Gafisa S.A. (GFSA3.SA), a prominent Brazilian real estate company, navigated the turbulent waters of the 2023 market, ending the fourth quarter with an adjusted net profit of R$48 million, despite a net loss accumulated throughout the year. The company, celebrating its 70th anniversary, maintained steady operational performance with gross inventory sales totaling R$970 million, a 21% increase year-on-year.
However, the challenging economic environment marked by high interest rates and cost inflation, particularly in projects initiated during the pandemic, reflected in the company's overall financial results. Gafisa chose not to launch new products in 2023, focusing instead on strategic divestments and benefiting from regulatory changes in São Paulo that are expected to enhance financial indicators.
Key Takeaways
- Gafisa reported a 21% year-on-year increase in gross inventory sales, totaling R$970 million.
- The company saw a 12% year-on-year reduction in expenses, contributing to a decrease expected to continue into 2024.
- No new projects were launched in 2023; instead, Gafisa focused on divesting non-strategic assets and adjusting its portfolio.
- Regulatory changes in São Paulo's strategic master plan and land use law have increased the construction potential of Gafisa's land bank.
- Gafisa was recognized eight times in 2023, receiving three certifications and winning six awards, bringing its total to 97 accolades over the years.
Company Outlook
- Gafisa aims to maintain its position in the high-end segment and explore new business model opportunities in 2024.
- The company plans to continue reducing expenses and leverage, with 95% of total debt tied to projects that are on schedule.
Bearish Highlights
- The company faced a net loss accumulated over the year due to persistent high interest rates and cost inflation.
- Gafisa's decision to postpone launches impacted financial results negatively.
Bullish Highlights
- The company's strategic master plan adjustments and the land use law changes in São Paulo have improved financial indicators.
- Gafisa's focus on the high-end segment and inventory sales performance in São Paulo showed a Sales-over-Supply (SoS) 59% above the market average.
Misses
- There was a 14% drop in total revenue year-on-year.
- Despite no new launches, the company managed to increase inventory sales by 21%.
Q&A Highlights
- Gafisa's inventory performance was bolstered by a good marketing strategy and conversion in products, leading to high SoS in São Paulo.
- The company has eight projects set for delivery in 2024, with an average of 90% of units sold, ensuring predictability in receivables.
- Changes to São Paulo's master plan have significantly increased the estimated PSV of Gafisa's projects by more than 50% in some cases.
Gafisa remains committed to ESG initiatives, with notable achievements in 2023 including ISE and CDP Clima certifications, the first place award in corporate governance by Epoca 360, and the Great Place to Work Award. These initiatives not only demonstrate Gafisa's commitment to sustainable practices but also serve as a positive indicator for investors. As the company looks forward to 2024, it is poised to leverage its strategic position in the high-end market and capitalize on the opportunities presented by a potentially more favorable macroeconomic environment.
InvestingPro Insights
Gafisa S.A.'s market presence and financial performance can be further understood through key metrics and insights from InvestingPro. With a market capitalization of $89.15 million, the company's valuation reflects the challenges it has faced in the market. Notably, Gafisa's price to book ratio stands at 0.26 as of the last twelve months ending Q3 2023, suggesting the stock may be undervalued relative to its assets, which could attract value investors.
The company's revenue growth of 15.16% over the last twelve months ending Q3 2023 indicates an ability to increase sales despite the broader economic challenges. However, the gross profit margin during the same period was 5.56%, pointing to struggles in maintaining profitability amidst cost pressures. Additionally, with a significant price uptick of 89.87% over the last six months, the stock has shown notable volatility, which InvestingPro Tips highlight as a characteristic of Gafisa's trading pattern.
InvestingPro Tips for Gafisa also emphasize the company's operational challenges, such as the significant debt burden and the potential difficulty in making interest payments on that debt. These factors are crucial for investors to consider, especially when evaluating the company's financial resilience and future growth prospects.
For those looking to delve deeper into Gafisa's financial health and investment potential, InvestingPro offers additional insights and tips. Currently, there are 15 more InvestingPro Tips available for Gafisa, which can be accessed at https://www.investing.com/pro/GFASY. Investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a more comprehensive analysis to support informed investment decisions.
Full transcript - Gafisa ADR (GFASY) Q4 2023:
Operator: Good morning, and welcome to Gafisa's Fourth Quarter 2023 Earning Call. This video conference is being recorded and will be made available on the Company's Investor Relations website at ri.gafisa.com.br, where you can also find all of our earnings materials. Those listening to the call in English can mute the original audio in Portuguese by clicking mute original audio. Before we start, we would like to inform you that management statements involve risks, uncertainties, and may refer to future events. Any changes in macroeconomic policies or legislation and other operating results may affect the company's performance. This presentation will be conducted by Sheyla Resende, CEO; Luis Fernando Ortiz, VP of Business; and Aldo Di Leta, Executive Director of Legal and Investor Relations. I will turn the conference over to Ms. Resende. Please, Ms. Resende, you can proceed.
Sheyla Resende: Good morning, and welcome to Gafisa's fourth quarter 2023 earnings call. 2023 was a challenging year for the real estate market, heavily pressured by high interest rates and low growth, which caused most players to adopt more conservative strategies. In the face of such economic context, Gafisa maintained its plan directing its effort to reducing medium and medium high income inventory, and completing the construction works that have been planned. We focused primarily on reducing expenses and at the end of the year of 2023, we had already posted a 12 year-on-year percent reduction. The measures adopted in this reduction will also lead to a decrease in 2024. Following our 2023 plan, we adjusted our portfolio throughout the year, divesting from projects that were not in line with our business plan. In this context, the company chose not to launch products in 2023 since some of our projects benefited from the review and changes to this strategic master plan and the land use law in the city of Sao Paulo, which will provide a significant improvement in financial indicators. We finished the year with excellent operating performance. Gross inventory sales totaled R$970 million at 21% increase year-on-year. Of this total, 72% are under construction and 28% are finished units. Such figures led us to a net revenue of R$1.1 billion, despite not having launched any projects in 2023. Another indicator worth mentioning was the year-on-year reduction in cancellations, and 20% of the total cancellations was reversed in upgrades of units in the same project or in another projects. As a result, we ended the year with an adjusted net profit of R$48 million in the fourth quarter. The net loss accumulated throughout the year reflects the persistent high interest rates and cost inflation, especially in projects developed during the pandemic. Sticking to our plan of selling non-strategic assets and postponing launches also impacted our result. This year, in which Gafisa celebrates its 70th anniversary a milestone in our history. The company will keep its position as one of the main brands in the real estate market. As proof of our benchmark position, the company was recognized 8x in 2023, receiving three significant, certifications and winning six awards. This totals 97 awards over the years. Looking forward to 2024, we we'll maintain our high end segment position [Technical Difficulty] [Foreign Language] The company was recognized 8x in 2023, receiving three important certifications and winning six awards. This totals 97 awards over the years, and looking forward to 2024, we will maintain our high-end segment position, which will allow us to access new business model opportunities, diversifying the sales model with a strong focus on increasing revenue. We will continue with the objective of reducing expenses and other measures aimed at reducing leverage. We appreciate the trust of our shareholders, strategic partners, and employees. I wish you all a great day. And now, I'll turn the conference over to our Business VP, Luis Fernando Ortiz.
Luis Fernando Ortiz: Thank you, Sheyla, and good morning, everybody. Starting with Slide 6, in the year-on-year sales chart, we can see a drop in total revenue by 14%. On the other hand, considering that we had no launches in 2023, the inventory sales performance was 21% higher year-on-year. With the new tactical plan in the sales and marketing areas, we were able to achieve an increase in sales volume with a proportional reduction in selling expenses. On slide 7, we highlight our consistency in sales performance over the years and reinforce that in 2023, we maintained a level that was in line with 2022 with R$970 million in gross sales in the year. One of the main highlights in 2023 was those sales of residential inventory in the city of Sao Paulo in which we had an average SoS of 59% above the market average in a year that was challenging due to the economic environment. On Slide 8, we highlight the evolution of our inventory, which in 2022 was R$2.5 billion, 83% in high and mid high income units and 17% in mid income. In 2023, on the other hand, in addition to the 42% year-on-year reduction, our inventory mix was 91% in high income and 9% in the mid income segment, demonstrating our progression strategy of concentrating our portfolio in the high income segment. On the next slide, you can see the deliveries in 2023 with the six projects completed, totaling a PSV of R$559 million in 238 units. The average percentage sold in these projects was 95% at the end of 2023. The projects delivered were Stratos in the neighborhood of Itaim, Sao Paulo, Ecoville Parque, and Curitiba, Ivo in Botafogo, Rio de Janeiro, Chez Perdizes in the neighborhood of Perdizes Sao Paulo, Igara in Leblon, Rio de Janeiro, and Forma in Leblon, Rio de Janeiro. Now let's take a look at our financial performance. The chart shows the consolidated net revenue over the last 5 years in which we can see an evolution since 2029, demonstrating our continuous growth and the success of our strategies. I also highlight the 21% CAGR from 2019 to '23, which bears witness to the company's operational consistency even in the face of a challenging economic context as mentioned by Sheyla in the beginning of the presentation. On Slide 12, you can see our SG&A expenses over the last few years. In 2023, sales, general and administrative expenses totaled R$153 million, a 12% reduction year-on-year, which demonstrates our commitment and the improvement of our operational efficiency, developing new strategies to ensure long-term financial sustainability. On Slide 13, we highlight the 12% year-on-year debt reduction. As part of the plan, we will continue to focus on reducing leverage. It is important to highlight that 95% of the total debt refers to projects that are in progress and on schedule. On Slide 14, you can see the evolution of payment collection compared to revenue over the years. In 2023, this indicator reached 42% of payments collected over the total revenue of R$970 million. Highlighting the quality of sales made in the period. At the end of 2023, total receivables came to R$1.3 billion. Finally, we highlight the benefit we obtained from the changes to Sao Paulo's strategic Master Plan and land use law. These changes increase the construction potential of our land bank, especially in two projects in which we obtained an increase of more than 50% in estimated PSV, making this assets even more valuable for the company. Gafisa remains committed to ESG initiatives. The main achievements in 2023 on this front were the ISE and CDP Clima certifications, the first place award in corporate governance by Epoca 360 and the Great Place to Work Award. The company reiterate its commitment to good practices with continuous improvement, transparency, and collaboration across all stakeholders to drive significant and lasting changes in building an even more sustainable future. We are remain confident and focused on executing the strategy adopted in recent years, consolidating our position in the luxury market. Thank you for your time, and now we are available to take your questions.
Operator: [Operator Instructions] First question comes from Alex.
Unidentified Analyst: What is the impact of previous vintages on Gafisa's results? We can see that there are still some units remaining from the previous quarter.
Luis Fernando Ortiz: Alex, thank you very much for your question. In 2023, there was a very good performance in the sales of inventory. We had a 21% increase year on year, and that is even more significant if we consider that we did not launch any projects in the year, which usually brings inventory sales up, and I think that this was the result of a good strategy in marketing and sales, and also a good conversion in the Gafisa products, which generated gains in Sao Paulo. We had extraordinary performance in residential with 59% SoS in 2023, and now in 2024, our inventory turn is very similar to what it was in 2023, and the macroeconomic environment should be more interesting this year, and therefore we believe that our performance will also be very good in terms of selling inventory.
Operator: The next question comes from Rafael Onofre.
Unidentified Analyst: Do you have any comments about cash generation for 2024?
Sheyla Resende: We have 8 projects to be delivered in 2024. And in all of them, we have very good sales performance. We are at an average of 90% of the unit sold, which gives us good predictability in terms of receivables in 2024.
Operator: The next question comes from Rodrigo Andrade.
Unidentified Analyst: You have no launches in 2023. Is that a result of a conservative approach due to the review of the city's master plan? And what are the benefits of those changes? And what can the market expect for 2024?
Luis Fernando Ortiz: Thank you for your question. Indeed, there was a change in the Citi's master plan, and those changes yielded benefits for our land bank. That led to an increase in our PSV in more than 50% in some cases. So we decided not to launch any product so that we could absorb those gains. And therefore, the new launches will have those benefits included in them. So the idea was not to launch any products in 2023. And on the flip side, we are going to yield benefits, from these changes in our land bank. And I'm sure other players did the same. They are going to use those benefits in the coming project.
Operator: Thank you, Ortiz. Now the fourth question comes from Andrea Dentas.
Unidentified Analyst: Gafisa has consistently published its ESG initiatives. I would like to know which of them demonstrate their commitment, and also what is the impact of those initiatives for investors?
Luis Fernando Ortiz: Thank you for your question, and good morning. Well, Gafisa brings together the tradition since it is a company that is celebrating its 70th anniversary this year and also good ESG practices as we've been disclosing for a few years now. I'm going to give you a few highlights. For example, when it comes to sustainability, Gafisa is renewing its ISE B3 certification. It's had this, certification for 2 years. We also have the Clima certification. We also renewed our great place to work, award. And when it comes to governance, we won the Epoca 360 award in 2023 in the corporate governance category. And that bears witness to our alignment with the society's interest, and also it shows that we are contributing to a good business environment.
Operator: Thank you very much. Please stand by as we collect more questions. As there are no more questions, we conclude the Gafisa 4Q ‘23 earnings call. Thank you very much.
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