U.S. Markets open in 6 hrs 15 mins

Edited Transcript of GFSA3.SA earnings conference call or presentation 9-Nov-18 1:00pm GMT

Q3 2018 Gafisa SA Earnings Call

Sao Paulo Dec 19, 2018 (Thomson StreetEvents) -- Edited Transcript of Gafisa SA earnings conference call or presentation Friday, November 9, 2018 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ana Maria Loureiro Recart

Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director

================================================================================

Conference Call Participants

================================================================================

* Gabriel Mosquera Simoes

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Roberto Waissmann

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for waiting. Welcome to the Gafisa conference call to discuss the results of the third quarter 2018. (Operator Instructions)

Before we continue, we would like to clarify that any statements made during this call relative to the company's business perspective, projections and operating and financial targets are based on beliefs and premises of Gafisa's management as well as information currently available to the company.

Forward-looking statements are not a guarantee of future performance. They involve risks, uncertainties and assumptions since they refer to future events and therefore depend on circumstances that may or may not take place. Investors should understand that general economic factors as well as the conditions of the industry and other assets of the company's operations may affect future results and may lead to results different than those expressed in those forward-looking statements.

Now I would like to pass the floor to CEO, Ana Recart. Please, Mrs. Ana, you may proceed.

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [2]

--------------------------------------------------------------------------------

Good morning, everyone. I would like to start this presentation by talking about our business vision. We took office in the end of September. For the next quarter and 2019, we are based on 4 pillar: cost reduction, asset monetization, innovation and funding.

Regarding cost reduction, we took some immediate action, like the reduction and the adjustment of the company's structure, and we changed our headquarters location resulting in a saving of BRL 40.7 million (sic) [BRL 4.7 million]. Then in the second stage, we're now focusing on reviewing our processes, which will allow us to optimize our costs.

Regarding the second pillar, asset monetization, we are focusing on selling inventories, especially finished units and also the sale of noncore assets. Innovation is the point that we consider very relevant and an opportunity in terms of business model. So we created an Innovation Committee to support us in the execution of some projects that we have in mind and to generate new work fronts.

The first project is the creation of Gafisa Serviços or Gafisa Services, including post-guarantee services, customization of units for customers and rental of our own and third-party units. We believe that this business unit will create value to the customers and to the company and is also an additional source of revenue.

The fourth and last pillar, to support our growth in the coming year, we are already evaluating some funding alternatives.

Now after explaining the pillars of the new management and our new plans, we're going to talk about the quarter 3 results. In the next slide, we're going to talk about our launches. Over the year, we launched 5 projects with a total PSV of BRL 610 million. In quarter 3, we launched one project in the district of Pinheiros. For the quarter, we are reviewing our pipeline, looking for more profitable projects.

In the next slide, we will show the evolution of our sales and cancellations. In quarter 3, net sales were BRL 136 million, a lower volume quarter-over-quarter due to fewer launches in this quarter and the uncertainties in the political and economic scenario in the country. Here, we have the historical picture of our cancellations. The average was BRL 35 million in the same period -- for last year. In the same period in '18, it dropped to BRL 18 million.

In the next slide, we're going to talk about our inventory. It was BRL 1.3 billion for the quarter. The inventory of finished units was 33% of this amount, BRL 434 million. When we compare the PSV of finished inventories with the previous quarter, there was a 14% reduction. In the coming quarters, we will focus our work to try to reduce this percentage even further.

In the next slide, we have our delivered projects. In the quarter, we delivered 3 projects in São Paulo with a total PSV of BRL 346 million. Here, we have Vision Capote Valente, which is 94% sold. In the last slide, we will present our capital structure.

In the first 9 months of 2018, we had a net revenue of BRL 78 million, which was 73% more than the same period last year. We sold BRL 53 million versus at a negative EBITDA last year. In terms of income, we reduced from 500 -- BRL 485 million to a loss of BRL 122 million in the accumulated for 2018.

This is the end of the presentation. We are now available for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from Mr. Gabriel Simoes from Itaú BBA.

--------------------------------------------------------------------------------

Gabriel Mosquera Simoes, Itaú Corretora de Valores S.A., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

You talked about inventories, that you're going to focus on selling inventories. We saw a reduction in the inventory of finished units of the company. What is the time frame for a significant reduction and significant sales of the current inventory?

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [3]

--------------------------------------------------------------------------------

What I can tell you is that we are working very hard, very focused with our sales team to sell the inventory because they generate a lot of liquidity for the company. Since this is one of our pillars, we will be reporting this to the market on a constant basis, and this is what I can tell you for now.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question is by Mr. Roberto Waissmann from Bradesco Bank.

--------------------------------------------------------------------------------

Roberto Waissmann, [5]

--------------------------------------------------------------------------------

My first question is not a question, it's a comment. I'd like to know a little more about the strategy of the Gafisa Services division that you just announced. I'd like to know what will be the focus of this division or department. I heard that it's going to work in 3 fronts, so I want to know which one will be the top priority. And the second question, considering the change in the management, can you tell us anything about the strategy for Alphaville?

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [6]

--------------------------------------------------------------------------------

Thank you, Roberto. Thank you for participating. Regarding Gafisa Services, we see it as an opportunity for the market, which represents actually a trend and an evolution of the real estate market. So we created an Innovation Committee chaired by one of the members of our administration board, Mr. Pedro. And the purpose of Gafisa Services is actually 3 purposes: the first is the allocation of units. We understand that in order to sell better to our customers and to define a better direction for our inventories and even for our investors, we need to allocate -- we need to rent some of the units that we have, both in home and commercial buildings. We created a center here in the company that has all the expertise that we need to work in rentals. The other 2 services are post-warranty services. Today, we have [feel and] database of all our customers. And in order to better serve them when the warranty expires, we can offer them post-warranty services, not with our own team but with a third-party team. And we want to increase the level of [reception] with our services. And the third offer is customization. We already do this in-house. We call it House Up, but I think we need to boost this customization of units for customers because Gafisa holds the key of the unit until it's delivered to the customer. And we can customize the unit in terms of construction and the floor plan, adding extra services, adding extra value to the product. This will be extra revenue. Today, when they receive the key, they want to have the unit ready either to move in or to start their own decoration works. For Alphaville, we've been here for 40 days, the new management has been here for 40 days. We will participate in the administrative board's meetings, so this is something that we still have not defined. We are still -- we will discuss Alphaville in the short future, so I don't have an answer for you now. But of course, Alphaville is a very relevant asset, and we're going to look at it very carefully.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is by Mr. [Alessandro Pedrazzi] from (inaudible).

--------------------------------------------------------------------------------

Unidentified Analyst, [8]

--------------------------------------------------------------------------------

I'd like to know more about the share buyback program. We saw that in a very short term, you basically bought the total share that had been authorized by the board. And I'd like to know if the company has any intention of creating a new program or you're just maintaining the current one.

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [9]

--------------------------------------------------------------------------------

First, it's important to explain the objective of this program is to create value for the shareholders in the long term. So this is another pillar. I didn't list it, but it's another pillar. What we need to know in the company is create value to our shareholders in the long term. What happened is that we had this exit movement in the market, the buyback was approved by the administration board, and this exit movement gave us an opportunity. So to answer your question about the absorption of these shares, this is why it happened.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from Mr. Roberto Waissmann from Bradesco BBI.

--------------------------------------------------------------------------------

Roberto Waissmann, [11]

--------------------------------------------------------------------------------

I have a question, Ana, about the reduction of 50% in your staff that will generate a savings of BRL 36 million per year. Could you tell us a little more when we're going to see this happening? Is this going to start in the next quarter or do we have to wait and still bear these costs for a longer period until you can effectively reduce the staff? When are we going to start seeing the cost reductions?

--------------------------------------------------------------------------------

Unidentified Company Representative, [12]

--------------------------------------------------------------------------------

Roberto, this is [Fernanda]. In the next quarter, we still have a nonrecurring effect of the dismissals because we dismissed the employees in quarter 4. So we will start seeing the gains, the efficiency gains as of the first quarter of 2019.

--------------------------------------------------------------------------------

Roberto Waissmann, [13]

--------------------------------------------------------------------------------

Okay. So these BRL 36 million are for '19?

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

Yes, that's right.

--------------------------------------------------------------------------------

Roberto Waissmann, [15]

--------------------------------------------------------------------------------

And also, you said that you're also changing the location of your headquarters, that you're moving to São Caetano. Do you have any other measures planned to reduce costs?

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [16]

--------------------------------------------------------------------------------

This is Ana. Yes, as I said, we took office 40 days ago. So these were the immediate measures, the reduction in the staff and the change of the headquarters location. We are now starting to focus on other cost-cutting actions to streamline our processes and make them more efficient. It's important to note that we did a benchmark with all the other companies -- or the competitors in the country. And all of them took similar measures. So this was the perfect time for Gafisa to take on these challenges. So we will have more cost cuts and more increased efficiency in the short future through other measures to create value to our shareholders.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions) Since there are no further questions, I return to Mrs. Ana for her final confirmations.

--------------------------------------------------------------------------------

Ana Maria Loureiro Recart, Gafisa S.A. - CEO, Interim CFO, Interim IR Officer & Director [18]

--------------------------------------------------------------------------------

Thank you all for participating in this call, and I want to say clear that we are at your service at all times. And we will follow through with our plans, and our company will go back to what it was in the past.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

This conference call is now finished. Thank you for participating, and have a great day.