2007 Annual Report

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2007 Annual Report

  1. 1. ANNUAL REPORT 2007
  2. 2. PROFILE BASED IN SÃO PAULO, Based in São Paulo, Gafisa S.A. is one of the leading GAFISA S.A. IS ONE OF THE condominium developers in Brazil, and is considered a LEADING CONDOMINIUM benchmark for quality, innovation, efficiency and professionalism in the domestic market. Since its inception in DEVELOPERS IN BRAZIL, AND 1954, Gafisa has completed approximately 950 developments, IS CONSIDERED A representing nearly 40 million square meters of completed BENCHMARK FOR QUALITY, construction projects. INNOVATION, EFFICIENCY As of December 31, 2007, the Company was operating in 47 AND PROFESSIONALISM IN cities throughout 17 of Brazil’s 26 states, representing 92.3% THE DOMESTIC MARKET. of the country’s population and 90.8% of its GDP, according to the Brazilian Geographical and Statistical Institute (IBGE). The Company is able to identify and meet the needs of each targeted residential market segment through a blend of innovation, experience, agility, planning and construction capacity. In order to ensure the needs of each market are accurately met, management develops its residential projects under five individual brands: Gafisa, AlphaVille, Fit Residencial, Bairro Novo and Cipesa, to allow flexibility in tailoring each strategy to its respective segment. Property sales also have the additional support of the Gafisa Vendas, a dedicated sales group subsidiary.
  3. 3. MAIN INDICATORS 2004 2005 2006 2007 Sales Launches (million R$) 207 652 1,005 2,236 Launches (million R$) (including minority shareholdings) 313 682 1,234 2,919 Launches (units) (including minority shareholdings) 1,132 2,466 3,755 14,236 Average price of launches (R$/m²) (100% excluding allotments) 2,725 2,878 3,045 2,835 Sales from launches in year (million R$) (% Gafisa) 84 295 555 1,139 Sales from launches in previous years (million R$) (% Gafisa) 170 155 440 487 Contracted sales (million R$) (% Gafisa) 254 450 995 1,627 Contracted sales (million R$) (including minority shareholdings) 375 528 1,162 2,053 Contracted sales (units) (including minority shareholdings) 1,192 1,994 3,391 8,670 Results (million R$) Gross revenue 439 481 697 1,218 Net revenue 465 457 664 1,172 Gross profit 124 139 198 375 EBITDA 66 59 98 184 Adjusted net profit (1) 20 31 76 143 Sales to be recognized 437 436 795 1,527 Backlog of results to be recognized 123 169 298 583 Margins (%) Gross margin 26.7% 30.4% 29.8% 32.0% EBITDA margin 14.2% 12.9% 14.8% 15.7% Adjusted net margin (1) 4.3% 6.8% 11.4% 12.2% Backlog margin 28.1% 38.8% 37.5% 38.2% Shares Profit (loss) per share (R$) 0.38 0.39 0.76 1.15 Market value (billion R$) - - 3.1 4.2 Total dividends (million R$) - - 11 27 Financial (million R$) Total assets 782 945 1,494 2,950 Net equity 148 270 814 1,531 Current liquidity (current assets/liabilities) 1.51 2.63 3.35 3.40 Gross debt 152 317 295 689 Net debt 106 183 29 175 Net debt/net equity 71.6% 67.7% 3.6% 11.4% Operational Land Bank (Potential Sales Value – million R$) 1,789 1,755 3,047 10,195 Number of direct employees 677 495 683 1,197 Note (1): Adjusted for IPO and Follow-on expenses
  4. 4. MAP OF OPERATIONS (December 31, 2007)
  5. 5. INDEX 3 TIMELINE 4 VISION AND VALUES 7 HIGHLIGHTS OF 2007 8 MESSAGE FROM THE MANAGEMENT 11 STRUCTURE AND BUSINESS MODEL 14 STRATEGY 16 COMPETITIVE ADVANTAGES 19 CORPORATE GOVERNANCE 24 THE SECTOR IN 2007 32 ANALYSIS OF CONSOLIDATED RESULTS 38 STOCK MARKET 40 RISK MANAGEMENT 45 MANAGEMENT OF PEOPLE 48 CUSTOMER RELATIONS 50 SUPPLIER RELATIONS 53 SOCIO-ENVIRONMENTAL ACTIONS 58 CORPORATE INFORMATION 61 FINANCIAL STATEMENTS
  6. 6. Gafisa S.A. 100% 60% 100% 50% 70% 100% holdings Characteristics One of the largest Brazil’s largest Developer of Developer Developer Sales Company for residential high-end residential of planned operating in the products developers in condominium condominiums for neighboorhoods states of Alagoas launched under Brazil developer the 5-20 minimum over 1000 units in and Sergipe the brands of wage population metropolitan areas Gafisa, Cipesa, Fit segment and outskirts, for and Bairro Novo , the 3-10 minimum operating initially wage population in São Paulo and segment Rio de Janeiro metropolitan areas Segment Mid, mid high Mid high Affordable Low affordable Mid, mid high and high and high entry level entry level and high Model Vertical Horizontal Vertical Vertical-horizontal Vertical Locations Metropolitan Outside Metropolitan areas Metropolitan areas Metropolitan areas areas Metropolitan areas and outskirts and outskirts Projects Unique Unique Standardized Standardized Unique Financing Banks Own (CEF) Caixa (CEF) Caixa Banks Econômica and Econômica and Banks Banks Unit price Over R$ 70,000 to R$ 80,000 to To R$ 100,000 Over R$ 200,000 R$ 500,000 R$ 200,000 R$ 200,000 In 2007, Gafisa’s net revenues reached R$1.2 billion, an increase of 77% from R$664 million in 2006. This increase reflects the Company’s focus on growth and profitability as well as Brazil’s favorable environment for housing construction. According to data from the Civil Construction Industry Organization (SINDUSCON-SP) civil construction was responsible for 5.5% of GDP for the year. In March 2007, Gafisa began trading on the New York Stock Exchange and enhanced its corporate governance standards to meet the requirements of the Sarbanes Oxley Act. This made Gafisa the first and only Brazilian residential property developer to be listed on a United States exchange. At the end of 2007, Gafisa S.A. had an 84% free float, which is the highest level of public float among the real estate sector stocks traded on the São Paulo Stock Exchange (BOVESPA). The Company is also a member of the BOVESPA Novo Mercado, a listing segment on the BOVESPA exchange designed for companies who voluntarily choose to abide by additional corporate governance practices in addition to those required by Brazilian law and the CVM. 2
  7. 7. TIMELINE Gafisa's first branch in São Paulo 1954 • Company is founded and commences operations in Rio de Janeiro under the name of Gomes de Almeida Fernandes Ltda. In 1964 commences operations in São Paulo. 1988 • Name changed to Gafisa Imobiliária. 1997 • GP Investimentos acquires shares in the Company. Name changed to Gafisa S.A. 2004 • • GP Investimentos becomes a controlling shareholder of Gafisa S.A. Company implements its expansion strategy, begins to enter markets beyond the Rio–São Paulo axis. 2005 • Equity International acquires approximately 32% of Gafisa S.A. stock 2006 • February: IPO in Brazil, the stock is listed on the São Paulo Stock Exchange Novo Mercado and has a 47% public float. • Acquisition of AlphaVille. (Transaction completed in early 2007) • Creation of Gafisa Vendas, in São Paulo, Gafisa’s own sales team. 2007 • February: Joint venture formed with Odebrecht Empreendimentos Imobiliários Ltda. to establish Bairro Novo. • March: Shares listed on the New York Stock Exchange. • March: Creation of Fit Residencial. • June: GP Investments sells its 7.1% holding in Gafisa S.A. • October: Acquisition of 70% of Cipesa, responsible for Gafisa’s operations in the states of Alagoas and Sergipe. ANNUAL REPORT 2007 Timeline | 3
  8. 8. VISION GAFISA STRIVES TO BE BRAZIL’S PREMIER RESIDENTIAL CONDOMINIUM, URBAN DEVELOPMENT AND CONSTRUCTION COMPANY BY PROVIDING THE HIGHEST RETURNS POSSIBLE FOR ITS INVESTORS AND LEADING ALL OTHER COMPANIES IN THE SECTOR IN SALES. WE WILL ACHIEVE THIS THROUGH: A COMMITTED AND RESULTS- FOCUSED STAFF WHO SHARE A DESIRE TO ACHIEVE EXCELLENCE; ACCURATELY IDENTIFYING MARKET NEEDS; EFFICIENT AND TIMELY DELIVERY OF PRODUCTS; EXEMPLARY PRODUCTS THAT STAND OUT IN ALL RESIDENTIAL MARKET SEGMENTS. VALUES ETHICS – MAINTAIN THE HIGHEST ETHICAL AND MORAL STANDARDS. PEOPLE – CREATE A POSITIVE AND CONSTRUCTIVE WORK ENVIRONMENT TO ATTRACT AND MAINTAIN THE MOST QUALIFIED STAFF. INNOVATION – ANTICIPATE GLOBAL TRENDS, IDENTIFY CLIENT NEEDS AND EXPECTATIONS IN ORDER TO DESIGN THE MOST INNOVATIVE AND RELEVANT PRODUCTS . OBJECTIVITY – FOCUSED ON THE ESSENTIAL; PRAGMATIC AND DECISIVE. COSTS – RIGID COST CONTROL TO ACHIEVE GREATER PROFITABILITY. RESULTS – PRODUCT GROWTH AND SUSTAINED RESULTS FOR OUR SHAREHOLDERS. QUALITY – INCORPORATION AND DEVELOPMENT OF LATEST-GENERATION TECHNOLOGY TO ENSURE THE QUALITY OF OUR PRODUCTS AND PROCESSES. ENVIRONMENT AND COMMUNITY – CONSCIOUS AND RESPECTFUL OF OUR ENVIRONMENT AND THE COMMUNITIES WHERE WE BUILD OUR PROJECTS. 4
  9. 9. BASED IN SÃO PAULO, GAFISA S.A. IS ONE OF THE LEADING CONDOMINIUM DEVELOPERS IN BRAZIL, AND IS CONSIDERED A BENCHMARK FOR QUALITY, INNOVATION, EFFICIENCY AND PROFESSIONALISM IN THE DOMESTIC MARKET. SINCE ITS INCEPTION IN 1954, GAFISA HAS COMPLETED MORE THAN 950 DEVELOPMENTS, REPRESENTING NEARLY 40 MILLION SQUARE METERS OF COMPLETED CONSTRUCTION PROJECTS.
  10. 10. HIGHLIGHTS OF 2007 Institution Rating Last change Standard & Poor’s brA 06/19/2007 Fitch Ratings brA- 05/03/2006 Launches | % Gafisa (R$ million) 2,236 CAGR* 121% 122% 1,005 652 207 04 05 06 07 * Compound annual growth rate Sales | % Gafisa (R$ million) 1,627 CAGR* 86% 63% 995 450 254 04 05 06 07 * Compound annual growth rate Net Revenue ( R$ million) 1,172 CAGR* 41% 77% 664 457 417 04 05 06 07 * Compound annual growth rate
  11. 11. EBITDA R$ million 16.7% 15.7% 14.8% 12.9% * Compound annual growth rate 184 CAGR* 38% 87% 98 69 59 04 05 06 07 EBITDA EBITDA Margin Net Income R$ million 12.3% 11.4% * Compound annual growth rate 144 6.7% 89% 5.6% 76 CAGR* 83% 31 23 04 05 06 07 Net Income Net Margin Net debt/net equity R$ million 72.1% 67.7% 183 175 3.6% 11.4% 29 106 04 05 06 07 Net debt Net debt PL Backlog of Results R$ million 38.2% 38.8% 37.5% * Compound annual growth rate 583 33.6% CAGR* 68% 96% 298 169 123 04 05 06 07 REF Margin REF
  12. 12. HIGHLIGHTS OF 2007 ACQUISITION OF ALPHAVILLE URBANISMO S.A. In January, the Company completed its acquisition of 60% of AlphaVille Urbanismo S.A., Brazil’s largest urban property developer, for R$201.1 million, comprised of R$ 20 million in cash and R$ 181.7 million in stock. The remaining 40% will be requirements are met. The projects are BLUEPRINT MORTGAGE acquired in two phases: 20% in 36 months focused on customers with family income of Launched in partnership with a large after the initial phase and the remaining 3 to 10 minimum wages and are based on financial institution, a new financial 20% in 60 months. These payments will the Mexican residential model which has product, the Blueprint Mortgage, be made in cash or stock, to be determined been adapted to the Brazilian market and offers consumers a favorable rate with a by Gafisa S.A. The acquisition of AlphaVille contains over 1000 units. long-term repayment option while reducing expanded the Company’s presence into working capital requirements for Gafisa. 35 new cities in 16 states. ACQUISITION OF 70% OF CIPESA Buyers can finance the 10% initial down In October, the Company acquired 70% payment as well as lock-in a twenty-five NYSE of Cipesa Empreendimentos Imobiliários year mortgage on the remaining 90% In March, Gafisa S.A.’s ADR’s began trading from Cipesa Engenharia. In addition to purchase price of a new home prior on the New York Stock Exchange under capitalizing the new company with R$ 50 to construction. the ticker GFA, making it the first and only million in cash, Gafisa S.A. acquired a further Brazilian company in the sector to be listed R$ 15 million in shares. Cipesa Engenharia IBOVESPA, IBRX-50 AND MSCI in the United States. will also receive a 2% earn-out of Potential Gafisa S.A. shares are now traded on Sales Value (PSV) on projects launched up to the IBOVESPA, the most important index of CREATION OF FIT RESIDENCIAL 2014, to a limit of R$ 25 million. The newly the São Paulo Stock Exchange, and the IBrX, In March, the creation of a new Gafisa S.A. acquired subsidiary will be responsible for the an index based on the 50 most-traded subsidiary, Fit Residencial was announced. development of all Gafisa projects in the companies. The Company also trades Fit Residencial was created to focus on states of Alagoas and Sergipe. internationally on the MSCI Emerging residential condominium development in Markets Index, which is adjusted by market major urban centers, for the 5 to 20 ELDORADO BUSINESS TOWER, value and trading volume and measures minimum wage population. IN SÃO PAULO the performance of emerging market Work was completed on the Eldorado equities in global markets. CREATION OF BAIRRO NOVO Business Tower in December. The tower is In April, Gafisa and Odebrecht the fourth in the world to obtain Leed® GAFISA VENDAS IN RIO DE JANEIRO Empreendimentos Imobiliários entered into CS 2.0 Platinum (Leadership in Energy and Gafisa Vendas began operations in ANNUAL REPORT 2007 a 50/50 joint venture to create Bairro Novo. Environmental Design) pre-certification, Rio de Janeiro in April 2007, with the The subsidiary was created to drive the which was granted by the U.S. Green aim of adding strength, management and development of large-scale residential projects Building Council, as a result of the excellent service to the group’s property and ensure all residential infrastructure sustainable solutions adopted in its design. sales efforts. Highlights of 2007 | 7
  13. 13. MESSAGE FROM THE MANAGEMENT Every Gafisa S.A. product carries the mark professionals who demonstrate a long term to further strengthen our geographical of excellence and exemplifies our goal to commitment to the company, thus building expansion process we have adopted a surpass expectations. While putting into a team that shares one common ambition: decentralized business model and will focus practice a strategy that aims to make all to be the largest company by sales and the on the establishment of local partnerships. of our activities sustainable, we were able best in return to shareholders in the In 2007, our operations reached 47 to achieve impressive results in 2007, residencial urban development and municipalities in 17 states, proof of our including growth in project launches of construction segment. expanded national presence. We believe 122% and pre-sale growth of 63%, as these enhancements to Gafisa’s portfolio compared to 2006. Our land bank reached THE SUCCESS ACHIEVED and structure will allow the Company a total of R$10.2 billion, representing future BY GAFISA IN 2007 EXPANDS to maximize returns for its investors launches for a period of two to three years, ITS ABILITY TO GENERATE and position the Company to take in line with our diversification policy. RETURNS FOR advantage of future growth opportunities. In 2007, we launched 53 building projects, SHAREHOLDERS, WITH As of March 2007, we were the only and sales reached R$1.6 billion. WHOM THE COMPANY Brazilian property developer to be listed On December 31, 2007, we had 118 MAINTAINS A RELATIONSHIP on the New York Stock Exchange. developments underway across a number of BASED ON TRANSPARENCY. This step required that we adopt all Brazilian states. Our net income, adjusted for conduct codes and controls required by public offering expenses, reached R$144 In 2007, we took important steps towards the Sarbanes Oxley Act. In order to fully million, showing a growth of 89% over 2006. achieving this by constructing a business implement these standards we introduced The driver behind all of the Company’s platform that significantly enhances our the SAP management system which will achievements is our primary asset: people. ability to take advantage of opportunities allow us to leverage scalability where We are recognized for our superior training in the Brazilian market. The acquisitions feasible and closely monitor cost structures. programs and take pride in the large of AlphaVille Urbanismo S.A. and Cipesa This is an important tool for facing one of number of outstanding professionals we Empreendimentos Imobiliários, the the main challenges of 2008: employ. We believe the value they provide creation of Fit Residencial and Bairro Novo, communication between the group’s is what separates us from the rest of the and the consolidation of Gafisa Vendas, companies in order to captitalize on Brazilian housing construction market. In allowed us to expand our product and synergies and business opportunities. 2000 we adopted a share option plan to service portfolio into additional segments We remain focused on continuing to encourage meritocracy and reward of the Brazilian population. In order strengthen our corporate structure. 8
  14. 14. The companies linked to Gafisa S.A. have full autonomy in conducting their business within their respective markets. This ensures expertise and total focus for the niche in which each company operates. Looking ahead to 2008, we expect a significant increase in both Fit Residencial’s and Bairro Novo’s contribution to revenue, as they operate in income segments where the majority of Brazil’s housing deficit is concentrated. Falling interest rates, expected income increases, and greater credit availability combined with an overall optimistic forecast for the Brazilian economy, lead us to believe that the rate of expansion in the housing sector will remain high for the coming years. This scenario presents us with a great opportunity and demands precise operational and financial planning. Given these factors, we expect project launches to reach approximately R$3 billion in 2008, representing a 34% growth over 2007. We also expect to boost our operating results, with an estimated EBITDA margin of between 16% and 17%. Gafisa’s performance shows that we are on the right path. Our management team combined with our capacity to identify and effectively capitalize on market opportunities will allow us to continue delivering outstanding results Wilson Amaral Chief Executive Officer ANNUAL REPORT 2007 Message from the Management | 9
  15. 15. STRUCTURE AND BUSINESS MODEL The organizational structure of Gafisa has changed significantly over the last year due to the acquisition and creation of several companies. We believe that in order to achieve sustainable long-term growth, the company must be structured so it can continually broaden its presence and product portfolio. Gafisa S.A. operates with a corporate structure and Business Units. The Company carries out its developments under the Gafisa name, through two operational departments; Developments and Construction and Engineering. These departments monitor the portfolios of AlphaVille, Fit Residencial and Bairro Novo as well as the operations of Gafisa Vendas. Gafisa also has four corporate departments; Finance, Business Development, People and Management and Institutional Relations, which support all operations of the Company. The organizational chart below shows the corporate and portfolio management role of Gafisa S.A. Gafisa S.A. Business Finance Development People and Institutional Management Relations ANNUAL REPORT 2007 Gafisa Gafisa FIT Gafisa Bairro Novo AlphaVille Construction and Vendas Residencial Developments Engineering (Sales) Structure and Business Model | 11
  16. 16. Each subsidiary is autonomous which allows it to focus specifically on its operations within THE COMPANY’S ACTIVITIES its respective markets. However, each subsidiary remains dedicated to identifying and IN 2007 STRENGTHENED THE taking advantage of synergies within the company, such as partnerships with strategically STRATEGY OF BROADENING located developers and joint purchase of supplies, as well as working towards the common ITS PRODUCT PORTFOLIO AND goals of the Company. ESTABLISHING A PRESENCE THROUGHOUT BRAZIL. CONSTRUCTION MANAGEMENT Our construction management model is characterized by decentralization and management of each development as a business unit, which allows the Company the necessary flexibility to grow efficiently throughout the country while maintaining the Gafisa identity. Engineers and architects are trained to operate as “business owners” with an understanding of the Company’s vision and the capacity for decision making. Communication is vital to ensuring that Gafisa’s goals and characteristics are conveyed in the appropriate construction technology, as well as process and specifications. This entails not only sharing results and best practices, but also ensuring that the Company’s strategy is well defined. Information systems allow the entire company to track the progress of a development with respect to three crucial aspects; cost, deadline and quality. This boosts transparency across the developments and creates healthy competition between business units. LOCAL PARTNERSHIPS Gafisa’s partnerships with local developers are vital to the Company’s continued expansion into sustainable growth markets. At the end of 2007, agreements were in place with 12 partners in 14 Brazilian states. The scope of each partners’ work is defined based on a variety of factors including their existing product portfolio as well as a comprehensive quality analysis of their previous work. Gafisa S.A. always seeks to hold at least 50% of the business to be developed. Regional managers identify business opportunities throughout Brazil and operate as “business owners”, committed to achieving results and reaching established targets. 12
  17. 17. BENEFITS FOR BOTH GAFISA AND ITS PARTNERS Gafisa Partner Partners have greater knowledge of local markets Acquisition of Gafisa know-how in real estate project and cultures, facilitating understanding of consumer development, financial structuring, architectural conception, needs and desires. development of sales and marketing strategies. Reduces resistance to entry into new markets. Links with the nationally recognized Gafisa brand and increased liquidity of developments. Partners’ existing relationship with public authorities Greater access to banks for structuring of real and other public and private organizations simplifies estate credit agreements. project approval processes. Reduction of infrastructure costs through possibility of using partner’s resources, such as customer contact facilities. INTEGRATED ONLINE SALES SYSTEM IN ORDER TO ENABLE ITS The Company has integrated its online sales system in order to EXPANSION THROUGHOUT THE manage all project developments. The system allows real time COUNTRY, THE COMPANY access to sales plans (preventing errors such as the double sale of MAINTAINS PARTNERSHIPS WITH the same unit), chronological order of offer placement, permitted LOCAL DEVELOPERS AND price variations as well as a variety of other programs that facilitate CONSTRUCTORS. the proper flow of information. The system also ensures greater reliability of customer information, eliminating the need for ANNUAL REPORT 2007 subsequent data entry and storage. Besides agility, the system adds transparency to the business. Structure and Business Model | 13
  18. 18. STRATEGY In order to become Brazil’s leading residential housing, urban partnerships with local developers to move into new markets development and construction company Gafisa has established more rapidly and with a better understanding of local requirements, the following goals: needs and cultures. This diversification strategy also represents a way of limiting risks and protecting the company against the STRONG REVENUE GROWTH seasonality of demand found in some parts of the country. Gafisa will leverage its experience and knowledge of Brazil’s residential markets, its brand recognition and growing national LAND BANK FOR TWO TO THREE YEARS presence, as well as its organizational structure and local A land bank capable of supporting the launch of new developments partnerships to grow revenues. The target for 2008 is to reach for a period of two to three years is maintained. This strategy gives R$3 billion in new launches, up 34% on 2007. the Company necessary leverage to negotiate land purchases at fair market prices and guarantees the conditions required for the FOCUS ON HIGH-RETURN OPPORTUNITIES sustained growth of the operations. Land bank acquisitions are Gafisa will make all investment decisions based on extensive made in strategic locations with high visibility and market potential market research and analysis as well as rigorous viability studies. and within defined investment limits so that each development can It will limit cash and leverage, giving priority to segments offering meet its margin and return targets. The land bank diversification higher return. strategy Gafisa employs prevents a concentration of developments in one market and ensures flexibility to meet demands. PRODUCT DIVERSIFICATION This positions the Company to take advantage of launch The Company will continue to expand its operations through opportunities that arise throughout the country. its multiple product portfolios in order to meet the needs of all Gafisa employs professionals solely dedicated to the task of segments of the population. prospecting and filtering the best investment opportunities. These professionals are constantly monitoring opportunities and GEOGRAPHICAL EXPANSION have detailed knowledge of their respective markets which includes The span of the Brazilian real estate market and favorable performing comprehensive analysis of the competition. Swaps, demographic trends will play a pivotal role in the expansion of the or the exchange of housing units for the area on which they are to company’s market position. The regional diversification strategy be developed, make up for a significant part of the land bank, is based on 46 regions in the country containing over 200 together with acquisitions in significant locations. municipalities, each with strong demand potential. To take advantage of this opportunity, the company will leverage its 14
  19. 19. FINANCIAL AND INVESTMENT DISCIPLINE Gafisa S.A. maintains a conservative attitude in relation to debt and seeks to make the best use of its capital. Leverage is limited to a net debt to equity ratio of not more than 60%. Maximum launch volume is achieved by process improvement in order to maximize productivity, minimizing the use of Gafisa capital, and utilizing resources from Brazil’s Housing Finance System to finance developments. Approximately 70% of units are sold before the construction begins. The company also seeks to safeguard its receivables in order to recycle its capital at more attractive rates of return and improve its capital structure, so as to generate maximum return for its shareholders while maintaining an appropriate level of financial costs and risks. TRAINING PEOPLE Emphasis on employee training provides the Company with a competitive edge. Every year the trainee and intern programs attract large numbers of candidates (17,000 in 2007), which provide the Company with a large pool of qualified, well-trained personnel and ensures employment continuity. OUTLOOK In 2007, Gafisa S.A. expanded its project launch target from R$1.65 billion to R$1.9 billion, as a result of having reached 70% of the original forecast by September. Project launches for 2007 totaled R$2.236 billion, up 122% from 2006, and are projected to reach R$3 billion for 2008. It is expected that the consolidated EBITDA margin will stay between 16% and 17% for the year. For 2008 and subsequent years, consolidated revenue is expected to receive a significant contribution from Fit Residencial and Bairro Novo. Both operate within the lower income bands, which have the highest concentration of demand for housing in Brazil. A stable and promising macroeconomic scenario indicates that credit lines should be expanded, which is essential for the development of this market. ANNUAL REPORT 2007 Strategy | 15
  20. 20. COMPETITIVE ADVANTAGES PEOPLE AND CULTURE BRANDS Gafisa S.A. brings both experienced real Buyers trust the quality of Gafisa products estate and local development professionals and know the company will deliver quality together to create a cohesive and dynamic developments in a timely manner. Rapid team. The company’s organizational sales confirm the strength of the brand and structure promotes innovation and efficiency its solid reputation among potential property by rewarding employees who meet both buyers, agents, financers, landowners individual and collective targets. as well as our competitors. The AlphaVille brand symbolizes high-quality developments SHAREHOLDER BASE and was awarded the Superbrand 2006 The Company has a broad base of award from English Superbrand Global. AMONG THE COMPANY’S shareholders, an 84% public float and a The brand has received three consecutive DIFFERENTIALS ARE ITS commitment to the best practices of Premio Eco awards from the American PROFESSIONALS, CULTURE, corporate governance. Chamber of Commerce (Amcham). Gafisa HIGH STANDARDS OF operates on the basis of market research, CORPORATE GOVERNANCE, GEOGRAPHICAL DIVERSIFICATION which has proven to be correct in PRESENCE IN DIFFERENT The Company maintains a presence ascertaining the preferences of consumers REGIONS OF BRAZIL, BRAND, throughout many regions in Brazil and and translating demand into products. provides a varied product portfolio, including DIVERSIFIED PRODUCT products targeted at various income levels. PORTFOLIO, AGILITY AND This diversification allows the Company to CAPACITY FOR INNOVATION. prioritize investments with high returns and reduce risks from depending on specific markets. This also positions the Company to quickly take advantage of new opportunities and maximize synergies between companies within the group. 16
  21. 21. INNOVATION The Operations and Technology Development department is constantly working on improving the standardization of on-site activities and industrialization of the construction process. These improvements allow the Company to shorten deadlines, reduce losses, control products and services at the source and absorb the logistics potential of suppliers. These developments also ensure that the Company maintains the necessary conditions required to efficiently carry out a large number of projects simultaneously. For example, the production of pre-fabricated kits which include all construction materials necessary for a job, simplifies installation and ensures the same standard of quality across all projects. The transformation of ideas into solutions simplifies the planning and management of costs and construction. AGILITY IN PROJECT APPROVAL Gafisa S.A.’s Department of Institutional Relations is responsible for ensuring that all development applications move swiftly through the federal, state and municipal bodies. The Department maintains contact with these organizations to make certain that all applications have the correct format, are submitted correctly and meet all necessary legal requirements
  22. 22. CORPORATE GOVERNANCE Gafisa S.A. shares are listed on the São Paulo Stock Exchange management system. The first certification should take place Novo Mercado, which brings together companies committed to in December 2008, and PriceWaterhouseCoopers has been hired adopting a higher standard of transparency in corporate governance to provide support for the definition of the processes so as to meet practices that go beyond the legislative requirements. The listing the SOX requirements. requirements apply to the rights of shareholders and are designed to improve the quality of stock dispersion and ensure greater BOARD OF DIRECTORS reliability of disclosed information. A Market Arbitration Panel was The Board of Directors deliberates on the general orientation of the also created to settle disputes between investors and companies. business and is responsible for the election of the executive officers. Companies on the Novo Mercado can only issue shares with full Currently the Board consists of seven people, including four voting rights and tag-along rights to ensure that, in the case of independent directors, whose total and individual remuneration a public offering for a controlling interest in the company, the same is defined by the general shareholders meeting. These members price will be paid to all shareholders. were elected to serve a term of two years, which will expire at the 2010 General Meeting, and can be reelected. Regular meetings take SARBANES-OXLEY ACT place at least once every three months and meetings can be called The listing of shares on the New York Stock Exchange in March 2007 at any time by the chairman or by at least two members. In 2007, required the adoption of certain structures and internal controls in 12 regular and extraordinary meetings were held, a third of these order to meet the standards set forth in the US Sarbanes-Oxley Act person. The members of the Board are: of 2002 (SOX), which aims to ensure greater transparency in Gary R. Garrabrant – Chairman of the Board, graduated from the accounting and financial statements. University of Notre Dame (USA) with a degree in finance. Founder In order to comply, the company created an Audit and an Ethics and leader of Genesis Capital Investment, a New York based Committee, drafted a Code of Ethics to be signed by all employees, securities management company for the real estate sector. Mr. and established an anonymous communications channel for Garrabrant was also a senior investor in the real estate market, first employee complaints regarding any behavior that does not meet the at Chemical Bank and then at The Bankers Trust Company. He is company’s standards. currently CEO and co-founder of Equity International, vice-president Steps have also been taken to develop a range of policies to of Equity Group Investments, LLC, vice-chairman of the board of formalize the operational and business rules of Gafisa S.A. and its directors of Homex Development Corp., one of Mexico’s leading real ANNUAL REPORT 2007 subsidiaries, which should be concluded in the first quarter of 2008. estate developers, and a member of the board of directors for a The company is working towards the certification of its internal number of companies in the Equity International group. He is also a controls, in connection with the introduction of the integrated SAP member of the Real Estate Advisory Board of Cambridge University. Corporate Governance | 19
  23. 23. Thomas McDonald – Graduated from Richard L. Huber – Graduated from the University of Notre Dame with a degree Harvard University with a degree in in Institutional Relations. Mr. McDonald Chemistry. Mr. Huber began his career as joined Equity International in 1999, where a trainee at the First National Bank of he is executive vice-president, responsible Boston in 1959. He invests in a wide range for the company’s investments. He is also of companies in different sectors, especially a member of the board for a number of in Latin America. He worked for 40 years companies in the group. in the financial area before leaving Aetna Renato de Albuquerque – Engineer, Inc., where he was CEO, executive president graduated from the University of São Paulo and chairman of the board. Mr. Huber is a (USP) and is one of the founders of member of the board of directors and Albuquerque, Takaoka S.A. in 1951. Mr. chairman of the fiscal council of the de Albuquerque was responsible for the first supermarket chain G. Barbosa Comercial AlphaVille development in 1973. He founded Ltda., and is also a member of the board of AlphaVille S.A. in 1995. MaltaCleyton S/A, (Mexico), Vina San Rafael Caio Racy Mattar – Civil Engineer, Mr. S.A., (Chile), Covanta Energy Corporation, Mattar holds a postgraduate degree from the and other companies. Mr. Huber is also London Business School. He is currently the responsible for the administration of private executive director of Companhia Brasileira de equity portfolios. He is an independent Distribuição (CBD-Grupo Pão de Açúcar) and board member. is a member of the board of directors for Gerald Dinu Reiss – Graduated with both Sendas Distribuidora S.A. and degree in Electrical Engineering from the Paramount Têxteis Indústria e Comércio S.A. Polytechnic School of the University of São He is an independent board member. Paulo (USP). MBA and PhD in Fabio Schvartsman – Graduated from Administration from the University of the Polytechnic School of the University of California, Berkeley, USA. Was Planning São Paulo (USP) with a degree in Production Manager at Metal Leve S.A., where he Engineering and holds a postgraduate worked from 1972 to 1974. Worked at degree in Business Administration from Grupo Ultra between 1980 and 1986, first the Escola de Administração de Empresas as Director of Planning and Development de São Paulo/Fundação Getúlio Vargas. and later as a member of the Executive Mr. Schvartsman was the financial Committee. Since 1987, executive partner superintendent of Grupo Ultra from 1985 and founder of CONSEMP – Consultoria to 2007. He also worked at Duratex S.A. Empreendimentos Industriais Ltda. (now from 1976 to 1985. He is the president known as Reiss & Castanheira Consultoria e of Telemar Participações S.A. and a member Empreendimentos Ltda.). Currently member of the board of directors of TeleNorte Leste of the Board of Directors of a number of (TNL), Contax and Pão de Açúcar. He is an Brazilian companies, including CAEMI, independent board member. Petrobras S.A., Petrobras Distribuidora S.A., COMERC and Grupo Pão de Açúcar. Independent board member. Gary Garrabrant Chairman
  24. 24. EXECUTIVE OFFICERS MBA from Harvard Business School. Mr. Osmo worked as an associate There are currently six Gafisa S.A. executive officers, whose at GP Investimentos, as a consultant at Bain & Company, as assistant mandates were set forth at the meeting of the board of directors on professor at the Finance Unit of Harvard Business School, and was December 22, 2006. These officers are responsible for the day-to- founding partner of Ysoquim Representações Internacionais. day decisions of the company and implementing the general Rodrigo Ferreira Coimbra Pádua – Director of People and policies and guidelines established by the general assembly of Management – Graduated from União de Negócios e shareholders and by the board of directors. They will serve for three Administração (UNA-MG) with a degree in Corporate years, at the end of which they may be reelected. The position may Administration, and holds an MBA in Human Resources from also be terminated at any time deemed appropriate. Fundação Getúlio Vargas and in Business Management from IBMEC. Wilson Amaral de Oliveira – CEO – Graduated from Fundação Mr. Pádua was manager of people and management and project Getulio Vargas with a degree in Business Administration, and a manager at AmBev, and HR manager at Danone. specialization in Marketing from Escola Superior de Propaganda e Nelson Martinez – Director of Control and Planning – Marketing. Mr. Amaral was as a member of the board of directors Graduated with a degree in Accounting Science. Mr. Martinez holds and director of Grupo Playcenter S.A., president of Grupo Artex an MBA in Finance and Corporate Management from FEA USP with Ltda., a sales and marketing director of Fundição Tupi, Tupy Tubos e specialization in Finance from New York University. He is a former Conexões Ltda. and CLC Alimentos, member of the board of member of the fiscal council of Santista Têxtil S.A.; former controller Americanas.com S.A., Kuala (successor of Artex Ltda.), Toalia S.A. at São Paulo Alpargatas S.A and Monsanto do Brasil Ltda. and ABC Supermercados S.A., executive partner of Finexia, country manager of DHL Worldwide Express do Brasil Ltda., executive EXECUTIVE OFFICERS OF THE SUBSIDIARIES/UNITS superintendent of Tupi Perfis S.A., member of the board of directors Antônio Carlos Ferreira Rosa – Managing Director of Gafisa of Hopi Hari S.A. and member of the Fiscal Council of Lojas Incorporação – Graduated from University of São Paulo with a Americanas S.A. degree in Civil Engineering. Mr. Rosa began in the company as an Alceu Duílio Calciolari – CFO and Director of Investor intern and held several positions including construction manager Relations – Graduated from Faculdades Metropolitanas Unidas and project manager. (FMU) with a degree in Business Administration and a Master Mário Rocha Neto – Managing Director of Gafisa Construção in Controllership from Pontifícia Universidade Católica de São Paulo. e Engenharia – Graduated from the Polytechnic School of the Mr. Calciolari began his career as a trainee at Banco Real S.A., University of São Paulo with a degree in Civil Engineering. Mr. Neto in 1978. From 1983 to 1996, he worked as an auditor at Arthur began in 1978 as an intern in Gomes de Almeida Fernandes Andersen LLP. He was a financial director of Tupy S.A., from 1996 to (Gafisa’s predecessor company), and was also a member of the 1998, and ALL – América Latina Logística S.A., from 1998 to 2000. board of directors of Y. Takaoka Empreendimentos S.A. in 2003 and He has been a director of Gafisa S.A. since 2000. 2004 and of the board of the Civil Construction Industry Odair Garcia Senra – Director of Institutional Relations – Organization. At Gafisa he was initially an engineer and manager of Graduated from Mauá Engineering School – Instituo Mauá de a group of building projects. Tecnologia (IMT) with a degree in Civil Engineering. Mr. Senra began Julio Cesar Gomes Pedro – Managing Director of Gafisa as an intern in 1970 at the former Gomes de Almeida, Fernandes, Vendas – Graduated from University Cândido Mendes (RJ) with a working as a works engineer, a general manager of works, a degree in Economics, and graduate studies in capital and future director of construction and a director of condominiums. He held markets from BM&F, holds an executive MBA from IBMEC, and a the post of Professor of Hydraulics and Sanitation at Mauá Masters from Ivey University, Ontario, Canada. Mr. Pedro worked for Engineering School in 1972 and has been a director of Secovi since five years at Kaiser Molson where he was the marketing director 2005 and vice-president of SINDUSCON-SP since 2006, representing and then vice-president for Sales and Marketing of Kaiser, as well as this organization in the Technical Group for Urban Legislation vice-president of New Business and Innovation at Molson Canada. (CTLU) of the São Paulo City Planning Department. His career began at Brahma/AmBev (1991/2000) in the area of Rodrigo Osmo – Director of Business Development – strategic planning and then marketing where he held managerial ANNUAL REPORT 2007 Graduated from the Polytechnic School of the Universidade de São positions at Skol, Fratelli Vita, Brahma and Antarctica. Paulo (USP) with a degree in Chemical Engineering and a holds an Corporate Governance | 21
  25. 25. João Audi – Managing Director of AlphaVille Urbanismo – Graduated with a degree in Engineering and economics and a Master in Corporate Administration from Kellogg School of Management, Chicago. Previously, Mr. Audi was CEO of Parmalat, Metalúrgica Prada and Lusosider in Portugal. He occupied management position in Shell Brasil, Profarma and CSN. Newman Brito – Managing Director of Fit Residencial – Mr. Brito holds an MBA from IBMEC Business School and specialization in real estate from Harvard Business School. He began in the real estate market in 1996 at Atlântico Sul Empreendimentos where he was the regional manager and sales director until 1999. Between 2000 and 2002, as executive partner, participated in the start-up of Areautil.com and its sale to Homestore, which at the time was the world leader in internet real estate sales. He began in the Schahin Group in 2003 where he was responsible for restructuring the real estate department and created Schahin Real Estate Development, holding the position of executive director up to March 2007. He took on his position at Fit in August, 2007. Roberto Senna – Managing Director of Bairro Novo – COMMITTEES Graduated from Federal University of Bahia with a degree in Civil The following committees are maintained: Engineering and holds an MBA in Corporate Strategy from Fundação Getúlio Vargas. He joined the Odebrecht Organization AUDIT COMMITTEE in 1979, where he held various positions as an executive in the The Audit Committee is comprised of three members. Engineering and Building business in Brazil and abroad, having The Committee meets at least once every quarter and together been the director at Odebrecht Infrastructure Investments. He was with the auditors, is responsible for the planning and revision of the CEO and member of the board of directors of Opportrans, the annual and quarterly reports and accounts as well as ensuring the Metrô Rio concessionaire. He has also been a member of the board maintenance of an effective system of internal controls. One of directors of Telemar, Brasil Telecom, Telpart (parent company of member is a financial specialist who is required to disclose a 20-F Telemig Celular and Amazônia Celular). Mr. Senna was director of Form every year in compliance with the US Security and Exchange Telemar Participações and of Lexpart and Argolis, which are Commission (SEC). The final responsibility for revising and approving investment channels of the Opportunity Group. the annual and quarterly reports and accounts remains with the company's management. FISCAL COUNCIL The Gafisa S.A Fiscal Council is not permanent and may be set REMUNERATION COMMITTEE up as needed. When needed, the Committee may be created and The Remuneration Committee is comprised of three members. shall consist of three members elected by the general shareholders This Committee is responsible for assessing and recommending meeting and must have the same number of substitutes. measures related to the company's remuneration policies and all Its functions will end at the next annual general meeting and its forms of remuneration offered to the executive directors and other members may be reelected. Remuneration for members is decided Gafisa S.A. employees. In 2007 the General Shareholders Meeting by the general meeting and the shareholders who elect them. fixed the total compensation to Gafisa’s management in the amount of R$5,880,732.00 for the year 2007, including fixed and variable compensation. The Board of Directors defines the amount to be distributed to each executive based on his responsibilities, the time in the position, professional reputation and market value of these services rendered. 22
  26. 26. INVESTOR RELATIONS A variety of communication channels have been established through the Investor Relations department to facilitate the transfer of information from the Company to its shareholders and the market. Gafisa’s website is available in both Portuguese and English, and makes available relevant investor information including; the Company’s results, stock performance, corporate calendars and important disclosures. In 2007, Gafisa hosted an Association of Stock Market Analysts and Professionals (Apimec) meeting for investors and market analysts in which all of its directors participated presenting the strategy and results. The Company participated in a number of meetings, conferences and roadshows, both in Brazil CORPORATE GOVERNANCE COMMITTEE CODE OF CONDUCT AND ETHICS and abroad. The Corporate Governance Committee is Gafisa S.A implemented a code of ethics in comprised of three members. The 2007 which must be signed by all SUBSIDIARIES Committee’s responsibilities are to analyze employees. All professionals receive training Gafisa owns less than 100% of the and periodically report on issues related to about the guidelines set forth in the Code following subsidiaries and their board the selection, investiture and size of the and how to proceed should a stated structure is as follows: Board of Directors. The Committee may also guideline be violated. The Company also AlphaVille Urbanismo S.A. – Made up develop and recommend principles of ensures that there is always a proper of five members, of which three are governance applicable to the company. channel available to report a violation. As of appointed by Gafisa S.A., which holds the end of 2007 the Company had received 60% of the business. INVESTMENT COMMITTEE two communications addressing aspects of Bairro Novo – Gafisa S.A. and Odebrecht The Investment Committee is comprised of employee behavior, but not concerning Empreendimentos Imobiliários have equal three members; the chairman, a member of issues related to fraud or financial impacts. shares in this joint venture and hold joint the Board of Directors, and the CEO of control of the new company, participating Gafisa S.A. The Committee’s mission is to INDEPENDENT AUDITING equally and only by means of the board of analyze, discuss, and recommend land The financial statements are audited by directors. The executives were selected acquisitions as well as to give counsel to the PriceWaterhouseCoopers. The relationship based on market standards and no directors about the negotiations of new with the auditors is based on the shareholder has preference in nominations projects and the structure of building international independence principles as for a specific administrative position neither projects. The Committee may also follow well as the Company’s internal audit or in providing services for the joint venture. launches and respective cash flows and, in services policy. In 2007, services were Cipesa Empreendimentos Imobiliários – special cases, participate in negotiating and contracted not related to external auditing Of the seven board members, four setting up new types of business. in amounts higher than 5% of the annual (including the chairman) are appointed by honorariums contracted. Gafisa S.A. The former controlling members of Cipesa should maintain their roles in the ANNUAL REPORT 2007 company for five years and sign a long-term non-competition agreement. Corporate Governance | 23
  27. 27. THE SECTOR IN 2007 The combination of a drop in interest rates, increased earnings for workers, and growth Despite the significant growth, this total in the supply of credit for real estate financing has created a highly favorable environment represents approximately 2% of the Gross for the housing construction sector in Brazil. Economic stability and optimistic forecasts Domestic Product (GDP), while in countries for economic growth, coupled with the pent up demand for real estate, underlie forecasts such as Chile and Mexico the average for fast growth in the sector over the coming years. These factors have also minimized percentage of GDP is 13%. The growing the possibility of the country undergoing merely a short-term real estate boom. interest of banks, both public and private, The housing deficit is estimated at 7.964 million units according to a Fundação Getulio to offer housing credit with longer terms, Vargas study carried out based on information from the 2006 National Housing Sample up to 30 years, was another driver in the Survey (Pnad) from the Brazilian Geographical and Statistical Institute. With a young and market and the ensuing reductions in the growing population (45.5% of the inhabitants are below age 25 and 23% are between basic interest rate should encourage age 26 and 39), the demographic forecasts in the country point to the formation of 1.5 Brazilians to undertake even more financing. million families each year up to 2020. With the number of families growing at a rate higher The Brazilian market for residential than the population (2.43% compared to 1.16%), in order to meet the deficit it will be developers is fragmented, with more than necessary to build homes at a more accelerated pace than that of the growth of population, 20 general contractors listed on the according to the analysis of the Brazilian Chamber of the Construction Industry (CBIC). São Paulo Stock Exchange (BOVESPA). In 2007 the national civil construction sector registered a growth of 7.9%, according to data The market share of Gafisa's brands in the from the Civil Construction Industry Organization (SINDUSCON-SP), causing its share in the São Paulo and Rio de Janeiro markets, where national Gross Domestic Product to move up one percentage point in the year from 4.5% they have been established for the longest to 5.5%. According to SINDUSCON-SP the share of this sector of the GDP is expected to period, is estimated at 4.3% and 7.7% reach over 10% in 2008. according to information from Embraesp The volume of real estate financing with funds from savings accounts, essential to making and Ademi. it possible for the lower income population to have access to their own homes, reached R$ 18.4 billion and is 98% higher than last year. It was the largest volume in 19 years and represented the financing of 195,981 units (72% more than in 2006) according to the Brazilian Association of Real Estate and Savings Entities (ABECIP). Adding the banks' own portfolios (R$ 18.4 billion) and funds from Employment Security Fund (FGTS), which reached R$ 6.9 billion, mortgages as a whole totaled R$ 25.3 billion, a growth of 55% compared to 2006. 24
  28. 28. GAFISA Gafisa develops vertical condominium developments for the middle and upper- middle classes with an average price over R$ 200,000. It closed the year with a land bank of R$ 5.7 billion in future sales, DEVELOPMENTS LAUNCHED IN 2007 based on the percentage of Gafisa's stake. Developments were launched in 30 cities Development City Number PSV in 17 states. of units (thousand R$) The Company has teams specially focused % Gafisa Isla São Caetano (SP) 240 75,683 on other markets in order to coordinate Grand Valley Rio de Janeiro (RJ) 240 44,014 the expansion process outside of the cities Acqua Residence (Fase 1) Nova Iguaçu (RJ) 380 71,701 of São Paulo and Rio de Janeiro. In São Celebrare Caxias (RJ) 188 35,189 Paulo the prospecting is done by region Reserva do Lago Goiânia (GO) 96 24,567 within the State, which was divided into four CFS - Prímula São Paulo (SP) 96 29,906 large areas. For its activities in the rest of CSF - Dália São Paulo (SP) 68 18,430 CSF - Acácia São Paulo (SP) 192 47,784 Brazil, a committee for New Markets created Jatiuca Trade Residence Maceió (AL) 500 39,546 a decentralized business model that can Enseada das Orquídeas Santos (SP) 475 125,721 be easily replicated and supported through London Green Rio de Janeiro (RJ) 300 51,069 establishing local partnerships. This is a Horizonte Belém (PA) 29 12,704 model that ensures flexibility and agility Secret Garden Rio de Janeiro (RJ) 252 38,699 when entering any market. The model was Evidence São Paulo (SP) 144 32,425 Fit Maceió Maceió (AL) 54 3,087 successfully tested in Manaus and Belém Acquarelle Manaus (AM) 259 35,420 where building projects were completed in Palm Ville Salvador (BA) 112 15,106 2007. The process of entering a new market Art Ville Salvador (BA) 263 20,777 includes the following stages: Privilege Residencial Rio de Janeiro (RJ) 194 35,576 Visit the municipalities in order to gain JTR (Fase 3) Maceió (AL) 140 11,911 more information about the market Parc Paradiso (Fase 2) Belém (PA) 108 17,147 Supremo São Paulo (SP) 192 143,634 conditions, sales pace, prices, number Orbit Curitiba (PR) 185 31,532 of housing developments launched, Parc Paradiso (Fase 1) Belém (PA) 324 58,754 needs, terms of sale, competition, and Vision São Paulo (SP) 284 87,336 contact with local developers. Solares da Vila Maria São Paulo (SP) 100 37,942 If a potential opportunity is identified Acqua Residence (Fase 2) Nova Iguaçu (RJ) 72 18,460 for developing building projects, Bella Vista (Fase 1) Resende (RJ) 116 46,046 Grand Park - Parque das Águas São Luis (MA) 240 21,851 structured surveys are then requested Grand Park - Parque Árvores São Luis (MA) 400 29,978 about the local market, testing product SunValley Niterói (RJ) 58 24,925 segments by income range, location, Reserva Santa Cecília Volta Redonda (RJ) 122 36,788 typology, etc. Olimpic Bosque da Saúde São Paulo (SP) 148 56,722 A search for land is initiated parallel to Magic São Paulo (SP) 268 87,129 the above steps, as well as the selection Horto (Fase 1) Salvador (BA) 180 84,521 GrandValley Niterói Niterói (RJ) 161 57,104 of possible local partners, considering their conformity with Gafisa's values, Total 7,180 1,698,202 portfolio, and reputation. PSV = potential sales value 26
  29. 29. Housing Credit Deposits in Savings Evolution of the Brazilian Housing Deficit (billion R$) Accounts (R$ million) 8,000,000 17.0% 25.3 55% 7,500,000 16.5% 57% 16.3 51% 7,000,000 16.0% 10.4 235 15% 6.9 6.9 187 6,500,000 15.5% 6.0 7.0 18.4 6,000,000 15.0% 5.5 3.8 3.9 9.3 3.0 4.9 2.2 5,500,000 14.5% 03 04 05 06 07 06 07 93 95 96 97 98 99 01 02 03 04 04 05 06 Mortgages with funds from FGTS Absolute deficit Mortgages with funds from SBPE Relative deficit ANNUAL REPORT 2007 Sources: ABECIP, Central Bank of Brazil, CEF, and FGV Source: PNAD, 2006. FGV Projects The Sector in 2007 | 27
  30. 30. Monitoring of housing developments in ALPHAVILLE URBANISMO S.A. new markets is carried out by development AlphaVille Urbanismo S.A. (AUSA) is the only Brazilian urban development company with managers that oversee specific regions. a national scope. It launched six housing development projects in 2007 and consolidated They are also responsible for establishing its presence in 23 cities in 15 states. With the company’s integration into Gafisa S.A., and forming partnerships and for defending its culture transitioned into a more results-oriented one. It modified a series of policies and each project at Gafisa's Investment procedures, and introduced enhancements in its financial area. This was done while Committee. They act as managers of the maintaining the identity that transformed this company into one that is “Top of Mind” entire product development process, with throughout Brazil. The immediate difference was the rate of growth, with potential sales responsibility for presenting results in line value (PSV) doubling and 50% growth projected for 2008. with or better than initial forecasts at the Brand recognition translates into sales success. In 2005, for example, 913 lots, representing end of the cycle. Managers are supported by 100% of AlphaVille Natal, were sold in 16 hours. In 2006, AlphaVille Francisco Brennand teams for prospecting new markets, product in Recife (state of Pernambuco) saw 95% of its lots sold within five days. And in 2007 development, sales and marketing, and at Alphaville Jacuhy in the city of Serra near Vitória (state of Espírito Santo) sold 500 lots legal, administrative and financial processes. in just four hours and sold 95% of the lots in just ten days. Cipesa Empreendimentos Imobiliários – The high added value of its products means AlphaVille can achieve higher margins than Cipesa is the largest housing developer in its competitors in every market where it operates. the State of Alagoas and has been a partner AlphaVille is considering expanding its scope of activities in 2008, one potential innovation in projects with Gafisa since 2006. With the may include offering finished houses on its lots while other growth areas are being evaluated. acquisition of 70% of Cipesa’s stock, Gafisa In the segment of second homes, it is considering offering rural and coastal products. now leads all projects developed by Cipesa in Alagoas and in the neighboring state of Sergipe. The rest of the shares are held by the Tércio Wanderley group, one of the largest producers of sugar and alcohol in the country with 45 years of experience in civil construction. DEVELOPMENTS LAUNCHED IN 2007 Development City Number PSV of allotments (million R$) Aracagy São Luis (MA) 332 23.1 Campo Grande Campo Grande (MT) 489 35.1 Rio-Costa do Sol Rio das Ostras (RJ) 616 51.7 Londrina 2 Londrina (PR) 277 17.2 Jacuhy Serra (ES) 775 102.9 Cajamar Cajamar (SP) 2 7.3 Total 2,491 237.3 PSV = potential sales value 28
  31. 31. FIT RESIDENCIAL With only nine months of activity, Fit Residencial has surpassed the results forecast for 2007. It has launched ten development projects in eight cities (São Paulo, Salvador, Belém, Ribeirão Preto, Taboão da Serra, Aparecida de Goiânia, São Luiz do Maranhão, and Guarulhos) with a PSV of R$ 263 million and a land bank of R$ 973 million. Fit targets the population with income that ranges between 5 and 20 minimum wages, a segment with great potential for real estate consumption, and sells its units at an average ticket price of between R$ 80,000 and R$ 200,000. Its strategy includes offering standardized vertical housing developments of up to 1,000 units in urban regions with good public service and business infrastructure, at affordable prices with accessible financing. Fit has developed five standardized product profiles specifically for the segment. Utilizing modeling technology, it follows the growth trends of industrialization in housing construction. This allows for increased standardization and the use of appropriate building practices providing gains in scale, agility and cost reduction, and making it possible to offer units at lower prices. Standardization and scale contribute to shorter launch and construction times, which also improve returns on these projects. At the end of 2007, Fit had almost 80 professionals. This number is expected to grow in 2008 with the expansion of the business and the creation of dedicated, independent general contractors to serve the Fit developments. Goals for 2008 include consolidating the company's infrastructure in order to efficiently execute planned projects and expand the company’s presence in state capitals and smaller cities. Fit and Bairro Novo forecast the launch of projects in 2008 worth R$ 700 million. BAIRRO NOVO Bairro Novo is a joint venture between Gafisa S.A. and Odebrecht DEVELOPMENTS LAUNCHED IN 2007 Development City Number PSV of units (million R$) Jaçanã São Paulo (SP) 184 16.9 Cittá Imbuí Salvador (BA) 204 14.9 Coqueiros Anandineua (PA) 621 30.1 Mirante do Sol Ribeirão Preto (SP) 56 31.4 Taboão Taboão da Serra (SP) 374 22.1 Maria Inês Aparecida de Goiânia (GO) 270 14.3 Grand Park São Luís do Maranhão (MA) 894 60.2 Jd. Botânico São Paulo (SP) 432 21.3 ANNUAL REPORT 2007 Jaraguá São Paulo (SP) 260 18.3 Vila Augusta Guarulhos (SP) 264 33.8 Total 3,559 263.3 PSV = potential sales value The Sector in 2007 | 29
  32. 32. Empreendimentos Imobiliários, created in February 2007 to offer a new concept in real estate projects and housing developments encompassing planned neighborhoods throughout the country. Bairro Novo provides affordable housing solutions for families with a joint income of between 3 and 10 minimum wages. Home prices range up to R$ 100,000. Bairro Novo is a pioneer in this business model focusing on products for lower income classes in the Brazilian market. A pilot project took shape in December 2007 with the launch of Bairro Novo Cotia, in the São Paulo metropolitan area. The plan is for 2,386 units, including apartments and houses, with façades and architectural details that make them stand out from other developments directed at this level of income. The same format will be taken to other metropolitan areas with developments of between 1,000 and 10,000 units containing houses and small apartment buildings located in residential zones. All the housing developments will have a complete infrastructure with paved and signposted roads, lighting, water and sewage systems, recreational areas, stores, easy access to public transportation, and, whenever necessary, schools and daycare centers, thereby offering a better quality of life with enhanced safety, cleanliness, and organization. With innovative building technology, home deliveries begin between six to eight months after commencement of construction. At the end of 2007 Bairro Novo’s land bank totaled a PSV of R$ 1.1 billion. Gafisa's share was 50% of this value. DEVELOPMENTS LAUNCHED IN 2007 Development City Number PSV of units (million R$) 100% Gafisa 50% Bairro Novo Cotia Cotia (SP) 1,006 37 PSV = potential sales value 30
  33. 33. GAFISA VENDAS Gafisa Vendas expanded its scope in 2007 with the creation of a unit in Rio de Janeiro. This subsidiary was created in 2006 in order to set up its own sales team for selling Gafisa real estate, and today it has an important role in the sales volume in the two cities where it operates, São Paulo and Rio de Janeiro. It is now responsible for closing up to 40% of the sales made in these regions. With an expected increase in the supply of real estate based on the increased capitalization of a number of companies in the sector as they launched shares on the stock exchange and the greater volume of credit availability, Gafisa Vendas was launched to maintain Gafisa’s competitive position. With its own sales infrastructure, Gafisa is able to manage its dependence on outsourced companies while creating healthy competition between its agents and external real estate agents. For this reason it does not intend to take over 100% of the sales of its projects, but to serve as a strategic channel of contact with the consumer. The goal of the group is to train specialized professionals that have access to the tools and knowledge necessary to close good deals in a competitive environment, thereby maximizing the results of the ventures. Professionals fully manage the sales cycle, including administrative, technological, and routine business aspects. They are also trained to help the customers in arranging credit. Gafisa Vendas’ activities are along three fronts: Housing Developments – The Gafisa team shares sales areas with professionals from the external companies. Inventory – Professionals from the company work with a focus on selling units not sold during the product's launch period and receive an extra commission according to the sales performance of these units. In 2007, the team was able to sell 100% of unsold 2005 stock in São Paulo. Internet – Training in the use of the Internet, which is a growing trend in the real estate market, as a key sales instrument is provided. Today 45% of the sales are initiated through the Gafisa site (www.gafisa.com.br). In coming years, Gafisa Vendas plans on expanding its operations to other regions in the country while broadening customer service to the company's other subsidiaries that require its services. ANNUAL REPORT 2007 The Sector in 2007 | 31
  34. 34. ANALYSIS OF CONSOLIDATED RESULTS OPERATIONAL PERFORMANCE In 2007 Gafisa S.A. and its subsidiaries launched 53 developments The average price per square meter of the projects launched was with a constructed area of 2.9 million square meters, up from 32 and R$ 2,835, 7% less than in 2006, due to the inclusion of Fit Residencial 587,000 m2 in 2006. At year end, 118 developments were underway and Bairro Novo lower priced developments. simultaneously in 15 Brazilian states. Gafisa continued with its geographic diversification strategy and in SALES 2007 launched building developments in Manaus (state of Contracted sales grew 63% in the year and totaled R$ 1.626 billion Amazonas), Curitiba (state of Paraná), Belém (state of Pará), Maceió (R$ 995 million in 2006). The promotion of quick asset turnover (state of Alagoas), Santos, São Caetano do Sul, and São Paulo (state combined with the diversification of the company's portfolio, its of São Paulo), Goiânia (state of Goiás), Duque de Caxias, Nova geographic expansion, and the favorable macroeconomic scenario Iguaçu, Niterói, Resende, Volta Redonda, and Rio de Janeiro (state of propelled sales growth. Of the total, 33% of sales are in markets Rio de Janeiro), Salvador (state of Bahia), and São Luís (state of outside of the cities of São Paulo and Rio de Janeiro. Maranhão). Fit launched its products in São Paulo, Taboão da Serra, The Gafisa products are responsible for the majority of contracted Guarulhos, and Ribeirão Preto (state of São Paulo), Salvador (state of sales (82%) followed by the AlphaVille products (14%). Fit Bahia) Aparecida de Goiânia (state of Goiás), São Luís (state of Residencial and Bairro Novo, which focus on the lower-middle class, Maranhão), and Anandineua (state of Pará). AlphaVille opened were responsible for 4% of sales. This is expected to increase next housing developments in São Luis (state of Maranhão), Campo year with the expansion of these two companies. Grande (state of Mato Grosso), Rio das Ostras (state of Rio de Janeiro), Serra (state of Espírito Santo), Londrina (state of Paraná), and INVENTORY Cajamar (state of São Paulo). Finally, Bairro Novo focused its efforts in The company recorded a growth of 109% in inventories (completed Cotia (state of São Paulo). With this, the number of cities with Gafisa properties, under construction and land), up from R$ 441 million in developments went from 21 in 2006 to 47 in 2007 and the number 2006 to R$ 924 million by the end of 2007. This result (including of states with the company’s brand presence grew from 13 to 17. lots paid in cash, properties under construction and units) reflects recent acquisitions of land paid in cash and properties under HOUSING DEVELOPMENTS construction as well as the increase in completed units and the Consolidated launches for 2007 reached R$ 2.236 billion, up 122% consolidation of Alphaville. in relation to the 2006 total of R$ 1.005 billion. Due to the expansion of Gafisa S.A. and its subsidiaries throughout the country, 33% of its launches took place in new markets (23% in 2006). 32
  35. 35. Launches per business (PSV) 2% 10% 12% 76% Gafisa AlphaVille Fit Residencial Bairro Novo Launches per business (m2) 1,976,123 726,539 204,855 47,235 Gafisa AlphaVille Fit Bairro Novo Residencial Includes our partner' stake in our projects Cities with operations 47 18 9 5 3 2 02 03 04 05 06 07
  36. 36. Pre sales per company (PSV) 3% 1% 14% 82% Gafisa AlphaVille Fit Residencial Bairro Novo Launches per region (million R$) 2,236 774 1,005 157 428 497 134 273 743 233 06 07 New markets São Paulo – other Rio de Janeiro – other São Paulo – Rio de Janeiro – metropolitan area metropolitan area Pre sales per region (million R$) 1,627 995 541 64 81 1 335 246 52 1 666 634 06 07 New markets São Paulo – other Rio de Janeiro – other São Paulo – Rio de Janeiro – metropolitan area metropolitan area
  37. 37. NYSE Listing March 2007

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