Alejandro Elsztain - Second Vice President Daniel Elsztain - Chief Operating Officer Matías Gaivironsky - Chief Financial and Administrative Officer.

Jorel Guilloty - Morgan Stanley Alvaro Garcia - BTG.

Good morning, everyone. And welcome to IRSA's Fourth Quarter 2018 Results Conference Call. Today's live webcast, both audio and slide show, maybe accessed through Company's Investor Relations Web site at www.irsa.com.ar by clicking on the banner webcast/link.

The following presentation and the earnings release issued yesterday are also available for download on the Company Web site. 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 the 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. At this time, I now would like to turn the call over to Mr. Alejandro Elsztain, Second Vice President. Please go ahead, sir..

Thank you very much. Good morning, everybody. We are now beginning our conference call of the closing of the whole fiscal year 2018. We can begin on the Page number 2, speaking about the financial statements that we are closing.

The net income for the whole year, we have reached ARS21 billion that is more than 300% comparing to last year numbers, and the part attributable to IRSA was ARS16 billion comparing to ARS3 billion last year. The adjusted EBITDA, we reached ARS9.3 billion comparing to last year was at 32% higher.

When we divide Argentina business center, we can see a gain of ARS14.6 billion and that is mainly explained by its higher rental results and higher results from sales in fair value of investment properties, this gain in peso. From other side, we had bigger comparing to last year financial losses and we have impairment on the Lipstick value.

In the case of Israel, we bring a gain of ARS6.7 billion and this is mainly explained by few big things we are going to see later the operational results but some is related to Shufersal stake.

We sold a portion of this company and we begun to non-consolidate that and the take of that valuation maybe begin for IRSA, some of that gain was partially offset by the exchange of DIC debt that we did a few months ago and in other quarters, and another thing that gave was fair value of some financial assets and a decrease of the share of Clal that was last quarter, but now without a gain but it's not reflected in our balance sheet.

So there was a loss in Clal shares and we are replacing in the delay that we use the three month delay in this balance sheet. Related to Israel too, we had in this IDB sold again 5% of the Clal shares but remember that we are close to 35% third quarter so we sold another 5% recently, so the stake reduced to 29.8%.

And in the case of Shufersal, the sale of this 16.6% of the shares made us to raise capital to DIC of ILS853 million. So DIC is very strong in fact after the sale of that, so there is one accounting issue that is the changing of the method, but there is a financial issue that we raised almost ILS850 million for DIC for two other operators.

Related to Argentina, the rental was very good and Daniel will explain how good it's comparing to last year and occupation is still in three segments. So now I will introduce Mr. Daniel Elsztain..

Thank you, Alejandro. Good morning, everybody. On Page number 3, we can see our main event for this fiscal year of 2018 at the IRSA commercial property level. Starting first with the operating figures, we see that the sales in shopping centers grew 25.3% compared to the previous fiscal year and occupancy remain very high at levels of 98.5%.

The average rent on the office portfolio decreased a little bit, now with $26.1 product per square meter per month. This is net, we’re taking -- I mean all the costs are excluded from this the cost of operation is excluded from this number.

And the occupancy was reduced with 92.3% and this is mainly explained by the incorporation of the building in our portfolio. We did smaller rent and also with smaller occupancy occupation. The occupied IR on that building is 69.10% and this is how we acquire.

We are working to take the occupation at the level of the other business that we have in the portfolio.

In the CapEx side of what we did on this year, we acquired a plot of land in La Plata, which is the fifth largest city in -- and it's in the province of Buenos Aires, the fifth largest city of the country in terms of population, and there are no shopping center and no commercial area, like the shopping center in the city.

We paid for this land $7.5 million and this is going to be a mixed use prospect of approximately 100,000 square meters. We’re working with the City of La Plata to get approvals and it's a fantastic land, it’s a fantastic location. We also acquired -- after the closing of this fiscal year, it happened in July.

We acquired Maltería Hudson property, this is also a very nice piece of land, again, in the province of Buenos Aires in the locality of Hudson to develop a mixed use prospects. And this piece of land is 170,000 square meters of land. We are working on what we can do on this huge piece of land as there are existing buildings that will be transformed.

But the idea is to keep on the retail, because it's part of what we want as part of the portfolio and to sell, develop so that to develop it in the future. Also during this fiscal year, we advanced with the developments and expansions in the Lexington shopping. We expanded about 3,000 square meters that work incorporated already in our portfolio.

And we keep on the construction of the Polo Dot building, the Polo Dot office building office space the building that we have actually under construction, and also the construction of Catalinas office we’re going to see later.

Looking from the EBITDA by segment on the bottom of Page 3, we see an increase of 24.5% in the EBITDA for shopping center, and only 19.1% on the office.

We’re going to see that the company office will grow in the future as the dollar is going up, we will see and also we are growing the portfolio of office buildings, so we’re going to see that the office EBITDA in the future growing a little bit more.

On the net income as Alejandro mentioned, we see a tremendous growth of 363% growth achieving about ARS15.6 billion, this mainly explain -- of course we have higher operating results, but mainly explains that this is the increase on the fair value of the property that more than compensate the loss of net financial of the year, both for the Company and also what is attributable to the concerning company IRSA.

On Page number 4, we see the development that we have on the construction. The Catalinas project on the left is now is on the 10th floor, almost the 11th floor maybe, today, it's growing at good pace. In pesos, we'll be a little bit more than what we estimated in the batch of where we started the construction.

But in dollars we think we’re going to have a good savings, because of what's going on with the country and currency right now. But construction is very good, in good pace, and we estimate to have beyond fiscal year 2020 the opening of this building.

And also the other construction that is here, the Polo Dot is also very good and the tenants are coming into work now so we’ll be opening by the end of this year. Argentina Business Center, we’re having hotels on Page number 5. This is going to be a good year for hotel I mean we can see for the -- nice growth of 5% in average price on the room.

We're achieving $191 per room. And occupancy also is quite high, it's in the 70% rate, but because it’s not going up so fast as the dollar so we are closing it what is -- it is a decent year in the hotel segment, but we see that the balance of this year is going to be -- it looks that it’s going to be a little better than we saw on the past.

On Page number 6, on the Lipstick Building, something on international. First of all, we financed the Lipstick debt from $113 million debt, now we owe to the bank only $53 million. We had a also -- we extended the term that we're finalizing this year, so we have now this loan till April 2020.

And the interest rate was reduced from LIBOR plus 4 to LIBOR plus 2. This was the good news the bad news that we’re going to have work on re-tenant the building as we maintain and they will be leaving in 2021 that is a big challenge.

And because of that, we have now seen an impairment that we have to reflect a loss in our balance sheet for approximately ARS1.9 billion that is reflected on this balance sheet. Occupancy levels are very high today and also the NOI is growing, because the building is okay, and is doing very well.

It's actually as we said before, this is the best building on 3rd Avenue and the prestige of the building remains intact. But as we’re going to have to work, the re-tenant the building because we have to maintain and it's leaving that really have to reflect this loss and we have the challenge for the future.

On Page number 7 something about Condor, we have been receiving the dividend from Condor. We received net dividends for $2 million in this fiscal year, both from the common and preferred shares.

And the recent event we bid -- I mean, the company actually here sold the legacy hotels and we're buying good hotels and the reality is that the company is really completely fixed. Nevertheless, there’s no change in the share price, which is in some way frustrating, but the company is really in very good shape compared of what we had in the past.

And in the market value as of August 29, its $27.5 million, it's an increase -- well we see that the split in the common, we have 23.5 in the common and 4 million in the preferred shares.

And this is that value of 10.45 and the NAV of this company is a little bit higher, it's not very higher than what it's trading today, and the company's analysis that this is a solid piece of work we do. So now, we go to -- I will hand back to Alejandro..

Going to Page number 8, speaking about Banco Hipotecario. The main event for the year, the result of that, generated a gain for the whole year of ARS620 million comparing to ARS83 million last year so it's much better result. And mainly explain because of the operational improvement and increasing present value of its financial assets.

And two other things that the company did this further in this year, pay divided ARS200 million and EBITDA received almost ARS60 million in April of this year. And on other hand, the company approved the capital increase of 900 million shares, representing 60% of current stock capital and this is to finance future growth.

And the company is waiting for the regulatory approvals and better market conditions. And we can see in the right the market conditions on the banking industry make the shares of the company go down, a big decrease and we can see how it today both represent 30% ownership at IRSA brand of the Banco Hipotecario shares.

We can move to Page number 9 and we can see the main events about IDB and DIC in Israel, main achievements of the year, risk reduction and I think the improved liquidity in the cash flow of the two made our part of that using what we spoke about the sale of the Shufersal stake that gave us a lot of liquidity, makes much more comfortable this situation, the financial situation of the two.

The decrease on the leverage in IDB went from 80% to 66%, it went to 80% in the case of IDB and in case of DIC went to 56%. And because of that decrease in leverage, we have a better credit agent, they're talking about that and DIC went from BB minus to BB plus stable.

In the case of Clal, during this year, we have to sell another 5% again and with that we went to 20% of shares that we swap in four transactions in the similar conditions of the last. The commissioner is going to be change -- they're going to be change now. The market cap to equity there is worth a small rebound recently.

Today, almost 70% the market capital equity related to the companies we are going to see more about them a little later but they are keeping the leadership and new developments in each of them.

And the big issue for the year I think it's the concentration loss that last year we were able to reduce one of the latest, but we have the forecast of doing this next year. In the range of 2019, we have to solve the next -- the last layer to solve, about the concentration loss. We can move to next page, Page number 10.

And we can see what we did to solve the first step that was done last year to solve the concentration loss and how today DIC is at the same level of IDB. IRSA running directly the two of them one is 98.7%, IDB and one is 76.8%, DIC. The only big change apart of doing this reorganization of the layer was the sale of the stake of Shufersal.

Today, we have only 53.5% of the shares and with that we'll consolidate that company from the balance sheet and that may have the gain recognition of ARS8.5 billion in the last quarter plus the cash that tail to DIC. The ILS850 million that I explained before as the rate is comparable to last year numbers.

We can move to next page and we can see the leading real estate companies in Israel, and I think this is the first time we can show the assets in the map of Israel.

Here you can see the points in the map in a small country but we can see the office and high tech parks, the commercial and retail, the industrial and logistics, properties under construction, residential and land reserve.

This combination is 1.1 -- almost 1.2 million square meters of rental properties in Israel, 97% occupied, having right today right of 670,000 square meters for doing more. And looking for much more right, because the land reserve we have is huge so this is the existing right.

And here we brought some of the names the more important names Oracle, Microsoft, IBM and Yahoo. We didn’t include because we are going to launch an Amazon building that is going to be delivered very soon in Haifa and HSBC in Manhattan, Apple in Haifa. So we have 142,000 square meters in USA.

So the rental properties in Israel is huge and in next page, in Page number 12, we can see eight projects under development, these are some of the examples; one in REHOVOT, close to Weizmann Institute -- partnering with the Weizmann Institute; one in Haifa, this is a building, MATAM-YAM, the building for Amazon that was renting and fully occupied for them; in the NEGEV in the cyber area; one is the TOHA, it's one that is going to be finished soon; and today, the conduct for this 57,000 square meters of rental, 85% has signed, so it's going to be open, almost 100% occupied.

The last picture in the Haifa Bay, the logistic center, we bring something that is interesting for this company that logistic it's growing too. We are developing 700,000 square meters of new logistic area and we have lot of land to do more.

These are the pictures of it, here we are doing only the one, the rest are going to be constructed in the future. We’re discussing work so the company is doing logistic too. So these are some examples of the things that the company is doing, financing at levels of 3% fixed in shekels and doing new buildings at 9% or 10% yield doing a lot per year.

So if we move to Page number 13, we can see some of the evolution of Shufersal and Cellcom, they are the two big companies of the group. In the case of Shufersal, in the left, we can see that a lot of things done related to service and customers experience, bringing fresh products for the super market, increasing the private label.

We are growing and growing new private label selling. The online and digital is achieving almost 14% of the sales of the company, the acquisition of New Pharm, the pharmaceutical company that was including Shufersal and the financing of the company.

And from the other side the Cellcom increasing the number of subscribers in TV, transforming from a cellular company to a telecommunication group, and trying to survive in a very competitive environment in the cellular business in Israel. So the companies are growing well.

So we can see finally in the Page number 14 that the decrease in deleverage in the two holdings in IDB and DIC a dramatic deleverage of the company is done, and is still doing. We think it's a combination of improving the situation of the company through deleveraging and holding at the same time.

So, now I would introduce to Matías Gaivironsky about the financial results..

Thank you, Alejandro. Good morning, everybody. Going to Page 16, here we have the explanation of our financial statement for the year. We separated into the two main business centers Argentina and Israel.

So we can see the net income -- starting with the net income that we finished the year with ARS21.295 billion against ARS5.2 billion for the previous year. So I will separate the explanation in different parts, I will use this chart to show the main impact of the year.

So starting with Argentina Business Center, the main important aspect was the change in the fair value of our investment properties that we accumulated this year ARS20.6 billion against ARS4.1 billion. This figure when you see the number in dollar terms we've used our investment value in dollars of our investment properties.

Remember that we value shopping malls at the DCS model and offices comparable and the same with land bank. So shopping malls, when we include the new forecast of Argentina and the current effects on GDP expansion estimations, decreasing dollar terms but the rest in offices and land bank remain stable in dollars.

Other important effect is the net financial results that I will explain in the next page. Also something important to mention, Alejandro, already explained but we started to deconsolidate Shufersal in this quarter. So here when you see the figures, it doesn’t include Shufersal anymore for 2018 and also for 2017.

We will keep presenting information in the segment, but not more in the financial statements. So you can see in a big result in the net income from this continuing operation of ARS12.5 billion that was the consolidation of Shufersal. So the rule established that you need to value your stake at market value at the moment that you deconsolidate.

Going forward, we will value at the equity method, so we will recognize results according to the results of Shufersal. But at the first time, we will recognize the value for all the -- our stake in market value prices. Last year, the ARS4.1 billion was related to the disposal of ADAMA. Other important effect is in the line of income tax.

Remember that in the deferred tax, we recognize it again. Again this year, that was related to the change in the tax regime in Argentina and that decreased the income tax from 35% to 25% for that reason we recognize it again in the deferred.

And in the current tax, the revaluation of the peso that we have to reflect our debt in peso term generate a credit in the -- a lower payment in the current income tax. So we can move to the next page, on Page 17. We have the breakdown of the other important line that is the net financial result.

So Argentina unfortunately, this year we have a important revaluation until June towards up to 28.85 that's the current level is up to 37, so we will recognize the effect in the next quarter.

But we analyze this fiscal year last year the revaluation was only 10.6%, so when you go to the next foreign exchange losses, we recognize it a loss of ARS9.7 billion against for ARS183 million of the previous year.

Also, since our debt is in dollar term, the net interest expenses that we are paying in pesos is higher, ARS1.5 billion against ARS819 million last year. And finally, the per value gain from financial assets, so our liquidity -- investment of our liquidity generate this year ARS2.2 billion against ARS442 million of the previous year.

In the Israeli business segment, when you compare the net interest expenses it's similar in shekels, it's lower. Here we are showing in pesos so in pesos, we have a revaluation year-to-year from shekels to pesos of 27%.

When we see this figure in shekel, we are reducing the interest expenses because operated reaction in debt and also the lower interest payment on the new debt started from different companies are achieving. Then the other effect here is that DIC data exchange of ARS2.2 billion that we did in the previous quarter.

The last effect is in per value gain from financial assets that is related to our investment in Clal. Clal, we value at market value. So remember that when we consolidate IDB, we are using a lag of three months. So all our information is up to March, but we include significant effect after March.

So for instance, the value of Clal is at 1st June and not at 1st March. So here you can see in the bottom right what happened with the evolution of Clal shares in the market; so last year increased 51.9%; this year decreased to 13.5%; so that generated the loss of ARS1.725 million against a gain of ARS2.5 billion last year.

So finally when we go to Page 18, we can see the evolution on the operational side. And here we included the adjusted EBITDA, all of our segment, in the quarter and in the fiscal year. Fiscal year we finished up with a shopping mall increase of 24% below inflation, office is up 22%.

This segment will grow significantly, going forward, because of the evaluation. Remember that we charge all our tenant dollars.

So for the next quarter, we will increase significantly in peso term and also we will incorporate the new Polo Dot building and we will start to collect rent probably at the beginning of the next year, so that will also grow for that reason.

Hotels, also we estimate that we will grow with the situation of the FX, probably Argentina we will start to receive more tourism and the rates are in dollar, so we increase. Sales and development, we have marginal sales during the year related to some properties, the main property was Baicom that we sold during the year.

And also we could maintain good margin levels. When you see the margin of shopping centers, we achieve 75% EBITDA margin, in offices 74% so we’re in line with our prior margins in those segments. In Israel, here you have the different segments. So to analyze these, you have to remember that the revaluation in from shekels to peso was 27% for the year.

So when you see increase above that is that the performance is good and is not it that we’re decreasing against the previous year.

So you can see real estate growing 43, supermarket up 31, telecommunication the competitive environment is very challenging, it's 15% and others there is mainly our cost on the G&A on the corporate side cost is 20%, so below previous year. So going to Page 19, finally, we have the debt amortization schedule of our debt.

The net debt of the company remains stable at $335 million, so we the next important amortization of our debt in the next fiscal year. So we will be working on that during the year. So with this, we finish the presentation. Now we open the lines for your questions..

[Operator Instructions] The first question today comes from Jorel Guilloty with Morgan Stanley. Please go ahead..

I have two questions. My first question is relating to your expectations for the consumer going forward, particularly in lines of the macro stress that Argentina has seen recently and has it accelerated.

So what I was wondering, do you expect a decline in sales, going forward? Do you expect it to stay about the same that you’ve seen in the past few months? Just if you can provide some color on your expectations?.

Yes, of course, we are looking very deeply the trend what’s going on. As of today, we didn’t see the changes but remember that every time we saw this movement in the exchange rate, immediately we started to see tourists coming to the city.

So the first effect that you can see that is in the high end shopping centers, like for example, Patio Bullrich, we are seeing -- and our sales going up faster than we were expecting. And this is mainly because of tourists and also because of those people that they have the money in dollars.

The value of the merchandize is cheap I mean we used to be like expensive compared to the neighbor countries and also with any international brand. And if you translate to one of those, everything looks cheap. So for those that they have the dollars in their pockets, this is a good time to spend.

It is true that for the wages, the crisis not today that might look more expensive in the near future.

But we think that in between the tourists and the people that it’s not going away, remember that we had thousand and billions of dollars going away the country that were spent in Miami, in Chile, in between the new tourists and those are not going away. And there will be some adjustment in salaries of course it’s going to take some time.

We do not expect a big impact of course we can have some but we’re not expecting a big impact..

And then my second question is along the same, I mean -- because obviously recent macro stress has increased the cost of capital.

And I was wondering if this effects in any way your expectations for future greenfield and brownfield growth going beyond what you announced on your development pipeline?.

Yes, for sure that it affects and what you expect to do or not to do to increase your feeling of what to do or not to do. As you know, we have launched some of office buildings in IRSA commercial properties, one shopping center that is beginning to construct and that is Alto Palermo.

And now we have the pipeline of other things and you know that we generally don’t speak after the day we begin them. But it’s true that we’re asking from a little higher return in dollar terms with the new launch. So what we are finishing we’re doing the next we are going to announce, we are asking for a little higher return..

And then one more question if I may. I was wondering if you can provide some color on the concession for Buenos Aires to sign.

That expires soon, correct?.

Yes, the concession expires on November ’18 of this year. We are supposed to give it back to the city in three months after, so we are working. We did all the things on the legal side to be fully covered, to try to take tenant out of the shopping center. It’s not as easy as it is in some other places here to take tenants out.

But we did everything that we have in our hands to do on the legal side. So we are working on that process. Some of them, they are already leaving the center and some of them are trying to leave before that expiration day. Remember that the EBITDA of this shopping center is very little to our number, this is 1% less.

But it's taking us a lot of work, because we are taking out the tenants. We are preparing also the shopping center to give it in the right conditions to the city. But what we do not know as of today is what the city is going to do with this property, because they're going to have to do something.

And it's going to be something that it's in our line of business. We might be looking at it very deeply but with the interest of maybe to continue to do something in that location.

In terms of delinquency, I mean we are showing these numbers some -- a little deterioration on the numbers and what's part of the IRSA commercial properties call, and it's mainly explained because of that. We don’t see any deterioration and delinquency in the other shopping basically. It was more related to the shopping center Buenos Aires designed.

But we're working with tenant, so we think we are going to collect the money eventually. And the other aspect that we can mention here is that we have also situation with person of the ownership of this shopping center of this entity belongs to a company that -- they acquired from Banco Provincial, S.A.

It's a company that really looked, it's in bankruptcy. So we have trustees from the bankruptcy in the company overlooking and making decisions along with that in this process..

Your next question comes from Alvaro Garcia with BTG. Please go ahead..

My question is on Israel. On the concentration, particularly you mentioned in your comments that next year we'll have to break another layer. So I was wondering if maybe you could walk us through what the corporate structure might look like and what the plan is to appeal the regulators in light of this concentration law? Thank you..

So the concentration law established that you can't control more than two layers of public companies in Israel. So it used to be that or last year the restriction was to not control more than three, so we were using one last year.

And the structure is that the first is DIC, the second layer that we have is PBC and the third layer that we have is Gav-Yam and Marion. So from those companies, we need to establish some structure to use the controls of how we structure control on those companies.

That means that we can do any transactions, corporate restructuring, mergers, acquisitions, spin-off. So it is not clear yet what we're going to do and probably we won't announce in advance what we're going to do. We will -- at the moment that we decide the structure, we will execute like what we did last year.

But it could include any transaction to reduce one layer so there are plenty of different alternatives. So I can’t more than that at this stage..

And just I guess to double check on this one issue that there is no possibility that IRSA would directly, let's say, buy PBC for example.

It would all be within the Israeli business structure?.

According to the concentration law, it's one of the alternatives. But I can’t comment more on that what -- the path that we will follow. It's much more likely that you will see a solution coming directly from Israel..

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

Just for finishing our annual report, we are happy on the results, the combination of the real estate of Argentina, the real estate global the activities and there are not good stories there what’s happen to the Argentina economy but the companies are in a very good shape.

So we expect a new year and a lot of development and in every region, completing the buildings and the construction and keeping the things and deliver the things we need to deliver it. So we expect a very good 2018-2019. So thank you very much 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..