Cresud(CRESY) - 2020 Q4 - Annual Report

Part I Key Information This section presents Cresud's selected financial data, highlights exchange rate volatility, and details significant risk factors including macroeconomic instability and the insolvency of its Israeli subsidiary Selected Consolidated Financial Data Cresud's financial data for fiscal years 2017-2020, restated for hyperinflation under IAS 29, shows a significant turnaround to a net profit of ARS 20,003 million in FY2020 Consolidated Statement of Income Highlights (in millions of ARS) | Fiscal Year Ended June 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | 121,256 | 110,741 | 93,266 | | Profit / (loss) from operations | 44,073 | (24,489) | 31,857 | | Profit / (loss) for the fiscal year | 20,003 | (40,729) | 27,420 | | Total comprehensive income / (loss) | 31,420 | (41,533) | 44,112 | Consolidated Statement of Financial Position Highlights (in millions of ARS) | As of June 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Assets | 686,940 | 726,034 | 797,044 | | Total Liabilities | 564,787 | 598,833 | 620,590 | | Total Shareholders' Equity | 122,153 | 127,201 | 176,454 | Consolidated Statement of Cash Flows Highlights (in millions of ARS) | Fiscal Year Ended June 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 35,734 | 25,546 | 24,150 | | Net cash generated from / (used in) investing activities | 40,311 | 10,552 | (31,553) | | Net cash used in financing activities | (72,624) | (25,735) | (4,009) | | Cash and cash equivalents at end of year | 100,926 | 89,304 | 85,938 | - Financial statements for periods ending on or after July 1, 2018, have been restated pursuant to IAS 29 to reflect the effects of hyperinflation in Argentina[50][71] Local Exchange Market and Exchange Rates The Argentine government implemented significant exchange controls, leading to substantial depreciation of the Argentine Peso against the U.S. Dollar, while the New Israeli Shekel remained more stable - As of September 1, 2019, the Argentine government and Central Bank implemented new exchange controls and restrictions, limiting access to the foreign exchange market (MULC) for individuals and legal entities[55] ARS to USD Exchange Rates (Source: Banco de la Nación Argentina) | Period Ended | Maximum | Minimum | Average | At closing | | :--- | :--- | :--- | :--- | :--- | | June 30, 2019 | 45.8700 | 27.1600 | 37.8373 | 42.3630 | | June 30, 2020 | 70.3600 | 41.5000 | 59.5343 | 70.3600 | NIS to USD Exchange Rates (Source: Bloomberg) | Period Ended | Maximum | Minimum | Average | At closing | | :--- | :--- | :--- | :--- | :--- | | June 30, 2019 | 3.7767 | 3.5597 | 3.6443 | 3.5700 | | June 30, 2020 | 3.8224 | 3.4166 | 3.5072 | 3.4643 | Risk Factors The company faces significant risks from macroeconomic volatility, high inflation, currency controls, and political instability in its operating markets, compounded by the COVID-19 pandemic and the insolvency of its Israeli subsidiary - The ongoing COVID-19 pandemic and associated government measures, such as mandatory lockdowns and the shutdown of non-essential businesses like shopping malls, have adversely affected the company's business and results of operations, particularly in Argentina[60][62] - Argentina's high inflation rates (53.8% in 2019) and significant currency depreciation (Peso depreciated 59% against the USD in 2019) pose substantial risks to the company's financial condition and operating results[68][77] - On September 25, 2020, the company's Israeli subsidiary, IDB Development Corporation Ltd. (IDBD), was declared insolvent and is undergoing liquidation proceedings, posing a significant risk to the value of this investment and potentially affecting the company's reputation[220][39] - The Argentine Central Bank's Communication "A" 7,106 requires companies with foreign currency debt maturities between October 2020 and March 2021 to refinance at least 60% of the principal, restricting access to foreign currency and impacting the company's ability to service its debt[86] Information on the Company This section details Cresud's history, business structure, and extensive property portfolio, encompassing agricultural assets across Latin America and urban real estate primarily in Argentina and Israel History and Development of the Company Cresud, incorporated in 1936, expanded from agriculture into urban real estate via IRSA and internationally through Brasilagro, with recent developments including the insolvency of its Israeli subsidiary IDBD - Cresud was incorporated in 1936 and became a publicly listed company on the Buenos Aires Stock Exchange in 1960, significantly expanding its business scope by acquiring a controlling interest in IRSA in 2009, which as of June 30, 2020, stood at 61.95%[246] - The company expanded its agricultural business model internationally by participating in the creation of Brasilagro in Brazil in 2005, holding a 33.55% interest as of June 30, 2020[246] - A critical recent event was the declaration of insolvency and initiation of liquidation proceedings for its Israeli subsidiary, IDB Development Corporation Ltd. (IDBD), by an Israeli court on September 25, 2020[268][317] - In fiscal year 2020, BrasilAgro merged with Agrifirma Holding, and Cresud adjusted its stake in BrasilAgro through market sales and purchases, resulting in a final ownership of 33.55%[253][254][259] Business Overview Cresud operates two main business lines: Agricultural Business, managing 629,794 hectares across Latin America, and Urban Properties & Investments, primarily through IRSA in Argentina and Israel, though its Israeli operations face liquidation - The company's operations are structured into two primary business lines: Agricultural Business and Urban Properties and Investments, with the latter geographically divided into an Operations Center in Argentina and an Operations Center in Israel[336] - As of June 30, 2020, the Agricultural Business owned 26 farms with approximately 629,794 hectares across Argentina, Brazil, Bolivia, and Paraguay, including 91,575 hectares for crop production, 72,160 hectares for cattle, and 359,965 hectares held as land reserves[348][378] - Through its subsidiary IRSA CP, the company owned and operated a portfolio of 15 shopping malls in Argentina with a total Gross Leasable Area (GLA) of 333,062 square meters as of June 30, 2020[425] - The Operations Center in Israel, held through IDBD and DIC, includes significant investments in real estate (PBC), telecommunications (Cellcom), and insurance (Clal), but IDBD was declared insolvent and is under liquidation on September 25, 2020[490][491] Organizational Structure Cresud's organizational structure is centered around key subsidiaries, including a 61.95% stake in IRSA for urban real estate and significant interests in Brasilagro and Futuros y Opciones.Com S.A. for agricultural operations Key Subsidiaries and Ownership (as of June 30, 2020) | Subsidiary | Effective Ownership and Voting Power (%) | | :--- | :--- | | IRSA Inversiones y Representaciones S.A. | 61.95% | | Brasilagro Companhia Brasileira de Propriedades Agrícolas | 33.55% | | Futuros y Opciones.Com S.A. | 50.10% | | Sociedad Anónima Carnes Pampeanas S.A. | 100% | | Agro-Uranga S.A | 35.72% | Property, Plants and Equipment As of June 30, 2020, Cresud's extensive property portfolio includes 26 agricultural farms totaling 629,794 hectares with a net book value of ARS 17,640 million, alongside significant urban properties in Argentina and international real estate holdings - The company's agricultural property portfolio as of June 30, 2020, consists of 26 farms with a total area of 629,794 hectares and a combined net book value of ARS 17,640 million[542] - The urban property portfolio in Argentina includes major assets such as the República Building (19,885 sqm GLA), Bankboston Tower (14,865 sqm GLA), Abasto Shopping (36,760 sqm GLA), and Alto Palermo Shopping (18,655 sqm GLA)[548] - The Israeli operations hold significant international real estate, including the HSBC Building in New York (approx. 80,000 sqm) and the Tivoli project in Las Vegas (approx. 62,000 sqm)[495] Operating and Financial Review and Prospects This section analyzes Cresud's financial performance for fiscal years 2018-2020, highlighting a significant turnaround to net profit in FY2020 driven by fair value gains and improved agricultural performance, alongside discussions on liquidity and the impact of the IDBD insolvency Consolidated Operating Results Cresud's FY2020 consolidated revenues increased by 9.5% to ARS 121,256 million, resulting in a net profit of ARS 20,003 million, primarily driven by fair value gains on investment properties and improved agricultural performance - The company's financial statements as of July 1, 2018, are adjusted for hyperinflation in Argentina according to IAS 29, which significantly affects the comparability of financial figures[557] Segment Profit / (Loss) (in millions of ARS) | Segment | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Agricultural business | 6,634 | 3,141 | | Urban Properties - Argentina | 45,464 | (38,217) | | Urban Properties - Israel | 1,000 | 3,372 | | Total Segment Profit / (Loss) | 53,098 | (31,704) | - The significant turnaround in profitability in FY2020 was largely due to a ARS 30,992 million net gain from fair value adjustment of investment properties, compared to a loss of ARS 37,746 million in FY2019, primarily driven by the revaluation of Argentine office buildings and land reserves due to the Peso's depreciation[575][640][643] - Revenues from the Agricultural Business increased by 37.8% in FY2020, driven by higher sales volumes for crops and cattle, and better prices for sugarcane[614] - Revenues from the Shopping Malls segment in Argentina decreased by 30.5% in FY2020, mainly due to closures and reduced activity resulting from the COVID-19 pandemic[618] Liquidity and Capital Resources Cresud's liquidity is primarily driven by cash from operations and asset sales, with a positive working capital of ARS 58,162 million as of June 30, 2020, though the insolvency of its Israeli subsidiary IDBD poses a significant challenge - Main sources of liquidity include cash from operations, issuance of debt and equity, and proceeds from asset sales, with key uses for acquisitions, capital expenditures, debt service, and dividends[788][789] Cash Flow Summary (in millions of ARS) | Fiscal Year Ended June 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 35,734 | 25,546 | 24,150 | | Net cash from investing activities | 40,311 | 10,552 | (31,553) | | Net cash from financing activities | (72,624) | (25,735) | (4,009) | - As of June 30, 2020, the company had a positive working capital of ARS 58,162 million and cash and cash equivalents totaling ARS 100,926 million[791] - The Israeli subsidiary IDBD's financial condition is critical, with negative equity and negative operating cash flows, leading to its insolvency and liquidation proceedings initiated on September 17, 2020, which poses a significant risk to the company's capital resources[793]