Gafisa S.A.

Good morning, everybody, and thank you very much in participating – for participating in our 2Q 2021 earnings conference. I'm here to present the results of Gafisa in the second quarter of 2021 results that are very consistent and virtuous.

Based on everything that we have stated over the past quarters with this new management, we want to be consistent with what we say and our positions. So in another quarter, we are going to present growth in any financial item an indicator.

And that shows that, we are on the path of growth with discipline, assertiveness and agility in our decisions. Now, let's go to our highlights.

The highlights for this quarter in operating terms, include over BRL800 million in PSV in new products, including four developments one in Campo Belo in the city of São Paulo; one in the region of Consolação; another one in the region of Moema; and one in the region of Interlagos all in the city of São Paulo. They are in great locations.

They are located in differentiated places and they also offer other differentiating factors as we are going to see later on in the presentation. We had over BRL200 million in sales this quarter, and our sales were almost 400% higher year-on-year, BRL200 million in sales this quarter, which is also a growth in comparison with the previous quarter.

So here we can see our performance in terms of selling inventory units, but also capturing the new launches that we launched towards the end of the quarter, and we are still in some launches. So as we launch, the new developments our sales are going to perform in line with the launched units.

And we are also selling our inventory units. Now our revenues, we had almost BRL260 million, an over 50% growth quarter-on-quarter.

And our gross income grew by over 90% quarter-on-quarter reaching BRL75 million. And our gross margin grew significantly quarter-on-quarter by 23%, reaching 30% this quarter.

So we can see in our results that, we are capturing the economic fundamentals that are much more virtuous in this new vintage of projects that we are managing under our new administration. We have much larger margins than we had in the latest vintage that we inherited from the portfolio of projects that we had before.

And this is something that, we have been repeating quarter-over-quarter. We always want to show you our backlog margin, as a future indicator.

And this quarter, we are already capturing in our gross margin, the differentiated fundamentals that we have in our new vintage. Our net income was also positive.

In the first quarter 2021, we had BRL26 million, in net income. And here we have a delta of BRL75 million, in comparison with the first half of 2020.

So, we went from a loss of BRL50 million to a gain to BRL26 million. So we are reverting, the history of losses in the company putting, our company in the path of sustainable growth to have a return on equity that is positive as well.

This is the path that we are building. So the first thing we did was to revert, the gross margins that were not healthy.

We want to help gross margins reflecting our portfolio. And now, the second step, is improving the bottom-line, the net income.

We want to improve continuously. And before I move on to the next slide, and before I turn it over to Guilherme Benevides, I would like to explain our current management model in the company.

Since the beginning of our new management in 2019, we wanted to have a different management model that was based on sharing decision – sharing, decision making, sharing knowledge and discipline in an agile and contemporary management model. That model was based on having two VPs, that were responsible for many departments in the company and now we evolved in this model.

We are now in a new level in this model. We have leaders in different businesses that are connected to Gafisa Holding, in which we have management financial control, so that we can standardize, our decision-making process.

And each business has its own business leader, focusing on that specific business, in a context that is multidisciplinary and shared. And we are focusing here on having more agile decision-making.

And we have five different businesses right now at Gafisa. We have Gafisa Construtora & Incorporadora with Guilherme Benevides, as the CEO.

We also have Gafisa Propiedades that is led by, Guilherme Pesenti the CEO. And we started this new arm of our business in late 2020, and early 2021.

And we have here already a portfolio of 100,000 square meters. We also have Gafisa Capital to work in the structuring of real estate funds, so that we can renew our capital and have a new avenue to raise capital to fund our projects and future projects as well.

And that business is under my leadership. And I am also the IRO and the CFO of the company.

We also have Gafisa Viver Bem, which was structured in late 2020 early 2021, which is our services arm in the company to serve our customers and that includes sales, decoration, interior design, location management and also facilitating the acquisition of real estate with funding and financing. We also have equity lines.

We are also digitizing customer experience within Gafisa Viver Bem which is a service platform. And this is our unicorn.

And we also have Gafisa Rio de Janeiro, under the leadership of João Paulo Matos. João Paulo has that structure in Rio de Janeiro.

And it has been so since last year, when we acquired projects. And João Paulo is experienced in the real estate market in Rio de Janeiro, so it is very natural for us to have Gafisa Rio de Janeiro, under the management of someone who understands the market in Rio de Janeiro so well.

João Paulo is now the manager -- the CEO of Gafisa, Rio de Janeiro. So this structure is the evolution of the shared model that we started in 2019 and we are constantly evolving our management model so that we can address the challenges that we have ahead of us which is resuming growth focusing on business with discipline and agility in our decision making.

With that I would like to turn it over to Guilherme Benevides.

Hello. Good morning everybody.

Thank you, Ian and thank you everybody for participating in our 2Q, 2021 earnings conference call. It is a pleasure to be here to talk about the operational side of the company.

As Ian said, we have been continuously growing in operational terms. And now I would like to go to Slide 6.

We had BRL 809 million in launches and prelaunches with four projects: Invert, Flow, Marajoara and Ibirapuera Park House and those projects already show what the new Gafisa is and how we show our projects -- how we showcase our projects at the company. And in this period, we reached almost 50% of our launch and prelaunch guidance.

Now on Slide 7 we can see our gross sales. We reached BRL 201 million in gross sales and we had a 386% growth year-on-year with BRL 201 million in gross sales.

In comparison with 1Q, 2021 we had a 23% increase in sales from BRL 162 million to BRL 201 million. And now on the right-hand side you can see the breakdown of our net sales.

We had 37% of sales in developments under construction, 42% in finished developments and 21% in launches. And that shows the good balance that we have in our inventory across finished units, units under construction and new launches.

Now moving on to Slide 8. We have a comparison of the last 12 months.

And here we are showing our capacity of launching over BRL 1.2 billion in PSV and about BRL 700 million in net sales also showing the operating recovery of the company. Now moving on to the next slide.

In 2Q, 2021 we delivered four buildings totaling over 800 units and over BRL 520 million with Moov Brás, Upside Pinheiros, J330 and Life 360. Now let's talk about our inventory on Slide 10.

In the company we have over BRL 1.1 billion in inventory. And looking at the inventory by phase of construction, we have 39% of our units in launches, 39% in units under construction and 23% in finished units which also shows how balanced our inventory is across new launches units under construction and finished units.

Now looking at inventory by region. We had 64% in 1Q 2021, in São Paulo 29% in Rio and 7% in other regions totaling BRL 977 million.

And we finished the second quarter of 2021 with 69% of our inventories in São Paulo, 25% in Rio de Janeiro and 6% in other regions. And that shows our thesis of focusing in São Paulo and Rio de Janeiro.

Now on Slide 11, we show our operating highlights. We adopted over eight months ago the concept of open innovation at Gafisa.

Gafisa is an innovative company from inside out and we created the Inova Gafisa program to bring new oxygen into the company. Every employee from the management to coordination, every employee has the power of pitching new ideas disruptive ideas that address the pain points of each department in the company and that bring recurring revenues to the company.

And in this vision of open innovation we are fully in line with the start-up ecosystem. We have mapped out over 300 start-ups.

We have 30 start-ups committed with projects at the company. We already had three Pitchdays with start-ups that have a relationship with the company and the market and we are now going to our fourth Pitchday for data and analytics.

And now still about innovation. Gafisa is an official sponsor of TerraCotta.

TerraCotta is a start-up that maps the construction and property tech companies in the sector and we support that company. Today we have over 100 ideas pitched in Inova Gafisa and we are testing 40% of those ideas bringing innovation and addressing the pain points of the company.

Now going to slide 12. I would like to show you some more details about this transformation, the innovation transformation that we are bringing to the company and the results of that change.

Today we use a tool that analyzes and maps our leads. So every lead that navigate in our platforms -- in the platforms that we use to publicize our projects we have a heat map tool to understand a little bit better how we are dealing with our leads and where they go when they want to navigate, how they are navigating and we can use that to harness our ads.

We also use drones to map the volume control, the supply chain volume control. And this shows if we have any loss or any gain in the materials that we have in our sites, in our construction sites.

And this tool also allows us to analyze whether or not we are wasting materials. We also have AI tools that allow us to have the best management of our developments in the purchase of land bank for example we use AI dashboards so that we can take the best decisions.

And these are just some of the changes that show how we are innovating here at Gafisa. And I have said that many times already.

Gafisa today is an innovative company. It is placed in an innovation system.

We are paying attention to any start-up company that can bring more dynamic processes to the company and better results and that can optimize the costs at the company and bring recurring revenue. With that, I would like to thank you all once again for participating in our call.

And it is a great pleasure for me to show to you all the developments and changes that are happening in our company.

Thank you very much for your presentation. And, yes, the financial results are always a reflection of what we are doing on the business side.

And the business side is being conducted successfully and the operating results speak for themselves. And now continuing with our presentation I'm going to show you the financial results of the company.

The two -- the second quarter of 2021 is a reflection of the operating evolution of the company. We had very positive results in our P&L as we said earlier.

Here you can see the evolution of our net revenue in comparison with 2Q 2020. We had over 200% increase in net revenues year-on-year and when we look at the first quarter 2021, you can see that our increase was 52% in our net revenue.

And if we look at the half -- the second half of 2021 and the second half of 2020, you can see that we had growth from BRL155 million to BRL429 million almost 180% growth. And it's interesting to see when there is a growth in revenue.

Usually that comes together with a decrease in margins and that is not our case. We also increased our gross income and margins.

In the second quarter of 2021, our gross income increased by 96% quarter-on-quarter. So we went from BRL40 million to almost BRL77 million.

And if we look at the second quarter 2020, we went from BRL22 million to BRL77 million in gross income. So we had an increase of over 200% year-on-year.

And when we look at the year-to-date results, you can see that we went from BRL40 million to BRL115 million in comparison with the first half 2020. And in our net income this is the third quarter in a row under the new management, in which we had positive net income.

We had BRL13 million this year in the second quarter, BRL13 million in the first quarter as well. So we had BRL26 million in the first half 2021.

And we went from minus BRL50 million to plus BRL26 million. So if we look at the different quarters here, the year-on-year net income you can see that we went from minus BRL23 million to plus 30 -- BRL13 million rather.

And here we can see our gross margin and the importance of our new projects that are at different levels of economic fundamentals and indicators. And you can see the results of that here in our results.

We can see very clearly here that our gross margin has been evolving strong. We went from 26% in the third quarter 2020 to over 30% in the second quarter of 2021.

We almost doubled our gross margin in a matter of three quarters. We went from 16% to almost 30% in our gross margin.

And that happened because of our new launches. The increase in gross margins here is a reflection of our new projects and we went from 16% to 30% in our gross margin in a matter of three quarters.

That is a natural reflection of the new vintage of projects and we can see the results of that in our numbers. Now going to the next slide, we can see our balance sheet.

And you can see how solid our balance sheet is. We have been keeping a good liquidity level.

Our receivables are on a good position. Our debt is still over 90% allocated in development projects and the payment of those debts is linked to the launch of our new launches and units under construction as well and finished units.

And we have that from seven to 10 years here and they are in line with the cash flow -- the long-term cash flow that we have. So we can see here objectively that we have been keeping a good cash and liquidity position.

We have been maintaining our high balance of receivables with over BRL10 million and our debt are still allocated on assets and projects where the money is going to come from to repay those debts. They are going to come from the developments and also from Gafisa Propriedades.

And to wrap up our presentation, I would like to show you the last 12 months performance. I would like to show you the financial performance on a rolling basis for the last 12 months.

So each period that you can see here takes into account the last 12 months. And you can see very clearly here that the company has been posting over BRL 1 billion in revenues.

Our gross income has been BRL 250 million. And you can see the bottom line, the net income it is BRL 1 million in losses.

So we have over BRL 1 billion in revenues, a net income of BRL 250 million and we came to zero in our losses. And I would like to call your attention to the first bar of this chart.

With the first quarter 2019, we had losses of BRL 400 million. In the third quarter 2019 those losses for the last 12 months was -- were BRL 350 million, and now when we look at our 2Q 2021 results, we can see that we don't have any losses.

We are making over BRL 1 billion in revenues and our net income is over BRL 250 million. It's very important to compare quarters of course, but it is also important to take a step back and look at the company and how it's been performing over the past 12 months, which is a reflection of the new management of Gafisa, which is leading the company in an agile and disciplined way pursuing growth and results as well.

The company is now under a new management. As you can see in our results, we are confident that we are in the right path.

In the real estate market in terms of properties and services or development or for raising funds for real estate with all of that dynamism that we have in the real estate market, and it is the nature of this market to be dynamic taking all that into account, we are very proud that we are firm on the path towards growth and putting Gafisa on a leadership position in the real estate market in Brazil. And with that, I'll conclude the presentation, and we are now ready to take your questions.

While gross income in essence, in accounting terms is the indicator that is the most basic one, it's the easiest, easiest one to measure the performance of the company, because it is the revenue minus cost to sell products. It's revenue minus COGS.

So why is our gross income increasing so much? That happens because the new products are well priced.

So we are able to capture prices that are above the market average. They are above the competition.

We have very well-placed products. And when you have higher prices, of course, your revenue is going to go up, and the costs are very well sized.

We have our own engineering team, a technical team that we built and was reempowered by Guilherme Benevides' management. And of course, we always had a very strong tradition of being very solid in technical terms.

So our costs are very well detailed in every decision stage. So when we buy land bank, for example, we don't just guess what the costs are going to be.

No. We have very precise calculations.

And of course, we have a very solid database to support us, because we are a very important company in this sector. And after we purchase the plot of land, we launch the project, but we don't do that with an approximated cost calculation.

No. It is very accurate.

It is based on the basic project and the accuracy degree in technical terms is very high. And throughout the project's life cycle, we calculate the budget for the project before starting construction.

And every month, we have a routine together with the engineering and also the financial team, so that we can manage and measure absolutely everything, so that we can recognize our revenue based on costs that are updated every month and we don't have many deviations. When there is a deviation, the adjustments are usually downwards.

So we are very organized in our schedules. So to make this long story short, our launches are liquid, they are selling well, they are well priced and the costs are very much under control.

And if Guilherme Benevides wants to add details, I think that would be great as well, because the gross income result is a reflection of our operations.

Yes, absolutely. Just as a complement, today we have our technical team which we call G-Tech [ph].

This department is very solid. It has a culture of construction here at Gafisa and it has been remodeled and adjusted to the company's context.

And in the technical department, as Ian said, we control our costs in every project, we reanalyze our budget every single month and we also keep track of a number of indicators in our supply chain department, so that we can make sure that we have every raw material at the right costs. And we try to advance the purchase of raw materials for the works under construction, so that we can have the materials that have already been acquired and they are in place to start construction.

So we have a very accurate control process at the company in terms of costs. The technical department works from the very beginning in each project.

The projects are very cohesive. So when we start construction, that development, that project has all its costs calculated and under control and we always reanalyze the budget every single month to look at the different indicators that we use.

Well, we always get that question. And today, the company has eight projects that have already been approved or that are in the late stages of approval.

We already have marketing and publicity materials finished for those eight projects. We already have the stores.

We no longer call them stands. We call them stores now, the concept stores.

These stores are being finished for all of the eight projects, or they have already been finished, or they are in the late stages of construction. So we are confident that we are going to be able to launch all of them.

As we said earlier, we have two projects that are very important for the company at this stage. We are going to have our first building of its kind in the neighborhood of Jardins and we also have another project in Delfim Moreira and we are starting the launching process for those projects.

So we are very confident in our guidance. Our projects are in line in terms of the deadlines for approval.

And we always want to target the medium-high, high and extremely high levels.

And just to complement, I believe, that you asked two questions. You also asked about the interest rates, right?

And how much that is going to impact our perception in terms of demand and the market. In 2019, we resumed our launches and the demand for real estate before COVID and the real estate rates were higher than they are now.

The reference rate in 2019 according to a report that was recently published by one of the main real estate research institutions and in this report, they say that in 2019, the average cost for real estate financing was the reference rate plus 9. And still the market had a great performance.

And then in 2020, the basic Selic rate went down and the competitiveness brought us to the reference rate plus 7 or 6.8. And now even though there was an increase in the Selic rate, the impact of that on real estate financing was the reference rate going from the reference rate plus 7 to 7.5.

But it's still below 2019. And if we look at a longer history, you can see that our rate is still attractive.

This sector has had major volumes in the past of two digits. So the same report that I was referring to brings a very simple indicator that we use in the market which is affordability, which is the ability to pay.

And this indicator shows the household income of BRL 10,000 per month for example and how much that household would have to spend every month to buy a BRL 500,000 property. And of course, if the rate goes up, affordability goes down.

The affordability index which is related to the household income of BRL 10,000 to buy a BRL 500,000 property, before the crisis when the market was going well and we had major volumes, that indicator was 30%. And now, that indicator is at 22%.

Of course, this is a hypothetical rate or index, but we have to monitor it. So even now that we are at the reference rate plus 8, the affordability index is at 22%, which is much lower than the historical average.

And over the past years, of course, it went up to 40% and now, it dropped to 22% after dropping further to 20%. So for those who work in the real estate market, for those working at the forefront of real estate buying land bank and building properties, we need to have the long-term view and look at the fundamentals.

And looking at the fundamentals, we see that the increase in interest rate is not going to decrease demand. It is not going to decrease demand and put in risk and jeopardize the new launches.

And here we are not even talking about the fact that we are launching medium to high income projects that are well located and that have a full publicity work behind them.

Well, this is an offer that is under the Brazilian SEC rules. I cannot say anything about this offer.

We have our regulation that it has been filed at the Brazilian SEC with all disclaimers related to the offer itself. But I don't think I should take the risk of violating any rules of the Brazilian SEC.

We are going to sell five land -- plots of land to the fund. So this is a fund of plots of land.

We are going to sell these plots and repurchase them and we are going to compensate and provide remuneration on those five plots of land.

I'm going to talk about the financial angle in relation to this question and Guilherme can jump in and complement my answer. Growth through M&A operations under our new management and of course we want to grow.

We don't see any difference between growing organically or through M&A deals. We analyze both possibilities with the same intensity and dedication of time and intellectual effort.

When it comes to M&A opportunities, I believe that in this market and considering a macro vision, I believe that the sector has a number of opportunities. We have 29 opportunities and 15 of them wants to deliver very similar opportunities for our shareholders.

And I think that that scenario with 29 targets, I believe that this is a fragmented market. And the number of companies and homebuilders in other countries are not 29.

It does not amount to 29. It amounts to five or six.

And some of those companies are not even companies. They are listed funds that develop real estate.

So I think that there is an opportunity for consolidation in the sector. And Guilherme of course can contribute with more details about our M&A thesis.

We truly believe it and we execute our M&A vision.

Well, as Ian said, this sector in Brazil is very fragmented. It is one of the most fragmented real estate markets around the world.

In other mature countries, the sector is much more consolidated. Gafisa is always open to opportunities.

We believe that there are good opportunities out there as long as they make sense to the company and as long as those deals are responsible and they make sense for the company's growth. They have to make sense in terms of the profile that we have been looking for.

So there are opportunities. We are always looking at those opportunities.

And yes, it is important for Gafisa to look at M&A growth responsibly and also paying attention to all opportunities and targeting more mature markets that are more consolidated. We have many listed companies and most of them don't generate value as they could.

And we believe that M&A deals can be one way of generating more value to shareholders and consolidating this market.

Well, I believe that we have covered most of the questions. And with that, we conclude our Q&A session.

And we are absolutely free to take your questions. Please contact us in the contact info that you can see on the presentation and through our website as well.

And in case you need any additional information, feel free to contact us. Thank you.

very much. Have a good day and a great week.

See you next time.