Gafisa S.A. (GFASY) Q4 2022 Earnings Call Transcript

Gafisa S.A. (OTCPK:GFASY) Q4 2022 Results Conference Call March 29, 2023 1:00 PM ET

Company Participants

Sheyla Resende - CEO

Luis Fernando Ortiz - Vice President of Business

Edmar Prado Lopes - CFO

Operator

Good afternoon and welcome to Gafisa's Earnings Call to discuss the Fourth Quarter and Fiscal Year of 2022. With us today, we have Sheyla Resende, CEO, Luis Fernando Ortiz, Business VP and Edmar Prado Lopes CFO and IRO. Renata Yamada, Chief Legal Officer, as the Management asked her, who will also join us for the Q&A session.

This conference is being recorded and all participants will be in a listen only mode during the presentation. We will then start the Q&A session.

Before we begin, I would like to inform you that the statements made by the management involve risks and uncertainties and may refer to future events. Changes in macroeconomic policies or legislation, as well as other operating results may impact the performance of the company. Ms. Sheyla Resende, you may begin ma'am.

Sheyla Resende

Good afternoon, everyone. And thank you for joining us on our earnings videoconference. The year 2022 consolidated efficient strategies to position the company in the high-end segment underlined with a robust operational performance evidenced by the best sales figures in the past five years. Our gross sales were 50% higher than in 2021 surpassed being 1.1 billion, cancellations went down, resulting in 67% net sales growth totaling 971 million.

Our SoS reached 27.4% in 2022, 5% higher than the 22.4% that we had in 2021. Our launches volume also surpassed 1 million. We concluded the construction of eight projects in 2022, seven of which are in San Paolo, and one in Rio de Janeiro, delivering 1070 units, and 765 million in PSV.

This year's highlights included the launch of the projects Cidade Jockey with the PSV of R$240 million. The phases biggest launch with regard to PSV in the past 10 years. We also delivered Atlantico at Copacabana Beach, a high end project 100% sold out with a PSV of R$126 million with Atlantico is amongst Gafisa’s four projects overlooking the sea and the city of Rio de Janeiro.

Our strategic actions and acquisitions made over the past three years are fine-tuned with our approach to focus on high-end, high value-added products, in premium areas of the cities of Sao Paulo and Rio de Janeiro. This strategy has proven to be appropriate, especially because of luxury products which are more resilient to the market fluctuations.

We ended 2022 with a landbank of R$12 billion in PSV. We acquired lots of lands in premium areas of Sao Paulo, such as Itaim-Bibi and Jardins, as well as Vieira Souto, in the district of Ipanema, Rio de Janeiro. We have the landbank required to sustained our position in the high-end segment. For 2023, we already have a pipeline of new business which will allow our strategy to continue and be followed in the medium and long-term.

Gafisa is focused on providing the best customer experience, and we set up an exclusive department to execute our plan. We hired a consulting firm that specializes in luxury products to work with our internal culture, and that will help improve our service in every point of contact with our customers. Our mission is to meet with excellence our clients and customer demands.

We ended the year 2022 with an inventory of R$2.5 billion. Out of this total mid high and high end project accounted for 85%, 98% of them are under cities of Rio de Janeiro and Sao Paulo, in line with our strategic positioning.

Besides our robust sales performance in 2022, we took a number of measures aiming at cutting costs, such as using space as efficiently as possible changes in processes and systems and that already shows annual gains of nearly R$10 million. Another highlight is that we have started to be recognized and enter market indices, which is evidence, that we are reaping the benefits of our efforts.

In 2022, we entered the 18th portfolio of B3's Corporate Sustainability Index, the ISE, which is a result of our work to corporate, environmental, social and governance criteria into our business model.

We are also now part of the B3 IGPTW Index, which look at businesses recognized as the best companies to work for, but a great place to work. We have a brand feature amongst these select companies bears witness to how much we care for our staff and for a professional and collaborative work environment that allows for people to thrive. These two achievements reflect Gafisa's commitment to the ESG practices and possibly impact our business, allowing our brand to extend out to all stakeholders.

In 2023, we set up the multi-disciplinary management committee, aiming to improve our operating performance with luxury related initiatives and bolstering financial KPIs. This committee is composed of Luis Fernando Ortiz, Business VP; Renata Yamada, Chief Legal and Management Officer; and Edmar Prado Lopes Neto, Chief Financial and Investor Relations Officer. The idea is to combine all member's competencies and experiences with a diversified perspective, generating gains and efficiency in decision making and leading Gafisa to the level we defined in our strategic plan.

All of these initiatives are already yielding results in the company's sales performance. Sales are higher in the first two months in 2023 in a yearly comparison. If it remains limited to rose sustainably fostering innovation, improving its processes to continue to offer quality products and a special experience to our customers. We thank our shareholders, investors and staff at their trust, and we will continue to work hard for our joint success.

I'll now turn the call over to our Business VP, Luis Fernando Ortiz, who will present our financial performance.

Luis Fernando Ortiz

Thank you, Sheyla, and good afternoon, everyone. We will start off on Slide 5.

At the end of 2022, we see the best sales results of we sees the past five years as you can see on the chart. We had a 50% climb year-on-year, and we reached R$1.1 billion. We reduced translation to 8% and therefore net sales grew even more 87% [ph] in the year totaling R$971 million. Our SoS also is worth mentioning. It was 27.4% in 2022, 5 percentage points higher than the 22.4% we had in the previous year. We are very proud to present these results to you here today.

On next slide, you can see how the sales mix was well balanced in the year, with 52% of sales concentrating in real estate and construction, and 27% in the sales of launches, 21% remaining is finished units, 18% mid end real estate. The sales of the older projects in it had an impact on our margins, especially in the fourth quarter 2022 and generated gains in the short term. This profile was only 13% of our inventory at the end of the year.

On Slide 7, we can see the six projects that we launched this year, four in City of San Paulo and two in Rio de Janeiro, one in the Capital de giro and one in Niteroi. Launches totaled R$1.1 billion, R$811 million in the city of San Paulo and R$259 million in Rio de Janeiro.

Slide 8, we can see our major highlights and the project Cidade Jockey. In San Paulo R$340 million in PSV, and that accounts for 32% of our total PSV in the year. Cidade Jockey was the biggest launch Gafisa had in terms of PSV in the past 10 years. This is in the [indiscernible] neighborhood. And the architecture was signed by against, which is a very well-known architecture brand in the world. This project is already contributing to our sales volumes in Gafisa.

Let's talk about our inventory, Slide 9. We have R$2.5 billion, including the units from Cidade Matarazzo, 86% of our inventory is either been launched or under construction and 66% come from projects that were launched in up to two years ago. The mid to high and high-end projects now account for 83% of our inventory and 98% of that is in Rio de Janeiro or San Paulo which underscores our portfolio strategy.

With deliveries and transfers we, concluded eight projects in the year, seven in San Paulo and one in Rio de Janeiro, totaling 1,170 units, and R$765 million in the PSV. In the quarter, we had Update Vila Madalena in San Paulo and Atlantico in Rio de Janeiro with 106 units and PSV of over R$155 million.

PSV transferred for the year R$291.5 [ph] million, 14% lower year-on-year. That has to do with the concentration of the liberated license to occupy reduction in the second half of 2022.

On Slide 11, we can see our highlight in Rio de Janeiro project Atlantico with R$126 million PSV. Atlantico is in Copacabana, at the Copacabana Beach, and it's what are looking one of the four projects that we have in Rio de Janeiro. As Sheyla mentioned at the start, we're perfectly ready to grow with a focus on high end. We have the landbank necessary we have R$12 billion in PSV in our landbank, including landlords in neighborhoods such as Itaim-Bibi and Jardins in San Paulo and also in Vieira Souto in Rio de Janeiro.

We have also sought a consultancy firm to support us in the luxury related projects to perfect our service and every point of contact with clients. In 2023, we have a very robust pipeline that will sustain our strategy in the mid to long-term.

Now, I'll turn the floor over to Edmar, who will talk about our financial highlights.

Edmar Prado Lopes

Hello, Ortiz. Hello, everyone. This is my first conference call. After I took over as Chief Financial Officer, it is a pleasure to be here today.

Let's talk about the financial highlights. On Slide 14, we have a snapshot of our financial performance. Our solid operating performance with Sheyla or as Sheyla and Ortiz already mentioned, led to a 39% increase in net revenue, totaling R$1.1 billion. Out of these figures 86% will come from real estate launched in the past five years, and 14% from real estate units launched in 2017 or in years prior to that. The fourth quarter also saw an increase 47% in revenue totaling R$226 [ph] million.

As for expenses, we have good news there. SG&A dropped by 4.7% especially due to the cost cutting initiatives we took over the year 2022. In the quarterly comparison, the SG&A expenses dropped 16% even more. Many of these initiatives focusing on cost reduction, such as making best use of spaces changes in persons and systems, that will also have an impact in 2023, leading to yearly gains that amount to R$10 million.

The last highlight has to do with the revenue receivable, which increased 94% in the year. And I'm going to detail that out in the next slide.

Gafisa currently has or rather on the 31st of December, Gafisa had R$1.4 billion in receivables. The success of our new launches can be measured by the receivables. Receivables amount is R$375 [ph] million last year. That shows an increase of 94% year-on-year and a gross margin of 36.1%. So we're talking about the future here.

This result shows a positive perspective, both for revenue as well as for margin in the coming years, especially considering the size of the projects that we have got more recently.

The chart to the right shows how the R$675 million in receivables breakdown in the coming five years, 62% of R$123 million will be received in the next two years.

Slide 16 is our last slide. And it shows a little bit of our cash at our deck. At the end of the year with R$460 million in cash and the net debt is R$1.2 billion. In 2022, we raised about R$600 million to apply mostly in the projects that are already ongoing including for landbank. Ortiz already mentioned that point about landbank.

And at the end of the year, Gafisa was compliant with every item regarding financial aspects and debts. That's the end of my presentation. And now we're going to start the Q&A session

Question-and-Answer Session

Operator

Will now begin the Q&A session. The first question comes from [indiscernible].

Unidentified Analyst

How is Gafisa classified this result for 2022? Did it meet the company's expectations?

Unidentified Company Representative

Hello, everyone. This is [indiscernible]. Thanks, Joseph, for your question. Our operating result is very positive. And, yes, it met our expectations. The launches took place as we had planned them to. Companies in general in Brazil have been having lower results than in previous years, especially due to the economic situation that can define itself in with low growth and high interest rates.

In the physical space, the '22 results were impacted mainly by the reduction in gross margin and the sales of older finished units and that's inline with the company's strategy and also with the increasing cost with what is related to the projects. The CDI rate was almost fivefold higher than what we had in 2021. But again, the operating performance is positive. And I would like to ask Ortiz to talk a little bit more about our operations.

Luis Fernando Ortiz

Thank you, [indiscernible]. Thank you, Meyer. Well, our performance in sales is really a big highlight. We broke a record for the past five years and last year was a very challenging year. We had a 15% increase year-on-year. The last quarter was a main highlight. Cidade Jockey was a very successful launch. And other strategies were very efficient. We were decentralized in our approach and that yielded results in our portfolio.

Another highlight is that we had important acquisitions in landbank. And that has to do with our focus on high end projects. And these micro fluctuations high end projects, and to sustain better and we want to improve our gross margin for our business.

And [indiscernible] has a question. What happens now with Gafisa Propriedades?

In Gafisa Propriedades, we integrated that with Gafisa S.A. We wanted to gain synergy and persistence and in operation. As you can see in the income statements of last year, we don't show Gafisa Propriedades as a business unit. It is now part of Gafisa S.A. as we mentioned it. There is a full integration with the efficiency that we now have with this new model.

Unidentified Company Representative

[indiscernible] have a question. Do you have new ESG targets and goals for 2023? How does Gafisa see these actions impacting the company in the future?

Unidentified Company Representative

Hello, [indiscernible]. Hello, everyone. Thank you for joining. Thank you for your question. ESG practices have been made in a strategic way. We had a number of initiatives in 2022. We joined the ISE sustainability Index. It's a B3 very important index when it comes to sustainability and responsible investments that relates to ESG practices.

And for the second year consecutively we had GPTW, great place to work, awarding a label to Gafisa as well. So that shows that we are on the right path with our practices. In 2023, we'll continue with this practice, we have other initiatives that are already ongoing. One of them is the reduction in carbon, it's a product to reduce carbon, I believe that's going to be very favorable. And it's going to add a lot of value to the company. And we continue to believe that these initiatives will lead to very important impacts increase the value perception of our company and of our investments. And also allows the company to have a healthier development. It attests to our social responsibility and the value we want to generate with our projects.

Unidentified Company Representative

[Operator Instructions] [indiscernible] has a question. Work in the segment expect from Gafisa in the coming years?

Unidentified Company Representative

[indiscernible] great question. Hello everyone. What can be expected as Gafisa is that the brand will be consolidated in the high end developing special address for our landbank that are already lending lots that are set apart from their exclusive and unique locations. Once they continue to improve our operating performance, and as a consequence, our financial KPIs. The company's mission is to be strengthened in the high end segment. And we seek to become a reference company because of our products and because of our customer experience.

Unidentified Company Representative

This is the end of our Q&A session. I'd like to turn the call over to Sheyla Resende for her final remarks.

Sheyla Resende

Thank you, everyone. Thank you for joining and if you have any questions, don't hesitate to contact us using our IR channel. Thank you very much and have a good afternoon.

Operator

This is the end of the video conference of Gafisa. Thank you very much. Have a good afternoon.