Cresud S.A.C.I.F. y A.

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of Cresud, and I welcome you to the second quarter 2023 results conference call. Thank you very much. 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 risk 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 Elsteng, CEO. Please go ahead, sir.

Good morning, everybody. We are beginning today our second quarter 2023 results. I'm going to begin on page number two, talking about the main highlights for this half year. We are achieving a record planting 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 farms, own farms 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're going to see that we are achieving close to 290,000 hectares of total land in the combination of leasing and owning land. About the campaign progress, there are mixed conditions, and we are going to see depending countries and crops, but in general, there is a sustained commodity price, and for this campaign, affecting a very important growing cost, more affecting in the case of Brazil than in Argentina, but affecting margins, so we are going to see good and sustained commodity prices, but this growing cost taking a great portion of those margins of comparing to last year. And that's why Matthias later will explain some of the lower margins on the first semester that is the least important in the number of crops. Majority comes in summer that would be reflected in the third and in the fourth quarter. And in the climate, climate is affecting 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 farms, not a lot. And so we are going to show you our map and our location of the farms. So that is affecting a little less in our case. Related to Brasilagro, Brasilagro has good grain results. So we are expecting very good in corn and soybeans, but was 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 affected negatively, so that is the main change, the adjusted beta 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 stake from close to 54% to close to 57% of IRSA. So IRSA had very good results this semester. The EBITDA is rebounding a lot and the leverage of the company is amazing. We are going to show you later. From dividends, we were receiving dividends from Brasilagro, from IRSA, from FIU. 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 is but on budget. They are not surpassing us like last year. The prices of the crops that you are receiving, they are close to the budget prices, not a gain. Last year, we had like 20, 30% gains on prices that this year we are not expecting. We are close to budget. But saying that the commodities are firm enough not reflecting the loss that Argentina had. And that main reason it is because Brazil had more than increased what Argentina lost. So the region balance is good. It's not good in Argentina, but having so much area planted in Brazil that there is not a lack of grace for the next campaign. And here we see our evolution, and we are showing, and you're beginning to see the 28,000 hectares are hectares that Cresur and Brasilago own, and we are listing to third parts. And for example, in Argentina, we have places in Los Pozos, in our farm in Salta, or in La Suiza, or in farm in Chaco, where we diversify our production risk, Or sometimes we are tempting to the client to lease for later selling. That's happened. We are doing that, for example, in Paraguay. We are leasing, and the one who bought Morotiji Porsche, the 500 hectares, is leasing on top of that some hectares 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 had the expectation of keep growing on that number between the four countries, between ON and LIS. We can go now to page number four. And here we see the evolution of the drought in Argentina. And here we see the red showing big drought. 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 when the rains came, some of the rains came. So majority of our points are located in yellow to green areas, where the drought is not affecting so much. The worst of the drought came to the main corn belt, north of Buenos Aires or south of Santa Fe or east of Córdoba, southeast of Córdoba. But our majority of our points are really better located, and here we are expecting not to be affected as argentina is in argentina the comments are about 35 37 32 depending the source but really the big drop from the 49 million tons original and we are not expecting to be affected so much here we are forecasting like a 10 in soybeans or five percent in court is a little too early today we are we are not just having the real numbers but our areas are not so affected as the country so we are less negative than the now the searches are talking about the focus of argentina meaning that we are expecting for March and June results, our main for soybeans and corn, and let's see if rain keeps coming. There is not reserve. What we have in the land, almost none of the land has reserve, and sometimes the land has reserves. many millimeters that could give to the crop, it 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 rest of South America is much better, probably not affected or not below budget, maybe up to budget because really rain came to the region. And in plantation, you can see in page number five, that plantation of the two soybeans is close to 100%. And in case of corn, there is some delay. But in Brazil, that is 29%. It's expecting the collection of these days and comes the Safrania corn that is coming soon. So we are expecting to plant this portion. The part that probably won't be planted will be the remaining in Paraguay that probably won't give us the opportunity. And in Argentina, we think that will be close to all being planted. So it's really, we are not expecting to be affecting big in either sowing part. So let's see what is the harvesting part for the future. And to finalize the What in this semester was not very active, that the real state showing these two cells were that they were done the first quarter. In the second, they are not new. The first two are one in Paraguay, small in 500 hectares. The second in In Brazil, 1,400 hectares. And no news for this first semester, but very optimistic in the second. A lot of activity. A lot of activity in Brazil, mainly, but liquidity on the farms is huge. But in Argentina, we are seeing some movements. 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 more activity in the second. Saying that, I will give you now the word to Matias Javidowski, our CFO. Please, Matias.

Thank you, Alejandro. Good morning, everybody. We're going to page seven. We can see some of the results from our investment in IHRSA. It's important to mention that during the quarter, or during the semester, we bought shares in the market, so we increased our stake to 56.7%. So we increased by around 2.3% our stake in IHRSA. Some of the main important issues during the semester for IRSA, there was very strong operational and financial results. Levels of EBITDA increasing, surpassing pre-pandemic levels, increasing the margins during the, compared with the previous year, so very good margins. The occupancy of the last building that IHRSA developed today is 100% occupied. The hotels are generating a record. Also, IHRSA during the last quarter recently issue 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, so now IRSA hasn't 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 during the semester, we need to understand what happened with inflation and devaluation. Inflation during the semester was 43%, and devaluation was 41%. It means that we have a real appreciation of the pace of 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 evaluated 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 Basically, during this semester, we have different effects. The main one is in the sugar cane. We can see a reduction from 9.3 billion pesos last year to a gain of 800 million pesos 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 for 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 1.9 billion pesos to 220 million pesos. Remember that that is still not the best part of the year, so only the wheat we have basically the width of their results during the semester. Last year was a very good year, this year with the drought that 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 cattle activity is more related to the inflation effects prices were flat in pesos or more or less flat in pesos and with the effect of the inflow when we have to express that in real terms it's generating losses and agricultural rent and services we have again because we we increase the size of our farms that were rented to two third parties The results of FIO is very good. We can see an increase of 116% from 1.8 billion pesos to 4 billion pesos 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, again, of 44.7 billion pesos during the last year to 28.8. eight billion pesos loss during this year um this is related to 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 again during this semester of 8.8 billion pesos compared with a gain of 16.2 billion pesos last year. Here it's important to measure two lines, the net interest that we can see a slight reduction But when we combine the two lines, the net interest together with the net effects 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 facts together, the net result this semester is again of 19.2 billion pesos compared with 74 billion pesos last year. There is a reduction. Most of that is related to the fair value of the investment properties. 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 million. 0.8 million dollars, 7.8 from IRSA, 24.5 from Brasilagro and 2.5 from FIO. And also Cresut distributed dividends in cash, a dividend yield of 3%, more or less 10 million dollars that we distributed during November. Page 14, we can see the debt amortization schedule and standalone. This is only Cresut. So there was a challenge last year to refinance a debt of $113 million at the Central Bank of Life to do that. So the exchange offer was very successful. It was around 90% acceptance. So there is still a small payment of $14.7 million that we have to do in the next days. 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 dollar linked note with expiration in 2026 with amortizations in the three 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 an important reduction since 2020 from almost $1.2 billion to $680 million and 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 approved a buyback program of 4 billion pesos. From that, we executed around 32% of the plan, so we already bought buyback around 1% of the shares of the company. The investment was 1.3 billion pesos, 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.

Thank you. Well, we conclude the presentation. Now it's time for the Q&A session. If you have a question, please click the bottom label, raise hand, or use the chat. We're going to take the question in the orders we receive them. First questions, do you expect farmland sales in Argentina for the next semester or for this year 2023 and also the region?

Yes, we are seeing some searches of farms, neighbors or people trying to expand and probably they are not very happy of 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 movements. So I'm optimistic in Argentina too. but much more optimistic in Brazil where the benefit of, instead of the human being that is a farmer, not a society, instead of him being paying the taxes on gain, taxes on earnings, they directly buy a new farm, so they avoid directly to pay. The liquidity there is great, so I'm optimistic on the two, but much more in Brasil than in Argentina. But I expect the next semester activity in the two.

Next question. Do you think the drought in Argentina will have an impact in commodity prices?

Sounds like the effect of the drought made the prices to keep firmer. That, if Argentina would have normally 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 market's not so afraid and we are not seeing the rebound, huge rebound of the prices. Like last year, we saw that when 30 millions disappeared in the region. Today, there are not 30 millions disappearing. in an industrialized majority of the soybean, and Brazil not, and sells directly as a bean. So maybe there could be a deficit on that in the flower of soybeans, and yes, that could put firm prices on that because of the low volume of the factories

Good. 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.

Yes. We have been adjusting our results, our tax results by inflation in the last quarter. 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 allowed the companies to assess 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 with a Supreme Court decision. That is the reason why we revert the laws in this semester.

Good. There is a question here regarding the provision of a lawsuit that increased in the second quarter. What do you expect of that ruling and if there can be any other related lawsuits going forward?

Okay, this is related to IRSA's investment in Israel. We explained that during the webcast of IRSA. There is a new claim that IRSA received a couple of weeks ago. It is basically a claim for 140 million shekels. The company IRSA 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 the provision of 50% of that. That is that provision in this semester. And going forward, no, we don't expect more claims from our investment in Israel.

Related to the fair value losses on investment properties that are jumping in the second coup, if we can discuss reasons for that and an outlook going forward. I think some parts you explained, Matthias, but I'm thinking in the next quarters, what do you expect for that line?

It's also related to the investment in IRSA. It's not directly from Cresur, it's standalone. You need to understand how is the procedure. We value the shopping malls with a DCF model and offices and land bank with comparables in the market. The comparables we are using the blue 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 when you have to convert that into pesos, have to measure what happened with 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 uh it's not the same no so when you analyze basically the blue chip swap there was uh an evaluation uh converting that into pesos is lower than the inflation, so that you have to generate a loss in that line.

Two more financials for Matias. Any guidance on dividend and share repurchase going forward? And also your targets of leverage at Cresud going forward?

Well, regarding the buybacks, we have this program approved for 4 billion pesos. From that, we executed 1.3 billion pesos. So we will continue to execute the plan in the future. Dividends, we prefer not to give guidance. We always approve in the shareholders meeting that. So there is no proposal yet to our shareholders meeting. So will be, I don't know, in the coming months, the decision. Regarding the leverage, we can see the leverage on a consolidated basis that is very positive because now IRSA has much more leverage. free cash flow to distribute or to use in future projects. In the case of Cresud, the guidance is probably the same on what we have. So we will, I believe, maintain the same leverage for the year.

A question related to farmland real estate. What would be your average market price of agricultural land per hectares, if possible separate between crops and cattle, in Argentina and Brazil? Outlook and land prices going forward? And would you be looking to increase monetization of your agricultural lands?

There is not an average for sure. Each region has a different price and Brazil is calling in bags of soybeans. In Argentina, the nomination is dollars per hectare. There was a big rebound on the prices on the land in Brazil mainly, and that region followed the trend of United States appreciation of the land. Not in the case of Argentina, because of intervention of the government, adding taxes on exports and the gap of the dollars. that following the trend of US didn't happen in Argentina. So there is a lot of liquidity in the farms of Brazil, really an activity that I've never seen and a lot of interest of other farmers to increase their stake so they like to be increasing their operation and they do through buying and paying on installments they don't buy and pay in cash the normal is to pay 20 to 25 percent and the rest of 20 per year many installments for the future in sacks of soybeans In the case of Argentina, liquidity was less these last years because of the two effects that I said. And so today, the prices of the land are much more cheap, and there is not these following American or Brazilian prices. But I imagine the appreciation on the land of Argentina will come because of probably the next government election. reducing the gaps on the dollars and reducing the taxes on exports too. So I imagine more measures related to farmers. And we are seeing the existing government is improving the farmers' situation, giving some special dollars to farmers that it's like a net of taking taxes the day they fix their soybeans. So really, I'm optimistic on the price of the land of Argentina and the price of the Brazilian farms is amazingly liquid and attractive compared to the past. And a lot of realisation years, for sure, there are years of realisations and maybe these years are more of realisations where there is so much film price for the land that sometimes we bought at, I don't know, 10 times lower than today's price or much more than that. And Brazil and Brasilago loves to do their business, that buying when no one is buying and selling when everyone is selling, is buying and giving lives. to the farm, to the company again, to rebuy in another region later when the opportunity comes. Yes, for sure, this is our activity.

I don't see more questions. I will give one minute more for any additional questions. You can use the chat or raise your hand. Yes, we will post a replay today afternoon in the website. I see a question related to that, so I'm going to be able to see it again. There is a question if we're going to start again with the repurchase. Yes, we started yesterday with the daily buybacks, as we have 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 Elsteng, CEO, for his closing remarks.

Just to finish, we are in the first half of the year. We spoke about the grades coming the second semester. In this case, expecting the real estate much more active. IBSA in a few moments and very leveraged and reasonable. Now there are much better results, operational results in IRSA 2, in the rental properties 2. So in the case of services through FIO, FIO is really a big engine for Crescent 2 and we are seeing big results and expecting the expansion of FIO to 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.