Gafisa S.A.
Q1 2022 Earnings Call Transcript

Published: 17 May 2022

[Flavio Prieto:]

Hello, good afternoon. Welcome to the First Quarter 2022 Gafisa’s Earnings Call. I’m Flavio Prieto, IR Director. We have Mr. Guilherme Benevides, CEO of Gafisa. We’ll have the presentation and then a Q&A session. I would like to inform you that this earnings call is being recorded. All participants in submit questions in writing through the chat box. You can change the slides above our presentation. Before we start that any statements involve risks, uncertainties and may relate to future events. Any changes in macroeconomic policies or legislation may affect the company’s results. I turn over the floor to Mr. Guilherme Benevides for the highlights of the quarter.

[Guilherme Benevides:]

Thank you, Flavio. Good afternoon. Welcome to our Q1 earnings call. It’s my pleasure to be with all of you for the sixth quarter in a row we show positive results in our balance sheet. Let me now talk about the highlights of this first quarter. Before or including pre-launches and launches, we’ve reached R$436 million. We have Sorocaba in Botafogo beach in Rio, and we have three pre-launches going República, and Stratos, Itaim and evolve in Vila Mariana amounting to R$436 million. Launched in Sorocaba and pre-launched the other three projects, we had five projects that were concluded almost 800 units, about 440 millions in PSV. That is an education of how able the company is to build its projects. Net sales that was a highlight R$233 million for the first quarter, 19 – up 19% when compared to Q4 and then 81% increase when compared to Q1 of 2021. That is another indication of the company can sell its projects. Q4s are usually better than Q1s however, we’ve had very positive sales volume when compared Q4 and Q1 of 2022. Gross profit were north of R$60 million, up 57% when compared to Q1 2021 and 119% of Q4 2021. Our gross margin was up from 27 – 22.7% in Q1 2021 to 31% in Q1 2022 and 829 bps increase. Let me not talk about the operational results onto Slide 6 now. Almost 800 units were concluded about 440 million PSV five projects Cinquo, UpLife, Scena, Upside Paraíso, Moov Belém. All these projects have already the permit. Onto Slide 7, let me now talk about the launch and the pre-launch is Sorocaba. As we said, Rio de Janeiro R$155 million that’s the PSV. Three launches for the second quarter evolve Vila Mariana it’s been launched. It was launched a week ago, 20% sold already in just a week. Go Inn República is in the pre-launch phase and Stratos Bandeira Paulista, these are very high scale. It’s pre-sales about 440 million for all four projects. Onto Slide 8 now, net sales increased by 81% as I said, reaching R$233 million from Q4 R$197 million up to R$233 million. On the bottom left when compared to Q1 of 2021, a 52% increase in our gross sales from R$162 million up to almost R$250 million, a very important increase above 50%. Net sales from R$129 million in Q1 last year, all the way to almost R$234 million in Q1 2022. On your right, net sales by phase only 19% of sales came from concluded projects that shows that the profile of our projects that are in constructions and in pre-launch phase, they’re highly qualified and they account for most of our sales. And now net sales by segment at the bottom right, you see a major change in the segments. We’ve been pointing that out publicly to differentiate our projects. We’re changing the profile of our products and sales show that already almost 81% of our sales come from medium or high medium, and high profiles. Onto Slide 9, in the last 12 months, the company has launched over R$1.740 billion – R$1.7 billion, almost R$690 million in net sales for the same period of the last 12 months. Onto Slide 10. This is the inventory profile that, again, shows the changing profile on your right to see the inventory by segment almost 80% high, medium high, again, changing or a reflection of the company’s changing of its profile. And by region, in Q4 2021, 67% was in Sao Paulo, 30% was in Rio, and only 4% in other cities. In Q1 of this year, almost R$1.8 billion worth of inventory, 69% concentrated in San Paulo, 28% in Rio and only 3% in other cities. Again, our strategy is to focus in both Sao Paulo and Rio. Our focus are these two cities, Sao Paulo has 70%. So our focus is to expand project both in Rio and Sao Paulo. Onto Slide 11 now, this is something I’ve been saying time and time again, and this is innovation as a cultural driver. This quarter, we’re starting a cryptocurrency project. It’s a pilot project in Flow by Gafisa at [indiscernible], a project adapted to that profile to have 15 cryptocurrencies as a payment method for this project specifically, this is a pilot that would be used to expand that to other projects. So we’re getting our feet wet in this world of cryptocurrency. Yet another means a payment for our customers that can resort to any type of risk asset to acquire their real estate. We have hired VTEX, one of the leading technology companies in the world. Our innovation team in VTEX, and the entire team will be developing our digital platform. This is going to be supportive at every point of the way in the customer journey from leading, from capturing the leads so that we can extract as much value as possible throughout the entire customer journey. And VTEX is the best partner to support that project. Costs per sale will be down. We can capture even more value and reduce costs even further in the sale process. Slide 13 now, still on the topic of innovation. This is yet another example of how the culture of innovation is present in our company. This is across the board digitalization effort, especially at construction sites. We have that in update Madalena, the entire project is digitalized paperless, all designers and use QR code to compare designs projects to make sure everything is according to plan, updates, everything is digitalized. The Mobiliza startup is helping us train our team. It’s a digital tool to train employees. It helps on the onboarding process of third parties and outsourced staff. And on the right, we have a direct communications channel with constro-tech startups, fintechs, a direct channel so that we can be in that ecosystem. And the ecosystem can talk to us several startups that can offer technology. That makes sense to our operation. They can, of course, have that direct link with Gafisa. This is yet another example of how technology oriented – innovation oriented we are. These are one of the driving forces behind our company. Thank you. I’ll turn it over to Flavio Prieto, the IR Director, he’ll be talking about the financial results of the company.

[Flavio Prieto:]

Thank you, Guilherme. Slide 15 now, let me talk about Gafisa Capital. In this first quarter, we had a transaction of R$80 million. That was the second trench of Kinea Investimentos, the total was R$150 million. We funded yet another high end development of almost R$230 million. This R$80 million transactions is separated part of it to acquire the property and the other part is to fund the construction. So we have total funding guaranteed. So that validates the business model of Gafisa Capital that 400 million in seven months of operation, which leverage the company's growth with over R$1.7 billion in PSV for these transactions. This is an initiative, a business unit that promotes growth. And at the same time reduces our impacts in the balance sheet by reducing our leverage. Let me now talk about financial results of the quarter. This is the sixth consecutive quarter of positive results of profit. So we've been – we're very proud of that achievement, R$195 million for the quarter, that was our net revenue. A small reduction when compared to Q4, because usually Q4s yield better results because of the sales impetus, but that 15% increase when compared to Q1 of 2021, gross profit were up substantially when compared with the past two, especially with Q1 57%, 119% of Q1 with non-recurring impacts, construction projects with less margin, legacy projects, 28% mid in the non-recurring expenses, just like Guilherme said, we concluded five projects. By delivering these projects in the next or the second half of the year, we're going to clean up the inventory and the legacy we absorbed back in 2019, and we're going to increase margins and results contribution with the new batch of projects. As we can see on Slide 17, gross margin has been on the growing trend at a very high level. Something we've been working within the past quarters, 31%, our gross margin and 39% of REF margin. That's the margin that we expect for the quarters to come. That again, shows the impact of the new batch of projects. As we said, about 80% of our inventory is high, medium-high and high-end projects. So we show these margins and the outlook – the positive outlook, the adjusted gross margin when compared to the ref margin, again, shows that growing trend substantial increase in this first quarter and we expect that to remain the same for the rest of the year. On Slide 18, strong balance sheet, our cash level has been timely, in according to the context we're living in net debt has been controlled along the lines with the receivables. We've been working to expand to make the company grow sales, revenue, margins, net profit, but with a lot of discipline paying close attention to the strength of our balance sheet. On Slide 19, we can see that in the past 12 months, we've reached R$843 million in net revenues. Gross profit was R$230 million. Net income R$68 million and that's the last 12 months outlook. This is a big picture of what the situation was, where we are heading and how we are positioned as far as our finances go. And we look at results at every quarter. In the past six quarters, we've had positive results, in the past three quarters, the last 12 months has been above the waterline on the positive side. All right, this concludes our presentation. I think we can get started with the Q&A Session. Let me just double check in the chat box.

[A - Flavio Prieto:]

We do have a question. The growth was through acquisitions and M&A. How did you consider that strategy when you took office?

[Guilherme Benevides:]

We've been saying everything with took office that the company has always been willing to consider possibilities that would make sense to the company. We have been talking to companies that have that profile that can contribute and give us some synergy. So that is an integral part of our growth strategy. Actually, it's a two way growth strategy, both organic and inorganic. We're always considering M&A, looking at companies that would make sense for these high-end projects, projects that are not repeatable, focusing on luxury and growth in that segment.

[Flavio Prieto:]

I have another question. Net sales were up 81%. What is the reason behind that?

[Guilherme Benevides:]

We have more inventory, our inventories were very low. Few projects launched in Q1 2021. Throughout the year of 2021, we launched many projects and with a very high quality of projects and changing that profile, so we took the company with several medium class projects. We have been migrating them towards the luxury segment. We have been qualifying our projects. That's why we have sales pick-up. So the product is well placed, several appeals so higher inventory levels in the past 12 months. So that only shows that the company is now in the direction of re-qualified – reclassifying its projects.

[Flavio Prieto:]

Bruno Mendonça from BBI. He talks about the variation of non-recurring operational expenses. What's your take for the future? When do you think you're going to flatten that out?

[Guilherme Benevides:]

Let me field that one. We have moved a long way in delivering legacy projects. Some numbers are more sensible because the financials of current project and the legacy projects, as I said during the presentation. Throughout the first quarter of 2022, we have concluded construction of five projects that will be delivered now in Q2. So I believe that this legacy will dwindle substantially. It's only natural. We've seen that coming down in late 2021 and early 2022, and we believe that for the rest of the year this is going to be dying out smoothly.

[Flavio Prieto:]

We have another question. How can high interest rates impact you throughout the year? Let me answer that one too, Guilherme. We're expecting a slowing down of the high interest rates. We believe that high interest rates are reaching its peak. Maybe it's going to flatten out. It may come down in the near future. Just like I said in the presentation, our balance sheet is solid. We're prepared with projects that have a natural hedging for that type of scenario. These projects do have a natural hedging for that scenario. We are under some political uncertainty, but there is that positive outlook as far as interest rates go. It may come down and we may have some macroeconomic improvements for the country in the near future.

[Flavio Prieto:]

There's another one. I think we've addressed this one. Guilherme, onto your final remarks, please.

[Guilherme Benevides:]

Gafisa maintains its purpose to be a real estate platform focused in the luxury segment to be the Number 1 real estate company in that segment. We have to have non-repeatable assets. Luxury has to be perceived at every step of the way. This is something that market has already detected for both customers and shareholders alike. Investors are interested and I mean both projects and companies we're considering to acquire involve that mindset. Gafisa has to be the leading company in innovation. We've been awarded in that sense, and that is the cultural driving engine. We have over 40 startups working across the board in our organization. So my message to you is having had six quarters of positive results in a row is an indication of our commitment ever since we took office. And we'll keep on focusing high luxury, and we're going to become the number one company in that segment. Thank you once again for attending yet another Gafisa's earnings call. Thank you.

[Flavio Prieto:]

That concludes the call. Thank you very much. Have a good day.