Gafisa S.A. (OTCPK:GFASY) Q2 2022 Earnings Conference Call August 16, 2022 1:00 PM ET
Company Participants
Flavio Prieto – Investor Relations
Conference Call Participants
Flavio Prieto
Hello. Good afternoon, everyone. And welcome to the Second Quarter 2022 Earnings Call for Gafisa. My name is Flavio Prieto. I’m Investor Relations and we are running this meeting, and at the end, we will be available for questions-and-answers. Before we begin, we’d like to inform you that this conference call is being recorded and you may ask your questions in writing or using the chat box.
Besides that, I would like to highlight that these statements involve risks and uncertainties as they refer to future events. Any changes in the macroeconomic policies and legislation and other operational results may affect the company’s performance.
So, with that being said, we’ll begin our presentation. So next slide, please. This was a very important quarter to consolidate the company’s operations. During this quarter, we launched a 526, excuse me, in this half of the year we launched BRL526 million. We concluded five buildings and our area of work and throughout the last 12 months, we reached BRL1.9 billion in launches, 11 enterprises in the last two — 12 months.
Another important part our other company’s operational side were our concluded projects. We had five, these last six months with 798 units and four were repassed this quarter, while one was left for July, which is a PSV of BRL437 million in the first half of 2022. So we had over 1,300 units in the last 12 months. The company has really developed very well in this cycle.
Our net sales went up expressively, especially in comparison to the first half of 2021. We reached 41% increase and 13% versus the second quarter of 2021. It’s the third quarter in a row in which we have sold over BRL200 million. So this is really placing the company on a new level of operations since we restarted in 2019.
Our gross profit this — in these last six months performed below what we had expected. We had six quarters in a row of positive net profits. But this quarter, it was reversed and we had a loss of BRL30 million. But this was due to an atypical second quarter in sales, because of the conclusion of the projects, we had to focus on our legacy sales and this reflected in the margins for these buildings that have a different profile than the high standard launches in the last 12 months. So they contributed negatively to the margin. So we had a reduction of 10% versus the first six months of 2021 and a reduction of 43% versus the second quarter of 2021.
I’ll go into details later on, but moving on to operational results. As I’ve said before, during the first half of the year, we had BRL556 million in launches. Here, we see a breakdown of the details, four buildings, three in São Paulo and one in Rio de Janeiro. We Sorocaba was launched in the first quarter and Evolve Vila Mariana, Go Inn and Stratos Bandeira Paulista were effectively launched in the second quarter of 2022.
With that, we reached BRL471 million in PSV in the second quarter 2022, and for the entire year, we have reached BRL526 million in PSV. So in the last 12 months, we have reached BRL1.9 billion in the 11 launches.
The next slide shows a breakdown of the units we concluded and what was passed during this quarter. Except for Moov building, all the other four were concluded during the second quarter. Except for Moov building that, will have its delivery in July and this has affected the accounting results for the quarter. So that 798 units sold in a PSV of BRL437 billion, excuse me, million and all of these sites were in the city of São Paulo.
The next slide shows something I’ve already mentioned about our sales and the early results operations in the company. In the first quarter, we had a strong growth, 41%, excuse me, in the first six months of 2022 and we’re at a different threshold in comparison to 2021 and we can’t even compare to 2020.
If we moved a few steps up in Gafisa’s operational cycle and it’s important to highlight that for the last three quarters, we have posted sales above BRL300 million. We can also see an adjustment and adaptation of contract cancellations in the company. We had a very atypical quarter, the third quarter of 2021, where we had a non-recurring impact from Moov Parque Maia. But since then, we’ve had a healthy level of contract cancellations and a good level of sales.
So when we compare the lower left-hand graph, BRL308 million versus BRL436 million for the first six months, we have really moved up in sales and this is due to the kind of launches that we have presented. We’re focusing on a different segment in the market.
And in this quarter, specifically, we’ve made an important effort in our legacy inventory. It’s an inventory that is equivalent to 16% of the company’s inventory for sales. But in the net sales by segment graph for the second quarter, on this chart, we can see that it represented 32% of sales in this quarter, while in the previous quarters, it represented 19% and in the fourth quarter 12%.
So, I attribute this to our sales efforts and not because we lost sales in the other segments, quite contrary, went up by 90%, because of what I mentioned before our deliveries. And it matches our cash flow and the obligations that these launches need when they enter the delivery dates.
Continuing on slide nine. This is a graph that we have shown for a couple of years. It’s a very relevant graph showing how much Gafisa has changed in the last few quarters and how much it has moved up in its operations.
So we went from a level of basically no net sales. 2020 was not very good because of the lockdown, but 2021 and 2022 have been very important in originating businesses, developing them and having new launches, but also sales.
As I had mentioned before, grey shows net sales, excluding the contract cancellations of BRL72 million, which was atypical in the third quarter of 2021 and that means that we had about BRL800 million in net sales in the last 12 months. So we — if we include that contract cancellation, we are at BRL709 million in net sales, a completely new level for the company.
The next slide shows a little bit about our sales and the inventory we have. Throughout 2020, especially 2021, we changed our inventory breakdown in units for sale — available for sale in the company.
Right now, we have 84% of our inventory between high, high medium and medium standard. If you haven’t seen our previous presentation, this is the segment that we’re moving into. So there has been a natural period for this to transact and so that we only have this kind of launch in our portfolio. This is our segment of choice. But meanwhile, we’re cleaning out our portfolio and we had a significant impact this quarter because of it.
We had already reached great level with BRL2 billion in inventory in the fourth quarter of 2021. We had a strong sales performance in the first and second quarters, and we were able to return to BRL2 — that BRL2 billion level in inventory, which is what we consider to be healthy for our performance. This inventory is now split, as I said before, in 84% in medium and medium high, 97% in Rio de Janeiro and São Paulo, and only 16% concluded.
So the next slide concludes our operational side and we’ll move on to our financial performance. But before that, I’d like to tell you about our innovation projects. You can download our release with further information and more details into the company’s innovation process.
We started our journey in the Metaverse. This has started through a pilot project where we can become closer to our clients to reduce CAC and increase our conversion, providing a different experience to our clients. So we’re going into a new market, which is also very important for us.
The next slide shows how we manage innovation. In the previous presentation last quarter, we explained and gave a number of examples of initiatives of how we are starting innovation in the company with a member of start-ups, with open innovation.
And once again, I’d like to invite you to download our results release to see all of the projects that we described there. This is all done through an innovation management process. So this shows our dashboard, that shows all of the construtechs around us.
We have over 700 start-ups mapped. We have an innovation committee and there’s a number of initiatives in the company’s operations, improving processes and costs, but also deliveries. And we also have a number of processes to, be in touch with the startup and construtechs industry so that we can offer different products and services to our clients, always analyzing the clients attributing.
Looking at our financial results. So it’s important to break down our net income and show the different lines and how our inventory has changed, as I mentioned. In the second quarter of 2022, our net revenues reached BRL263 million, up 35% versus the first quarter of 2022.
This is related to sales, 13% of it was due to sales, but also physical construction has been advancing and that contributes to nearly half of that increase in our net revenues versus the first quarter of 2022. When we compare net revenues to the second quarter of 2021, we also went up 2%. So it has gone up in accounting as well, not only in operations.
But as I had said, and going into what I mentioned before, we can see our net sales per segment. Basically, 81% in the first quarter and 68% in the second quarter were in the high and medium high standard segment and they contribute more towards the company’s margins. So, we had a lower average of legacy launches, which for many reasons have lower margins and they gave a lower contribution to our gross income, and therefore, to our net income.
The good side of that, besides having a good operational cycle and being able to communicate our new launches to our customers and also concluding this cycle is that we are making strides into this kind of profile, which is our target, high medium and high standard. Right now, we are at 84%, and this has been due to our hard work in the last few quarters.
The next slide. Structure the correlation between our net revenues and our gross profit and our net profit. So, basically, this quarter, we had a significant impact, a reduction of 43% or BRL17 million versus last year, but BRL23 — excuse me, EUR17 million versus the first quarter or 29% and this explains most of the differences we saw in net profits.
We had a loss of BRL30 million this quarter, because our gross margins have been deeply impacted by this sales profile. It’s important to highlight that in the last 12 months, we have been looking at these metrics. They’re very important, because they’re a proxy of the company’s early results. In the last 12 months, we continue to see positive net profits. We have been for six quarters in a row with positive results on the bottomline. So this really was an atypical quarter for us.
The next slide shows its impact in our margins. There was a significant impact here in our gross margins. It’s important to mention that in the second quarter, it was impacted by 16%, it had 16%, while the first quarter had a very high gross margin.
When we look at the gross margin for the first half of the year, its REF margin was 31.8%. So we have been going up and we imagine that it will continue to go up, especially because of the available inventory for sales that we have now. Since we sold 34% of our legacy inventory, while our inventory profile is about 14%, or excuse me, 16%. So really, we have a natural trend towards improvement. These margins will gradually be regained.
The next slide shows how solid our balance sheet has been. There are some points to mention here on this slide. First, the darker bar shows that we keep the same level of receivables above our net debt.
Another important point is that when you look at project debt, working capital debt and Gafisa Propriedades debt over 97% of our debt is either connected to project debt or fiduciary alienation from Gafisa Propriedades or the enterprise itself is the collateral for debt. So that’s very relevant. When you look at our availability rate, we’re at a healthy level, over BRL1 million for the last quarter. So that’s very important in these moments of macroeconomic uncertainties.
Also have to underscore that net debt had a significant increase, but it was not due to new debt. Actually, there was a change in one of Gafisa Propriedades organization. So it receives a quota from an investment fund, but now due to a strategical reason, in order to capture value for these assets, it became what we call an SK or an anonymous society in Brazil. So it is balanced differently and that’s why I have this increase in BRL200 million in Gafisa Propriedades, but it was not a significant increase, I just wanted to highlight that.
Next slide, before we open up for questions-and-answers. We have shown this graph often, because it is very important and it shows the moment in which the company is, no longer from the perspective of the operational cycle. But looking at our accounting results, we reached BRL847 million in net income, gross profits of BRL198 million and net profit of BRL25 million, excuse me, the first figure was net income.
So, again, this graph represents the last 12 months quarter-by-quarter. So when you look at the fourth quarter of 2021, it shows the results for 2021. So, in the last quarters, we have had positive results. This quarter we had a non-recurring impact and our recovery will continue in our net income.
So that concludes my presentation and we can now open up for questions-and-answers.
Question-and-Answer Session
A – Flavio Prieto
Well, yes, it did go up, it may go up further. The market is always looking at that. But we do believe that inflation will go down in the future, which may also reduce interest rates or at least slow them down from going up. So that gives us an expectation of at least maintain the same figures in how we’re capturing new clients. But debt service costs will also go down.
Our perspective is also that affordability will go down and we have a slight natural hedge on that, because of our inventory, as I showed in my presentation, but for the industry, as a whole, it’s quite interesting. So we see that assets are being priced differently in this industry and we know how the stock exchange is sensitive to future prices. So that’s the movement that we’ve been keeping up on.
Jessica [ph] is asking how we’re seeing 2023 for business?
Well, for the second half of this year as well, our expectation is very good, regardless of what may happen in the elections, our expectations are good. The market, as I said is, expecting a reduction in interest rates or at least a gradual slow down and the market should capture new launches, new businesses.
We got another question about how we’ve been positioning ourselves in the luxury market?
Well, we’ve seen some important movements taking place during the last few quarters. We have many launches in São Paulo. In Rio de Janeiro, we saw many different products being launched. And there are many interesting launches that will take place during the second half of the year, especially in São Paulo, in the neighborhoods of Diadema and Itaim. Some of them have been included in Gafisa’s capital deal with [inaudible]. So they’re very different products that will make us stand out even more and we’ll make our inventory profile even better.
I think that was the last question. I’m not sure if we got any more. I’ll wait for a few seconds. Well, if there are no further questions, thank you very much for being here. I’d like to remind you that this presentation and this video will be available in our Investor Relations website. So if you haven’t had the opportunity of watching it, and if you’d like to share the link with anyone, please feel free. We’re available through our email. So feel free to contact us. Thank you and have a great afternoon.
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