CSFB 3 rd Brazil Construction & Mortgage Field Trip

Transcription

1 CSFB 3 rd Brazil Construction & Mortgage Field Trip São Paulo, Brazil, August 30 nd, 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 Page Company Overview 3 Culture and Business Model 8 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 3

4 Overview da Companhia We are one of Brazil s leading homebuilding companies, focusing on residential markets. Over the last 50 years, we have been recognized as one of the foremost professionally-managed homebuilders In December 1997, GP and CIMOB entered into a partnership whereby a new company was formed under the name of Gafisa S.A., following the transfer of its land reserves, brand and personnel. In 2004, entities related to GP acquired a significant equity interest in our company and in the following year acquired the remaining stake held by CIMOB. In 2005, an affiliate of Equity International Properties, acquired approximately 32% of our company. Gafisa raised R$ million in an initial public offering to invest in new residential projects. 4

5 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 5

6 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 6

7 World-Class Shareholders and Corporate Governance Led by GP and EI, Gafisa is the only homebuilder with an institutional shareholder base Post-IPO 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 7

8 Agenda Page Company Overview 3 Culture and Business Model 8 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 8

9 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 9

10 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 10

11 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) 11

12 Agenda Page Company Overview 3 Culture and Business Model 7 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 12

13 A Diverse Product Mix Positions Gafisa to Take Advantage of Positive Environment Gafisa s product diversification is a key differentiating strategy 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 R$ 800 % of 2006 Launches² 19% 62% 2% 10% Typical Project Margin 37% 31% 28% 44% 13 Notes: ¹ Annual household income. ² Gafisa has commercial buildings which accounted for the remaining 7% of the 2006 Launches

14 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 North Rapidly Expanding Export Platform Brazil s New Agricultural Frontier Northeast Second Home, Foreign Investments Gafisa s core markets (SP / RJ) 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 Developing 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 already 14 represents 32% of Gafisa s Launches

15 Agenda Page Company Overview 3 Culture and Business Model 8 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 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 Source: Central Bank and Focus (Market Estimates) jun 06 out 06 fev 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, Resolution Improves Foreclosure regulation 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.) 13,9 9,1 13% 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.) 12.68% pa years 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 Decreasing Interest Rates and Development of the Mortgage Market will directly impact housing affordability Current Financing provided by Homebuilders Current SFH Mortgage Expected Medium Term Scenario 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$) Required Monthly Household Income (R$) 6 2,308 9,232 ~10% of the labor market 15 1,393 5, ,396 5,583 ~16% of the labor market Gafisa s Mortgage Penetration (Sao Paulo) Gafisa s Mortgage Penetration (Rio de Janeiro) 60% 50% 40% 30% 20% 10% 50% % Mortgage / Total Pre-sales % Mortgage / Total Pre-sales 40% 30% 20% 10% 0% 0% Q06 2Q TRI06 2TRI06 18

19 High Fragmentation is also an opportunity Gafisa s strong brand and market positioning are a competitive advantage against the many familyowned 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 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 presales 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 made Gafisa s brand one of the best-known in the Brazilian real estate industry 20

21 Strategic Land Bank Land Bank representing 2-3 years of future sales Gafisa s Current¹ Land Bank High Potential Units by Income Segment Lots & Middle AEL Com Future Sales (R$ mm) % acquired by swap São Paulo 336 2, % Rio de Janeiro 1,032 1, % São Bernardo do Campo Other Cities 444 2, % Total 1,812 5, ,089 84% % 23% 68% 0% 9% ¹ As of June 30th Rio de Janeiro 21

22 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 22

23 Agenda Page Company Overview 3 Culture and Business Model 8 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 23

24 Destaques Operacionais Lançamentos (R$ milhões) Vendas Contratadas (R$ milhões) % % S05 1S S05 1S06 Mix de Vendas Contratadas 1S06 10% 7% 23% 2% 39% 19% Alto Médio-Alto Médio Baixa Renda Lotes Comercial 62,3% Segmentos (Preço Médio por metro quadrado) Alto Alta Renda: > R$3,600 Médio Renda Média: R$2,000 < > R$2,800 Comercial Comercial: R$4,000 < > R$7,000 Médio- alto Renda Média Alta: R$2,800 < > R$3,600 Baixa Renda Médio Baixa e Baixa Renda: R$1,800 < > R$2,000 Lotes Loteamento: R$150< >R$800 24

25 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% 265% % H05 1H06¹ H05 1H06¹ Adj. EBITDA EBITDA Margin Adj. Net Income ¹ Adjusted EBITDA ¹ Adjusted Net Income Net Margin 25

26 as we are recognizing previous years revenues 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, % 26

27 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 27

28 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 (%) 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 2Q05 1Q06 2Q06 with margins record high margins of 43.3% 28

29 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 29

30 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) 30

31 Agenda Page Company Overview 3 Culture and Business Model 8 Overview of Operations 12 Opportunities Ahead 15 Operating and Financial Performance 23 Appendix 31 31

32 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 32

33 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 33