Gafisa S.A.
Q4 2021 Earnings Call Transcript

Published: 21 Mar 2022

[Operator:]

Good morning, everyone, and welcome to our Earnings Call for the Fourth Quarter of 2021. My name is Flavio Prieto. I am the Investor Relations Officer and we have here Mr. Ian Andrade, CEO of Gafisa Capital and Investor Relations Director, and Guilherme Benevides, CEO of Gafisa Construction and Development. Later, we'll have a question-and-answer session. We'd like to inform you that this conference call is being recorded and that you may ask your questions in writing through our chat box. This presentation is also available and you can move with slides as you wish. Before we begin, we would like to inform you that any statements made by the company's administration involve risks, uncertainties and may refer to future events. Any changes in macroeconomic policies or any legislation changes may affect the company's performance. So, Mr. Ian, you may begin.

[Ian Andrade:]

Good morning, everyone. Thank you, Flavio, for introducing us. Good morning, everyone, and welcome to our earnings call. We feel a major sense of achievement and we feel very proud of our performance for 2021 and the fourth quarter. The highlights are the following. As was previously announced in our operational call, we have launched BRL 1.7 million in launches. So, that beat our record. All of our products have been extremely well positioned, especially here in San Paulo, and we'll go deeper into the details about each launch and you'll see how differentiated our products are. That's the new line that Gafisa has, differentiated products for a new level of clients. Our sales had an expressive growth in 2021. We posted a 46% growth, reaching BRL 755 million. Our gross profits went up 15% versus 2020. Gross margins was stable when adjusted at 20% or 500 bps from 20% to 25%. So, as is very common in our industry, we remove the effects of the financial cost of projects to have an adjusted gross margin. That gives you a real reference of how you're performing without any distortion caused by funding for each project. So, there, our gross margins are 30%. Our future margins are 40%, and we'll go deeper into that later today. A very important highlight was our income in 2021. We had already been posting a profit for four consecutive quarters, since the fourth quarter of 2020 and posted profits every quarter. So, now, in 2021, we have the first year in which we've had a positive net income performance, BRL 81 million, which has been having a historical level of losses since 2015. And this is not just any sort of income. We're having a net income that has gone up 10% – or net margins that have gone up 10%, excuse me. So when we compare both years, we are looking, of course, at two years that were very difficult. In 2021, we have already posted a gross margin of 30% net income and net margins of 10%, growth across all the operational factors. So, we're in a very virtuous cycle right now. And this reflects the effort that the company has had in carrying out its business plan. Or closely aligned to our purpose, we've been selective, we've been using good criteria and we're focused. Besides that, our core business, which is real estate development and construction, the company has also executed – is also executing many of its plans. So, we'll discuss later how our portfolio is maturing and how all of our assets have been developing and already posting results. Gafisa Capital has already reached some major achievements in the market. We're bringing in capital from third parties to several of our projects. And we're really becoming an opportunity for real estate investments. Not only in our ticker, excuse me, but also at the project level. We have Gafisa Viver Bem, which is our digital service platform, and we have several great numbers behind it. So, within this entire context, results, performance, aligned purpose, and with a lot of discipline in our execution, we're very proud to underscore that, again, Gafisa has generated major results for the last two years excluding the beginning of 2020. And our way of working, our methodology has already received a certification of being a great place to work. We often talk about long tail transformation in companies. We often stick to results. But the real turn around that we see in companies is when you're changing your culture, your purpose and your working methodology. And this is what Gafisa has achieved in a short span of time and we're already seeing the results, financially and non-financially. I'll pass it on now to Guilherme Benevides, the CEO of Gafisa Construction and Development.

[Guilherme Benevides:]

Thank you, Ian. And welcome, everyone, to our earnings call. I'm very happy to say that we have reached our proposed guidance. We've actually surpassed it. So, for this call, we're going to be talking about some of our launches for this year. In the fourth quarter of 2021, we reached about BRL 700,000 in PSV and, over the year, BRL 1.5 billion in pre-launches. So, we have a number of launches, like TOM Delfim Moreira in Rio, which really surpassed the market value of BRL 100,000 per square meter, and Tonino Lamborghini apartments in Sao Paolo, a project with 250,000 in PSV in pre launches. We really revolutionized the market with a high luxury and design brand that refers to the client's lifestyle. And we also surpassed BRL 40,000 per square meter in the neighborhood of Jardins in São Paulo. So, this just underscores the company's strategy of working with high-end apartments and development. So we're very happy to say that we have surpassed our guidance. Continuing with slide 9. Here we see our pre-launches in the fourth quarter of 2021. Three of them are in São Paulo and one in the city of Rio de Janeiro. We Sorocaba in Botafogo, evolve in Vila Mariana, Go Inn in República in São Paulo, and Stratos in Itaim. Added together, they represent BRL 450,000 and we started pre-sales during the fourth quarter. The next slide shows how our gross sales increased 46% since last year and we reached BRL 754 million in sales for the fourth quarter of 2021 only. We had BRL 231 million, up 45% versus the third quarter. Our net sales reached BRL 581 million and gross sales BRL 754 million. We have to highlight that 63% of our net sales are under construction. 10% were delivered and 27% are launches. The next graph shows an important shift where 90% of our sales are high end and high luxury standard buildings. So, just this underscores our strategy of working on that segment, and it changes the quality and the style of our projects. The next slide, as I said, over the last 12 months, Gafisa launched BRL 1.7 billion. And we closed over BRL 581 million in net sales. So, from the Gafisa shares, we have BRL 1.3 billion and net sales BRL 581 million. Slide 12 shows the transition that we had in our inventory. We now have an inventory of BRL 2 billion where it's mostly concentrated in medium-high and high standard developments and 97% is concentrated in São Paulo and Rio de Janeiro where we have 80% of our inventory focused in high standard. So, it's demonstrating how we've changed our projects to focus on this segment. When we look at our inventory by phase of construction, we can see that 52% is under construction, 32% represents launches, and 16% has been delivered. Slide 13 underscores our innovation. We've adopted an open innovation concept. We now have a program called Inova Gafisa 2.0. So, a new development. And in 2021, we submitted over 500 ideas under this program, out of which 40 are ongoing with startups working within the company to actively work in our operational back office and sales areas. And we've been getting results through open innovation. Gafisa has also been in conversations with the innovation ecosystem. For over a year, we've been in that ecosystem. We always have pitch days with startups. We are trying to mitigate our pain points with technology and innovation. In 2022, we're focused on two pillars, increase sales, new sources of revenue, cutting costs, and increased efficiency and onboarding clients in the Gafisa journey. It's important to highlight that, in 2021, we received the Brazil award. So, we've been listed among the 100 most innovative companies in Brazil, regardless of their sector. So, we can say that we are among that top 100. Slide 14 concludes our operational results. I have three examples of startups working with the company. Flama Tech, which works with us through IoT and home automation technologies. So they are installing software in apartment units with artificial intelligence. And we're creating units that are connected and ready for the future. The entire apartment has its devices connected through innovation and technology to make for a better client experience. We also have Lexio, which is a digitized contract management system. We use it throughout our entire operation. And Predialize is also a software, also startup that automates the maintenance of our private areas. And that is all at the client's fingertips. So we're focused on improving the clients' experience. Thank you, everyone. And I'll pass it on to Ian Andrade. Thank you.

[Ian Andrade:]

Thank you, Guilherme, for that great explanation. And thank you for going deeper into what we did in our operations in 2021. We have major projects which are unique and very high quality. So, now, we're going to be talking about Gafisa Propriedades. So, just to update our portfolio, the next slide or slide 16 makes it unequivocally clear that our portfolio has over 105,000 square meters with a strong upside. We have shopping malls which represent an operational turnaround opportunity, we have hotels which are irreplicable assets with high added value, and commercial assets or offices. Our entire portfolio is shown in a snapshot in this table. We have 30,000 square meters of commercial areas, small stores and office space, which are now being actively managed. And we have already been seeing the results in rent and occupations. So, we've already been able to allocate 3,000 square meters in our portfolio and occupancy rate of nearly 10%. Shopping malls in Rio de Janeiro were acquired to retrofit and to revolutionize them, and even change its use in the case of the Fashion Mall. Our occupancy rate is over 80% in this portfolio. In 2021, it's already generated BRL 13 million in NOI. Here we see our hotels in GLA. We have units under construction or at the end of their approval process. So, continuing with the next slide. Here we have a better update or more details of each of the highlights in the categories of our properties portfolio. Under the commercial category, I'd just like to highlight that these square meters that are being rented have been built on cost. So, our potential yield on cost is higher. We don't need to rent these assets for enormous prices. So, our yield on cost is double-digits, between 10% and 12%. So, to put it simply, if we allocate this entire portfolio into our growth, with a potential rent revenue of BRL 40 per month per square meter, we have already reached a good yield. So, 10% of the portfolio has been allocated and we're going to continue to find alternatives to take this portfolio and to have a better yield, so that we can really unlock relevant values from this inventory. Hotels, as I mentioned, the major highlights are under construction. So, we have ongoing construction. Fasano Itaim and Cidade Matarazzo, which are very disruptive and special, has hotels, has art, has an experience. And at Gafisa, we are very proud of this project along with its founder. And for shopping malls, we have very clear plans for both malls we've made significant investments that we call lifting. So, with improvement on CapEx, addressing their issues, and we're changing the mix of stores and experiences. We've also included some capital in improving shopping malls. In the case of Jardim Guadalupe, this is a retrofit effort to improve foot traffic, NOI and occupation. And in Fashion Mall, we're transforming its use. We're changing the Fashion Mall into a multi-use residential area. So, we're going to change the lessors there at the mall and we're really focused on implementing these two assets very well, to transform them for any future upside. Continuing with financial results. As I said, slide 19 shows our highlights from our financial results in 2021. Profitability, so we went from a loss in 2020 to a profit in 2021, a net margin of 10%. We have a great accounting effect that gives us the impression that we had a poor performance when it comes to revenue, but this does not correspond to our operational reality. Our sales have gone up by 46%, as I previously said. So, revenues in 2020 were lower than in 2021. And this is because, in the fourth quarter of 2020, we had a non-recurring effect from a major swap of BRL 400 million, and this was a cost revenue. So, that affected our PSV, but our take in our participation in the swap was BRL 300 million. So in 2020, we've had these accounting changes, but if we look at profitability and operational margins, gross margins, all of our indicators performed very well despite this accounting illusion, a reduction in net revenues that does not correspond to how we were performing in sales and deliveries. We really delivered a relevant volume during that year. So, our revenues have been very healthy. And according to accounting rules, it gives us the illusion that we lost some revenue, but that doesn't correspond to our operations. The next slide is about our margins. You might have realized that, in the fourth quarter of 2021, we posted an adjusted gross margin of 21%, far below our yearly figure of 31%. And why was it posted that low in the fourth quarter. Again, it was an accounting effect. It's not that we are seeing costs going up. We don't see any surprises in that. Launches and works were increased to 2019 and 2020. We're buying land and we're having a forward-looking active management, contracting with our technical projects area. And this margin reduction is not related to any surprises in costs. Once again, it's the effect of swaps. In the fourth quarter, we launched four assets, three of which – Tonino Lamborghini, Vince Moema and in Rio de Janeiro – represent for the fourth quarter BRL 220 million in revenue. One-third, BRL 70 million, is in accounting referring to projects. That is revenue connected to swaps. So, when you have revenue, that comes with a cost. So, to put it simply, a third of our revenue in the fourth quarter did not add much to our margins. So, if we exclude the effect, that really didn't give us any gross margins because both sides of the equation are here. Our adjusted net margin, excluding these effects, would be exactly 30.3%. So that's our gross margin excluding these effects, which is very similar to what we have for 2021. In terms of visibility, to provide you a view of the health of our portfolio, the launches we'll have for the next two years have a ref margin of 40%. So, a backlog margin of 40%. So we have a very healthy portfolio, new projects have been performing very well, much better than the ones we inherited from previous administrations. And this is not chance, this is a strategy, we're adding value, we're finding different locations, and we've been executing our projects very well. Without changes in cost at the right price and we reached the results that we intended to receive in each launch and in each purchase. The next slide brings up a discussion of our strong balance sheet. Our liquidity indexes have been maintained. In the fourth quarter, we maintain BRL 612.1 million in cash. We see our level of debt, which is very long, 7 years to 10 years. They're all based on our properties. So, again, we are very strong and our corporate debt is very low. This has been seen throughout several quarters, in the last five or six quarters. And we've been able to maintain that and it was not different to this quarter. Our receivables portfolio was maintained at BRL 800 million. So again, very well backed with no participation in corporate debt. Good rates at market levels. And all of that is just showing how solid our balance sheet is. And the company – that is, our board members and executives, everyone in the company – is executing what it's promised. This is the ammunition we have for our business plan in new business lines, properties, services, and capital. And I'm going to conclude my presentation before we open up for questions on this slide. Instead of looking at specific figures, it's important to see the trends here. So, in the last 12 months, this is a slide I always like to use because our usual customers at the earnings call who come in every week know that we'd like to show this slide because it gives a clear visual indication of how we reversed historical losses. Looking in 2019, we're looking at a loss. And in three years, our last 12 months show positive results, higher revenue, and even as a graph, it creates an illusion that our revenue has reduced. But this doesn't correspond to the company's operational reality. And we see that sales have gone up 46%. So, this slide is about seeing how the company is performing and how it's trending upwards, and it's shown graphically. We can see everything that we're doing in the company represented in a single graph. So, with that being said, that concludes the company's presentation. And I'll open up for questions from the audience.

[A - Flavio Prieto:]

So, we got a question about the market. The SELIC Index has gone up and it should continue to go up. So how is Gafisa getting ready for the new business environment in 2022.

[Ian Andrade:]

Yes, that's always a concern when the SELIC index goes up. As a strategy in our company, we've tried to go to the high end market to protect ourselves from interest rate exposures. So, these are clients that usually invest in real estate when interest rates are high. When you look at low income clients, they really take a hit from high interest rates. So, we understand that the company's position to go into this area is very helpful when interest rates are high.

[Flavio Prieto:]

We also received a question about why investors should believe that Gafisa is in a different moment right now. Ian will answer this one.

[Ian Andrade:]

Well, I'm sure that investors are looking at the facts and the data and what we've been able to do in the last 24 months, the last two fiscal years, versus what happened in 2019. A lot has been done. And we have the results to show that we are tracing and executing a new path with positive results with a transformation agenda that has been implemented. And we've already seen the results. This is a business, especially real estate development, that follows along business cycles. Between the time you buy the land and you deliver a piece of property, it takes a long time. So, in 2020 and 2021, we've been able to see the financial results. And I'd rather just let our actions and our activities and our decisions speak for themselves. And I think that's the best argument, that is facts and data.

[Flavio Prieto:]

So, continuing with Ian, we've got another question about what you're preparing for the real estate fund market?

[Ian Andrade:]

Well, that market is very sensitive to the cost of capital, of course. By definition, it's an investment alternative for individuals, for institutional players. So, with higher SELIC rates, there is a level of aversion to new investment. So, new launches for real estate funds basically stopped in the last months. So, the answer I'd like to give is how we're getting prepared as Gafisa Capital. We want to bring in capital to our projects and to bring in investors, so that they can enjoy the upside of our portfolio and our projects. The real estate fund is a way of doing that. So we have a track record with transactions like family office funds and investors dedicated to the real estate market who know it and who navigate the risk. But to issue new funds in the market right now, we're going to have to leave a lot at the table to do it. We tested the market and we started some processes to approach new investors. And in these cases, we had some initiatives and we have one that's ongoing now. So, we're basically – we had began as approaching real estate funds, but we've directed that towards directly investing in our projects. And since we have investors who understand real estate risk better, the conversation doesn't become so expensive for us, so the risk is lower. So, we're bringing the capital to our projects without leaving anything on the table. But new funds have stopped. I've been looking at it every day. But I can tell you that, for Gafisa Capital, the real estate fund is only one structure to reach an end goal. There are others that represent directly investing in projects.

[Flavio Prieto:]

We have one last question about the operation. You disclosed you know the purchase of that company in Rio de Janeiro? And how is that going to affect Gafisa?

[Ian Andrade:]

Well, this acquisition is transformational for us. As we mentioned, the company's new management is focusing on man hours and finding organic opportunities and also M&As. We have a DNA in M&As. So we've had some important transactions. And this is one of the ones that is now being executed. It's concluded we've accepted a proposal. It's a proposal that has been formalized, but we see it with very good eyes. It's very well qualified. And it's going to give us a better portfolio, people, All of the M&As that the company has had brought in – well, they've shown Gafisa and their shareholders that they can access not only assets, but also our team and people. And that's what we're missing in the world now, human capital. So concluding this transaction, connecting Gafisa Rio and a dynamic, innovative platform that is so young and very well positioned like Byte a great acquisition for us. Today, we have about 25% of our PSV in Rio de Janeiro. If you looked at what we launched last year, that's very clear. So, it's always about one quarter in Rio and three quarters in São Paulo. That's why we had a transaction. We wanted to change the mix. As for the disclosure in our material fact, Byte is already adding to the company's value from the get-go. Nearly BRL 500 million in highly qualified projects that are being approved in Ipanema, Lagoa and the entire south side of Rio. So, we have many projects being approved that will go into our launches pipeline at the end of this year and a land bank, which is also evolving. We have projects in our inventory. And if we were to add what's being approved, what has been launched and what's under construction, we have a net PSV ex-swap of BRL 800 million from the get-go, besides other assets that are in by its pipeline. So just to answer your question, the mix and our percentages, one quarter Rio, three quarters in São Paulo, it will change. But don't underestimate us because, in São Paulo, we also have new growth paths. So, it's likely that we'll have different movements in São Paulo and we might find a balance of a third to two thirds, but we're not really looking at that percentage mix. In both areas, we're finding growth opportunities there, executing our existing portfolio with quality. And good decisions bring us good results. So, getting too worried about the percentage of Rio versus São Paulo, honestly, this isn't even a part of our work. We're trying to find opportunities in both markets. And, of course, when you have a decision that has been made and has been implemented, which is strengthening Gafisa in a Rio de Janeiro, due to market regions – excuse me, market reasons, and also for the Gafisa brand since it was born in Rio. So, qualitative, quantitative and emotionally, it makes sense to grow in Rio for us. And the way we're doing it, it really validates the path that we're taking.

[Flavio Prieto:]

Great. So, that concludes our Q&A session. So, ask Guilherme and Ian for their closing remarks. Start with you, Guilherme, please.

[Guilherme Benevides:]

Yes, of course. I think today's presentation shows how solid the new management has been at Gafisa. The company is migrating towards high standard enterprises. G&A strategies, inorganic growth underscore our commitment of making the company grow with a solid basis in Rio and São Paulo. Gafisa will become more present in Rio through this acquisition. And we're also going to extend our position in São Paulo. It's important to highlight that Gafisa has been launching standout projects in the market, high quality with luxury and lifestyle brands, and solidifying the new strategy that the company has and how it positions itself. So thank you, everyone. We're very proud to be here after two years, finishing the year with a great result with margins aligned to the market. We delivered over 1,300 units in 2021. So, the company is resuming its growth and how it launches Its profits with high quality. Thank you. And we'll pass it on to Ian Andrade.

[Ian Andrade:]

Well, I honestly don't have much to add except that I want to thank all of you for being here and I want to wish you a good week. And let's keep on working. Thank you, everyone.

[Flavio Prieto:]

Thank you, everyone. That concludes our call. If you have any other questions, you can contact us through our Investor Relations email and phone number. Thank you and we'll see you next time.