4Q08 Conference Call Transcription


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4Q08 Conference Call Transcription

  1. 1. Gafisa "4Q08 and FY08 Earnings Presentation” Tuesday, March 10, 2009 11:41:25 AM Wilson Amaral Gafisa Tuesday, March 10, 2009 11:41:25 AM
  2. 2. Gafisa "4Q08 and FY08 Earnings Presentation” Tuesday, March 10, 2009 11:41:25 AM Wilson Amaral OPERATOR: Good morning. Welcome to Gafisa’s Conference Call on the Full Year and 4Q ‘08 Results. Joining us on this morning’s call are Mr. Wilson Amaral, Gafisa’s CEO; Mr. Duilio Calciolari, Gafisa’s CFO; and Ms. Julia Freitas Forbes, Gafisa’s IR Manager. We would like to let you know that this presentation is being recorded, and all participants will be just listening to the webcall during the Company’s presentation. Then, we will initiate the Q&A session, when further information will be provided. Should you need any assistance, please dial “*” then “0”. Before we begin, I would like to let you know that this conference call 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. Now, I would like to pass the floor over to Mr. Wilson Amaral, who will begin the presentation. Sir, you may begin. WILSON AMARAL DE OLIVEIRA: Thank you. Good morning and thank you for joining us on our fourth quarter and year-end 2008 conference call. Beside from our CFO, Duilio Calciolari, we are joined today by Giuliana Laganá, the General Manager of AlphaVille and Antonio Carlos Ferreira, Gafisa’s Director of Real Estate Development. Gafisa has achieved many important accomplishments in 2008 despite the challenging economic environment. We have worked hard this past year to ensure that we are well positioned for long-term sustainable growth and that includes some important initiatives. We have significantly expanded our presence in the lower income segment of the Brazilian housing market through this 60% acquisition of Tenda. Today, we have the leading home building platform in Brazil, which serves all income segments, and have the broadest geographical reach. We have the last development strong dedicated management teams for each of our three main operating platforms, Gafisa, AlphaVille and Tenda. And intends to maintain our leadership position through the careful and conservative launch program focused on generating cash flow and improving returns. Gafisa Tuesday, March 10, 2009 11:41:25 AM
  3. 3. We had cancelled projects that did not meet our sales goals and eliminate costs within the organization that will help us conserve cash and leave us better positioned to deal with the current economic scenario. In addition, we have a real line functions within the organization most significantly within Tenda, to put us in much more position when the government announces further stimulus measures that will impact the home building industry. Processes and procedures are being streamlined internally so that we can take advantage of additional funding and problems when they became available. Finally, although difficult and costly, we have implemented numerous new financial conference to help us comply with Sarbanes-Oxley as well as completed implementation of SAP Enterprise software so that we have a solid infrastructure from which to grow our business. Our fourth quarter performance was negatively impact by special charges related to measures we undertook to better position ourselves in what continues to be a very challenging economic environment. However, sales for the period were solid, highlighted by strong activity at Tenda and AlphaVille and we sold 79% of our launches in the fourth quarter compared with 51% for the full year. Finally, if you back hold all of our fourth quarter adjustments, which we have detailed in the release; our EBITDA, EBITDA margin, and net income are all inline with our historical performance. All in all we had an excellent quarter and we are well positioned in the market with the product that homebuyers wanted. Our banking relationships have been and remain very strong. We have a total of R$3.4 billion in construction financing lines of credit provided to us by all the major banks in Brazil. Of these lines of credit, we have R$1.7 billion in signed contracts and R$751 million in contracts in process, leaving us additional availability of R$951 million. In addition, we have over R$300 million in receivables of completed unit available for securitization as well as more than R$606 million in cash and cash equivalents and remain confident that we have the financial capacity to meet our long-term goals. Now, let’s turn to Slide 3, so I can give you more insight in 2008, the fourth quarter and some of our thoughts going forward. For the full year 2008, not just including Tenda increased to 88% over to prior year to R$4.2 billion representing a 13 increase from the Gafisa, 32% from AlphaVille and 638% increase from Tenda which represents the combination of Fit and Tenda. When we look at this from a regional perspective we see that we increased our launches in Sao Paulo by 54% over the prior year, 54% in Rio de Janeiro and 155% in new markets. Our pre-sales for 2008 including Tenda increased 58% year-over-year to R$2.6 billion. However, this increase was substantially due to our consolidation of Tenda’s pre-sales. While pre-sales remain robust in the lower income segments the buyers of our higher in products have taken a more cautious approach to home buying under the current economic scenario. Net operating revenues which is calculated on a percentage of completion basis rose 45% to R$1.7 billion. 2008 EBITDA brings it to Gafisa Tuesday, March 10, 2009 11:41:25 AM
  4. 4. R$221 million, an increase of 61% over the prior year representing an EBITDA margin of 12.7%. Net income for 2008 was R$110 million a 20% increase over 2007. However, if you adjust for the impact of a new law enacted in Brazil to bring local accounting standards close to IFRS and special charges related to cancellations and registration full year EBITDA would have been R$261 million and an EBITDA margin of 15% and excluding the impact of the law that I just mentioned as well as the same special charges net income for the full year would have been R$171.3 million. At the end of the year our backlog of results reached approximately R$1 billion an increase of 96% compared to the end of 2007. Our land bank now is expensed at R$17.8 billion which is composed of 247 different sites in 22 states and insures us the ability to continue to grow long in sales. Finally, we completed 90 projects during 2008 for a total of R$1.2 billion. Gafisa completed 20 projects with 2343 units AlphaVille completed 3 projects with 1200 units and Tenda completed 67 projects with 4375 units. Turning to Slide 4; we are going to discuss the results for the fourth quarter, which reflect the very clearly, both the impact of the economic situation as well as more conservative stance we have taken to address our ongoing roll. Facilitated now the decline by 28% to R$747 million from the fourth quarter of ’07, primarily as a result of fewer launches in our higher end Gafisa projects. Pre-sales for the period declined 8% to R$607 million. Net of region revenues calculated on a percentage of completion basis rose 64% in fourth quarter to R$624 million. Fourth quarter EBITDA was R$33.6 million, declining 32% from the fourth quarter of 2007 and EBITDA margin was 5.4%. However, if we include the new law enacted in Brazil to bring local accounting standards closer to IFRS and the impact of the special charges related to cancellations, restructuring and the SAP implementation EBITDA would have been R$91.2 million with an EBITDA margin of 15.5%. For the fourth quarter we recorded a net loss of R$12.6 million compared to net profit of R$49.5 million a year ago. Again, by soothing the impact of law 11.638 mentioned previously along with the special charge related to cancellations restructuring and the SAP implementation net income for the period would have been R$56.9 million and the net margin would be 9.7%, demonstrated solid profitability despite challenging condition. Now, we turn to Slide 5 to review a number of important development steps occurred in 2008. We acquired 60% of Tenda, the leading homebuilder in the low-income segment earlier in the year and our financial statements reflect the consolidation as of October 21st, 2008. In late 2007, the accounting standards in Brazil were changed by law to bring then closer inline to IFRS standards. This important change are required for all homebuilders and have been reflected in our fourth quarter and year-end results. The changes require that all accounts payable and receivables are to be discounted at present value, expensing of stock option plans, expensing of sales at standard costs in Gafisa Tuesday, March 10, 2009 11:41:25 AM
  5. 5. one year and the establishment of a provision for warranty. Duilio will give you some more additional information related to these charges. In light of the challenging economic conditions we have taken a more conservation approach with respect to cancellations. Consequently, we carefully evaluated and analyzed our largest where the sales performance was below our expectation and have canceled a total PSV of R$241 million in the fourth quarter. In addition, we wrote-off R$15.7 million of marketing, selling, project and legal expenses associated with these cancellations. In addition to these cancellations, we took two additional non-recurring charges in the fourth quarter. The first was a charge of R$14 million for restructuring cost to better position us for future growth. In addition, we took a fourth quarter charge of R$25.6 million for transition issues related to the SAP implementation. Both Moody's & Fitch downgraded us during the quarter due to two factors; our cash, our use of cash in the Tenda acquisition and overall market conditions. And finally, subsequent to the quarter we terminated our partnership with Odebrecht. We will keep the coterie (Ph) developments which were launched in December 2007. Neither party will make any payment to the other. Turning to Slide 6 and 7, first launches and then pre-sales. I want to give you a better look at how we have modified our launch strategy to reflect change in the market. While we have had the very aggressive launch strategy for the first nine months of the year, we took a much more conservative approach in the fourth quarter and were considerably more selective in our launches. For the full year, launches grew 89%, with 47% in the new markets. When you turn to our pre-sales you can see that pre-sales grew 58% for the full year and that 51% of the pre-sales were in new markets. So this shows you that there is a strong demand for housing outside of Sao Paulo and Rio de Janeiro and we are having a great deal of success selling homes in those areas. However, I also want to point out that in the fourth quarter when we scaled back our launches and became more selective, we pre-sold 79% of our launches in that period compared to 61% for the full year. This is a clear indication that our new approach under the current market scenario is affect. And when you go to the next Slide #8, you can get a good sense of just how broadly diversified we are across the country with almost 200 projects under construction in 20 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 year-end is approximately 4 billion, of which 51% consists of projects that have been launched but not started. While the total market value of the inventory is approximately R$4 billion, the total book value is approximately R$1.3 billion. Of the amount, completed inventory at book is only R$96 million. Gafisa Tuesday, March 10, 2009 11:41:25 AM
  6. 6. Slide 10; gives you a good overview of our diversified high quality land bank that distinguishes us in the home building sector. Our land bank at the end of 2008 stands at R$17.8 billion composed of 247 different sites in 22 states. This represents over 115,000 potential units and gives the Company added flexibility in developing properties where there is the greatest demand and in areas that will generate the highest returns at different points of time. 72% of our land bank was acquired through swap agreements. Turning to my final Slide 11; you can see that while we have had challenges in the fourth quarter and expect difficult market conditions to continue, we have had a very successful 2008 and weathered the fourth quarter remarkably well. We have developed a strong platform for growth and are well positioned to take advantage of the stimulus measures sponsored by the government that we expect that we will occur shortly in Brazil. We have a diverse land bank, talented teams in place to deliver high quality products for which we are known and a capital structure to fund our future. With that, I will turn the call over to Duilio. DUILIO CALCIOLARI: Good morning, everyone. Slide to which is Slide 13, full year and the fourth quarter ’08 results were both affected by the non-recurring items, specifically the cancellation of projects that had performed poorly in term of sales and restructuring costs including in the light of the new economic scenario. In addition, the fourth quarter had a special charge related to transition issues from the SAP implementation. You can see the impact on our margin and results on the next slide. Before I discuss our financial and operating results, I would like to briefly mention some of the relevant changes to accounting standards brought about by the recent passage of law, which brings Brazilian GAAP closer to IFRS. The changes brought about by the SCPC Instruction 1 affect all homebuilders and include provisions for account receivables and accounts payables to be discounted at present value. The stock option plan introduced a new accounting system in Brazilian GAAP, sales transaction expense to be recognized with one year and the establishment of a provision for warranty. Overall, these changes resulted in adjustment to get these as annual net income of R$31.7 million for the year and R$14.3 million in the last quarter. The major part of this charge was non-cash and related to the introduction of accounts for our stock option plan. As Wilson mentioned, 2008 was a good year for Gafisa and despite the more challenging climate during the last part of the year and the impact of non-recurring items, Gafisa’s first quarter performance remained solid. For the full year 2008 and fourth quarter of ’08 under the new law, net revenues recognized by the percentage of completion method increased markedly by 45% and 64% respectively, while annual revenue reached 1.7 billion. AlphaVille had an outstanding fourth quarter, launching three developments in the State of Rio de Janeiro, Sao Paulo and [indiscernible] north that posted strong pre-sale reaching 86% of pre- sales. Gafisa Tuesday, March 10, 2009 11:41:25 AM
  7. 7. Gross profit increased during the year by 56% to R$526 million and during the quarter by 19% to R$148 million. While and gross margin improvement is lightly to 30.2% fourth quarter was margin declined to 23.8% from 32.8% in the fourth quarter of ’07. Excluding being backed of the…of a law enacting Brazil to bring local constituents closer IFRS and a special charge related to the cancellation and the SAP implementation, gross profit for the fourth quarter would have been R$182 million and gross margin would have been 31%. Excluding the impact of the aforementioned law, the gross profit would…in 2008, gross profit would have been R$544 million and the gross margin would have been 31.3%. EBITDA for the fourth quarter totaled R$33.6 million, 32% lower than the R$49.7 million EBITDA in the fourth quarter of ’07. EBITDA for the fourth quarter excluding the impact of the new law and the special charge of R$55 million from cancellation of launches, restructuring cost in transition, the issues related to SAP installation would have been R$91 million and EBITDA margin of 15.5%. For the full year of 2008, EBITDA totaled R$221 million with a margin of 12.7%. 2008 EBITDA was 61% higher than the 137 million EBITDA of 2007. EBITDA for the full year excluding those impacts that I already mentioned of 29.73 million from cancellation of launches and restructuring cost would have been R$261 million or 15% EBITDA margin. Fourth quarter ’08 showed a net loss of R$12.6 million, 2% of net revenues, compared to approx of R$49 million in the fourth quarter ’07, 13% in terms of margin. Net income for the fourth quarter of 2008 excluding the impact of the new law and the special charge would have been R$56.9 million or 9.7% in terms of net margin or 44 per share for the fourth quarter of 2008. Net income in 2008 was R$110 million, 6.3% of net revenues compared to R$92 million in the fourth quarter ’07, 7.6% net margin, an increase of 20%. Excluding the impact of the new law and the special charge related to cancellation and the restructuring net income for the full year would have been R$171 million or 9.9 percentage in terms of net margins. During the fourth quarter, the backlog of result to be recognized under the percentage of completion and that’s a increase to R$1 billion, a 92% increase as compared to the fourth quarter of 2007. Backlog margin results yet to be recognized was 33.9% inline with the result reported in the last quarter in the fourth quarter ’07. SG&A as a percentage of revenues increased to 19.1% in 2008 from 16.7 in 2007, mainly due to the Tenda’s acquisition and no recurring items I already mention it. In the Slide 18 we have our financial position. At December 2008 Gafisa’s had cash and cash equivalents over R$606 million, R$300 million of receivables available for securitization and credit lines of R$3.4 billion. The net debt plus obligation to investor to active ratio at the end of the period increased to 77%. We are currently working on the securitization of portion of our receivables and tend to maintain a solid cash position. Additionally 73% of our debt is long-term. Gafisa Tuesday, March 10, 2009 11:41:25 AM
  8. 8. Gafisa shares continue to be the most liquid in the sector and the only Brazilian real estate company to be listed in the United State. Given the current scenario and the economic situation we continue…the continued disruption the credit marks visibility on overall growth in the industry is limited, despite this factor we are optimistic that governs our actions including the additional of 3 billion in at the ETS funds, designate for financing within the construction industry, the stimulus program aim is at building 1 million house by 2010 and the lowering of this selling interest rate by the Central Bank will result in the increased availability of funds to support the growth of homebuilding. However, result of the elements currently in place, we are not providing guidance in the short-term. In 2009 we will continue to be very selective with our launch, conserve cash and increase our sales efforts towards our inventory. Thanks and let’s open the floor to Q&A. Q&A OPERATOR: Thank you. At this time if you would like to ask a question please press “*” then “1” on your touchtone phone. You will hear a tone to confirm that you have entered the list. If you decide you want to withdraw your question, please press “*” then “2” to remove yourself from the list. Again at this time if you would like to ask a question, please press “*” then “1” on your touchtone phone now and we will pause to allow participants to enter the question queue. Our first question comes from Jorge Kuri from Morgan Stanley. Please go ahead. JORGE KURI: Hi, good morning, everyone. I have several questions, first on the cancellations. The projects that you cancelled are these definite cancellations or you plan to re-launch them in this quarter or next quarter as probably the environment improves? Also the cancellations at Tenda, I see that they represent around 60% of what you actually launched, can you give us some more color on why more than half of the projects launched were cancelled, I mean it seems to be a pretty large number in absolute terms? And also on the cancellations, can you give us an update of the situation in the first quarter, have cancellations in the first-three months of this year reached similar levels as we saw in the fourth quarter are they lower, higher? And then a question not related to cancellations, but you said that the 14 million in restructuring charges were necessary to adjust the Company to the new economic scenario, can you be more specific exactly what did you charge off and how does that accomplish what you mentioned? Thank you. WILSON AMARAL DE OLIVEIRA: Hey, Jorge, it’s Wilson. We’ll talk a little bit about cancellation where…well, our land bank is a good land bank. What happens that due to the current scenario we are not seeing the right sales velocity for that project? What happens that we write-off the expenses related to that specific project and this land bank, virtual land bank, there is a specific piece of land and of course it’s going to be launched in the future at the right time, you know, that’s the promise. So it’s very common this kind of action especially right now as we are trying to conserve cash. So this is the best measure we can take under Gafisa Tuesday, March 10, 2009 11:41:25 AM
  9. 9. the current scenario. But is the future is going to re-launched is not a problem. In terms of Tenda, most of the cancellation is related to the past. So, we are not seeing right now the same level cancellation in Tenda. What happens that in the past they were not using any kind of special…I will say credit scoring processes, so what we are trying to do is exactly to clean-up that receivables portfolio in order to have a good sales that’s our point. That…so right now what we did recently, we review all those customers, we have approximately 20,000 active customers in Tenda. We just review their capacity of credit according to the cash economic credit score and I can assure that more than 90% of our customers they are, they are able to get the right credit from the cash economic. And so when we…when we think in terms of future as we are selling currently according the right credit score we are not seeing the same volume of launches or canceling the future. Of course, we do not know exactly how the economy will be in year from now, but if we consider the current situation of our economy for this segment of our population I am not seeing any special concern. Most just to confirm that most of the cancel that we just did in Tenda are relating to 2007 sales okay, so right now this is not a problem, okay and what else did you do ask Jorge please. JORGE KURI: The 40 million in restructuring charges that’s according to what you have mentioned several times were necessary to adjust the Company to a new economic scenario? WILSON AMARAL DE OLIVEIRA: Yeah. JORGE KURI: What exactly where they and how do they adjust the company to a new scenario? WILSON AMARAL DE OLIVEIRA: It’s basically two kind of…two kind of restructure. One is related to layoffs, of course, we adjusted our structure to this new scenario and this…those layoffs are related to Tenda, to Gafisa, to Gafisa vendors, in some regions we what we were not expected to see any important volume of launches during the ‘09 so we are just adjusting the size of our structure. In case of Tenda we review our…I will say our stores, you know, that we have approximately 40 stores in Tenda structure. So depending on the volume of that we are expecting to launch in one specific region, we reduced the number of stores, just to adjust…to be consistent with our future launches. And the other part of the restructuring cost is related to the closing of offices. We consolidated some offices, so we eliminated one specific office in the City of Sao Paulo and another one in Rio de Janeiro. So those expenses were related to the evolution of the office are recognized here in the quarter. But basically to adjust the Company to this scenario, okay, and basically layoffs and some facilities that we just closed. JORGE KURI: And are we’ve done with those charges or the first quarter is going to have one? Gafisa Tuesday, March 10, 2009 11:41:25 AM
  10. 10. WILSON AMARAL DE OLIVEIRA: No, no, we are done, but we’ve always continue monitoring the scenario that the current scenario and evolution of this scenario…if it’s necessary of course, we will come back to this issues. But so far, we have from first quarter for example we are not considering any new restructuring or any actual related to this kind of restructure. JORGE KURI: So, thank you, and just to confirm you did say that cancellations in the first three months of this year are much lower than the fourth quarter is that right? DUILIO CALCIOLARI: Repeat please. JORGE KURI: Did you say that the cancellations in the first three months of this year are much lower than the fourth quarter or not? DUILIO CALCIOLARI: Exactly. JORGE KURI: All right. Thank you. DUILIO CALCIOLARI: Thank you. OPERATOR: Our next question comes from Marcello Telles from Credit Suisse. Please go ahead. I am sorry, Mr. Telles dropped off the line. Our next question comes from Dan McGoey from Deutsche Bank. DAN MCGOEY: Good morning, gentlemen. My question first I guess I understand you won’t provide guidance on launches or pre-sales for 2009 but maybe if you can give an idea of mix between what portion will be towards the Tenda business, Tenda Fit business, AlphaVille and Gafisa? And then the other question I had related to the income statement, you detailed a number of the non-recurring charges and adjusted profits for that, but there is also a credit for the gain on the Fit combination with Tenda, I think its indicated in the press release at R$41 million but then and the operating line in the income statement it comes out by about R$25 million, should we not adjust for that and I guess what, you know, where is the difference between R$41 million and R$25 million other operating revenue. WILSON AMARAL DE OLIVEIRA: Okay, Dan. This is Wilson, I’ll try to answer the first question then I will pass it Duilio. Unfortunately, we cannot provide any guidance right now we are expecting from change in terms of policies to our sector. So we will probably go back to this issue and maybe in some months, but what I can tell is that volume of our sales coming from the lowering income side so we’ve really rolled faster than any other segment, okay. I will say that in ’09 with the information that we have today that can be change, you know, but the information that I’ll say that at least there is going to be something pretty close to 45% Gafisa products, 45% Tenda projects, and 10% AlphaVille products this is going to be the mix we’ll probably see in the year of ’09 or something close to this figures. Duílio? DUILIO CALCIOLARI: Yeah regarding this R$41 million it’s related to the gain that we have when we contribute Tenda to Fit. We had a gain of over R$200 million that will be amortized and that 10 months from now on. So, 12…2 Gafisa Tuesday, March 10, 2009 11:41:25 AM
  11. 11. months and in 2008 and 10 months in 2009 and the gains regarding the whole change that we had to do in Fit strategy and also because we had…we understood that we had good deal that all of us to make this gain, I think you followed the deal few months ago and according to the auditors this is the gain regarding the contribution Fit to Tenda as that generating this difference in terms of book value versus the pay that we did…payment that we did. DAN MCGOEY: So, it’s the book value differential or the negative goodwill being amortized to the income statement, right? DUILIO CALCIOLARI: Yes. DAN MCGOEY: Okay. Okay, great. Thanks very much. OPERATOR: Our next question comes from Adrian Huerta from JP Morgan. Please go ahead. ADRIAN HUERTA: Hi, good morning, everyone. My question was has to do with regards to your leverage if you can elaborate a little bit more on how you feel on the…with the current level of leverage that you have which is closer to 80% on net debt to equity basis and what would you say will be the maximum level that you will have and your expectation for this year? Thanks. DUILIO CALCIOLARI: Hi, Adrian. Well, Adrian talking about the leverage, our internal model…we have internal model that helps you understand that the maximum leverage that we can have it that can all the company continue to be finance in the market, and this maximum level is around one times equity in terms of net debt we can go up to one time and why I am telling this. With this one time net debt add we continue to be investment grade according to our internal model. You see from now on some corporate debt change to product finance, we see a switch from corporate debt to product finance, but our limit today is one time net debt equity and you should below this ratio along the…of the year. ADRIAN HUERTA: Excellent. Thank you, Duilio. OPERATOR: Our next question comes from Eduardo Silveira from Fator. Please go ahead. EDUARDO SILVEIRA: Hello, my question is about the gross margin, we saw the gross margin decreasing from 35% through the quarter to 31%, but if you look at only for the Tenda margin, it’s 33%. So my question is would margin will be lower if we not consider Tenda-Gafisa results. Thank you. WILSON AMARAL DE OLIVEIRA: What we have here is only two months of Tenda, if you take a look at our results you see only two months of Tenda operation. And your marking intend 31.7, Gafisa 30.2, AlphaVille 33.1. This is for two months. When you talk about those 35% in the last…in the third quarter and the margin that we see here we saw here….we saw in the first quarter of 23%, those 23% is highly impact by the SAP implementation. Those…the problem that we have with the immigration from one system to another system. So we should look at the whole year to have a better perspective in term of margin and around 30% of good number, Eduardo. Gafisa Tuesday, March 10, 2009 11:41:25 AM
  12. 12. EDUARDO SILVEIRA: Okay. Thank you. OPERATOR: Our next question comes from Bianca Cassarino from Goldman Sachs. Please go ahead. BIANCA CASSARINO: Hi everyone. It’s Bianca Cassarino again just a follow up question on the margins and also the Portuguese call. We understand the question on DSAP basically impacted the full year in one single quarter, but just would like to remind me please they when we remembering the second and third quarters you guys also said that one of the reasons behind the higher gross margins was a different mix of product mix specifically something more related to the higher income segments where we historically have higher margins so just to make sure I got you right the impact of SAP implementation in the fourth quarter basically means that the margin in the second and third quarters where kind of overstated. DUILIO CALCIOLARI: You are right and we…when we did that evaluation we are under the SAP implementation, yes we had the good mix, but we didn’t kept all the cost related to the mix so that’s why you made program mistake when we report because we didn’t capture the cost because SAP new platform so that’s you are right. BIANCA CASSARINO: Okay, that’s clear. Thanks. OPERATOR: Our next question comes from Rodrigo Oliveira from Credit Suisse. Please go ahead. MARCELLO TELLES: Good morning, gentlemen. This is Marcello Telles disconnected connected before. Well, I have two questions the first one I know you mentioned a little bit earlier about your expectation for net debt to equity of one-time, I just want to make sure if you are talking about…if you are included in the construction finance or SFH in the number? And also I was wondering if you could tell us if you used, you know, you have an increasing net debt, you know, of R$260 million from the third to the fourth quarter and you mentioned the release that this was mainly related to Tenda, what was exactly was the use of those proceeds at Tenda source I would you to elaborate a little bit more on that? And my other question on the…on the cancelations and on inventory that you have given that you have some projects that are selling below in you know, your threshold would you expect…what sort of strategy are you going to adopt for those…for those projects, you know, would you discuss, you know, further cancellations, or would it be give discounts or reduce the price, you know, to improve the sales speed and how that would rotationally pack your initiatives for 2009? Thank you. DUILIO CALCIOLARI: Marcello, this is Duilio speaking, your first question regarding the mix of our debt, you are right, when you are talk about one-time we are including all the financing which means project finance will be…construction finance will be if considerate for this ratio. The second question is about our use of cash in Tenda and Gafisa, you know, that we are in a high volume of reduction using Gafisa and Gafisa Tuesday, March 10, 2009 11:41:25 AM
  13. 13. Tenda. And Tenda are consuming as they are operating in a reasonable level of reduction. So, if you take a look at Tenda’s net acquisition in September and together again in December they are consuming cash like Gafisa. So, you see during the 2009 our net debt equity ratio is increasing by the end of …till the end of the year and then it start to decrease once we start to generate cash even in Gafisa and Tenda, assuming that we will have a flat year in terms of growth. So, we will have the return off all investment that will be the…since 2006 and 2007. And if we are assuming that we will not having another growth year in 2010, the cash in generation will be very, very significantive (Ph). WILSON AMARAL DE OLIVEIRA: And this is Wilson, let me elaborate a little bit about our strategy against cancellation. And there is a huge difference when you see products that you haven’t start the construction and products that are already started construction. We’ve really do not see much reason to give discount in prices of products that we’ve sold only 15%-20% and products that we haven’t started construction yet. If we have the products that…if already put money on that projects you rather build I don’t know 70%-80% of the project. Maybe you are going to have give some discount and maybe in something in some cases it’s important to give some discounts in order to free the cap, okay, especially considering the different situation. But, if you are just along to the product and if you sold 10%-15% you are not feeling the right and you have not seeing the sales velocity, I really don’t see any good reason to give discount in the product that we will start produce in the future. It’s a…if you consider the right at the current situation of our market better think that you have to do is exactly to conserve your cash even if you have recognize some expenses and to write-off at this moment except what part we are right now. MARCELLO TELLES: Great, thank you. And just a follow-up on your net debt to equity expectation by…for year end of one-time, do you in that expectation, do you assume any further cancellation of projects or just assume that you are going to continue to, you know, and the project that you launch and at the current sales pace? Thank you. DUILIO CALCIOLARI: Marcello, on average we haven’t not assuming, not any important cancellation. We may have some in back ups, new cancellations but it should an impact severally our net debt-eq position, as long as we haven’t put a lot of cash in those potential cancellations. So, even and also when we are cancel project, we are not expecting to collect a lot of cash from those cancellations. So, on average we shouldn’t have a huge impact even having more…having cancellations along of the year. We are not expecting this kind of thing. MARCELLO TELLES: Okay, yeah, yeah my question was more into sense that if it comes to a project, you know, you are going to have lower cash outflow related to those projects. So that…you’d see a lower your indebtedness? DUILIO CALCIOLARI: Yes, you are right. As long as we will have more cancellation it to be a benefit for our cash flow, but, doesn’t make sense to think that we are be canceling projects just to have a better cash flow. We each analyze project-by-project assuming that if you don’t see a good sales, a lot yes we will do that. But, it’s not the case to assume the scenario for our cash flow perspective for the whole year. I think we need to check on a Gafisa Tuesday, March 10, 2009 11:41:25 AM
  14. 14. monthly basis, and on a quarterly basis we are checking our project sales and then taking ours decision. MARCELLO TELLES: Sure, thanks so much. Bye. OPERATOR: Ladies and gentlemen, as a reminder if you’d like to ask a question, please press “*” then “1” on your touchtone phone. You will hear a tone to confirm that you have entered the question queue. To remove yourself from the question queue, please press “*” then “2”. Our next question comes from Cecilia Deldasdillo from Citigroup. Please go ahead. CECILIA DELDASDILLO: Hello, good morning. I have a couple of questions both little bit of follow-up on questions that were made before. One of that I don’t know if you can share with us how is the cost of debt evolving now that some rating agencies have lowered the rating for Gafisa? And also on accounting…sorry on accounts receivables you mentioned that you have ready to Securitize 609 million roughly. So, I don’t know if you can also talk a little bit on how if there is an impact in cost which is the cost that you are assuming that these securitization will have or you need to have that timeframe for this happening? And finally, also in the your press release you mentioned that you are paying higher income because you are recognizing deferred income tax, so I don’t know what do you expect going forward for say effective tax rate? DUILIO CALCIOLARI: Hi, Cecilia. This is Duilio speaking. Regarding the rating…Gafisa’s rating, what happened is feature rating, downgrade the whole sector, one notch and we are together. So, the whole sector was downgraded because the market situation and we are together. We had another downgrade that Moods put on the street, it’s regarding they are concerning about Tenda’s acquisition, once we put a R$230 million in Tenda and they were concerned about the leveraging, that’s the reason we were downgraded. Accounts receivables, we are…yes, we are discussing with some banks and potential investors, as securitization is the action of R$300 million not R$600 million and we expect to have this transaction done by probably 60 to 90 days from now on. And we are expecting, since we are maintaining discussion with some banks to do at the same rate that we have in our accounts receivables which is throughout close IGPM. So, we don’t…we are not seeing any premium to do this at this point. But there are other situations that we may have to pay more and then we are evaluating with what would be the alternative to bring monetize this R$300 million. We also…you also asked us about income tax, what we have this the whole year…for the whole year also impact the last quarter was an income, deferring income tax over negative goodwill. It’s basically is a long-term deferring income tax and I’d say that is to not impact in our effective rate and you will continue…you can continue to work in terms of the effective rate over net revenues. We can assuming 2.6%- 2.7% over net revenues in our effective tax rate is around 21% for the Gafisa Tuesday, March 10, 2009 11:41:25 AM
  15. 15. whole year. Maybe we have some ups and downs along the quarter but the whole year we can work with 20%. CECILIA DELDASDILLO: Thank you. OPERATOR: Again, as a reminder if you would like to ask a question, please press “*” then “1” on your touchtone phone. To remove yourself from the question queue, please press “*” then “2”. Again, to ask your question, please press “*” then “1” on your touchtone phone now. We will now pause to allow participants to enter the question queue. As a final reminder, if you would like to ask a question, please press “*” then “1” now. It appears we have no further questions. So, we will turn the conference back over to Mr. Amaral for any closing remarks. WILSON AMARAL DE OLIVEIRA: Okay. Before I finish this presentation I would just like to confirm to reiterate our optimism about our future. And I hope to see you again in 3 months from now in our next conference call. Thank you again. OPERATOR: Thank you. [Multiple Speakers] today’s conference. I apologize for over stepping on you there. This concludes today’s conference. You may disconnect your lines at this time and have a great day. Gafisa Tuesday, March 10, 2009 11:41:25 AM