Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (CRESY) Q4 2022 Earnings Report, Transcript and Summary

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the fiscal year 2022 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. [Operator Instructions] 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.

Good morning, everybody. We are beginning the main highlights for the fiscal year. We are closing our balance sheet, the annual balance sheet for the company for 2022. And this is a special year. I've never seen a year like this related to commodities. We are seeing from December of last year, a volatility on prices that we've never seen in my last 30 years of working. This is related to the many factors affecting prices. And last year, really the evolution of prices was related to war, related to COVID, related to lack of production of South America that lost a lot of rain production and not only that region, a lot of climate affecting the world. So really, there was a real change on the commodities of the region and in the world that affected a lot and made us to have a very strong balance sheet on this year. This was combined in some positives, but in some negatives too, there were mixed weather conditions in the region. As an example, Paraguay, our farm in Paraguay suffered a lot and had losses in this year related to climate in agriculture, not in green cattle. And affected in Argentina too, a lot of grain that the country lost and affected our yields. So really was mixed, but still, the balance is very positive for Cresud. Related to planted area, we are keeping 3 years of very high levels of planted area, close to 260,000 hectares in the combination of the 4 countries and really a lot of agriculture and crop-related production that in the past was not so strong, but it is very relevant now, the operational side of Cresud. In the case of farmland sales, the only country that really had sales and a lot of liquidity is Brazil. In Brazil, the market is booming, and we have 2 farms -- piece farms, not complete farm sales, and we are going to show you later. In the case of -- in investments in Agrofy and FyO, our 2 companies -- commercial companies, that -- regarding Argentina and expanding on the region, positive -- very positive year. We are going to show you some numbers on them, too. Related to IRSA, IRSA finished emerged at the end of last year. And really, there was a big recovery after COVID in the rental of IRSA. So that brings a strong number to Cresud, too. So a very important year for IRSA and for Cresud related, too. About the -- there was a bond, big bond that was closing this year, the series 23, and we successfully exchanged that offer, and Matias will explain later, and gives us a very comfortable room, financially speaking, to Cresud. And there was a share buyback that we launched and we did the last month, and we are going to explain a little later. So we can move now to next page and see that volatility that I was explaining. Prices of commodities that were decreasing the last years but after COVID began to rebound from levels to $300 coming to levels to more than $600 to the soybean, $400-and-some on the corn -- coming to the $300 per ton of corn. So that rebound was related to that combination of COVID reducing prices, but later, stock consumption numbers were very tight. Some failures on the commodity productions on many regions and demand coming back, asking for grain, combination of [indiscernible] later and made that crazy figures of the commodities. And that made us be much more profitable on the agriculture part of this company, and we are going to show you later how the production of grain, mainly sugarcane, and finally, cattle made us so positive comparing to the past. Having this size that we can see the evolution of planted area close to the 260,000 growing Brazil, decreasing a little Argentina. Argentina, the decrease was mainly related to some sales that we did in the past of own farms and the not easy leasing area for this year are fighting with other farmers in that number of trying to lease more land, plus some others doing some other things related to the taxes on the leasing the farms that the Cresud doesn't does. So that made us an increase in the region and a decrease a little in Argentina, but still a very balanced and big operational number that is really affecting very positively, our numbers. Keeping the soybeans at 44%, 27% the corn, 10% sugarcane but very positive is not so big in comparison of the total number, but the sugarcane represents a big portion of the gain too because it's very positive, mainly in Brazil and some in Bolivia and the rest of the groups. So we can move to next page, and we can see what that does it mean in the agricultural production. The company in the past was at level of 0.5 million tons but these 3 years, achieving this 800,000 tons in the region in Argentina with good crop yields but really affected, the soybean was much positive. The corn was less positive, and the end of corn was really affected by 2 effects. One was the drought of January and very warm time. In January, we had record days, 15 days of more than 40 degrees in Argentina. And later, we had early frozen came in from 15th of March to the 30th of March big frozen to Argentina affecting yields of corn. So finally, corn yields were much lower than last year. That made us some losses, if not, the operational number would be much bigger, but still with the effect of drought and frozen, the numbers are very positive, and we are going to see later. In the case of sugarcane, same -- almost same number of sugarcane, but with the recovery of the prices of the ethanol, making us a very positive number in the operation of sugarcane. We have not mills but only selling to the mills, we made a very positive number in the sugarcane, too. And in the case of the cattle, having the 71,000 heads in the whole region, therefore, 3 countries. Bolivia has no cattle, but the other 3 having cattle. We have a balanced production and very positive in cattle too. So very positive in having very good prices because of the rebound on the prices and having those volumes, made us a very positive operational year for Cresud. Related to funds we presented in the board -- in the other highlights in the other quarters. The only 2 farms sold were the Alto Taquarí and Rio de Janeiro. So with these 2 farms, we surpassed budget, we surpassed the normal years on selling on farms. And we have 1 other farm that is in the right part of this presentation, September 2024 will come a sale for that time. That is a very big gain, but it's going to be presented in the balance sheet 2024. In the next page, in the page related to farm sales, we have here the show of what we closed in 2022. That is a $40 million gain comparing to a $52 million sales. This is a normal average of sale to gain and selling again 2 farms, that are partial farms. These are not total farms. Every time we are selling smaller pieces, not whole farms. And we keep this average of 2, 2.4 farms a year, an average of less than 17,000 hectares of area available for agriculture. What we sold is close to 6,000. So this year is not very small, and we are developing or buying more than that. So we are net accumulating still in the region. And here, we see the evolution of the prices of the land in the right part of the graph that, in the cases of U.S., that is the one that rules price of the land, there was a big increase this year related to the increases on the margins of farmers in the U.S. that was copied -- perfectly copied or surpassed in Brazil, but not at all in Argentina because of taxes and exports and gap on the dollars, that Argentina is not following that trend. And -- but really a very positive trend related to the evaluation of our assets not reflected, only reflected in the sales. You remember that we keep our funds at acquisition price, but really the revaluation of the portfolio kept very active. We can move now to the next page and speaking about the 2 stakes that we have related to services. From the very beginning, 1998, Cresud understood the mission of using our volume, and helping us and helping other farmers in increasing their margins. And that was the idea of the foundation of FyO and lately, 5 years ago, Agrofy. FyO, where Cresud owns 50% began with the volume of Cresud at the beginning, 80% was the volume of Cresud. But today, we can see the traded tons evolution that is close to the 7 million tons that represents like 6% of Argentina and really, Cresud is not so relevant. It's less than 10% of the volume, and began to be one commercial company related to all farmers is the biggest broker of the country, and look at the evolution of the EBT and today, surpassing $25 million. This company began to be very relevant in inputs and in outputs, mainly in [ outputs ], but in fertilizers is a seller of fertilizer, too. So recently, this company of services to farmers with consultancy with futures and options, is really making a relevant gain and that is while consolidating in our balance sheet. And every year is relevant and more relevant. And to give you an idea of the financial strength of this company, this company issue in its history only 2 bonds. One was 2 years ago and 1 was 3 months ago -- a few months ago, and the 2 were issued at 0 coupon. Really -- the company is really not paying interest because of the strength of the balance sheet and the business. In the case of Agrofy, this is not a broker. This is a marketplace for agriculture, where advertisement comes and all kind of helping to companies, helping them to sell in the digital world. And this company, that is one of the best e-marketplace for agriculture business. Today, only selling $3 million but increasing its revenues per year year-by-year. Round -- made a round of capitalization and increase its capital in $29 million, making evaluations for the company for $104 million after the capital raise, and have the money to arrive to positive with that cash to make a positive number, helping farmers in the digital world, so where Cresud owns of this close to 18%. And this is expanding not only to Argentina, to the rest of South America. And in the case of FyO, not only to Argentina but to Brazil and rest of South America. So we are going to see evolution of these 2 companies going to region, using the expertise of Cresud and helping farmers of Americas and maybe 1 day arriving to U.S. If we go to next page, we can summarize what we -- I was speaking related to the operational here called farming and the real estate called farmlands sales and the others, call the services as field, that is positive and small negative that brings Agrofy and still is bearing money. And here, we can see the evolution of the farming of the company that was close to 0 in 2017, and we can show here $115 million, where the farmland sales made a positive adjusted EBITDA of $59 million. And finally, the others making $18 million, achieving our peak of $191 million adjusted EBITDA for the region. So this is the combination of work of 30 years on the region. So I will now introduce Matias Gaivironsky that will explain us summarizing what happened in IRSA and the financial of Cresud.

Thank you, Alejandro. Good morning, everybody. So going to Page 9, we can see the same evolution of the EBITDA in IRSA. You can see, we suffered the last 2 years a lot, the COVID situation. We lost most part of the EBITDA in the malls. And now we can see a good recovery, reaching $89 million of EBITDA compared with pre-pandemic levels of $93 million. We, still at the beginning of the year, gave concessions to our tenants. That was in the first quarters of the fiscal year. The trend when we analyze quarter-by-quarter is very positive, reaching or surpassing levels of '19 levels in the last quarter. So now we can see that we will surpass or we should surpass '19 levels in the current fiscal year '23. As you can see, the rest of the segments were stable. In offices, we sold a lot. We took advantage of opportunities in the market and the liquidity that we have in real estate and the safe haven that is the real estate against the volatility of Argentina protecting people from the inflation and devaluation by real estate, and we took advantage of that, selling a lot. During the year, we sold for $236 million, basically the Republica building and the 200 Della Paolera. Also, we have excellent news at the IRSA level with the approval of Costa Urbana, the main project of IRSA, that will drive the growth of the company for the future. Also, it's important to mention that the leverage process on IRSA that reduced around 60% of the debt during the last 2 years and also the merge between IRSA and IRSA Commercial Properties that simplify the structure and make it more clean and clear for the investors. Going to our financial statement. We are finishing the year with probably a record gain with ARS 63 billion gain compared with ARS 40.1 billion loss during the last year. This attributable to the main -- to the controlling interest is ARS 37.1 billion against ARS 20.6 billion lost during the last year. Here, there is different drivers. On the operational side, you can see that in the line 11, the operating income on the agribusiness is positive to ARS 20.8 billion compared with ARS 26 billion, a decline of 20%. That is more related to the macroeconomic situation, and I will explain in the next page. On the urban side, the operating income is positive ARS 26.5 billion against a loss of ARS 10 billion last year. Here, we have an important effect that is in the line 6, the change in the fair value. Remember that IRSA value, their properties at fair value. So we have the volatility depending on what happened with the macroeconomic situation of Argentina. And also important to mention, the other big effect is in the line 13, the net financial results that I will enter in more details in the following pages. So going to the next -- this is what happened with the main macroeconomic drivers. We have an inflation during the year of 64%. Remember that we adjust our -- all our figures by inflation. So the last years -- when we took the last year numbers, we have to adjust by 64%. The nominal devaluation of the FX was 31%. That means that when you generate dollars or operations generate dollars and you have to compare last year with the present year, this is 20% below because we have an appreciation of the peso of 20% during the year. And on the right side, you have the evolution of the dollar map, this is the blue chip swap that the valuation was 51%, and the real appreciation was 8%. That means this has an impact on the IRSA side on the valuation of the investment properties. But on the operational side, if we generated $100 last year in pesos term and if we generate the same ARS 100 this year in pesos term, we will see a loss of 20% and this explains in part what happened in some of the operational part of Cresud. Going to the next page, we can see the breakdown of our adjusted EBITDA. We can see a better number, 7% above. This is mainly the result of the farmland sales, as Alejandro mentioned. This year, we sold 2 pieces of farm in Brazil that generated good profit. And on the farming side, we have a 7% below numbers, part is explained by the decline in the production, but part also as explained by the comparison between pesos adjusted by inflation and the pesos that we generated this year. In the urban segment, we have a very positive comparison between this year and last year. Last year, remember that IRSA or most of the malls were affected by the pandemic. So it's not the best year to compare when we go to levels of 2019, pre-pandemic levels. We are still below in shopping malls and in the offices, we are below, but it's more complicated to compare because we sold a lot of properties during the last 2 years, so the comparison is not the most relevant. In the hotels, we are seeing a good recovery this year, more related to our hotel in Patagonia, Llao Llao, still below the pre-pandemic levels, the 2 hotels in the city of Buenos Aires. And sales and development was very strong this year and the last year, but we sold a lot of office buildings. Finally, regarding our financial statements. Here, we have the breakdown of the net financial results. We see a very important profit of ARS 21.9 billion. This is mostly related to the line 2, the net exchange differences that we have all our debt that expressed in pesos. Since we have an appreciation of the pesos, we are posting an important gain. The valuation was lower than the inflation. So for that reason, we are recognizing an important gain in the line 2. The net interest losses, you can see a strong decline. This is related to the different -- the reduction in the leverage of the company and also related to the devaluation. We have a lower devaluation this year. So all of the interest payments expressed in pesos is lower than the previous year. In Page 15, we have a major event that happened after the closing of the final -- of the fiscal year. You remember that we have a note that expire in February 2023. This was a [ high-dollar ] note issued a couple of years ago. It was, I think, 5 years ago and was an amortization of $113 million. You know that there is a rule from the Central Bank that established that the companies won't have the access to pay 100% of the debt. Or put it in other words, the Central Bank will only sell 40% of the dollars and then ask to the companies to refinance the rest. The rule allow the companies to buy the dollars only 45 days before the amortization. In our case, we try to anticipate that, and we went to the Central Bank and asked for a special approval to launch a transaction before the expiration or before the 45 days in advance of the expiration, they allowed us, they gave us a special approval. So we launched a deal where we offer investors a new bond that will expire bullet in 3 years in 2026, in March 2026. And basically, we gave 2 options, part -- an option was to receive cash and bonds for the differences. And the other option was only bonds. And we received an excellent acceptancy with 47% of the people accepted the exchange offer. And now we only had $14.7 million of the remaining note that expire in February and the rest was extended to March 2026. Here, you can see the pre exchange offer and after the debt amortization schedule and now, the amortization is more diversified in the following years. This year, we still have $130 million of debt that expire, part expire in November this year and part expire next year. Recently, what we did was to launch 2 new local notes, one for 44 -- sorry, $24.4 million at a rate of 5.5% on [ high-dollar ] note and the other was a peso note that we received offer for $37.7 million. So we feel comfortable with the debt structure, and now it's more diversified in the following years. Finally, the buyback that we launched a couple of weeks ago was a program to buy back up to ARS 1 billion of shares. We already bought around 99% of the plan. So we believe this is a good opportunity to apply part of the liquidity of the company. So with this, we finished the formal presentation. Now we open the line to receive your questions.

[Operator Instructions] Is there any question? [Operator Instructions] Here, we have the question. If we are going to extend, reopen the share repurchase program?

Thank you, [ Federico ]. There is still no decision about that. So we prefer to announce if we took the decision directly to the market. So the program is up to ARS 1 billion that I believe that we will finish this week, and then we will decide if we're going to do something else.

Next question. Do you expect to sell any farm in Argentina in the coming months or that region?

Yes. Always is in our budget to be selling portions or farms in the region. Yes, we are on those transactions in the region. And we don't speak until it's done but we are optimistic to keep doing Brazil for sure with the liquidity that Brazil has and mainly in Argentina, too. So yes, positively, yes. The company intends to keep doing this, the operational and the real estate as part of the strategy.

There's a new question from [ George Goldman ] with [indiscernible]. How much of BrasilAgro do you own? Are you contemplating growing the position?

We are close to 39-and-some-points of the company. The company owns 3.4% (sic) [ 34% ] of own shares in the treasury. And we -- maybe we could be increasing some of the stake, but we feel comfortable with this level. It is probably one of the highest level of control. Remember that we began with 7% of BrasilAgro, the foundation days. But now we are close to this 40% that really we feel enough comfortable. But yes, we could be buying some more shares.

New questions regarding prospects for soybean and inputs for the next campaign.

This is a challenge for next year where the input increased a lot. Cost of inputs change dramatically, I would say, in some cases, mainly driven by some herbicides, but in fertilizers, it's affecting more the corn than the soybean. But really, the cost of production for next campaign will be increasing all the crops and the prices are increasing, but not at the same pace. So margins, for sure, are going to be affected for next campaign. We think the operational will be, for sure, affected and mainly more in Brazil than in Argentina, but it's going to be affecting for sure, farmers' margins.

There is here a new question that is, I think part was already answered. What you expect the upcoming harvest season to look like? Will you participate in the upswing in grain prices?

In the -- finally -- what is the last part?

Will you participate in the upswing in grain prices?

Upswing [Foreign Language]. Yes, our budget is really much higher than last year. It's -- we are planting a year that is comparable. I think we are going to be growing 2%, 3%, 4% year-to-year, something like that in size. The one, the area that is growing more is Brazil. So that growth come mainly from Brazil than in Argentina that is close to stable. So really, the change of the 3%, 4% is coming mainly from there. And yes, our prices are going to be affected by better base prices, but I said, increasing the cost of inputs too.

And last question, any disclosure on the impact of a differentiated soybean FX, if you were able to sell the whole soybean production at ARS 200?

That would be a gain -- dramatic gain, but we are not at all expecting that. So we are -- really, we have a small stock to be sold this -- as you know, in September, Cresud majority of the stock was sold. So maybe a 10%, no more than that. That will be really at this level of prices. The rest was done on the normal and what will be happening related to the new measure about the soybeans, who knows if this is going to be to the rest of the crops or to the cattle, who knows. They open something, no one knows how they are going to keep working with the rest. But for sure, farmers who had stock were selling actively these days, and they are going to be selling much more up to the end of September. And probably, yes, they are going to gain a lot of reserves related to the sale of that.

And I have one more here. Where are your biggest export markets?

We don't export directly. So all of our products, the soybean goes to the export. The corn goes to the export and some to the locals. Really, I think, from our total crops, the one that is more related to export is soybean.

Okay. With this, we conclude the Q&A session and the presentation. Thank you for joining. I will now turn back to Alejandro Elsztain, CEO, for his closing remarks.

So we are facing a new campaign with higher price, higher input costs with a lot of volume, optimist with sales, small partial sales or some sales in the region, helping the combination of the 2, the farming and the real estate of Cresud. In the case of IRSA, really, the rental is increasing a lot. The shoppings are almost full and really, rental is recovering, and that, like, subsidiary for Cresud is really important. In the case of the service components, I mentioned, they're going to keep expanding to the region, the knowledge they did in Argentina. And I think this EBITDA will keep growing. So I'm optimistic. Really, farms of the world are scarce. South America is one blessed area. And we are one of those blessed, doing that job, fitting the world in big size and properly. So thank you very much, and we see you next quarter. Have a very good day.