soybeans and corn first two, sugarcane being the third.
And we are seeing the volatility on the prices. We saw some of the drop on the prices of the soybeans less in the corn. But more of the costs, we are seeing this year are relevant input costs, mainly fertilizers impacting cost of per hectare, mainly in Brazil more than in Argentina. But in the two, we are seeing margins decreasing because of inputs increasing for this year, so — but still enough reasonable and very good margins in the 260,000 that we have planned.
We can now move to page number 4, and here we can see the drought that is affecting Argentina. This is the water on the arable area and majority of the countries in the red, showing some areas that they are not too bad. Today and yesterday, we had a rain but really the rain came later for the winter crops. Winter crops that they were 100% planted and they were close to be harvest in December, really suffered a combination of drought plus early frozen that came in October days.
So the combination of the drought and the frozen is really affected. And there are some analysts thinking of Argentina instead of the 20 million tons that we got when the plantation came is expecting a 10 million, 11 million, 12 million, some of them are staying below 10 million tons. So close to a loss of half of the plantation, mainly affected was the corn-belt area, the best part close to Buenos Aires.
In our case, our expectation is less, because we have some of our firms that received in a good rain. So really we are not expecting that drought and frozen affecting half of the yield, but for sure affecting what we budget at the beginning. And now the relevant will be — majority of our campaign is 10,000 is just winter, but the rest is pure summer crops. So, majority of the gain comes from the summer mainly soybeans and corn.
And after the rain yesterday, there was some recovery on the soil humidity but still needs much more rain to have a normal year. No one is clear expecting what is happening. But yesterday, it was a good signal, mainly the corn-belt that were, 30 millimeters, 40 millimeters, 50 millimeters in majority of the areas, but still uncertainty on the case of the yields for this corn-belt.
Talking about real estate, the only things that they were done in the first quarter, one was the purchase that we spoke about in Mato Grosso, this farm that 80% of the crop can double crop, they can make a double drop. So that will be mainly corn and cotton. So these are very productive and efficient farms in the north of Mato Grosso. For those, we pay ARS 285 million divided into one in cash and the first — second payment will be next year in the year period. And it’s all done and only we need to transform from cattle to grain, and we will be very, very productive farm north of Mato Grosso.
The other real estate activity for the quarter, not in the quarter was done after the 30 of September, so the number will be reflected in the last — in the 30 December numbers. We sold a small area in Paraguay from the productive area close to 500 hectares, total hectors of 863 and we have still remaining flow to 59,000. So this is a really small percentage of the arable area and the total area. And we really were able to be selling at $3000 per hectare developed agricultural line. That is really very good. We were buying this land at $250, $300. You need two hectors for land and so after preparing the land, so it’s below $1,000 per hectare. We were selling for $3000, very good internal rate of return dollars in US dollars close to 28%. So really is the beginning of the selling.
This is a very comparable farm to Salta, the one we are doing in North in Argentina. So this is the first sale of a developed farm in Chaparral Paraguay that is the same of the Chaparral and for Argentina. And we are very happy to begin to share that with other farmers and demand not only bought 500 but rented like 800 surrounding. So this is the beginning of buying, beginning of selling buying buyers for those big farms that we are doing in the Chaparral Paraguay area of Salta and in this case Paraguay. But there is a lot of more movement in the real estate. So we are seeing a lot of activity. We are expecting a very active area in the real estate area.
Now I will introduce Matias Gaivironsky, our CFO.
Matías Gaivironsky
Thank you, Alejandro. Good morning,everybody. So going to Page 6, we have a short breakdown of our investment in IRSA. We can see the strong recovery in the EBITDA the rental EBITDA. We are reaching pre-pandemic levels after three years that the business was very affected by the pandemic. You know that last year we started to open 100% of our malls.
There was recovery quarter-by-quarter. Now we are reaching higher numbers than 2019. So we are very happy to see the company with that recovery. Also in the hotels we are seeing an excellent result mainly from our hotel in the [indiscernible] Llao the two in the city of Buenos Aires is still some potential to recover.
Now the tourism in Argentina is growing and we are seeing better numbers but still some room for recovery. But we are achieving one of our records in the hotel industry in the last years. Also we see one transaction. There was a disposal of one floor in the 200 Della Paolera building. So we sold for a price of $10.6000 per square meter. We received $12.6 million. And we are using mainly the proceeds to cancel debt. So we saw an impressive reduction of debt of IRSA from $755 million two years ago to the current levels of $307 million.
Going to the breakdown of our financial statement this quarter. First of all, we need to understand what happened with the macroeconomic drivers that it has an impact on our financials. Basically are what happened with the FX and what happened with inflation – inflation during this year and this quarter accelerated to levels of 22% in the last quarter compared with 9% in the previous year. And the valuation was 18% this year, compared with the inflation of 22%. That means that we have an appreciation of the pesos of 4% and last year the devaluation was 3% against an inflation of 9%, means there was a real appreciation of 6%. That has an impact on our dollar-denominated debt, when we recognize results. We are recognizing a gain because of that. And also has an impact on when we value assets in peso term. In real terms, we will recognize a loss.
So going to page 9, we can see what happened with our adjusted EBITDA in the business. There was a reduction. The first quarter is not the most representative quarter of the year, so that basically has an impact on, if we have a stock of grains, or what happened with the production during the quarter, but it’s not the most relevant.
We can see the reduction came from the sugarcane. In grains, we see a better result. But still, we are not recognizing the campaign. So, still this is all to came. And it sure came that is related to – last year, was higher prices of the ethanol and the sugar lower production, during this year, because of weather conditions in Brazil, and higher cost as Alejandro mentioned.
In the cattle, it’s more related to the holding activity, or what we call the result of our stock that increased lower than inflation. So, here we recognize in real terms, so we are recognizing a loss because of that. So that is basically, the drop in the adjusted EBITDA. When we go to the operating income, including IRSA, we see a decrease of 12.4%. This is excluding the fair value of the investment properties, the investment properties itself. We see a loss during the quarter of ARS 6.6 billion.
If we see the valuation in dollar terms, it’s very stable. I would say, more or less the same than in June this year, and the losses because as I mentioned at the beginning the devaluation of the peso of the inflation was higher than the devaluation.
Regarding the net financial results, we see again, during the quarter ARS 6.3 billion. Here, we have different components one is what happened with FX that generated a gain of ARS 4.5 billion this year, and ARS 8.7 billion last year. Remember that, the real appreciation last year was higher than this year.
And also, we see a reduction in the net interest from ARS 4.6 billion last year to ARS 3 billion this year. It’s related to the de-leverage of our consolidated net debt. And also, the other important effect is in the Line 1 inflation adjustment that because of the acceleration of the inflation, we are recognizing higher results on this line.
So finally, the bottom line the net result of the quarter was ARS 5.2 billion against the same last year attributable to our controlling interest is ARS 3.5 billion. Regarding the dividends that we received during the fiscal year, and during the last quarter, we saw that during the year Cresud received $40.1 million most from Brasilagro and some from FyO. Then after the quarter, we received – we are receiving this week $24.5 million more of Brasilagro and also IRSA paid dividends for first time in the last year. The previous one was in shares of IRCP. Now, IRSA is paying dividends in cash $7.8 million. Also Cresud is paying dividends.
Last Friday, we started the distribution of dividends that we will see in the next page. So, the net — or the debt amortization scale and the net debt we see a slight reduction in the net debt of the company $389.6 million. The debt amortization scale we have part that expired this year, but there is no — any measure amortization or yes, expiration during the — this year. We — during the quarter — we saw in the last webcast, we did the exchange offer of our $113 million note that expired in February with a very high acceptancy. We receive a 7% acceptancy. So, the debt situation for the next year is very clear for Cresud.
Finally, on page 15, we see the activity on our capital structure. We decided a share repurchase plan that we finished. We bought ARS1 billion of shares of Cresud that represent around 1% of the company. And also we decided the dividend distribution for ARS3.1 billion that we started to pay in last Friday that was a dividend yield of 3%. And our ADR shareholders will receive the payment probably in the next 10 days.
So, with this we finish the formal presentation. Now, we open the line to receive your questions.
Question-and-Answer Session
A – Santiago Donato
At this time, we’ll do the Q&A session. [Operator Instructions] Here we have the first question regarding margins. Do you expect a change in margins these campaigns as costs are rising as well as prices? And did we see that we are going to have a differentiated for soybean this campaign as we had by the end of the last campaign?
Alejandro Elsztain
Related to cost, yes, there was a main increase on — in fertilizers. And in herbicides too that change on cost affected more than 30% in dollar terms in some cases. So, yes, as normal after the increase of the price of the soybeans and the corn. The input companies are increasing their prices and reducing their margins.
Prices are going to — we are expecting for the year good prices too. So, margins are going to be some decrease and will depend mainly on the yields. If Argentina keeps in truck it yields, the margins are going to be better not worse counting on the increase in the costs too because last year there was a big drop on the yields.
But generally, and the one probably is going to be affected mainly in the yields, it’s in the margins, it’s Brazil for sure, where the input costs were up a lot and the output is close to the same. So the combination was a little lower. The combination of the two makes a lower margin in general for the farmers for this year. Yes, we are seeing very record levels of margins for farmers in the world and everyone in the world is expecting a little lower margins, but still very attractive.
Related to the soybean price and the other crops price, farmers are waiting for sure. They saw a big increase in the dollar for Argentina that the government gave in September, from the first to the end of September, and they sold a big proportion of the soybeans. The remaining is smaller, I think it’s like nine million tons. And probably, the government is going to be announcing again, a new soybean dollar for the selling of the rest to make reserves as indeed. So maybe this is the case. And for other crops too, the government and the farmers are beginning to be expecting now the ARS 160 per dollar for the official, after they receive ARS 200, they are waiting for that, for the rest of the crop solution.
Santiago Donato
Here, we have another question on the financial front, regarding the bond maturities in November. Are you having access to pay and which are the plans for the remaining $14 million hold out from the exchange?
Matias Gaivironsky
Well, fortunately, the Central bank haven’t changed the rule. The rule — that note, we were forced to refinance in 2020. In that moment, the Central Bank said that they will sell only 40% of the dollars and the remaining, the company has to refinance in the market. We needed that very successfully in 2020. And now is the amortization. And the Central Bank will sell the dollars, they already sold the dollars, so we are paying today the note, the big one, the small payments that we are doing without problem. We don’t know if the Central Bank will change the rule in the future, so it’s not in our hands. But what we can say is that, we are paying today the note. The remaining is a small amount of money that we have to pay that because of holdouts. And we believe, that since we raised money in the local market per dollar [ph], we can use that money to pay. So we — if nothing changed, we will have the tools to pay the remaining amount in February.
Santiago Donato
There is, here a question related to the previous one. If the last official measure that offer to sell soy at ARS 200 FX had a positive impact on Cresud’s results or if it was very marginal?
Alejandro Elsztain
Yes, there were like some $2 million gain on that, because of having some small stock and the revaluation of that stock effectively positive us. And in the case of our service company in field, gave us a positive number too. So yes, the impact was good.
Santiago Donato
One more question, do you intend to do more share buybacks? And do you intend to keep on paying dividends going forward? If so, any targets?
Matias Gaivironsky
Well, we prefer not to give targets here. [Audio Gap] It’s a decision that we take every — the company the debt situation and the plans of CapEx and plans for money for the year. But if you take as a guidance what we have been doing during the last years every time that we were able to pay dividends we pay. So I think it’s a good guidance. Cresud is [indiscernible] in dividends from IRSA and Brasilagro and FyO. So I believe that we could be in conditions to keep paying. And regarding buybacks, we prefer as well [Audio Gap] the buybacks are not to anticipate that. So if we will do it you will receive the notice.
Santiago Donato
Okay. Is there any additional questions? You can use both the chart or the raise hand. Okay. If there are no more questions, we conclude the first quarter results and the Q&A. We turn back now to Alejandro Elsztain, CEO for his closing remarks.
Alejandro Elsztain
I would close this quarter saying — that is very big on South America probably at the pace that we are including new farms and renting new farms we are in that process in Brazil and the intention of doing that in some other countries too.
And so we think the number of the operational will be a strong one if climate doesn’t really affect. And related to the real estate what we are seeing is the prices of [Audio Gap] and a lot of demand a lot of interest of smaller pieces. And you saw that in the past we were selling [Audio Gap] thousands of hectares, but now we are going to — farms we sell in installments.
So this is I think the evolution of Cresud buying in bulk and selling in smaller and financing and we are keeping doing that. And I think this is — I’m very optimistic on the year. So just to thank everybody and we’ll see you on the December numbers. Have a very good day. Bye.
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