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Edited Transcript of GFSA3.SA earnings conference call or presentation 15-May-20 2:00pm GMT

Q1 2020 Gafisa SA Earnings Call

Sao Paulo May 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Gafisa SA earnings conference call or presentation Friday, May 15, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Guilherme Augusto Soares Benevides

Gafisa S.A. - COO, VP of Operations & Member of Executive Board

* Ian Masini Monteiro de Andrade

Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board

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Presentation

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Operator [1]

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Good morning, everyone, and welcome to Gafisa's First Quarter 2020 Results Conference Call.

Today, with us, we have Mr. Ian Andrade, Investors Relations and Chief Financial Officer; and Mr. Guilherme Benevides, Operations VP. We'd 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 may refer to future events. Any changes in macroeconomic policies or laws and other operating results may affect the company's performance.

Now I would like to turn the floor over to Mr. Ian. Mr. Ian, good morning. You may proceed.

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Ian Masini Monteiro de Andrade, Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board [2]

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Good morning. I would like to wish you a safe moment to all of you, our employees, Gafisa stakeholders. I would like to convey my empathy and my wishes to all of you who are going through the COVID-19 isolation moment. It is important to highlight that the company has adopted all initiatives to protect lives of our employees, following the stricter practices and recommendations by the WHO and also the State of São Paulo. In this context, before we start our presentation, I would like to convey this message. I would like to convey my empathy and my solidarity to all of you who are with us today at this moment, where the mankind is going through a very tough moment due to the coronavirus.

In 1Q '20, we had very important highlights in financial, corporate and operating terms, with a focus on resuming Gafisa's growth cycle and strengthening our balance sheet. In March, we finished the acquisition of UPCON and subsequently the approval in the Special Shareholders' Meeting in March -- in April, actually. And we also approved the BRL 310 million capital increase with a notice sent to the shareholders, and the deadline to exercise the preemptive right by 15 June 2020. The 2 moments in the case of the acquisition of UPCON that was disclosed to the market and we are adherent to the focus on resuming growth and the capital increase has a very clear nature related to strengthening our balance sheet, and it is also an opportunity for minority shareholders of the company and the other shareholders, too, to participate in a more relevant way in the new growth cycle of Gafisa.

In our pursuit to decreasing the financial liabilities, we have disclosed to the market the completion in March of the renegotiation with Banco do Brasil with BRL 78 million and that debt extended its maturity rate to 2025, with a reduction in financial costs. In terms of financial results and financial performance in 1Q '20, we maintained our adjusted gross margin at the same level, very health level that we had in 4Q '19 of 38%, 37.5% in 1Q '20.

Another goal of ours that we are pursuing consistently in our new management since the first quarter 2019 is the reduction of general and administrative expenses. We had a reduction of 25% comparing the first quarter '20 to the fourth quarter 2019. So we are confirming the trend of gross margins and the health of our development portfolio in construction and we continue our effort to manage the fixed general and administrative expenses.

Now we are in a very relevant delivery cycle of projects. We have already delivered some projects and we develop -- we delivered a very important amount of PSV and the Vila Rica in the first quarter and the other 2 developments will be developed in April, and 1 in May. And in the pursuit of new paths of growth in relation to the real estate market, we announced 2 different business lines, real estate asset management and Gafisa Infrastructure.

Now I would like to turn the floor over to Guilherme Benevides, our Operations VP.

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Guilherme Augusto Soares Benevides, Gafisa S.A. - COO, VP of Operations & Member of Executive Board [3]

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Thank you very much, Ian. Good morning, everyone, who have joined us in our 1Q '20 results conference call. I would like to convey the same message that Ian conveyed. I hope you are all home, you're safe and healthy.

Now moving on with the presentation. I'm going to talk about the operating results of 1Q '20. You can see our net presales, our gross sales rather of BRL 38 million and dissolutions of BRL 10 million. We had a decrease of 25% of dissolutions quarter-on-quarter. On the chart on the right-hand side, you can see that we had about 44% of the sales of delivered units and 56% are units under construction, which shows that our inventories between finished units and units under construction has good liquidity. Despite the difficulties caused by the pandemic, over the last 12 months, our SoS was 17%, in line with the last quarter of 2019.

You can see that on the next slide, we have our inventory. We have BRL [884] million and BRL 496 million are finished units and BRL 358 million are units under construction. Out of this stock, we have BRL 697 million in São Paulo, one BRL 21 million in Rio and BRL 36 million in other places, showing that most of our inventory is in the state with the highest liquidity in the country.

On the seventh slide, you can see the deliveries. We have delivered this year 3 developments: Vila Rica in the City of Santos; MOOV Vila Prudente; and Marques 2900, adding up to 350 delivered units and a PSV of about BRL 180 million.

Now moving on to Slide 8. You can see the schedule of expected deliveries. We are going to have another 3 deliveries in the first half of the year, adding up to over BRL 600 million and over 1,150 units. We are going to have another 2 deliveries, which adding up to the first deliveries. We are going to have over BRL 700 million delivered in PSV and over 1,300 units delivered. Our first delivery this year of the projects that we already have the occupancy permits and we are preparing the general meeting installations. They are Square Ipiranga; Like Alto; and Moov Freguesia; with BRL 430 million in PSV and over 800 units.

Now let's talk about the sales during the pandemic. We are selling our units digitally online. All of our sales team is very well prepared with all the materials and signing contracts digitally.

Now let's talk about our new launches. We have 15 developments at the moment, with over BRL 600 million PSV approved and ready to be launched, and over BRL 1 billion in PSV is still to be approved in the process of approval. We have over BRL 250 million in the neighborhood of Jardins in the city of São Paulo and over BRL 600 million in Campo Belo, and Moema, which are high income neighborhoods in São Paulo. And we keep on with the launches strategy as soon as the pandemic is under control and the market presents the appropriate conditions.

I would like to tell you also that we are continuing with our acquisition strategy. We have a pipeline under development with landbank that are option or are in the process of option. I would like to thank you all. And now I will turn the floor over to our VP of Finance, Ian Andrade.

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Ian Masini Monteiro de Andrade, Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board [4]

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Thank you very much, Guilherme. Now let's talk about the financial results in 1Q '20.

Let's move on to Slide 10. The results -- financial results in 1Q '20 reinforce that we have a healthy portfolio for construction development. We had a decrease in revenue but our gross margin is of 30%, the same performance we had in 4Q '19 and we had a significant increase in comparison with the first quarter 2019. In the same slide, you can see the fixed expenses, which we've already mentioned in the highlights. Under the management -- the new management since March 2019, besides sustaining the gross margins at healthy levels, we have always pursued a continuous decrease in general and administrative expenses, with a reduction of 25% year-on-year -- actually, 25% reduction quarter-on-quarter.

Now let's talk about our gross margin. In this slide, Slide 11, you can see our adjusted gross margin, which is the accounting margin, excluding the financial expenses that are recognized in the cost of construction of the development. Our adjusted gross margin was 37.5%, in line with the same number that we had in 4Q '19 as a way to demonstrate how positive that margin is. Our gross margin, our backlog gross margin is of 36%.

Now let's talk about our debt and cash. In 1Q '20, Gafisa presented a reduction in the gross debt and maintenance of the healthy leverage level. 90% of our debts are related to debt related to the construction. So we have to take into account the transfers that were presented by Guilherme, so we have a real and concrete perspective of a decrease in leverage in a very significant way over the next quarters. As we mentioned earlier, the restructuring of our debt with Banco do Brasil brought not only a reduction in financial costs for the company, but also it allowed us to reclassify our long-term debt. BRL 129 million has been classified as long-term in accounting terms.

Now to wrap up the presentation, I would like to highlight the capital increase of BRL 310 million, BRL 175 million for the acquisition of UPCON and BRL 135 million to strengthen the company's cash. That's yet another movement towards strengthening our balance sheet, and it also highlights a great opportunity for all current shareholders of the company to take part in a new growth cycle.

I would like to highlight again that we are at your full disposal to answer any questions you may have and provide any clarification necessary. The deadline for the conclusion of the capital increase and for you to exercise your preemptive right is 15th of June 2020.

I would like to finish my presentation now by providing you the operating and financial highlights. And I would like to leave you with the message that we are following a very consistent path of structuring and strengthening our balance sheet, increasing the gross margin of our developments, decreasing and pursuing the optimization of the fixed costs, and we are ready to resume growth. We have the PSV to advance. We have relevant PSV under approval and also the inherent quality of the developments stands out in the competition and they are the foundation for the new growth cycle in Gafisa.

With that, I finish my presentation, and we can now 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). We have our first question from [Mr. Montero] with [Ginebra Capital].

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Unidentified Analyst, [2]

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I would like to know a little bit more about the growth perspectives of the company for the future after this tough pandemic moment end?

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Ian Masini Monteiro de Andrade, Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board [3]

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Well, the growth perspective of the company when it comes to the financial aspects and also when it comes to management, are related to the fact that we have a strengthened balance sheet so that we can support the new growth cycle. And we have a management structure that's ready and dedicated to growth. Having said that, I would like to turn the floor over to Guilherme, who can tell you more about the market and our assets.

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Guilherme Augusto Soares Benevides, Gafisa S.A. - COO, VP of Operations & Member of Executive Board [4]

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Raul, to answer your question, I would say that we continue with the growth strategy. We are preparing our products to be launched. As I said earlier, there are 6 projects that have already been approved with about BRL 600 million in PSV, and they will be made available to the market as soon as the market starts responding to the pandemic. So our growth strategy remains the same with launches that are ready to go and that are very well positioning in -- that are very well positioned in high-valued locations in the city of São Paulo, so that we can start growing again.

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Operator [5]

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(Operator Instructions) The next question comes from [Mr.. Marcelo] with [MDM].

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Unidentified Analyst, [6]

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I would like to understand more details about the new growth lines that you mentioned about asset management and infrastructure. And also, I would like to get more details about the acquisition of UPCON.

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Ian Masini Monteiro de Andrade, Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board [7]

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Okay. When it comes to the new growth lines, the 2 initiatives that we started structuring, our businesses that are related to the real estate development businesses and the opportunity that we identify in real estate asset management. And here, we are talking about third party management. So we are talking about major wealth families who have properties, banks or companies that have properties and that need management for that property. I'm not talking about management of finished developments, for example, in condominium management. I'm talking about adding value. For example, major swathes of land that are inactive or underdeveloped or that do not have any development -- of any development going on in them because of a lack of knowledge from this target audience, then Gafisa can provide that service, real estate development services, and that can be a way for us to consolidate new businesses for the company. We are going to provide services and that can become a new lane, a new growth lane that will lead us to more businesses. We may become partners in those developments since we are going to have a lot of knowledge about them. So it is a way to develop a [C] business that has a lot of location to become an asset business. And we are also starting this new business line with some contracts in place. So that's why we are putting up a structure, a management structure because we want to do things right. We are putting together a new business because we already have some contracts and not the other way around.

Now when it comes to infrastructure, with the infrastructure business, as you know, it is a very broad business, and there's always a real estate angle to these businesses with concessions, with property assets that foster financial movements in a major concession or in major businesses. So the infrastructure business is very broad and our work is allowing us to look for opportunities using our real estate expertise and also capturing synergies for the infrastructure business because that business is a very good way for Brazil to grow as a whole. Today in Brazil, business people from any sector are looking at infrastructure, for infrastructure businesses or infrastructure-related businesses. So this is a way to use our expertise to have access to tap into a new growth plan that has a very good economic potential and that has good businesses. That can be captured by our real estate expertise.

Now when it comes to UPCON, beside the synergy and financial benefits, I'm going to ask Guilherme to answer that question because he is the founder of UPCON, and he knows its operations very well. He knows the value-added that they have there. So I think Guilherme would be the right person to answer that question.

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Guilherme Augusto Soares Benevides, Gafisa S.A. - COO, VP of Operations & Member of Executive Board [8]

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Well, when it comes to the UPCON Gafisa relationship, I think that UPCON is bringing to Gafisa expertise of over 40 years, focused 100% on real estate. That's the core business of the company. So we are bringing in all of that experience, the 40-year experience of their shareholders and that is adding value to a listed company, and we can help them in the management, bring all that expertise together. And also UPCON brings us a major landbank volume with projects that are very well-structured and very well positioned in the market, adding value to Gafisa's assets too.

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Operator [9]

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(Operator Instructions) Okay. So if there are no more questions, I will turn the floor over to Mr. Ian Andrade and the other speakers for his final remarks.

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Ian Masini Monteiro de Andrade, Gafisa S.A. - Chief Financial & IR Officer, VP of Management of Finance & IR and Member of Exec. Board [10]

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I would like to thank you all for your participation. Thank you for your time and your interest in what we are doing here at Gafisa and the story that we are building together, the growth that is becoming more tangible. We are eager to implement the new growth cycle as soon as the market conditions and the sanitation conditions allow us to do so. We are focused and eager to launch our products to the market and really start this new moment at Gafisa, resuming growth, resuming launches of differentiated developments that are very well positioned in financial terms as well.

So thank you very much. I wish you stay healthy, you and your families, we are going to go through this global crisis with solidarity and common sense. So thank you very much.

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Operator [11]

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With that, we conclude Gafisa's conference call for today. I would like to thank you all for your participation, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]