Gafisa Reports Results for Third Quarter 2010

SAO PAULO, Nov. 16, 2010 /PRNewswire-FirstCall/ -- Gafisa S.A. (NYSE: GFA; Bovespa: GFSA3), Brazil's leading diversified national homebuilder, today reported financial results for the third quarter ended September 30, 2010.  The financial statements were prepared and presented in accordance with Brazilian GAAP and in Brazilian Reais (R$). Further details of the Company's third quarter results may be found on the Gafisa website: www.gafisa.com.br/ir

Commenting on the results, Wilson Amaral, CEO of Gafisa, said, "We are pleased to report another solid quarter for the Company, underscored by the strength of our product lines and portfolio of three respected brands, Gafisa, AlphaVille and Tenda, as well as the effectiveness of our national sales force. This combination along with a positive economic climate and high demand gave us the latitude to make favorable price adjustments, holding steady on our operating and strong backlog margins in the face of inflationary pressure on some operating costs. As expected, we also continued to see the dilution of SG&A expenses, which for consecutive quarters has declined as a percentage of consolidated revenues, as the integration of Tenda and ramp up of its sales benefit the Company's results. Our EBITDA margin for the quarter improved to 20.6%, an 80 basis point increase over Q2 and over the previous year's third quarter. During 3Q10 Gafisa exceeded the top end of its full-year guidance estimate for EBITDA margin, while year-to-date EBITDA margin reached 19.7%."

Amaral added, "Gafisa remains well positioned to profit from the significant opportunities offered by the sustained growth of the Brazilian economy and homebuilding sector.  Cash on hand of R$ 1.2 billion, accelerated cash flow expected in 2011, and the recent successful placement of an R$ 300 million debenture which will reduce our overall financing costs, put us in a strong position to achieve our growth trajectory.

While our cash burn rate is expected to remain at a similar level in the 4Q10, we expect this rate to decline in 2011, as some 7,000 legacy Tenda units requiring the use of working capital are transferred to CEF through 2Q11. With the expected positive cash flow for full year 2011, we will be able to reduce our financial leverage and increase our use of programs such as Credito Associativo, which require no working capital, for Tenda's MCMV units, thus contributing to meeting our launch volume targets while keeping leverage at a comfortable level."

Third Quarter Results

In the 3Q10, launches were R$ 1.24 billion, an increase of 140% compared to the 3Q09.  In total, 34 projects/phases were launched in 16 cities. The Gafisa segment was responsible for 43% of launches, AlphaVille accounted for 18% and Tenda for the remaining 39%.  Forty-one percent of Gafisa launches represented a price per unit below R$ 500 thousand, while nearly 49% of Tenda's launches had prices per unit below R$ 130 thousand.  Excluding 11 projects launched by FIT, a unit of Tenda, Tenda's average price per unit was R$ 99 thousand, among the lowest average prices for homebuilders listed on the Bovespa exchange.  Pre-sales in the quarter increased by 27.3% to R$ 1.018 billion when compared to the 3Q09.

On the strength of an accelerated pace of construction, the Company recorded a 9.1% increase in net operating revenues for 3Q10, which rose to R$ 957.2 million from R$ 877.1 million in the 3Q09, with Tenda contributing 32% of consolidated revenues.

Adjusted EBITDA reached R$ 197.3 million with a 20.6% margin, a 13.4% increase when compared to Adjusted EBITDA of R$ 174.0 million reached in the 3Q09, mainly due to continued and strong performance in all segments and an improved SG&A ratio. Accumulated 9M10 EBITDA grew by 52% as compared to the same period of 2009.  

Net income in 2Q10 was R$ 97.3 million compared to R$ 57.8 million in the 2Q09.  Adjusted net income (before deduction of expenses related to minority shareholders and stock options), reached R$ 132.1 million, with an adjusted net margin of 13.9%, an increase of 50% as compared to the R$ 88.6 million in the 3Q09.

During the 3Q10, a net increase of R$ 2.02 billion in the land bank reflected acquisitions that more than compensated for the R$1.24 billion in launches in the quarter.  The Company's land bank of approximately R$ 16.6 billion was composed of 212 different projects in 22 states, equivalent to more than 92 thousand units. In keeping with our strategy, 39% of our land bank was acquired through swaps and thus required no cash obligations.  Approximately 45% of the potential units in the consolidated land bank correspond to the Tenda brand while the remaining 55% of the land bank is allocated to Gafisa and AlphaVille, reflecting our strategy of serving all segments of the homebuyer market.

Key Recent Developments

Gafisa's improved EBITDA margin of 20.6% in the third quarter reflects the gradual delivery of older-lower margins units that negatively impact the company's results, while the integration of Tenda and other structural efficiencies contributed to improved SG&A ratios.  The Company's strong backlog margin, which reached 38.2%, is an indicator of future results, reflecting the successfully selling of newer, higher margin projects.

The AlphaVille unit continued to perform well during the quarter, launching two well received projects in the northern part of the country. The first project was launched in Teresina, the capital of Piaui. Ninety five percent were sold by the end of October. The second launch took place in the city of Belem, the capital of the state of Para.  Sales of the project's units began only in October, and the project was more than 50% sold by the end of the month.

On October 19th, Gafisa delivered its 1000th project, Terracas Alto do Lapa, a twenty-four story, 192-unit apartment building located in Sao Paulo.

On November 5th, Gafisa announced that it completed the pricing of a real-denominated issue of 5 year and 6 year notes, consisting of R$ 300,000,000 aggregate principal amount split in R$ 287,000,000 for a 5 year issue and R$ 13,000,000 for a 6 year issue. The notes bear interest at very competitive rates of CDI + 1.95% p.a. for the 5 year and IPC-A + 7.96% p.a. for the 6 year, reflecting the Company's strong market position and growth prospects, and replace debt at a savings of 1.5% per annum. The notes will mature on October 15, 2015 and October 15, 2016, respectively.

On November 8th, Gafisa announced the appointment of a new Chairman of the Board, a change that followed the election of Wilson Amaral de Oliveira and Renato de Albuquerque as two new Board members in October.  Caio Racy Mattar will succeed Gary Garrabrant as non-executive chairman of the board. He has served on the Company's board of directors since February 2006 bringing significant board, public company and construction market experience.

Outlook

Gafisa is narrowing the range of the 2010 launches guidance to R$ 4.2 billion - R$ 4.6 billion, with an expected full year 2010 EBITDA margin to reach between 18.5% - 20.5%.  Through the first nine months of 2010, Gafisa reached 67% of the mid range of the launch guidance, in line with historical seasonality. Gafisa delivered a 20.6% EBITDA margin in the 3Q10 and 19.7% EBITDA margin in the 9M10, well within the previously stated guidance range.

Conference Call

The management of Gafisa will host a conference call in English on Wednesday, November 17, 2010, at 9:00 a.m. US EST/:12:00 p.m. Brasilia time.  To access the call, dial +1 (877) 317-6776 from the United States and +1 (412) 317-6776 from other countries and enter the code Gafisa.  A replay of the conference call will be available until November 25, 2010.  To access the replay, dial +1 (877) 344-7529 from the United States and +1 (412) 317-0088 from other countries and enter the code #442512#1.  A live webcast of the conference call will be available on the internet at www.gafisa.com.br/ir.

About Gafisa

Gafisa is a leading diversified national homebuilder serving all demographic segments of the Brazilian market. Established over 55 years ago, we have completed and sold more than 990 developments and built more than 11 million square meters of housing, more than any other residential development company in Brazil. Recognized as one of the foremost professionally managed homebuilders, "Gafisa" is also one of the most respected and best-known brands in the real estate market, recognized among potential homebuyers, brokers, lenders, landowners, competitors, and investors for its quality, consistency, and professionalism. Our pre-eminent brands include Tenda, serving the affordable/entry-level housing segment, and Gafisa and AlphaVille, which offer a variety of residential options to the mid- to higher-income segments. Gafisa S.A. is traded on the Novo Mercado of the BM&FBOVESPA (BOVESPA: GFSA3) and on the New York Stock Exchange (NYSE: GFA).

Only financial data derived from the Company's accounting system were subject to review by the Company's auditors.  Operating and financial information not directly linked to the accounting system (i.e., launches, pre-sales, average sales price, land bank, PSV and others) or non-BR GAAP measures were not reviewed by the auditors.  Additionally, financial statements and operating information consolidate the numbers for Gafisa and its subsidiaries, and refer to Gafisa's stake (or participation) in its developments.  To view a more detailed review of third quarter results filed with the Brazilian Comissao de Valores Mobiliarios ("CVM"), please visit Gafisa's website www.gafisa.com.br/ir.

This release contains forward-looking statements relating to the prospects of the business, estimates for operating and financial results, and those related to growth prospects of Gafisa. These are merely projections and, as such, are based exclusively on the expectations of management concerning the future of the business and its continued access to capital to fund the Company's business plan. Such forward-looking statements depend, substantially, on changes in market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors; therefore, they are subject to change without prior notice.

SOURCE Gafisa S.A.