Gafisa Reports Results for Third Quarter 2011

- Launches in 3Q11 totaled R$1 billion, a 15% fall on 3Q10, as the company deliberately slowed growth and implemented a strategic plan to improve profitability, generate cash and reduce leverage.

- Adjusted EBITDA was R$202.2 million in 3Q11, a 2.5% increase on 3Q10, due to higher margin AlphaVille and Gafisa products. The 3Q11 EBITDA margin improved to 20.1%.

- Pre-sales reached R$1.04 billion in the quarter, a 3% increase on 3Q10. While sales velocity of launches rose to 50%, indicating strong demand, the company will slow remaining 2011 launches to reach a year-end total between R$3.5 - R$4 billion.

- Contracted sales were R$1 billion in 3Q11, in line with 3Q10

- The company expects to become cash flow positive during coming quarters and achieve a net debt to equity ratio below 60 per cent over the next quarters, compared with 75.3 per cent in 3Q11.

Nov 14, 2011, 20:29 ET from Gafisa S.A.

SAO PAULO, Nov. 14, 2011 /PRNewswire/ -- Gafisa S.A. (Bovespa: GFSA3; NYSE: GFA), Brazil's leading diversified national homebuilder, today reported financial results for the third quarter ended September 30, 2011. The financial statements were prepared and presented in accordance with IFRS and in Brazilian Reais (R$). Further details of the Company's third quarter 2011 results may be found on the Gafisa website: www.gafisa.com.br/ir.

Commenting on the results, Duilio Calciolari, CEO of Gafisa, said, "We are pleased to report quarterly results led by a strong recovery in our operating margins, as the share of older lower margin developments continues to diminish in our overall product mix. Gross margin for the quarter was 29.5%, an increase on both a year-on-year and sequential basis.  Subsequently, our EBITDA margin also improved to 20.1% for the third quarter."

"Despite these improvements, we expect to continue to see some pressure on the EBITDA margin during the coming quarters as we complete the delivery of the higher cost legacy Tenda projects and lower margin Gafisa projects from our geographic expansionary period as well as implement some aspects of our new strategic plan."

"While sales velocity of launches during the quarter was 50%, indicating strong demand for our projects, we have deliberately decided to slow the growth of launches for the remainder of 2011 and stabilize 2012. This change is part of a more comprehensive strategic plan we are in the process of implementing, that will help us to achieve improved profitability, positive cash flow and a reduction in our overall leverage."

Calciolari added, "While the Brazilian economy has moved into a more rational growth phase, overall the fundamentals remain sound to support long term growth for the homebuilding industry. We are confident that our strategic plan will allow us to focus on the strong pockets of opportunity for our brands and set the stage for continued market leadership in the future. We fully understand that this strategy may impact the size of our firm for some years to come. However, these are necessary actions and we believe will prove a highly successful trade-off in the longer term."

Third Quarter Results

  • 3Q11 launches reached R$1 billion, a 15% decrease compared to 3Q10. Launches for the first nine months of 2011 totaled R$2.9 billion, representing 56% of the mid-range of full-year launch guidance of R$5.3 billion. This has resulted in a downward revision to 2011 guidance to between R$3.5 billion and R$4 billion.
  • Pre-sales reached R$1.04 billion in 3Q11, a 3% increase compared to 3Q10, reflecting better sales of launches in 3Q11, which reached 50%. Consolidated VSO was 23.1%.
  • Net revenues, recognized by the Percentage of Completion ("PoC") method, reached R$1 billion, a 5% increase compared to 3Q10, due to higher recognition coming from recent launches.
  • Adjusted Gross Profit (w/o capitalized interest) was R$297 million, 8% higher than the same period of 2010, with a 34% Adjusted Gross Margin.
  • Adjusted EBITDA reached R$202.2 million with a 20.1% margin, a 2.5% increase over R$197 million in 3Q10, due to the delivery of higher margin products by AlphaVille and Gafisa.
  • Net Income was R$46.2 million for 3Q11 (4.6% Adj. Net Margin), a 60% decrease compared to 3Q10.
  • Net Debt/Equity ended the quarter at 75.3%, supported by a securitization of part of Gafisa's receivables totaling R$200 million.

Details of strategic plan

A new strategic plan designed in consultation with management consultants Bain & Co, and based on an evaluation of each of the Gafisa, AlphaVille and Tenda businesses which commenced in July, will foster long-term sustainability and profitable growth by improving margins, generating cash flow and reducing leverage.

Key elements of the strategy include:

  1. A new organizational structure establishing P&L owners by brand in order to enhance the focus on and exploit the unique qualities of each business line.
  2. Expansion of highly targeted regions of the country with proven potential for profitable development of each brand segment through 2014.
  3. A turn-around strategy for Tenda which conserves capital by only launching units that can immediately be transferred to CEF and developing a scale advantage to optimize the use of aluminum mold technology which facilitates a lower cost structure.
  4. Expanding AlphaVille, which boasts gross margins of approximately 50%, significant barriers to entry and competitive advantages, in the product mix.

In order to achieve these goals, Gafisa will slow the rate of launches in 2011 to between R$3.5 and R$4 billion. The company will continue to launch Gafisa products as long as the sales environment is strong for each product. Tenda launches will be based on Gafisa's ability to immediately transfer the units to the Caixa Economica Federal (CEF). Additionally, Gafisa's focus at Tenda will be to deliver units in progress. Gafisa has some R$400 million yet to transfer to CEF from finished units. Gafisa also intends to expand AlphaVille in our product mix and allocate the capital necessary to leverage the competitive advantages it has within this brand segment.

Outlook

Gafisa is on track to achieve a full-year EBITDA margin within the previously stated guidance range of 16%-20%. In the first nine months of 2011 the EBITDA margin reached 16.1%.

The company expects to finish the year with total launches of between R$3.5R$4 billion. The 2011 forecast equates to a 30% drop on previously stated guidance of between R$5R$5.6 billion, reflecting a more conservative strategy which focuses on long term profitability and cash flow generation.

Gafisa expects to become cash flow positive during coming quarters and to achieve a net debt to equity ratio below 60% over the next quarters.

Conference Call

The management of Gafisa will host a conference call in English on Wednesday, November 16, 2011, at 9:30 p.m. US EST/:12:30 p.m. Brasilia time. To access the call, dial +1 (516) 300-1066 from the United States and other countries and enter the code Gafisa. A live webcast of the conference call will be available on the internet at www.gafisa.com.br/ir.

Consolidated Income Statement

The Income Statement reflects the impact of IFRS adoption, also for 2010.

R$ 000

3Q11

2Q11

QoQ

3Q10

YoY

9M11

9M10

QoQ

Net Operating Revenue

1,005,490

1,041,344

-3.4%

957,196

5.0%

2,847,190

2,792,223

2.0%

Operating Costs

(708,614)

(822,424)

-13.8%

(681,275)

4.0%

(2,146,626)

(1,984,154)

8.2%

Gross profit

296,876

218,920

35.6%

275,921

7.6%

700,564

808,069

-13.3%

Operating Expenses

Selling Expenses

(68,298)

(61,970)

10.2%

(53,887)

26.7%

(181,773)

(166,321)

9.3%

General and Administrative Expenses

(59,711)

(60,389)

-1.1%

(59,317)

0.7%

(176,407)

(171,860)

2.6%

Other Operating Revenues / Expenses

(10,395)

(8,649)

20.2%

(2,187)

375.3%

(30,025)

(11,392)

163.6%

Depreciation and Amortization

(21,855)

(22,754)

-4.0%

(8,305)

163.2%

(56,974)

(27,324)

108.5%

Operating results

136,617

65,158

109.7%

152,207

-10.2%

255,385

431,172

-40.8%

Financial Income

31,619

21,697

19.0%

36,417

-13.2%

77,980

101,275

-23.0%

Financial Expenses

(89,740)

(50,563)

66.0%

(56,432)

59.0%

(195,965)

(181,816)

7.8%

Income Before Taxes on Income

78,496

36,292

116.3%

132,192

-40.6%

137,400

350,631

-60.8%

Deferred Taxes

(5,858)

10,147

-157.7%

(823)

611.8%

10,592

(27,649)

-138.3%

Income Tax and Social Contribution

(17,958)

(11,590)

54.9%

(9,661)

85.9%

(37,698)

(27,384)

37.7%

Income After Taxes on Income

54,680

34,849

56.9%

121,708

-55.1%

110,294

295,598

-62.7%

Minority Shareholders

(8,463)

(9,737)

-13.1%

(5,108)

65.7%

(25,259)

(16,911)

49.4%

Net Income

46,217

25,112

84.0%

116,600

-60.4%

85,035

278,687

-69.5%

Consolidated Balance Sheet

3Q11

2Q11

QoQ

3Q10

YoY

Current Assets

Cash and cash equivalents

912,359

1,163,080

-21.6%

1,231,143

-25.9%

Receivables from clients

4,002,213

3,653,708

9.5%

2,727,930

46.7%

Properties for sale

2,130,661

1,988,093

7.2%

1,447,266

47.2%

Other accounts receivable

146,461

201,492

-27.3%

155,795

-6.0%

Deferred selling expenses

30,493

20,588

48.1%

38,028

-19.8%

Prepaid expenses

13,599

9,533

42.7%

16,423

-17.2%

7,235,786

7,036,494

2.8%

5,616,585

28.8%

Long-term Assets

Receivables from clients

1,867,969

2,171,302

-14.0%

2,411,275

-22.5%

Properties for sale

416,717

346,658

20.2%

388,649

7.2%

Deferred taxes

353,212

353,445

-0.1%

367,788

-4.0%

Other

215,695

187,536

15.0%

252,324

-14.5%

2,853,593

3,058,941

-6.7%

3,420,036

-16.6%

Property, plant and equipment

74,939

81,135

-7,6%

63,825

17,4%

Intangible assets

219,490

215,624

1,8%

209,687

4,7%

294,429

296,759

-0.8%

273,512

7.6%

Total Assets

10,383,808

10,392,194

-0.1%

9,310,133

11.5%

Current Liabilities

Loans and financing

475,969

689,412

-31.0%

789,331

-39.7%

Debentures

206,336

153,788

34.2%

214,561

-3.8%

Obligations for purchase of land and advances from clients

469,642

526,560

-10.8%

460,470

2.0%

Materials and service suppliers

185,185

225,692

-17.9%

292,444

-36.7%

Taxes and contributions

291,649

294,716

-1.0%

234,394

24.4%

Taxes, payroll charges and profit sharing

75,140

66,772

12.5%

69,594

8.0%

Provision for contingencies

27,770

21,598

28.6%

8,001

247.1%

Dividends

102,767

102,767

0.0%

52,287

96.5%

Obligation for investors

148,000

143,000

3.5%

0

Other

180,055

90,339

99.3%

171,417

5.0%

2,162,513

2,314,644

-6.6%

2,292,499

-5.7%

Long-term Liabilities

Loans and financings

975,751

1,013,961

-3.8%

371,843

162.4%

Debentures

1,740,673

1,736,027

0.3%

1,551,407

12.2%

Obligations for purchase of land

194,654

183,619

6.0%

177,412

9.7%

Deferred taxes

401,071

395,440

1,4%

483,373

-17,0%

Provision for contingencies

123,950

126,811

-2,3%

126,327

-1,9%

Obligation for investors

312,000

317,000

-1,6%

380,000

-17,9%

Other

560,609

454,349

23,4%

195,702

186,5%

4,308,708

4,227,207

1.9%

3,286,064

31.1%

Shareholders' Equity

Capital

2,734,155

2,730,789

0.1%

2,729,187

0.2%

Treasury shares

-1,731

-1,731

0.0%

-1,731

0.0%

Capital reserves

267,159

262,970

1.6%

251,489

6.2%

Revenue reserves

741,212

741,212

0.0%

422,373

75.5%

Retained earnings/accumulated losses

85,036

38,818

119.1%

278,687

-69.5%

Non controlling interests

86,756

78,285

10.8%

51,565

68.2%

3,912,587

3,850,343

1.6%

3,731,570

4.9%

Liabilities and Shareholders' Equity

10,383,808

10,392,194

-0.1%

9,310,133

11.5%

Consolidated Cash Flows

3Q11

3Q10

Income Before Taxes on Income

137,401

132,192

Expenses (income) not affecting working capital

    Depreciation and amortization

56,974

8,305

    Expense on stock option plan

12,789

3,075

    Unrealized interest and charges, net

117,130

62,805

    Warranty provision

7,160

5,272

    Provision for contingencies

34,672

15,462

    Profit sharing provision

6,425

6,538

Allowance (reversal) for financial instruments

6,385

-

Allowance (reversal) for doubtful debts

(5,990)

Decrease (increase) in assets

-

    Clients

(605,178)

(593,100)

    Properties for sale

(314,861)

18,636

    Other receivables

(33,718)

(61,342)

    Deferred selling expenses and prepaid expenses

5,133

(17,436)

Decrease (increase) in liabilities

-

    Obligations on land purchases and advances from customers

121,485

(4,279)

    Taxes and contributions

45,160

83,933

    Trade accounts payable

(5,276)

47,899

    Salaries, payroll charges

(10,000)

    Other accounts payable

(56,465)

(82,636)

Cash used in operating activities

(470,774)

(384,676)

Investing activities

Purchase of property and equipment and deferred charges

(60,597)

(11,008)

Withdrawls

416,814

380,786

Cash used in investing activities

356,217

369,778

Financing activities

Capital increase

4,957

16,288

Follow on expenses

-

-

Capital reserve increase

-

40,722

Increase in loans and financing

708,729

272,118

Repayment of loans and financing

(876,601)

(456,951)

Assignment of credit receivables, net

373,600

19,785

Proceeds from subscription of redeemable equity interest in securitization fund

(10,405)

(4,000)

CCI

(37,698)

-

Paid taxes

80,000

-

Net cash provided by financing activities

242,582

(112,038)

Net increase (decrease) in cash and cash equivalents

128,025

(126,936)

Cash and cash equivalents

At the beginning of the period

256,382

353,008

At the end of the period

384,407

226,072

Net increase (decrease) in cash and cash equivalents

128,025

(126,936)

-

About Gafisa

Gafisa is a leading diversified national homebuilder serving all demographic segments of the Brazilian market. Established over 56 years ago, we have completed and sold more than 1,000 developments and built more than 12 million square meters of housing only under Gafisa's brand, 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.

Contact:

Luciana Doria Wilson
Investor Relations
Phone: +55 11 3025-9297/8404-2500
Fax: +55 11 3025-9348
ri@gafisa.com.br

Media Relations (Brazil)
Debora Mari
Maquina da Noticia Comunicacao Integrada
Phone: +55 11 3147-7412
Fax: +55 11 3147-7900
Email: Debora.mari@maquina.inf.br

SOURCE Gafisa S.A.



RELATED LINKS

http://www.gafisa.com.br/ir