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Edited Transcript of GFSA3.SA earnings conference call or presentation 29-Mar-19 5:00pm GMT

Q4 2018 Gafisa SA Earnings Call

Sao Paulo Apr 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Gafisa SA earnings conference call or presentation Friday, March 29, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Roberto Luz Portella

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

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Presentation

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Operator [1]

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Good afternoon, and welcome to Gafisa's Fourth Quarter and Full Year 2018 Results Conference Call. Today with us, we have Roberto Portella, member of Gafisa's Board of Directors.

We would like to inform you that this presentation is being recorded. (Operator Instructions)

Before we begin, I would like to inform you that the management's statements involve risks, uncertainties, and will refer to future events. Any changes in macroeconomic policies or laws and other operating results may affect the company's performance.

Please, Mr. Portella, you may proceed.

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Roberto Luz Portella, Gafisa S.A. - CEO, CFO, IR Officer & Director [2]

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Good afternoon, ladies and gentlemen. I would like to start our presentation with details of the turnaround effort we made in the past quarter, which focused on structure and cost adjustments, including the shutdown of the branch in Rio de Janeiro, the relocation of our headquarters and the revision of our offices.

Here, we are looking at slide about the results of our turnaround. In 4Q '18, we reduced our headcount by nearly 50%, accounting for our savings of BRL 45 million per year. It is important to mention that over the restructuring process, the main headcount reduction was made to back office areas and the technical team of the company was preserved. Marketing contracts were terminated, saving BRL 40 million. In the IT department, we hired a consulting companies that reviewed all of our processes and systems. We are expecting savings of BRL 18 million, which will be captured over the next month, as their contracts are reviewed, terminated and replaced.

Moving to headquarters that are more appropriate to company's current situation will provide us savings. And this relocation will provide us with savings of BRL 4 million. Before we go to the next slide, it is important to mention that among all of the reduction of costs, we also reviewed and shut down sales trend, which generated savings of BRL 4 million. All actions we have taken and the ones we are still going to take will lead to around BRL 110 million in savings. Such restructuring effort allows the company to kick off 2019 in an adjusted and appropriate position for the new cycle in the real estate structure.

Now let's move on to the next slide. You see our 2018 objectives. In summary, we launched 6 projects, which totaled BRL 728.6 million. In 4Q, '18, we launched a project in Scena Tatuapé with a total PSV of BRL 118.9 million. In 4Q '18, we expected to launch 3 other projects with a PSV of around BRL 320 million, which were postponed to 2019.

One of the projects was located in an oversupplied region. The other 2 projects were located in regions that did not reach an aggregate development level. And therefore, they required adjustments because they wouldn't be so profitable as we wished.

On the next slide, we are going to see the sales and dissolutions. In 4Q '18, net resales totaled BRL 95 million. The lower sales volume in the quarterly comparison were due to the adjustment profits conducted by the new administration, which had an immediate initial impact on the company's SoS, that generated healthier sales expectation and fewer dissolutions.

The chart on the bottom shows our dissolution, which came to BRL 58 million in 4Q '18, 39% lower year-on-year. And that happened despite a significantly higher volume of projects [delivered] from the yearly comparison. The average monthly dissolutions decreased from BRL 34.2 million in 2017 to BRL 19 million in 2018, which accounts for a significant reduction.

The next slide shows the breakdown of our inventory. Inventory market value was BRL 1,225,000,000 in 4Q '18, down by 7.1% quarter-on-quarter. We would like to emphasize that out of the 451 million finished units, around 50% are residential units, which contribute in sustaining the current level of inventory turnovers and the monetization of these assets over the coming months. Additionally, we would like to mention that 73.5% of total inventory are residential units located in the state of São Paulo, which we are well positioned to seize all opportunities that result from the economic upturn.

Let's move on to the next slide so that we can see our delivered projects. We delivered 12 projects in the city of São Paulo with a total PSV of BRL 263 million, 5x higher than the BRL 41 million delivered in 4Q '17. In 2018, we delivered 12 projects with a total PSV of BRL 910 million.

Let's move on to the next slide so that we can see our financial results. Net revenues totaled nearly BRL 961 million in 2018, up by 22% year-on-year, a very significant increase. Price increase was driven by higher sales volume and work that made progress in the period. Gross margins was impacted by decisions made in 4Q '18, totaling BRL 63 million due to impairments of certain plots of land and inventory units.

Excluding the effect of these adjustments, recurring adjusted gross margin in 2018 was 30.3%. 12 percentage points higher than the 18.3% in 2017.

The next slide shows a breakdown of our expenses. The savings delivered by the turnaround process can already be seen in our 4Q '18 results. Selling expenses decreased by 45% quarter-on-quarter. And that happened due to a reduction in product marketing and selling expenses.

General and administrative expenses went down by 38% quarter-on-quarter due to the reduction and termination of service agreements and payroll reductions as well.

Let's move on to the next slide. Now you'll see our net profit. 2018 results were impacted by adjustments made in 4Q '18 such as the impairment of inventories, land, software and goodwill of the stake in Alphaville, not to mention provisions for contingency. Excluding the impact of these nonrecurring adjustments that have been made in 2018, the company's recurring adjusted net loss would have been BRL 66 million, 65% lower than the BRL 190 million losses in 2017, which highlights the company's turnaround.

It is worth mentioning as well that the company's gross profit and the company in 2018 was twice as high as 2017 and it totaled BRL 291 million. Therefore, you can see that the company has been showing signs of progress when it comes to production and operations as well.

Now let's go to the next slide. Please take a look at our financial information, with net debt and cash generation. The company's net debt reached BRL 752 million at the end of 2018, down by 21% year-on-year. Although the year 2018 the company repaid approximately BRL 639 million of its debt, the consolidated net average cost was 11.44% per year. Cash generation in the quarter totaled BRL 14 million, due to a greater control of expenses.

Now let's take a look at some notes about what's going on with the company and our new management, and the next steps that we are going to take. First of all, as you all know, we have a new meeting to happen in the near future, and we are going to discuss some topics such as the process that we are going through with the help of very good companies and well renowned companies for management growth and new strategic finance and the long goal.

In this process, we are going to review our product. We are going to review the core business of our companies, the activities that are going to get our attention and we are also going to identify sources of resources that can be useful and captured, either by increasing capital or trying to find new funding instrument.

We have an approved increase in the authorized capital, which is extremely interesting because it shows that in the new management, the new management is making effort in terms of investment. The shareholders wish to input capital in the company, which will result in the issuance of new shares. And this is going to be announced when the time comes.

Despite assessing the capitalization of the company, we are also going to analyze alternative funding tools, such as the issuance of certificates of real estate receivables, real estate funds and other cash out launches, so that we are able to raise additional funds besides the equity funds that the company is, for checking, going to need.

We -- I'll take you now to how and when we are going to make use of the funding tools, and when we are going to recover our financial capacity in the short, medium and long term. To the capital increase, we actually maybe have increased use of capital still this quarter. Actually, we started this process, and we in fact, we are going to have more capital coming in from new investors. And I believe that we are going to see interest from financial institutions in terms of supporting these projects, and developments and construction that helps the company intents to design and develop.

So this concludes the presentation for today and our financial results. And now we are going to start the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) I will give the floor over to Mr. Portella for his final remarks.

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Roberto Luz Portella, Gafisa S.A. - CEO, CFO, IR Officer & Director [2]

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Good afternoon, everyone. It's been a pleasure to be here with you, starting my new role here at Gafisa with the market relations and institutional department.

I started as a member of the Board of Directors 2 weeks ago. So I took over the CEO position with Eduardo Jácome, which is now heading the operational department. I am at your full disposal, if you have any questions and if I am able to answer those questions. I would also like to mention that if I don't have an immediate answer for your question, I'm going to address them later on when the appropriate time comes. Thank you very much.

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Operator [3]

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This concludes Gafisa's conference call for today. Thank you very much for your participation and have a good day.