Alejandro Elsztain - Second VP Daniel Elsztain - COO Matias Gaivironsky - CFO.

Jorel Guilloty - Morgan Stanley.

Good morning everyone, and welcome to IRSA's Second Quarter 2017 Results Conference Call. Today's live webcast, both audio and slide show, may be accessed through Company’s Investor Relations website at www.irsa.com.ar/ir, by clicking on the banner Conference Call.

The following presentation and the earnings release issued last week are also available for download on the Company website. After management's remarks, there will be a question-and-answer session for analysts and investors. At that time further instructions will be given.

[Operator Instructions] 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 risks 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 Elsztain, Second Vice President. Please go ahead, sir..

Thank you very much, good afternoon everybody. Beginning our second quarter 2017 conference call in Page 2, you can see the main highlights for the six months. The financial consolidated results, we see that the revenues that we are achieving this six months is achieving ARS36.8 billion.

From those 2.8 billion comes from Argentina and 35 billion comes from the Israel operations. The EBITDA that we achieved was ARS5.2 billion, 1.2 billion from Argentina and 4 billion from Israel.

The net gain for the six months is 4.2 billion, gain of Argentina is almost 200 million and then comparing to the last year loss of 900 million more related to the evaluation of last year and in the [indiscernible] in the six months, Israel brings 4 billion of the net gain.

To the shareholders of IRSA, the gain is ARS2.1 billion attributable to the shareholders of IRSA. And when we divide Argentina to Israel, we can see that we have good results in the rental segment.

The segment - the EBITDA of the rental segment grew almost 30% comparing to six months to six months of last year, there are some lower results from sales of investment properties.

This year we are selling less than last year and there are two main big projects under progress of two office buildings, the Polo Dot and Catalinas office buildings that we are going to show you some pictures later.

In the Israel business center, we have shown this quarter very strong results coming mainly for two reasons, one is the ADAMA sale, ADAMA sale we're going to explain later that we brought a lot of cash to the company, and the increase of the share of price of Clal that it's valued still at market value having 55% but still marketing at market value of the share, but a rebound on the share value.

In November of 2016, IDB had issued notes in these Israeli market for ILS384 million and this paying an interest of 6.95%, pledging the shares of DIC and there are some more news on this relating the issuing of new debt in Israel that we’re going to show you a little later. So now I will introduce the Daniel Elsztain. Please Danny..

Thank you Alejandro, good afternoon everyone. On the following page, we can see how our sales were doing on the last year; we had a quarter of 18.6% [ph] growth in pesos. The previous quarter was 21% For the six months period we have 19.9% increase in sales.

Although we are below inflation, we see our tenants less worried and the marketing is getting normal. It's easier to predict, so we believe that we are now in a new trend in terms of sales. In terms of occupancy, we are still at a very high occupancy levels and our shopping center at 98.4%.

We increased a little bit, our stock was about 2,400 square meters. [indiscernible] expansion of Distrito Arcos Premium Outlet. So we think we can hit this occupation and also the sales at this level. On Page 4, talking about the office segment, we are at 100% occupancy level for the second quarter, impossible to beat.

The price is going up in our portfolio. So in the market as a whole now we're seeing a [indiscernible] product per square meters per month and our portfolio was used a little bit on this quarter because of the sale of about 1,800 square meters at Intercontinental Plaza building.

But remember that we’re going to replace all the non-core place that will sold. We have been selling in the past quarters with local traction in better locations that we consider to be part of our core assets.

Those examples that Polo Dot Office Park and the Catalinas building that you can see that we're going to grow our existing 77,000 square meter of GLA in office to 125,000 square meters in GLA that’s 62% increase of our portfolio.

That will increase our potential there will be 90% potential increase in our EBITDA from $19.5 million today to approximately $34 million when we have all these offices occupied. At that we estimate the market share of our portfolio, our company will be about 12% of the market share.

The CapEx for next year on the following page, we have three main projects that started already and will be from now to 2020 approximately and will be about $195 million. That will be an increase of rental GLA by 17% reaching about 485,000 square meters of GLA.

The first one is the expansion of Alto Palermo Shopping Center, the new GLA for about 4,000 square meters. The Polo Dot Office Building, this is the first stage of three that we have on this location, it will be an investment of about ARS1 billion. The total GLA here is about 32,000 square meters and we estimate the opening for fiscal year 2019.

And the Catalinas Office Building is an investment of approximately $101 million, a total GLA of 35,000 square meters. And we estimate opening of 2020 fiscal call. In the case of Alto Palermo, we finalized the demolition, and we are bidding for construction. In the other two cases we already started construction.

One interesting thing that happened during this quarter, at the IRSA Commercial Property level, we had a piece of land across the street from Alto Palermo Shopping, on that time we saw this and we are now receiving for the project 36 residential units that were developed for another company TGLT, 32 residential parking lots and 171 commercial parking lots, total market value approximately $17 million of this portfolio in this building.

We have started the selling on this and we have five units under execution. Now, we [indiscernible] we're very happy with the answer of the market. We're going to keep the commercial parking lots right across the street from Alto Palermo Shopping Center, one of our best performing shopping centers.

Also during the quarter, on Page 7 we can see a few years ago, we sold a piece of land in the south of the Buenos Aires - the province of Buenos Aires, adjacent to apparent to [indiscernible] that we did in the past called Abril, we received some cash and we also have received on this quarter 52 lots from barter agreements signed in 2010.

This has a total of 39,000 square meters that we have initiated a sale process for this piece of land and we had eight under execution at very good prices. Well this is another issue that has happened, good thing that we are selling things that we sold in the past.

The infrastructure of this [indiscernible] finalized, there is a hotel but its finalized soon to be open. And there are many, many houses built or under construction in this portion.

Also during this quarter, on December 2016, we had an agreement with TGLT that they were supposed to build and give us some apartments as in the other cases but because of its stop of construction and several unfavorable judicial sentences in the justice, we decided we agreed with them to grant the deed of distraction and finish this barter.

So because of doing this we are going to get [indiscernible] but we have to register in this quarter a loss of about ARS27 million. Page 8, we had talked a little bit of our hotel segment. This was a very good quarter compared with the last year. We can see that the average price is a little bit, I mean, it's almost the same $182 per room.

And occupancy is a little bit higher but remember because of the evaluation we are getting very, very much different numbers. As you can see revenues went up 22%, almost 53% compared with six months of 2016. And EBITDA from ARS2 million last year to ARS34 million on this six month.

So we think this is going to be a good year for hotels and we expect to see this in the future too. So now we go to Matias Gaivironsky, CFO of the company..

Thank you, Daniel, going to Page 9, we have the description of our investment in Israel, our Israel business center. So the main highlight for this squatter definitely was the result of the disposal of ADAMA that generates around ARS4.7 billion of gain from that transaction. On Page 9 we have the structure of IDB.

Dolphin that is below IFISA that we control around 99.99% of those Dolphin, we control 68.3% of IDB and IFISA company controlled by our Chairman Eduardo Elsztain, control 31.7%. So IFISA apart from their stake on IDB control 8.8% of the DIC, a subsidiary of IDB where IDB has 67.9%.

Then the rest two subsidiaries, important subsidiaries at the IDB level are definitely the main important is Clal Insurance, the insurance company that we value that investment at market value and according to the evaluation of the shares in the Israeli Stock Exchange. And IDB Tourism that is a company that we are in negotiations to dispose.

In this quarter, we recognized an impairment for that investment for ARS230 million that is the price that we are negotiating with a third-party. So we already recognized the impairment that in the case that we sell we already recognize it’s a loss. In Page 10 as I said the disposal of ADAMA we sold ChemChina, a 40% of our stake in ADAMA.

So that generates - we sold for $230 million in excess of the loan that Chinese bank provide for that acquisition. So DIC received this quarter $230 million in cash that generated a gain on this transaction for IRSA of ARS4.7 billion.

In Page 11, we have the other important effect for this quarter that was the improvement in the evaluation of the cloud shares in the market so the shares increased in the semester 22% that generated a gain of ARS1.2 billion, almost ARS1.3 billion for the semester.

Going to page 13, we have the breakdown of the different lines of our financial statement starting with the operating income on the rental segment. We grew 32.9% from ARS933 million to ARS1.2 billion that is mainly the operation in the rental segment that we improve in both in shopping centers and in offices, and also in hotels.

Sales and development decreased from ARS937 million to ARS49 million, this is basically because this quarter or this semester we sold much less than the previous year.

The previous year we sold seven floor from the Intercontinental Plaza, the Dique IV building and the Isla Sirgadero and this quarter we only sold two floors from the Intercontinental Plaza. Financials and others, we decreased from ARS89 million to minus ARS55 million in this semester. This is basically results that came from Banco Hipotecario.

Regarding the Israeli business center, on the operational side, most of our lines are generating good results, both in operating income and in EBITDA in the real estate that came from PBC. We generated ARS607 million.

One consideration here, you have to remember that here we have difference between our [indiscernible] recognition on the investment properties that IDB is valuing at fair value and we are recognizing that historical value at the moment of our acquisitions, so when you compare the PBC result from Israel against our results are much lower here because we are deducting all the improvement in the valuation of the investment properties.

In super market, we generated an NOI of ARS788 million and in telecommunication, ARS48 million. Others that is basically the holding results, all the G&A of DIC and IDB and the results of [indiscernible] is here in this line, ARS268 million negative, but it’s basically all the cost of the holding company.

In page 15, we have the rest of the lines of our financial statements.

So we finish up the operating income from ARS1.9 billion in the previous year to 2.2 or almost ARS2.3 billion in this fiscal year, half came from Israel, half came from Argentina and Argentina compared lower with previous year because of the sales of investment properties that we sold more in the last year.

Net financial results, the results are, this quarter, we are starting the consolidation of the financial cost of IDB, so the debt of IDB is here.

So we decreased from a negative result of ARS2.2 billion to ARS2.6 billion and you can see from the table in the bottom of the slide that the net financial cost increased significantly and this is mainly the debt of IDB. The net effect was lower. This quarter, we have a much lower devaluation than in the December 2015.

Other fair value of financial assets, this is basically the result from Clal that increased from a negative result of ARS460 million to ARS1.5 billion positive. With this, we finish, sorry, also very important to comment that the other important result is the sales, the disposal of ADAMA that, as I said, generates 4.7 disposal.

The total result is ARS4.5 billion and also the impairment of Israel that the tourism company that we recognized in this quarter ARS226 million, so with this, we finished the net income coming from a loss in the last year of ARS910 million to a gain of ARS4.197 billion [ph], sorry, attributable to our controlling shareholders ARS2 billion and the non-controlling interest ARS2.1 billion.

Then regarding our debt, we commented in the last quarter that we issued debt at the IRSA level. We issue notes together between a series of dollars and a series of pesos, ARS210 million.

With that, we canceled short-term debt and we restructure extending the tenure of our debt, so we canceled the remaining $75 million of our IRSA 2017 bond, so that bond was already full canceled and now we have two bonds in the market, one for 2020 and the other was 2019, the $210 million.

In the next page, we have the evaluation of the debt in IDB and DIC. And you can see from the slide that we have been decreasing significantly our debt since we entered, since we started the investment in IDB.

So we cancel debt, starting from ILS4.8 billion to ILS2.7 billion currently at IDB level and in DIC, the same from ILS4.8 billion to ILS2.9 billion.

And you can see in the bottom of the slide the last issuance that we did in the subsidiaries and in the holding companies all the subsidiaries of the operational companies had a very good shape and we have been issuing debt at 3% in fixed rate, with long term amortization in MATAM, in PBC, in Cellcom and we also issue debt at the holding companies in DIC, ISL360 million at 5.7% with amortization in 2025 and in IDB, the last issuance in November, ISL383 million at 6.95% fixed due in 2019.

So you can see in the page 18, the current debt situation of IDB. So we have a debt of $809 million, ISL3 billion and in the graph below, you have the breakdown of the amortization schedule and you can see that most of our debt, or part of our debt matures this year, 2017 and next year, 2018.

So we have like ISL687 million this year and ISL655 million for the next year and then soft amortization 2019 and the remaining in 2020 and 2025. So with this, we’re finished with the presentation. So we are open to receive your questions..

[Operator Instructions] Our first question is from Jorel Guilloty with Morgan Stanley. Please go ahead..

Good afternoon gentlemen. So my first question is regarding IDBD. So you have ILS700 million due in 2017 and ILS655 million due in 2018.

And I was just wondering how you expected to pay for these amortizations, would it be directly from IDBD cash flows or is there further asset sales that you're contemplating, renegotiating to extend these debt maturities? So that's my first question..

Thank you, Jorel. If you remember, we commented in March last year that the idea of the company was that IDB start to refinance itself without any equity in section. So far, the last investment that we did in or the last equity injection that we did in IDB was March 2016. From that, the company issued two series of debt in the market.

One with collateral of Clal shares and the other with collateral of DIC shares. Unfortunately, the series with Clal share was rejected by the court and we had to cancel that debt.

So the idea and after receiving, we went to the court, appealing that that rule and after that, we decided to issue a new series of debt with the collateral of the potential proceeds of any disposal of Clal shares. So the company now is in the market raising money. So we have a strong demand.

In fact, today was institutional tranche of the issuance and we’ll receive a huge demand for that new series, so we are in the process of finishing the issuance or it’s not finished yet, but the company received more than ISL1.4 billion of demand.

So we plan to issue the series and with that money, we believe that we will have money to serve our debt in the coming years without any equity injection from our side..

So that debt issuance would cover the ILS1.4 billion due for the next two years?.

It’s not finished yet, so I can’t comment now the final results on the debt, but I can say that we will serve substantially all the next amortizations for the coming years..

Okay. And then, one other question I had, comparing your revenues from malls in IRSA and the releases from IRSA and IRSA commercial properties, we noted that there was a bit of a difference between how they were shown for the quarter.

I was -- and more to the fact, it was about, I guess, ARS990 million at the IRSA level and then ARS1.2 billion at the IRSA commercial properties.

So I was just trying to understand what the difference was in reporting between the two?.

Jorel, I don’t have the figures what you’re referring in front of me, but I can say that the line of revenues between IRSA and IRSA commercial properties on the commercial side, you have the hotels and some offices that remain at the IRSA level. But why don’t you send me an email with the information and I will address right after..

It's great. And then, the last question, if I may, is looking at total revenues for the hotel segment, it seems like food and beverage is becoming a bigger portion of the total revenues. It seems it was maybe like 40% of total revenues.

Should we expect food and beverage to be a bigger portion for hotels?.

One second. Hi, Jorel. Sorry for -- I couldn’t press the mute button, sorry. We see that this year, we had more food and beverages, but I think this is only for the year, I mean what we estimate is [Technical Difficulty].

It is true that F&B is getting more important as a whole especially because of more priorities, more things going on in terms of the corporate, it has hotels, but we estimate that that will keep as it is today where we’re going to grow rooms in the future..

[Operator Instructions] This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks..

Just for closing, the Israel brought us very good news and brought financing from sales and sales of assets that were hidden value on the company level and we are very happy that the rental is growing, growing at a big pace and more probably in the future, we’re going to be receiving more money at the Argentina level that it’s becoming cheaper and cheaper.

So we’re probably going to increase our speed on development and in the Israel side, with the sale of one asset, the company is recovering its financing, its sales are probably, these are very good news, bringing us better results on the balance sheet. So we expect to keep this in the next future. So just to thank everybody and have a very good day.

Bye..

Thank you. This concludes today’s presentation. You may disconnect your line at this time and have a nice day..