Earnings Call Transcript - CRESY Q1 2025

Santiago Donato, Investor Relations Officer

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the first 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 Mr. Alejandro Elsztain, CEO.

Alejandro Elsztain, CEO

Good morning, everybody. We are beginning our first quarter 2025 results. This year, the regional campaign is showing us an increase in planted area compared to last year's numbers. And the main reason explaining that is Argentina in the growing leasing areas in the country. We are beginning the campaign. The conditions are good, not so good in the case of the winter crops in Argentina, but for the rest, mainly summer crops, soybeans, corn, and with the more stable commodity prices compared to last year where there was a big drop and some slight input cost reduction that we are seeing, so recovering some of the margins of the activity. Related to wheat, 100% is planted, and now we are close to harvesting in November, December with some drought areas in Argentina decreasing some of the results, but it is still early to speak. In the case of soybeans in Brazil, 45% is being sold, so it is a normal campaign, a little delayed by 2 weeks in Brazil. But after the rain, the conditions are recovering. There were 2 transactions related to real estate in the quarter. One is in Los Pozos farm, undeveloped land, and the other one is in Alto Taquari in Brazil, I will show you later. We received many dividends from the companies and the total dividend we received in Cresud was close to $53 million. BrasilAgro gave us close to $10 million and IRSA $43 million. With the two, we're distributing dividends these days for investors, close to a 7% dividend yield. So the company is in a very good shape today and doing this activity in the first quarter. Saying that, I will now introduce Diego Chillado.

Diego Chillado, Executive

Thanks, Alejandro. Good morning, everyone. On this page, we can see the planted area evolution. Cresud this year is increasing the number of hectares and sowing under planted area. We are expecting to plant 303,000 hectares in the 4 countries where we operate: Argentina, Brazil, Bolivia, and Paraguay. This is a 9% increase compared to last year's previous campaign. Mainly we are expanding our surface in leased farms in Argentina, but also some in owned farms. Regarding our breakdown, we keep having a diversified mix of crops, but mainly soybeans and corn, and we do some sugarcane in Brazil and Bolivia as well. Next page, here we can see the evolution of the commodity prices. The 2024 campaign was marked by the down pressure on international commodity prices, as Alejandro said, and the beginning of this new campaign maintained the low price level, part of the peak reached after the pandemic and the war between Ukraine and Russia. Regarding input costs, they are adjusting a little bit, but are still at high levels compared to commodity prices, affecting, of course, part of the regular margins. The good news is that the inputs are starting to correct a little bit. Next page, in this page, we can see the regional weather conditions in the region and the soybean progress. After the 2024 campaign, we experienced lower yields in Argentina and Brazil, both due to the lack of rain. This 2023 campaign is presenting good weather conditions; the La Niña phenomenon that affected us at the beginning of the season has improved in the last weeks, as we have received good rains, mainly in Argentina. Regarding the soybean progress, we have planted, as Alejandro said, 100% of the wheat in Argentina and for the rest of the crops. The total region for soybean is 27% and 10% for corn. Now, Alejandro?

Alejandro Elsztain, CEO

Talking about our real estate activity, we closed this quarter on the second portion, the second fraction sold. Here we see on the map - last year, we sold the first fraction, and this year we are selling the second. This second is 3,600 hectares, totally undeveloped. The sale price of this fraction was $2.2 million, $614 per hectare compared to the acquisition and the capital expenditure invested in the last 30 years, which was close to $15. So a profit of 41 times the price of acquisition. The accounting gain is almost all $2.1 million, and we still have a remaining surface of 231,700 hectares in the farm. So this shows the big gain the company is having in the developed and undeveloped regions of the farms we bought a long time ago. The other major fraction sold in the quarter was done in Brazil, Alto Taquari that was mentioned before and was implemented this quarter. This was a total sold area of 3,700 hectares, but this smaller fraction was done this quarter was 1,100 hectares. The remaining part sold for BRL 190 million, a big gain, close to BRL 100 million gain. This is in a developed area where we did a lot of sugarcane, and the big transaction in internal rate of return, we bought that for $4,000 to $5,000 and we were selling later for $25,000 or more in Brazil in the Mato Grosso area. So saying that, we had in the first quarter some activity in undeveloped and developed areas, and we expect to have this in the next quarters the same. Saying that, we can move now to Page #8 and see the evolution of our service company, the agricultural commercial service company called FyO. FyO, that began 25 years ago. This last week, we had the party for 25 years, became the biggest broker of the country in inputs and outputs, commercial services. Here, we see the evolution of tons. So we achieved last year 6.83 million tons, representing close to 6.1% of the market share of the Argentine grain total market. This is a very strong evolution. The EBITDA we're seeing is $25 million to $30 million last year, showing a very strong company, just pure servicing farmers using Cresud’s volume, but only represents today close to 4% of the volume of FyO and became very relevant in Argentina, now launching the story in Brazil through expanding operations. So this service company is expanding its operation in the rest of Latin America. Saying that, I will now introduce Matias Gaivironsky.

Matias Gaivironsky, Executive

With all those effects, we finished the quarter with a negative number on the net income of ARS 72.3 billion attributable to our controlling interest, ARS 39.5 billion, and the rest is the non-controlling interest. About our debt, we see a reduction in our net debt evolution from $421 million in fiscal year '21 to $310 million currently. The net amortization schedule shows some amortizations during this fiscal year that we announced last week; we will issue a new bond to pay down and to refinance that amortization. So we are in the market issuing a new bond for 4 years with maturity in 2028. We will close that next Wednesday. As Alejandro mentioned, regarding the dividends, we paid a dividend yield of 7% that we already distributed and for our ADR holders will happen in the next probably 15 days, the payment or 20 days, and we don't anticipate any further delay like in other years. If we see the evolution, we have been paying good dividends for the last 3 years, and this year will be at the blue-chip swap around $38.8 million. And finally, about the repurchase of shares, we announced a new buyback program for ARS 6.5 billion with a maximum amount of $12 per ADR or ARS 1,500 per share. So we haven't started yet the acquisitions of shares. We will start executing this program in the coming days. So with this, we finish the formal presentation. Now we open the line for the Q&A session.

Santiago Donato, Investor Relations Officer

Well, we start with the Q&A session. We have the first question. Given the administration's push for deregulation, particularly in the agricultural sector, do you see any specific opportunities emerging for Cresud? Could you discuss how the liberalization of agricultural export controls, land permitting, and elimination of export taxes might benefit Cresud operations?

Alejandro Elsztain, CEO

For sure, this government is speaking from the very beginning about how to support the very relevant agricultural sector. The President spoke to the farmers, asking for some patience. He said that, first of all, the reduction of the gap between the $2 would benefit dramatically. I agree with him that main gap of the 100% or more than in the past compared to today or 10% or 15% to the blend that the farmers are receiving is the bigger benefit for the farmers, for sure. The second factor will come from taxes on exports that the government still hasn't made almost any changes. They made some small percentage in some categories in cattle, but really nothing relevant. The government is waiting for recovery on the taxes before easing taxes for farmers. The farming industry is waiting for that patiently because everything that the government is showing is in favor of farmers for Argentina. For example, reducing the taxes for imports affects the input costs. So the combination of these factors is significant; the government is also speaking about allowing foreigners to buy more land than they were permitted, which is coming too. All this brings liquidity to the land, and that liquidity to the land brings big opportunities for farmers because Argentina was close to being disconnected from world prices. When prices were soaring in the U.S., Brazil, and all developed countries, Argentina wasn’t receiving that benefit. Today, with the current administration actively showing support for farmers, I expect some favorable changes in the agricultural industry in the next year.

Santiago Donato, Investor Relations Officer

Thank you, Alejandro. I have another question regarding capital allocation. What is the optimal allocation between buybacks and dividends? And how do current market conditions influence this analysis?

Matias Gaivironsky, Executive

What we did in the last years was to give priority to cash payments, so dividends instead of buybacks. Although we did, in terms of size, buybacks in the last 3 years for both IRSA and for Cresud, the priority will be for cash payments. There are some restrictions from the CMB. We can't use all the money to buy back shares because there are certain restrictions that we can buy up to 25% of the volume of shares. So that in a way limits the size of the buyback programs in our case. Therefore, we prefer to give the money to our shareholders, and they can buy back shares if they believe that the shares are cheap. We think that there is a very good opportunity to keep buying shares, and if we have the liquidity, we will keep doing that.

Santiago Donato, Investor Relations Officer

Thank you, Matias. I have another question here regarding our stake in BrasilAgro. What is the advantage and disadvantage of owning this stake in BrasilAgro versus the whole company?

Alejandro Elsztain, CEO

As you probably know, we did create this company in the Bovespa market, which is probably the most regulated and advanced market in Brazil. It allows us to buy up to 42%, no more than that. Today, Cresud holds 35%, which is close to the limit. So we are not considering the option of owning 100%. This has been a story from the very beginning, and that was a blind check. We raised capital without having any employees, any farms, or any notebooks. So that was a public company from the start. Cresud began with 7% and went up to 40% at certain points. Today, we have stabilized at 35%. We are satisfied with that strategy and the land the company has in BrasilAgro is strong. As you probably know, in the last 3 to 4 years, BrasilAgro benefited from the sale of assets we acquired 10 to 15 years prior that have appreciated significantly. We have achieved sales of more than $350 million in the last 3.5 years, yielding a positive cash flow. This company has positive net debt due to numerous sales made in installments. Today, that company intends to buy again when opportunities arise, and we expect that some companies will be forced to sell because of the higher interest rates in Brazil. Thus, owning a stake in BrasilAgro works well for us.

Santiago Donato, Investor Relations Officer

Another question regarding Brazil: there is reporting a major drought in Northern Brazil; have we had some impact to date?

Alejandro Elsztain, CEO

As I know, the only impact was the delay in planting compared to last year, and that will affect some of the second crop. We will have some less safrinha corn for the plantations in Brazil. This drought that has delayed planting will likely mean fewer soybeans as well. However, there is nothing very material for our results. We expect a much better result in BrasilAgro this year; sugarcane is in a much better position. There are no decreases in soybean and corn prices related to our budget, and the costs are lower than last year. Therefore, we expect better-than-last-year results related to operations, plus the real estate sales we showed in the first quarter and are expecting more sales in the next 3 quarters.

Santiago Donato, Investor Relations Officer

Okay. We'll give some more minutes for any additional questions that you may have. Please use the chat. If there are no more questions, we conclude the presentation and the Q&A, and I will turn back to Alejandro Elsztain for his closing remarks.

Alejandro Elsztain, CEO

As you know, the first quarter is not so relevant for us. It’s just the beginning of the plantation. But having sold 2 farms, one in Argentina and one in Brazil, and expecting one more in the coming quarters, along with the operational recovery for climate and the higher size we are achieving, especially in beef cattle production, we are optimistic about the operational prospects, real estate, and services for the year. So we are optimistic about this business and Cresud, which can seize opportunities where many are not. Thank you very much, and have a very good day.