Cresud S.A.C.I.F. y A. — Form 20-F summary
Business context and reporting period
This is Cresud’s annual report for the fiscal year ended June 30, 2019, not a quarterly filing. Cresud combines agricultural operations and farmland investments in South America with urban real estate and other investments through IRSA, including substantial holdings in Israel. Financial statements are prepared under IFRS in Argentine pesos. Because Argentina was considered hyperinflationary from July 1, 2018, figures are restated to the reporting-date measuring unit; IFRS 9 and IFRS 15 were adopted using the modified retrospective method, so comparative figures for those standards were not restated.
Key financial results
Amounts below are millions of Argentine pesos unless otherwise stated. Dollar translations in the filing are for convenience only.
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Revenue | 82,665 | 69,286 | Up 19.3% as reported; inflation and exchange-rate effects limit direct interpretation as underlying growth. |
| Gross profit | 31,058 | 27,111 | Gross margin 37% versus 38%. |
| Operating profit (loss) | (9,807) | 29,451 | Operating margin (12%) versus 42%. |
| Loss before income tax | (27,147) | (6,653) | Higher pre-tax loss. |
| Net income (loss) | (28,497) | 19,185 | Net margin (34%) versus 27%. |
| Net cash from operating activities | 17,874 | 16,897 | Cash generation increased. |
| Net cash from / (used in) investing activities | 7,383 | (22,077) | Shift to net inflow, including financial-asset disposals. |
| Net cash used in financing activities | (18,006) | (2,805) | Higher net financing outflow. |
| Cash and cash equivalents at year-end | 62,484 | 60,129 | Year-end balance. |
At June 30, 2019, total assets were 507,989, shareholders’ equity 89,000 and total liabilities 418,989. Current assets were 153,059 and current liabilities 89,602; the reported current ratio was 1.71 and working capital 63,457. Consolidated financial debt was 334,305, including Israel operations-center debt; cash less this reported debt implies approximately 271,821 of net debt, a simple calculation that does not account for restrictions, entity-level access to cash or non-recourse features.
Material changes versus prior periods
- Despite higher reported revenue and gross profit, operating results swung to a loss. The fair-value adjustment of investment properties was a loss of 23,618, compared with a gain of 16,849 in FY2018; management explains that inflation adjustment and property valuations materially affected reported results.
- Loss from associates and joint ventures increased to 4,979 from 2,292. Net finance results improved to a loss of 12,361 from a loss of 33,812, chiefly reflecting a more favorable exchange-related result than in FY2018.
- Shufersal was deconsolidated after DIC lost control in June 2018; its results are presented as discontinued operations. FY2018 also included a substantial gain associated with the sale and remeasurement of the remaining Shufersal interest. These changes affect comparability.
- Total assets fell 8.9% from FY2018 and total equity fell 27.9%. Capital expenditure was 14,443, down from 15,912.
- Agricultural production was mixed: crop volume declined to 599,238 tons from 652,111, while soybean output rose to 355,670 tons from 225,916 and sugarcane output rose to 1,999,335 tons from 924,776. The land-transformation-and-sales segment’s operating profit fell to 446 from 2,164.
Outlook, management commentary, risks and unusual items
- No formal company-wide financial guidance is provided. Management describes a strategy of acquiring, developing and selectively selling farmland, improving yields through technology, and maintaining IRSA’s real-estate portfolio. The filing says future capital expenditure will depend on real-estate and farmland prices and commodity-price trends.
- Argentina’s high inflation, peso volatility, political and economic uncertainty, limited financing access and exchange controls are central risks. Controls reinstated in September 2019 require approval for certain foreign-currency purchases, transfers and dividend payments, potentially affecting debt service and repatriation of dividends.
- The filing reports substantial consolidated debt and heightened liquidity risks at IDBD, including negative equity and negative operating cash flow at June 30, 2019, low debt ratings and bondholders’ consideration of insolvency proceedings. IDBD forecast it could meet obligations for 24 months assuming asset realizations. Subsequent to year-end, IRSA guaranteed commitments for up to NIS 210 million of funding to Dolphin for IDBD, in scheduled NIS 70 million installments; the commitment has conditions and specified expiry events.
- Subsequent events include Cresud’s July 2019 issuance of US$59.6 million of 9% notes due 2021, and shareholder approval of a potential capital increase of up to 180 million shares, about 33.49% of existing share capital, plus an employee, management and director incentive plan of up to 1% of capital. These authorizations do not establish that shares were issued. The October 2019 meeting also approved distribution of up to 13 million treasury shares.
- Other notable exposures include the threatened loss of Puerto Retiro’s Planta 1 waterfront land in litigation; the book value of that land reserve was fully provided for. IRSA’s Lipstick Building faces the announced non-renewal of its large Latham & Watkins lease, expiring June 2021, and may require investment to re-lease the space.
- Argentina’s macroeconomic forecasts and policy discussion in the filing are external context, not Cresud guidance. Management cautions that forward-looking statements are uncertain and undertakes no obligation to update them.
Important facts for investors to verify
- How much of FY2019’s revenue, margins and earnings movement reflects inflation restatement, currency translation, fair-value marks and accounting-standard adoption, rather than operating volume or pricing?
- What is the sustainable value and sensitivity of investment properties, particularly given the 23,618 fair-value loss and the assumptions used by external valuers?
- What are current liquidity, maturities, covenant status and accessible cash at each relevant subsidiary, especially IDBD, and will its asset-sale assumptions and committed support be sufficient?
- How do exchange controls affect access to foreign currency, debt payments, dividend transfers and the value investors can repatriate?
- What are the status and likely financial effects of the potential 180 million-share issuance, incentive plan, treasury-share distribution and material litigation?
The consolidated financial statements received an unqualified audit opinion; the auditor also concluded that internal control over financial reporting was effective as of June 30, 2019.