Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY) Q2 2023 Earnings Call Transcript February 14, 2023

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 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 . We are leasing and the one or both 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 . 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.

Photo by Dan Meyers on Unsplash

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 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 hectares, the second semester 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 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.

A - Santiago Donato: Thank you. Well, we conclude the presentation. And now it's time for the Q&A session. 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.

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