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4Q09 and fy09 Conference Call Transcription


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4Q09 and fy09 Conference Call Transcription

  1. 1. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Operator: Good Morning. Welcome to Gafisa’s conference call for the results of the Forth Quarter of 2009. With us today is Mr. Wilson Amaral, Gafisa´s CE, Mr. Duílio Calciolari, Gafisa’s CFO and IR Officer and Luiz Mauricio Garcia, IR Manager. We inform you that the presentation is being recorded and all participants will be just listening to the webcall during the company’s presentation. Then, we shall initiate the Q&A session, when further information will be provided. Should you need any assistance, please dial *0. Before we begin, I would like to let you know that this teleconference will be related to the operational and financial results of Gafisa and may include statements that are not historical facts and are considered forward-looking. These forward-looking statements reflect Gafisa’s current views about future events and financial performance. The forward-looking statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from Gafisa’s expectations. And, Gafisa expressly does not undertake any duty to update forward-looking statements whether as a result of new information, future events, or otherwise. Among other things, any changes in macroeconomic policies or legislation and other operational results can affect Gafisa´s performance. So, now I would like to pass the floor to Wilson Amaral. Mr. Wilson you have the floor Wilson Amaral, CEO Good morning and thank you for joining us on our Full Year and Fourth Quarter 2009 conference call. I am joined here today by our CFO, Duilio Calciolari, and our Investor Relations Manager, Luiz Mauricio Garcia. Gafisa successfully navigated 2009 and Brazil has emerged as one of the strongest global economies in terms of growth potential. With a strengthened business structure, including three respected brands with a presence in all income segments, expanded geographic reach and a large land bank of R$ 15.8 billion, we are poised to accelerate our launches over the coming years. Unemployment rates of as low as 7%, continued real wage expansion, and a renewal in consumer confidence during the fourth quarter underpinned strong demand for housing in all segments that approached pre-crisis levels. As a result, in the fourth quarter alone, we launched and sold over R$1 billion, a record quarterly high, and almost double the year ago period. We also exceeded our expectations for sales for the year and delivered solid operating margin expansion up from 14.9% in 2008 to 17.5% for 2009 – Without considering Tenda’s goodwill net of provisions – 50 basis points over 2009 guidance. Looking forward, we expect the favorable operating environment enjoyed by homebuilders during the latter part of 2009 to continue to prevail in 2010 on the basis of strong fundamentals. Gafisa will benefit from what is expected to be sustainable GDP growth at a rate of over 5% per year as well as robust public and private financial structures supporting mortgage growth and the building sector. In the next year, we expect to continue to drive leadership in our sector while transforming this Company into a national powerhouse by launching developments totaling between R$ 4 – R$ 5 billion. 1
  2. 2. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Mortgage lending capacity from both private and public sources is ample, highlighted by Caixa Econômica Federal’s current 2010 FGTS budget of R$24 billion, some 25% higher than granted in 2009, as well as an additional R$6 billion for corporate debentures. While there is not yet a commitment to expand MCMV beyond 2010, we are all working to extend the Government’s support to this program beyond 2010. With the full integration of Tenda we now have a streamlined corporate structure. And, while we did not anticipate some of the hurdles encountered in this segment during 2009, which were exacerbated by a global economic downturn, we are confident that we will see substantial improvement in both top line and operating performance within that business in 2010 and it will become an important engine of growth moving forward. Now, let’s turn to Slide 4 so I can give you a snap shot of some of the key financial achievements of the year and fourth quarter. I am pleased to say that we not only achieved, but exceeded our objectives for the fourth quarter. In the final quarter, sales grew by almost 80% as compared to the fourth quarter of 2008, reaching a record quarterly high of just over R$ 1.0 billion. For the full year, we achieved R$ 3.24 billion, just exceeding the top end of our guidance range. Launches also reached R$1 billion for the quarter bringing the total for the year to R$2.3 billion, which is in line with our strategy to reduce inventories in 2009. It’s also important to highlight that our Adjusted Gross Margin continue to show improvements, and reached almost 35% in the 4Q09. EBITDA adjusted for non-cash stock option expenses was R$174.3 million, 112% higher than the fourth quarter of 2008 thanks both to strong revenue growth and improved operating profitability. Our EBITDA margin for the year expanded to 20.0%, some 274 b.p. higher than in 2008. In the full year 2009, the EBITDA before Tenda’s goodwill net of provisions reached R$ 529.9 million, with 17.5% margin, or 50 basis points higher than the guidance for 2009. Our Adjusted Net Income Margin improved to 8.1% in the 4Q09, from 7.8 in the 4Q08 and our full year Earnings per Share also improved – already considering the outstanding shares after Tenda’s merge – showing the progress of this decision that is just starting to show out the benefits for our shareholders. Turning to Slide 5, I’d like to go over some of the recent and most important developments during the quarter. At the end of the year, Tenda and Gafisa’s shareholders approved an increase by Gafisa of its stake in TENDA from 60% to 100%. Tenda is now operating as a wholly-owned subsidiary which we expect will result in further scale advantages and reductions in costs and SG&A expenses as we fully integrate the back office and management systems. We have retained Tenda’s dedicated brand manager, differentiated retail infrastructure and innovative, low-cost construction methods. We also reported last quarter that we expected to close an additional R$600 million debenture with Caixa by the end of the year. We closed that transaction on December 10th. While much focus continues to be on the lower end of housing demand, we continue to see very strong demand from the middle and mid-high segments and expect this trend to grow as the economy continues to improve. The Gafisa and Alphaville units together sold over R$ 670 million during the quarter, logging sales velocities of 23% and 44% respectively. A majority of Alphaville launches and sales continue to occur outside of the markets of Sao Paulo and Rio de Janeiro. 2
  3. 3. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 A diversified portfolio of products and our geographic reach have always been competitive advantages of Gafisa. Today Gafisa’s mid/mid-high products account for 58% of pre-sales, while TENDA’s affordable offerings represent 42% of pre-sales. Only four years ago, Gafisa represented 100% of the company’s revenues, sales and launches. We are now present in 21 states and 100 cities with approximately 188 developments, involving 310 phases. Finally, I’d like to announce that we intend to proceed with a follow-on equity offering worth an estimated R$ 1 billion. Today I’ve talked about the tremendous opportunity we see and as shown our ability to grow the top line and profitably. A follow-on offering will afford us the opportunity to comfortably fund our business objectives over the next few years while enhancing our current capital structure and M&A opportunities. With a national presence and designation as a CAIXA Bank Representative in 6 regions, Gafisa’s Tenda subsidiary is well-positioned to leverage this relationship with CAIXA for continued growth in the low-income segment. In 2009 Tenda contracted 5,114 units and has submitted over 25 thousand units that are now under Caixa’s analysis. With a goal of one million new homes to be added for this segment, CAIXA is well on its way to achieving its goal of 1 million new homes by the end of 2010 and may even reach that objective earlier. Some 71% (713,990 units as of December 2009) of the total planned units are already under analysis. Over 275 thousand units have been approved since April 2009 when the program was announced with over 91 thousand approvals coming in December alone. They are now moving at a rate of approval of over 4,900 units per business day. With the acceleration in approval rates and demand overall from homebuyers, Gafisa has stepped up its execution capabilities. On slide 7 you can see that we concluded 152 developments or phases, representing a total PSV of R$1.5 billion which was in-line with the requirements for 2009. 130 of them were constructed under the Tenda brand. One of our key competitive advantages is our high quality, diversified land bank. We currently have 383 different projects or phases across 21 states. With over 47 thousand units, Tenda represents about 52% of the potential 92 thousand units. Just over 50% of our land bank has been acquired through swaps, increasing the financial attractiveness of our land bank. As you know, the entire Company took a fairly conservative approach towards new launches and focused our attention on sales of units from inventory and conservation of cash while the economic climate remained uncertain during the first half of the year. In the third quarter, we continued to operate under this philosophy, while in the fourth quarter we aggressively launched new development in line with prevailing demand. Slide 9 shows the new launches for Q409 with a focus on types of units sold as well as pre sales by unit price, Total launches for the quarter was R$1 billion with Gafisa representing 58%. 57% of Gafisa’s launches were for units priced below R$500 thousand while nearly 75% of Tenda’s launches were for units priced at or below R$130 thousand. With the new launches and attractive inventory from previous period launches, pre-sales reached over R$1 billion. 60% of the pre-sales of Gafisa’s units were priced at or above R$500 thousand while units priced below R$130 thousand corresponded to 81% of TENDA’s unit sales. 3
  4. 4. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 The Sao Paulo and Rio areas continue to represent a majority of launches and units sold, however, areas outside these markets have made strong contributions, and represent 38% in terms of unit launches and 36% of the pre sales value. Moving on to slide 10, let’s take a closer look at inventory and sales velocity. During 2009 we were able to reduce our inventory following the Company’s strategy established in the beginning of last year. At the beginning of Q4 our total inventory represented R$2.8 billion. We launched R$1 billion and sold approximately the same amount. We also made some adjustments in our inventory: In the case of Gafisa and Alphaville, a positive impact in inventory prices during 4Q09 of R$ 102 million. In the case of Tenda, our most recent analyses indicated that a portion of the inventory released in the 3Q09 was not ready to be sold. Accordingly, we adjusted Tenda’s inventory blocking an equivalent of R$ 233 million. Overall sales velocity was 28.6% with the strongest performance coming from Alphaville at 43.7%. Tenda also logged a sales velocity of 32% for the quarter. We had a strong quarter and already see continued strong demand for 2010. We look forward to seeing many of you on our upcoming roadshow. Thank you and now let me turn it over to Duilio. Duilio Calciolari, CFO and IR Officer Good morning, everyone. As Wilson mentioned, we turned in a very strong fourth quarter, and solid full year results which reflected contributions by all segments of the product portfolio. In slide 12, you can see that we continue to book solid sales in both Gafisa and Tenda segments. These fairly balanced results across our different business lines drive the backlog of revenues to be accounted for in future periods as our projects are completed. At the close of the fourth quarter, the backlog of results to be recognized under the Percentage of Completion method exceeded R$ 1 billion, a 5% increase from 4Q08 and a similar amount as compared to 3Q09. Integrating Tenda into Gafisa has begun in the 4Q09 and operational, commercial and administrative areas started to work together. Due to that we are analysing SG&A on a consolidated basis and as you can see we have some improvement in the 4Q09 when SGA over Reveneus dropped to 14.9% from 15.2% in 4Q08. More important than, is the expected synergies to be achieved in the coming quarters through shared back office functions, leveraging office infrastructure, and the accelerated implementation of systems, such as SAP, across Tenda’s operations, which all should result in a better rate of SG&A overTop Lines. 4
  5. 5. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 For the full year analysis, we can not compare SG&A with Launches and Revenues because expenses do not include 12 months of Tenda’s operations in 2008. Slide 14 gives you visibility into our financial position. On December 2009, Gafisa had consolidated cash and cash equivalents of greater than R$1.4 billion, which was 30% higher than what the Company had at the end of Q309. And, while our debt increased over the period primarily related to the highly favorable Caixa debenture, our cash burn came to R$348 million for the quarter, mainly due to substantial increase in launch, sales, land acquisition and construction activity at the Company. Long term debt now represents 74% of our total debt of $3.1 billion with some maturities through 2013. We remain comfortable with a net debt to equity ratio, since excluding Project Finance Debt this ratio reached only 13.6%. On top of that the upcoming planned offering will create significantly more room for continued growth. Moving on slide 15, as mentioned earlier, we plan to launch a follow-on primary equity offering in the amount of approximately R$1 billion in the coming weeks. The offering will allow us to comfortably fund our business objectives over the next few years as well as reinforce our capital structure. Proceeds will be used for: Land acquisition – 35 % Working capital – 25 % Launches – 20 % M& A activities - 20 % Turning to slide 16, you will see our plans for this year. With an outlook for a continued strong economic climate, our ability to capitalize on our business structure we have in place and execution capabilities, we expect to launch projects totaling R$ 4 billion to R$ 5 billion during 2010, of which 40-45% will be dedicated to the affordable entry-level segment through Tenda. in 2010 we also expected improvements in our consolidated EBITDA margin reaching between 18.5%- 20.5%. Finally, it worth to mention that Gafisa shares continue to be the most liquid in the sector with over R$105 ,4 million on average traded daily in the last 3 months and we remain the only Brazilian real estate company to be listed on the New York Stock Exchange. Thank you, and let’s now open the floor to Q&A. Edoardo Biancheri, Barclays Capital: Good morning, everyone. I wanted to know about the guidance you gave for 2010, between R$4 billion and R$5 billion, are you considering the follow-on, I mean, funds raised? If you are, and the market deteriorates, what can we expect in terms of growth for 2010? And if you could, I’d like a little more information about what we can expect going forward? Thank you. Alceu Duílio Calciolari: 5
  6. 6. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 The guidance of R$4 billion to R$5 billion is viable without an offering. Nonetheless, logically, if you don't have a successful offering, our growth plans are going to be less aggressive. The R$4 to R$5 billion we already have, the properties exist and we have them too. Naturally, we have our debt limits, so we could be less aggressive in terms of this guidance. But we don’t see any problem with realizing the lower limit of the guidance, R$4 billion, even if we don’t have an offering. What could happen is a larger impact in 2011 because, like we said, of how we have allocated this R$1 billion; you can see that 35% is for land acquisition. And basically, what are we doing? We are sustaining the future, from 2011 on. You know that we have a policy of maintaining two to three years of future launches in our land bank. Today we have R$15 billion in the land bank. If you subtract four or five, we are talking about closing the year with something like R$10 billion if we don't buy anything. This R$10 billion will be very little for 2011, if you expect a year as good as what we expect for this year, like we saw in the last quarter, 4Q09. This is our expectation. Edoardo Biancheri: Perfect. Thank you. Marcelo Telles, Credit Suisse: Good morning. First off, congratulations on the results. My first question is about the margin guidance for 2010. You were expecting an increase in the EBITDA margin to something around 18.5% to 20.5%. I wanted to know a little about how you’ve calculated this. Does is come mostly from the gross margin, or will we see some kind of cost dilution, obviously together with reduced costs in Tenda? And could you also talk a little about my second question: what was Tenda's gross margin? I don’t know if you have this information, but just so we could compare it with what it was in the third quarter. Thank you. Wilson Amaral: Good morning. I am going to start answering your question and then I will give it to Duílio. The margin increase – we closed the year with a 17.5% margin and we are talking about 18.5% to 20.5%, I mean, we expect a major increase on the order of 2 p.p. to 3 p.p. for the year. I believe, from the plans that we have here at the company and from the product mix that we plan to launch, that we won't see a major increase in the gross margin. I think most of these 200, 300 bps will come, in the most part, from greater dilution. We have talked about this issue throughout the year. Tenda is still not at the volumes we had forecast, so, as Tenda grows, the volume grows – I mean that’s what we expect to happen over the year and that we will see significant dilution. Basically the reduction of SG&A as a percentage of revenues is what is going to bring this margin increase. Part of the reduction in SG&A comes precisely from this effect of increased revenues through better dilution. 6
  7. 7. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Now, obviously, we expect part of this increase to come from synergies from the merger. So, we are already doing this; we began this process in the fourth quarter and as we start combining back office functions, which is what we are doing today, we will have significant gains. We should see a large part of these gains in about May, which is the month that we think we'll go live with SAP at Tenda. As you know, the merger brings benefits especially when you work on a single platform. So we are working on this now, part of it has been done, and as soon as we have this platform up and running, we should see a significant gain in terms of margin. But basically, it should be the effect of the dilution, integration, and less from margin growth because we believe the margin will be roughly stable with what we saw in the last quarter. Alceu Duílio Calciolari: You asked about Tenda’s gross margin - in the year it reached 32% and in the quarter 32.8%. Marcelo Telles: That’s great. Thank you very much. Marcelo Millman: Just continuing, about the gross margin, we saw an increase this quarter over the annual average, and even over recent years. I wanted to know where it came from, if it's a question of the mix- which also seems to me like this quarter there was proportionally larger revenue recognition in Gafisa than in Tenda - or if there is any other effect on the gross margin that we should expect to see in the future. So, I just wanted to go a little deeper into the gross margin question. That is my first question. And the second, if you could, looking at the cash burn, it accelerated in the quarter. That’s understandable, since you launched more. But we see time going by with the “Minha Casa, Minha Vida” (My House, My Life) program, I mean, theoretically this would help speed up payment receipt. If we look at your receivables, they increased, less than payments, but they increased quite a bit. So, what kind of update can you give us about collection, about revenues from “Minha Casa, Minha Vida”? Alceu Duílio Calciolari: Beginning with gross margin, the increase we see a little of in the fourth quarter comes in large part from the mix. If you look at it, Alphaville made a substantial contribution even though it’s small within this context it was still important. The Alphaville products did very well in the last quarter in terms of price, so we were able to increase gross margin. Gafisa was no different. You all are in São Paulo, you saw our product launches and how luxury products drove prices. You were able to see it here, and our most representative case was It here on Leopoldo. So this helped drive prices, and sold well. 7
  8. 8. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 So we have an increase because of the mix, in large part from Gafisa and Alphaville. Tenda saw a margin increase, yes, and that was from the mix as well. Prices were a little higher, but most of it came from middle to upper-income and also from Alphaville this time in the fourth quarter, because the volume of the Alphaville operation was very high. About receivables, Wilson mentioned the volume units contracted by Tenda, there were approximately 5,000 units. This number is still below what we are looking for. It was a good year, but it could have been better. And we expected 2010 to be very positive in terms of improved functioning of the Minha Casa, Minha Vida program. The program is getting on track. So, we want to reduce the term to do this transfer as quickly as possible. We are expecting a major volume in 2010 and an increase in the turnover of our receivables over what you saw in 2009, especially at Tenda. That is what we think will happen, improve the turnover, which is delivering it to Caixa Econômica Federal, signing it quickly, getting the money faster, doing this all much faster, in addition to the increased operating efficiency at Tenda. This is what we expect. Marcelo Millman: Do you have any numbers for us about how contracting a unit is different from receiving, because we…. Alceu Duílio Calciolari: Contracting a unit has to do with contracting financing. It doesn’t necessarily have anything to do with receiving. How fast you receive payment is linked to the speed of construction, so contracting more means selling more and that you will earn more. And if you reduce your construction time, you receive payment even faster. These are the two aspects we have to work with. But I can’t give you any specific numbers because I'm launching a product, I sold 100%, that means that I'm going to receive payment for this product in a certain amount of time, which is the time I spend building it, as I build it. So, my cash risk will be very low for this product because I sold 100%. If I sell 50%, my risk is greater. So this mix is important. We have to sell it quickly, speed up Tenda’s sales, contract with Caixa Econômica Federal and bring the money in quickly, as we build it. This is all under what we call associative credit, which you are well aware of. Marcelo Millman: Perfect. Thanks. Rafael Pinho, HSBC: Good morning. I wanted you to tell us a little more about - I saw that you reclassified the inventory, I mean, in the third quarter I asked you about this, about this practice of yours, which I think is a little orthodox. So, I wanted to know why you went back to reducing Tenda’s inventory. What happened with these projects in terms of this? 8
  9. 9. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Alceu Duílio Calciolari: You’re right, it is a little orthodox, and we don’t like doing it either. But we are here, almost a year after acquiring Tenda, I think we have been able to pretty much understand what happened there, what happens in the way of operating Tenda products. And the origin of the problem, just to reiterate this, was that when Tenda launched a product, it put a product that should be sold in three, four years as a 100% launch. So, I mean, it’s a product with 1,000 units, but you have a sales velocity in the region of 300 or 400, so you should open between 200 and 400 per year, using this simple example. You opened the inventory of a launch and you ended up with a huge inventory except that you launched a product that wasn't open for sales. So then what did we do? We understand this process and we blocked the units at a certain point in time; we looked closer at them and asked “should we unblock this inventory?” Well, we unblocked more than we should have. So, I think this was the last of it. Could there be something more? Sure. But there shouldn’t be. Look at how we do it at Gafisa, you never see anything like this, so we are just adjusting the operation. That's pretty much it. Rafael Pinho: Okay. Just to make sure I’m clear, when this inventory is unblocked again, how will it show up? Will it be as if it were a launch? How will this be shown to us in the future, just so we can understand that? Alceu Duílio: We should use the same practice. It should be brought back; because it is not in the land bank. It’s nowhere right now. When we bring it back, it has to come back as unblocked. So we want to unblock it, or we could even see a situation with a project in phases that we are not going to complete, so we have to eliminate a phase. But it will come back as unblocked and not as a launch. Rafael Pinho: Okay. My second question, I'm going to go back to the offering. Do you really think you need R$350 million from the offering just to purchase properties? I mean, if we want a rule to go by, of PSV over land cost, you are talking about buying – if you use 10%, then it depends, I don’t know if this is Tenda or if it’s more Tenda or more Gafisa, I am using an average - we are talking about R$3.5 billion in additional land bank, while your range is pretty wide, from R$4 to R$5 billion, and if you look at the long run, you have almost four years of land bank, four years of launches in the land bank today. If you do R$5 billion, then really, you have three years and then it doesn't look like enough if you launch the R$5 billion. I mean, do you think it’s really necessary to buy so much land right now, Duílio? Alceu Duílio: 9
  10. 10. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Well, do the math considering that I don’t just operate in low-income, but in all segments, so this ratio increases from 10% to 15%, and I think that the Company and the Brazilian real estate sector are going to grow. So, you have to invest now. With this figure you’re talking about, this R$350 million gives one acquisition. Doing my math for you instead of using 15%, you use - I am going to do it for you here. We are talking about R$5 billion, more or less, in acquisitions, so this amount is necessary, we think. We have to be prepared for the years to come. Rafael Pinho: Okay, thank you. Have a nice day. André Rocha, Bradesco: Good morning everyone. My question is about the Company’s total receivables, R$6.9 billion. I know that a lot of this is unperformed, obviously, but now, with the incorporation of Tenda, more direct management of Tenda, is there any expectation of securitizing part of this, which I think would be welcome by the market and could even work as an alternative to the capital increase? And how much could be securitized? Thank you. Alceu Duílio: At Tenda, we don’t see this happening. Because Tenda’s business model, today, focusing on low-income, is very dependent on Caixa Econômica and, more importantly, the Minha Casa, Minha Vida program. So the financer and the carrier of this receivable today is Caixa Econômica. We don’t see at this time any potential investors interested in acquiring these receivables, if for no other reason than because it’s for 30 years, that only Caixa Econômica and maybe some other private bank can offer. So, I don’t think the possibility of securitizing this kind of receivable in the market is very likely in the short term. And in the case of Gafisa, it’s a practice we have, as we conclude the projects, and the best way to recycle the working capital mainly because if we are seeing the market grow, then you have faster capital turnover. We did this last year, two operations and another the year before that; I mean, we have done several operations in recent years and are probably the Company that, in terms of value and volume, did it the most in our sector. We are going to continue doing it as needed. Today we have a relatively comfortable cash position, you saw that it was R$1.4 billion. We have performed receivables ready to securitize in Gafisa and Alphaville that together are on the order of R$200 million, so this is what we consider a liquidity cushion as we need it in the future to improve our financial position in terms of liquidity. André Rocha: Thank you. 10
  11. 11. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Andrei Pinheiro Ferreira, Bradesco: Good morning, everyone. One of my questions was answered by Duílio, so I’ll just move on to the next one; when do you expect to conclude this stock offering, will it be in the first half or if you can do it in the first quarter? Just so we can know what to expect, please. Alceu Duílio: Like we say in our report, we expect to conclude this in the coming weeks, in the first quarter. Andrei Pinheiro Ferreira: The first quarter. Okay. Now, still talking about the receivables, you mentioned that in 2010 you have about R$200 million that will be securitizable, but given that R$4 billion in PSV was launched in 2008, should there be a volume that is not securitized? In other words, goes into the normal process? Do you have this number, more or less? Alceu Duílio: I don’t have it here. This is an expectation of cash flow that these R$4 billion from 2008 will for the most part be delivered in 2011, so the receivables from these launches, and remember that half is Tenda and half is Gafisa, will be completed and available for securitization in 2010, okay? Andrei Pinheiro Ferreira: Okay, thank you. Bruno Barreto, BRZ Investimentos: Good morning. I wanted to know about the goodwill from Fit, has that amortization stopped already in this quarter? Alceu Duílio: It’s negative goodwill, right? Bruno Barreto: Negative goodwill, right. Alceu Duílio Calciolari: Tenda’s negative goodwill is done. Actually this quarter there was hardly anything. It was R$6 million net. So that’s over. Bruno Barreto: Thank you. 11
  12. 12. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 Gordon Lee, UBS: Good morning. Two questions, first on the Tenda inventory adjustment. I was wondering whether you think that there is a chance that some of the inventory might come back once you make certain adjustments to the projects, or whether you think that those projects just will not come back to the inventory. And then a second question, on your guidance for 2010 launches, how much of that is dependent upon the equity offering and how much you think you would be able to raise if you did not have that equity offering? Or in case if you are not including it, how much incremental launches could you get by raising the money you intend to raise? Thank you. Alceu Duílio Calciolari: Hi, Gordon. Regarding Tenda, those units that you see in our presentation as blocked units, all those units is the matter that we are focusing in since the beginning of the acquisition of Tenda. I do not know if you are aware about that, but when we bought Tenda, Tenda had a practice to launch units, to launch projects and when they launched projects, even building those projects under phases that normally take three, four, maybe two to three years, they announced the whole launches. And then it is impacting the size of the inventory. What we have realized in the 3Q is that we had some units that could be released for sales, and then we released those units, the equivalent to R$400 million in the 3Q. With more deeply analysis that we did in the last quarter, we saw that some units are not yet ready for sale. So, we blocked it again. We expect, Gordon, that this matter will be totally solved during this year. But even though having this matter under analysis, we will release again those units and we will present as released units, not as launched units. So, it is a matter of being ready or not to be sold, and we are managing these units along the year, especially in the 3Q and the 4Q. This is a problem we are addressing and we expect to solve along 2010. Regarding the guidance for 2010, that you asked us, the equity that we are doing now, planning now is much more important for 2011, 2012. Just to have an idea, we are giving a guidance of R$4 billion to R$500 billion, and assuming that if you would not have this equity offering for sure we would be more conservative, but we believe that we could deliver at least the floor of the guidance in 2010. The problem would be 2011, because we need to buy land and you can see the procedure that we are assuming for land acquisition is about 35%. 35% is about R$350 million, if you are assuming that you can have cost of land between 10% to 15%, we are discussing an acquisition of new land about R$3 billion to R$5 billion for 2011, 2012. So, they will say, yes, we can go ahead without an equity offering, working with a more conservative approach in launches, becoming around the floor of the guidance, but 2011 would be a different year for us, because not enough land would be available for 2011, 2012. Gordon Lee: Perfect, that is very clear. If I could just do one follow-up on the Tenda question. When you say that, after reassessing in the 4Q, you felt the units were not ready to be released, was that 12
  13. 13. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 because you are not comfortable with demand for that type of units or is it more on some sort of technical issue? Wilson Amaral de Oliveira: It is much more technical issues related to the development. Of course, we might have some issues with demand, but we see much more technical problems in terms of approval, in terms of legalization, especially on this side of the equation. We do not see problem with demand in the low income, Gordon. Actually, what you can see in Tenda is that the reduction that we are having in inventory is huge, and we are much more focused now on acquiring more land and accelerating the process of approval, so no problem with the demand side. Gordon Lee: Perfect. Thank you very much. Marcelo Telles, Credit Suisse: Thank you very much. Hello, everyone. I just have a follow-up on the question, actually, I did on the Portuguese call, regarding the margin at Tenda. I want to know if that gross margin that you mentioned, I think was 32.8% in the 4Q, if that includes the cost of the SFH financing on the margin? And also the guidance in terms of EBITDA margin for 2010, if you are excluding the cost of SFH financing as well? Thank you. Alceu Duílio Calciolari: Marcelo, the gross margin that I mentioned for Tenda, when I mentioned we did not exclude the SFH cost. But in Tenda, this number is very small. I do not have it right here, but I can send it to you. So those 32.8% that I mentioned is with the interest expense included, OK? But the number is very small in the case of Tenda. Regarding the guidance, Marcelo, the 18.5% to 20.5% is already adjusted with the financial expenses, including SFH, working capital and capitalized interest planned for 2010. Wilson Amaral de Oliveira: Hey, Marcelo, you can compare directly the EBITDA from 2009 with 2010, OK? We did exactly the same adjustment during the year 2009. So, we are expecting 2010 growing from 17.5% in terms of EBITDA margin to something between 8.5% to 20.5%, something around 200 b.p., 300 b.p. during the year 2010. Alceu Duílio Calciolari: Just another comment, Marcelo, in table 14 you will see this EBITDA reconciliation, and we are showing 17.5% in 2009. This is the same way that we are giving guidance for 2010. Marcelo Telles: Excellent. Thank you very much, and just one follow-up question, actually, now regarding land acquisition. Of course, part of the proceeds you plan to raise, you are probably going to apply 13
  14. 14. Transcript of the Conference Call for the 4Q09 Results Gafisa (GFSA3) February 9, 2010 for land acquisition. But in general terms, how much do you think you can acquire land using swaps? I mean, have you seen an increase in swap acquisitions versus cash acquisitions? What percentage you think is a reasonable number for us to work with? Thank you. Wilson Amaral de Oliveira: Well, it depends on the brand or the product. Considering the Alphaville products as 100% swap, it is something around 98%, 97%; so it is not a problem. In terms of Tenda, it depends on the region, but we are right now detailing our business plan for 2010, and we are considering something around 30% to 35% in terms of swaps for Tenda’s products. Marcelo Telles: Excellent. Thank you very much. Operator: We now end the question and answer session. I would like to give the floor to the Company for its final comments. Alceu Duílio Calciolari: Okay, before we end here, I would just like to thank you all for participating and reiterate our optimism about your operations for 2010 and 2011, and hope to see you next during our road show. Thank you, and until next time. Operator: Gafisa’s conference call is now over. Thank you all for your participation, and have a nice day. “This document is a transcript produced by MZ. MZ does its best to ensure the quality (current, precise and complete) of the transcript. However, MZ is not responsible for possible flaws, as the output depends on audio quality and participant clarity of speech. Thus, MZ is not liable for eventual damages or losses which may arise from the use, access, security, maintenance, distribution and/or transmission of this transcript. This document is a simple transcript and does not reflect MZ’s investment opinion. The contents of this document are the exclusive responsibility of the company hosting this event, which was transcribed by MZ. Please refer to the respective company’s investor relations (and/or institutional) website for further information and significant and specific terms and conditions related to the use of this transcript.” 14