Alejandro Elsztain - Second Vice President Daniel Elsztain - Chief Operating Officer Matias Gaivironsky - Chief Financial Officer.

Jorel Guilloty - Morgan Stanley.

Good afternoon everyone, and welcome to IRSA's Second Quarter 2018 Results Conference Call. Today's live website, both audio and slide show maybe access through the Company's Investor Relations website at www.irsa.com.ar/ir by clicking on the banner Conference Call.

The following presentation and earnings release issued last week are also available for download on the Company’s 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 day for everybody. We are beginning our second quarter 2018 conference call. If we go to Page number 2, we can see the main events for the six months of the year.

The net income for the six months, we achieved at IRSA level, ARS10.8 billion, almost 59% comparing to last year numbers; and attributable to IRSA, almost ARS9 billion versus ARS3.8 billion of last half year.

In Argentine Business Center, the gain was ARS12 billion, mainly explained by the higher change on the fair value of investment properties and higher rental from the rental segments in Argentina plus the results of Lipstick and Banco Hipotecario. In the case of Israel, we received a loss this quarter of -- the first 6 months of ARS1.3 billion.

And it's explained mainly because of the debt exchange at DIC level that partially was offset by the sale of small business subsidiaries in Israel. The Adjusted EBITDA for the whole reached ARS7.2 billion, 38% higher of last year numbers. And dividing Argentine Business Center, we can see that the rental segment grew by 18.4%.

Our occupancy reached 99.1% in shopping and 93.2% in office buildings, 71.2% in the hotel portfolio. There was a higher service and development compared to last year because of the Beruti, Maipu and Baicom sales. We approved a dividend to shareholders of ARS1.4 billion that represented of annual of almost 5%.

The change in the secondary market of 10.2 million shares of commercial authorities, we had the chance to begin to give liquidity to the shares of IRSA commercial property. Today the liquidity is 10.5% and still in line 86% of the share with the intention of even more liquidity to the market.

In the case of Israel Business Center, in November of '17, we transferred DIC shares from IDBD to Dolphin in on order to meet the concentration law requirement, and Matias will explain later little more.

In December '17, we acquired IRSA acquired through Dolphin, the remaining 100.7% of IDBD, today Dolphin holds 100% of the stake of the Company of IDBD in Israel; and in January of this year, we sold additional 5% of Clal shares through new swap transaction, today the stake that we are running through IDBD it is 39.9% of Clal.

So, now I will introduce Daniel..

Thank you, Alejandro, good afternoon everyone. On Page number 3 we can start with the Argentina Business Center starting with the rental of the shopping mall sales. We grew 22.6% on the first six months of this fiscal year compared to the last year and occupancy level went to 99.1%.

We grew little bit below inflation but we can say that the activity is normalizing, getting more easy to predict for our tenants and also to import in the country, so routes are clear for the next future.

On the case of the offices, our strength of the office portfolio to increase to $26.5 per square meters per month, and the occupancy was reduced to 93.6%.

This is mainly the vacancy of two floors, two new empty floors on one of the buildings, and we were not able to sign the contract during the quarter but we have now a lot of prospects and we might see these two floors rented in the near future.

The activity in the office segment is still strong and prices are still going up, not as much as they were in the past but still going up. When we see on the right side of the Page number 3, the adjusted EBITDA for shopping malls grew to ARS1.3 billion -- ARS1.3181 million, it's an increase of 23%.

And when we see on the office segment, here the adjusted EBITDA looks like the reduction of 3.6, but this is mainly explained because the last year it's included here a one-time effect when the Company acquired a minority stake on the entertainment holding, that is the Company that is dedicated to the exhibition and convention center in Buenos Aires, there was a one-time effect of a gain of ARS44 million.

If we exclude that effect, the adjusted EBITDA would have 123.7% on this first six months of the year, achieving a total of ARS192 million.

On the bottom side of the page -- and also on the net income -- the net income in pesos also went from ARS2 billion to ARS11.5 billion, in the case here basically is explained by the two results, the change in the fair value of investment properties due to an impact of the case of the reduction on the tax.

The tax was reduced from 35% to 30% on the next year, and it's going to keep going down to 25% in further years. So that effect may reduce again, a one-time gain that we are showing on this fiscal year.

And second effect is because of the devaluation of the peso, as we've showed some properties in dollars, is a gain for us and it will be explained later Matias.

And the CapEx on the left side bottle of the page, we can see the expansion that we have now under construction Alto Comahue this movie theater under construction is almost 60% and progress, will be often before the end of this year. Alto Dechanere [ph] was the small expansion on a piece of land that we brought from Walmart.

We've finalized our work and now the tenant side buildings their installation will be open during this quarter maybe, the stores will be open.

In the case of Alta Palermo, the expansion of our flagship shopping is soon to be start and we want to have everything under control and exactly the data because we don’t want to affect in anything that is not necessary on the day-by-day activity of the shopping.

In the case of Alto Rosario because of the inauguration of ZARA, we have to move some tenants and we are in adding GLA to the shopping center that is about to start. The construction of ZARA is underway. That will open in April and May, but the new GLA will be maybe for next fiscal year.

And in the case of Mendoza Plaza, it's the expansion of Sodimac which is the Home Depot of Argentina, and also an expansion of Falabella that the two constructions will start very, very soon. All these projects are at short-term, expansions will add approximately 25,000 square meters of new GLA in our shopping center.

In the case of -- or the case of offices, at the bottom we have the development of the Polo Dot that is under renewing, being the construction is very fast and coming soon. It's almost 50% done. We expect to get the tenants in the building working by the first or the starting of the second quarter of the next fiscal year.

And in the case of Catalinas, the construction is now above ground. And it says that almost 9% that we are now we can see the progress of the every floor, every few weeks we are going to see the construction growing up and on the both constructions are on time and on budget.

We can see on Page number 4 some images of the constructions, of the Catellina project and it's going to be ready for fiscal year 2020 and approximately investment of 1.8 billion pesos. And now we can see some figures of Banco Hipotecario. Matias Gaivironsky, our CFO, will speak about it.

Good afternoon everybody. So going to Page 5, we can see our figures on Banco Hipotecario, remember that we have a stake of around 30% in Banco Hipotecario. We can see this semester very good results when we compare with the previous one.

There was a gain of ARS410 million pesos against ARS38 million in the previous year and we have a very good impact even the share of the Banco Hipotecario. You can see on the right, the revolution of the share from 4.71 last year to 16.95 yesterday.

So our stake in Banco Hipotecario today was 387 million again 174 that's was the valuations in the previous year. This in terms of price per share represents around $6 for our share. Turning to Page 6 we have main event IDB. As Alejandro mentioned, one important development was the acquisition through Dolphin of the remaining stake of IDB.

So to-date, Dolphin controlled 100% of the shares of IDB. There was a transaction that was a payment $33.7 million and debt cancellation on the remaining intercompany loan that we used to have between IRSA and some of the IRSA vehicles and IFISA, so to-date, there is no intercompany loan in any of the structure.

Concentration law, there was a good important development. We have been working during the last year to solve a delinquency on the concentration law in Italy. Finally, we find an infrastructure where we try for the DIC share to a new vehicle Dolphin Israel that is controlled 100% by Dolphin.

So, it's belong 100% to Dolphin and Dolphin has an intercompany loan with IDB. So there was no -- only a small payment and there was no cash payment, so it's all financed by an intercompany loan that is not recourse to IRSA, it's only guarantee on that intercompany loan is the shares of DIC.

I will show the structure -- the final structure in Page 7 but let's wait one minute. Regarding the debt, IDB still have access to still to in terms of the local capital market and issue new series of bonds. We issued Series 14 for NIS357 million as 5.3% fixed maturing 2022. DIC also have the market at 4.8% interest rate.

Long term maturing 2026 that will issue NIS762 million. And most of the operational companies also tapped the local market refinancing all the short-term debt or most of the short-term debt of the Company and expanding the fixed rate in the long term. Regarding Clal.

Finally, there is no more exclusivity for the offer that where we received from Huabang Financial Holdings. So today we still have the mandate with JPMorgan to final that there is no more exclusivity with that company. We also sold 5% more of the shares through new swap transactions.

So we still maintained the economic value of all the regional position but effectively today we have 39% of the Company. Regarding Israir, remember that we are now, say the couple of quarter ago an agreement with El Al to merge the Company. Now the antitrust authority, we received an exception from the antitrust.

So now we are evaluating the course of action. The Company is performing better than before Israir, so we don't anticipate a major negative impact on the Company, but we are trying to find a solution for this subsection. Regarding Eurocom Communication Limited, that is the main shareholder of the main telecommunication company in Israel, Bezeq.

DIC did a binding offer for that company, in a process of bankruptcy of Eurocom. The offer that we submitted and matured yesterday and we didn't renew the offer, so today there's no more binding offer from our side. Going to Page 7, so finally this is structure that we have today and the new structure according to the concentration law.

So now you can see here in the graph that DIC is not low, it's not longer below IDBD. So, it's sister company of IDBD. There is an intercompany loan through between Dolphin and IDBD for the balance of different section, but this is newest structure, so Dolphin control 76.6% of DIC and 100% of IDBD and if you can see IRSA control 98.7% of Dolphin.

So, we have for the next -- we need to see the new step of the concentration law and before the end of 2019, so until the end of the next year we have to find a solution for the next step.

Going to Page 8, we have a quick summary on the main subsidiaries, the operational subsidiaries of IDBD and DIC, so starting with the real estate company, PBC where IRSA has direct stake of 48.7% which you'll see improved occupancy rates, price of the shares increasing when you compare with the previous year, 31%, we issued that in the local market recently for NIS496 million at 3.95%, maturing 2029.

In Gav-Yam, the same, the shares increased by 39%, occupancy very high, 99%, the Company is going to the element of two important project, Tozeret Haaretz and Cyber Park in Beer Sheva, so everything is in good pace, the Company recently received an upgrade in the rating of the Company from AA -- minus to AA, so very good performance.

In Page 9 we can see in Shufersal the same, shares increased by 77% compared with the previous year, and very good results, we keep improving in the private label sales, now it's around 21% of our earnings, compared with 19% last year, we took advantage of the evolution of prices, we sold 3.2% of the shares of Shufersal with the gain of NIS85 million.

The online revenues keep growing, today we achieved 11.1% compared with 8.6% previous year and we got a New-Pharm transaction we completed, so today we have 32 active branches, and also we are in a process of negotiation -- we already negotiated a new credit card for the supermarket and we received 120,000 users in January, so good -- very good results in all the line.

In Cellcom also you can see an approximately revolution on the shared to 28%. The Company keep improving its fourth leg provided more offer on the TV services, so no other major events here.

Finally when you look go to Page 10, you can see that we keep working and increasing the debt of that remain other two holdings, and you can see that revolution in IDBD that we keep reducing our total debt around NIS2.3 million since we have started our investments in Israel.

Going to Page 12, we can see our main results and with starting with Argentina Research Center, as Daniel mentioned rental segment increased by 18.4%, here we have an effect in the offices that effect a little duration in shopping center, but it's a main business line. We grew around 23% so we are happy with the results.

Sales and development this quarter we sold a little more on this semester a little more than the previous year we sold we do received some units in Beruti. That is a residential project in front of Alto Palermo that we started the commercialization for generating better results than the previous year.

Regarding our Israel effect business segments in Page 13, you can see in each of the operational companies, PBC, Shufersal and Cellcom an improvement, this is information in pesos term.

Remember, we have a revaluation between the shekel and the peso when you compare this semester with the previous semester of 21% so to compared apples-to-apples we should be that 21% from this year, but all the trend there and that's really positive in most of or almost all the lands in the subsidiaries of IDB and BAC.

So finally when you go to page 14 and you see the gross profit growing 22.8% it's quite similar numbers in Israel and in Argentina revolution Israel grew by 22.6 and Argentina 23.7. So, the other important effect that we have this semester was the revaluation of our investment properties.

As Daniel mentioned, there is a change in the tax regime in Argentina, so basically the tax income for corporate reduced from 35% to 30% this year and starting in 2021 to 25%.

So that generate am important impact in the valuation of our investment properties because we are evaluating maybe their shopping centers with the DCF model, and we changed the tax rate on capital gains and income tax from the cash flow, so that generate a very important result.

You can see the blue bar is Argentina and the grey is Israel from most of the improvement came from Argentina. So finally the operating income grew by 168% explained by the mentions that we just comment. And in Page 15, we can see the rest of the drivers. The net financial results decreased.

We will have further loss in semester, compared with the previous one ARS6.2 billion against ARS2.6 billion in the previous year. The main explanation here is regarding the refinancing in Israel that DIC did -- the exchange in the bond that generated a negative impact on ARS2.2 billion as we commented in the previous quarter.

And also there was a much important appreciation of Clal share in the previous year compared with this year. So today, we have a lower result that came from Clal or the Clal's shares evolution. In Argentina, we have higher devaluation in this semester. So that affected all our dollar denominated debt.

That somewhat compensated by better results, financial results. But -- we have an impact on the devaluation. Regarding the income tax, we consider gain this year compared with the previous year. The reason is that the same of the investment properties. When we value the investment properties we generate automatically a deferred tax.

So it used to be 35% of the value of our investment property clearly 25%. So we are changing the 10% over the stock of the all the investment properties. And that generate again in this semester. So finally we finished with the net income of ARS10.8 billion against ARS6.8 billion previous year.

ARS8.9 billion is attributable to our shareholders and 1.9 is a controlling interest. Going to Page 16, we have the debt of the Company, and there is no impact, remember that in this quarter we paid a dividend at IRSA level, so we paid a high dividend. And also we acquired a stake of IFISA by $33 million.

But since we sold some shares of IRSA Commercial Properties, the net debt of the Company remain stable even decreasing a little when you compared with the previous quarter. So with this, we finish the presentation. Now, we open to receive your questions..

Thank you. The floor is now open for questions. [Operator Instructions] And we have a question from Jorel Guilloty of Morgan Stanley. Please go ahead..

I actually have just one question and it's on IDBD and DIC, in the presentation you pointed out that the leverage levels have declined materially for both, and NIS250 each year with the past few year.

But I wanted to get a sense of, if you're comfortable at current leverage levels for these companies and if not what is your target for debt?.

So, we have been improving significantly the leverage of both companies since we entered both.

I would say probably almost all of our investment in the Company were to reuse the debt, now the Company for instance in IDB, they have started to sell shares of Clal that have automatically an improvement in the leverage because you will yield that stake to cancel debt.

So in terms of ratio it depend on valuation of Clal, we're evaluating all our stake at market values, market value is significantly lower than book value, so if we yield book value to calculate the leverage, I would say that we are in normal ratios, if we calculate that at the book value, the market value sorry we are like higher than what we expect to be, so the question mark over there.

We have some other assets that we can't dispose so that could generate decreasing the leverage.

Regarding DIC, the Company has a normal ratio and a lot of fuel to manage the financial situation of the Company, so it's just totally normal, so we in terms of needs of the Company, we don't see any need from the Company in the short term, in fact they have the cash to manage all the short term amortizations and up to the end of 2019, in the case of IDB and in the case of DIC much longer, so we don't anticipate any need from the Company.

And on the other side the Company today is running a total of NIS7.5 billion on the hand and we look for the cash position of the group is very strong today in all of the levels, so subsidiaries included..

[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 to thank everybody to the conference and we hope to have the second semester so good. The companies are growing, developing everywhere, so keeping the track we're expecting in the past. Thank you very much and have a great evening..

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