1Q13 Earnings Release

Transcription

1 Earnings Release Rio de Janeiro, May 8th, Brookfield Incorporações SA ("Brookfield Incorporações" or "Company") (BM&FBovespa: BISA3; US OTC: BRRSY), one of Brazil's largest real estate developers and construction companies, today announced its consolidated results for the first quarter of FIRST QUARTER HIGHLIGHTS Healthy Housing Demand Contracted sales totaled R$ million in the, representing 20% of the low end of full year guidance Inventory Reduction Inventory at market value was R$3.2 billion at the end of the, a 6% sequential decline due to strong sales from launches Sales Terminations Below 2012 Quarterly Average Gross sales terminations totaled R$ 96.2 million in the, compared to an average quarterly result of R$ million in 2012 Unit Deliveries 11 projects or phases of projects delivered in the, totaling 1,868 units or R$ million in Potential Sales Value. Substantial increase in 2H13 deliveries is expected Improved Debt Profile Rollover of working capital and amortization of debentures reduced volume of maturing 2013 corporate debt to R$ 426 million from R$ 901 million previously Reorganization and Systems Overhaul to Improve Execution Reorganization of the finance and construction departments, including management substitution, and overhaul of both processes and systems, to improve cost control and execution Gross Margin Guidance Gross margin guidance lowered to a range of 20-24% by the fourth quarter of 2013 Conference Call May 9, 2013 Portuguese (Simultaneous Translation into English) 10 am (New York) 11 am (Brasília) 03 pm (London) 07 am (Los Angeles) Phone (Brazil): +55 (11) Code: Brookfield Phone (Other Countries): +1 (646) Code: Brookfield Replay (Portuguese): +55 (11) Replay Code: Brookfield Replay (English): +55 (11) Replay Code: Brookfield Webcast: available at IR Contacts: Luciano Guagliardi Director Alexandre Freire Manager Guilherme Franceschi Gonçalves Specialist Phone: +55 (11) ri@br.brookfield.com Nações Unidas Avenue, th floor Tower B São Paulo - SP Brazil

2 Main Indicators Main Indicators X X Launches Launched PSV (R$ million) % 1, % Number of Units Launched 452 1, % 9, % Average price (R$/sq. m.) (2) 5, , % 3, % Usable area (sq. m.) 44,445 82, % 593, % Contracted Sales Contracted Sales (R$ million) % 1, % Sales from launches % % Sales from inventory % % Units sold 2,197 5, % 7, % Sales over Supply (SoS) 16.0% 21.1% -5.1p.p. 23.7% -7.7p.p. PSV terminated % % Units terminated % % Financial Performance (R$ million) Pro Forma Net Revenues % 1, % Gross Profit/Loss % % Gross Margin (%) 13.5% 20.4% -6.9p.p. 16.3% -2.8p.p. Adjusted Gross Margin (%) 21.3% 32.4% -11.1p.p. 18.9% 2.4p.p. Net Income/Loss (47.7) (16.3) 192.4% (29.1) 63.8% Net Margin (%) n/a (1) n/a (1) - n/a (1) - Earnings/Loss per share (0.0837) (0.0369) 126.6% (0.0536) 56.2% Number of shares (thousand) 569, , % 543, % Results to be Recognized (R$ million) Revenues to be recognized 3, , % 3, % Results to be recognized 1, , % 1, % Margin to be recognized (%) 34.0% 37.6% -3.6p.p. 34.5% -0.5p.p. Balance Sheet Items (R$ million) Net Debt 2, , % 2, % Cash , % 1, % Shareholder's equity 2, , % 2, % Net Debt / Shareholder's equity 106.8% 85.6% 21.2p.p. 97.7% 9.1p.p. Total Assets 9, , % 9, % (1) n/a: not applicable 2

3 Index Main Indicators... 2 Index... 3 CEO Message... 4 Operating Performance... 6 LAUNCHES... 6 CONTRACTED SALES... 7 SALES OVER SUPPLY (SoS)... 8 INVENTORY... 8 SALES TERMINATIONS... 9 EXECUTION CAPACITY... 9 MORTGAGE TAKEOUT... 9 LAND BANK Financial Performance RESTATED INCOME STATEMENT PRO FORMA INCOME STATEMENT (non-audited) INCOME STATEMENT AND COMPARISONS REVENUES COSTS GROSS PROFIT REVENUES TO BE RECOGNIZED SALES, GENERAL AND ADMINISTRATIVE EXPENSES EBITDA FINANCIAL RESULT NET INCOME Balance Sheet RESTATED BALANCE SHEET BALANCE SHEET AND COMPARISONS RECEIVABLES CASH FLOW AND DEBT FINANCIAL COVENANTS Annexes LAUNCHED PROJECTS DELIVERED PROJECTS PRO FORMA INCOME STATEMENT (non-audited) PRO FORMA BALANCE SHEET (non-audited) CASH FLOW POC AND SALES PERFORMANCE DEBT MATURITY SCHEDULE BREAKDOWN Ownership Structure About Brookfield Incorporações S.A About Brookfield Brasil IR Contacts

4 CEO Message Brookfield s first quarter results were disappointing and do not reflect the fundamental strength of the Brazilian real estate market or the Company s future prospects. Market demand for new homes remains sound in most of our major markets notwithstanding the recent slowdown in the general economy and in real estate prices. This is a reflection of the continued pent-up demand for modern new homes at a time when consumer affordability remains at healthy levels. Brookfield is seeing good demand in São Paulo and Rio de Janeiro, and sales absorption is meeting expectations. We will discuss our future outlook momentarily, but first let me offer some comments on our first quarter financial results. First Quarter Results In the first quarter, we recorded a loss of R$ 47.7 million versus a loss of R$16.3 million last year. Our net operating revenues were R$ million, up significantly from R$ million last year. Despite the higher revenue, our gross margins were negatively affected by a number of factors: by the ongoing impact of the budget adjustments undertaken last year, by the income recognition of a lower margin sales mix, by a higher proportion of construction contracts, by sub standard execution on the construction side which led to cost overruns of R$ 10.4 million, and by new accounting rules on the consolidation method for shared control projects (joint ventures) which do not impact the bottom line, but do reduce revenue recognition. Execution Issues Execution issues in the construction area arose as a consequence of the rapid growth of the business. The growing pains involved in transforming a business building 8,457 units under development four years ago to a current business handling 38,618 units are considerable. The result of these execution problems is that a number of tasks and services had to be redone on account of quality considerations. This shortcoming was intensified with the growth of the business, and became more apparent with the strengthening of the construction team. The following table summarizes the issues we have experienced and the actions taken to address these, since Marcelo Borba took over responsibility for construction in October Issue Regional budgeting approach and decentralized purchasing created issues in cost control and purchasing inefficiencies Remedial Action Created a centralized purchasing and budgeting department to verify regional budgets, centralize cost control and realize benefits of consolidated purchasing power Budgeting systems accounting oriented rather than control based Introduced specialized budgeting systems, namely Primavera and Hard Dollar, providing a time dimension and control of physical quantities Lack of adherence to procedures at construction sites, leading to poor termination Replace over 30 construction site/production managers and some key personnel with more qualified and aligned team members 4

5 Other Initiatives I would like to turn now to the other major initiatives introduced to restore profitability. Following the appointment of Sergio Campos (previously CFO of Brookfield Brazil) as CFO in December 2012, he has used his extensive experience and seasoned management skills to undertake not only a major overhaul of both processes and systems, but also a thorough reorganization of the finance department, in order to achieve greater alignment with the operational areas. Following the strategy of centralizing the construction function, we concluded centralization would also benefit other areas of the Company. Without relinquishing a strong regional structure in view of our conviction that real estate development is a local business, the Company is adopting at the senior management level a functional, rather than regional, structure. The Real Estate Business will be reorganized under one roof, headed by an executive officer. Reporting to him will be four regional Directors, and the Real Estate Development Director whose main goal will be unification of product development, as well as sales and marketing functions. This unification shall allow for improved integration across all areas, including construction, leading to savings. In the same manner, Investments, Customer Services, Communication and Institutional Relationship will be consolidated under one executive officer. Fernando Maia will be leaving the Company at the end of next month to take over as Chairman of his family business. He will retain his position as member of the Board. The number of executive officers will thus be reduced from seven last year to five this year, but more importantly this new structure will result in a leaner organization with better execution and stronger senior management oversight of the different activities, thus ensuring adherence of individual departments to stricter controls and standards. Outlook We have implemented these management changes to improve our focus on project profitability and cost control. We believe that the foundations of a return to profitability have been laid. However these organizational and systems changes take time to bear fruit, and although we are confident that the second semester will be the inflection point, we do not expect to see the full benefits until On the other hand, legacy projects which have experienced budget adjustments and possess inferior margins will continue to impact earnings until deliveries have been completed. Their impact on profitability is expected to take longer than first anticipated, with the result that management has lowered gross margin guidance to a range of 20 24% by 4Q In keeping with our emphasis on increasing profitability, the Company is prioritizing fewer projects with higher margins and returns. We are also increasing asset turnover by monetizing long-term land bank and refining the mortgage takeout process. With an expected material sequential rise in second half deliveries, we are on track to deliver 20,000 25,000 units this year, with PSV of R$ 3.5 to R$ 4.0 billion. The combination of higher deliveries and mortgage takeouts should result in cash generation in the second half of the year. Moreover, our debt profile has improved following the rollover of working capital and the amortization of debentures, which reduced the volume of debt maturing in 2013 to R$ 426 million from R$ 901 million previously. With the recent economic slowdown, we have seen an easing of cost pressures on materials like cement and on labour shortages. This will help to mitigate the effects of the execution issues we have been working through. We fully understand that strong execution will determine the success of companies in our industry. And while this is a challenge, we are up to the task and focused on what it takes to succeed. Our priority is to improve earnings and profitability, rather than to achieve growth. On behalf of management, I thank all of our stakeholders for their continued support. Nicholas Reade, CEO 5

6 Operating Performance LAUNCHES Launches totaled R$ million in the, a 36% decrease compared with the. Typically the 1Q only corresponds to approximately 12 % of annual launch total, so is not representative of the state of the market, or of the prospects for the year as a whole. In São Paulo approvals were clearly affected by the change in government. Of the three projects launched in the first quarter, two were in the Mid-West region and one was in Rio de Janeiro. The chart below contains data for the last five quarters, including sequential and year-over-year comparisons. 1,757-86% 1, % Q12 3Q12 Residential Corporate Office Suites The tables below show the breakdown of launches by product and business unit: Launches (R$ million) Unit Price Residential % % Affordable Up to R$170 thousand - 0% 70 18% Mid-Low R$170 to R$350 thousand - 0% - 0% Middle R$350 to R$500 thousand 92 38% % Mid-High R$500 to R$1 million 56 23% 76 20% High Above R$1 million 94 39% - 0% Lots - 0% 46 12% Office - 0% 49 13% Corporate - 0% - 0% Office Suites* - 0% 49 13% Total % % *Note: including Malls and Hotels Launches per Business Unit (R$ million) 3Q12 2Q12 São Paulo Rio de Janeiro Mid-West Other Total 242 1,

7 CONTRACTED SALES contracted sales totaled R$ million, a 25% decline compared with the, obviously affected by the reduced level of launches. Excluding sales of lots and units from first range of Minha Casa Minha Vida housing program, sales in would reach R$ million, implying a reduction of only 4.2% this quarter. The chart below contains data for the last five quarters, including sequential and year-over-year comparisons. 1,110-46% -25% , Q12 3Q12 Residential Corporate Office Suites Sales from inventory totaled R$ million in the first quarter and accounted for 96% of total sales, compared with 40% in the. The increase was mainly due to the lower volume of launches and the sale of inventory from a greater number of launches. Accordingly, launches accounted for 33% of first quarter total sales. The tables below show the breakdown of sales by product and business unit: Contracted Sales Unit Price (R$ million) Residential % % Affordable Up to R$170 thousand 75 13% % Mid-Low R$170 to R$350 thousand % % Middle R$350 to R$500 thousand % 97 12% Mid-High R$500 to R$1 million 73 12% 82 10% High Above R$1 million 46 8% 44 6% Lots 0 0% 50 6% Office 29 5% 75 9% Corporate 1 0% 2 0% Office Suites 28 5% 73 9% Total % % Sales by Business Unit (R$ million) 3Q12 2Q12 São Paulo Rio de Janeiro Mid-West Total 596 1,

8 SALES OVER SUPPLY (SoS) Sales over Supply (SoS) was 16.0% in the compared with 23.7% in the and 21.1% in the, reflecting the lower volume of launches in the first quarter. Excluding sales of lots and units from first range of Minha Casa Minha Vida housing program, SoS in would reach 17.5%, implying a reduction of only 1.5p.p. this quarter. The results include the impact of gross sales terminations. The chart below provides SoS for the last quarters: 31.3% 27.5% 27.0% 23.7% 21.1% 20.8% 20.3% Sales over Supply 3Q12 2Q12 Beginning Inventory 3,385 2,819 2,848 3,074 3, % 16.0% Launches 242 1, Supply (ex terminations) 3,628 4,577 3,425 3,432 3,650 Contracted Sales 596 1, Sales over Supply (ex terminations) 16.4% 24.3% 20.7% 21.5% 21.8% Sales terminations Total supply 3,724 4,676 3,515 3,541 3,775 Sales over Supply 16.0% 23.7% 20.3% 20.8% 21.1% 1Q 2Q 3Q 4Q INVENTORY Inventory at market value was R$ 3.2 billion at the end of the first quarter of 2013, a 6% decrease compared with the due to the volume of sales from launches, and the reduced volume of launches. Inventory as of the was equivalent to 12.1 months of contracted sales (considering LTM sales). Inventory per Segment* (R$ million) Units Price % % 3Q12 % 2Q12 % % Residential 2, % 2, % 2, % 2, % 2, % Affordable Up to R$170 thousand % % % % % Mid-Low R$170 to R$350 thousand % 1, % 1, % 1, % 1, % Middle R$350 to R$500 thousand % % % % % Mid-High R$500 to RS1 million % % % % % High Above R$1 million % % % % % Lots 3 0.1% 1 0.0% 1 0.0% % % Office % % % % % Corporate % % % % % Office Suites % % % % % Total 3, % 3, % 2, % 2, % 3, % Inventory in months of sale** *Not considering parking lanes of R$ 4.1 million ** Considering LTM sales on a monthly basis Completed units (finished projects) represented R$ million of total inventory, an increase of 8% when compared with the. The increase reflects a higher proportion of delivered units with higher prices that have lower sales velocity. Finished units represented 11% of total inventory, as demonstrated in the chart below. Inventory per Stage of Development* (R$ million) Residential % Office Suites % Corporate % Total % Launching 1, % % % 1, % Under Construction % % % 1, % Completed % % 1 0.5% % Total 2, % % % 3, % *Not considering parking lanes and lots of R$ 7.1 million 8

9 The following chart provides a regional breakdown of inventory by business unit and launch period. Projects launched since the beginning of 2011 account for 69.0% of total inventory. Inventory per business unit and period of launching (R$ million) Other Total % Years São Paulo % Rio de Janeiro , % Mid-West , % Total 225 1, , % SALES TERMINATIONS Sales terminations totaled R$ 96.2 million or 424 units in the, which was below the average quarterly result of R$ million in Of the units terminated in the, 25% were resold in the same period at slightly higher prices, demonstrating the marketability of the Company s products. 80.4% of terminated units were in the affordable and mid-low segments, which have more volatile credit characteristics. The table below provides sequential data on terminations. Sales Termination 3Q12 2Q12 PSV (R$ million) Units Terminated EXECUTION CAPACITY The Company delivered 11 projects or phases of projects during the quarter, totaling 1,868 units or R$ million in PSV (Potential Sales Value). While the number of units declined 11% compared with the, PSV increased 35%. The sequential increase in PSV reflects the delivery of higher priced projects in the first quarter, including R$ million and 456 units from the Torre IV Project. The third and fourth quarters of 2013 are expected to have the highest concentration of deliveries. The table below provides data on construction sites and delivered units in the last five quarters. Execution Capacity 3Q12 2Q12 Construction Sites Units being developed 38,618 39,346 39,321 36,512 35,227 Projects (or phases) delivered Units delivered 1,868 2,108 2,022 3,222 2,068 PSV delivered (R$ million) Note: Complete table of delivered projects available in the annex session. Information considering 100% of units (not only Brookfield Incorporações stake) MORTGAGE TAKEOUT The Company transferred 1,346 contracts representing R$ million to financial institutions in the first quarter of The result represents a 4% increase compared with the in terms of transferred units and a 11% decrease in terms of amount. During the first quarter, the Company refined the mortgage takeout process by internalizing certain previously outsourced activities to improve efficiencies, among other initiatives. 9

10 Transfers - PSV (R$ million) X X Affordable % % Mid-Low % % Middle % % Mid-High % % High % % Corporate % % Office Suites % % Total % % Transfers (units) X X Affordable % % Mid-Low % % Middle % % Mid-High % % High % % Corporate % 1 0.0% Office Suites % % Total 1,346 1, % 1, % LAND BANK The Company s land bank had a PSV (Potential Sales Value) of R$ 15.9 billion at the end of the first quarter, compared with R$ 16.1 billion at the end of the. During the, the Company acquired an additional land plot in the city of São Paulo with a PSV of R$ 88.0 million (swap of 68%). The Company has the necessary land in place to complete the 2013 launch program and also for 2014 launches, according to business plan Landbank per Segment Lots 13.6% Mid-High 3.1% Commercial 8.5% Affordable 4.3% High 0.7% Mid-Low 10.8% Middle 59.1% Years of Launching PSV Landbank per Business Unit PSV (R$ Million) São Paulo 7, % Rio de Janeiro 2, % Centro-Oeste 3, % Other 1, % Total 15, % % 10

11 Financial Performance New disclosure practices adopted by the Company and the correction of financial information resulted in certain reclassifications and/or adjustments to the financial statements for the year ending December 31, These adjustments were detected upon the preparation of the financial statements for the year ending December 31, 2012 (2012). Accordingly, results for the quarters ending March 31, 2012 ( ) and December 31, 2012 ( Pro forma) have been adjusted in this release for comparison purposes. Additionally, the Company adopted new accounting standards, CPC 19 (R2) / IFRS 11, as of January 1, Brookfield is now using the equity income method instead of the proportional consolidation method to account for its interests in jointly controlled entities in its financial statements. For comparison purposes, the impact of the new accounting practices and adjustments has been retrospectively incorporated into the balance sheet for the quarter ending December 31, 2012 ( ) and the income statement for the quarters ending March 31, 2012 ( ) and December 31, 2012 ( Pro forma). RESTATED INCOME STATEMENT Income Statement (R$ thousand) Adjustments Joint Ventures Deconsolidation Gross revenues 695,210 (4,520) (92,814) 597,876 Revenues from real estate development and sales 624,905 (4,520) (85,854) 534,531 Other revenues 70,305 (6,960) 63,345 Taxes (22,740) 178 3,255 (19,307) Net revenues 672,470 (4,342) (89,559) 578,569 Operating costs Cost of real estate development and sales (454,432) (21,638) 63,412 (412,658) Other costs (49,016) 737 (48,279) Gross profit (loss) 169,022 (25,980) (25,410) 117,632 Gross margin (%) 25.1% 20.3% Operating expenses/revenues (119,988) (1,287) 22,238 (99,037) Selling and marketing expenses (50,968) 3,073 (47,895) General and administrative expenses (49,362) 1,759 (47,603) Other expenses (15,378) 1,096 (14,282) Equity income - (1,287) 16,309 15,022 Depreciation and amortization (4,280) 1 (4,279) Net financial results (29,216) (1,120) (30,336) Earnings (losses) before taxes 19,818 (27,267) (4,292) (11,741) Income tax and social contribution Current (16,573) 3,099 (13,474) Deferred 716 6,992 1,193 8,901 Net income (loss) 3,961 (20,275) - (16,314) Net margin (%) 0.6% n/a Number of shares (thousand) 441, ,688 Earnings (loss) per share 0.01 (0.04) 11

12 PRO FORMA INCOME STATEMENT (non-audited) Income Statement (R$ thousand) Adjustments Joint Ventures Deconsolidation Pro forma Gross revenues 1,027,008 12, ,863 1,177,275 Revenues from real estate development and sales 885,641 12, ,198 1,035,243 Other revenues 141, ,032 Taxes (35,817) (401) (4,443) (40,660) Net revenues 991,191 12, ,420 1,136,615 Operating costs Cost of real estate development and sales (711,956) 666 (111,570) (822,860) Other costs (128,180) (432) (128,612) Gross profit (loss) 151,055 12,670 21, ,143 Gross margin (%) 15.2% 16.3% Operating expenses/revenues Selling and marketing expenses (55,591) (7,308) (62,899) General and administrative expenses (46,423) (284) (46,707) Other expenses (28,140) (649) (28,789) Equity income (10,249) (10,130) Depreciation and amortization (4,259) 31 (4,228) Net financial results (38,367) 373 (37,994) Earnings (losses) before taxes (21,725) 12,789 3,332 (5,604) Income tax and social contribution Current (12,651) (1,909) (14,560) Deferred (5,290) (2,251) (1,423) (8,964) Net income (loss) (39,666) 10,538 (29,128) Net margin (%) n/a n/a Number of shares (thousand) 543, ,607 Earnings (loss) per share (0.07) (0.05) 12

13 INCOME STATEMENT AND COMPARISONS Income Statement (R$ thousand) % over revenues % over revenues Gross revenues 761, , % 1,177, % Revenues from real estate development and sales 641, , % 1,035, % Other revenues 120,748 63, % 142, % Taxes (19,928) (19,307) 3.2% (40,660) -51.0% Net revenues 741, % 578, % 28.2% 1,136, % -34.7% X Pro forma % over revenues X Operating costs Cost of real estate development and sales (525,657) -70.8% (412,658) -71.3% 27.4% (822,860) -72.4% -36.1% Other costs (115,901) -15.6% (48,279) -8.3% 140.1% (128,612) -11.3% -9.9% Gross profit (loss) 100, , % 185, % Gross margin (%) 13.5% 20.3% -6.8p.p. 16.3% -2.8p.p. Operating expenses/revenues Selling and marketing expenses (41,732) -5.6% (47,895) -8.3% -12.9% (62,899) -5.5% -33.7% General and administrative expenses (34,455) -4.6% (47,603) -8.2% -27.6% (46,707) -4.1% -26.2% Other expenses (18,517) -2.5% (14,282) -2.5% 29.7% (28,789) -2.5% -35.7% Equity income 9,183 15,022-39% (10,130) % Depreciation and amortization (3,840) (4,279) -10.3% (4,228) -9.2% Net financial results (46,049) -6.2% (30,336) -5.2% 51.8% (37,994) -3.3% 21.2% Earnings (losses) before taxes (35,007) (11,741) 198.2% (5,604) 524.7% Income tax and social contribution Current (9,798) -1.3% (13,474) -2.3% -27.3% (14,560) -1.3% -32.7% Deferred (2,904) -0.4% 8, % % (8,964) -0.8% -67.6% Net income (loss) (47,709) (16,314) 192.4% (29,128) 63.8% Net margin (%) n/a n/a - n/a - Number of shares (thousand) 569, , % 543, % Earnings (loss) per share (0.08) (0.04) - (0.05) 56.2% REVENUES Net revenues totaled R$ million in the first quarter, a 28% increase compared with the. The improvement reflects a higher amount of sales terminations in the year-ago period, which resulted in a revenue reversal of R$ 62.8 million. On a sequential basis, first quarter revenues declined 35% compared with the. The reduction is explained by the gap of revenue recognition which typically impacts the first quarter, due to the high volume of concentrated launches at the end of the year, whose revenues were recognized in Q4 and has low revenue recognition until the beginning of construction. COSTS Costs related to real estate development and sales were R$ million in the first quarter, a 27% increase compared with the, primarily due to higher construction volume. There were approximately 41,000 units under construction at the end of the, compared with approximately 35,200 at the end of the. On a sequential basis, costs declined 36% compared with the due to adjustments which impacted that quarter. Other costs totaled R$ million in the first quarter, a 142% increase compared with the. The increase is mainly due to higher expenditures on construction services rendered to third parties and projects in the first range of the Minha Casa Minha Vida housing program. Associated revenues are accounted for in the Other revenues line. 13

14 GROSS PROFIT The Company posted a gross profit of R$ million in the first quarter, which represents a gross margin of 13.5% and reflects: (i) Ongoing impact of the budget adjustments undertaken last year (ii) Income recognition of a lower margin sales mix (iii) Cost overruns of R$ 10.4 million from 34 projects completed (iv) Increased share of Other Revenues which have lower gross margins, due to Construction Services rendered to third parties and projects in the first range of the Minha Casa Minha Vida housing program (v) Joint ventures deconsolidation accounting effect that reduces revenues from real estate development. In the graph below, we provide the adjusted gross margin reconciliation for the : 6.7% 21.3% 13.5% 0.8% 0.3% Gross Margin Goodwill allocation of MB acquisition APV* Capitalized interest Adjusted Gross Margin REVENUES TO BE RECOGNIZED The backlog of revenues to be recognized under the PoC method totaled R$ 3.4 billion at the end of the, with a margin of 34.0%. The result represents a modest decline compared with the. Costs to be Recognized are based on construction budgets which are reviewed periodically. However, this quarter, this review was not performed due to the implementation of specialized budget systems (Hard Dollar and Primavera). Revenues to be Recognized (R$ million) Revenues to be Recognized 2,834 2,919 Advances from Clients Total Revenues to be Recognized 3,368 3,425 Costs to be Recognized (2,223) (2,244) Results to be Recognized 1,145 1,181 Backlog Margin* 34.0% 34.5% *Margin before taxes and interest capitalized In order to use the backlog margin as an indicator of the future gross margin, the following adjustments must be made: deduct PIS/Cofins (1) (which typically ranges between 3.13% and 3.65% of revenues), future interest to be capitalized (which historically ranges between 2% and 5% of revenues), adjustment to present value; and add future index adjustments of accounts receivable (INCC or IGP-M (2) ). (1) Social Integration Program Tax on Revenue (PIS)/Social Security Funding Tax on Revenue (COFINS) (2) National Construction Index (INCC)/General Market Price Index (IGP-M) 14

15 SALES, GENERAL AND ADMINISTRATIVE EXPENSES Sales and marketing expenses totaled R$ 41.7 million in the first quarter. The result represents a 13% decrease compared with the and a 34% decline versus the, primarily due to fewer launches in the first quarter. G&A expenses totaled R$ 34.5 million in the first quarter, representing 4.6% of net revenues. The 26% decrease compared with the and 28% decrease versus the were primarily driven by the reversal of R$ 12.1 million of profit sharing, rewards and stock option provisions in the 2012 results. Other expenses totaled R$ 18.5 million in the first quarter, a 30% increase compared with the. The result primarily reflects a R$ 3.2 million increase in real estate taxes, condominium and maintenance expenses related to finished units, in keeping with a 60% year-over-year rise in the market value of this inventory. Operating Expenses Analysis Sales Expenses (R$ million) G&A Expenses (R$ milllion) Sales Expenses /Contracted Sales 7.0% 6.0% G&A / Contracted Sales 5.8% 6.0% Sales Expenses /Net Revenues 5.6% 8.3% G&A / Net Revenues 4.6% 8.2% EBITDA EBITDA (R$ thousand) X Pro forma X Net income (loss) (47,709) (16,314) 192.4% (29,128) 63.8% (+) Income tax and social contribution 12,702 4, % 23, % (+) Net financial results 46,049 30, % 37, % (+) Capitalized interest in operating costs + APV 52,371 67, % 21, % (+) Depreciation and amortization 3,840 4, % 4, % EBITDA 67,253 90, % 57, % EBITDA Margin 9.1% 15.6% -6.5p.p. 5.1% -4.0p.p. FINANCIAL RESULT Net financial results were an expense of R$ 46.0 million in the first quarter, compared with an expense of R$ 30.3 million in the, and an expense of R$ 38.0 million in the. This deterioration is due to (i) the maturity of a securitization transaction, for which interest accrued over the contract term resulted in an accounting impact of R$ 9.5 million in the and (ii) an increase in the average debt balance in the period. NET INCOME The Company reported a loss of R$ 47.7 million in the, primarily due to lower gross margins as described on Gross Profit topic, coupled with an increase in net financial expenses. 15

16 Balance Sheet RESTATED BALANCE SHEET Balance Sheet (R$ thousand) Assets Joint Ventures Deconsolidation Cash and equivalents 910,742 (95,763) 814,979 Short term-investments 191, ,379 Accounts receivable 2,066,240 (286,652) 1,779,588 Inventory of properties for sale 1,558,305 (136,590) 1,421,715 Current taxes and witholding taxes 53,943 (1,854) 52,089 Other 289,875 (17,506) 272,369 Current assets 5,070,484 (538,365) 4,532, Long term-investments 267, ,091 Trade accounts receivable 2,316,403 (296,267) 2,020,136 Inventory of properties for sale 1,682,775 (89,529) 1,593,246 Current taxes and witholding taxes Deferred taxes 29,662-29,662 Intangible 501, ,103 Other 339,972 48, ,443 Property, plant and equipment 71, , ,800 Non-current assets 5,208,556 93,661 5,302,217 Total assets 10,279,040 (444,704) 9,834,336 Liabilities Borrowings and financing 1,400,221 (40,202) 1,360,019 Trade accounts payable and other 776,713 (49,112) 727,601 Advances from customers 893,893 (59,560) 834,333 Current taxes payable 34,410 (4,791) 29,619 Provisions 33,791 (13,726) 20,065 Proposed dividends - 48,952 48,952 Other 86,045 (2,028) 84,017 Current liabilities 3,225,073 (120,467) 3,104,606 Borrowings and financing 2,922,011 (220,900) 2,701,111 Intercompany loans - 2,962 2,962 Trade and other payables 119,303 (3,564) 115,739 Advances from customers 430,979 (48,104) 382,875 Deferred taxes 234,479 (40,112) 194,367 Provisions 93,830 8, ,011 Other 399,626 (22,700) 376,926 Non-current liabilities 4,200,228 (324,237) 3,875, Total Liabilities 7,425,301 (444,704) 6,980,597 Capital 2,528,256-2,528,256 Reserves 596,336 (388,004) 208,332 Valuation adjustments to equity 151, ,307 Proposed additional dividens Treasury shares (34,156) - (34,156) Share Expenses Retained earnings (388,004) 388,004 - Shareholders' equity 2,853,739-2,853,739 Total liabilities and shareholders' equity 10,279,040 (444,704) 9,834,336 16

17 BALANCE SHEET AND COMPARISONS Balance Sheet (R$ thousand) Assets X Cash and equivalents 514, , % Short term-investments 439, , % Accounts receivable 2,168,839 1,779, % Inventory of properties for sale 1,422,982 1,421, % Current taxes and witholding taxes 53,148 52, % Other 245, , % Current assets 4,843,858 4,532, % Long term-investments - 267, % Trade accounts receivable 1,819,085 2,020, % Inventory of properties for sale 1,553,324 1,593, % Current taxes and witholding taxes % Deferred taxes 34,357 29, % Intangible 501, , % Other 392, , % Property, plant and equipment 510, , % Non-current assets 4,812,403 5,302, % Total assets 9,656,261 9,834, % Liabilities Borrowings and financing 1,194,576 1,360, % Trade accounts payable and other 702, , % Advances from customers 647, , % Current taxes payable 25,299 29, % Provisions 16,198 20, % Proposed dividends 54,489 48, % Other 84,734 84, % Current liabilities 2,726,180 3,104, % Borrowings and financing 2,758,145 2,701, % Intercompany loans 2,964 2, % Trade and other payables 136, , % Advances from customers 591, , % Deferred taxes 197, , % Provisions 103, , % Other 330, , % Non-current liabilities 4,122,173 3,875, % - - Total Liabilities 6,848,353 6,980, % Capital 2,528,256 2,528, % Reserves 210, , % Valuation adjustments to equity 151, , % Proposed additional dividens Treasury shares (34,156) (34,156) 0.0% Share Expenses Retained earnings (47,709) - - Shareholders' equity 2,807,908 2,853, % - Total liabilities and shareholders' equity 9,656,261 9,834, % 17

18 RECEIVABLES The Company had R$ 6.8 billion of receivables at the end of first quarter of 2013, of which 75% mature in 2013 and Receivables R$ million Units Under Construction 2, ,689.8 Completed Units 1, ,098.0 Services Adjusted Present Value (98.5) (96.6) Provision for Losses (52.3) (46.8) Total Receivables in Balance Sheet 3, ,799.7 Revenues to be Recognized 3, ,282.7 Advances from Customers (417.9) (363.5) Total Receivables 6, ,718.9 Schedule of Maturities R$ million , , , , , ,339.4 After and after Total Receivables 6, ,718.9 Revenues to be Recognized (3,251.5) (3,282.7) Advances from Customers Total Receivables in Balance Sheet 3, ,799.7 CASH FLOW AND DEBT Project finance (SFH) reached R$ 1.41 billion at the end of the, a 4% increase compared with the. The 3% sequential decrease in gross debt to R$ 3.95 billion (from R$ 4.06 billion) reflects an increasing share of SFH funding and a 6% decline in corporate debt levels. Project finance contains more favorable terms than other forms of debt as contracts typically require lenders to finance individuals once construction has been completed. The SFH balance represented 35.7% of total debt and 47.1% of net debt at the end of the. 3,731 1,053 (28%) 3,936 1,230 (31%) 4,181 1,445 (35%) 4,061 1,356 (33%) 3,953 1,413 (36%) R$ million 2,679 (72%) 2,707 (69%) 2,735 (65%) 2,706 (67%) 2,540 (64%) * 2Q12* 3Q12* Construction Loans (SFH) Corporate Debt *As previously disclosed. Not considering pro forma adjustments regarding JV deconsolidation. At the end of March 2013, the Company had R$ 5.6 billion worth of contracted SFH loans (including joint ventures), of which R$ 3.5 billion are yet to be disbursed. This represents 86.3% of future construction costs for projects already launched. 18

19 Net Debt to Equity R$ million 3Q12* 2Q12* * Cash and equivalents , , , ,141.8 Total Debt 3, , , , , ,731.3 Project Finance (SFH) 1, , , , , ,052.7 Corporate Debt 2, , , , , ,678.6 Net Debt 2, , , , , ,589.5 Net Debt Variation/Cash Consumption n/a (272.3) From Operations Share repurchase 4.4 Dividends 93.1 Capital increase Shareholder's Equity 2, , , , , ,023.9 Net Debt / Equity 106.8% 97.7% 103.5% 121.4% 109.2% 85.6% Net Debt ex-project finance / Equity 56.5% 50.2% 46.8% 67.0% 62.9% 50.8% * As previously diclosed. Not considering pro forma adjustments regarding JV deconsolidation. Cash consumption from operations during the first quarter was R$ million. The Company s debt profile has improved following (i) the rollover of working capital (R$ 200 million for 2 years and new R$ 100 million facility for 3 years) and the amortization of R$ 165 million of second issuance of debentures (outstanding balance and interest), which reduced the volume of debt maturing in 2013 to R$ 426 million from R$ 901 million previously. The Company intends to cover near-term maturities with the proceeds of last year s capital raising and inflows from mortgage takeouts to take place in Cash generated by the delivery of units should result in an initial reduction in leverage in the second half of 2013, with the rate of decline accelerating in Debt Maturity Schedule (R$ million) 1,494 1, Debt maturity profile (R$ million) Current Loans 1, ,360.0 Long Term Loans 2, ,701.1 Total Debt 3, , , After 2016 Construction Loans (SFH) Corporate Debt FINANCIAL COVENANTS Our debenture issuances and some debt instruments contain certain covenants. The Company s financials remain in accordance with the parameters established. This can be observed in the table below, which contains the two most relevant covenants and last quarter s ratios. Covenants Parameters * 3Q12 2Q12 (Net Debt - SFH Loans) / Shareholder's equity = < (Total Receivables) + (Inventory) / (Net Debt) + (Land > = 1.50 or < payables) + (Cost to be incurred) *Ratios have to be audited up to 30 days after the earnings release and then submitted to the fiduciary agent. 19

20 Annexes LAUNCHED PROJECTS Brookfield Incorporações share Launched Projects Type Segment Business unit City PSV (R$ mm) Units Avg Price per unit (R$ 000) Saleable Area (sqm) R$/sqm Mio - Rio Grande e Mananciais Phase 2 R Middle RJ Rio de Janeiro ,477 4,300 Refinatto - Block 207 Lot 09 R High CO Águas Claras ,460 6,527 Trend - Street 36 Lot 18 R Mid-high CO Águas Claras ,507 6,548 Total ,445 5,455 DELIVERED PROJECTS Delivered Projects Type Segment Business Unit City PSV (R$mm) Brookfield Incorporações' stake Units Average Price per unit (R$000) Saleable Area (sqm) Allegro Ceilandia Tower C R Mid-low CO Brasília ,438 2,296 Allegro Ceilandia Tower D R Mid-low CO Brasília ,269 2,296 Duo Av Pq Aguas Claras 3885 R Mid-low CO Brasília ,529 4,336 Encanto Gama block 106 Tower B R Mid-low CO Brasília ,039 2,599 Idealle Gama Block 2 Tower B R Mid-low CO Brasília ,447 2,600 Mirage Vila Alpes Block 20 Tower B R Mid-low CO Goiânia ,799 2,222 Premiere Rua Babacu Lot 05 R Mid-high CO Brasília ,162 3,062 Riv. Dei Fiori Block 107 Tower C R Mid-low CO Brasília ,968 3,788 Vida Bela Vila Alpes Block 21 R Affordable CO Goiânia ,967 2,135 Tower IV C Commercial SP São Paulo ,007 5,147 Três Lagoas Phase 1 Mato Grosso do Sul R Affordable CO Três Lagoas ,346 1,081 Total 506 1, ,970 3,373 R$/m² 20

21 Only for comparison purposes, we are providing below the Pro forma Income Statement and the Balance Sheet (nonaudited) of the three month period ended March 31, 2013, showing the effect of the consolidation of joint ventures. PRO FORMA INCOME STATEMENT (non-audited) Income Statement (R$ thousand) Joint Ventures Consolidation Pro forma Gross revenues 761,889 92, ,377 Revenues from real estate development and sales 641,141 92, ,631 Other revenues 120,748 (2) 120,746 Taxes (19,928) (2,466) (22,394) Net revenues 741,961 90, ,983 Operating costs Cost of real estate development and sales (525,657) (73,858) (599,515) Other costs (115,901) (214) (116,115) Gross profit (loss) 100,403 15, ,353 Gross margin (%) 13.5% 13.6% Operating expenses/revenues Selling and marketing expenses (41,732) (3,740) (45,472) General and administrative expenses (34,455) (568) (35,023) Other expenses (18,517) (431) (18,948) Equity income 9,183 (9,183) - Depreciation and amortization (3,840) (1) (3,841) Net financial results (46,049) 983 (45,066) Earnings (losses) before taxes (35,007) 3,010 (31,997) Income tax and social contribution Current (9,798) (2,695) (12,493) Deferred (2,904) (315) (3,219) Net income (loss) (47,709) - (47,709) Net margin (%) n/a n/a Number of shares (thousand) 569, ,989 Earnings (loss) per share (0.08) (0.08) 21

22 PRO FORMA BALANCE SHEET (non-audited) Balance Sheet (R$ thousand) Assets Joint Ventures Consolidation Pro Forma Cash and equivalents 514, , ,023 Short term-investments 439, ,172 Accounts receivable 2,168, ,139 2,752,978 Inventory of properties for sale 1,422, ,095 1,561,077 Current taxes and witholding taxes 53, ,570 Other 245,098 17, ,843 Current assets 4,843, ,805 5,707,663 Long term-investments - - Trade accounts receivable 1,819,085 22,454 1,841,539 Inventory of properties for sale 1,553,324 95,755 1,649,079 Current taxes and witholding taxes Deferred taxes 34,357 34,357 Intangible 501, ,787 Other 392,300 (205,326) 186,974 Property, plant and equipment 510,695 (302,474) 208,221 Non-current assets 4,812,403 (388,710) 4,423,693 Total assets 9,656, ,095 10,131,356 Liabilities Borrowings and financing 1,194,576 44,614 1,239,190 Trade accounts payable and other 702,996 51, ,667 Advances from customers 647, , ,475 Current taxes payable 25,299 3,190 28,489 Provisions 16,198 7,607 23,805 Proposed dividends 54,489 (54,489) - Other 84,734 1,942 86,676 Current liabilities 2,726, ,122 3,039,302 Borrowings and financing 2,758, ,547 3,017,692 Intercompany loans 2,964 (2,964) - Trade and other payables 136,928 3, ,202 Advances from customers 591,801 (239,048) 352,753 Deferred taxes 197,887 42, ,019 Provisions 103,667 (1,166) 102,501 Other 330, , ,979 Non-current liabilities 4,122, ,973 4,284, Total Liabilities 6,848, ,095 7,323,448 Capital 2,528,256 2,528,256 Reserves 210, ,210 Valuation adjustments to equity 151, ,307 Proposed additional dividens - - Treasury shares (34,156) (34,156) Share Expenses - - Retained earnings (47,709) (47,709) Shareholders' equity 2,807,908 2,807,908 Total liabilities and shareholders' equity 9,656, ,095 10,131,356 22

23 CASH FLOW Cash Flow Statement (R$ thousand) Net Income (loss) (47,709) (16,314) Adjustments to reconcile the net income for the period with the cash generated by (used in) operational activities: Depreciation and amortization 11,420 9,878 Allowance for credit losses 5,539 2,800 Interest and monetary variation 48,207 54,858 Deferred income tax and social contribution 12,702 4,573 Other Provisions 82 7,653 (Increase)/decrease in operating assets: Accounts receivable (178,080) (142,605) Properties for development and sale 54,639 44,895 Other Assets 18,733 (238,871) Increase/(decrease) in operating liabilities: Accounts payable 25,662 37,077 Other liabilities (26,316) 109,664 Interest paid (144,336) (132,553) Income tax and social contribution (29,922) (42,548) Net Cash Inflow (Outflow) from Operating Activities (249,379) (301,493) Cash flow from investing activities Fixed asset sale/acquisition (3,560) (6,341) Redemption of short-term investments - (9,635) Advances to related parties (6,759) (452) Intangible asset acquisition (2,585) (1,810) Financial investment 26, ,182 Net Cash Inflow (Outflow) from Investing Activities 13, ,944 Cash flow from financing activities Inflows 540, ,559 Amortization (604,797) (159,286) Stock buyback payments - - Capital Increase - - Dividends paid - - Net Cash Inflow (Outflow) from Financing Activities (64,599) 504,273 Cash and Equivalents Cash and cash equivalents (increase/decrease) (300,360) 325,724 Balance, beginning of period 814, ,794 Balance, End of Period 514, ,518 23

24 POC AND SALES PERFORMANCE Project (1) Business Unit Quarter of Launching End of Constuction PoC 1Q % Sold 1Q Launching PSV (R$million) Brookfield Incorporações Stake Units Average Price (R$000) Saleable Area (sqm) BROOKFIELD PLACE RJ 4Q10 2Q14 72% 96.1% ,640 7,676 DOCE LAR CONQUISTA CO 1Q11 100% 81.0% ,448 1,654 HORIZON_ZOGB PHASE 1 SP 4Q11 2Q14 68% 93.4% ,460 5,056 UNION SQUARE RJ 1Q16 40% 43.0% ,644 9,377 ATELIER TRÊS RIOS RJ 3Q10 3Q13 82% 92.1% ,202 3,802 AGUA VERDE RJ 4Q10 4Q13 66% 55.5% ,444 3,295 CADORO SP 3Q11 4Q14 37% 99.8% ,466 8,998 GARDENS LIVING SP 2Q10 2Q13 96% 99.8% ,517 3,764 NY PENTHOUSE - MICHIGAN SP 4Q11 3Q14 31% 88.6% ,420 21,281 8,271 PÁTIO CARIOCA RJ 4Q09 4Q13 84% 99.5% ,254 2,899 BR. TOWERS BLOCK A CO 2Q10 4Q13 80% 95.0% ,533 4,121 CAMPINAS PHASE 2 SP 4Q11 2Q14 48% 91.9% ,921 5,994 BOSCA RJ 4Q10 4Q13 85% 55.5% ,846 2,148 SOHO - TAMBORÉ 17 - PHASE 1 SP 4Q10 4Q13 75% 93.8% ,354 4,511 VILLA DO RIO RJ 4Q09 3Q13 79% 89.8% ,169 3,190 GREEN VALLEY RESIDENCIAL 03 SP 4Q10 1Q14 58% 96.0% ,136 4,127 BRAGANÇA PAULISTA SP 4Q11 2Q14 45% 83.4% ,060 6,422 ONE WORLD - MATERTRADE RJ 2Q11 2Q15 56% 80.4% ,260 9,084 URBAN LIVING E OFFICE SP 4Q10 3Q13 86% 100.0% ,530 5,790 PLACE SANTANA SP 3Q10 98% 79.8% ,348 5,312 VILA DAS FONTES - NADIR FIGUEIREDO RJ 4Q11 4Q14 25% 86.6% ,604 3,872 BROOKFIELD HOME DESING - OITICICA SP 1Q11 1Q14 64% 100.0% ,602 8,057 MANGARATIBA NORTE H RJ 2Q12 1Q15 19% 69.2% ,235 2,446 LAGOA PRESIDENTE AFONSO LOTES RJ 3Q11 3Q14 51% 83.2% ,883 4,219 12,300 BELLA COLÔNIA PHASE 1 SP 4Q11 4Q13 43% 99.5% ,150 2,505 VILA BELA RJ 2Q10 3Q13 78% 91.5% ,975 2,870 ALL - COOPER-FÊNIX: PHASE 2 CO 4Q10 3Q13 94% 98.0% ,601 4,681 YARD COMFORT RJ 2Q14 51% 73.2% ,036 3,780 ALL - COOPER-FÊNIX: PHASE 1 CO 4Q10 2Q13 100% 96.1% ,540 4,723 BR. TOWERS BLOCK B CO 2Q10 4Q13 77% 86.1% ,136 11,848 4,698 COSTA DO SAHY RJ 3Q11 82% 99.0% , GARDENS II - RUA MARQUES DE LAGES SP 4Q10 2Q13 83% 100.0% ,009 4,131 JC REAMANESCENTES - PHASE 1 CO 4Q11 2Q13 91% 35.1% ,562 2,115 ONDA CARIOCA RJ 2Q12 2Q15 37% 71.3% ,909 5,652 OASIS RESID. CLUBE SP 3Q12 2Q15 24% 60.7% ,643 4,537 THE ONE TOWER CO 3Q10 2Q13 87% 98.6% ,441 5,332 SOLARE VILA MATILDE SP 4Q11 1Q14 49% 99.1% ,750 5,158 PREMIÈRE CO 3Q08 3Q12 100% 97.5% ,972 3,278 RIV. DEI FIORI BLOCK A CO 4Q09 86% 97.3% ,798 4,089 HARMONIA - BLOCK 1 CO 2Q10 2Q13 85% 98.5% ,109 3,186 M. AUTENTIQUE - BLOCK B CO 3Q09 3Q12 100% 91.2% ,101 3,400 SINFONIA - BLOCK CO 1Q09 100% 99.3% ,405 3,526 BONAVITA - BLOCK E CO 1Q09 3Q13 71% 68.1% ,090 3,607 BCP SANTO ANDRÉ - RESIDENCIAL SP 3Q15 10% 96.2% ,942 4,839 ETTORE LIVING SP 1Q11 3Q13 82% 100.0% ,767 4,669 RIV. DEI FIORI BLOCK B CO 4Q09 94% 97.3% ,462 4,224 ASTR - ASTRAL - CEILÂNDIA CO 1Q11 1Q14 88% 99.4% ,305 3,750 FGV RJ 4Q10 4Q13 56% 100.0% ,257 4,041 9,467 ILHA DAS FLORES BLOCK A CO 4Q09 3Q12 100% 88.1% ,015 3,071 VITALITÁ - BLOCK G CO 2Q09 4Q13 83% 91.7% ,085 3,198 (1) Main projects with revenue recognition in the quarter (2) SP: São Paulo; RJ: Rio de Janeiro and CO: Mid West R$/m² 24