Earnings Call Transcript - CRESY Q2 2025

Santiago Donato, Investor Relations Officer

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the second quarter 2025 results conference call. First of all, I would like to remind you that a replay of this webinar, the presentation and the earnings release will be available on our website at www.cresud.com.ar. After management remarks, there will be a question and answer session for analysts and investors. 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 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 Alejandro Elsztain, CEO. Please go ahead, sir.

Alejandro Elsztain, CEO

Thank you very much, Santi. Good morning, everyone. We are starting on Page 2, discussing the key events for the second quarter of 2025. This year, we have launched a significant regional campaign. We increased the planted area by 9% compared to last year. We have reached a record size in total agriculture across the four countries we operate in. Overall, we are experiencing favorable climate conditions in the region. There has been a slight rise in commodity prices over the last quarter, particularly in Argentina for specific reasons that I will elaborate on later. Additionally, we’ve seen some reductions in input costs, particularly in Brazil, due to the devaluation of the Brazilian real. Although there was a minor delay in rainfall in January, we are now receiving rain in February and anticipate a normal campaign for our crops in Argentina as well. Regarding the reduction in crop export taxes, the government implemented a significant measure that lowered rates from 33% to 26% for soybeans and from 12% to 9.5% for corn and wheat. This results in approximately a 5% price increase for farmers, although actual benefits may vary based on farmers' margins since exporters also take a portion of that profit. Ultimately, this measure primarily benefits Argentinian farmers, helping them cope with the price drop they have faced over the past year compared to the higher prices previously seen. As for Brasil Agro, we are achieving excellent productivity results, and the outlook for the campaign looks very promising. Soybean harvesting has begun, and we are observing very good yields with stable prices. Input costs are decreasing due to the real's devaluation. On the real estate front, we have seen some activity, but there were no additional sales in the second quarter. However, we anticipate more asset sales in the region over the next six months. In terms of dividend distribution, we disbursed MXN 45,000 million in November, which represents close to a 7% dividend yield. Now, let’s move to Page 3, where we can see our year-over-year growth of 9%, reaching over 300,000 hectares across the four countries, with Argentina and Brazil being the largest contributors, followed by smaller contributions from Paraguay and Bolivia. Soybeans account for half of the total planted area, with corn at 23% and sugarcane at 9%. In Brazil, the leading crops are sugarcane and soybeans, while in Argentina, the primary crops are soybeans and corn. This provides the breakdown for the region. Now let's proceed to the next page, and I will hand over to Mr. Diego Chillado.

Diego Biaus, Executive

Thanks, Alejandro. Good morning, everyone. In this page, we can see the evolution of commodity prices, as we show every quarter. Remember, we come from the 2024 campaign that was marked by down pressure on international commodity prices. And we have seen at the very beginning of 2025, the same trend, low price levels. But in the last quarter, we have seen a steady recovery, both in corn and in soybean prices in Chicago. Soybean is about 5% and corn 7%. So it's good news. Regarding input costs, they continue to adjust as they were lagging behind prices. So Alejandro will back to talk about the taxes.

Alejandro Elsztain, CEO

In Page #5, we presented the changes in export taxes for Argentina's two primary products, soybean and corn. Since 1982, there have been export taxes, with an average in the 30s. Recently, an announcement was made to reduce taxes from 23 to 26 until June 30, 2025, which is encouraging farmers to sell some of their retained crops. For corn, the tax decreased from 12 to 9.5. Over the last 40 years, export taxes have been a constant factor. President Milei has stated his intention to reduce or eliminate these taxes while ensuring government spending remains in surplus. However, the market has not seen an increase, and there is an expectation that prices may stabilize, as the government aims to maintain them. The formal announcement is valid until June 30, after which taxes could rebound to 33. In contrast, other commodities, including rice, cotton, and smaller dairy products, saw their export taxes reduced to zero permanently, which has pleased farmers. This reduction has provided some relief, indicating a 5% rise in prices, reflecting what we hope to see from the government. While we haven't observed a significant rebound in prices yet, there is a clear intent from the government to lower export taxes, which are crucial for farmers' revenues. Now, I will hand it over to Diego to discuss the regional climate.

Diego Biaus, Executive

The climate condition and sowing progress show that after the 2024 campaign, we faced lower yields and production in both Argentina and Brazil due to insufficient rain. However, the 2025 campaign is progressing under much better weather conditions. For instance, Brazil has experienced no rainfall issues in the first half of the year in its operating regions. On the other hand, Argentina has noted a lack of rain in January, which could potentially affect the main crop yields if it continues. We are optimistic for good rainfall in the coming weeks, and it's currently raining in Buenos Aires with expectations of continued rain this month. Concerning soybean planting, we have completed sowing 100% of the soybean in the region, benefiting from good rainfall early on that allowed for effective sowing of summer crops. For the corn crop, we have achieved 80% in Argentina and around 30% in Brazil. Regarding the harvest, we have finalized the winter crop harvest for wheat in Argentina, which has nearly doubled in size compared to last year. We harvested around 13,000 hectares of wheat, reflecting a 95% increase from the previous campaign, with general production up 65% from last year, totaling 45,000 tons. Lastly, in terms of cattle activity in Argentina, we have witnessed sustained high prices that have improved significantly over the past year, with a similar trend to that of last year. We increased our cattle count to nearly 50,000 heads in Argentina, and production is on the rise, with expectations for higher yields and stable margins. Now, I will pass it back to Alejandro to discuss Piauí.

Alejandro Elsztain, CEO

Related to Piauí, our service agriculture company, here, we see the evolution in tons the company is trading from the last 10 years from $3 million to $7 million surpassing this year. We're expecting to surpass the $7 million if the campaign stays as it is. And EBITDA evolution to $25 million per year. This company became very relevant in the market, not only in servicing outputs, but inputs. We sell through FyO fertilizers and herbicides and other inputs to farmers. And that company became very relevant with more than 400 employees working in Argentina, and now developing this main service in Brazil through beyond another company. So with the combination of two, that company is growing a lot, too. So we combine the three businesses: the real estate, the operational, and the service company. Saying that, now I will introduce Matias Gaivironsky that will talk about our investment in IRSA, with Cresud owning 56% of the stake.

Matias Gaivironsky, Executive

Thank you, Alejandro. Good morning, everyone. To recap the key events at IRSA for the quarter, we reported a loss of ARS 40.9 billion, primarily due to a non-cash effect from the fair value of our investment properties, which I will elaborate on shortly. This quarter, we experienced improved occupancy and a recovery in sales within our mall operations, with a 21.4% increase in tenant sales compared to the previous quarter. However, compared to the same quarter last year, we noted an 8.5% decline, though we anticipate positive growth in the upcoming quarter when compared year-over-year. Our office portfolio achieved 100% occupancy, which is a positive development. In hospitality, we experienced a decline in both revenue and occupancy due to the altered economic conditions and new exchange rate in Argentina, resulting in decreased tourism compared to the previous year. Additionally, we completed the acquisition of a new mall in Greater Buenos Aires, increasing our gross leasable area by about 10%. We also finalized the sale of two plots in the Rambla Hl Plata project, marking a significant milestone for us after obtaining approval and establishing the master plan for this project. We have signed agreements for these sales and are actively working on approximately ten barter agreements with various developers for future engagements. Regarding dividends, we distributed approximately an 8% yield in November, as well as 3.6% in treasury shares. In terms of EBITDA expressed in dollar terms, our rental EBITDA showed a positive trend, but the decline compared to last year is largely attributed to the hotel segment, while both malls and offices remained stable. Moving on to our financial results, it’s important to understand the impact of foreign exchange fluctuations and inflation from the past year. We saw a significant devaluation of the peso, which increased from ARS 350 to ARS 800, affecting our holdings, grain stock, and our debt. Fortunately, this year, Argentina’s macroeconomic situation appears more stable, with inflation decreasing from 107% to 21% and only a 13% devaluation, accompanied by a 7% appreciation of the peso. We also noted a significant reduction in the gap between the unofficial exchange rate and the official rate. Continuing to the operational results in the agribusiness and farming sectors, while this semester is generally less significant for our campaign results, we analyzed the current period and saw a decline in certain statistics. Positive contributions included farmland sales, despite no properties sold this quarter, we did experience improved numbers compared to the previous year. The operational results for FyO paint a less favorable picture, exhibiting a notable decline from ARS 17 billion last year to negative ARS 16 billion this year. However, the final line in net income shows results comparable to the prior year. Regarding our farming activities, there’s been a decline in grain performance primarily connected to our holdings, with lower grain prices relative to last year and prices failing to keep pace with inflation during this quarter. Consequently, we are facing negative financials due to our stock and remaining results from the previous campaign. We’ve seen a reduction in wheat yields and prices as well. On a more positive note, our sugarcane operations in Brazil have realized better prices compared to last year, and the cattle sector also showed improvements both in production and prices. This sums up the main factors influencing the downturn in farming performance. Turning to the right side of the slide, we see a clear indication of the losses reported both at IRSA and Cresud, stemming primarily from the decreased value of our investment properties. Last year we saw significant devaluation due to peso depreciation, reflecting positively in local currency, but this year, with stable property prices in dollar terms and a stronger peso, we are reporting losses. In dollar terms, valuations for both our office and land bank holdings remained stable, while the shopping malls reflected an increase in valuations of about $120 million. Finally, regarding net financial results, last year we incurred losses primarily due to the peso’s devaluation impacting our dollar-denominated debt; this year, with the peso strengthening, we are recognizing gains. We also noted positive contributions from the fair value of our financial assets, primarily related to our liquidity. As a result, we concluded the semester with a net loss of ARS 61.5 billion, with ARS 64.4 billion attributable to controlling interest, compared to a profit of ARS 266 billion last year. About our debt, no significant changes occurred during the quarter, with total debt remaining stable at $323 million by the end of December, reflecting a decrease from the prior year after accounting for the dividend paid by Cresud. With that, we conclude the formal presentation and now welcome any questions you may have.

Santiago Donato, Investor Relations Officer

We have some questions in the chat. Can you provide shareholders with guidance on how capital allocation for the second half will be divided among acquisitions, capital expenditures, dividends, and buybacks? I found it surprising that there wasn't another share repurchase authorization in such a volatile market.

Alejandro Elsztain, CEO

Recently, we repurchased nearly 1% of Cresud shares, which had been approved a few months ago and completed before the year's end. It was a small repurchase. Regarding purchases and sales, the company is simultaneously looking to acquire some land while selling off mature assets. We anticipate making some of these transactions in the second half of the year. Concerning the company's capital expenditures, we continue with our typical CapEx, which amounts to around $5 million to $6 million annually. This is our standard annual expenditure.

Santiago Donato, Investor Relations Officer

We have other questions that are more macro. If you can walk us through the shifting regulatory environment regarding the conversion of your land bank assets to productive land. I imagine this is related to the provinces that they are reviewing these regulatory laws, environmental law.

Alejandro Elsztain, CEO

Yes. Mainly the province of Salta is discussing that, changing regulation on the areas that can be developed. It sounds like the new government is intending to develop more land in Argentina rather than the opposite. And maybe that could be affecting our two projects in Anta and Los Pozos. Today, we are not so sure, because it's not finished, it's not done. Today, we are not in the process of developing land. But what the government is intending probably will increase the surface of Argentina, mainly for the northern areas of Argentina, northwest of Argentina.

Santiago Donato, Investor Relations Officer

Good. And here, a question regarding the upcoming harvest that is expected to be the largest and better. Do you expect numbers to trend in a more positive direction compared to pre-campaign estimates?

Alejandro Elsztain, CEO

Yes, we anticipate that our usual process involves planting and forecasting based on price, cost, yield, and hectares planted each year. This year appears quite normal in terms of price, which is a positive sign, as there isn't a negative price at the start of the campaigns. The situation seems slightly favorable mainly due to factors in Argentina, and costs are not impacting us negatively either. While it's too early to make definitive statements about yield since it’s February, it appears to be a typical year for the region. Regarding hectares, we have planted the majority of what we expected, with only a minor discount on the hectares planted. Therefore, we are expecting a significantly improved operational performance compared to last year.

Matias Gaivironsky, Executive

Let me add something about some accounting treatment that sometimes when we measure in our management presentations and internally, we tend to measure results in dollar terms. So when we show numbers on our financial statement, we have to do it in pesos. And in pesos terms, it’s adjusted by inflation. So sometimes, we have positive numbers in dollar terms, but when you convert that into real pesos, sometimes it turns to negative. For instance, our holding results that if you have a stock of grains and that grains didn't improve as much as inflation, then you have to recognize a negative number. So sometimes our financials are not the best proxy or the best way to see the real performance.

Santiago Donato, Investor Relations Officer

Yes, we have some additional questions. How is the recently completed new free trade deal with Europe going to affect your crop and meat exports? And how is the new European Union tariff agreement going to affect you? Could you provide Alejandro with some insight on how this new trade with Europe will work?

Alejandro Elsztain, CEO

The recent agreement will increase the quota for beef exports to Europe, benefiting Argentinian and South American beef producers. It will also introduce competition from European products in Argentina, prompting us to improve the quality of our products and industrial processes. Overall, this is a favorable development for Argentinian farmers resulting from the agreement between the European Union and South America.

Santiago Donato, Investor Relations Officer

I think we have a question regarding Agro, if you can give some color on how the business is performing?

Alejandro Elsztain, CEO

There are fewer taxes on various items, including soybeans, which will benefit sugar farmers. This situation is advantageous for South American farmers, as it was influenced by the farmers in Europe.

Santiago Donato, Investor Relations Officer

Last question regarding Agrofy, if we can give some color on how the business is performing or the expectations for this year?

Alejandro Elsztain, CEO

Agrofy is currently reducing its workforce. The company had increased its spending anticipating higher sales, but major companies have not yet chosen to display their products and prices online. As a result, the marketplace is primarily focused on machinery and related items for farmers, rather than essential inputs like seeds, herbicides, fertilizers, or crops. This situation has led us to cut back on staff, bringing our numbers closer to breakeven. The company has cash reserves and is now concentrating on reaching breakeven, which is within reach. Previously, the company was spending between $10 million and $20 million annually, but our burn rate has decreased to less than $2 million, allowing us to reach this goal. Overall, the company is in a much stronger position compared to before, despite the industry's delay in adopting the agricultural marketplace. Nevertheless, Agrofy remains a leader, and with growing sales of non-commodity items like tools and tractors, we expect to improve our returns significantly. Our goal is to achieve breakeven in about a year or so.

Santiago Donato, Investor Relations Officer

Great. Last question, what is your perspective on the political situation and President Milei with the upcoming congressional elections? Are you optimistic about Milei winning and gaining more influence in Congress?

Alejandro Elsztain, CEO

Today, the support for him is substantial. The majority of Argentina appreciates what Milei is offering. The reduction in inflation is a key aspect of the macroeconomy improving, which is bringing about positive effects for the country. If the election were held today, I have no doubt about the results. This year, there are expectations for a better situation in Congress, as they are currently operating with a small percentage of seats in both the Senate and the Chamber of Deputies. We believe Milei will gain significant strength this year and continue implementing measures to deregulate and support imports. I also anticipate he will unify the currencies and further reduce the cost of capital in Argentina. Companies, including Cresud and IRSA, are starting to utilize these tools and are seeing bonds as the market opens for long-term debt in Argentina. We expect him to receive increased support in Congress and introduce more government measures. If that concludes the questions, I want to thank everyone for the presentation. The first half of the year is not particularly significant; the third and fourth quarters are more important. We anticipate continued strong management and activity across our three businesses, aiming to show increased sales and purchases in Argentina and Brazil. Regarding agriculture, summer is our peak season with soybean and corn production ahead. I am very optimistic about the year. Thank you all, and have a great day.