Cresud Inc. (Form 20-F) — concise filing summary
Period clarification: Despite the request metadata indicating “2019 Q4,” this is Cresud’s annual report for the fiscal year ended June 30, 2020, filed November 16, 2020. It is not a standalone quarterly filing. Financial statements are audited, prepared under IFRS, and adjusted for Argentine hyperinflation under IAS 29; amounts below are ARS millions unless stated otherwise.
Business context and reporting period
Cresud combines agricultural production and farmland investment with urban properties and investments, principally through its 61.95%-owned subsidiary IRSA. Its agricultural operations span Argentina, Brazil, Bolivia and Paraguay; the property and investment businesses include operations in Argentina, Israel and the United States. At June 30, 2020, Cresud reported 26 owned farms totaling approximately 629,794 hectares.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | 121,256 | 110,741 |
| Gross profit | 40,769 | 37,619 |
| Operating profit/(loss) | 44,073 | (24,489) |
| Profit/(loss) before tax | 10,025 | (47,089) |
| Consolidated profit/(loss) for the year | 20,003 | (40,729) |
| Profit/(loss) from continuing operations | 1,918 | (47,869) |
| Net cash from operating activities | 35,734 | 25,546 |
| Net cash from/(used in) investing activities | 40,311 | 10,552 |
| Net cash used in financing activities | (72,624) | (25,735) |
| Cash and cash equivalents at year-end | 100,926 | 89,304 |
| Total assets | 686,940 | 726,034 |
| Total shareholders’ equity | 122,153 | 127,201 |
| Total borrowings | 418,807 | 477,798 |
| Current assets / current liabilities | 1.34x | 1.71x |
Reported gross, operating and net margins were approximately 33%, 36% and 16%, respectively; these include material fair-value and other non-cash effects. Continuing-operations net margin was approximately 1.6%. The filing reports a 30,992 fair-value gain on investment properties in FY2020, compared with a 37,746 loss in FY2019. The consolidated annual profit also includes 18,085 from discontinued operations. These figures make the reported year-on-year earnings swing a poor standalone indicator of recurring performance.
Material changes versus the prior comparable period
- Revenue rose 9.5%; gross profit rose 8.4%. Operating results shifted from a loss to a profit, largely reflecting the reversal in investment-property fair values and improved results in certain segments.
- Agricultural production benefited from higher crop volumes sold and stronger cattle and sugarcane revenue. Crop production was 857,490 tons versus 599,238 tons, and sugarcane production was 2,360,965 tons versus 1,999,335 tons.
- Shopping mall tenant sales fell 25.9% in real terms, although the filing reports a 6.7% nominal increase. Shopping-mall rental revenue declined to 5,935 from 8,541, and portfolio occupancy was 93.2% versus 94.7%.
- Cash from operations increased, while financing cash outflows expanded substantially. Investment cash inflows included proceeds from financial-asset disposals; they should not be read as recurring operating cash generation.
- Assets and equity declined year over year. Current liquidity also weakened, with the current ratio down to 1.34x from 1.71x.
Outlook, risks, contingencies and unusual items
- COVID-19: Argentine shopping malls were closed from March 20, 2020, with reopening phased and uncertain at the reporting date. Hotels, the DirecTV Arena and event venues were also closed or operating under restrictions. Management did not provide quantified earnings guidance; it described the pandemic’s ultimate impact as uncertain.
- IDBD insolvency and loss of control: IDBD had negative shareholders’ equity, negative operating cash flows and substantial debt. On September 25, 2020, an Israeli court declared IDBD insolvent and ordered liquidation, appointing a liquidator and receivers over pledged DIC and Clal shares. Cresud/IRSA expected to deconsolidate IDBD and DIC from the quarter ending September 30, 2020. The filing says IDBD debt is non-recourse to IRSA, but IDBD sued Dolphin Netherlands and IRSA seeking NIS 70 million related to a disputed capital contribution.
- Debt and foreign-exchange access: Argentine controls restricted access to foreign currency and dividend remittances. Central Bank Communication “A” 7,106 required qualifying companies with principal maturities from October 15, 2020 through March 31, 2021 to refinance a portion of debt. Cresud and IRSA subsequently exchanged most of their near-term notes: Cresud reported 88.41% acceptance on its Series XXIV offer and IRSA 98.31% on its Series I offer. Verify settlement, remaining obligations and the effect of modifications to note terms.
- Fair-value and currency sensitivity: Property valuations depend on appraisals, market conditions, projected cash flows, inflation and exchange rates. Argentine peso depreciation, high inflation, export taxes, capital controls, agricultural commodity prices, weather and environmental regulation are material risks. Cresud reported FY2020 financial results net loss of 42,710, including financing costs of 25,683 and other financial results loss of 18,667.
- Other significant transactions: BrasilAgro sold farmland and acquired Serra Grande; Cresud’s interest in BrasilAgro fell to 33.55% after share sales and the Agrifirma merger, while the company stated it retained control. IRSA CP sold the Bouchard 710 building and Boston Tower floors after year-end. New Lipstick terminated its land ground lease in August 2020, producing a reported accounting gain of approximately ARS 2.5 billion at IRSA level; this is not recurring operating cash flow.
- Audit and accounting: The independent auditor issued an unqualified opinion on the FY2020 financial statements and internal control, with emphasis-of-matter paragraphs concerning IDBD’s subsequent liquidation and uncertainty from COVID-19. IFRS 16 adoption recognized right-of-use lease liabilities of approximately 16,797 at transition.
Most important facts an investor should verify
- Reconcile consolidated earnings with continuing operations, discontinued operations, fair-value remeasurements and other non-cash items; assess recurring segment cash earnings.
- Confirm the timing and accounting consequences of IDBD’s liquidation and deconsolidation, Cresud/IRSA’s maximum legal or funding exposure, and the outcome of the NIS 70 million claim.
- Review debt maturity schedules, exchange-offer settlement terms, covenant changes and actual access to foreign currency for debt service and distributions.
- Assess post-pandemic mall tenant collections, occupancy, rent concessions and recovery in hotel and event operations.
- Check property valuation assumptions and the effects of inflation accounting and Argentine exchange-rate restrictions on reported peso values and comparability.