1. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Operator:
Good Morning. Welcome to Gafisa’s conference call for the results of the Second Quarter of
2009. With us today is Mr. Wilson Amaral, Gafisa´s CEO and Julia Freitas Forbes, 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.
Slide 2
Good morning and thank you for joining us on our second quarter 2009 conference call. I am
joined here today by our CFO, Duilio Calciolari, and our Investor Relations Manager, Julia
Forbes.
I am pleased to say that the overall outlook for the Brazilian housing industry has continued to
improve since I reported on last quarter’s results. While the sector experienced some
uncertainty during the first quarter, we witnessed healthy demand across all segments of the
Brazilian real estate sector in the most recent quarter. Indeed, Gafisa saw balanced
performance from all three businesses of its portfolio: Gafisa, Alphaville, and Tenda, as
customers from the mid and higher income segments returned to the market and again made
a substantial contribution to our overall results.
Historically low interest rates and inflation levels have prevailed, while increasing economic
prosperity, strong government support of home ownership, and a substantial household
formation in all regions of the country contributed to Gafisa achieving strong sales of R$835
million in the quarter and the highest level of sales of any company in the sector during the
first half of 2009 of R$1.4 billion.
During the second quarter, the success of high-end launches by Gafisa and Alphaville in São
Paulo and Rio de Janeiro indicated the continued strength of these brands and showed
Gafisa’s ability to opportunistically develop its large land bank in accordance with local market
demand, thereby maximizing profitability. We saw impressive sales velocity at each of the
launched projects, highlighted by 82% of lots sold in just the first weekend at Alphaville’s
Granja Viana.
At Tenda, significant progress was made in consolidating the operations of the two leading
companies in the affordable entry level segment, and the company was able to accelerate the
pace of construction at a number of sites supported by the unique and industry-leading
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2. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
debenture of R$600 million with Caixa closed earlier in the quarter. Tenda also strengthened
its day-to-day relationship with Caixa, improving its ability to increase the number of
substantially completed credit applications submitted to the bank as it brought in house more
of the required application process required to hasten approvals.
As we look at the remainder of 2009, we see positive macroeconomic trends continuing. A
number of recent government measures in support of home ownership, as well as the Central
Bank’s recent cutting of the Selic rate to 8.75%, the lowest rate in Brazil since the Selic was
established in 1999, have stimulated demand and increased the availability of funds to
support growth of the housing industry. The seasonally-adjusted unemployment rate fell to 8%
in June, the lowest level since November 2008, and in July, consumer confidence reached its
highest level since September 2008.
Gafisa will continue to develop its well respected brands in new and existing markets,
leverage complimentary sales channels to maximize sales of portfolio products, and take
advantage of the increased availability of working capital financing, particularly as it applies to
the construction of affordable housing. We look forward to increasing launch activity as well
as leveraging our strong recognition, marketing and sales capacity at Gafisa and Alphaville,
while backing Tenda’s plan to become the undisputed leader in the affordable entry level
segment.
Now, let’s turn to Slide 3 so I can give you more insight into the events of the second
quarter.
I am pleased to say that our operating results for the second quarter of 2009 were quite
strong, especially given a fairly conservative approach to launches.
Gafisa focused mainly on sales of units in inventory rather than launches during the quarter,
and thus launches decreased by 56% to R$626 million from R$1,409 million in Q208. Gafisa
launched a potential sales value of R$352 million and AlphaVille, R$82 million during the
quarter, while Tenda’s launches totaled R$192 million.
Our pre-sales during the quarter increased 9% year-over-year to R$835 billion, and sales
velocity was 24%. On a sequential basis, pre-sales increased by 50%.
Net operating revenue, which is calculated on a percentage of completion basis, rose 54% to
R$706 million as we completed developments begun in earlier periods.
Second quarter EBITDA adjusted for non-cash stock option expenses climbed to R$142
million, representing a margin of 20.2%, an increase of 69% over the prior year. Net income
before minority interest and stock options also increased to R$81 million, a 26% increase over
the first quarter of 2008. Net income after those items was R$ 58 million.
As I mentioned, our subsidiary Tenda received the funds from its innovative R$600 million
debenture with Caixa in May, and to date, it is the only homebuilder that has executed this
kind of financing with Caixa. This pioneering deal facilitated the acceleration of construction
on a number of projects and consequently, an increase in revenue recognition.
Finally, Gafisa’s brand segments completed 31 projects during the quarter.
Turning to Slide 4, I’d like to go over some of the recent and most important developments
during the quarter.
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3. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
In addition to increased demand for Tenda’s affordable entry level products, Gafisa also
experienced strong sales of the mid/mid-high level products of Gafisa and Alphaville. Three
high-ticket launches by these two well-respected brands illustrate renewed demand in the
segment for these products. Gafisa’s Vistta Santana and Estação Sorocaba developments,
located in São Paulo and Rio de Janeiro respectively, both launched during the last month of
the quarter and sold more than 45% and 55%, respectively, until June 30, and I mentioned
Alphaville’s Granja Viana performance earlier.
The successful integration of the operations of Fit into Tenda is a recent example of how we
are building a unique sales platform to showcase a range of products geared towards the
affordable entry-level market. During the second quarter, Tenda sold 4,366 units with a PSV
of R$367 million at an average price of approximately R$84,000, the lowest in the industry,
which we feel gives Tenda a competitive advantage.
Gafisa strengthened its financial position during the quarter in a number of ways, and as of the
end of the period had a cash position of approximately R$1.1 billion. The Company
completed its second securitization transaction of 2009, selling receivables that generated net
proceeds of R$70 million, and also successfully removed an outdated debt covenant that was
negotiated in 2006 when the Company’s operations were considerably smaller. Removal of
the debt covenant and other concessions provides added financial flexibility. In fact, the
increased ability to consider an array of debt financing alternatives to take advantage of future
opportunities to grow beyond our current expectations for the year made the decision to
cancel an equity offering considerably easier.
Finally, I am pleased to report that Gafisa has now been certified as compliant with Sarbanes-
Oxley legislation, an example of the Company’s dedication to both transparency and
organizational excellence.
Slide 5 highlights the three independent yet complementary brands that offer homes for all
income segments and are positioned to continue to provide the right product at the right price.
Our comprehensive coverage of the sector through our diversified range of products and
national presence makes Gafisa a leader in the sector. With dedicated management and
operating teams that have expertise in building homes and serving each type of client, we
continue to build on our strong name. We believe serving all segments will be even more
advantageous as the still underdeveloped Brazilian real estate market matures.
Turning to the next slide, number 6, you can get a good sense of just how broadly
diversified we are across Brazil. Gafisa continues to rely on its $16 billion land bank to
execute a strategy of geographic and product diversification, and is currently developing
projects in 20 states and nearly 100 cities. The right hand side of this slide reflects the
diversification of our contracted sales and land acquisition, which no longer favors the leading
markets of São Paulo and Rio de Janeiro in the way it did a few years ago. As you can see,
more than one third of our sales and land bank are in other states now.
Slide 7. As I mentioned earlier, Gafisa focused on sales from inventory during the quarter,
while selectively launching projects where demand was known to be strong. You can see
here the decline in launches year-over-year, however launches totaled R$626 million for the
second quarter with 69% coming from the mid/mid-high segments.
Launches in the state of São Paulo accounted for more than half of the total in this quarter.
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4. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Turning to slides 8. When you turn to our pre-sales, you can see that year over year pre-
sales grew 9% to R$835 million in the second quarter, while first half sales were in line with
the first half result from the previous year.
As you look at the first half’s pre-sales by region, 34% of pre-sales were in new markets.
There is a strong demand for housing outside of São Paulo and Rio, while those two
traditional states continue to show considerable demand.
On Slides 9 and 10, you can see that sales velocity for the consolidated Company was 24%
and each segment was successful in selling units out of inventory during the quarter, which at
the end of the period was approximately R$ 2.7 billion. Note that 74% of inventory has not
been started or is less than 30% complete, which is another way of saying that the bulk of our
inventory represents a large pipeline of revenue to be recognized in future periods.
Moving on to slide 11. One of our key competitive advantages is our high quality, diversified
land bank. We have 303 different sites across 21 states. Tenda represents about 60% of the
potential 104 thousand units corresponding to Gafisa while the mid/mid-high segment brands
of Alphaville and Gafisa comprise about two-thirds of the total potential sales value of the land
bank, exceeding a PSV of R$10 billion.
Thank you and now let me turn it over to Júlia.
Slide 12 - Overview of 2Q09 Results
Good morning, everyone.
As Wilson mentioned earlier, we turned in improved operating numbers during the second
quarter of 2009, thanks to a stronger contribution from all segments. Let me start out by
saying that we have adjusted our 2Q08 numbers in accordance with Law 11638, which brings
accounting standards closer to IFRS for comparison purposes with the 2009 numbers.
Slide 13 – Operating Highlights
As you can see on Slide 13, in 2Q09, net revenues, recognized by the Percentage of
Completion method, increased substantially by 54%, exceeding R$700 million, as we
furthered the completion of a large number of developments launched in recent years. Tenda
contributed significantly, accounting for 37% of revenues.
Gross profit increased during the quarter by 41% to R$191 million reflecting the increased top
line growth, while gross margin declined from 29.6% in 2Q08 to 27.1% in 2Q09, in part
because of a reclassification of our land cost recognition for unit swaps and partially because
of an increase in capitalized interest from R$5.9 million in 2Q08 to R$20.2 million in 2Q09.
EBITDA adjusted to non-cash stock option expenses for the second quarter reached R$142
million, 69% higher than the R$84 million achieved in 2Q08. As a percentage of net
revenues, adjusted EBITDA increased to 20.1% from 18.4% last year.
2Q09 net income before minority interest and non-cash stock option expenses was R$81
million, 26% higher than in 2Q08, with an adjusted net margin of 11.5%. Net income was
R$58 million compared to R$43 million in the previous year, as it benefited from top line
growth as well as increased operating profitability.
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5. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Given the different business models and our recent investments in the affordable segment, we
will be providing operating profitability by business unit going forward.
Slide 14 – Adjusted EBITDA
On slide 14 we present a detailed look at the EBITDA results of both Gafisa and Tenda, as
well as the consolidated numbers, adjusting for the usual items such as capitalized interest,
stock option plan expenses and minority interest. As you can see, the Company reported an
Adjusted EBITDA Margin of 20.1%. The Gafisa segment reported an Adjusted EBITDA
margin of 23.3%, while Tenda, a pure-play in the affordable housing segment, reported
14.8%.
You see also here the important contribution to EBITDA that our businesses that serving
mid/mid-high income segment made during the quarter and in the first half, when more than
75% of EBITDA was contributed by Alphaville and Gafisa.
However, Tenda’s EBITDA improved both year-over-year and sequentially as the company
was able to accelerate construction at project sites supported by the proceeds from the
debenture issuance with Caixa and increase revenue recognition. This allowed Tenda to
reach a higher level of EBITDA margin, and it is expected Tenda will see further improvement
during the second half.
Slide 15 – SG&A
Taking a look at our operating performance on slide 15, you can see an improvement in the
2Q09 SG&A rations when compared to 1Q09.
As you may know, Tenda operates a large network of regional offices in highly trafficked
metropolitan areas in order to drive sales to the affordable segment of the population. This
subsidiary improved its sales performance considerably during 2Q09 – for example, sales
increased 45% in 2Q09 and selling expenses increased 17% for the same period benefiting
sales expenses ratios.
Given the significant opportunity the affordable segment represents, we expect these
operating ratios to continue to improve in future as that organization enhances performance
and books additional top line growth.
Additionally, we have seen Improvements in our 2Q09 consolidated G&A expense ratio when
compared to the 1Q09.
Again, as top line continues to grow and organizational synergies from the restructuring at
Tenda take hold, we expect those ratios to continue improving.
Slide 16 – Backlog of Revenues
Turning to slide 16, you can see that we continue to book strong sales in all segments of our
business which drive the backlog of revenues to be accounted for in future periods as our
projects are completed.
During the second quarter, the backlog of results to be recognized under the Percentage of
Completion method increased to R$ 1.1 billion, a 69% increase as compared to the second
quarter of 2008. The Backlog margin reached 36.4%, a change of 180 basis points as
compared to the 1Q09. I’d like to remind you that the backlog results are not discounted to
present value.
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6. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Slide 17 - Strong Financial Position
Slide 17 describes our financial position. As of June 30, 2009, Gafisa had cash and cash
equivalents exceeding R$1 billion, as it benefited from the proceeds from a securitization
transaction involving the sale of Gafisa receivables that generated R$70 million to the
Company, as well as Tenda’s R$600 million debenture through Caixa. Additionally, the
Company has access to R$3.4 billion worth of construction finance lines of credit provided
through all the major banks.
Our cash burn rate this quarter was R$111 million, substantially lower than R$360 million in
4Q08.
Net debt including obligations to investors was R$1.5 billion and our net debt and obligation to
investors to equity and minority interests ratio increased slightly to 65.6% as compared to
61.9% in 1Q09.
And, as Wilson mentioned earlier, we recently removed an outdated debt covenant that was
negotiated in 2006, when the Company’s equity was less than half its current amount. The
covenant stipulated that Gafisa could not have net debt (excluding SFH debt) exceeding R$1
billion. As a result of the renegotiation, Gafisa will pay additional interest in line with current
market rates and have greater ability to access an array of debt market instruments should the
Company choose to exercise that option, as the R$1 billion covenant was removed and the
net debt to equity covenant was adjusted to exclude project financing and include minority
shareholders.
Slide 18 – Share Performance & Liquidity
Slide 18 provides a snap shot of our share performance and liquidity. Gafisa shares continue
to be the most liquid in the sector and we remain the only Brazilian real estate company to be
listed in the United States.
Slide 19 - Outlook
Finally, as we move to Slide 19, I’d like to mention that we believe that our diverse residential
product lines, brand strength in all income segments, and national footprint have positioned us
very well to capture the continued growth of the entire homebuilding sector. Gafisa reaffirms
the outlook that it has provided on sales and EBITDA margin in 2009, and will focus on sales
of inventory, launching new developments as demand dictates, and further strengthening our
performance in each segment that we serve.
Gafisa’s consolidated sales for the full year 2009 is expected to be between R$2.7 and R$3.2
billion. Gafisa is expected to account for between R$1.0 - 1.2 billion, Tenda for R$1.4 - R$1.6
billion, and AlphaVille for R$300 million to R$400 million. Consolidated EBITDA margin is
expected to be in the range of 16% - 17%, while the EBITDA margin for Tenda is expected to
be between 14% - 16%.
*Thank you, and let’s open the floor to Q & A
Operator:
Thank you. We are now going to initiate the Q&A session. Should you have any questions,
please dial *1.
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7. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
If your question has already been answered, you may exclude it from the list by dialing #. The
questions will be answered according to the order they are received. We gently ask you to
wait while the questions are being made.
Once again, please dial 1 should you have any questions. Thank you..
Jordan Hymowitz, Philadelphia Financial:
Thank you very much. Question, once the new accounting standards coming for the percentage
of completion accounting, could you kind of give a sense as to how this is going to affect your
EBITDA margins?
Fernando Calamita:
Yes, Jordan, I am responsible for the accounting and planning area. We are just starting this
project. We are in the process of hiring who is going to help us in the process of
implementation of the IFRS. We do believe that we will have a significant impact, as you
know, with the percentage of completion methods. We bring very different results compared
to the IFRS, and that is why we decided to start this project right now.
We are required according to the Brazilian legislation to have it implemented by the end of the
next year. So we do have space to go on the projects and estimate the impacts before the end
of this year.
Jordan Hymowitz:
When does that happen, in 2010 or 2011?
Fernando Calamita:
No, according to the Brazilian legislation, we are required to have the next year's final P&L with
this effect. So we are required to do it in the beginning of 2011, but with the results of 2010.
Jordan Hymowitz:
So, how much, I mean, could you give a sense as of between, like the Mexican guys have been
about between 20% lower, is that a good guess or do you have a range or....?
Fernando Calamita:
No, not at this point in time. As I said, we are just starting the project to calculate the effects
and to see the changes that we will have internally in our systems, in our processes, so at this
point in time we are not able to give you any estimation.
Jordan Hymowitz:
OK. Would it be fair to say that it will impact Tenda’s business less than the Gafisa’s business
because the sales cycle is quicker?
Fernando Calamita:
Yes, that is right. You are right.
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8. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Jordan Hymowitz:
OK, thank you.
Adrian Huerta, JPMorgan:
Hi, good morning. My question has to do with the revenues to be recognized over the next six
months. I guess, I mean, even if we do not include any further pre-sales for the rest of the six
months, I mean, I see that you have like R$3.1 billion in revenues to be recognized, how much
of this R$3.1 billion will be recognized over the next six months, and then how much in 2010?
Wilson Amaral de Oliveira:
Hi, Adrian. We are not providing specifically this kind of information, Adrian, but let us say, we
are already recognizing R$1.2 billion. I would say that the volume of revenues to be
recognized in this year, for the whole year, is going to be pretty similar to the volume of our
sales. Let us say that we are in the same pace.
And just to remind you, the guidance for sales for this year of 2009 is something between R$2.7
billion to R$3.2 billion. And for the next year, we are still preparing the budget for 2010, and we
will review our five-year plan, but we are expecting some growth. I do not want to talk about this
right now, because we are not providing guidance for this year, but if you consider the volume
of revenues that we have in our backlogs, and the guidance that we just provided in terms of
sales for this year, we can expect something between 25% and 30% of growth for next year.
Adrian Huerta:
That is on pre-sales, right, Wilson?
Wilson Amaral de Oliveira:
Yes, but it is going to be very similar to the volume of revenues recognized. Just to remind you
that we now have a very important contribution coming from Tenda, and the cycle of Tenda
is little bit shorter than Gafisa, so I believe that the volume of sales and revenues is going to be
pretty similar.
Adrian Huerta:
Perfect. And then, one more question, on the products you will be launching the rest of this
year, what kind of products are you working on to launch excluding Tenda?
Wilson Amaral de Oliveira:
The idea this year was to reduce our inventory strongly, and this is certainly what we have been
doing in the last six months. At the beginning of this year, when we planned the year, we are
expecting to deliver sales for the Gafisa and Alphaville products much higher than the volume
launched.
The point right now is a little bit different, because as we just mentioned in our earnings
release, we are seeing this market returning. So, right now, what we are doing is, yes, we will
deliver the volume planned at the beginning of the year, but there is a possibility to increase
8

9. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
the volume of launchings, as we see much more demand for the products now compared
with what we have been seeing in the last months.
What I believe that is going to happen is that we will probably have for the whole year of this
year, let us say, and I am making some calculation here, the guidance for Gafisa and Tenda
is R$1.4 billion, it is going to be, let us say, the volume of launchings for the whole year is
going to be pretty similar to the volume of sales, considering the mix. I am talking about
only in terms of Gafisa and Alphaville brands.
Adrian Huerta:
Sure. And then within those launches, what percentage do you think would be for prices, for
units of more than R$500,000?
Wilson Amaral de Oliveira:
You know, because considering our land bank, it is another good question. Because if you
consider our land bank, we have much more parcels of lands included in the segment
between R$150,000 or R$200,000 to R$500,000, but on the other side we see many, I would
say, a lot of demand for the products with price points above R$500,000.
I believe that is going to be more concentrated in R$200,000 to R$500,000, but we have
one specific project under the approval process right now, and if we succeed to have these
approvals and permits, this product is going to be launched probably in November or October
or December of this year and this is a very high end product in the City of São Paulo, with a
VGV of approximately R$200 million.
It is tough to say right now if we are going to have all the necessary approvals to do that, but
if we succeed in having that, you can expect a very important volume of launchings with
products above R$500,000 per unit.
Adrian Huerta:
Perfect. Very clear. Thank you very much, Wilson.
David Lawant, Itaú:
Hi everybody. I have a question regarding your sales expenses, your commercial
expenses, I mean, we saw now in the 2Q09 your launchings growing a lot, but your sales
expenses are pretty much in the same pace that they were in the 1Q09. I would just like to
understand if there is any change in your commercial strategy, if we can continue to expect
sales expenses at these levels, very controlled levels. Thank you.
Wilson Amaral de Oliveira:
Hi, David. It is a good question. I believe that we should segregate the answers, because, you
know that Tenda is a little bit different from Gafisa in terms of the ratio, fixed and variable
costs in terms of sales.
In the case of Tenda, I believe that you will continue seeing a strong dilution. You know, when
you consider the variable versus fixed costs, Tenda has much more fixed costs. All the
expenses related to the maintenance of the stores, even in terms of compensation, we pay
fixed and variable commissions.
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10. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
So I believe that you are going to continue seeing a lot of dilution, which is great, because
in our opinion, the sales expenses in Tenda is still high. We prepared the company for
another volume. We are right now in this process of the ramp up in terms of sales,
revenues, and I believe that, when we have this company running at the right volume of
sales, which is going to probably only in the last quarter of this year, then you are going to
see a recurring sales expenses level. But from now till there, we are going to see a lot of
changes in terms of this ratio.
In terms of Gafisa, it is a little bit different, especially in terms of sales expenses, because
the compensation basically here is variable and 90% is commission. So , usually the
commission is related with the volume of sales but also with the volume of launchings. As
we are not launching aggressively, of course, we are saving some money in terms of those
costs related to the process of launchings, especially advertising and things like that. I
believe that in terms of Gafisa, you can see, let us say, a small increase in terms of sales
expenses as we put pressure in terms of launchings.
And in the terms of Tenda, yes, you are going to see some more expenses in terms of
launchings, because you can expect that we are going to have much more aggressiveness in
terms of launchings in the second part of this year, but on the other side you are going to see
a lot of dilution. So, I believe that we still have some gain in terms of sales expenses over
sales in terms of Tenda.
David Lawant:
OK, thank you.
Jordan Hymowitz, Philadelphia Financial:
I just want to get a sense, is there a methodology you guys use to correlate between pre-sales
and launchings and what percent of pre-sales this year you expect to become launchings next
year?
Wilson Amaral de Oliveira:
I do not know how familiar you are in terms of what we call launchings and sales. Launchings
is the process of putting our products on the street to be sold and pre-sales, we recognize our
pre-sales at the moment we sign the contract with the customer. That is the difference.
This year is a different year in Brazil, because as we had a very important volume of launchings
next year, and as soon as we realized that we had a crisis in the last part of 2009, we reduced
the volume of launchings aggressively. So it is tough to calculate the ratio of pre-sales over
launchings this year.
But we are reporting our inventories, so let us see what page we have this, and this can give you
a very good sense. Just to give a perspective, we finished the 1H09 with approximately R$2.6
billion in inventories at market value. And the first part of this year, basically we sold inventory,
because the volume of launchings was really small.
So I believe that this year, considering the guidance that we provided for sales, let us say
R$2.7 billion to R$3.2 billion, and considering that we already delivered approximately half of
this guidance basically selling inventories, I would say that, and it is just an estimate, but maybe
something around 70% are coming from inventory this year, which is not a typical year.
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11. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
Usually we have much more coming from the launchings, but this year we changed our strategy
because of the beginning of this crisis and we believe that 2010 we will come back to the
normal ratios.
Jordan Hymowitz:
Thank you.
Ian Simmons, Charlemagne:
Hello. I think I just heard you say that you would expect to grow 25% next year. Can you just
give us some idea what you would need in terms of funding to be able to achieve that? Would
that lead you to come back to the market with a next tier offering or a convertible, which has
been talked about a lot or do you see more debentures from Caixa? Can you just give us
some idea of what possibilities are please?
Wilson Amaral de Oliveira:
Yes, good question. First, it is important to say that we have in Brazil good alternatives in terms
of financing, which means that we had a very important change in terms of scenario in the last
three months. This is very recent. At the beginning of this year it was almost impossible to talk
with the banks about financing in Brazil. But right now we have good alternatives.
But another thing that is important to mention is that we do not need much effort s in order
to deliver this current business plan. Just to give an idea, we just reported 66% of net debt to
equity ratio by the end of June.
In order to deliver our current budget, we believe that it is possible to reach the level of 80% to
85% of net debt to equity ratio by the end of this year or by the end of the 1Q10. And we have
already the credit lines secured to deliver that. I believe that and let us say a more important
decision, especially in terms of equity offering or another instrument like convertible, for
example, would be necessary if we change our business plan drastically.
Let us say, right now in September, we will start our process of detailing our 2010 budget, and
we will review our five-year plan. And if we see this market reacting well to our launchings, then
we will probably have the alternative and the opportunity to boost our budget for 2010. Then, in
this situation, we should consider a different source of capital or debt equity raise.
But so far, with the budget that we have in place, what we are expecting is an increase in
terms of net debt to equity from 66% to 85% by the end of this year, using simple instruments
of debt in Brazil, like debenture, for example.
And, you are right. Another thing that you mentioned that is very important, we are already
working with Caixa Econômica in order to raise the same kind debenture here in Gafisa, but
we are not expecting to finalize this negotiation with Caixa Econômica, let us say, at least in
three, four or five months, because, you know, they just gave us the first debenture in Brazil to
Tenda and we do not believe that we will be able to raise another debenture to Gafisa in a short
term, but there are many other alternatives in Brazil, so we are not seeing risk in terms of
financing the Company to deliver the current budget.
Ian Simmons:
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12. Conference Call Transcript
2Q09 Results
Gafisa (GFSA3)
August, 03, 2009
OK, thank you. And just one more question, can you just update us on what the cancellations
are looking like at Tenda, please?
Wilson Amaral de Oliveira:
The cancellations are under control. We reduced the volume of cancellation in the last quarters
with the introduction of a new credit score system at Tenda. But on the other side, we do not
believe that we were going to have in Tenda the same percentage of cancellations that we have
in Gafisa and Alphaville projects.
We know very well this customer, the affordable-entry level segment in Brazil is a little bit
different than the other segments. So, I believe that we will always have a level of
cancellation, which is, let us say, more important than Gafisa. But I believe that we have this
process under control, when we provide our sales guidance for the year, we are always
talking in terms of net sales and we are always reporting net sales. I believe that is important to
mention.
And another thing that is important to mention is that today, the cancellation, sometimes we
give more importance to the cancellation, because you know, in Brazil we are using the PoC,
the percentage of completion method, so every time that we had a cancellation we had an
impact in terms of results.
You probably know that we are going to introduce the IFRS here by the end of 2010, and then,
even when we have this cancellation in the future, you will not see this impact in terms of
results. But I can tell you that it is a process under control, but we do not expect the same level
of cancellation compared with Gafisa or Alphaville, it is a pretty different market.
Ian Simmons:
OK. Thanks.
Operator:
Ladies and gentlemen, this concludes the question-and-answer session for today's conference.
I will now pass the floor over to the Company for its final remarks.
Wilson Amaral de Oliveira:
OK, I would just like to finish this presentation by saying that we continue very optimistic about
the future of our business in Brazil. We believe in the fundamentals of Brazil, and I hope we can
have you again with us in our next earnings call.
Thank you again for your participation. Bye, bye.
Operator:
Thank you. This concludes today's conference call. You may now disconnect your lines.
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