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1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
1Q09 Conference Call Transcription
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1Q09 Conference Call Transcription

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  • 1. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Operator: Good Morning. Welcome to Gafisa‟s conference call for the results of the First Quarter of 2009. With us today is Mr. Wilson Amaral, Gafisa´s CEO, Mr. Duílio Calciolari, Gafisa‟s CFO and IR Officer and Julia Freitas Forbes, IR Manager. We inform you that the presentation is being recorded and all participants will be just listening to the webcall during the company‟s presentation. Then, we shall initiate the Q&A session, when further information will be provided. Should you need any assistance, please dial *0. Before we begin, I would like to let you know that this teleconference will be related to the operational and financial results of Gafisa and may include statements that are not historical facts and are considered forward-looking. These forward-looking statements reflect Gafisa‟s current views about future events and financial performance. The forward-looking statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from Gafisa‟s expectations. And, Gafisa expressly does not undertake any duty to update forward-looking statements whether as a result of new information, future events, or otherwise. Among other things, any changes in macroeconomic policies or legislation and other operational results can affect Gafisa´s performance. So, now I would like to pass the floor to Wilson Amaral. Mr. Wilson you have the floor Wilson Amaral de Oliveira: Good morning and thank you for joining us on our 1st quarter 2009 conference call. I am joined here today by our CFO, Duilio Calciolari and our Investor Relations Manager, Julia Forbes. I am pleased to say that the overall outlook for the Brazilian housing industry has significantly improved since I reported on last quarter‟s results. Earlier in the year we began to see the effects of the measures taken throughout 2008 to stabilize the economy and stimulate demand. And, in mid April, the government announced the operating details of a comprehensive housing finance and incentive plan, Minha Casa, Minha Vida, which is already showing signs of early success. At Tenda, the combination of our new management with the government incentive plan, has already resulted in accelerated rates of sales and the ability to significantly increase the number of mortgages transferred to financial institutions, or “repasses”, primarily Caixa. During the quarter, they were also able to close on a landmark R$600 million debenture with Caixa, in record time, to accelerate the delivery of over 80 projects this year. We are pleased that Tenda was chosen as the first recipient of this innovative financing instrument. During the first quarter, Gafisa continued to take a conservative approach to launches initiated in the second half of 2008, focusing on cash generation and preservation during a period of still- uncertain trends of macroeconomic growth. And, while new launches were not a high priority due to low visibility as to future demand, Gafisa did enjoy successful launches in the states of São Paulo, Rio de Janeiro, and Pernambuco. We have also been successful at increasing sales throughout the country. We continue to enjoy strong relationships with banks that have been developed over many years. In March, Gafisa raised funds through a securitization of receivables totaling R$70 million of net 1
  • 2. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 proceeds, and the Company has an additional R$ 200 million worth of receivables available for sale in the future, should we choose that option. On another financial front, today we need to change a covenant established on financing from 2006, when our equity was only R$807 million. We are a much larger company now, with over R$1.6 billion in equity and more than R$2.0 billion in equity including minority interests. We are confident that these discussions will be successful. As we look at the remainder of 2009, Gafisa will continue to develop its well respected brands in new and existing markets, leverage complimentary sales channels to maximize sales of portfolio products, and take advantage of the increased availability of working capital financing, particularly as it applies to the construction of affordable housing. At Gafisa and Alphaville in the near term, we will continue to dedicate resources to selected launches as well as marketing and sales efforts while we also expect to focus on supporting Tenda in its plan to take full advantage of the substantial opportunity in the affordable entry level segment. Now, let‟s turn to slide 3 so I can give you more insight into the third quarter and some of our thoughts going forward. I am pleased that our operating results remained strong for the first quarter of 2009. As I mentioned earlier, we focused on sales rather than launches during the quarter and thus, launches decreased by 72% to R$160 million from R$578 million. Tenda had no new launches, while Gafisa launched R$138.4 and AlphaVille, R$21.9 during the quarter. Our pre-sales during the quarter, increased 11% year-over-year to R$558 million, representing over 4,000 units. Sales at Tenda contributed to almost 46% of the sales in the quarter. Net operating revenue which is calculated on a percentage of completion basis, rose 59% to R$542 million. 1Q09 EBITDA climbed to R$108 million, an increase of 69% over the prior year representing an EBITDA margin of 20.0 %. Net income before minority interest and stock options was R$57.1 million, a 21% increase over the first quarter of 2008. Net income after those items was R$ 36.7 million. Finally, we completed 28 projects during the quarter, including 6 at Gafisa totaling 578 units, 21 at Tenda with 1,305 units and 1 at AlphaVIlle with 654 lots. Turning to Slide 4, I‟d like to go over some of the very import recent developments during the quarter. First of all the government announced a comprehensive finance and incentive plan, Minha Casa, Minha Vida, in late March. The operating details of the Plan were revealed in mid-April. The Program comprises investments of over R$ 30 billion, directed at incentivizing the construction of one million houses for families with monthly income from one to ten minimum wages. With a current land bank of over 60,000 units in this segment, Tenda is well positioned to benefit from this Program. The main measures of this Program include: longer mortgage terms; lower interest rates; higher percentage of financed loan to value; higher subsidies, provided on a inverse proportion to the income level; lower costs related to insurance and origination; and the creation of a Guarantee Fund to allow for a bridge of mortgage payments in case of unemployment. 2
  • 3. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Furthermore, Tenda was the first homebuilder to receive a R$600 million debenture from Caixa. The net proceeds were disbursed in May and will finance 81 existing projects, accelerating the Company‟s delivery cycle and freeing-up working capital. An additional area where Gafisa will benefit is in the increase in the ceiling for units to be eligible for subsidized SFH loans which was raised from R$350K to R$500K. It means that employees are now allowed to withdraw their FGTS funds to acquire homes up to R$500K. I mentioned earlier some of the details of our securitization of receivables and the discussion regarding our debenture covenant. Finally, as you know with the culmination of our Bairro Novo venture with Odebrech, the 5-phase, 2,338 unit Cotia project remained with Gafisa. We believe that the best place for this segment to be managed is within Tenda, and thus in May, we agreed to transfer the development to Tenda at book value of R$42.5 million. The transaction is still subject to due diligence which is expected to last 30 days. Turning to slides 5 and 6, first launches, then pre-sales - We modified our launch strategy to reflect changes in the market and thus took a more conservative approach in the first quarter and were considerably more selective in our launches. As I mentioned earlier, Tenda focused on sales during the quarter, as did Gafisa, but we did launch R$160 million in developments primarily in the Gafisa segment. Our pre-sales grew 11% in the quarter with 42% in new markets. This shows you that there is a strong demand for housing outside of Sao Paulo and Rio and we continue to have a great deal of success selling homes in those areas. And, despite very few new launches, sales velocity during the first quarter of 2009 was 16% for the consolidated company and 18% at Tenda. Turning to slide 7, you can now see that we have three distinct and complementary brands. Our diversified range of products, national presence, and well-respected brands in each segment make us a leader in the sector. With dedicated management and operating teams focused on the needs of each type of client, we are well positioned to continue to provide the right product at the right price point. And, when you go to the next slide, number 8, you can get a good sense of just how broadly diversified we are across the country with 188 projects under construction in 18 states. The combination of our project management skills, partnerships that give us local know-how and our strong technology platform allow us to execute well at this level. Turning to slide 9, our inventory at the end of the quarter was R$2.9 billion of which 71% consists of projects that have been launched but not started or are only up to 30% completed. The total book value of inventory is approximately R$ 1.1 billion. As you know, in Brazil inventory includes construction in progress, just a small part of the book value represents completed units. Slide 10 gives you a good overview of our diversified, high quality land bank that distinguishes us in the homebuilding sector. Our land bank at the end of the quarter stood at R$17.1 billion, composed of 207 different sites in 21 states. This represents over 108, 000 potential units and gives the company added flexibility in developing properties where there is the greatest demand 3
  • 4. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 and in areas that will generate the highest returns at different points in time. 76% of our land bank was acquired through swap agreements. Thank you and now let me turn it over to Duilio. Good morning, everyone. As Wilson mentioned earlier, we turned in solid operating numbers during the first quarter of 2009, despite continued macroeconomic uncertainty during most of the first quarter. Let me start out by saying that we have adjusted our Q108 numbers in accordance with Law 11638, which brings accounting standards closer to IFRS for comparison purposes with the 2009. As you can see on Slide 12, for 1Q09, net revenues, recognized by the Percentage of Completion method, increased markedly by 59% and reached R$542million as we progressed in the completion of a large number of developments launched over the last few years. Gross profit increased during the quarter by 40% to R$154.6 million reflecting the increased top line growth, while gross margin decreased from 32.3% in 1Q08 to 28.5% in 1Q09 in part because of a 124% increase in capitalized interest expense of R$17.7 million. EBITDA for the first quarter totaled R$108 million, 69% higher than the R$64 million EBITDA in 1Q08. As a percentage of net revenues, EBITDA also increased to 20.0% from 18.8% last year. 1Q09 net income before minority interest and non-cash stock option expenses was R$57.1 million with a net margin of 10.5%. This was almost 21% higher than in 1Q08. Income taxes and social contributions increased in line with the company‟s growth since last year – the effective tax rate in the 1Q09 was 25% against 24% in the 1Q08. Our net income in the 1Q09 decreased 8% to R$37 million with a net margin of 6.8%. In the 1Q08 we reached R$ 40 million with a net margin of 11.7%. This reduction was due to higher financial expenses. Turning to slide 13, you can see that we continue to book strong sales which drive the backlog of revenues to be accounted for in future periods as our projects are completed. During the first quarter, the backlog of results increased just over R$ 1.0 billion, a 67% increase as compared to the first quarter of 2008. The Backlog margin -- results yet to be recognized – reached 33.3%. I‟d like to remind you that the backlog results are not discounted to present value. Taking a look at our operating expenses and efficiency on slide 14, you can see the impact of adding a sales intensive organization to our portfolio of businesses. Our Tenda subsidiary operates a large network of regional offices in highly trafficked areas in order to drive sales to the lower income segment of the population. We believe that this is the right model for this marketplace, but in the near term it impacts our selling expense ratios. Over time as top line growth increases with the significant opportunity this segment represents, we expect these ratios to improve. Additionally, as we have recently consolidated a existing stand alone business, our G&A expense ratios have also increased. Again, as top line growth improves, we expect these ratios to also improve. Slide 15 details our financial position as of March 31, 2009. Gafisa had cash and cash equivalents equal to R$500.8 million, R$200 million of receivables available for securitization, and 4
  • 5. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 credit lines of R$3.4 billion. If we include the proceeds from the R$600 million debenture completed by Tenda in early May, our consolidated cash position would exceed R$1 billion. The net debt plus obligations to investors to equity ratio at the end of the period increased to 61.9% from 59.8% in 4Q08. It is worth mentioning that our cash-burn rate of R$115 million in the quarter was substantially lower than compared to the R$360 million from the last quarter. Slide 16 During the quarter, Gafisa breached a debenture covenant from 2006 that stipulated we could not have net debt over R$1 billion. We are currently renegotiating this covenant as we are a much larger company now and this covenant does not correspond with our current size, especially when taking into account our consolidated equity position. We are confident that we will be successful in changing these covenants to more accurately reflect the Company‟s size and capitalization. Our other covenants were not impacted by the growth of the Company, since they were based on relative measures. Slide 17 provides a snap shot of our share performance and liquidity. Gafisa shares continue to be the most liquid in the sector and the only Brazilian real estate company to be listed in the United States. Turning to Slide 18, I‟d like to discuss our current outlook for 2009. Recent government actions have had an initial positive impact on the low income segment, although demand patterns across housing segments are not clear yet. As a result, Gafisa will continue to focus on leveraging its operating activities and on the sales of inventory while closely monitoring the supply of new housing, launching new developments as demand dictates. Therefore, guidance for 2009 is provided on sales and EBITDA margin. Gafisa‟s consolidated sales for the full year 2009 is expected to be between R$2.7 and R$3.2 billion. Gafisa is expected to account for between R$1.0 - 1.2 billion, Tenda for R$1.4 - R$1.6 billion and AlphaVille for R$0.3 – R$0.4 billion. Consolidated EBITDA margin is expected to be in the range of 16% - 17%, while the EBITDA margin for Tenda is expected to be between 14% - 16%. Given recent announcements that are expected to impact the rate of demand for housing as well as builders ability to access financing, we are monitoring the scenario closely and may update these numbers during the year. Thanks, and let‟s open the floor to Q & A Carlos Peyrelongue, Merrill Lynch: Thank you for the call. Two questions, if I may; the first one is related to your total debt for the end of the year, I see you are increasing your guidance for presales. For the year, could you give us an idea of what you expect for total debt for the end of the year? And the second question is related to margins, if you can comment on the initiatives that are being taken to improve the margins. Thank you. Alceu Duílio Calciolari: Regarding your first question, we are expecting to continue to grow our total net debt, this is the way that we look at. But we believe that from now on until the end of the year, we should increase our net debt close to R$500 million. It is important to mention that this growth will come substantially from construction finance. I think the other question Wilson will answer you. 5
  • 6. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Wilson Amaral: In terms of margin, what we delivered in the 1Q, excluding the non-recurring items we are presenting a 14.5% of EBITDA margin. And how this margin is composed? From Gafisa and Alphaville operations, we had approximately 16.5% of EBITDA margin, and in Tenda business we had11.1% of EBITDA margin. So, what we expect for this year, according to our outlook, is consolidated EBITDA margin of 16% to 17%. Basically, we will comp the ramp up of Tenda business. They are coming from a very difficult year from Tenda; I do not know if you remember, but last year we delivered more than R$-50 million EBITDA in Tenda, and now, in the 1Q09, we already delivered R$23 million EBITDA corresponded to approximately 11.1%. This year, we prepared the Company for volumes that are much more important than the volume we delivered in the 1Q. We sold approximately R$150 million. If you consider our guidance for this year, the 1Q represented only 16% of the sales expected for the year. So, what we expect to deliver in the next quarters is the increase of the sales of volume and Tenda, and with the combination of the results from Gafisa, we expect to deliver something between 16% and 17% of EBITDA margin, excluding non-recurring items. Carlos Peyrelongue: Great. Thanks very much. Leonardo Zambolin, Goldman Sachs: Good morning, everyone. Two questions. The first one has to do with inventories market value. So, in the 1Q earnings release we saw that inventories went up R$4 billion, being 50% Tenda and 50% Gafisa, but the same information appears as R$3.4 billion in the 1Q earnings release. So, I was wondering if you can explain the difference in this information; is that something related to cancellations or something? Any additional information on that? And second, on the securitization of receivables. When do you plan to securitize the additional R$200 million that you mentioned, if you plan? Thank you. Alceu Duílio Calciolari: Starting by the second question, we are planning to securitize the other portion of receivables, around R$200 million, during this year. We will probably do another trench close to R$100 million, a little bit less, in the next quarter, and by the end of the year, we believe that we can complete the whole securitization. The first question, regarding those R$600 million of Tenda‟s inventories, we decide to exclude it from the inventory, as long as Tenda is reviewing all those projects, if they will continue to be available for sales, or if they will be changing for another class of income. We have had the opportunity to change some of those projects to address zero to three minimum salaries. And also, we may have some cancellations, but we believe it is a small portion. So, as long as we are annualizing, Tenda is annualizing this R$600 million, we are keeping out of the inventory. 6
  • 7. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Leonardo Zambolin: But you confirm that they were not cancelled so far, you are just reanalyzing? Alceu Duílio Calciolari: So far they are not cancelled, they are annualizing, remodeling, changing projects. And for sure, the next quarter they will give more details about that. But they are working on it right now. Leonardo Zambolin: OK. Thank you, Duílio. Cecilia del Castillo, Citi: Good morning. I have a couple of questions related to sales velocity, and the other one to inventories. When you look at the sales velocity for the different segments that you provide in your press release, can you talk a little bit about how the performance of these different months of the quarter was, and what are you seeing in April and May? And my second question is related to the inventories that are booked in the balance sheet. We saw a significant increase of inventories in units completed inventories. So, I was wondering if you can provide more details on what is happening there. Thank you. Wilson Amaral: Hi, Cecilia. In terms of sales velocity, we delivered in the 1Q for the Gafisa products exactly the sales velocity that we had planned. For inventory, we expect something between 4% and 5% a month, and that was exactly what happened in the 1Q. So, we delivered approximately a little bit more than 5% a month. We are not seeing right now any important change in terms of sales velocity for the Gafisa products. I do not believe that we are going to have a relevant change in the near future. You know that this customer is very well connected with the macro economic scenario in Brazil, so I believe that as we see the next quarters, we can have some change, but so far considering products from R$350,000 to R$400,000, up to R$800,000, I believe that the sales velocity in the future will be very similar to the velocity that was delivered in the 1Q. For the Alphaville products, we do not see any problem in terms of sales velocity. I believe that the challenge for Alphaville is exactly to prepare and to launch more, because even in the middle of the crisis, all those projects and launches, since October to April, the sales velocity was really high, I would say above 70%, 80%. In terms of the Tenda products, here we believe that we are going to have the most important change in the short term. As soon as we have the package announced by the Central Government in Brazil, we start seeing a lot of demand in our stores, asking for information about projects, about products, so here we believe that we can have an acceleration in terms of sales. So, for the 2H09, we are going to have a very important challenge that will be to provide more products to those customers that I believe will be very interested in buying our products. 7
  • 8. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 But in general, I would say that the sales velocity for the 1Q, 16% and 18%, in Tenda, was very consistent with our internal plans. And as I said, I do not see many changes for the Gafisa product, and I see an acceleration for Tenda products in the near term. Alceu Duílio Calciolari: Cecilia, I am not sure if we understood, but you asked about the increase in the inventory or decrease? Cecilia del Castillo: The increase, when you look at the table, I think it is on page 13, you have the breakdown of inventories of units completed, this increase of 56% versus the 4Q. So, I was wondering if you can explain a little bit more what is happening there. Alceu Duílio Calciolari: I think the right way to compare should be against the last quarter. If you look at the last quarter, we reduced our inventory, assuming that I am comparing over 70% completed; in the last quarter we had R$460 million of inventory over 70% completed. Today, in the 1Q, we have R$400 million completed, reducing 13%. So, the Company is much higher compared to the 1Q. In the 1Q08 we did not have Tenda, now we have. So, the right way to do that is to compare it with the last quarter, and we are showing a 13% reduction, which is very good, because in the 1Q we did not have Tenda, Cecilia. Cecilia del Castillo: Maybe the press release in English, I do not know if it is correct, but on that same table, when you look at the 4Q in units completed, you have R$96 million, and then in the 1Q, R$150 million. Alceu Duílio Calciolari: No. If you look in the last quarter, we have on a consolidated basis, completed units of R$185 million at market value. And we have, in this quarter, completed units, R$172 million at market value. Are you talking about book value? Cecilia del Castillo: Yes. Book value. Alceu Duílio Calciolari: Let me take a look. OK. I got your point here. We are moving more units from completed units in the 4Q in 50%. I needed to check, because under market value we are not taking this impact, Cecilia. I do not have your answer exactly; the opposite is happening in units already completed, so I am checking back to you. Cecilia del Castillo: 8
  • 9. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 OK. Thank you. Adrian Huerta, JPMorgan: Good morning. Thanks for the presentation, very good presentation. I wanted just to ask you if this renegotiation of all the debt covenants that you have will result on a higher interest cost on this debt. And if you could just remind us of the interest cost of this debenture. Thanks. Alceu Duílio Calciolari: Yes, we had a round with our bond holders, we have already started to discuss. We do not believe that we have difficulties to explain why we are over, we are reaching this covenant. But we had a discussion and we needed to exclude this covenants that do not make sense anymore. Today, the debentures that we are negotiating have an interest cost of CDI + 1.2% a year, and maybe we will have to pay a fee to renegotiate this debenture, we are discussing with them, and one thing that we are considering and explaining is that the Company, if you take a look at our presentation, increased a lot since 2006 in terms of size, we have gotten bigger and bigger. And once we have this absolute covenant we will need to exclude it. I believe that they will ask for an additional fee. We have until July to do this negotiation, but we have started a week ago. As soon as we have more information from this negotiation we will keep you and the market informed, but we are considering that we will be successful to negotiate this. Adrian Huerta: And what will be the worst-case scenario there? That could be that you will just have to issue a new debenture and pay down this one? Alceu Duílio Calciolari: In this case, what we have a chance to do is to change the coupon of the debenture. We are paying 1.3%, debenture holders will look at the market and say „let me see, mark-to-market, this debenture‟, and ask for a reprice in the debenture. We do not think this is the case, but it could happen. Adrian Huerta: If that is the case, what are the market rates right now if you wanted to do them? Alceu Duílio Calciolari: Sorry? Adrian Huerta: If that is the case, what are the market rates today if you had to do that? Alceu Duílio Calciolari: It is about 3%, 3.5%. 9
  • 10. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Adrian Huerta: Thank you very much. Rafael Pinto, Safra: My question was already answered. Thank you very much. Gordon Lee, UBS: A follow-up clarification, on the inventory markdown that you did on the market value of the inventory, is there any risk, in your view, or any expectation that you might have to take some sort of write down in terms of the inventory at book value, and whether you need to book a loss associated with that? And the second question, I just wanted to clarify, you said earlier that net debt should arrive at R$5 million during the course of 2009. Is that right? Alceu Duílio Calciolari: That is right. Gordon Lee: OK. Perfect. Alceu Duílio Calciolari: The first question, Gordon, we do not believe that we have to write down any specific project in our balance sheet. And if we had, we do not believe that it would be relevant, so we do not have this visibility now, but we are sure that we may have a lower margin, but we would not write down our inventory. Gordon Lee: And just one question on that; in your Tenda backlog margin, have you already adjusted the backlog margin to expect to reflect the potentially lower market value of the inventory? Alceu Duílio Calciolari: Yes, we did this in the 3Q08. Wilson Amaral: All these losses are updated, Gordon. Gordon Lee: What about the potential for, I mean, if you are marking down the inventory, presumably, because you are likely to get a lower market value for those projects. Would that therefore translate into a lower backlog margin going forward, as those future sales are incorporated into the revenue? 10
  • 11. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Wilson Amaral: We do not see, we are not expecting any relevant change in margins for the Tenda products; we just review our five-year plan, review all the different kinds of projects that we are offering under this Tenda brand. And all the costs were updated, and we are using in Tenda the same procedure that we use here in Gafisa; we are reviewing the costs of all of 100% of the developments every month. I believe that the prices of Tenda are very adequate to the market. You can see that the average of price in the 1Q08 was R$80,000, which is the lowest price in the market, so we are very well positioned in terms of the new governmental package here in Brazil. So, I do not see any potential downsides in terms of margin for Tenda products. I would say that this is the opposite. When you compare with our peers, we are very well positioned to deliver and to sell our products. Gordon Lee: Perfect. That is very clear. Thank you very much. Dan McGoey, Deutsche Bank: Good morning, gentlemen. I am wondering if you can talk a little bit about the margin differential in the businesses for this year between Gafisa and Tenda, if you could do the same at the gross margin level. And then when you look at the SG&A, the sales ratios during the quarter of around 18% to 19%, Wilson, I think you mentioned those will improve as revenues move higher. But I am wondering if; one, you can give a bit of a breakdown both on the sales expenses as well on the G&A side as to why those numbers are so high; and is it entirely dependent on revenue acceleration, or are there some additional substantial cost reduction programs under way that you might be able to improve those ratios before the end of the year? Wilson Amaral: Let us start talking about selling expenses, because I believe that it is important to understand the different process that we use in Tenda. You know that Tenda has its own sales force, and 100% of the sales force is represented by Tenda‟s employees, which is a little bit different from what is normal in the market. So, our sale structure in Tenda is represented by more than 30 stores, and approximately 300 salesmen. So what is the difference? In Tenda, a relevant part of our sales is fixed cost, which is completely different from the system that we use in Gafisa, for example. So, when we defined the budget for 2009 to Tenda, of course we are seeing a very important improvement in terms of sales volume, especially after the announcement of the plan. So, unfortunately the 1Q does not represent the reality of Tenda, because the sales were very important, R$253 million, approximately 1,150 units. 11
  • 12. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 But what we have in terms of sales structure in Tenda, this structure is prepared for a volume much more relevant, much more important. And we believe that was our strategy, that it is very important to keep the right sales structure at this moment that we are seeing a transformation in this market. We do not see any advantage in optimizing the cost of sales in a quarter when at the end of the quarter we see the announcement of the most important and the most powerful package to foster this segment. So, what I believe that we will see in the next quarters will be exactly this: we will see the sales coming up, and we will not see a relevant impact in terms of cost, exactly because a very important part of this cost is fixed cost. But if you see what is happening today in Brazil in terms of the affordable entry level, I believe that this is the right time to be well prepared in terms of sale structure, because this is going to make a huge difference in terms of returns, in terms of good sales in the next quarter. Alceu Duílio Calciolari: Regarding the gross margin, one thing that is different today, when you compare Tenda with Gafisa is that Gafisa is accounting for interest expenses in COGS, and Tenda is doing the same, but it is much less relevant. So, when you look at Gafisa‟s gross margin, you see a huge impact of the capitalized interest that we are charging in the results. And in the case of Tenda, this amount is much lower than Gafisa. We do not expect that Tenda will continue to show this kind of margin as long as it will grow, and probably next year or in the end of this year, using the procedures of those debentures that will capitalize, it will impact the gross margin in Tenda. Tenda showed a backlog result of 33%. The same amount of Gafisa, but we believe that in the near term, Gafisa will show a margin better than Tenda, as long as Tenda starts to capitalize interests to charge COGS. The difference is not relevant, we are not seeing a huge difference from Gafisa‟s products when compared with Tenda‟s products. We believe that Tenda should work above 30%, as well as Gafisa, or around 30%, and Gafisa could have a small advantage in the long term. Dan McGoey: Great, thanks. And Wilson, you touched on the selling expenses. Just on the G&A side, since it is a substantial amount as well; is that something that there is a prospect for reduction as a percentage of sales towards the end of the year, or more from revenue dilution? Wilson Amaral: I would say that, you know that we are managing those companies in a completely separate way; they are segregated, Tenda is a public company. I believe that the size of G&A of Tenda is at the right size; not for the volume that Tenda is delivering today, but it is the right size for the volume of sales, or the size of the operation that it will deliver in the short term. I believe that that is the most important challenge. 12
  • 13. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 I do not see today, or we are not working at Tenda today with any plan to a strong reduction in terms of G&A, or selling structures. The challenge in Tenda is to put Tenda at the right size in terms of sales, with much more than we are delivering today. So, I am not expecting any important reduction in terms of G&A or selling structure in Tenda. But again, what we see in Tenda is a huge potential for a very accelerated growth in a short term. Dan McGoey: Great. Thanks for your answers. Guilherme Vilazante, Barclays Capital: Good afternoon. I would like to just have a heads-up on construction funding as of date. I am asking that because when I look at the balance, we have a slight reduction in the 1Q, while, at this moment, you would be expecting that the construction expenses from 2007 launch ramps up. Say, would we be having more support for this kind of funding? And I would like to know if there is any difficulty in raising it, and what we can expect looking forward? Thanks. Alceu Duílio Calciolari: Vilazante, you will see that our construction finance balance growing along the year. What happened in the 1Q is that we amortized a huge portion of construction finance for those projects that we completed. But you will see in this quarter, in the 2Q, this balance growing and growing faster until the end of the year. It is a matter of timing difference, expect it that it will happen. Guilherme Vilazante: OK. Just another follow up regarding this funding issue. Does your new net debt guidance take into account this construction finance or not? Alceu Duílio Calciolari: No. We do not have. Guilherme Vilazante: OK. Thank you. Sorry, the net debt does not take that into account, it is just corporate debt? Your guidance just provides for net debt at the end of the year? Alceu Duílio Calciolari: We are including the whole net debt, we are including the SFH. When I mentioned to Carlos Peyrelongue that we will grow our net debt position in R$500 million, we are including SFH. Guilherme Vilazante: OK. Thank you. Marcelo Telles, Credit Suisse: 13
  • 14. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Hi. Good morning, gentlemen. I have a question on your guidance for 2009. Two questions actually. The first one, regarding your expectation of R$2.7 billion to R$3.2 billion of pre-sales, are you considering that on a proportional basis or you are accounting for Tenda at 100% stake? And my second question on the EBITDA margin of 16% to 17%, you mentioned that this number does not include non-recurring earnings. So I would like to know what you are considering as non- recurring. And in practical terms, if you are including in the 16% to 17%, the gain related to the Tenda Fit transaction? Wilson Amaral: OK. Marcelo, the first part of your question, yes, we are considering 100% in Tenda and Alphaville, as we control the company, OK? Alceu Duílio Calciolari: And the second question, Marcelo, is a good question actually. And we have discussed this subject, and understood it is a gain that should be accounted in our operations. Behind this concept is our strategic position that we achieve this through this transaction. In the short term, this gain will be offsetting our force to ramp-up Tenda and improved its operation. And additionally, we had to restructure Fit and also we had the spin-off of Bairro Novo, which also represents a lot of effort from us. However, for this guidance proposal, we did not include this gain once many of you, analysts, are assuming that it is non-recurring. In our opinion it is a gain, we continue to show it as EBITDA, but for guidance proposal, we did not include. In the long-term, we believe that it will not be relevant as long as Tenda will continue to grow substantially. So, in summary, we are not including, but we continue to show our EBITDA margin with this gain, as given it will be not relevant in the long-term. Marcelo Telles: Duílio, just as a follow up on that. So basically your, let us say, expected reported EBITDA margin would actually be higher than the 16%, 17% for 2009? Because since you are amortizing R$30 million… Alceu Duílio Calciolari: Yes. The answer is yes. But when you look at the 1Q, it is much more relevant that it should be along the year. But the answer is yes, you are correct, we should have including this higher EBITDA margin. Marcelo Telles: OK. Thank you. Eduardo Silveira, Fator: Hi. Good morning. My question is a follow-up question on Marcelo's question. My question is, because if we adjust the EBITDA for the 1Q by this R$30 million gain of Fit incorporation, and the 14
  • 15. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 financial cost in the COGS, the margin would be 11%. So, my question is, this 16% to 17% EBITDA margin, it is considering the financial costs in the COGS? And the second question, could you comment on Gafisa's sales in April, because we saw other homebuilders focused in the low end reporting that they are seeing a recovery in the market. Could you comment exclusively for Gafisa products? Thank you. Alceu Duílio Calciolari: Eduardo, you are right. We are considering the financial costs including COGS to compound, to the final EBITDA. And as I mentioned to Marcelo, for guidance terms, we are not considering this gain as long as many of you believe that it is non-recurring. We believe this is gain, as I explained it. So, if you take a look at our report, you will see that we did not include, but we are considering the financial income, the financial expense in COGS to define the EBITDA margin, what would be excluding this gain around 14.5% in the quarter. Eduardo Silveira: So, just to make it clear, without considering the Tenda gain and the financial COGS, the EBITDA margin will fall short, let us say, 500 b.p. from the guidance in the 1Q. It would be 11% when the guidance is 16%. Am I right? Alceu Duílio Calciolari: No. It would be 14%. Because you are including financial expense? Eduardo Silveira: Yes. Alceu Duílio Calciolari: So I think you are right. I did not do this calculation. We did only excluding the gain in Tenda. Eduardo Silveira: OK. And about the sales in April, if you could comment on Gafisa? Wilson Amaral: Yes. We did not see many changes in terms of Gafisa products in April. Well, today is the middle of the quarter, so we are expecting a little bit more in sales in terms of Gafisa products. But, April was pretty similar to the other months. We did not see any, you mentioned that some companies reported a recovery, I believe that we delivered exactly what we had planned. But for the Gafisa products, we did not see any relevant change in the month of April. And at the same time, we are expecting for the quarter, a better volume of sales compared with the 1Q for the Gafisa products. Eduardo Silveira: 15
  • 16. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 OK. Thank you. Rafael Pinto, Safra: Good morning. It is actually a follow up on the discussion on the markdown in inventories at market value. Using the reported numbers, we reached sales velocity of around 16% for the Company. What would that velocity be if you were to restate the previous level of inventories? Do you have that number or can you provide the number, I mean, for how much have you marked down your inventory at market levels? Wilson Amaral: No. Unfortunately I do not have this numbers to give you right now. But we have many reasons to take out that part of our inventory. Because a part of those products, as Duílio mentioned, we are reviewing the projects and readapting the products according with the necessity of the markets. But there is another reason, part of those products are phases of projects launched in the past . So, the change here is that we are not, well, let me rephrase that. When considering the Tenda way to demonstrate their launches in the past, they used to consider one project launched 100% launched even if they were doing that launch in three, four, five phases. What we are doing right now, we are adjusting to the Gafisa way to report launches. We just report the phase really launched, and that phase that has the units available for sale. So that is another reason why we took out that part of the inventory, because an important part of those units, they were not available for sales. So that is the reason. So the best way and the right way to evaluate our sales velocity is exactly comparing the units sold against the units available for sale. So that reason is a technical problem, but this is the right way to measure sales velocity. So the sales velocity reported is the right sales velocity. Rafael Pinto: OK, Wilson, just check up here then, it only has to be with the change in practice, and thus I may assume that the margins on the projects will not be affected, meaning that you are not selling at discount and having the same construction cost? Wilson Amaral: No. Exactly, that is the point. We are not doing anything in terms of markdowns or discount. Well, of course, depending on in those projects where we will change because we can some have change in some projects in terms of products. Of course, we can have a change in terms of margin depending on the product. But there is no plan to markdown or anything like this. So, it is much more a technical problem. And our objective is exactly to show for the market the right sales velocity. So that was the reason, we did this change in our practice. Rafael Pinto: OK. Thank you. David Lawant, Itaú: 16
  • 17. Conference Call Transcript 1Q09 Results Gafisa (GFSA3) May, 15, 2009 Hi. Good morning, everyone. I have a just a quick question regarding your cash burn. In 1Q09, even excluding the securitization of receivables, you had quite a reduction in your cash burn. I would like to know what are you thinking about this number going forward, should we expect it to remain low? Alceu Duílio Calciolari: Hi, David. We believe that you are right. It was too low once we had securitization. We believe that the pace is adding the securitization amount of R$70 million, the number would be close to R$200 million. And this number would be the expected pace for the next quarter, assuming that we will not have securitization. Depending on the size of securitization, we will see the number getting close to this, of course, depending on the size of the securitization, but assuming that we could have other securitization at the same amount, it would be close to the volume that we have, the variation or the change that we had in this quarter. So you can assume a pace of around R$180 million to R$200 million per quarter. But it is important to mention that Tenda is reviewing their business plans and we are still discussing how we would investing the amount from Caixa Econômica Federal, those R$600 million, if we can accelerate or not depend on the business plan that we are working right now. David Lawant: OK. Very clear. Thank you. Operator: The Q&A session is now finished. I would like to pass the floor to the Company for its final considerations. Wilson Amaral: OK. I just would like to thank you very much for your participation in our conferenc e and reiterate our optimism about the future of our business here in Brazil, and we expect to have you here again in our next quarter conference. Thank you very much. Alceu Duílio Calciolari: Thank you, everyone. “This document is a transcript produced by MZ. MZ uses its best efforts to guarantee the quality (current, accurate and complete) of the transcript. However, it is not responsible for possible flaws, as outputs depend on the quality of the audio and on the clarity of speech of participants. Therefore, MZ is not responsible or liable, contingent or otherwise, for any injury or damages, arising in connection with the use, access, security, maintenance, distribution or transmission of this transcript. This document is a simple transcript and does not reflect any investment opinion of MZ. The entire content of this document is sole and total responsibility of the company hosting this event, which was transcribed by MZ. Please, refer to the company’s investor relations (and/or institutional) website for further specific and important terms and conditions related to the usage of this transcript.” 17

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