Deutsche Bank Global Emerging Markets Conference

Transcription

1 Deutsche Bank Global Emerging Markets Conference New York, September 6-8 th, 2006 Second Quarter 2006 Launches Blue Land Rio de Janeiro Belle Vue Porto Alegre Paço das Águas São Paulo Vistta Ibirapuera São Paulo Beach Park Living - Fortaleza 1

2 Safe-Harbor Statement We make forward-looking statements that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements include statements regarding our intent, belief or current expectations or that of our directors or executive officers. Forward-looking statements also include information concerning our possible or assumed future results of operations, as well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,'' ''continues,'' ''expects,' ''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Our future results and shareholder values may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. 2

3 Agenda 2Q06 Update 3 Page What s Going On the Brazilian Housing Industry? 15 Why Gafisa is Better Prepared to Take Advantage of This Market? 20 Appendix 34 3

4 2Q06: Gafisa Reports 151% Growth in Launches and 168% in Pre-Sales Launches (R$ mm) Pre-Sales (R$ mm) New Markets Rio de Janeiro Sao Paulo 151% 151% New Markets Rio de Janeiro São Paulo 168% 168% Q05 2Q06 Pre-sales mix breakdown 2Q06 2Q05 2Q06 22% 22% HIG MHI MID 69% AEL LOT COM Segmentation (Prices in R$/sq.m) 47% HIG High Income: > 3,600 MHI Middle High: 2,800 < > 3,600 MID Middle Income: 2,000 < > 2,800 AEL Affordable entry level: 1,800 < > 2,000 COM Commercial LOT Urbanized lots 4

5 2Q06: Operating Highlights Net Revenues (R$ mm) Gross Profit (R$ mm) 32% 26% 103,4 48% 48% 152,5 33,2 19% 19% 39,5 2Q05 Net Revenues 2Q06 2Q05 Gross Profit 2Q06 Gross Margin Adj. EBITDA (R$ mm) (1) Adj. Net Income (R$ mm) (1) 15% 15,3 25% 25% 19,1 13% 3% 661% 661% 14% 21,1 2,8 2Q05 2Q06 2Q05 2Q06 Adj. EBITDA EBITDA Margin (1) Adjusted EBITDA /Net Income Excluding IPO expenses Adj. Net Income Net Margin 5

6 Operating Highlights Net Revenues (R$ mm) Gross Profit (R$ mm) 34% % % % % % 32% 26% 9.6% H05 1H H05 1H06 Gross Profit Gross Margin EBITDA (R$ mm) Net Income (R$ mm) 13% % 19% 84 14% % 17% 14% 8% % 42 12% 51 12% 4% % 4% 279% % H05 1H06¹ H05 1H06¹ Adj. EBITDA EBITDA Margin Adj. Net Income Net Margin ¹ Adjusted EBITDA ¹ Adjusted Net Income 6

7 Despite the strong results in pre-sales, Gafisa is still being impacted by the external events of 2004 Gafisa is now well positioned for the Future Timeline Largest Real Estate Developer Turnaround Building Value Market Leadership High Growth Rates New Management Capital Restructuring Leadership Position Pure National Player Gafisa is founded Pre-Sales (R$ mm) IPO 451 GP Investimentos Acquires Control : GP invests, professionalization of company begins : Company becomes capital constrained, external shareholder event occurs 2005: EIP acquires 36% of Gafisa

8 as We Are Recognizing Previous Years Revenues following the PoC Method 2Q06 Pre-sales x Recognized Revenues (R$000) Developments Pre-Sales % of Pre-Sales Revenues % of Revenues Launched in ,699 63% 84% 16,042 11% Launched in ,347 21% 44,542 29% Launched in ,557 7% 33,951 22% 59% Launched in ,832 6% 36,963 24% Launched in ,436 3% 8,240 5% Others na na 12,809 8% Total 228, % 152, % 8

9 Historically, almost 90% of a year s earnings are based on previous years launches Income Statement doesn t necessarily reflect the economics of the Sector Earnings are recognized under the percentage of completion method Year 1 Year 2 Year 3 Accumulated Sales (a) 70% 90% 100% Percentage of completion (b) 15% 65% 100% Accumulated earnings recognized (a x b) Earnings recognition per year 11% 59% 100% 11% 48% 42% However, earnings lag provides strong predictability 9

10 Strong Pre-sales performance will positively impact future earnings Currently, Gafisa has approximately R$243 million of results to be recognized (a 91% growth compared to 2Q05) Revenues and Results be Recognized (R$ mm) Backlog Margin (%) (2) 2Q05 (a) 1Q06 (b) 2Q06 (c) (c)/(a) % (c)/(b) % 41.1% 43.3% Sales to be Recognized 383,2 473,4 560,7 46% 18% 33.1% Costs of Units Sold to be Recognized 1 (256,3) (278,9) (317,8) 24% 14% Results to be Recognized 126,9 194,5 242,8 91% 25% Margin to be Recognized 33.1% 41.1% 43.3% Note: 1 Includes only land and construction costs 2 Backlog Margin is not equal to Gross Margin 2Q05 1Q06 2Q06 with margins record high margins of 43.3% 10

11 Predicting the Housing Market Following the Housing Sector more closely MACRO ECONOMIC & DEMOGRAPHIC Population Trends Employment Rate Interest Rates Household Growth Real Income Cost of Living Taxes Gives a color on the main pillars that support companies growth strategy. MICRO SECTORIAL Micro Overview DATA Mortgage Availability Homeownership (%) Housing Starts/Permits Barriers Provides to entry an Natural Barriers to Grow Ademi / Secovi indication Sales Speed of the Provides an indication of the potential demand for new potential demand COMPANY WISE Leading Indicators for new homes. homes. 11

12 Predictors Guide Monitoring Sector Leading Performance Indicators The PoC Method provides Strong Predictability of Earnings Indicator Launches Pre-Sales Sales to be recognized Why it is important? Potential growth of Pre-sales? Current mix of products is aligned with company s strategy? Concentration or diversification in geographical terms? Are launches being effective? How is receptivity of products in the market Pre-sales from recent launches or from old inventory? Potential revenue growth to be recognized in future periods a a a Backlog Margin to be recognized Is it going up or down? How does Backlog Margin translate to Gross Margin? a 12

13 Strong Financial Position coupled with focus on working capital management (R$ million) 2Q06 2Q05 1Q06 Short Term Debt Long Term Debt Total Debt Cash and Cash Equivalents Net Debt (Net Cash) Shareholder s Equity 423 (147) (196) 788 Total Capitalization 1, ,073 Net Debt/ Equity -18% 7% -25% In order to optimize its working capital, Gafisa has been demanding new product from banks: Gafisa and Banco HSBC offer pre-approved mortgage in Santo Andre (Sao Paulo) Gafisa and Banco Santander Banespa Launches No-paperwork mortgage in Rio de Janeiro Gafisa and Banco Santander Banespa offer mortgage with discount on rent during construction period More recently, Gafisa s Board approved a R$100 million securitization of Receivables from clients 13

14 Our Goals for 2006 Continued Growth Pace Launching growth guidance for 2006 of 25-28% in nominal currency terms Margin Expansion EBITDA margin for FY06 of 16-17% (as % of Net Revenues) 14

15 Agenda 2Q06 Update 3 Page What s Going On the Brazilian Housing Industry? 15 Why Gafisa is Better Prepared to Take Advantage of This Market? 20 Appendix 34 15

16 Robust Growth Prospects in Brazil and the Favorable Demographics Make It Difficult to Ignore Its Potential Brazil s housing market presents large and sustainable demand Brazil s Economic Trends Favorable Housing Market Trends Largest economy in South America Attractive demographics: young and growing Politically stable and fiscally conservative population Strong economic fundamentals Unemployment rate: declining Interest rates: declining Strong pent-up demand: Housing deficit currently grows at a pace of 300,000 units per year Country risk at historical lows Interest Rates (Selic) - Historical and Forward Brazil Demographic Pyramid out fev jun out fev jun out fev jun out fev jun out fev Source: Central Bank and Focus (Market Estimates) Source: IBGE which is expected to continue significantly exceeding supply 16

17 Commercial banks are coming to fuel the housing sector Increasing credit availability and new regulation will support the potential of the sector R$ billion Central Bank increases bank requirement to invest in the sector Timeline - Recent Developments in the Housing Sector 9, Individuals gets Tax exempted on MBS Investments ABN Amro, Santander and HSBC reduce Mortgage Rates to 8%p.y from 12%p.a. Itaú, Bradesco, Unibanco follow suit Santander launches 10-yr fixed mortgage rate (21%p.a.) Resolution 13, Improves Foreclosure 13% regulation 9,1 20,3 10, Bradesco plans to triple mortgage lending activity this year to nearly R$2 billion. Itaú launches 15-yr fixed mortgage rate (18.85%p.a.) CEF comes back to middle income market (10.9%p.a.) Santander launches 20-yr fixed mortgage rate (16.9%p.a.) Gafisa, HSBC and Santander offer pre-approved mortgages Central Bank may allow paycheck discount for mortgage lending 9,4 6,7 4,5 2,2 6,0 3,0 4,8 109% 10,0 4,9 2,9 2,0 83% 104% 5,3 4, E 1H05 1H06 Mortgage by Commercial Banks¹ CEF Mortgage Loans Sources: ABECIP, Central Bank. ¹ Total mortgage lending using savings deposits funding (channeled-lending requirement). 17

18 The Development of the Mortgage Market will Directly Impact Housing Affordability with banks taking the position as main providers of financing Current Financing provided by Homebuilders Current SFH Mortgage (banks) Expected Mid-Term Mortgage Scenario (banks) Unit Price (R$) 200, , ,000 Loan-to Value LTV (%) 60% 60% 90% Down Payment (R$) 80,000 80,000 20,000 Mortgage Financing 120, , ,000 Real Interest Rates 12% p.a. 12% p.a. 8% p.a. Tenor (years) Monthly Installment (R$) 2,308 1,393 1,396 Required Monthly Household Income (R$) 9,232 5,573 5,583 Gafisa s Mortgage Penetration (Sao Paulo) Gafisa s Mortgage Penetration (Rio de Janeiro) 70% 60% 50% 40% 30% 20% 10% 0% 70% % Mortgage / Total Pre-sales % Mortgage / Total Pre-sales 60% 50% 40% 30% 20% 10% 0% TRI06 2TRI06 High Income Mid-High Middle TRI06 2TRI06 High Income Mid-High Middle 18

19 High Fragmentation is also an opportunity Gafisa s strong brand and market positioning are a competitive advantage against the many family-owned and non-professional competitors Market Share in São Paulo (2005) Market Share in Rio de Janeiro (2005) Others 80% Cyrela Brazil Realty 8% 5% Rossi Residencial 2% Company S.A. 3% Tecnisa 2% Others 42% 13% Agenco 13% RJZ Cyrela 12% Growth CHL 9% Carmo Calçada 11% Growth Units (#) 33,748 24% Units (#) 8,832 23% Launchings (R$ bi) % Launchings (R$ bi) 3.0 2% Source: EMBRAESP and SECOVI Source: ADEMI Well capitalized companies will benefit from increasing demand 19

20 Agenda 2Q06 Update 3 Page What s Going On the Brazilian Housing Industry? 15 Why Gafisa is Better Prepared to Take Advantage of This Market? 20 Appendix 34 20

21 Well Defined Strategy Our Strategy Create the leading residential development company in Brazil based upon sales, profitability and quality Strong revenue growth Focus on high return opportunities Maintain land bank of 2-3 years of future sales Continued geographic expansion Maintain debt policy of 40% - 60% net debt / equity 21

22 Gafisa: Premier Growth Opportunity Industry Leadership and Strong Brand Recognition Professional Management and Established Organization Geographic Diversification World-class Shareholders and the Highest Standards of Corporate Governance 22

23 World-Class Shareholders and Corporate Governance Led by GP and EI, Gafisa is the only homebuilder with an institutional shareholder base Current Shareholder Structure 1 Proven track record in the Brazilian capital markets Submarino, ALL, Cemar, among others A leading investor in real estate companies outside of the U.S. Portfolio includes Homex, Mexico s leading homebuilder Founded by Sam Zell Free Float 21.8% 27.4% 50.8% Superior Governance Standards Novo Mercado listing 2 independent board 100% tag along rights members US GAAP Audit Committee Note: 1 Excludes treasury stocks and commitment to superior corporate governance standards 23

24 A Diverse Product Mix Positions Gafisa to Take Advantage of Positive Environment Gafisaeographical expansion offers further growth potential in the medium term The Gold-SP Blue -RJ Side Park - SP Lorian - SP High-End Middle and Mid-High Affordable Entry Level Land Subdivision Size 100 to 500 sq.m 70 to 150 sq.m 45 to 65 sq.m 100 to 1,000 sq.m # of Units up to to to to 400 Price Range Above 400K R$ 150k to 400K R$ 70k to 130K Up to 300k Household Income¹ Above R$150,000 R$ 70,000 to R$150,000 R$ 32,000 to R$ 62,000 Diverse Financing Provided by Gafisa Commercial Banks and CEF 100% CEF (directly to buyer) Provided by Gafisa Average Price sq.m Above R$3,600 R$ 2,000 to R$ 3,600 R$ 1,800 to R$ 2,000 R$ 150 to R$ 800 % of 2006 Launches² 19% 62% 2% 10% Typical Project Margin 37% 31% 28% 44% 24 Notes: ¹ Annual household income. ² Gafisa has commercial buildings which accounted for the remaining 7% of the 2006 Launches

25 Gafisa has a Leadership Position in Brazil s Main Markets Sao Paulo and Rio de Janeiro represent, respectively, 36% and 32% of Gafisa s Launchings Sao Paulo Rio de Janeiro Main Characteristics: 6% of Brazilian population 10% of Brazilian GDP One of the highest GDP per capita in Brazil (72% higher than Brazilian average) Over 4 million homes (~ 8% of Brazil's Total) Market Size in 2005: R$9 billion Main Characteristics: 3% of Brazilian population 5% of Brazilian GDP One of the highest GDP per capita in Brazil (38% higher than Brazilian average) Around 2 million homes (~ 4% of Brazil`s total) Market Size in 2005: R$3 billion Growth Opportunities: Projects targeted to the middle income bracket Despite the lower demand for luxury housing, there are several opportunities for innovative and differentiated projects Huge unmet demand for Low Income projects due to lack of a regulatory framework Growth Opportunities: Projects oriented to middle and high-income in Barra da Tijuca and Jacarepaguá, fastest-growing region in the city (70% of Rio s market) Diversifying around suburban areas of Rio de Janeiro State 25

26 Present in 12 states, Gafisa is one of the most geographically diverse builders in Brazil Geographical expansion offers further growth potential in the medium term Gafisa s National Reach Drivers of Growth North Rapidly Expanding Export Platform Brazil s New Agricultural Frontier Northeast Second Home, Foreign Investments Recently signed partnerships Mid-west High Dependant on the Agricultural Business South Nation s Highest Income Per Capita Why expand through JVs with local partners? Develop local partnerships to leverage regional market knowledge, legal skills, risk mitigation and entry barriers Growth Opportunities Multiple drivers of other markets mitigate growth risk Small and poorly capitalized competitors Better margins Business Owners Organizational Structure provide a totally focused local management integrated and supported by Gafisa Corporate Unit in Sao Paulo How Gafisa is differentiated in New Markets? Strength of its brand and its track record in São Paulo and Rio de Janeiro Innovative project concepts Differentiated project designs Delivery of products on time and demand-aligned payment conditions Aggressive marketing strategy Although SP and RJ are still core markets, New Markets 26 already represents 32% of Gafisa s Launches

27 Professional Management and Superior Organizational Structure A superior organizational structure and professional management yield results Gafisa People and its culture Professional, experienced and motivated management focused on value creation Committed to develop leaders In depth industry knowledge Results driven culture Ownership Culture 4 out of 7 directors joined the company as interns Management, on average, with more than 14 years of experience 40% to 60% of compensation linked to aggressive targets More than 25 managers hold 3.6% of the company A unique business model in the industry oriented towards maximizing shareholder profitability and make Gafisa a scalable business platform 27

28 Efficient and Scalable Organizational Structure Designed to Sustain Growth Gafisa s Business Owner Structure is Unique on the Sector Senior Management Better execution, goals, standardization, best practices Regional Regional Geography Operation Operation Operation Operation Operation Operation Goals definitions, Performance management, best practices, standardization, economies of scale Operations (Construction) Sales Performance Human Resources IT Finance Back-office Tasks 28

29 Efficient Business Model An efficient business model, based on three main pillars Land Acquisition Proven ability to source land Acquire land mostly via swap Minimize cash outflow Alignment with landowner ROE High Asset Turn Over High sales velocity: 70% of units sold before construction Securitize client receivables to optimize working capital Low Cost Operations Builds for some of Gafisa s main competitors Standardized construction techniques Innovative materials and techniques oriented towards maximizing shareholder profitability (ROE) 29

30 Strategic Land Bank Land Bank representing 2-3 years of future sales Land Bank Potential Units by Income Segment Lots & High Middle AEL Com Future Sales (R$ mm) % acquired by swap São Paulo 336 2, % Rio de Janeiro 1,032 1, % São Paulo Other Cities 444 2, % Total 1,812 5, ,089 84% % 23% 68% 0% 9% Rio de Janeiro 30

31 Even in cities like Sao Paulo and Rio de Janeiro, Land is far from Scarce A Land bank representing 2-3 years of future sales is enough to sustain our strong growth rates Verdes Pracas - SP 31

32 Size and Strong Brand Matters in this Sector Gafisa has a very strong appeal to the buyers, with a direct link to its Real Estate products Strong brand and track record enables it to enter into swap agreements, paying for the land with units of the future development Safe hands appeal to the buyers results higher in pre-sales velocity compared to smaller players First look at land and partnership deals Product and geographic diversity Strong balance sheets Scale to leverage processes and supply agreements Expertise to underwrite, control and process land Attract and retain high talent work force Greater relative investment in technology Palazzo Farnese - SP Gafisa s brand is one of the best-known in the Brazilian homebuilding industry 32

33 Gafisa: Premier Growth Opportunity Industry Leadership and Strong Brand Recognition Professional Management and Established Organization Geographic Diversification World-class Shareholders and the Highest Standards of Corporate Governance 33

34 Agenda 2Q06 Update 3 Page What s Going On the Brazilian Housing Industry? 15 Why Gafisa is Better Prepared to Take Advantage of This Market? 20 Appendix 34 34

35 Development Process Land Purchase Launch Construction Delivery Market research Project analysis Sales strategy Internal approvals Permitting Sales: 70% 70% of of units Secure client financing Sales: 30% 30% of of units Secure construction financing Efficient construction Securitization Bank mortgage (customer) -6 th to 0 month 0 to 12 th month 12 th to 36 th month After 36 th month 35

36 Typical Project Cash Flow The nature of the business requires funding for the first year of development Cumulative Cash Flow to Equity 1, 2 15 Expected ROIC = 35% Construction Finance (SFH) repayment Securitization of remaining receivables 5 Beginning of construction R$ million (5) Maximum exposure: 10% to 12% of sales contracted End of construction Project launching Customer gets commercial mortgage financing (15) -6 0 months 0 12 months months 36 + months Land Purchase Launching Construction Delivery Notes: 1 Construction financing provided with funds from SFH 2 Middle-income with swap agreement project followed by significant cash in-flows 36