Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY) Q2 2023 Earnings Conference Call February 14, 2023 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 Second Quarter 2023 Results Conference Call. First of all, I would like to remind you that both audio and slide show may be accessed through company’s Investor Relations website at www.cresud.com.ar by clicking on the banner webcast link. The following presentation and the earnings release are also available for download on the company website. After management remarks there will be a question-and-answer session for analysts and investors. If you want to make a question, please click the button labeled to raise hand or use the chat.
Before we begin, I would like to remind you that this call is being recorded under 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
Good morning everybody. We are beginning today our second quarter 2023 results. We are going to begin in page number 2, talking about the main highlights for this — for the half year. And we are achieving a record planted area in the region and we began to include in our performance the farms that we own and we are leasing to third parties.
What does it mean? Some funds, own funds that we rent sometimes to generate a client to sell, sometimes directly to share the risk of production in the area. And that’s the reason that in the next page we are going to see that we are achieving close to 290,000 hectares of total land in the combination of leasing and only plant.
About the company progress, there are mixed conditions and we are going to see depending countries and crops. But in general there is a sustainability price and for this campaign, I think it’s very important growing crops, more affected in the case of Brazil, in Argentina has affected margins. So we are going to see good and sustained commodity prices. But these growing costs taking a big portion of those margins comparing to last year and that’s why Matías later will explain some of the lower margins on the first semester that is the less important in a number of crops, majority counts in summer that will be reflected in the third and the fourth quarter.
Our climate is affected mainly Argentina, we are going to see the effect of the drought in Argentina mainly, not affecting Brazil, or not importantly in Bolivia and Paraguay, but this is really changing in the case of Argentina. But we were lucky about some of the impact came to some regions that we have few fast, not a lot.
And so we are going to show you our map and our location of the farm. So that is affecting a little less in our case. Related to Brasilagro, Brasilagro has good rain results. So we are expecting very good in corn and soybeans, but most affected mainly in sugarcane. So when we are comparing our balance sheet, we are seeing much lower results coming from sugarcane. Last year sugarcane had resulted in increasing in prices, very good yields and lower costs. But this year the three are affecting negatively. So that is the main change the adjusted EBITDA for the year.
And in the real estate the second effect on the balance sheet, the last year — the first semester was mainly affected by very good real estate sales, a lot of sales done mainly in Brazil, all of them in Brazil. But this year, we are just looking at two small sales that I’m going to explain a little later. So the main two effects on the agriculture are related to sugarcane and real estate.
Related to IRSA, we were buying more shares. So from this semester, with six months, we’re increasing our sales from close to 54% to close to 57% of IRSA. So IRSA had very good results in the semester. The EBITDA is rebounding a lot and the leverage of the company is amazing. We are going to show you a little later.
From dividends, we’re receiving dividend from BrasilAgro, from IRSA, from FyO, the company is really receiving from subsidiaries a lot and expecting to receive much more in the future, because all of them are in very, very good shape. And we were buying back shares and we were paying dividends in the semester that we are going to show you later.
So we can move now to page number three. Here we can see the evolution of the prices of the soybeans and corn. So there was a rebound recently affecting — and so that’s why the reason I’m talking about better commodity prices. But on budgets, they are not surpassed as like last year.
The prices of the corps that you are receiving, they are close to the budget prices, not a gain. Last year we have like 20%, 30% gains on prices but this year we are not expecting, we are close to budget. And so, by saying that, the corns still went up, not reflecting the loss that Argentina has and that main reason, it is because Brazil have more than increased what Argentina lost.
So the regional balance is good. It’s not good in Argentina, but having so much area planted in Brazil that, there is not a lack of grains for the next campaign. And here we see our evolution and we are showing and you’re beginning to see the 38,000 acres are acres that Cresud and BrasilAgro own and we are leasing to third parties.
And — for example, in Argentina we are basically in a process in our [indiscernible] where we diversified our production ranges or sometimes we are talking to the client to lease for later, saying, as happened in — we are doing that, for example, in [indiscernible].
We are leasing and the one or both [indiscernible] is leasing on top of that some acres of the farm. So, really, it’s a way of bringing clients to our big projects too. So we are achieving close to this 300,000, we have the expectation of keep growing on that number between the four countries between owned and leased.
We can now go down to page number four. And here we see the evolution of the drought in Argentina. And here we see the red showing big growth. On December the drought was almost everywhere. But look at the yellow and the yellow reflects our farms area and where our plantations are owned and leased farms. So the points are showing our plantations.
And let’s see what happens currently, two months later with the raised — scale some of the raised [indiscernible]. So majority of our points are located in yellow to green area where the drought is not affecting too much. The work of the drought came to the main core belt north of Buenos Aires to the south of Santa Fe or east of course our Southeast of course but our majority of our crops are really better located. And here we are expecting not to be affected as Argentina. In Argentina, the comments are about 35, 37, 32 depending the source, but really the big drop from the 49 billion tons of original and we are not expecting to be affected too much. Here we are forecasting like a 10% in soybeans, or 5% in corn it’s a little too early.
Today we are not just having the real numbers. But our areas are not so effective as the country. So we are less negative than the — now the services are talking about the forecast of Argentina, meaning that we are expecting for March and June results our main for soybean and corn and the field if rain keeps come. There is no reserve what we have in the last almost now the land has reserved and sometimes the land have many derivatives that could give to the top doesn’t come the rain. This is not the case this year. So majority of the areas are needing the continuation of the rain for the future, but we are still optimistic on the campaign in Argentina and in the campaign on Brazil and the [indiscernible] America is much better probably not affected and not below budget maybe up to budget because really rain came to the region.
And implantation we have seen Page number 5 plantation of the two soybeans is close to 100%. And in the case of corn, there is some delay, but in Brazil that is 29% is expecting the correction of this sale and comes with the premium corn that is driving too, so we’re expected to plant this quarter. The plants probably once we planted will be remaining in Paraguay that probably want to give us the opportunity. And in Argentina we think that we will be close to all being tracked. So it’s really — we are not expecting to be affecting big in the some parts that is the harvesting products in the region.
And to finalize the — what in this semester was not very active. The real estate showing these two sales were that they were done in the first quarter. In the second, there are not new — the first two are run in Paraguay, small in 500 [ph] hectares, the second semester [indiscernible] hectares and no moves for this first semester, but very optimistic in the second, a lot of activity. A lot of activity in Brazil mainly liquidity on the products is huge, but in Argentina, we are seeing some movement. So we are optimistic on the second semester in the activity of the real estate for sure. So first was not very active, but we are expecting much marketing this year
So with that, I will give you now the word to Matías Gaivironsky, our CFO. Please Matías.
Matías Gaivironsky
Thank you, Alejandro. Good morning everybody. Going to Page 7, we can see some of the results from our investment in IRSA. It’s important to mention that during the quarter we — or during the semester, we vote shares in the market. So we increased our stake to 56.7%. So we increased by around 2.3% our stake in IRSA.
Some of the main important issues during the semester for IRSA there was a very strong operational and financial results levels of EBITDA increasing, surpassing pre-pandemic levels, increasing the margins during the – if we compared with the previous year so very good margins. The occupancy of the last building that IRSA developed today is 100% occupy. The hotels is generating a record EBITDA. Also IRSA during the last quarter recently issued new notes in the local market. So with that IRSA solved all the issues with the debt and with the restrictions of the Central Bank and the lack of dollars now IRSA has more any risk regarding its debt. And we will see that there is a deleverage process that we started in 2020.
Going to Page 9 to understand some of the results in the semester, we need to understand what happened with inflation and evaluation. Inflation during the year – during the semester was 43% and the inflation – and devaluation sorry was 41%, means that we have a real appreciation of the peso 1% during the semester and 11% last year. That will have an impact on liabilities that all the dollar-denominated liabilities will generate gains because of this. And all the assets valuated in dollar terms will generate losses.
If we go to Page 10, we can see there is a reduction in the adjusted EBITDA on our agricultural business. And basically during this semester we have different effect. The main one is in the sugarcane. We will – we can see a reduction from ARS 9.3 billion last year to a gain of ARS 800 million this year.
Remember that last year prices of the sugar was very high and – so that generated a record gain during the last year. Now prices reduced and also the climate conditions or the sugar basically in Brazil were not the best. So for that reason we are generating lower results in this semester.
Grains also has a reduction from ARS 1.9 billion to ARS 220 million. Remember that is still not the best part of the year. So only the week we have basically with their results during the semester. Last year was a very good year. This year we dropped – as Alejandro mentioned, we suffer. We have an impact because of that. And this is the main reason why our results are decreasing compared with the previous year.
In the capital activity, it’s more related to the inflation effects. Prices were flat in pesos – more or less flat in pesos. And with the fact of the – when we have to express that in real terms, its generating losses and agricultural brand and services we have a gain because we increase the size of our funds that we rented to third parties. The results of field is very good. We can see an increase of 116% from ARS 1.8 billion to ARS 4 billion during the year.
Going to page 11, we can see on a consolidated basis, the operating income reducing 44.3% excluding the effect in the change in the fair value that is mainly related to our investment in IRSA.
On the right side of the page, we can see the decrease from a gain of ARS44.7 billion during last year to ARS28.8 billion loss during this year. This is related to valuation of our investment properties that if we measure that in dollar terms are flat. But when we have to express that in real pesos is generating losses.
Going to page 12, the net financial results. We can see a gain during the semester of ARS8.8 billion compared with a gain of ARS16.2 billion last year. Here important to mention two lines, the net interest that we can see a slight reduction, but when we combine the two lines, the net interest together with a net FX results, part of the results are going in that line that is generating gains. So, we can see an important reduction compared with the previous year that is related to our deleverage process in a consolidated basis.
So, when we put all these effects together, the net result this semester is a gain of ARS19.2 billion compared with ARS74 billion last year. This is a reduction that is — most of that is related to the fair value of the investment property.
And we can see in the next page, the dividends that we collected from our subsidiaries. During the fiscal year 2022, we received dividends for $40 million this semester. After that, we received a dividend of $34.8 million, $7.8 million from IRSA, $24.5 million from Brasilagro, and $2.5 million from FyO. And also Cresud distributed dividend in cash dividend yield of 3% more or less $10 million that we distributed during November.
Page 14, we can see the debt amortization schedule and stand alone. This is only Cresud. So, there was a challenge last year to refinance the debt of $113 million at the Central Bank applied [ph] to do that. So, the exchange offer was very successful with around 90% acceptancy. So, there is still a small payment of $14.7 million that we have to do in the next phase, but we believe that we will have access to pay that debt without any problem. Also during December, there was a new issuance. We issued a $38.2 million linked note with expiration in 2026 with amortizations in the — amortizations in month 36, 42 and the remaining at the end. The interest rate was zero. So this also reduced our cost of the debt in dollar terms.
On a consolidated basis, we can see the net debt evolution with important reduction since 2020 from almost $1.2 billion to $680 million much more diversified in the next years the expiration. So we are very happy with this evolution. Regarding the share buyback program, remember that we have approved a buyback program of ARS 4 billion. From that we executed around 32% of the plan. So we already buy back around 1% of the shares of the company. The investment was ARS 1.3 billion, so we will continue to execute our plan in the future.
So with this, we finish the formal presentation. Now we open the line to receive your questions. Thank you very much.
Question-and-Answer Session
A – Santiago Donato
Thank you. Well, we conclude the presentation. And now it’s time for the Q&A session. [Operator Instructions] We’re going to take the questions in the orders we receive them. First question, do you expect farmland sales in Argentina for the next semester of this year 2023 and also in the region?
Alejandro Elsztain
Yes, we are seeing some searches of farms neighbors or people trying to expand and not to — probably they are not very happy putting their money in their banks or in other assets. So yes, some in Argentina, not of the liquidity of the rest of the region, but yes, some movement, so I’m optimistic in Argentina too, but much more optimistic in Brazil, where the benefit of — instead of the human being, he is a farmer, not a society, instead of him being paying the taxes on gain, taxes on earnings, they directly buy new farm so they avoid directly to pay so the liquidity there is great. So I’m optimistic on the two, but much more in Brazil than in Argentina. And I expect the next semester activity in the two.
Santiago Donato
Next question, do you think the drought in Argentina will have an impact in commodity prices?
Alejandro Elsztain
Sounds like, the effect of the drought made the prices to keep still that, if Argentina would have the normal 50 million tons or more, would be different. But the 35 more or less that the market is expecting, sounds like the market accepted, and because of volumes of Brazil the markets not to operate and we are not seeing the rebound – should rebound of the price. Like last year, we saw that when ARS 30 million disappeared in the region.
Today they are not ARS 30 million disappearing, maybe it could be an effect on the mill because of Argentina industrialize majority of the soybean and Brazil not and sell directly as a mill. So maybe it could be deficit on that – in the flower of soybeans. And yes, that could be a positive price’s on that, because of the low volume on the part for soybean.
Yes. Here we have many questions from our investors, if we can explain the reasons for the significant tax credit in the P&L in the latest quarter results?
Matías Gaivironsky
Yes. There is – we have been assessing our results, our tax results by inflation in the last quarters, and we took a very conservative approach in our balance sheet recognizing all the losses in the previous quarters. There was a new decision under the Supreme Court that allows the company’s to by inflation in the tax balance sheet. So since that was exactly what we have been doing, we decided to reverse the effect of the tax in this semester that generated an important gain. And now we have support via Supreme Court decision. That is the reason why we had the loss in this semester.
Alejandro Elsztain
Here – there is a question here regarding provision of the lawsuit that increase in the second quarter. What you expect of that ruling. And if there can be any other related lawsuits going forward?
Matías Gaivironsky
Okay. This is related to is investment IRSA’s investment in Israel. That was – that we explained that during the webcast of IRSA. There was – there is a new claim that IRSA received a couple of weeks ago. It is basically a plan for ILS 140 million. The company is decided to create a new provision no matter on all the legal defense that we believe that the chances are very high. But the company decided to be conservative, and create a provision of 50% of that. That is the – that provision in this semester. And going forward, no we don’t expect more claims from our investment in Israel.
Alejandro Elsztain
Related to the fair value losses on investment properties that jumping in the second quarter – we can discuss reasons for that and outlook going forward. I think some parts you explained Matías but — I think giving in the next quarters, what do you expect for top line?
Matías Gaivironsky
It’s also related to investment in IRSA, it’s not directly from Cresud standalone. You need to understand, how is the procedure. We value the shopping malls with our DCF model and offices and land bank with comparables in the market. The comparables we are using the low chip swap to convert dollars to pesos and the DCF is a model that is created in using the official effects.
When you measure the properties in dollar terms, valuations are the same, so it’s not changing. What happened is that you — when you have to convert that into pesos, you have to measure what happened with the inflation and what happened with the devaluation. And always, when you have an appreciation of the pesos you generate gains, that is what happened last year, that generated an important gain. And this year, it’s not the same. So, when we analyze basically the new chip swap, there was an evaluation converting that into pesos is lower than the inflation. So, that you have to generate a loss in that line.
Alejandro Elsztain
To more financials for Matias, any guidance on dividend and share repurchase going forward? And also, your targets of labor have pursued going forward.
Matías Gaivironsky
Well, regarding the buybacks, we have this program approved for ARS 4 billion. From that we executed ARS 1.3 billion. So we will continue to execute the plan in the future. Dividends, we prefer not to give guidance. We always approved in the shareholders meeting that. So there is no proposal yet to our shareholders’ meeting. So, I don’t know in the coming months decision.
Regarding the leverage, we can see the deleverage on a consolidated basis that is very positive, because now is has much more free cash flow to this field or to use in future projects. In the case of CRESUD, the guidance is valid or the same on what we have. So we will — I believe, maintain the same leverage for the year.
Alejandro Elsztain
Question related to farm and real estate, what would be your average market price of agricultural land projectors, [indiscernible] crops and Catlin Argentina and Brazil, outlook and bank prices going forward? And would you be looking to increase monetization of your agricultural land? There is an average for each region has a different price and Brazil is calling impact of soybeans in Argentina. The nomination is [indiscernible], there was a big rebound on the prices on the banks in Brazil mainly and that region followed the trend of United States, appreciation of the last not in the case of Argentina because of intervention of the government adding taxes on exports and because of the dollars that following the trade of U.S. didn’t happen in Argentina.
So there is a lot of liquidity in the farms in Brazil really an activity that I’ve never seen and a lot of businesses of other partners to increase their stake. So they like to be increasing their operations.
And they do through buying and paying on installments. They don’t buy and pay in cash, they normally do pay 20%, 35% and the rest is 23 years in many installments for the future in South Sweden.
In the case of Argentina, land humidity was less this last year, because of the two effects that I said. And so today the prices of the land are much more, cheap and there is not this following American or Brazilian prices.
And but I imagine the appreciation on the land of Argentina will come because of probably the next government reducing the cap on the dollar and reducing the taxes on exports. So I imagine more measures related to farmers.
And we are seeing the existing government is improving the farmers’ situation with giving some special dollars to farmers that is like enable taxes that they can fix their soils. So really I’m optimistic on the price of land of Argentina and the price of the Brazilian farms is made in the liquid and attractive comparing to the past.
And a lot of realizations for the U.S. here for sure there is realizations and maybe this year are more realization where there is so much field price for the last and sometimes we bought that, I don’t know 10 times lower than today’s price or much more than that.
And Brasilagro in Brazil, [Indiscernible] so this buying when no one is buying, I’m setting with everyone is fine and giving the community, to the farm, to the company who get to revise in another region, later with the opportunity up. Yes for sure this is what will happens.
Santiago Donato
I don’t see more questions. I’ll give one minute more for any additional questions. You can use chat to raise your hand. Yes, we will post a replay today afternoon in the website.
So I’m going to be able to see it again. There is a question, if we’re going to read it — start again with the repurchase yes, we have started some — yesterday with daily buybacks, as we have done and before we’ve been doing. So with this we conclude the presentation and the Q&A session. Thank you very much for participation. I will turn back now to Alejandro Elsztain, CEO for his closing remarks.
Alejandro Elsztain
I would like to finish, we are in the first half of the year. We talk about the grades coming in the second semester, in this case expecting the real estate much, more happy, in a few moment, and very deleveraged. And this – now, there are much better results, operational results in IRSA too, the rental property too. So in the case of services through feel, it’s really a big engine for Cresud too and we are seeing big results and accepting the expansion of field Brazil, that will give us more and more EBITDA for the company too. So optimistic on the second semester. Thank you very much, and have a very good day.
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