Cresud(CRESY) - 2021 Q4 - Annual Report

Part I Key Information The company's operations are exposed to significant risks from Argentine and Brazilian macroeconomic conditions, including inflation, currency controls, and commodity price volatility Local Exchange Market and Exchange Rates - The Argentine government has implemented significant exchange control measures, restricting access to the foreign exchange market (MULC) and requiring prior Central Bank approval for certain transactions[24] ARS to USD Exchange Rates (Source: Banco de la Nación Argentina) | Period | Maximum | Minimum | Average | At closing | | :--- | :--- | :--- | :--- | :--- | | Fiscal year ended: | | | | | | June 30, 2019 | 45.8700 | 27.1600 | 37.8373 | 42.3630 | | June 30, 2020 | 70.3600 | 41.5000 | 59.5343 | 70.3600 | | June 30, 2021 | 95.6200 | 70.4200 | 83.8081 | 95.6200 | | Month ended: | | | | | | October, 2021 (through Oct 26) | 99.4600 | 98.6900 | 99.0675 | 99.4600 | Risk Factors - The company's business is significantly impacted by the COVID-19 pandemic and government responses, which have included closures of non-essential businesses like shopping malls, leading to lower rental revenue[43] - Operations are heavily dependent on the volatile macroeconomic and political conditions in Argentina, characterized by periods of negative growth, high inflation, and currency depreciation[45] - High inflation in Argentina remains a major challenge, with the CPI increasing 53.8% in 2019 and 36.1% in 2020, which could increase operating costs and negatively affect business results[46][47] - Argentina's limited access to international capital markets and ongoing debt restructuring negotiations with the IMF may impair the company's ability to finance its operations[49][50] - Significant fluctuations in the ARS/USD exchange rate pose a major risk, as the Peso depreciated approximately 59% in 2019 and 40% in 2020 against the U.S. dollar[50] - The agricultural business is exposed to commodity price fluctuations, unpredictable weather, and potential new export taxes, which could adversely affect financial results[26][89][90] - IRSA's real estate business faces risks from disease outbreaks like COVID-19 reducing shopping mall traffic, loss of tenants, and increased competition[26][120] Information on the Company The company operates as a leading Latin American agricultural firm and holds a controlling interest in IRSA, a major Argentine real estate company History and Development of the Company - Cresud was incorporated in 1936 and as of June 30, 2021, holds a 62.1% equity interest in its principal subsidiary, IRSA[196] - The company expanded internationally by co-founding Brasilagro in 2005, holding a 39.4% stake as of June 30, 2021[196] - In fiscal year 2021, significant transactions included the sale of Carnes Pampeanas S.A. for USD 10 million, generating a result of ARS 732 million, and the sale of a portion of the "San Pedro" farm for USD 8.6 million[198] - The urban properties business, through IRSA CP, completed major sales in FY2021, including the entire "Bouchard 710" building for ARS 8,791 million[201] - In September 2020, the company lost control of its Israeli subsidiary IDB Development Corporation Ltd. (IDBD) following a court-ordered liquidation, leading to its deconsolidation[203][204] - Subsequent to the fiscal year-end, IRSA's Board approved initiating a merger process where IRSA will absorb its subsidiary IRSA CP at a proposed exchange ratio of 1.40 IRSA shares for each IRSA CP share[215] Capital Expenditures (in millions of ARS) | Fiscal Year Ended June 30 | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Capital Expenditures | 4,487 | 18,567 | 31,005 | | Urban Properties and Investments | 2,692 | 16,718 | 28,170 | | Agricultural Business | 1,795 | 1,849 | 2,835 | Business Overview - Cresud operates through two primary business segments: Agricultural Business and Urban Properties and Investments (via its 62.1% stake in IRSA)[219][221] - The Agricultural business owned 26 farms totaling 625,629 hectares across Argentina, Brazil, Bolivia, and Paraguay as of June 30, 2021[222][226] - The Urban Properties and Investments business, operated through IRSA, includes segments for Shopping Malls, Offices, Sales and Developments, Hotels, and International investments[224] - IRSA's office portfolio as of June 30, 2021, comprised 113,291 sqm of GLA with an overall occupancy rate of 74.7%[332] Consolidated Financial Highlights (in millions of ARS) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Revenues | 42,411 | 51,068 | | Gain from Operation | 9,924 | 66,743 | | Total Assets | 339,172 | 1,031,784 | | Shareholders' Equity | 105,893 | 183,475 | Agricultural Land Use (Hectares) - Fiscal Year 2021 | Activity | Hectares | | :--- | :--- | | Crops | 224,184 | | Cattle | 80,835 | | Sheep | 85,000 | | Land Reserves | 466,421 | | Own farmlands leased to third parties | 25,908 | | Total | 882,349 | IRSA Shopping Mall Portfolio Highlights (as of June 30, 2021) | Metric | Value | | :--- | :--- | | Number of Malls | 15 | | Total GLA (sqm) | 334,826 | | Total Tenant Sales (FY2021) | ARS 75,795 million | | Average Occupancy Rate | 89.9% | Organizational Structure Key Subsidiaries and Ownership (as of June 30, 2021) | Subsidiary | Business | Effective Ownership | | :--- | :--- | :--- | | IRSA Inversiones y Representaciones S.A. | Real Estate Development & Management | 62.22% | | Brasilagro Companhia Brasileira de Propriedades Agrícolas | Agriculture (Brazil) | 39.44% | | Futuros y Opciones.Com S.A. | Agricultural Information & Brokerage | 50.10% | | IRSA Propiedades Comerciales S.A. | Shopping Malls, Offices | 3.36% (Direct) | Property, Plants and Equipment - As of June 30, 2021, the company and its subsidiaries owned 26 farmlands with a total surface area of 636,043 hectares and a net book value of ARS 29,977 million[376][377] - The company's subsidiary, Brasilagro, owned 12 farmlands with a total area of 223,551 hectares as of June 30, 2021, with a net book value of ARS 22,715 million[378] - The urban property portfolio, held through IRSA, includes a diverse range of assets such as office buildings, shopping malls, hotels, and significant land reserves for future development[380] Operating and Financial Review and Prospects Financial performance was impacted by the pandemic and hyperinflation, with decreased revenue and operating profit, while liquidity is managed through asset sales and debt Consolidated Operating Results - The company's financial statements are prepared in accordance with IFRS and are adjusted for hyperinflation as per IAS 29, affecting the comparability of financial data[386] - The COVID-19 pandemic severely impacted urban properties in FY2021, with shopping malls and hotels closed for most of the year, while agricultural activities continued normally[386][408] - Total revenues decreased by 17.0% in FY2021 vs. FY2020, driven by a significant drop in the Urban Properties and Investment Business[434] - Operating profit decreased by 85.1% in FY2021, from ARS 66,743 million to ARS 9,924 million, primarily due to a swing from a large gain to a loss on fair value adjustments of investment properties[450][469] - Net financial results improved significantly from a loss of ARS 30,733 million in FY2020 to a profit of ARS 6,232 million in FY2021, driven by gains on foreign exchange differences[478] Selected Consolidated Financial Data (in millions of ARS) | For the fiscal year ended June 30, | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | 42,411 | 51,068 | 47,529 | | Gross profit | 22,456 | 22,257 | 23,982 | | Profit/(loss) from operations | 9,924 | 66,743 | (41,710) | | (Loss)/profit for the year | (24,502) | 30,042 | (61,177) | | Total comprehensive (loss)/income | (35,876) | 47,190 | (62,385) | Liquidity and Capital Resources - The company's primary sources of liquidity are cash from operations, asset sales, and debt issuance; as of June 30, 2021, the company had a negative working capital of ARS 446 million[554][555] - As of June 30, 2021, total borrowings amounted to ARS 118,668 million, with ARS 43,275 million due within one year[570] - The company is subject to Argentine Central Bank regulations that restrict access to the foreign exchange market for debt repayment, requiring companies to refinance at least 60% of principal maturities[593][601] Consolidated Cash Flow Summary (in millions of ARS) | For the fiscal year ended June 30, | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 8,886 | 53,672 | 38,368 | | Net cash generated from investing activities | 73,657 | 60,547 | 15,849 | | Net cash used in financing activities | (54,165) | (109,082) | (38,654) | | Net increase in cash and cash equivalents | 28,378 | 5,137 | 15,563 | Trend Information - The global economic outlook is a two-track recovery, with global GDP projected to grow 6.0% in 2021 and 4.9% in 2022[606] - In Argentina, the economic context remains challenging, but shopping mall sales showed a significant recovery in June 2021, increasing 448.8% compared to June 2020[608] - The Argentine agricultural sector outlook is influenced by government policies like export taxes, with the 2021/22 corn planting projected at a record 7.1 million hectares[611] - The Buenos Aires office market has seen increased vacancy (15.7% for Class A) and lower rental values due to the shift to remote work[612] Critical Accounting Estimates - The company makes significant accounting estimates that affect reported financial figures, with key areas of judgment including asset valuations[613] - Valuation of investment properties at fair value relies on external appraisers and is sensitive to assumptions about future revenues and discount rates[614][615] - Assessment of recoverable amounts for cash-generating units and goodwill involves estimating future cash flows and appropriate discount rates[614] - Valuation of biological assets depends on assumptions about yields, production costs, sales prices, and discount rates[615] Directors, Senior Management and Employees The company's governance is led by Chairman Eduardo S. Elsztain, with details on board composition, executive compensation, and employee statistics Directors and Senior Management - The Board of Directors is composed of ten regular and seven alternate directors, with key figures including Eduardo S. Elsztain (Chairman) and Alejandro G. Elsztain (CEO)[622] - Significant family relationships exist among board members, with the Chairman, his wife, two sons, brother, and cousin all holding director or alternate director positions[624] - The company's day-to-day business is managed by an Executive Committee composed of Eduardo S. Elsztain, Saúl Zang, Alejandro Elsztain, and Fernando A. Elsztain[632] Compensation - The company has a defined contribution capitalization plan for its management team, with a company contribution expense of ARS 44 million for FY2021[639] - A long-term incentive plan based on shares was approved in 2019 for directors, management, and employees, allowing for a capital increase of up to 1% of capital stock, though it has not been executed[646] Compensation for Fiscal Year 2021 (in millions of ARS) | Group | Approved Compensation | | :--- | :--- | | Board of Directors | 93.1 | | Supervisory Committee | 2.4 | | Senior Management | 31.0 | Employees Number of Employees by Year | As of June 30, | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Employees | 2,544 | 3,197 | 3,377 | | Agricultural Business | 964 | 1,397 | 1,360 | | Urban Business (Sales, Malls, Hotels) | 1,281 | 1,508 | 1,716 | Share Ownership - As of August 31, 2021, Chairman Eduardo S. Elsztain was the beneficial owner of 36.51% of the company's shares[654][657] Major Shareholders and Related Party Transactions Chairman Eduardo S. Elsztain holds significant control with 36.51% beneficial ownership, and the company engages in numerous related party transactions Major Shareholders - As of June 30, 2021, 82.07% of the company's outstanding shares were held in the United States in the form of Global Depositary Shares (GDSs)[689] Major Shareholder Ownership (as of August 31, 2021) | Shareholder | Share Percentage | Fully Diluted Percentage | | :--- | :--- | :--- | | Eduardo Sergio Elsztain | 36.51% | 36.84% | | ANSES | 3.95% | 3.96% | | Directors and officers (group) | 3.72% | 4.03% | Related Party Transactions - The company engages in numerous transactions with related parties, including leasing office space from its subsidiary IRSA CP and leasing mall stores to affiliates[658][659] - A Master Agreement for the Exchange of Corporate Services exists between Cresud, IRSA, and IRSA CP to optimize operational efficiencies[660] - Cresud has a consulting agreement with Consultores Asset Management, a firm controlled by the Chairman and Vice-Chairman, with a fee equal to 10% of Cresud's after-tax net income[670] - In December 2020, Cresud agreed to sell its Bolivian subsidiaries to its controlled company Brasilagro for approximately USD 30 million[667] Financial Information The company faces several significant legal proceedings and adheres to a dividend policy governed by Argentine law and shareholder approval Audited Consolidated Statements and Other Financial Information - A notable legal case involves a lawsuit from Exagrind S.A. for damages from a fire, where a court has ordered Cresud to pay damages of an undetermined amount[674][675] - Cresud is in a dispute with the Province of Salta over fees, leading to seizures of the company's bank accounts totaling over ARS 126 million, with an estimated contingency of ARS 221 million[676] - IRSA's subsidiary, Puerto Retiro S.A., is involved in litigation where a court ordered the confiscation of its main property, leading to a 100% impairment on the property's book value[677][678][679] - The company's dividend policy allows payments from net realized profits, subject to shareholder approval and allocation to a legal reserve of 5% of net profits[687][711] The Offer and Listing The company's securities trade on ByMA (CRES) and NASDAQ (CRESY), with a recent public offering raising USD 42.5 million - In February-March 2021, the company conducted a public offering of 90 million shares and 90 million warrants, raising USD 42.5 million[688] - The company's common shares are listed on the Bolsas y Mercados Argentinos (ByMA) under the symbol "CRES", and its ADRs are listed on the NASDAQ Global Market under "CRESY"[689][690] - The Argentine securities market is regulated by the Comisión Nacional de Valores (CNV) and is noted to have substantially more volatility than markets in the United States[691][699] Additional Information Corporate governance is defined by company bylaws and Argentine law, covering shareholder rights, capital increases, and public takeover bid regulations - The company's purpose includes commercial, real estate, financial, and agricultural activities, with shareholder liability limited to their equity interest[702][703] - In a capital increase, existing shareholders have preemptive rights to subscribe to new shares in proportion to their holdings[707] - Argentine law requires a mandatory public acquisition offer (takeover bid) when an individual or group acquires a controlling stake of 50% or more of voting rights[718] - A voluntary withdrawal from the public offering regime requires the company to launch a public offer to acquire all its outstanding shares[720]