Gafisa S.A.

Sandro Gamba – CEO Andre Bergstein – CFO & IR Rodrigo Osmo – CEO, Tenda Felipe Cohen – CFO & IR, Tenda

Enrico Trotta – Itau Bank Nicole Hirakawa – Credit Suisse Marcello Milman – BTG Pactual Bank Luiz Mauricio Garcia – Bradesco Bank Daniel Gasparete – Bank of America Merrill Lynch Marcelo Motta – JPMorgan Eduardo Silveira – Espirito Santo Bank

Good morning, thank you for joining us today. During this challenging macroeconomic climate the company is remaining focused on maintaining profitability and generating cash flow, corrections and improvements by the company undertaken in recent years have increased the efficiency of the production cycle thereby reducing the construction period, strengthening financial management, allowing greater accuracy in budget and improving the quality of speed of the transfer process.

As a result we have achieved better operating performance, enhancing the profile of our capital employed. We therefore believe that the company is in a quite comfortable to operate within the current economic scenario.

We have a solid balance sheet and a low leverage and a fairly stable liquidity which positions us well to meet the challenges and opportunities of the sector. In this context we should stress Gafisa and Tenda's projects' performance they have been solid during recent quarters contributing to adjusted gross margin of 36.4% in the third quarter on a consolidated basis.

The Gafisa's segment's results were stable with an adjusted gross margin of 38.7% while Tenda's segment the proportional increase in contribution from new projects has result in increasing our expectation that we will be able to maintain an adjusted gross margin level of between 28% to 30% for new projects. Similar to the second quarter, Gafisa's third quarter performance was impacted by continued weakness in the economic environment.

Accordingly Gafisa is working – is taking a selective approach to product development and launches as it prioritizes pursuing a solid level of profitability. In the Gafisa segment third quarter launches totaled 419.1 million with gross presales of 345.6 million.

During the quarter more cautious buying behavior on the part of consumers resulted in a reduction in launches sales velocity. In the third quarter Gafisa's SOS was 7.2%, recently in-line with the commitment to transparency, capital discipline and value generation to shareholders the company announced a reduction of its guidance for 2014 expected launches for the Gafisa segment.

Despite having projects already approved and ready for launch at the end of the year the company believes that based on the continuing uncertainties of the current economic environment these launches should be postponed to 2015 which will allow more appropriate time in order to maintain these projects' target margins. As a result in the third quarter, Gafisa completed 1 billion in launches in the nine months of the year attaining 89% of the mid-point of the newly established guidance of between 1.1 billion to 1.2 billion.

Looking ahead to the last quarter of the year the Gafisa segment is dedicating even more focus on the sale of inventories of previously launched projects. Now I would like to pass the floor to Felipe Cohen, Tenda's Chief Financial and Investor Relations Officer for Tenda's third quarter's results.

Thank you Andre, good morning everyone. In this quarter the Tenda segment experienced lower launch activity in the third quarter due to greater than expected periods in finalizing the legalization and contracting of new projects with the financing agents resulting in the postponement of projects in the fourth quarter.

Third quarter launches totaled RL91.3 million with gross presales of 182.3 million. The level of dissolutions in the third quarter still presented a high volume of 146.3 million driven mainly by the strong delivery of legacy projects which accounted for approximately 70% of the PSV in the period.

Our expectation is that the volume of cancellations in the last quarter will remain at similar level due to the delivery of most of the remaining projects coupled with the transition to a new accounting policy where the sale is booked only after payment by the customer. The high volume of dissolutions in the third quarter significantly impacted sales velocity.

Third quarter sales velocity was 4.6%. The World Cup which had an adverse effect on the number of visitors to the shops and a change in the sales accounting policy also contributed to a presales reduction in the period.

We believe however, in the resilience of Tenda's market segment even in the face of higher economic uncertainty, demand in the low income housing segment is still quite strong due to Brazil's low unemployment rate and the availability of credit for the segment. In the nine months of this year Tenda launches reached 371.8 million and facing turns longer than expected for legalization and contracting remain seeking the floor for its launch guidance of 600 million to 800 million to the end year.

Now, I would like to pass the floor back to Andre.

Thank you Felipe. Consolidated Gafisa and Tenda launches volumes for the quarter reached 510.4 million and 1.4 billion in the first nine months of the year which represents 75% or the midpoint of the guidance of 1.7 billion to 2 billion.

Net sales were 230.8 million and 903.1 million in the nine months of 2014. Adjusted gross profit was 179.9 million with a margin of 36.4% in the quarter, two percentage points above that of the previous year.

In the nine months of 2014, adjusted gross profit totaled 517.3 million with a margin of 34.4%, 5.8 percentage points above that of the nine months of 2013, demonstrating Gafisa and Tenda's improved operating performance. Consolidated net income was a loss of 9.9 million comprised by Gafisa's net income of 15.3 million and a loss in Tenda's of approximately 25.2 million.

For the nine months of 2014 net income was 50.6 million with Gafisa representing income of 30.1 million and Tenda reporting a loss of 80.7 million. Once again operational cash generation performed well during the year.

The company ended third quarter with operating cash flow of 49.4 million reaching 195.5 million in the nine months of 2014, reflecting the transfer and receiving process per unit sold with financing agents with around 1.2 billion transferred during the year and a greater control over the company's business cycle. Free cash flow generation in the third quarter was positive again in 23.5 million to 42.7 million during the year.

At the end of September 2014, the company kept its commitment with capital discipline and the debt equity ratio reached 44.3%, stable which is in-line with the previous quarter. As for the separation process of the business units we maintained the studies and activities related to the theme.

And as soon as we’ve information of the next steps the company will inform its shareholders and the market. In recent months the affected division of multiple departments was implemented and currently we’re working on the completion of this process.

We have a better allocation of the resources on the part of our shareholders. Considering our assessment is that the separation will allow greater visibility.

Right now we’re working to complete this process with the proximity of the end of the year we see an important evolution in operating cycles of both companies over the past few quarters. We continue to work in order to have shareholder value creation goals as our guidelines including also profitability goals.

Now, we can begin the Q&A session. Thank you very much.

I have two quick questions, the first on Tenda. Please comment on how you see the demand in the low-income markets?

It is a little under the numbers expected and far from the guidance of 600 million of launches. You mentioned difficulties in the approval process.

I would like to understand, is there anything related to a drop in demand, a de-acceleration? Please how have you seen demand until now?

And in the fourth quarter, what should we expect in terms of launches at the end of the year in Tenda? This has to do with the D&A and how do you see the D&A guidance for Gafisa and Tenda since the macroeconomic scenario will continue being challenging?

In 2015 do you see space for cutting D&A in Gafisa and Tenda? Thank you.

Enrico, this is Rodrigo Osmo, good morning. Thank you I'll talk about Tenda then Andre can talk about Gafisa.

The issue of launches was operational we had more difficulty in getting approvals from public agency and financing banks than we imagined. But we don't see any problems in demand.

I would say the opposite, the feeling that we have here is that the competitiveness of this segment where we are present in Tenda has dropped, very few compete in this segment and the demand continues to be very interesting at least for the time being. Now, concerning D&A our expectation is that next year we will have a smaller growth maintaining and looking for significant growth in launches.

We believe that in the last few years, since 2012 we have been – we have been reducing the complexity of the D&A in Tenda. We reduced the D&A in 2012 in comparison with the closing of 2014 we will have a reduction of 25% in real terms.

And today we have a structure that is close to that which is necessary for the growth of the company. So probably in the next few years we will have a significant gain in scale, lower growth in D&A but with significant growth in the volume of launches for the next few years.

Now, Andre.

Well, both Gafisa and Tenda we have had considerable growth here. If you look at the nine months of this year, this considering non-recurrent expenses there's also the issue of the separation of the companies.

We have had a reduction of 10% in D&A but not in sales. We're working now with the separation of the two companies and we have made improvements in Gafisa and Tenda.

We're working to see what is feasible in terms of launches. We continue to really make efforts in order to have greater efficiency.

Could you please comment on what we can expect in terms of dissolutions, cancellations of purchases next year? And my other question is about the separation of the two companies.

You mentioned that you were continuing with the physical separation of the operation. What is the level of difficulty that you expect to find when separating the two companies, Gafisa and Tenda?

For example, getting approval from shareholders, creditors, please give us more details? Do you have a timing for this?

And also, what percentage of shareholders should approve the operation?

Now, talking about cancellations, dissolutions, this year we had a level of cancellations above our expectations in Tenda. We're working in a very intense way to decrease the number of cancellations.

The key factor for this was the change recently in recording revenue and this takes some time this measure to see the results. It takes some time for you to clean up your base of old sales.

Next year we intend to have, in terms of legacy, a lower volume. We have a lot of large volume of deliveries this year, 3500 units to be delivered next year.

We should have 1000 outstanding units to be delivered. So a great reduction in the legacy and in the legacy the cancellations are linked to deliveries.

In the case of the new model we also expect that as of next year there will be a significant reduction in cancellations, dissolutions reminding you that in our model as soon as the sale is made there is a period of approximately 90 days between the sale and also passing this to the bank. So we hope to have a convergence going to only 10% to 15% cancellations in the new model.

We still have a volume in this fourth quarter that will have an impact very similar to what we had in the third quarter until the end of the year, it should be similar. For next year in a nutshell we expect a reduction in cancellations, dissolutions.

Andre will talk about the spin-off process.

Nicole, just supplementing cancellations on Gafisa's side, I see cancellations in Gafisa as a reasonable influence as a result of the scenario we have today. When I look at the efficiency that we have in transferring those buyers that begin the process we have a very good efficiency.

There are a few cases where I have problem in getting credit when the buyer is not able to get credit approval from the bank and this has affected our decisions. This happens when delivery is close.

They have to get financing and therefore that is when this problem occurs. I believe that this is influencing, let's see how things behave next year.

We’ve continuously improved the credit part during the sale when we look at the cycle. When we compare what we planned and what we did and how clients are behaving and their chances of getting their credit approved.

Let's see how things behave. We see this controlled in Gafisa, this year the volume is a little lower than last year.

Last year we had a lot of deliveries so there is – we’ve that there is the side of the client. Now concerning the separation of the two companies we continue to evolve.

In reality when we announced this we said that in 2015 this would be our expectation. It's a process that is step-by-step; we're not in a rush.

We want to be sure that when we actually do the separation to have a comfortable situation for both companies as we already said. In this process we have talked to third parties and we have some points that their credits limit in Tenda for example, in banks we have to talk to third parties, insurance companies too, this takes some time.

As Tenda has more critical mass and has new projects we imagine that all this would happen, our expectation for 2015. In terms of administration things are making progress and the society report we're still working step-by-step.

Next year we should have more visibility in some points and have more announcements. We see no difficulties; it's the normal process that takes time.

Andre, just a follow-up question, the approval by the shareholders, do you have an idea of the percentage of shareholders you need to approve this?

Well as we said we will submit this to shareholders in a meeting for them to approve and depending on the way we do it we may the need for different percentages. So there is no way to foresee this.

We want to get to a time to have the both companies in a comfortable position for the council to approve and then we will submit this to shareholders to see if they agree.

My question, in Tenda looking at the inventory of the legacy almost everything ready built in the next few months everything will be built, 400 million, 380 million if I'm not mistaken. I would like to know your expectation to sell and monetize these assets.

If we look in the last two, three years net sales of the legacy was even lower than this value. So maintaining this it's obvious that this – there were a lot of cancellations, a lot of deliveries, cancellations happen at the time of deliveries, so they should drop.

Please give us your expectations concerning the sale and monetization of these assets. I believe this is an important source of capital.

Thank you.

Concerning the inventory of legacy units we'd like to talk about the (indiscernible) and Maravilha the popular housing government program and the others. We have 178 million in units that have been built in the government housing program and 170 million outside the government program.

If we see in practice the units inside the government program we’ve a good liquidity. We have been able to sell the number of cancellations, the last few sales has affected – has brought a reduction in inventory.

Now outside the government program sales have lower liquidity. We’ve structured that it's not that specialized and what we have done to try to monetize, transform this into money, we’ve focused – we haven't had large sales events because we’ve a healthy balance the company has a strong cash generation this year.

So we have analyzed things on a case-by-case in order to give specific discounts depending on the project. We're doing this.

It'll take one or two years to really sell off these legacy units.

Two follow-ups the first, cancelations, dissolutions, Felipe mentioned the legacy unit, the expectation of the cancelations that happened only at the 90 days, 10%. But we have seen in the table of the new model, which is here, cancelations of the units in the new model have gone up.

Cancelations have gone up in the last quarter 42%. I would like to understand why this is happening because in the new model all the units, as Felipe said, we would have the transfers and it would be lower.

So we see in the new model a high level of cancelations, so why? In the last question the inventory of the legacy, when we look at the inventory and your vision, how much of this would be sensitive to price?

And how can we see? Will it take too long to sell independent of the price policy?

We’ve seen other companies too having a similar process, going through the same problems.

I'll give you more details of the cancelations in the new model. Truly this year in the first quarter we had 36%, second 22% and now peak of 42% in the sales in the new model.

It's when we analyze the reasons for this, 70% of the cancelations in the new model are due to the issue of the recording of the sale. The closing of the sale and the accounting until we were recognizing the sale when we issued and signed the contract and not necessarily after the payment.

So in our segment, what we observe is that many clients come to the store, we make the sale, we go through credit analysis, we issue the contract, they sign, but they don't necessarily come back to pay because we used to give them 30 days to make the payment and this didn't happen. So this recent change in booking in recording in the books were now giving the clients seven days to pay and we only recognize the sale in accounting after they make the payment.

We believe that this will be a key factor in order to have cancelations of 10%, 15%. Now talking about the issue of inventory, truly the inventory of legacy is in many cities.

Most of them are foreign; they're not our focus now. We’ve focus on Rio, Sao Paulo, Belo Horizonte, Recife, Salvador, these capitals and now we’ve a structured port Alegre in the south of the country.

So this spreading of the legacy inventory is a great challenge for us next year to liquidate and transforming them into money, monetizing. But it'll be our focus next year, definitely.

Now in the first point, can you tell us what percentage of the sales are – now use the new model?

So as of the fourth quarter we will see less cancelations, much lower number of cancelations. Our problem of cancelations was not a credit problem.

So our sales, the great issue was the client coming back to make the payments. The problem was not credit but the client's intention to really buy.

So they had time to change their mind, more than 30 days and this brought this high level of cancelations. Now concerning your expectation in the fourth quarter, we believe there will be a high level of cancelations, as I said.

It takes some time to clean up our balance sheet concerning these old sales. We still have some, even in the new model of sales made before this change.

And we're cleaning that up until the end of the year. We don't expect these problems to next year.

In the first quarter of 2013 for the new model we expect a significant drop in the number of cancelations.

And for the old model as of next year, will you follow the same policy or not?

Yes, this is valid for all the sales of Tenda.

My question has to do with the purchase of land plots. I would like to understand the purchases of plots of land for low-income projects.

Most were done by Tenda with payment in cash. How do you see the prices, competitors' actions and also please talk about your plots of land in the land bank.

You have almost 1.2 billion. This volume is high.

Are you comfortable with this volume? Do you intend to increase the number of plots of land?

When we redefine Tenda strategy in 2012, then we began to launch projects in the new model. We thought we knew that our land bank was outdated.

If you look at the six capitals, we had less. So we understood that for some time we would have to invest greater percentage of cash to rebuild the land bank.

Our process for launches takes time. It involves a lot of work.

This is the great reason why the launches were delayed in the first three quarters. It's not because of demand.

It's because of the approval process by the City Halls and therefore we needed alternatives in the land bank. So in fact we are investing more cash than the average of the market in buying plots of land.

This should continue until we have a land bank that is equalized. This will happen at the end of next year or middle of 2016.

So yes, we will continue buying plots of land and our land bank should grow a number of plots of land for future construction projects.

And Gafisa?

Considering the land bank in Gafisa, we have an adequate land bank for the launches of the next few years. So the Gafisa land bank were using more cash to buy the plots of land than an exchange for real estate, but Gafisa land bank is adequate for our launches.

That's why we don't have pressure due – make new deals in the short term. We’ve been looking for new opportunities, analyzing projects where we will have a better profit margin, paying in cash or in exchange for real estate.

We saw higher financial expenses than in the other quarters and most of this allocated in your cost. This change in mix, is it here to stay?

Or is it something exceptional in this quarter? Also other operating expenses, a little higher than average.

I see a lot of legal expenses. Is this something ongoing?

What are your expectations for next year?

There's nothing specific. We have an inventory of capitalized interest, 30 million to 40 million, so it depends a lot on the mix in the quarter.

This can make these expenses rise or drop. In this quarter we have higher financial expenses.

Concerning the second question, please repeat.

Other operating expenses, we see that most of them are legal expenses. What are your expectations for the future?

Is this due to some kind of lawsuit? How can we make a projection?

Yes, these are expenses linked to contingencies. We're seeing this year a higher volume than last year.

We made some adjustments, some accruals concerning law suits of the previous quarter. What we see in practice in Gafisa since we just delivered projects in other markets that were late, this will drop.

When you deliver projects with a delay you have law suits both from the buyers and labor. So this will stay in court for some time.

So I believe that in the case of Gafisa we will have a volume similar to this one next year, but what we see is less lawsuits. So in terms of the ones that are ending and new ones, there is a drop.

So the backlog is dropping, number of lawsuits and consequently these amounts will drop. Basically most of them are labor.

We have accruals; we may have some difference which will have an impact on cash and expense and these are lawsuits that initially they have been lost and that's why there is this impact.

I have a question on the Gafisa cycle. You're talking a lot about Tenda, the new cycle, the new launches for Gafisa, what is the average that you expect in terms of construction period, duration of the construction?

And how is the market in October, launches and sales in October?

The Gafisa cycle at the time of the launch, on average 4 to 6 months to begin the construction, sometimes a little before and construction period on average 24 months. Some projects are a little less, some a little more depending on the complexity.

One important point, for example, the credit part. We have reduced the average time that it takes for us to send the credit to the bank.

It used to take us six months, with a little more in the first month and now less. Now we’ve a faster process, 70%, 75% we’ve done in 30 days.

Now we're preparing this three months in advance and now it has become faster to transfer the credit to the bank and receive the money. So thus the revenue comes faster from the banks to us.

We have this as a release with a better operational cash this year. Could you repeat the second question?

Please talk about October launches and sales in October. Give us a direction of whether it's better, worse.

Concerning the Gafisa market, the third order is below level, an improvement in September in relation to July and August. October should be similar to September.

So July-August were bad for many reasons we already mentioned, September an improvement, October on the same level as September. This is what we have seen until now.

I would like to understand cancelations in Gafisa. Is this on the part of the banks for example, sometimes the client is not able to get credit at the time of delivery.

I believe you're working to decrease this, but the number of cancelations has risen. Second question, Alphaville, when you look at the net profit, 7% in 2014, we see a drop.

Of course the market is more difficult in 2014. Is there anything that you could really detail about this, clarify?

Concerning cancelations, we're very efficient in relation to the buyer who is applying for credit. We’ve improved a lot our credit analysis at the time of sale, now cancelations happen.

They are related to the situation in the market. So you have a volume during the construction period and then closer to the delivery.

It's a decision made by the clients and suddenly they see that the scenario is difficult, so clients decide to cancel. So that is the reason.

This has nothing to do with our work in analyzing the credit. So few clients try to apply for credit and now rejected, few of them.

Concerning Alphaville, what we saw, we mentioned there's an issue. Alphaville has higher financial expenses.

This contributed in comparison with last year for the net results. We’ve a time that is more challenging in terms of launches in sale.

We have adjustments in the portfolio that really had an impact on results, a negative impact. We're now migrating all this from Gafisa headquarters to Alphaville soon.

These have had an impact on results when you compare Alphaville with last year. The gross margin as well is good.

So profitability is good. But we have these events that affected this year in comparison with last year.

Give us an idea of the gross average margin for Tenda, average gross margin for Tenda.

Talking here about gross margin at Tenda, we’ve been working with a consolidated margin when we look at legacy plus new model satisfactory margin. We've been communicating that we have a goal of 28% to 30%, that's our goal.

Now the margin of the legacy fluctuates. There is volatility depending on the project that we deliver.

So during this year we’ve been observing that the margin of the legacy began negative, 0% and has stabilized in the last two quarters, 15%, 20%. In the new model, we’ve margin above the expectations, 35% to 40%.

This is due to having – this is because we’ve an old land bank, the first projects. We have this, now we have redesigned things and also a lot of concentration of projects in Sao Paolo and where we can charge higher prices closer to the ceiling of the government project.

I believe this should converge to 28% to 30% gross margin. Now in terms of inventory, we’ve healthy revenue within this bracket.

We may have more volatility next year. We will focus on really selling more of the legacy.

So we will analyze these case by case. We don't plan to have large events to sell, but if it's outside our focus, we will make a greater effort to transform this inventory into funds, into money.

Well, I would like to thank you all for your presence, the questions. We hope we clarified the points.

If you have any more – if you need any more clarifications, please talk to us. We have a commitment with profitability.

We have been able to reach good levels of margin and profitability in the projects and we have a strong focus on improving the other things and reaching the guidance in terms of the return on capital. Thank you.