Gafisa SA (GFA)

GFA 
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Gafisa S.A. (GFA)

Q3 2012 Earnings Conference Call

November 13, 2012 08:00 a.m. ET

Executives

Duílio Calciolari – CEO

Andre Bergstein – CFO and IRO

Fernando Cesar Calamita – Planning and Control Officer

Luciana Doria – Head of IR

Analysts

Gustavo Cambauva -- BTG Pactual

Nicole Hirakawa -- Morgan Stanley

Felipe Rodrigues – HSBC

Bruno Lima -- Unity Capital

Alan Nicolao – Bradesco

Eduardo Silveira -- BES Securities

Diego Mendes -- Itau BBA

Presentation

Operator

Good morning and welcome to Gafisa’s Third Quarter 2012 Results Presentation. At our call today, we have Duílio Calciolari, Gafisa’s CEO; Andre Bergstein, the company’s CFO and IRO; Fernando Cesar Calamita, Planning and Control Officer; and Luciana Doria, Head of IR.

We would like to inform you that the presentation is being recorded and that all participants will be in a listen-only mode during the company’s presentation, then we will begin the Q&A session. (Operator Instructions)

Before we begin, I would like to inform you that this teleconference will relate to Gafisa’s financial results of the third quarter 2012 as well as information currently available. Statements made by management involve risks, uncertainties and may relate to future events. Any changes in macroeconomic policies or legislation and other operational results could affect Gafisa’s performance.

Mr. Calciolari, you may proceed.

Duílio Calciolari

Good morning and thank you for joining us today. I would like to start by updating you about the offices and how it is doing. Progress is being continued and with positive signs that we are on the right track. The execution of Gafisa’s progress has been following the target for the year. Cash generation and deleveraging of our balance sheet continue to be priorities, and I would like to say that we’ve made contribution of more than 17,000 unit. We have already exceeded the mid range of our operating guidance with a new one of BRL 600 million to BRL 800 million for 2012. Besides focus on cash generation as from the operations, we also filled off non-strategic plan and we generated new business with adequate profitability.

Gafisa is practically the only concentrated now in the states of Rio and São Paulo. In the first five months of the year, we launched projects evaluated in BRL 795 million. All of them aligned to our metrics of profitability and good commercialization and a speed of sale of 59% in the year. The completion of projects in non-strategic areas will still impact our profitability short term, but after this plan, complexity will be reduced optimizing our execution capacity

In Tenda, we continue to focus on the delivery of ongoing jobs and during the year we transferred 9,600 units to financial institutions and delivered more than 10,000 units. Of the contracts which were cancelled, 70% have already been resold We are postponing Tenda’s new launches for the first quarter of 2013 so as to keep the good work going and the focus of the team on the conclusion and delivery of the current unit. Thus, we will not launch the BRL 300 million that we have originally planned for this brand this year.

Now, our Alphaville project continues to generate interesting returns to the group. The brand has grown and now accounts for almost half the launches of this year and should reach more than BRL 1 billion. Taking into account the profitability achieved by that brand as the current opportunities for development in Brazil, we will continue to allocate resources to the segment, always trying to keep a balance between growth and profitability.

Now we go to slide 3, and I would like to show you the highlights of the period. As I have already told you, we managed to achieve our cash generation target before we had planned. In the first nine months of the year, we generated a flow of operating cash of BRL 607 million compared to the annual guidance of BRL 500 million to BRL 700 million previously established. Plus, we increased the operating cash generation guidance between BRL 600 million and BRL 800 million.

The generation of consolidated cash, cash burn, was positive in a BRL 149 million in the third quarter and in BRL 304 million in the nine months of the year. Launches totaled BRL 452 million during the third quarter and BRL 1.5 billion in the first nine months of the year, accounting for 54% of the guidance of launches for the year. It is important to remind you that our original launch guidance for the year of BRL 2.7 billion and BRL 3.3 billion included Tenda’s launch in the third quarter, and now this will only occur next year.

The contracted sales for the third quarter was BRL 689.4 million, exceeding launches and resulting in a stock reduction. These figures of consolidated sales was 19% instead of 23% excluding Tenda. About AlphaVille, the process of acquisition of the stake of 20% is in the process of arbitrage.

On slide 4, as I told you before, our turnaround strategy is focused on cash, important generation of cash and deleveraging of the company. Our capacity of units delivery benefited the generation of cash in the first nine months of the year as you could see in the left-hand side of the slide. This chart shows that we have grown in the reduction of cash bond during the last two years and the last two quarters. We have managed to generate positive cash. In the third quarter, cash generation was BRL 149 million. On the right-hand side, the chart will show you the makeup of the entry and exits of cash. It splits up into contributions per account totaling in cash operating generation of BRL 607 million in the first nine months and especially in the transfer line which totaled BRL 1.6 billion.

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