gfafs2018_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 

For the month of April, 2019

(Commission File No. 001-33356),


 
Gafisa S.A.
(Translation of Registrant's name into English)
 


 
Av. Nações Unidas No. 8501, 19th floor
São Paulo, SP, 05425- 070
Federative Republic of Brazil
(Address of principal executive office)



Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F ______



Indicate by check mark if the registrant is submitting
the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1)


Yes ______ No ___X___

Indicate by check mark if the registrant is submitting
the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ______ No ___X___

Indicate by check mark whether by furnishing the information contained in this Form,
the Registrant is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes ______ No ___X___

If “Yes” is marked, indicate below the file number assigned
to the registrant in connection with Rule 12g3-2(b): N/A


 

               

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Statements

 

Gafisa S.A.

 

December 31, 2018

and Report of Independent Registered Public Accounting Firm

 

(A free translation of the original report in Portuguese as published in Brazil)

 

 

 

 

 

 

 

 
 

Gafisa S.A.

 

Financial Statements

 

December 31, 2018

 

 

 

Table of contents

 

 

  Management Report  1 
  Independent Auditor's Report  7 
 
 
  Audited financial statements   
 
 
  Balance sheet  15 
  Statement of profit or loss  17 
  Statement of comprehensive income  18 
  Statement of changes in equity  19 
  Statement of cash flows  20 
  Statement of value added  21 
  Notes to the financial statements  22 
  Management statements of the financial statements 88 
  Statement of executive officers on the report of Independent Registered Public Accounting Firm   89 
  Audit Committee’s meeting minutes  90 
  Fiscal council's report 91 
  Board of Directors’ meeting minutes  92 
  4Q18 earnings release  93 

 

 


 
 

(A free translation of the original report in Portuguese as published in Brazil)

MANAGEMENT REPORT 2018

 

Dear Shareholders,

 

The Management of Gafisa S.A. ("Gafisa" or "Company") submits for your examination the Management Report and the related Financial Statements, accompanied by the Reports of Independent Registered Accounting Firm and Fiscal Council for the fiscal year ended December 31, 2018. The Management Report information is reported on a consolidated basis, unless if specified otherwise, and in accordance with the accounting practices adopted in Brazil and pursuant to the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).

MESSAGE FROM MANAGEMENT

The Company underwent a restructuring process throughout 2018. In February, the increase in capital in the amount of R$250.8 million was completed, which reduced pressure on cash in that moment. In the end of September, the Company’s management was changed, followed by the implementation of a turnaround strategy aimed at readjusting the structure and expenditures, and included the close down of the branch in Rio de Janeiro, the move of the registered office and review of processes.

The actions that have already been performed and those that will be carried out, in line with the above-mentioned strategy, shall result in a total saving of around R$110 million per year. The main reductions were: (i) headcount, in the order of 50%, which represents a saving of R$45 million/year; (ii) marketing – R$40 million/year (iii) IT – R$18 million/year; (iv) registered office’s move – R$4 million/year; and (v) expenditures on sales stand and points of sale – R$4 million, among others. A portion of such gains has already materialized during November and December 2018, but will become more evident from the following quarters.

The needs for adjustment mapped during the 4Q18, such as the impairment of land, inventories and goodwill on the remeasurement of the investment in Alphaville, and the reversal/entry of provisions, among other adjustments, were recorded in the 4Q18, negatively affecting profit or loss by R$276 million.

Gafisa thus starts the year 2019 adjusted and well positioned to begin a new cycle in the real estate sector. The company has assets of quality and a traditional and well-known trademark. Besides, the pipeline of launches counts on residential ventures located in the city of São Paulo, very appropriate to satisfy market demand, and, for this reason, with expected attractive profitability. The largest volume of ventures is expected to be launched in the second half of 2019.

The Total Saves Value (TSV) in inventory amounts to R$1.2 billion, with higher concentration in residential units located in São Paulo and with higher market liquidity (73% of aggregate TSV in inventory).

Cancelled contracts, which have unbalanced many ventures over several years, have significantly reduced during the year. The monthly average volume of cancelled contracts changed from R$34 million in 2017 to R$19 million in 2018. This downward trend shall continue in 2019, with the approval of the Law that governs cancelled contracts. Under the new legislation, developers may retain up to 50% of the amounts paid by the consumer in case the latter cancels the purchase, providing more legal protection for the sector.

Net debt amounted to R$752 million in December 2018, which represents a reduction of 21% in relation to the closing balance of 2017. Leverage, measured by the ratio of net debt to equity, increased to 153% at the end of 2018, mainly impacted by the loss for the year and recognized impairment. Excluding venture financing, the net debt-to-equity ratio stands at 45%. Funding alternatives have been evaluated to readjust the Company’s capital structure.

The prospects for 2019 are positive, once the macroeconomic scenario is more favorable and the market is already giving signs of recovery. Growth is expected to pick up gradually, sustainably, and aiming at delivering a solid performance and creating value to shareholders and other stakeholders.

 

 

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OPERATIONAL AND FINANCIAL PERFORMANCE

In the year, launches totaled R$729 million in TSV, divided into six projects, all of which in São Paulo. At the end of December 2018, 55% of the volume launched in the year had already been sold, demonstrating the Company’s assertiveness in selecting its ventures.

Gross sales reached R$1,040 million in 2018.

Cancelled contracts totaled R$228 million, a 45% reduction in relation to 2017, even with a higher volume of delivery in the period, demonstrating a better quality of sales. Net sales thus increased 13% in relation to 2017, recording R$813 million in 2018.

The SoS over the past 12 months reached 40%, up 8 p.p. on the same period of the previous year, boosted by inventory sales and the good performance of launches over the year.

At the end of 2018, inventory showed a 22.5% reduction in relation to the end of 2017, even with a 32% increase in the volume of launches in the period. Gafisa keeps trying to maintain commercial balance between the latest and completed ventures. In December 2018, the inventory of completed units represented 38% of TSV in inventory.

Deliveries totaled 2,354 units with a TSV of R$910 million, divided into 12 projects or phases in 2018. At present, Gafisa has 14 active construction sites and four projects which construction will start in 2019.

In recent years, the Company has taken measures to improve the process of receipt and transfer, seeking to maximize the return of the funds employed in projects. At present, 90% of eligible units are transferred in up to 90 days after the delivery of the venture or certificate of occupancy. In 2018, the transferred TSV totaled R$321 million.

In 2018, net revenues totaled R$960.9 million, a 22% increase in relation to 2017. The increased revenue recognition is a result of the larger sales volume and progress of works in the period.

Gross profit and gross margin were impacted by provisions amounting to R$63.1 million arising from the impairment recognized in certain land, located in the city of Rio de Janeiro, and in units in inventory. Without the effect of such adjustments and capitalized interests, recurring adjusted gross profit amounted to R$ 290.7 million in 2018, which is equivalent to more than double the amount reported in 2017. Adjusted gross margin was 30.3% in 2018, up 12.0 p.p on the margin reported in 2017.

General and administrative expenses changed from R$92.7 million in 2017 to R$57.1 million in 2018; a result of the net reversal of the reserve for bonus for previous and current years, in the amount of R$14.8 million, and the reduction in service and IT expenditures.

Recurring adjusted EBITDA (excluding expenses on contingencies; impairment of inventories, land, software, and loss on Alphaville investment) was positive by R$127 million in 2018 whereas it was negative by R$50.8 million in 2017.

In 2018, the accumulated net financial income (expenses) was negative by R$80.5 million, and in 2017 the net loss amounted to R$107.3 million.

The line item income tax and social contribution was positive by R$24.1 million in 2018, reflecting deferred tax assets of R$26 million arising from the impairment of goodwill accounted in the investment in Alphaville. For this same reason, the provision for IR/CSLL was positive by approximately R$21.8 million in 2018. As a result of the previously discussed effects, the net profit or loss for 2018, excluding the adjustments made in the pricing of inventories, land, and software, and in the goodwill on the interest in Alphaville, as well as the expenditures on contingency, was negative by R$66.2 million, while the net loss for 2017 amounted to R$190.1 million. As of December 31, 2018, the balance of cash, cash equivalents and short-term investments reached R$137.2 million.

At the end of 2018, gross debt reached R$889 million, with substantial decrease of 20% as compared to the end of 2017.

 

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People and Management

 

We have an experienced team who is at the vanguard of the Brazilian real estate sector. Many of our professionals began their careers in the Company.

Approximately 50% of our leaders were trained in-house, through talent recruiting and training. So even after readjusting the Company’s personnel, we will work hard to obtain results to shareholders, with quality and respect for customers.

Also, occupational safety and accident are central themes for Gafisa. Therefore, we maintain a continuous program of risk identification, prevention and mitigation, which aims, besides preserving the physical integrity of our employees, to offer a basis for a healthier life. For us, investing in safety is a guarantee of wellness in and out of the work environment. We offer training programs to the team in the field (directly related to construction works), as well as to our collaborators of third-party companies, who provide services in our sites and ventures.

The Company has 359 employees (base December 2018).

Research and Development

Gafisa has and encourages multiple fronts focused on innovation. In the end of 2018 Gafisa Service, was created, a business unit aimed at providing services post-warranty, house-up (customization of the unit to be delivered, according to the customer needs) and rental of residential and commercial units, own or of third parties.

House-up services were segmented in three waves:

ü  Ready to move: custom finishing services;

ü  Ready to live: custom finishing, furniture and decoration services;

ü  House-Up after keys: custom services for ready units;

The post-warranty service will also be implemented in three phases, according to the delivery date of the Company’s ventures.

Complementing the sales strategy, rental services are expected to play a significant role as competitive advantage and as factor to win loyalty. These services reflect a market trend and show potential for both monetizing inventories and increasing the margin share of ventures.

CORPORATE GOVERNANCE

Board of Directors

Gafisa’s Board of Directors is the decision-making body responsible for formulating general guidelines and policies for the Company’s business, including its long-term strategies. In addition, the Board also appoints executive officers and supervises their activities.

The decisions of the Board of Directors are taken by the majority vote of its members. In the event of a tie vote, the Chair of the Board of Directors has, in addition to her/his personal vote, to cast a tie-breaking vote.

The current Board is formed by five members, most of whom are independent (80%). The members serve for a unified term of office of two years*, according to the Listing Rules of Novo Mercado, with reelection and removal being permitted by shareholders in Shareholders’ Meeting.

The members of Board of Directors are shown in the following table.

Name

Position

Election Date

Term of Office

Augusto Marques da Cruz Filho

Effective Member and Chair of the Board of Directors

2.17.2019

ESM APRIL/19

Antonio Carlos Romanoski

Effective Member

3.27.2019

ESM APRIL/19

Pedro Carvalho de Mello

Effective Member

9.25.2018

 

ESM APRIL/19

Thomas Cornelius Azevedo Reichenheim CCCcReichenheimReichenheim

Effective Member

3.15.2019

ESM APRIL/19

Roberto Luz Portella

Effective Member

3.15.2019

ESM APRIL/19

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*The election of members to the Board of Directors was held by multiple vote, and, according to the Company’s Articles of Incorporation, there is no alternate. Accordingly, under the terms of paragraph 3 of Law 6404/76, when a Board seat becomes vacant, a new election of members shall be held, which will take place in the next ESM, scheduled for April 15, 2019.

 

Fiscal Council

Gafisa’s Articles of Incorporation provide for a non-permanent Fiscal Council, the Shareholders’ Meeting being able to determine its installation and members, as provided in the Law. The Fiscal Council, when installed, will comprise three to five members, and an equal number of alternates.

The operations of the Fiscal Council, when installed, ends in the first Annual Shareholders’ Meeting (ASM) held after its installation, the re-election of its members being permitted. The compensation of fiscal council members is set at the Shareholders’ Meeting that elect them.

In the ASM held on April 28, 2018, the Fiscal Council was again installed, and it will operate until the next Annual Shareholders’ Meeting of the Company to be held in April 2019. On November 30, 2018, an ESM was held aimed at electing three members and their respective alternates to the Fiscal Council, for a term of office up to the ASM of 2019.

The members of the Fiscal Council elected on November 30, 2018 are as follows.

 

NAME

POSITION

ELECTION DATE

TERM OF OFFICE

Olavo Fortes Campos Rodrigues Junior

Effective Member

11.30.2018

ASM 2019

Marcelo Martins Louro

Effective Member

11.30.2018

ASM 2019

Fabio N S Mansur

Effective Member

11.30.2018

ASM 2019

Thiago Fukushima

Alternate

11.30.2018

ASM 2019

Eliane de Jesus Santana

Alternate

11.30.2018

ASM 2019

Rafael Calipo Ciampone

Alternate

11.30.2018

ASM 2019

 

 

 

Executive Management

The Executive Management is the Company’s body mainly responsible for managing and daily monitoring the general policies and guidelines established at the Shareholders’ Meeting and Board of Directors.

Gafisa’s Executive Management shall be composed of a minimum of two and a maximum of eight members, including the CEO, the CFO and the IR Officer, elected by the Board of Directors for a three-year term of office, reelection being permitted, as established in the Articles of Incorporation. In the current term of office, six members comprise the Executive Management:

Name   

Position

Date of last investiture

Term of Office

Roberto Luz Portella

CEO, CFO and IR Officer

3.27.2019

3.26.2022

Eduardo Larangeira Jácome

COO

3.27.2019

3.26.2022

 

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Committees

The Company has two advisory committees of the Board of Directors, of permanent and statutory character, which are required to comprise three independent members of the Board of Directors.

§  Corporate Governance and Compensation Committee: originated from joining the Compensation Committee with the Appointment and Corporate Governance Committee, this committee accumulate the competences of these former committees and is aimed at periodically analyzing and reporting on matters related to the size, identification, selection and qualification of the Board of Directors, Executive Management and candidates appointed to serve on the Board and its Committees, prepare and recommend Governance principles applicable to the Company, and evaluate and make recommendations to the Board members on the compensation policies and all types of bonus to be offered to the Executive Officers and other employees of the Company. At present, it is presided by Thomas Cornelius Azevedo Reichenheim, and also relies on Augusto Marques da Cruz Filho and Pedro Carvalho de Mello as members.

§  Audit Committee: is responsible for planning and reviewing the Company’s annual and quarterly reports and accounting, the auditor’s involvement in the process, focusing particularly on compliance with legal requirements and accounting standards, and ensuring that an effective system of internal controls is maintained. This Committee shall be comprised of members who have experience in the matters related to accounting, audit, finance, taxation, and internal controls, and one of its members shall have vast experience in accounting and financial management. At present, it is presided by Pedro Carvalho de Mello, with Augusto Marques da Cruz Filho and Thomas Cornelius Azevedo Reichenheim serving as members.

The Company also has three advisory committees of the Board of Directors, non-statutory, composed of the Officers and Managers of the Company:

§  Executive Ethics Committee: it has the duty to monitor the practices adopted by the whole organization, assuring that they are compatible with the beliefs and values that represent Gafisa and the principles and guidance on conduct established in the Code of Ethics. This Committee is supervised by the Audit Committee.

§  Executive Investment Committee: it has the duty to analyze, discuss and recommend the acquisition of new real estate and launches of real estate; provide advisory to Officers in the negotiation of new contracts and project structuring; keep up with the approval of budgets and cash flow; and, in special cases, participate in the negotiation and structuring of new agreement types. This Committee is only composed of the Statutory Officers of the Company.

§  Executive Finance Committee: works evaluating and providing recommendations to the Board members on the Company’s risk policies and financial investments. This Committee is composed of the Statutory Officers of the Company.

 

Dividends, Shareholders Rights and Share Data

In order to protect the interest of all shareholders equally, the Company establishes that, according to the effective legislation and the best governance practices, the following rights are entitled to Gafisa’s shareholders:

§  vote in annual or extraordinary Shareholders' Meeting, and make recommendations and provide guidance to the Board of Directors on decision making;

§  receive dividends and participate in profit sharing or other share-related distributions, in proportion to their interests in capital;

§  supervise Gafisa's management, according to its Articles of Incorporation, and step down from the Company in the cases provided in the Brazilian Corporate Law; and

§  receive at least 100% of the price paid for common share of the controlling stake, according to the Listing Rules of Novo Mercado, in case of public offering of shares as a result of the disposal of the Company's control.

Under the terms of article 47, paragraph 2 (b) of Articles of Incorporation, the balance of net income for the year, calculated after the deductions provided in the Articles of Incorporation and adjusted according to article 202, of the Brazilian Corporate Law, will have 25% of it allocated to the payment of mandatory dividend to all shareholders of the Company.

5


 
 

Considering that the Company recognized loss for the year ended December 31, 2018, there is no proposal for allocation of net income and dividend distribution.

 

CAPITAL MARKETS

The Company has diluted capital, its shares are traded in the Brazilian market and abroad through American Depositary Receipt (ADR). From December 17, 2018, Gafisa’s shares are no longer listed on the New York Stock Exchange (NYSE), and its ADRs started to be traded Over the Counter (OTC). The Company’s delisting process was approved in the meeting of the Board of Directors held on November 26, 2018. The rationale behind this decision is supported by the weighing of the costs against the benefits inherent in the ADR program.

In 2018, we reached an average daily trading volume of R$16.7 million in B3 and US$ 271 thousand in NYSE/OTC.

The Company’s shares ended the year 2018 quoted at R$16.90 (GFSA3) and US$8.56 (GFASY).

Independent Registered Public Accounting Firm

The Company’s policy on commissioning non-external audit services to independent auditors is based on principles that preserve their autonomy. These internationally accepted principles consist of the following: (a) the auditor cannot audit its own work, (b) the auditor cannot function in the role of management in its client, and (c) the auditor cannot promote the interests of its client.

According to Article 2 of CVM Instruction 381/03, Gafisa informs that BDO RCS Auditores Independentes, the independent registered accounting firm of the Company and its subsidiaries, did not provide services other than independent audit in 2018.

Management Statement

The Executive Management declares, in compliance with article 25, paragraph 1, items V and VI, of CVM Instruction 480/2009, that it revised, discussed and agrees with the Financial Statements contained in this Report and the opinion issued in the report of Independent Registered Accountants on them.

Acknowledgements

Gafisa thanks the valuable contribution of its employees, customers, suppliers, partners, shareholders, financial institutions, government entities, regulatory bodies and other stakeholders for the support received throughout 2018.

 

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS

 

 

To

Shareholders, Board Members and Management of

Gafisa S.A.

São Paulo - SP

 

Opinion on the individual and consolidated financial statements prepared in accordance with Brazilian accounting practices and with the International Financial Reporting Standards (IFRS), applicable to Brazilian real estate development entities, registered with the Brazilian Securities Commission (CVM)

 

We have audited the accompanying individual and consolidated financial statements of Gafisa  S.A. (“Gafisa” or “Company”), identified as Company and Consolidated, respectively, which comprise the statement of financial position as of December 31, 2018, and the respective statement of profit or loss, comprehensive income, changes in equity, and cash flows for the year then ended, as well as the corresponding explanatory notes to the financial statements, including a summary of significant accounting policies.

 

Opinion on the individual financial statements

 

In our opinion, the accompanying individual financial statements present fairly, in all material respects, the financial position of Gafisa S.A. as at December 31, 2018, its financial performance and cash flows for the year then ended, in accordance with Brazilian accounting practices, applicable to Brazilian real estate development entities, registered with the Brazilian Securities Commission (CVM).

 

Opinion on the consolidated financial statements

 

In our opinion, the accompanying  consolidated financial statements present fairly, in all material respects, the consolidated financial position of Gafisa S.A. and its subsidiaries as at December 31, 2018, its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with Brazilian accounting practices and International Financial Reporting Standards (IFRS) applicable to Brazilian real estate development entities registered with the Brazilian Securities Commission (CVM).

 

 

Basis for opinion on the individual and consolidated statements

 

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the individual and consolidated financial statements” section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical principles established in the Code of Ethics for Professional Accountants and in the professional standards issued by the Brazilian Federal Association of Accountants (CFC), and we have fulfilled our other ethical responsibilities in accordance with these standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis

 

Accounting practices adopted in Brazil applicable to real estate development entities in Brazil, registered with the CVM

 

As described in Note 2.1, the individual and consolidated financial statements have been prepared in accordance with the Brazilian accounting practices and with the International Financial Reporting Standards (IFRS), applicable to Brazilian real estate development entities, registered with the CVM. Accordingly, the determination of the accounting policy to be adopted by entity, on recognition of revenue from purchase and sale of real estate unit in progress, on aspects related to transfer of control, based on the understanding expressed by CVM in the Ofício-Circular/CVM/SNC/SEP 02/2018 on the application of NBC TG 47 (IFRS 15). Our opinion is not qualified in respect to this matter.

 

 

 

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Key audit matters

 

Key audit matters are those matter that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and, therefore, we do not provide a separate opinion on these matters.

 

Compliance with the contractual terms of loan and financing contracts

 

The Company and its subsidiaries have many loan and financing contracts totaling R$ 560,599 thousand and R$ 623,746 thousand, in the Company and consolidated, respectively, for developing real estate ventures and enhancing working capital. Certain contracts have guarantee clauses, such as fiduciary assignment of receivables and debt acceleration, which involves the compliance with certain financial ratios and other conditions that establish, among others, the approval from financial institutions of changes in the control of ownership interests and veto of the assignment by the Company and/or subsidiaries of receivables and obligations already provided as guarantee to the respective financial institutions.

 

As mentioned in Note 12, in some situations debts were reclassified into short-term liabilities as a result of the breach of contractual obligations, and Management, based on its understanding and that of legal counsel, understands that there is no impact on cross-acceleration clauses.

 

Additionally, Management and its legal counsel interpret that for certain contracts with financial institutions the lack of notification by the creditor until the date of approval of the financial statements entitle the Company the unconditional right to keep the deferral of the settlement based on the terms agreed in contracts.

 

Considering the complexity of the judgment in the interpretation of contracts with some financial institutions, the need for robust and timely internal controls, and the relevance of this matter to the Company’s liquidity risk, we consider it a key audit matter in our audit.

 

 

How the matter was addressed in the audit

 

Our audit procedures included, among others:

 

§  Reading loan and financing contracts;

§  Issue letter and receipt of external confirmation of the balances recorded in the financial statements;

§  Understanding the management’s analysis of the restrictive covenants and the consistency of the application of such understanding in relation to the financial statements disclosed in prior periods;

§  Obtaining the opinion of the Company’s external legal counsel on certain transaction; and

§  Recalculation of financial covenants and evaluation of compliance.

 

During the audit process we identified weaknesses in the internal controls related to the solidity of the monitoring of restrictive covenants, regarding the incomplete formalization of covenant monitoring, fact which reveals the need for review and improvement in internal controls.

 

The results achieved by the above-mentioned audit procedures are consistent with Management’s evaluation reported in the disclosures of the Notes, in the context of the individual and consolidated financial statements taken as a whole.

 

 

 

8


 
 

 

Revenue recognition of the real estate units sold in construction phase, and measurement of the allowance for cancelled contracts

 

How the matter was addressed in the audit

 

As mentioned in Note 2.2.2, revenue recognition, the Company applied NBC TG 47 (IFRS 15) – Revenue from contracts with customers, including the guidance contained in Ofício-Circular CVM/SNC/SEP 02/2018, related to the sale of units not yet completed, in which revenue is recognized over time (overtime method), with measurement through the progress of budgeted costs in relation to the estimated costs of each real estate venture (percentage of completion – PoC).

 

After meeting the criterias for beginning the revenue recognition described in the Company’s accounting policy, management periodically reassess the risk of cash inflow, for each contract of real estate unit sold and not yet delivered to the customer. In the period when there is uncertainty and cash inflow is no longer probable, the Company discontinue the revenue recognition of customer and reverses the amounts that have been recorded since the signature date of the purchase and sale contract, and recognizes as allowance for cancelled contracts considering any amount that has already been received, with the applicable contractual and legal deductions.

 

We consider these matters as significant in our audit because of the potential effects involved in the financial statements, requiring robust internal controls for the process of preparation and budgets of each real estate venture, requiring ongoing monitoring, as they are the basis for recognition of revenues from sale of real estate units in construction phase, and use of specific assumptions to try to timely identify the uncertainty risk regarding cash inflows, and, consequently, measurement and record of allowance for cancelled contracts.

 


 

 

Our audit procedures included, among others:

 

Recognition of revenue from real estate units not yet completed

 

§  Evaluation of the internal control environment for revenue recognition;

§  Test of relevant review controls and approval controls of budget and update of the receivables portfolio;

§  Test, using sampling method, of sales contracts of real estate units for understanding the established terms and conditions;

§  Understanding and tests, using sampling method, of the budgets, and analysis of the portion of costs to be incurred as compared to the stage of completion of the ventures selected for testing;

§  Test, using sampling method, of incurred expenses through the supporting documentation identified by venture;

§  Visit to some real estate ventures for understanding the physical and financial progress of construction, and verification of possible specific risk; and

§  Recalculation of revenue recognized based on the information extracted from the approved budgets by the engineer responsible for the venture.

 

Measurement of the allowance for cancelled contract

 

§  Understanding of internal controls and test of the data basis of real estate unit sold, and analysis regarding the existence of default, and requests for contract cancellation under analysis or finalized;

§  Evaluation of the assumptions adopted by the Company to identify the risk of uncertainty about cash inflow;

§  Test of derecognition of revenue, costs, allowance for cancelled contracts payable, and recorded inventory amount; and

§  Evaluation of the effective cancelled contracts occurred in subsequent period that could have not been considered in the allowance.

 

The results achieved by the above-mentioned audit procedures are consistent with the Management’s evaluation reported in the disclosures of Notes, without identification of adjustments or relevant weakness in internal controls

 

 

 

9


 
 

Provisions and contingent liabilities

 

How the matter was addressed in the audit

As mentioned in Notes 2.2.22 (i) and 16, the Company and its subsidiaries are parties to a large number of lawsuits and administrative proceedings in civil, labor and tax levels, that arise in the ordinary course of their businesses.

 

Given the number of claims, Management adopts the criteria for recognizing provision for claims from the first unfavorable decision awarded to the Company, and, in cases of individually material claims, analyses by case.

 

Due to the number of claims, the criteria established for timely identifying the need for recognizing a provision and the existence of significant judgments involved in the process of evaluation and measurement of provisions, and disclosures of contingent liabilities, we considered it a key audit matter.

 

 

Our audit procedures included, among others:

 

§ Understanding of the policy on recognition of provision for contingencies adopted by the Company and its subsidiaries, as well as the performance of tests, using sampling method, of relevant internal controls to ensure that the criteria established in the policy have been applied;

§ Receipt and evaluation of the letter from legal counsel informing the claims to which the Company and its subsidiaries are parties in administrative or legal dispute;

§ Discussion with internal counsel and governance bodies for understanding the existence of significant matters not recorded in the books or mentioned in the Notes; and

§ Comparison of the total contingencies mentioned by the Company’s legal counsel which outflow of funds is considered probable with the accounting provision reported in the financial statements as of December 31, 2018, and analysis of the disclosures of contingent liabilities.

 

During the audit process, there was the need for adjustments that affected the measurement and disclosure of the provision for contingencies, which were recorded and disclosed by management. These adjustments also reveal the need for review and improvement in internal controls.

 

 

 

 


10


 
 

 

Evaluation of the recoverability of non-financial assets – goodwill on investment in Alphaville and land that is not included in the business plan for future developments

 

How the matter was addressed in the audit

The Company records the amount of R$ 161,100 thousand, net of provision for impairment, as of December 31, 2018, related to the goodwill on the investment in Alphaville Urbanismo S.A., which is based on expected future economic benefit of the associate. In the process of measurement of  recoverable amount, Management uses complex judgements, mostly based on internally-developed assumptions and over a period longer than that formally set in the investee’s approved business plan.

 

As to land available for sale, which is recorded, net of provisions for recoverable amount, in the amounts of R$ 74,842 thousand and R$ 78,148 thousand, in the individual and consolidated statements, respectively, there are relevant assumptions on measurement at recoverable amount and maintenance of such assets for a long period in the Company.

 

Considering that the change in the adopted assumptions may give rise to significant effects on the evaluation and impacts on the individual and consolidated financial statements, we consider the above-mentioned issues key audit matters.

 

 

 

Our audit procedures included, among others:

 

Goodwill on the investment in Alphaville

 

§  We analyzed the competence and objectivity of the external experts commissioned by management;

§  We included our specialists to evaluate the model and reasonableness of the adopted assumptions and arithmetic recalculation, as well as to compare the data used with the comparable observable data;

§  Confirmation of observable data through the data sources mentioned in the report of external specialists;

§  Analysis of the financial performance considered in the model, with prior periods (history) in face of the expectation of change in the economic scenario reported by Management;

§  Comparison with the consistency of the Business Plan provided with the model prepared for goodwill recoverability; and

§  Evaluation of the consistency of the adopted methodology and assumptions with those adopted in the previous year.

 

Land that is not included in the business plan for future developments

 

§  Understanding of the adopted assumptions and evaluation of the reasonableness and consistency of the adopted data and assumptions;

§  Comparison of the information with observable data;

§  Analysis of the mathematical accuracy of arithmetic calculations, and comparison with the accounting balance. 

 

During the audit process we identified weaknesses in the internal controls regarding the formalization of some relevant assumptions, fact that reveals the need for review and improvement in the internal controls associated with such items, however, without material adjustments to be recorded.

11


 
 

Other matters

 

Statements of value added

 

The individual and consolidated statements of value added (DVA) for the year ended December 31, 2018, prepared under the responsibility of the Company’s management, and presented as supplementary information for IFRS purposes, were submitted to the audit procedures performed in conjunction with the audit of the financial statements. In order to form our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and whether their formats and contents follow the criteria established in the NTC TG 09 – Statement of Value Added. In our opinion, the accompanying statements of value added have been properly prepared, in all material respects, according to the criteria established in this Technical Pronoucement and are consistent with the individual and consolidated financial statements taken as a whole.

 

Audit of prior-year information

 

The individual and consolidated financial statements corresponding to the year ended December 31, 2017 have been previously audited by other independent auditors, who issued the report dated March 8, 2018, without qualification. Due to the adjustments related to the recognition of the provision for cancelled contracts at the time of the adoption of Ofício-Circular/CVM/SNC/SEP/ 02/2018, which provides for the revenue recognition in contracts for purchase and sale of real estate unit not yet completed in the Brazilian publicly-held companies of the real estate development sector, retrospectively adopted by the Company, as described in Note 3.1 to the financial statements, changes were made in certain balances of the individual and consolidated statements of financial position, profit or loss, comprehensive income, changes in equity, and cash flows for the year ended December 31, 2017, presented for comparison purposes. Additionally, as part of our audit of individual and consolidated financial statements of 2018, we have also audited the adjustments described in Note 3.1 to the financial statements for individual and consolidated balance sheet as of January 1, 2017. In our opinion, both adjustments made to the balances as of December 31, 2017 and January 1, 2017 are appropriate and have been correctly made. We were not engaged to audit, review or apply any other procedure related to the individual and consolidated financial statements of the Company as of December 31, 2017 and January 1, 2017, and, accordingly, we do not express an opinion or provide any assurance on such financial statements taken as a whole.

 

Other information that accompany the individual and consolidated financial statements and the auditor’s report

 

The Company’s Management is responsible for this other information that comprises the Management Report.

 

Our opinion on the individual and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon.

 

In connection with the audit of the individual and consolidated financial statements, our responsibility is to read the Management Report, and, in doing so, consider whether the report ismaterially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is material misstatement in the Management Report, we are required to report that fact. We have nothing to report in this regard.

 

12


 
 

Responsabilities of management and those charged with governance for the individual and consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Brazilian accounting practices and with the International Financial Reporting Standards (IFRS), applicable to Brazilian real estate development entities, registered with the Brazilian Securities Commission (CVM), and for such internal controls as management determines is necessary to enable the preparation of financial statements free from material misstatement, whether due to fraud or error.

 

In the preparation of the individual and consolidated financial statements, Management is responsible for assessing the Company’s ability to continue as going concern disclosing, as applicable, matters related to going concern and using going concern of basis accounting in the preparation of the financial statements, unless Management either intends to liquidate the Company and its subsidiaries, or cease their operations, or has no realistic alternative to avoid the discontinuance of operations.

 

Those charged with governance of the Company and its subsidiaries are those with responsibility for overseeing the process of preparation of the financial statements.

 

 

Auditor’s responsibilities for the audit of individual and consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report including our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatements. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could be reasonably be expected to influence the economic decisions of users taken on the basis of such financial statements.

 

As part of the audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

§  Identify and assess risks of material misstatements of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide basis for our opinion. The risk of not detecting material misstatement resulting from fraud is higher than for one resulting from error, once fraud may involve collusion, forgery, intentional omissions, misrepresentations and the override of internal control.

§  Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of the Company and its subsidiaries.

§  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

§  Conclusion on the appropriateness of management’s use of the going concern basis of accounting, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubts on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidences obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

13


 
 

§  Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

§  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the individual and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in the internal control that we identify during our audit.

 

We also provide to those charged with governance with a statement that we have complied with relevant ethical requirements, including the applicable independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless the law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

São Paulo, March 28, 2019.

 

 

BDO RCS Auditores Independentes SS –

CRC 2 SP 013846/O-1

 

 

 

Julian Clemente - Accountant CRC 1 SP 197232/O-6   

 

 

 

 

14


 
 

 

Gafisa S.A.

 

Balance Sheet

Years ended December 31, 2018 and 2017

(In thousand of Brazilian Reais)

 

     

Company

 

Consolidated

 

Notes

 

2018

 

2017

 

01/01/2017

 

2018

 

2017

 

01/01/2017

                           

 

       

(Restated)

     

(Restated)

 Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash and cash equivalents

4.1

 

29,180

 

7,461

 

19,811

 

32,304

 

28,527

 

29,534

 Short-term investments

4.2

 

102,827

 

110,945

 

163,562

 

104,856

 

118,935

 

223,646

 Trade accounts receivable

5

 

391,557

 

261,353

 

213,535

 

467,992

 

374,886

 

411,838

 Properties for sale

6

 

705,123

 

861,845

 

1,066,032

 

890,460

 

990,286

 

1,318,555

 Receivables from related parties

21.1

 

26,619

 

28,059

 

46,187

 

64,660

 

51,890

 

57,455

 Derivatives financial instruments

20.i.b

 

              -  

 

404

 

                      -  

 

                    -  

 

                  404

 

              -  

 Prepaid expenses

-

 

2,183

 

5,030

 

2,102

 

2,668

 

5,535

 

2,548

 Land for sale

8.1

 

74,842

 

44,997

 

3,306

 

78,148

 

102,352

 

3,306

 Assets held for sale

-

 

               -  

 

                 -  

 

439,020

 

                -  

 

                -  

 

1,189,011

 Other assets

7

 

35,396

 

47,640

 

39,280

 

42,283

 

58,332

 

49,336

 Total current assets

   

1,367,727

 

1,367,734

 

  1,992,835

 

1,683,371

 

1,731,147

 

3,285,229

 

                         

 Non-current assets

                         

 Trade accounts receivable

5

 

155,421

 

160,602

 

225,270

 

174,017

 

199,317

 

271,322

 Properties for sale

6

 

139,804

 

289,162

 

535,376

 

198,941

 

339,797

 

592,975

 Receivables from related parties

21.1

 

28,409

 

22,179

 

25,529

 

28,409

 

22,179

 

25,529

 Derivatives financial instruments

-

 

                   -  

 

                   -  

 

9,030

 

                  -  

 

                  -  

 

9,030

 Other assets

7

 

92,607

 

62,152

 

156,358

 

95,194

 

64,172

 

58,917

     

416,241

 

534,095

 

951,563

 

496,561

 

625,465

 

957,773

 

                         

 Investments

9

 

1,407,516

 

1,598,153

 

2,116,509

 

314,505

 

479,126

 

799,911

 Property and equipment

10

 

17,284

 

19,719

 

21,720

 

20,073

 

22,342

 

23,977

 Intangible assets

11

 

10,999

 

17,430

 

27,778

 

11,770

 

18,280

 

28,228

     

1,435,799

 

1,635,302

 

2,166,007

 

346,348

 

519,748

 

852,116

 

                         

 Total non-current assets

   

1,852,040

 

2,169,397

 

3,117,570

 

842,909

 

1,145,213

 

1,809,889

 

                         

 

                         

 

                         

 

                         

 Total assets

   

 3,219,767

 

3,537,131

 

         5,110,405

 

2,526,280

 

2,876,360

 

5,095,118

 

 

The accompanying notes are an integral part of these financial statements.

15


 
 

Gafisa S.A.

 

Balance Sheet

Years ended December 31, 2018 and 2017

(In thousand of Brazilian Reais)

 

     

Company

 

Consolidated

 

Notes

 

2018

 

2017

 

01/01/2017

 

2018

 

2017

 

01/01/2017

 

 

 

 

 

(Restated)

 

 

 

(Restated)

                           

 Current liabilities

                         

 Loans and financing

12

 

252,919

 

425,605

 

639,733

 

285,612

 

481,073

 

669,795

 Debentures

13

 

62,783

 

88,177

 

314,139

 

62,783

 

88,177

 

314,139

 Obligations for purchase of properties and advances from customers

17

 

82,264

 

132,098

 

146,522

 

113,355

 

156,457

 

205,388

 Payables for goods and service suppliers

-

 

116,948

 

85,690

 

61,177

 

119,847

 

98,662

 

79,120

 Taxes and contribuitions

-

 

45,667

 

32,114

 

35,819

 

57,276

 

46,430

 

51,842

 Salaries, payroll charges and profit sharing

-

 

6,128

 

25,997

 

28,041

 

6,780

 

27,989

 

28,880

 Provision for legal claims and commitments

16

 

138,201

 

116,314

 

79,054

 

138,201

 

116,314

 

79,054

 Obligations assumed on the assignment  of receivables

14

 

18,554

 

23,953

 

24,907

 

25,046

 

31,001

 

34,698

 Payables to related parties

21.1

 

939,603

 

971,002

 

1,073,255

 

56,164

 

63,197

 

85,611

 Derivatives financial instruments

-

 

              -  

 

                      -  

 

5,290

 

            -  

 

                      -  

 

5,290

 Other payables

15

 

156,498

 

126,204

 

69,640

 

173,951

 

146,943

 

88,901

 Liabilities related to assets of discontinued operations

             -  

 

              -  

 

                      -  

 

                    -  

 

            -  

 

                      -  

 

          651,812

 Total current liabilities

   

1,819,565

 

2,027,154

 

2,477,577

 

1,039,015

 

1,256,243

 

2,294,530

 

 

                       

 Non-current liabilities

                         

 Loans and financing

12

 

307,680

 

336,525

 

367,197

 

338,135

 

416,112

 

516,505

 Debentures

13

 

202,883

 

119,536

 

137,129

 

202,883

 

119,536

 

137,129

 Payables for purchase of properties and advances from customers

17

 

151,835

 

137,192

 

90,311

 

196,076

 

152,377

 

90,309

 Deferred income tax and social contributions 

19

 

49,372

 

74,473

 

100,405

 

49,372

 

74,473

 

100,405

 Provision for legal claims and commitments

16

 

152,863

 

79,129

 

79,288

 

155,608

 

82,063

 

83,904

 Obligations assumed on the assignment  of receivables

14

 

26,090

 

44,859

 

50,906

 

32,140

 

53,392

 

64,332

 Other payables

15

 

18,162

 

7,041

 

13,218

 

19,860

 

7,095

 

11,502

 Total non-current liabilities

   

908,885

 

798,755

 

838,454

 

994,074

 

905,048

 

1,004,086

                           

 

 Equity

                         

 Capital

18.1

 

2,521,319

 

2,521,152

 

2,740,662

 

2,521,319

 

2,521,152

 

2,740,662

 Treasury shares

18.1

 

     (58,950)

 

          (29,089)

 

        (32,524)

 

   (58,950)

 

          (29,089)

 

        (32,524)

 Capital reserves and reserve for granting stock options

-

 

337,351

 

85,448

 

81,948

 

337,351

 

85,448

 

81,948

 Accumulated losses

18.2

 

(2,308,403)

 

     (1,866,289)

 

      (995,712)

 

(2,308,403)

 

     (1,866,289)

 

       (995,712)

     

      491,317

 

           711,222

 

     1,794,374

 

    491,317

 

           711,222

 

     1,794,374

 Non-controlling interests

   

              -  

 

                      -  

 

                    -  

 

       1,874

 

              3,847

 

              2,128

 Total equity

   

491,317

 

711,222

 

1,794,374

 

493,191

 

715,069

 

1,796,502

 Total Liabilities and equity

   

3,219,767

 

3,537,131

 

5,110,405

 

2,526,280

 

2,876,360

 

5,095,118

 

 

The accompanying notes are an integral part of these financial statements.

16


 
 

Gafisa S.A.

 

Statement of profit or loss

Years ended December 31, 2018 and 2017

(In thousand of Brazilian Reais, except if stated otherwise)

 

 

 

Company

Consolidated

 

Notes

 

2018

 

2017

 

2018

 

2017

         

(Restated)

     

(Restated)

Continuing operations

 

 

 

 

 

 

 

 

 

Net operating revenue

22

 

832,328

 

616,615

 

960,891

 

786,174

                   

Operating costs

                 

Real estate development and sales of properties

23

 

   (713,836)

 

          (720,281)

 

   (846,169)

 

         (906,486)

                   

Gross profit (loss)

   

      118,492

 

          (103,666)

 

      114,722

 

           (120,312)

                   

Operating (expenses) income

                 

Selling expenses

23

 

     (73,233)

 

            (75,985)

 

     (84,431)

 

            (87,568)

General and administrative expenses

23

 

     (41,947)

 

            (67,266)

 

     (57,089)

 

             (92,713)

Income from equity method investments

9

 

     (50,929)

 

         (256,870)

 

     (15,483)

 

         (204,863)

Depreciation and amortization

10 and 11

 

      (19,931)

 

            (56,634)

 

     (21,290)

 

            (57,522)

Loss on realization of investiment stated at fair value

9.iii

 

    (112,800)

 

           (101,953)

 

    (112,800)

 

           (101,953)

Other income (expenses), net

23

 

     (181,010)

 

           (101,976)

 

    (186,135)

 

          (109,597)

     

 

 

 

 

 

 

 

 Loss before financial income and expenses and income tax and social contribution

   

   (361,358)

 

         (764,350)

 

   (362,506)

 

         (774,528)

                   

 Financial expense

24

 

    (101,562)

 

          (146,624)

 

   (100,074)

 

           (137,001)

 Financial income

24

 

       18,294

 

              26,627

 

       19,553

 

              29,733

                   

Loss before income tax and social contribution

   

   (444,626)

 

         (884,347)

 

   (443,027)

 

          (881,796)

                   

Current income tax and social contribution

   

              -  

 

                        -  

 

       (3,349)

 

              (2,832)

Deferred income tax and social contribution

   

       25,100

 

              25,932

 

       25,100

 

              25,932

                   

Total income tax and social contribution

19.i

 

       25,100

 

              25,932

 

        21,751

 

               23,100

                   

Net loss from continuing operations

   

   (419,526)

 

          (858,415)

 

   (421,276)

 

         (858,696)

                   

Net income (loss) from discontinued operations

8.2

 

              -  

 

               98,175

 

              -  

 

               98,175

                   

Net loss for the year

   

   (419,526)

 

         (760,240)

 

   (421,276)

 

          (760,521)

                   

(-) Attributable to:

                 

Non-controlling interests

   

              -  

 

                        -  

 

       (1,750)

 

                   (281)

Owners of the parent

   

   (419,526)

 

         (760,240)

 

   (419,526)

 

         (760,240)

                   

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares (in thousands)

27

 

41,147

 

26,891

 

 

 

 

 

           

 

 

 

Basic earnings (loss) per thousand shares - In Reais

27

 

            (10.196)

 

             (28.271)

 

 

 

 

From continuing operations

   

            (10.196)

 

             (31.922)

 

 

 

 

From discontinued operations

   

                        -  

 

                 3.651

 

 

 

 

             

 

 

 

Diluted earnings (loss) per thousand shares - In Reais 

27

 

            (10.196)

 

             (28.271)

 

 

 

 

From continuing operations

   

            (10.196)

 

             (31.922)

 

 

 

 

From discontinued operations

   

                        -  

 

                 3.651

 

 

 

 

                   

 

 

The accompanying notes are an integral part of these financial statements.

17


 
 

Gafisa S.A.

 

Statement of comprehensive income (loss)

Years ended December 31, 2018 and 2017

(In thousand of Brazilian Reais, except if stated otherwise)

 

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(Restated)

 

(Restated)

Net loss for the year

(419,526)

(760,240)

(421,276)

(760,521)

 

 

 

 

 

Total comprehensive income for the year, net of taxes

(419,526)

(760,240)

(421,276)

(760,521)

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the parent

(419,526)

(760,240)

(419,526)

(760,240)

Non-controlling interests

-

-

(1,750)

(281)

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

 

18


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

 

   

Attributed to Owners of the Parent

 

 

     

 

 

 

Income reserve

 

 

 

 

 

Notes

Capital

Treasury shares

 

Reserve for granting shares

Legal reserve

Reserve for investments

 

Accumulated losses

Total Company

Noncontrolling interests

Total Consolidated

Balances at December 31, 2016

 

2,740,662

(32,524)

 

81,948

-

-

 

(861,761)

1,928,325

2,128

1,930,453

       

 

     

 

   

 

 

Inicial adoption CPC 47 and 48

3.1

-

-

 

-

-

-

 

(133,951)

(133,951)

-

(133,951)

Balances at January 01, 2017

 

2,740,662

(32,524)

 

81,948

-

-

 

(995,712)

1,794,374

-

1,796,502

Capital decrease

18.1

(219,510)

-

 

-

-

-

 

(107,720)

(327,230)

-

(327,230)

Stock option plan

18.3

-

-

 

3,500

-

-

 

-

3,500

 

3,500

Treasury shares sold

18.1

-

3,435

 

-

-

-

 

(2,617)

818

-

818

Write-off discontinued operations (a)

-

-

-

 

-

-

-

 

-

-

2,000

2,000

Net loss for the year

-

-

-

 

-

-

-

 

(760,240)

(760,240)

(281)

(760,521)

       

 

     

 

   

 

 

Balances at December 31, 2017 (Restated)

 

2,521,152

(29,089)

 

85,448

-

-

 

  (1,866,289)

         711,222

                 3,847

        715,069

       

 

     

 

   

 

 

Capital increase

18.1

167

-

 

250,599

-

-

 

-

250,766

-

250,766

Stock option plan

18.3

-

-

 

1,304

-

-

 

-

1,304

-

1,304

Treasury shares sold

18.1

-

2,351

 

-

-

-

 

(1,525)

826

-

826

Share repurchase program

18.1

-

(32,212)

 

 

-

-

 

(21,063)

(53,275)

-

(53,275)

Reserve constituition

-

-

-

 

-

-

-

 

-

-

(223)

(223)

Net loss for the year

-

-

-

 

-

-

-

 

(419,526)

(419,526)

(1,750)

(421,276)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

2,521,319

(58,950)

 

337,351

 

-

-

(2,308,403)

491,317

1,874

493,191

 

(a)      Amount regarding the write-off of the debt balance of non-controlling interests related to Construtora Tenda S.A, in view of the spin-off of the Companies (Notes 1 and 8.2),

 

 

The accompanying notes are an integral part of these financial statements.

 

 

19


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

 

 

Company

Consolidated

 

2018

2017

2018

2017

Operating activities

 

(Restated)

(Restated)

 

 

 

 

Profit (loss) before income tax and social contribution

(444,626)

(884,347)

(443,027)

(881,796)

Expenses/(income) not affecting cash and cash equivalents:

 

 

 

 

Depreciation and amortization (Notes 10 and 11)

19,931

31,158

21,290

32,046

Stock option expense (Note 18.3)

1,927

4,964

1,927

4,964

Unrealized interests and charges, net

4,703

33,193

11,156

46,168

Warranty provision (Note 15)

(4,130)

(3,498)

(4,130)

(3,498)

Provision for legal claims and commitments (Note 16)

172,103

107,635

172,432

107,848

Provision for profit sharing (Note 25 (iii))

(14,750)

13,375

(14,750)

13,375

Allowance for doubtful accounts and cancelled contracts (Note 5)

(41,828)

(187,283)

(41,827)

(187,283)

Provision for realization of non-financial assets:

 

 

 

 

Properties and land for sale (Note 6 and 8)

15,479

136,191

(74,689)

136,191

Income from equity method investments (Note 9)

50,929

256,870

15,483

204,863

Financial instruments (Note 20)

(763)

(818)

(763)

(818)

Write-off of goodwill based on inventory surplus (Notes 6 and 9)

462

-

-

-

Write-off of goodwill from remeasurement of investment in associate (Note 9)

112,800

101,953

112,800

101,953

Write-off of goodwill on acquisition of subsidiary (Note 9)

-

25,476

-

25,476

Assignment of shares (Note 9)

-

-

28,289

-

 

 

 

 

 

Decrease/(increase) in operating assets

 

 

 

 

Trade accounts receivable

(149,919)

175,753

(95,740)

260,090

Properties for sale and land available for sale

290,106

272,519

339,575

346,210

Other assets

(24,546)

(3,191)

(15,880)

(9,317)

Prepaid expenses

2,847

(2,928)

2,867

(2,987)

 

 

 

 

 

Increase/(decrease) in operating liabilities

 

 

 

 

Payables for purchase of properties and advances from customers

(35,191)

32,457

597

13,137

Taxes and contributions

13,553

(3,705)

10,846

(5,412)

Payables for goods and service suppliers

40,983

24,564

32,732

18,683

Salaries, payroll charges and profit sharing

(5,119)

(15,425)

(6,459)

(14,266)

Other payables

(2,025)

(31,331)

(3,434)

(20,341)

Transactions with related parties

(24,379)

53,170

(14,497)

(27,548)

Paid taxes

-

-

(3,348)

(2,832)

Cash from (used) in operating activities related to discontinued operations

-

-

-

51,959

Cash and cash equivalents from operating activities

(21,453)

136,752

31,450

206,865

 

 

 

 

 

Investment activities

 

 

 

 

Acquisition of property and equipment, and intangible assets (Notes 10 and 11)

(11,065)

(18,809)

(12,511)

(20,463)

Increase in short-term investments

(1,036,014)

(981,406)

(1,090,796)

(1,079,167)

Redemption of short-term investments

1,044,131

1,034,023

1,104,875

1,183,878

Investments

(7,629)

(2,598)

(4,629)

(2,598)

Transaction costs related to the transaction of spin-off of Gafisa and Tenda (Note 8.2)

-

(9,545)

-

(9,545)

Proceeds from the exercise of preemptive rights

-

219,510

-

219,510

Proceeds from the refund for Tenda’s capital

-

105,170

-

105,170

Cash from investing activities related to discontinued operations

-

-

-

48,663

Cash from investing activities

(10,577)

346,345

(3,061)

445,448

 

 

 

 

 

Financing activities

 

 

 

 

Increase in loans, financing and debentures

367,934

356,097

412,768

453,370

Payment of loans, financing and debentures - principal

(415,059)

(732,276)

(528,252)

(870,472)

Payment of loans, financing and debentures - interest

(101,156)

(145,369)

(111,157)

(161,734)

Assignment of receivables

-

21,379

-

21,513

Payables to venture partners

-

(1,140)

-

(1,237)

Loan transactions with related parties

(1,289)

5,044

(1,289)

5,044

Disposal of treasury shares (Note 18.1)

(47,448)

818

(47,448)

818

Capital increase

167

-

167

-

Subscription and payment of common shares

250,599

-

250,599

-

Cash from (used in) the financing activities related to discontinued operations

-

-

-

24,089

Cash and cash equivalents used in financing activities

53,748

(495,447)

(24,612)

(528,609)

 

 

 

 

 

(-) Net change in cash and cash equivalents related to discontinued operations

-

-

-

(124,711)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

21,718

(12,350)

3,777

(1,007)

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

At the beginning of the year

7,641

19,811

28,527

29,534

At the end of the year

29,179

7,461

32,304

28,527

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

21,718

(12,350)

3,777

(1,007)

 

20


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

The accompanying notes are an integral part of these financial statements.

 

 

 

Controladora

Consolidado

 

 

 

 

 

 

2018

2017

2018

2017

 

 

(Reapresented)

 

(Reapresented)

 

 

 

 

 

Revenues

913,648

              682,914

1,048,145

858,640

Real estate development and sales

871,820

              495,631

1,006,317

671,357

Reversal (recognition) of allowance for doubtful accounts and cancelled contracts

41,828

              187,283

41,828

187,283

Inputs acquired from third parties (including taxes on purchases)

(943,711)

           (839,373)

(1,075,054)

(1,013,885)

Operating costs - Real estate development and sales

(616,400)

           (643,937)

(733,265)

(789,971)

Materials, energy, outsourced labor and other

(214,511)

             (166,182)

(228,989)

(194,660)

Profit or loss of discontinued operations

-

                98,175

-

98,175

Loss on realization of investment measured at fair value

(112,800)

            (127,429)

(112,800)

(127,429)

 

 

 

 

 

Gross value added

(30,063)

            (156,459)

(26,909)

(155,245)

 

 

 

 

 

Depreciation and amortization

(19,931)

               (31,158)

(21,290)

(32,046)

 

 

 

 

 

Net value added produced by the entity

(49,994)

             (187,617)

(48,199)

(187,291)

 

 

 

 

 

Value added received on transfer

(32,635)

           (230,243)

4,070

(175,130)

Income from equity method investments

(50,929)

           (256,870)

(15,483)

(204,863)

Financial income

18,294

               26,627

19,553

29,733

 

 

 

 

 

Total value added to be distributed

(82,629)

            (417,860)

(44,129)

(362,421)

 

 

 

 

 

Value added distribution

(82,629)

            (417,860)

(44,129)

(362,421)

Personnel and payroll charges

63,730

               82,840

75,300

94,180

Taxes and contributions

69,643

                32,910

81,339

44,556

Interest and rents

203,524

             226,630

218,758

259,083

Retained earnings attributable to noncontrolling interests

-

-

1,750

281

Incurred losses

(419,526)

(760,240)

(421,276)

(760,521)

 

 

The accompanying notes are an integral part of these financial statements.

 

21


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

 

1.    Operations

 

Gafisa S.A. ("Gafisa" or "Company") is a publicly traded company with registered office at Avenida das Nações Unidas, 8.501, 19th floor, in the city and state of São Paulo, Brazil, and began its operations in 1997 with the objectives of: (i) promoting and managing all forms of real estate ventures on its own behalf or for third parties (in the latter case, as construction company or proxy); (ii) selling and purchasing real estate properties; (iii) providing civil construction and civil engineering services; (iv) developing and implementing marketing strategies related to its own and third party real estate ventures; and (v) investing in other companies who share similar objectives.

 

The Company has stocks traded at B3 S.A. – Brasil, Bolsa, Balcão (former BM&FBovespa), reporting its information to the Brazilian Securities and Exchange Commission (CVM) and the U.S. Securities and Exchange Commission (SEC).

On November 26, 2018, the Board of Directors approved the delisting of shares on the New York Stock Exchange (NYSE), aimed to perform the migration of the American Depositary Receipts (ADR) Program from Level 3 to Level 1, and the cancellation of the registry with the SEC. On December 7, 2018, Form 25 was filed with the SEC, with copy to the NYSE, for voluntary delisting of the American Depositary Shares (ADSs), represented by the ADRs of the NYSE. The ADSs were delisted on the NYSE on December 17, 2018, and are currently traded Over the Counter (OTC).

 

The Company enters into real estate development projects with third parties through specific purpose partnerships (“Sociedades de Propósito Específico” or “SPEs”) or through the formation of consortia and condominiums. Subsidiaries significantly share the managerial and operating structures, and corporate, managerial and operating costs with the Company. The SPEs, condominiums and consortia operate solely in the real estate industry and are linked to specific ventures.

 

1.1    Capital increase

 

On February 28, 2018, the Board of Directors partially ratified the capital increase approved at the Extraordinary Shareholders’ Meeting held on December 20, 2017, considering the subscription and contribution of 16,717,752 new common shares, at a price per share of R$15.00, of which R$0.01 allocated to capital, and R$14.99 allocated to capital reserve, totaling R$167 and R$250,599, respectively. The capital increase is included in the Company’s plans for reinforcing cash availability, strengthening its capital structure in view of the current indebtedness level, as well as making viable the Company’s strategic and operational positioning for a new cycle of the real estate market.

1.2    Change in shareholding

 

On September 25, 2018, an Extraordinary Shareholders’ Meeting was held, called at the request of its shareholder GWI Asset Management S.A., in which the following main resolutions were taken: (i) the removal from office, by majority of votes, of all members of the Board of Directors, and (ii) the election, through the multiple voting process, of new members. Immediately thereafter, at the Board of Directors’ meeting on September 28, 2018, the following items were resolved as part of the turnaround process and streamlining of the corporate structure of the Company: (i) the removals from office of the Chief Executive Officer, Chief Financial and Investor Relations Officer, and Chief Operating Officer, and the election of new statutory officers; (ii) adoption of new measures for approving the change of the Company’s registered office; (iii) shutdown of the branch located in Rio de Janeiro, and (iv) approval of the Company’s share repurchase program (Note 18.1).

 

22


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

1.    Operations --Continued

 

1.2     Change in shareholding--Continued

 

On February 14, 2019, 14,600,000 shares held by the group of its majority shareholder, GWI Asset Management S.A., corresponding to 33.67% stake in the Company, were auctioned. As a result of this auction, Planner Corretora de Valores S.A., by means of the investment funds it manages, started to hold 8,000,000 common shares, corresponding to 18.45% of total common shares issued by the Company (Note 32(iii)).

 

2.    Presentation of financial statements and summary of significant accounting policies

 

2.1.    Basis of presentation and preparation of individual and consolidated financial statements

 

On March 27, 2019, the Company’s Board of Directors approved these individual and consolidated financial statements of the Company and authorized their disclosure.

 

The individual financial statements, identified as “Company”, have been prepared and are being presented according to the accounting practices adopted in Brazil, including the pronouncements issued by the Accounting Pronouncements Committee (CPC), approved by the Brazilian Securities and Exchange Commission (CVM) and are disclosed together with the consolidated financial statements.

 

The consolidated financial statements of the Company have been prepared and are being presented according to the accounting practices adopted in Brazil, including the pronouncements issued by the CPC, approved by the Brazilian Securities and Exchange Commission (CVM), and according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

The individual financial statements of the Company are not considered in compliance with the International Financial Reporting Standards (IFRS), once they consider the capitalization of interest on qualifying assets of investees in the financial statements of the Company. In view of the fact that there is no difference between the Company’s and the consolidated equity and profit or loss, the Company opted for presenting such individual and consolidated information in only one set.

 

The consolidated financial statements are specifically in compliance with the International Financial Reporting Standards (IFRS) applicable to real estate development entities in Brazil, registered with the CVM. The aspects related to the transfer of control in the sale of real estate units follow the understanding of the Company’s Management, aligned with that expressed by the CVM in Circular Letter/CVM/SNC/SEP 02/2018 about the application of Technical Pronouncement CPC 47 – Revenue from contracts with customers (IFRS 15).

 

23


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.1.    Basis of presentation and preparation of individual and consolidated financial statements --Continued

 

All material information characteristic of the financial statements, and only them, is being evidenced, and corresponds to those used by Management in its administration.

 

The presentation of the individual and consolidated Statement of Value Added (DVA) is required by the Brazilian corporate legislation and the accounting practices adopted in Brazil applicable to publicly-held companies and was prepared according to CVM Resolution 557, of November 12, 2008, which approved the accounting pronouncement CPC 09 – Statement of Value Added. The IFRS does not require the presentation of this statement. Consequently, under the IFRS, this statement is presented as additional information, without causing harm to the financial statements as a whole.

The financial statements have been prepared on a going concern basis. Management makes an assessment of the Company’s ability to continue as going concern when preparing the financial statements.

All amounts reported in the accompanying financial statements are in thousands of Reais, except as otherwise stated.

 

 

2.1.1.    Consolidated financial statements

 

The consolidated financial statements of the Company include the financial statements of Gafisa and its direct and indirect subsidiaries. The Company controls an entity when it is exposed or is entitled to variable returns arising from its involvement with the entity and has the ability to affect those returns through the power that it exerts over the entity. The existence and the potential effects of voting rights, which are currently exercisable or convertible, are taken into account when evaluating whether the Company controls other entity. The subsidiaries are fully consolidated from the date the control is transferred and the consolidation is discontinued from the date control ceases.

 

The accounting practices were uniformly adopted in all subsidiaries included in the consolidated financial statements, and the fiscal year of these companies is the same of the Company. See further details in Note 9.

 

2.1.2.    Functional and presentation currency

 

The functional and presentation currency of the Company is Real.

 

 

 

 

 

 

24


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.1.    Basis of presentation and preparation of individual and consolidated financial statements --Continued

 

2.1.3.    Statement of Cash Flows

 

In view of the disclosure of the discontinued operations related to Tenda, and in line with CPC 03 – Statement of Cash Flows and CPC 31 - Non-current Assets Held for Sale and Discontinued Operations, the information on operating, financing and investing activities related to discontinued operations is presented in separated lines in the Statement of Cash Flows of the Company for the year ended December 31, 2017. Accordingly, the line item "Foreign Exchange Gains and Losses on Cash and Cash Equivalents", shown in the Statement of Cash Flows for the period ended December 31, 2017, refers to the net increase (decrease) in cash and cash equivalents of discontinued operations and is being presented in this line item as it is impossible to change the line item’s name in this Standardized Financial Statements.

 

2.2.    Summary of significant accounting policies

 

2.2.1.    Accounting judgments, estimates and assumptions

 

Accounting estimates and judgments are evaluated on an ongoing basis based on historical experience and other factors, including expectations on future events, considered reasonable under the circumstances.

 

 

The preparation of the individual and consolidated financial statements of the Company requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, as well as the disclosure of contingent liabilities, at the reporting date of financial statements.

 

Assets and liabilities subject to estimates and assumptions include the provision for impairment of asset, transactions with share-based payment, provision for legal claims, fair value of financial instruments, measurement of the estimated cost of ventures, deferred tax assets, among others.

 

The main assumptions related to sources of uncertainty over future estimates and other important sources of uncertainty over estimates at the reporting date of the statement of financial position, which may result in different amounts upon settlement are discussed below:

 

 

 

 

25


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.1.    Accounting judgments, estimates and assumptions --Continued

 

a)      Impairment loss of non-financial assets

 

An impairment loss exists when the asset’s carrying amount exceeds its recoverable amount, which is the higher of an asset’s fair value less costs to sell and its value in use.

 

The calculation of the fair value less cost to sell is based on available information on sale transactions of similar assets or market prices less additional costs of disposal. The calculation of the value in use is based on the discounted cash flow model.

 

Cash flows are derived from the budget for the following five years, and do not include uncommitted restructuring activities or future significant investments that will improve the asset basis of the cash-generating unit being tested. The recoverable amount is sensitive to the discount rate used under the discounted cash flow method, the estimated future cash inflows, and to the growth rate used for purposes of extrapolation.

 

Indefinite lived intangible assets and goodwill attributable to future economic benefit are tested at least annually, and/or when circumstances indicate a decrease in the carrying value. The main assumptions used for determining the recoverable amount of cash-generating units are detailed in Note 9.

 

b)    Share-based payment transactions

 

The Company measures the cost of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date. For cash-settled share-based transactions, the liability is required to be remeasured at the end of each reporting period through the settlement date, recognizing in profit or loss possible changes in fair value, which requires revaluation of the estimates used at the end of each reporting period. The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions.

 

It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend income, and the corresponding assumptions. The assumptions and models used for estimating the fair value of share-based payments are disclosed in Note 18.3.

 

26


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.1.    Accounting judgments, estimates and assumptions --Continued

 

c)    Provision for legal claims

 

The Company recognizes a provision for tax, labor and civil claims (Note 16).  The provision is considered when an unfavorable decision is awarded. Provisions are reviewed and adjusted to take into account the changes in circumstances, such as applicable statutes of limitations, findings of tax inspections, or additional exposures found based on new court issues or decisions.

 

There are uncertainties inherent in the interpretation of complex tax rules and in the value and timing of future taxable income. In the ordinary course of business, the Company and its subsidiaries are subject to assessments, audits, legal claims and administrative proceedings in civil, tax and labor matters.

 

d)    Allowance for expected credit losses

 

The Company recognizes allowance for expected credit losses for all sale contracts of real estate units, and the amounts are accrued as contra-entry to the recognition of the respective development revenue, based on data history of its current operations and estimates. Such analysis is individually made by sale contract, in line with CPC 48 – Financial Instruments, item 5.5.17 (c).

Such estimates are annually reviewed to consider any changes in circumstances and histories.

 

e)    Warranty provision

 

The measurement of the warranty provision, to cover expenditures for repairing construction defects covered during the warranty period, is based on the estimate that considers the history of incurred expenditures adjusted by the future expectation, which is regularly reviewed.

 

f)     Estimated cost of construction

 

Estimated costs, mainly comprising the incurred and estimated costs for completing the construction works, are regularly reviewed, based on the progress of construction, and any resulting adjustments are recognized in profit or loss of the Company. The effects of such estimate reviews affect profit or loss.

 

 

 

 

 

 

27


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.1.    Accounting judgments, estimates and assumptions --Continued

 

g)    Realization of deferred income tax

 

The initial recognition and further analysis of the realization of a deferred tax asset is carried out when it is probable that a taxable profit will be available in subsequent years to offset the deferred tax asset, based on projections of results, and supported by internal assumptions and future economic scenarios that enable its total or partial use.

 

h)    Allowance for contract cancellation

 

The Company recognizes an allowance for contract cancellation when it identifies risks of cash inflows. Contracts are monitored to identify the moment when these conditions are mitigated.

While it does not occur, no revenue or cost is recognized in profit or loss, the amounts only being recorded in asset and liability accounts.

 

The other provisions recognized in the Company are described in Note 2.2.22.

 

2.2.2.    Recognition of revenue and expenses

 

The Company applied CPC 47 – Revenue from Contracts with Customers from January 1, 2018, including the guidance contained in Circular Letter CVM/SNC/SEP 02/2018, of December 12, 2018, which establishes the accounting procedures for recognition, measurement and disclosure of certain types of transactions arising from contracts for purchase and sale of real estate unit not yet completed in real estate development entities.

 

According to CPC 47, the recognition of revenue from contracts with customers started to have a new regulation, based on transfer of control over promised goods or service, which can be at a point in time or over time, according to the satisfaction or not of the “contractual performance obligations”. Revenue is measured in an amount that reflects the consideration the entity expects to be entitled and is based on a five-step model detailed as follows: 1) identification of contract; 2) identification of performance obligations; 3) determination of transaction price; 4) allocation of transaction price to performance obligations; 5) revenue recognition.

 

The Company records the accounting effects of contracts only when: (i) the parties approve the contract; (ii) it can identify each party’s rights and the established payment terms; (iii) the contract has commercial substance; and (iv) is probable that it will collect the consideration to which the Company is entitled.

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.2.    Recognition of revenue and expenses --Continued

 

 (i)    Real estate development and sales

 

(a)     For the sales of completed units, revenues are recognized upon completion of the sale with transfer of control, regardless of the timing of receipt of the contractual value.

 

(b)    For the pre-sale of completed units during construction phase:

 

·   The incurred cost (including cost of land, and other directly related expenditure for making inventory) that corresponds to the units sold is included in profit or loss. For the units not yet sold, the incurred cost is included in inventory (Note 2.2.7);

·   Sales revenues are appropriated to profit or loss to the extent construction progresses, once the transfer of control is performed continually, using the percentage-of-completion method for each venture, this percentage being measured in view of the incurred cost in relation to the total estimated cost of the respective ventures;

·   Sales revenues recognized in excess of actual payments received from customers is recorded as either a current asset or long-term receivables in “Trade accounts receivable”. Any payment received in connection with the sales of units that exceeds the amount of revenues recognized is recorded as “Payables for purchase of land and advances from customers";

·   Interest and inflation-indexation charges on accounts receivable, as well as the adjustment to present value of account receivable, are included in the real estate development and sales when incurred, on a pro rata basis using the accrual basis of accounting;

·   Financial charges on account payable for acquisition of land and those directly associated with the financing of construction are capitalized and recorded in the inventory of properties for sale, and included in the incurred cost of units under construction until their completion, and follow the same recognition criteria as the cost of real estate development for units sold while under construction;

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.2.    Recognition of revenue and expenses --Continued

 

(i)      Real estate development and sales --Continued

 

·   The taxes levied and deferred on the difference between real estate development revenues and the cumulative revenue subject to tax are calculated and recognized when this difference in revenues is recognized;

·   Other expenses, including advertising and publicity, are recognized in profit or loss when incurred.

(ii)    Construction services

 

Revenues from real estate services are recognized as services are rendered and tied to the construction management activities for third parties and technical advisory services.

 

(iii)   Barter transactions

 

Barter transactions have the objective of receiving land from third parties that are settled with the delivery of real estate units or transfer of portions of the revenue from the sale of real estate units of ventures. The land acquired by the Company and its subsidiaries is determined based on fair value, as a component of inventories, with a corresponding entry to advances from customers in liabilities. Revenues and costs incurred from barter transactions are included in profit or loss over the course of construction period of ventures, as previously described in item (i)(b).

 

2.2.3.    Financial instruments

 

Financial instruments are recognized from the date the Company becomes a party to the contractual provisions of financial instruments, and mainly comprise cash and cash equivalents, short-term investments, accounts receivable, loans and financing, suppliers, and other debts.

 

After initial recognition, financial instruments are measured as described below:

 

(i)     Financial instruments at fair value through profit or loss

 

A financial instrument is classified into fair value through profit or loss if it is held for trading, or designated as such at initial recognition.

 

Financial instruments are designated at fair value through profit or loss if the Company manages these investments and makes purchase and sale decisions based on their fair value in accordance with the documented investment strategy and risk management. After initial recognition, related transaction costs are recognized in profit or loss when incurred.

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.3.    Financial instruments --Continued

 

(i)     Financial instruments at fair value through profit or loss --Continued

 

Financial instruments at fair value through profit or loss are measured at fair value, and their fluctuations are recognized in profit or loss.

 

In the year ended December 31, 2018, the Company held derivative financial instruments with the objective of mitigating the risk of its exposure to the volatility of indices and interest rates, recognized at fair value directly in profit or loss for the year. In accordance with its treasury policies, the Company does not have or issue derivative financial instruments for purposes other than for hedging.

 

The Company does not adopt the hedge accounting practice.

 

(ii)    Financial assets

 

       Financial assets are classified into financial assets at fair value through profit or loss, amortized cost and fair value through comprehensive income. The Company determines the classification of its financial assets at their initial recognition, when it becomes a party to the contractual provisions of the instrument, based on the business model in which the asset is managed and its contractual cash flow characteristics.

 

       Financial assets are initially recognized at fair value, plus, in the case of investments not designated at fair value through profit or loss, the transaction costs that are directly attributable to their acquisition.

 

The financial assets of the Company include cash and cash equivalents, short-term investments, trade accounts receivable, and derivative financial instruments.

 

       Derecognition (write-off)

 

       A financial asset (or, as the case may be, a portion of a financial asset or portion of a group of similar financial assets) is derecognized when:

 

·         The rights to receive cash inflows of an asset expire;

 

·         The Company transfers its rights to receive cash inflows of an asset or assume an obligation to fully pay the cash inflows received, without significant delay, to a third party because of a “transfer” agreement; and (a) the Company substantially transfers the risks and rewards of the asset, or (b) the Company does not substantially transfer or retain all risks and rewards related to the asset, but transfers the control over the asset.

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.3.    Financial instruments --Continued

 

(ii)    Financial assets --Continued

 

When the Company has transferred its rights to receive cash inflows of an asset, or signed an agreement to pass it on, and has not substantially transferred or has retained all risks and rewards related to the asset, an asset is recognized to the extent of the continuous involvement of the Company with the asset. In this case, the Company also recognizes a related liability. The transferred asset and related liability are measured based on the rights and obligations that the Company has maintained.

 

The continuous involvement by means of a guarantee on the transferred asset is measured at the lower of the original carrying value of the asset and the highest consideration that may be required from the Company.

 

 (iii)  Financial liabilities

 

Financial liabilities are classified at initial recognition at amortized cost or measured at fair value through profit or loss.

                            

       Financial liabilities at fair value through profit or loss include financial liabilities for trading, and financial liabilities designated at initial recognition as fair value through profit or loss.

              

       Loans and financing

 

       Subsequent to initial recognition, loans and financing accruing interest are measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in statement of profit or loss, at the time liabilities are derecognized, as well as during the amortization process using the effective interest rate method.

 

       Derecognition (write-off)

 

       A financial liability is derecognized when its contractual obligations are discharged, cancelled or expire.

 

       When an existing financial liability is substituted for another from the same creditor, under substantially different terms, or when the terms of an existing liability are significantly modified, this substitution or change is treated as a derecognition of the original liability, and recognition of a new liability, the difference in the corresponding carrying values being recognized in profit or loss.

 

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.4.    Cash and cash equivalents and short-term investments

 

Cash and cash equivalents substantially comprise demand deposits and bank certificates of deposit held under resale agreements, denominated in Reais, with high market liquidity and contractual maturities of 90 days or less, and for which there are no penalties or other restrictions for the immediate redemption thereof.

 

Cash equivalents are classified as financial assets at fair value through profit or loss and are recorded at the original amounts plus income earned, calculated on a “pro rata basis", which are equivalent to their market values, not having any impact to be accounted for in the Company’s equity.

 

Short-term investments include bank deposit certificates, federal government bonds, exclusive investment funds that are fully consolidated, and collaterals, which are classified at fair value through profit or loss (Note 4.2).

 

2.2.5.    Trade account receivable

 

These are presented at present and realizable values. The classification between current and non-current is made based on the expected maturity of contract installments, considering current those falling due in one year or less.

 

The installments due are indexed based on the National Civil Construction Index (INCC) during the period of construction, and based on the General Market Prices Index (IGP-M) and interest at 12% p.a., after the delivery of the units.

 

The adjustment to present value is calculated between the contract signature date and the estimated date to transfer the completed property’ keys to the buyer, using a discount rate represented by the average rate of the financing obtained by the Company, net of inflation, as mentioned in Note 2.2.19.

 

Considering that financing its customers is an important part of the Company operations, the reversal of the present value adjustment was carried out as contra-entry to the group of real estate development revenue, consistently with interest incurred on the portion of receivables balance related to the period subsequent to the handover of keys.

 

 

 

 

 

 

33


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.6.    Mortgage-backed Securities (CRIs) and Housing Loan Certificate (CCI)

 

The Company and its subsidiaries carry out the assignment and/or securitization of receivables related to receivables with collateral of completed projects and those still under construction. This securitization is carried out through the issuance of the Housing Loan Certificate (“Cédula de Crédito Imobiliário” or “CCI”), which is assigned to financial institutions. When there is no right of recourse, this assignment is recorded as reduction of accounts receivable. When there is right of recourse against the Company, the assigned receivable is maintained in the statement of financial position and the funds from assignment are classified into the account “Obligations assumed on assignment of receivable”, until certificates are settled by customers.

 

In this situation, the transaction cost is recorded in “financial expenses” in the statement of profit or loss for the year in which it is made.

 

When there are financial guarantees, represented by the acquisition of subordinated CRI, they are recorded on the statement of financial position as “short-term investments” at the realizable value, which is equivalent to fair value.

 

2.2.7.    Properties for sale

 

The Company and its subsidiaries acquire land for future real estate developments, on payment conditions in current currency or through barter transactions. Land acquired through barter transaction is stated at fair value of the units to be delivered, and the revenue and cost are recognized according to the criteria described in Note 2.2.2 (iii).

 

Properties are stated at construction cost, and decreased by the provision when it exceeds its net realizable value. In the case of real estate under construction, the portion in inventories corresponds to the cost incurred for units that have not yet been sold.  The incurred cost comprises construction costs (materials, own or outsourced labor, and other related items), and legal expenses relating to the acquisition of land and projects, land costs, and financial charges which relate to a project over the construction period.

 

The classification of land between current and non-current assets is made by Management based on the expected period for launching real estate ventures. Management periodically revises the estimates of real estate ventures launches.

 

 

34


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.8.    Prepaid expenses

 

These are recognized in profit or loss as incurred using the accrual basis of accounting.

 

2.2.9.    Land available for sale

 

Land available for sale is measured at the lower of the carrying value and the fair value less costs to sell, and is classified as held for sale if its carrying value is to be recovered through a sale transaction of the land. This condition is considered fulfilled only when the sale is highly probable, and the asset is available for immediate sale under its current condition. Management shall commit to sell it within one year of the classification date.

 

2.2.10.  Investments in ownership interests

 

Investments in ownership interest are recorded in the Company balance using the equity method.

 

When the Company's equity in the losses of investees is equal to or higher than the amount invested, the Company recognizes the residual portion in net capital deficiency since it assumes obligations and makes payments on behalf of these companies. For this purpose, the Company recognizes a provision at an amount considered appropriate to meet the obligations of the investee (Note 9).

 

2.2.11.  Property and equipment

 

Items of property and equipment are measured at cost, less accumulated depreciation and/or any accumulated impairment losses, if applicable.

 

An item of property and equipment is derecognized when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is recognized in profit or loss upon derecognition.

 

Depreciation is calculated based on the straight-line method considering the estimated useful lives of the assets (Note 10).

 

Expenditures incurred in the construction of sales stands, display apartments and related furnishings are included in property and equipment of the Company and its subsidiaries. Depreciation of these assets commences upon launch of the development and is recorded over the term the stand is in use, and is written-off when it is retired.

 

Property and equipment are subject to periodic assessments of impairment.

 

 

35


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.12.  Intangible assets

 

(i)      Expenditures related to the acquisition and implementation of computer systems and software licenses are recorded at acquisition cost, and amortized on straight-line basis over a period of up to five years, and are subject to periodic assessments of impairment of assets.

 

(ii)     The Company’s investments in subsidiaries include goodwill when the acquisition cost exceeds the market value of net assets of the acquiree.

 

Impairment testing of goodwill is performed at least annually, or whenever circumstances indicate an impairment loss.

 

2.2.13.  Payables for purchase of properties and advances from customer

 

Payables for purchase of properties are recognized at the amounts corresponding to the contractual obligations assumed. Subsequently they are measured at amortized cost, plus, when applicable, interest and charges proportional to the incurred period (“pro rata” basis), net of present value adjustment.

 

The obligations related to barter transactions of land in exchange for real estate units are stated at fair value of the units to be delivered.

 

2.2.14.  Income tax and social contribution on net income

 

(i)      Current income tax and social contribution

 

Current tax is the expected tax payable or receivable/to be offset in relation to taxable profit for the year.

Income taxes in Brazil comprise income tax (25%) and social contribution on net income (9%), for entities on the standard profit regime, for which the composite statutory rate is 34%. Deferred taxes for these entities are recognized on all temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying values.

 

As permitted by tax legislation, certain subsidiaries opted for the presumed profit regime, a method under which the taxable profit is calculated as a percentage of gross sales. For these companies, the income tax is calculated on estimated profits at rate of 8% and 12% of gross revenues, respectively, on which the rates of the respective tax and contribution are levied.

 

 

 

 

36


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.14.  Income tax and social contribution on net income--Continued

 

(i)      Current income tax and social contribution --Continued

 

As permitted by legislation, the development of certain ventures are subject to the “afetação” regime, based on which the land and its features where a real estate will be developed, as well as other binding assets, rights and obligations, are separated from the developer’s assets, and comprise the “patrimônio de afetação” (detached assets), intended for the completion of the corresponding development, and delivery of real estate units to the respective buyers. In addition, certain subsidiaries made the irrevocable option for the Special Taxation Regime (RET), according to which the income tax and social contribution are calculated at 1.92% on gross revenues (4% also considering PIS and COFINS on revenues).

 

(ii)     Deferred income tax and social contribution

 

Deferred taxes are recognized in relation to tax losses and temporary differences between the amount of assets and liabilities for accounting purposes and the corresponding amounts used for tax purposes.

 

They are recognized to the extent that it is probable that future taxable profit will be available to be used for offsetting deferred tax assets, based on profit projections made using internal assumptions, and considering future economic scenarios that make it possible their full or partial use, upon the recognition of a provision for the non-realization of the balance. The recognized amounts are periodically reviewed, and the impacts of realization or settlement are reflected in compliance with tax legislation provisions.

 

Deferred tax on accumulated tax losses does not have an expiration date, however, they can only be offset against up to 30% of the taxable profit for each year. Companies that opt for the presumed profit tax regime cannot offset tax losses for a period in subsequent years.

 

Deferred tax assets and liabilities are stated at net amount in the statement of financial position when there is the legal right and intention to offset them when determining the current taxes, related to the same legal entity and the same tax authority.

 

 

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.15.  Other current and non-current liabilities

 

These liabilities are stated at their known or estimated amounts, plus, when applicable, adjustment for charges and inflation-indexed variations through the reporting date of the statement of financial position, which contra-entry is recorded in profit or loss. When applicable, current and non-current liabilities are recorded at present value based on interest rates that reflect the term, currency and risk of each transaction.

 

2.2.16.  Stock option plans

 

As approved by its Board of Directors, the Company offers executives and employees share-based compensation plans (stock options), as payments for services received.

 

The fair value of options is determined on the grant date, considering that it is recognized as expense in profit or loss (as contra-entry to equity), to the extent services are provided by employees and management members.

 

In an equity-settled transaction, in which the plan is modified, a minimum expense is recognized corresponding to the expense as if the terms have not been changed. An additional expense is recognized for any modification that increases the total fair value of granted options, or that otherwise benefits the employee, measured on the modification date.

 

In case of cancellation of a stock option plan, this is treated as if it had been granted on the cancellation date, and any unrecognized plan expense is immediately recognized. However, if a new plan substitutes the cancelled plan, and a substitute plan is designated on the grant date, the cancelled plan and the new plan are treated as if they were a modification of the original plan, as previously mentioned.

 

The Company annually revises its estimates of the amount of options that shall be vested, considering the vesting conditions not related to the market and the conditions based on length of service. The Company recognizes the impact of the revision of the initial estimates, if any, in the statement of profit or loss, as contra-entry to equity.

 

2.2.17.  Share-based payment – Phantom Shares

 

            The Company has a cash-settled share-based payment plan (phantom shares) under fixed terms and conditions. There is no expectation of the effective negotiation of shares, once there shall be no issue and/or delivery of shares for settling the plan.

 

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.17.  Share-based payment – Phantom Shares --Continued

 

            According to CPC 10 (R1) – Share-based Payment, these amounts are recorded as a reserve payable, with contra-entry in profit or loss for the year, based on the fair value of the phantom shares granted, and during the vesting period. The fair value of this liability is remeasured and adjusted every reporting period, according to the change in the fair value of the benefit granted and vesting.

 

2.2.18.  Other employee benefits

 

The salaries and benefits granted to the Company’s employees and executives include fixed compensation (salaries, social security contributions (INSS), Government Severance Indemnity Fund for Employees (FGTS), vacation pay, and 13th monthly salary, among other) and variable compensation such as profit sharing, bonus, and stock option-based payments. These benefits are recorded in profit or loss for the year, under the account “General and administrative expenses”, as they are incurred.   

 

The bonus system operates with individual and corporate targets, structured based on the efficiency of corporate goals, followed by the business goals and, finally, individual goals.

 

The Company and its subsidiaries do not offer private pension or retirement plans.

 

2.2.19.  Present value adjustment – assets and liabilities

 

Assets and liabilities arising from long or short-term transactions are adjusted to present value if significant.

 

In installment sales of units not completed, real estate development entities present receivables adjusted for inflation, including the installment related to the delivery of units, without accrual of interest, and shall be discounted to present value, as the agreed inflation rates do not include interest.

 

Borrowing costs and those related to finance the construction of real estate ventures are capitalized. Therefore, the reversal of the present value adjustment of an obligation related to these items is included in the cost of real estate unit sold or in the inventories of properties for sale, as the case may be, until the period of construction of the project is completed.

 

Accordingly, certain assets and liabilities are adjusted to present value based on discount rates that reflect the best estimate of the time value of money.

 

 

 

39


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.19.  Present value adjustment – assets and liabilities --Continued

 

The applied discount rate’s underlying economic basis and assumption is the average rate of the financing and loans obtained by the Company, net of the inflationary effect (Notes 5 and 12).

 

2.2.20.  Debenture and public offering costs

 

Transaction costs and premiums on issuance of securities are accounted for as a direct reduction in the amount raised by the Company and are amortized over the terms of the instrument and the net balance is classified as reduction in the respective transaction (Note 13).

 

2.2.21.  Borrowing costs

 

The borrowing costs directly attributable to ventures during construction phase, and to land during the development of assets for sale are capitalized as part of the cost of that asset during the construction period, since there is borrowing outstanding, which is recognized in profit or loss to the extent units are sold. All other borrowing costs are recorded as expense when incurred. Borrowing costs comprise interest and other related costs incurred, including those for raising finance.

 

Charges that are not recognized in profit or loss of subsidiaries are recorded in the financial statements of the Company, in the account investments in non-current assets (Note 9).

 

2.2.22.  Provisions

 

(i)     Provision for legal claims

 

The Company is party to several lawsuits and administrative proceedings. Provisions are recognized for all demands related to lawsuits which expectation of loss is considered probable.

 

Contingent liabilities for which losses are considered possible are only disclosed in a note to financial statements, and those for which losses are considered remote are neither accrued nor disclosed.

 

Contingent assets are recognized only when there are secured guarantees or final and unappealable favorable court decisions. Contingent assets with likelihoods of favorable decision are only disclosed in explanatory note. As of December 31, 2018 and 2017 there is no claim involving contingent assets recorded in the statement of financial position of the Company.

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.22.  Provisions --Continued

 

(ii)    Allowance for expected credit losses

 

The Company annually reviews its assumptions related to the recognition of loss allowance, taking into account the review of the histories of its current operations and improvement in its estimates.

 

The Company carries out a comprehensive analysis of the contracts with customers not expired in order to recognize an allowance for expected credit losses for all customers, based on the assumptions set by the Company. This allowance is calculated based on the percentage-of-completion of the construction work, a methodology adopted for recognizing profit or loss (Note 2.2.2).

 

(iii)   Provision for penalties due to delay in construction work

 

As contractually provided, the Company has the practice of provisioning the charges payable to eligible customers for projects whose delivery is delayed over 180 days, in line with the respective contractual clause and history of payments.

 

(iv)   Warranty provision

 

       The Company and its subsidiaries recognize a provision to cover expenditures for repairing construction defects covered during the warranty period, based on the estimate that considers the history of incurred expenditures adjusted by the future expectation, except for the subsidiaries that operate with outsourced companies, which are the direct guarantors of the construction services provided. The warranty period is five years from the delivery of the venture.

 

(v)    Provision for impairment of non-financial assets

 

When there is evidence of impairment of asset, and the net carrying value exceeds the recoverable amount, a provision for impairment is recorded, adjusting the net carrying value to the recoverable value. Goodwill and intangible assets with indefinite useful lives have the recovery of their amounts tested annually, regardless whether there is any indication of impairment, by comparing to the realization value measured by cash flows discounted to present value, using a discount rate before taxes, which reflects the weighted average cost of capital of the Company.

 

 

 

 

 

 

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Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.23.  Sales taxes

 

For companies under the taxable profit regime, levied on non-cumulative basis, the PIS and COFINS contribution rates are levied at 1.65% and 7.6%, respectively, on gross revenue and discounting certain credits determined based on incurred costs and expenses. For companies that opt for the presumed profit taxation regime, under the cumulative taxation regime, the PIS and COFINS contribution rates are levied at 0.65% and 3%, respectively, on gross revenue, without discounts of credits in relation to incurred costs and expenses.

 

2.2.24.  Treasury shares

 

Own equity instruments that are repurchased (treasury shares) are recognized at cost and charged to equity. No gain or loss is recognized in the statement of profit or loss upon purchase, sale, issue, or cancellation of the Company’s own equity instruments.

 

2.2.25.  Interest on equity and dividends

 

The proposal for distributing dividends and interest on equity made by Management that is in the portion equivalent to the minimum mandatory dividend is recorded as current liabilities in the heading “Dividends payable”, as it is considered a legal obligation provided for in the Articles of Incorporation of the Company.

 

2.2.26.  Earnings (loss) per share – basic and diluted

 

Basic earnings (loss) per share are calculated by dividing the net income (loss) available (allocated) to ordinary shareholders by the weighted average number of common shares outstanding over the period.

 

Diluted earnings per share are calculated in a similar manner, except that the shares outstanding are increased, to include the additional shares that would be outstanding, in case the shares with dilutive potential attributable to stock option had been issued over the respective periods, using the weighted average price of shares.

 

 

 

 

 

 

 

 

 

 

42


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

2.    Presentation of financial statements and summary of significant accounting policies --Continued

 

2.2.    Summary of significant accounting policies --Continued

 

2.2.27.  Non-current asset held for sale and profit or loss from discontinued operations

 

The Company classifies a non-current asset as held for sale if its carrying value is recovered by sale transaction. In such case, the asset or group of assets held for sale shall be available for immediate sale on its current conditions, subject only to the terms  that are usual and common for sale of such assets held for sale. With this, the sale shall be highly probable.

 

For a sale to be highly probable, Management shall be committed to the plan to sell the asset, and shall have initiated an active program to locate a buyer and complete the plan. In addition, the asset held for sale shall also be effectively marketed for sale at a sales price that is reasonable in relation to its current fair value. Also, the sale is expected to be completed within one year of the classification date, unless events beyond the control of the Company change such period.

 

The asset held for sale is measured at the lower of its carrying value and the fair value less cost to sell. In case the carrying value is higher than the fair value, an impairment loss is recognized in statement of profit or loss for the year. Any reversal or gain will only be recorded within the limit of the recognized loss.

 

The assets and liabilities of the group of discontinued assets are shown in single lines in assets and liabilities. The profit or loss of discontinued operations is presented as a single amount in the statement of profit or loss, contemplating the total post-tax profit or loss of such operations less any impairment-related loss. The net cash flows attributable to operating, investing and financing activities of discontinued operations are shown in Note 8.2.

 

According to Note 8.2, the transaction of spin-off transaction between Gafisa and Tenda was completed on May 4, 2017 with the effective delivery of the totality of shares comprising Tenda’s capital in the respective processes of capital decrease and preemptive right.

 

 

 

 

 

 

43


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

3.    New standards, changes and interpretation of standards issued and adopted from 2018, and not yet adopted

 

3.1 New standards, changes and interpretations of standards issued and adopted from 2018

 

The following standards are in effect beginning on January 1, 2018:

 

(i)             IFRS 9 – Financial Instruments (CPC 48) includes, among others, new models for classification and measurement of financial instruments, and measurement of prospective expected credit losses for financial and contractual assets.

 

Based on its evaluation, the Company concluded that the new classification requirements did not have a significant impact on the recognition of financial assets measured at fair value.

 

Additionally, according to CPC 48, expected losses are measured using one of the following bases: 12-month expected credit losses, and full lifetime expected credit losses. Therefore, the Company carried out the measurement of the allowance regarding the expected credit losses on contracts sold, which is recorded together with the recognition of the respective revenue.

 

(ii)            The IFRS 15 – Revenue from Contracts with Customers (CPC 47) introduces new requirements for measurement and timing of revenue recognition. For the specific case of the real estate development sector, maintaining the POC revenue recognition method or adopting the method of keys, for example, depends on the contractual analyses made by Management. Letter CVM/SNC/SEP/ 02/2018, issued by CVM’s technical area, established accounting procedures for recognition, measurement and disclosure of certain types of transactions arising from purchase and sale contracts of units not completed in the Brazilian real estate development entities. Therefore, the Company measured the allowance for contracts with identification of the risks of cash inflows to the entity.

 

For comparability purposes, the balances as of December 31, 2017 and the opening balance as of January 1, 2017 were adjusted considering such changes in accounting practice. As required by CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors, the retrospective effects of the adoption of CPCs 47 and 48 are demonstrated as follows:

 

 

Company

Consolidated

Statement of financial position

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

           

Assets

 

 

 

 

 

 

Trade accounts receivable of development and services

371,228

(109,876)

261,352

484,761

(109,876)

374,885

Properties for sale

753,748

108,097

861,845

882,189

108,097

990,286

Other current assets

244,536

-

244,536

365,975

-

365,975

Total current assets

1,369,512

(1,779)

1,367,733

1,732,925

(1,779)

1,731,146

Total non-current assets

2,169,397

-

2,169,397

1,145,213

-

1,145,213

Total Assets

3,538,909

(1,779)

3,537,130

2,878,138

(1,779)

2,876,359

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Total current liabilities

1,984,597

42,556

2,027,153

1,213,686

42,556

1,256,242

Total non-current liabilities

798,755

-

798,755

905,048

-

905,048

Total equity

755,557

(44,335)

711,222

759,404

(44,335)

715,069

Total liabilities and equity

3,538,909

(1,779)

3,537,130

2,878,138

(1,779)

2,876,359

             

 

 

44


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

3.    New standards, changes and interpretation of standards issued and adopted from 2018, and not yet adopted --Continued

 

3.1 New standards, changes and interpretations of standards issued and adopted from 2018--Continued

 

 

Company

Consolidated

Statement of profit or loss

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

           

Net operating revenue

439,264

177,351

616,615

608,823

177,351

786,174

Operating costs

(632,546)

(87,735)

(720,281)

(818,751)

(87,735)

(906,486)

Operating (expenses) / income

(660,684)

-

(660,684)

(654,216)

-

(654,216)

Financial income (expense)

(119,997)

-

(119,997)

(107,268)

-

(107,268)

Income tax and social contribution

25,932

-

25,932

23,100

-

23,100

Profit from (loss on) continued operations

(948,031)

89,616

(858,415)

(948,312)

89,616

(858,696)

Profit from discontinued operations

98,175

-

98,175

98,175

-

98,175

Non-controlling interests

-

-

-

(281)

-

(281)

Net profit (loss) for the year

(849,856)

89,616

(760,240)

(849,856)

89,616

(760,240)

 

 

 

 

 

 

 

Cash flow

 

 

 

 

 

 

Operating activities

136,752

-

136,752

206,865

-

206,865

Financing activities

346,345

-

346,345

445,448

-

445,448

Investing activities

(495,447)

-

(495,447)

(528,609)

-

(528,609)

 

 

 

 

 

 

 

Statement of value added

 

 

 

 

 

 

Net value added produced by the entity

(277,233)

89,616

(187,617)

(276,907)

89,616

(187,291)

Value added received as transfer

(230,243)

-

(230,243)

(175,130)

-

(175,130)

Total value added to be distributed

(507,476)

89,616

(417,860)

(452,037)

89,616

(362,421)

             

 

Reconciliation of the opening statement of financial position as of January 1, 2017:

 

 

Company

Consolidated

Statement of financial position

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

Originally reported balances

Impact from applying the CPCs 47 and 48

Balances after applying the CPCs 47 and 48 as of 12/31/2017

           

Assets

 

 

 

 

 

 

Trade accounts receivable of development and services

524,337

(310,802)

213,535

722,640

(310,802)

411,838

Properties for sale

870,201

195,831

1,066,032

1,122,724

195,831

1,318,555

Other current assets

713,268

-

713,268

1,554,836

-

1,554,836

Total current assets

2,107,806

(114,971)

1,992,835

3,400,200

(114,971)

3,285,229

Total non-current assets

3,117,570

-

3,117,570

1,809,889

-

1,809,889

Total assets

5,225,376

(114,971)

5,110,405

5,210,089

(114,971)

5,095,118

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Total current liabilities

2,458,597

18,980

2,477,577

2,275,550

18,980

2,294,530

Total non-current liabilities

838,454

-

838,454

1,004,086

-

1,004,086

Total equity

1,928,325

(133,951)

1,794,374

1,930,453

(133,951)

1,796,502

Total liabilities and equity

5,225,376

(114,971)

5,110,405

5,210,089

(114,971)

5,095,118

             

 

 

 

 

45


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

3.    New standards, changes and interpretation of standards issued and adopted from 2018, and not yet adopted --Continued

 

3.2 New standards, changes and interpretations of standards issued and adopted from 2018

 

·            IFRS 16 – Leases

 

This standard replaces the previous lease standard, IAS 17/CPC 06 (R1) – Leases, and related interpretation, and establishes the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, that is, the customers (lessees) and providers (lessors).  Lessees are required to recognize a lease liability reflecting the future lease payments and a “right-of-use assets” for practically all lease contracts, except certain short-term leases and contracts of low-value assets. For lessors, the criteria for recognition and measurement of leases in the financial statements are substantially maintained. This standard is effective beginning on January 1, 2019.

 

Based on available information, the Company estimates that right-of-use assets and lease liabilities will be recognized in the amount of R$4,990 as of January 1, 2019.

 

·            Other amendments

 

The following standard amendments and interpretations shall not have a significant impact on the Consolidated Financial Statements of the Company:

 

(i)      IFRIC 23/ICPC 22 Uncertainty over Income Tax Treatments

(ii)     Prepayment Features with Negative Compensation (Amendments to IFRS 9)

(iii)    Investments in Associates and Joint Ventures

(iv)    (Amendments to CPC 18(R2) / IAS 28)

(v)     Amendments to Plan Amendment, Curtailment or Settlement (Amendments to CPC 33 / IAS 19)

(vi)    Annual improvements to IFRS Standards 2015-2017 cycle – several standards

(vii)   Amendments to references to the conceptual framework in the IFRS

(viii)  IFRS 17 Insurance Contracts.

 

There is no other standard, changes to standards or interpretation issued and not yet adopted that could, on the Management’s opinion, have significant impact arising from their adoption on its financial statements.

 

 

 

46


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

4.    Cash and cash equivalents and short-term investments

 

4.1.    Cash and cash equivalents

 

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Cash and banks

8,282

7,461

11,406

28,527

Government bonds (LFT)

20,898

-

20,898

-

Total cash and cash equivalents

 (Note 20.i.d, 20.ii.a e 20.iii)

29,180

7,461

32,304

28,527

 

4.2.    Short-term investments

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Fixed-income funds (a)

33,186

62,676

33,245

66,885

Government bonds (LFT) (b)

-

1,164

-

1,207

Equity securities(e)

14,101

-

14,101

-

Securities purchased under resale agreements (b)

1,524

2,913

1,524

3,019

Bank certificates of deposit (c)

47,950

36,847

49,025

37,025

Restricted cash in guarantee to loans

-

366

-

366

Restricted credits (d)

6,066

6,979

6,961

10,433

 

 

 

 

 

Total short-term investments

 (Note 20.i.d, 20.ii.a e 20.iii)

102,827

110,945

104,856

118,935

         

 

(a)   Exclusive and open-end funds whose purpose is to invest in financial assets and/or fixed-income investment modalities that follow the fluctuations in interest rates in the interbank deposit market (CDI), by investing its funds mostly in investment fund shares and/or investment funds comprising investment fund shares.

 

(b)   On January 12, 2018 the Company discontinued Fundo Square, settling the LFT transactions and the securities linked to Fundo Like. As of December 31, 2018, the IOF-exempt securities purchased under resale agreement include earned interests of 73% of Interbank Deposit Certificates (CDI).

 

(c)   As of December 31, 2018, Bank Certificates of Deposit (CDBs) include interest earned through the statement of financial position’s reporting date, ranging from 90% to 101.2% (from 90% to 100.8% as of December 31, 2017) of Interbank Deposit Certificates (CDI).

 

(d)   Restricted credits are represented by onlending of the funds from associate credit (“crédito associativo”), a type of government real estate financing, which are in process of approval at the Caixa Econômica Federal (a Federally owned Brazilian bank used for real estate financing purpose). These approvals are made to the extent the contracts signed with customers at the financial institutions are regularized, which the Company expect to be in up to 90 days.

 

(e)   Equity securities are represented by investments in the shares of companies listed on Novo Mercado of B3, and which make up the IBrX index. These transactions were settled in the period ended February 8, 2019, and reported a gain of R$2,846.

 

 

5.    Trade accounts receivable of development and services

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Real estate development and sales

650,535

563,069

737,291

717,005

( - ) Allowance for expected credit losses

(18,159)

(24,294)

(18,159)

(24,294)

( - ) Allowance for cancelled contracts

(82,847)

(118,539)

(82,847)

(118,539)

( - ) Present value adjustments

(17,897)

(12,448)

(19,391)

(14,887)

Services and construction and other receivables

15,346

14,167

25,115

14,918

 

 

 

 

 

Total trade accounts receivable of development and services (Note 20.i.d and 20.ii.a)

546,978

421,955

642,009

574,203

 

 

 

 

 

Current

391,557

261,353

467,993

374,886

Non-current

155,421

160,602

174,016

199,317

 

 

 

 

 

 

 

 

 

47


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

5.    Trade accounts receivable of development and services --Continued

 

The current and non-current portions have the following maturities:

 

 

Company

Consolidated

Maturity

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Overdue:

 

 

 

 

Up to 90 days

46,777

33,935

64,177

70,403

From 91 to 180 days

20,716

9,338

21,832

17,861

Over 180 days

71,384

80,708

90,818

100,581

 

138,877

123,981

176,827

188,845

 

 

 

 

 

Maturities:

 

 

 

 

2018

-

280,801

-

329,821

2019

357,216

90,497

396,266

114,717

2020

107,945

74,821

118,400

89,099

2021

55,922

3,527

64,392

4,414

2022

1,568

3,609

1,727

5,027

2023 onwards

4,353

-

4,794

-

 

527,004

453,255

585,579

543,078

 

 

 

 

 

( - ) Present value adjustment

(17,897)

(12,448)

(19,391)

(14,887)

( - ) Allowance for expected credit losses and cancelled contracts

(101,006)

(142,833)

(101,006)

(142,833)

 

 

 

 

 

 

546,978

421,955

642,009

574,203

 

The balance of accounts receivable from units sold and not yet completed is not fully reflected in the financial statements. Its recording is limited to the portion of the recognized revenues net of the amounts already received, according to the accounting practice mentioned in Note2.2.2(i)(b).

 

As of December 31, 2018, the amount received from customers in excess of the recognized revenues totaled R$26,224 (R$61,039 in 2017) in the Company’s statements, and R$28,956 (R$63,748 in 2017) in the consolidated statements, and are classified in the heading “Payables for purchase of properties and advances from customers " (Note 17).

 

Accounts receivable from completed real estate units financed by the Company are in general subject to IGP-M variation plus annual interest of 12%, with revenue being recorded in profit or loss in the account “Revenue from real estate development and sale, barter transactions and construction services". The interest amounts recognized in the Company and consolidated statements for the year ended December 31, 2018 totaled R$5,884 (R$7,154 in 2017), and R$6,676 (R$9,866 in 2017), respectively.

 

The balances of allowance for expected credit losses are considered sufficient by the Company’s management to cover the estimate of future losses on realization of the accounts receivable.

 

During the years ended December 31, 2018 and 2017, the changes in the allowance for expected credit losses are summarized as follows:

 

 

48


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

5.    Trade accounts receivable of development and services --Continued

 

 

 

 

Receivables

Properties for

sale (Note 6)

 

 

 

Balance at December 31, 2016

(19,315)

-

First-time adoption CPC 47 and 48 as of 1.1.2017 (Note 3)

(310,802)

195,831

Additions (Note 22)

(18,860)

-

Write-offs / Reversals (Note 22)

206,144

(87,734)

Balance at December 31, 2017

(142,833)

108,097

Additions (Note 22)

(2,653)

-

Write-offs / Reversals (Note 22)

44,480

(24,254)

Balance at December 31, 2018

(101,006)

83,843

 

The present value adjustment recognized in revenue from real estate development for the year ended December 31, 2018 totaled R$5,449 (reversal of R$8,787 in 2017) in the Company’s statements, and R$4,504 (reversal of R$11,928 in 2017) in the consolidated statements.

 

Receivables from units not yet completed were measured at present value using a discount rate determined according to the criteria described in Note 2.2.2. The discount rate applied by the Company and its subsidiaries was 7.19% for the year 2018 (6.55% in 2017), net of Civil Construction National Index (INCC).

 

The Company entered into the following Housing Loan Certificate (CCI) transactions, which are aimed at the assignment by the assignor to the assignee of a portfolio comprising select residential and business real estate receivables performed and to be performed arising out of Gafisa and its subsidiaries. The assigned portfolios, discounted to present value, are recorded under the heading “obligations assumed on the assignment of receivables”.

 

Transaction date

Assigned portfolio

Portfolio discounted to present value

Transaction balance

Company (Note 14)

Transaction balance

Consolidated (Note 14)

2018

2017

2018

2017

 

 

 

 

 

 

 

 

(i)

Jun 27, 2011

203,915

171,694

376

769

882

1,502

(ii)

Dec 22, 2011

72,384

60,097

363

1,729

372

1,827

(iii)

Jul 6, 2012

18,207

13,917

10

29

10

29

(iv)

Nov 14, 2012

181,981

149,025

-

-

2,547

2,491

(v)

Dec 27, 2012

72,021

61,647

3,151

3,796

3,151

3,796

(vi)

Nov 29, 2013

24,149

19,564

348

876

1,877

2,850

(vii)

Nov 25, 2014

15,200

12,434

1,299

1,772

1,895

3,191

(viii)

Dec 3, 2015

32,192

24,469

3,569

5,126

7,797

10,523

(ix)

Feb 19, 2016

27,954

27,334

8,863

10,463

9,645

11,287

(x)

May 09, 2016

17,827

17,504

5,064

7,623

6,790

9,548

(xi)

Aug 19, 2016 (a)

15,418

14,943

2,985

7,525

3,075

7,574

(xii)

Dec 21, 2016

21,102

19,532

7,158

13,710

7,441

14,158

(xiii)

Mar 29, 2017

23,748

22,993

11,458

15,357

11,704

15,487

 

 

 

 

44,644

 

57,186

 

 

(a)   The consolidated balance of the transaction as of December 31, 2018 and 2017 (Note 14) does not include the jointly-controlled entities, which are accounted for using the equity method, according to CPCs 18(R2) and 19(R2).

 

Transaction (i) was entered into with Banco BTG Pactual S.A. (Note 14).

Transactions (ii) and (iii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios (Note 14).

Transactions (iv), (v), (vi) and (vii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios Não Padronizados (Note 14).

Transactions (viii), (ix), (x), (xi), (xii) and (xiii) were entered into with Polo Capital Securitizadora S.A. (Note 14).

 

In the transactions above, the Company and its subsidiaries are jointly responsible until the time of the transfer of the collateral to the securitization company.

 

For the items (i) to (iii) and (viii) to (xiii) above, the Company was engaged to perform, among other duties, the management of the receipt of receivables, the assignment’s underlying assets, collection of defaulting customers, among other, according to the criteria of each investor, being paid for these services.

49


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

 

5.    Trade accounts receivable of development and services --Continued

 

The difference between the face value of the portfolio of receivables and the amount discounted to present value was recorded in profit or loss for the year in the account “Discount related to Securitization Transaction” under financial expenses.

 

6.    Properties for sale

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Land

293,626

493,422

403,524

544,057

( - ) Provision for loss on realization of land

(96,972)

(98,752)

(96,972)

(98,752)

( - ) Adjustment to present value

(14,416)

(9,689)

(14,570)

(9,829)

Property under construction (Note 29)

327,980

410,797

403,732

507,619

Completed units

316,973

327,842

377,477

359,601

( - ) Provision for loss on realization of properties under construction and completed units

(66,106)

(80,710)

(67,632)

(80,710)

Allowance for cancelled contracts

83,842

108,097

83,842

108,097

 

 

 

 

 

Total properties for sale

844,972

1,151,007

1,089,401

1,330,083

 

 

 

 

 

Current portion

705,123

861,845

890,460

990,286

Non-current portion

139,804

289,162

198,941

339,797

 

In the years ended  December 31, 2018 and 2017, the change in the provision for loss on realization is summarized as follows:

 

 

Company

Consolidated

Balance at December 31, 2016

(103,168)

(165,511)

Reclassification to land available for sale (Note 8.1)

-

62,343

Additions:

 

 

Land (Note 23)

(55,247)

(55,247)

Property under construction and completed units (Note 23)

(32,188)

(32,188)

Write-offs

11,141

11,141

Balance at December 31, 2017

(179,462)

(179,462)

Reclassification from land available for sale (Note 8.1)

(15,937)

(15,937)

Reclassification to land available for sale (Note 8.1)

27,874

27,874

Additions:

 

 

Land (Note 23)

(30,550)

(30,550)

Property under construction and completed units (Note 23)

(4,559)

(8,097)

Write-offs (a)

39,556

41,569

 

 

 

Balance at December 31, 2018

(163,078)

(164,603)

 

(a)    The amount of write-offs refers to the respective units sold in the period.

 

The amount of properties for sale offered as guarantee for financial liabilities is described in Note 12.

 

As disclosed in Note 12, the balance of capitalized financial charges as of December 31,2018 amounts R$211,465(R$290,631 in 2017) in the Company’s statements and R$223,807 (R$301,025 in 2017) in the consolidated statements.

 

 

7.    Other assets

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Advances to suppliers

6,735

2,081

7,424

5,358

Recoverable taxes (IRRF, PIS, COFINS, among other)

17,567

26,808

23,260

33,623

Judicial deposit (Note 16.a)

103,701

80,903

106,793

83,523

Total other assets

128,003

109,792

137,477

122,504

 

 

 

 

 

Current portion

35,396

47,640

42,283

58,332

Non-current portion

92,607

62,152

95,194

64,172

 

 

50


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

8.    Non-current assets held for sale

 

8.1 Land available for sale

        

       The Company, in line with its strategic direction, opted to sell land not included in the Business Plan in effect. Likewise, it devised a specific plan for the sale of such land. The carrying value of such land, adjusted to market value when applicable, after the test for impairment, is as follows:

 

 

Company

 

Consolidated

 

Cost

Provision for impairment

Net balance

 

Cost

Provision for impairment

Net balance

 

 

 

 

 

 

 

 

Balance at December 31, 2016

12,236

(8,930)

3,306

 

       12,236

       (8,930)

        3,306

Reclassification of properties for sale (Note 6)

-  

              -  

             -  

 

       62,343

      (62,343)

              -  

Additions (Note 23)

    101,624

     (59,897)

      41,727

 

     158,979

      (59,897)

      99,082

Reversal/Write-offs

           (36)

              -  

           (36)

 

            (36)

              -  

            (36)

Balance at December 31, 2017

113,824

     (68,827)

      44,997

 

     233,522

    (131,170)

    102,352

Reclassification from properties for sale (Note 6)

58,795

(27,875)

30,920

 

58,795

(27,875)

30,920

Reclassification to properties for sale (Note 6)

(40,262)

15,937

(24,325)

 

(40,262)

15,937

(24,325)

Additions (Note 23)

25,306

(24,499)

807

 

25,349

(24,499)

850

Reversal/Write-offs (a)

(11,481)

33,924

22,443

 

(127,916)

96,267

(31,649)

Balance at December 31, 2018

146,182

(71,340)

74,842

 

149,488

(71,340)

78,148

 

(a)     The amount of write-offs over the period mainly refers to the sale of land in June 2018, located in the city of Salvador, Bahia, through the SPEs Manhattan Residencial 02 and Manhattan Comercial 02, for the amount of R$28,500, of which R$12,060 receivable in 24 months, and the remaining balance of R$16,440 was settled on July 24, 2018.

 

8.2 Non-current asset held for sale and profit or loss of discontinued operations

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Reversal of impairment loss (i)

-

215,440

-

215,440

Portion related to payable for sale of shares (iii)

-

(107,720)

-

(107,720)

Transaction costs

-

(9,545)

-

(9,545)

Impairment loss on Tenda’s profit or loss

-

(22,780)

-

(22,780)

Tenda’s profit or loss for the period ended May 4, 2017 (ii)

-

22,780

-

22,780

Profit or loss of discontinued operations

-

98,175

-

98,175


(i) The measurement of non-current asset held for sale at the lower of its carrying value and the fair value less cost to sell. For the period ended May 4, 2017, the fair value of discontinued operations was adjusted, considering the weighted average price per share for exercising preemptive rights at R$12.12.

(ii) Amounts of assets held for sale, liabilities related to assets held for sale, and profit or loss of discontinued operations, net of the eliminations related to intercompany transactions.

(iii) Amount of R$107,720 related to the obligation to sell 50% of Construtora Tenda S.A.’s shares for the price of R$8.13 per share, settled on May 4, 2017, reflected in the profit or loss of discontinued operations, in order to reflect the difference between the fair value of the group of assets held for sale and the effective selling price.

 

 

 

 

 

 

51


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

8.    Non-current assets held for sale --Continued

 

8.2 Non-current asset held for sale and profit or loss of discontinued operations --Continued

 

       As of May 4, 2017, the Company’s Management carried out the remeasurement of the fair value of the disposal group held for sale, related to Construtora Tenda S.A. The basis for measurement used (i) the price of R$8.13 per share, related to the transaction settled on May 4, 2017, and (ii) the weighted average price per share of the exercise of preemptive rights traded over the period between March 17 and 31, 2017, calculated at R$3.99 per share. The resulting price of R$12.12 per share indicated, at that time, a valuation of Construtora Tenda S.A. in the amount of R$754,460.

      

       The main lines of the statements of profit or loss and cash flows of the subsidiary Tenda are as follows:

 

Statement of profit or loss

 

Period ended 05/04/2017

 

Cash flow

Period ended 05/04/2017

 

 

 

 

 

 

Net operating revenue

 

404,737

 

Operating activities

51,959

Operating costs

 

(269,144)

 

Investing activities

48,663

Operating expenses, net

 

(104,310)

 

Financing activities

24,089

Depreciation and amortization

 

(5,723)

 

 

 

Income from equity method investments

 

269

 

 

 

Financial income (expenses)

 

101

 

 

 

Income tax and social contribution

 

(4,519)

 

 

 

 

 

21,411

 

 

 

Non-controlling interests

 

(1,369)

 

 

 

Net income for the year

 

22,780

 

 

 

 

 

 

52


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

9.    Investments in ownership interests

 

(i)      Information on subsidiaries, associates and jointly-controlled investees

 

 

 

 

 

 

 

 

 

 

 

Company

Consolidated

 

 

Interest in capital - %

Total assets

Total liabilities

Equity and advance for future capital increase

Profit (loss) for the year

Investments

Income from equity method investments

Investments

Income from equity method investments

Subsidiaries:

 

2018

2017

2018

2018

2018

2017

 

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gafisa SPE- 130 Emp. Imob. Ltda.

-

100%

100%

76,836

9,436

67,400

69,956

 

(2,555)

(12,616)

67,400

69,956

(2,555)

(12,616)

-

-

-

-

Gafisa SPE-111 Emp. Imob. Ltda.

-

100%

100%

66,627

5,107

61,520

62,073

 

(553)

(438)

61,520

62,073

(553)

(438)

-

-

-

-

Maraville Gafsa SPE Emp. Imob. Ltda.

-

100%

100%

59,545

3,389

56,156

56,743

 

(587)

(635)

56,156

56,743

(587)

(635)

-

-

-

-

Gafisa SPE-89 Emp. Imob. Ltda.

-

100%

100%

109,171

58,141

51,031

51,214

 

(183)

1

51,031

51,214

(183)

1

-

-

-

-

Gafisa SPE-104 Emp. Imob. Ltda.

-

100%

100%

121,758

73,291

48,467

40,744

 

7,724

7,735

48,467

40,744

7,724

7,735

-

-

-

-

Gafisa SPE-51 Emp. Imob. Ltda.

-

100%

100%

48,484

2,486

45,997

45,968

 

29

119

45,997

45,968

29

119

-

-

-

-

Gafisa SPE - 127 Emp. Imob. Ltda.

-

100%

100%

46,304

399

45,905

46,135

 

(229)

(279)

45,905

46,135

(229)

(279)

-

-

-

-

Gafisa SPE 72 Emp. Imob. Ltda.

-

100%

100%

44,165

462

43,703

43,809

 

(106)

(23)

43,703

43,809

(106)

(23)

-

-

-

-

Gafisa SPE - 121 Emp. Imob. Ltda.

-

100%

100%

45,537

1,924

43,612

44,372

 

(759)

(596)

43,612

44,372

(759)

(596)

-

-

-

-

Gafisa SPE - 122 Emp. Imob. Ltda.

-

100%

100%

46,574

3,730

42,843

49,255

 

(6,412)

(377)

42,843

49,255

(6,412)

(377)

-

-

-

-

Gafisa SPE-110 Emp. Imob. Ltda.

-

100%

100%

40,708

775

39,933

40,084

 

(151)

(94)

39,933

40,084

(151)

(94)

-

-

-

-

Gafisa SPE - 120 Emp. Imob. Ltda.

-

100%

100%

37,940

493

37,447

37,469

 

(22)

(51)

37,447

37,469

(22)

(51)

-

-

-

-

Gafisa SPE-107 Emp. Imob. Ltda.

-

100%

100%

29,526

5

29,520

29,522

 

(2)

(7)

29,520

29,522

(2)

(7)

-

-

-

-

SPE Parque Ecoville Emp. Imob. Ltda.

-

100%

100%

38,032

9,013

29,019

30,909

 

(1,891)

(3,837)

29,019

30,909

(1,891)

(3,837)

-

-

-

-

Gafisa SPE-137 Emp. Imob. Ltda.

-

100%

100%

28,287

-

28,287

(1)

 

(1)

-

28,287

-

(1)

-

-

-

-

-

Gafisa SPE- 129 Emp. Imob. Ltda.

-

100%

100%

27,489

634

26,855

26,913

 

(58)

(2,625)

26,855

26,913

(58)

(2,625)

-

-

-

-

Gafisa SPE-41 Emp. Imob. Ltda.

-

100%

100%

26,613

8

26,605

26,581

 

25

13

26,605

26,581

25

13

-

-

-

-

Gafisa SPE-134 Emp. Imob. Ltda.

-

100%

100%

26,361

1,192

25,169

29,635

 

(4,466)

3,828

25,169

29,635

(4,466)

3,828

-

-

-

-

Gafisa SPE- 132 Emp. Imob. Ltda.

-

100%

100%

38,749

14,655

24,095

24,142

 

(48)

(1,267)

24,095

24,142

(48)

(1,267)

-

-

-

-

Verdes Pracas Incorp. Imob. SPE Ltda.

-

100%

100%

25,682

2,997

22,686

22,565

 

121

(3,364)

22,686

22,565

121

(3,364)

-

-

-

-

Gafisa SPE-112 Emp. Imob. Ltda.

-

100%

100%

21,923

94

21,828

21,831

 

(2)

(3)

21,828

21,831

(2)

(3)

-

-

-

-

Gafisa SPE - 126 Emp. Imob. Ltda.

-

100%

100%

19,509

3

19,506

19,548

 

(42)

(825)

19,506

19,548

(42)

(825)

-

-

-

-

Gafisa SPE 46 Emp. Imob. Ltda.

-

100%

100%

17,798

149

17,648

17,557

 

91

(355)

17,648

17,557

91

(355)

-

-

-

-

Edsp 88 Participações S.A.

-

100%

100%

29,194

12,682

16,512

16,466

 

61

521

16,512

16,466

61

521

-

-

-

-

Gafisa SPE 30 Emp. Imob. Ltda.

-

100%

100%

16,416

189

16,228

16,276

 

(49)

(81)

16,228

16,276

(49)

(81)

-

-

-

-

Gafisa SPE-92 Emp. Imob. Ltda.

-

100%

100%

15,816

122

15,694

15,663

 

31

18

15,694

15,663

31

18

-

-

-

-

Gafisa SPE-106 Emp. Imob. Ltda.

-

100%

100%

15,596

5

15,591

15,596

 

(5)

(9)

15,591

15,596

(5)

(9)

-

-

-

-

Manhattan Square Emp.Im. Res.02 Ltda

-

100%

100%

16,825

1,370

15,456

36,026

 

(955)

-

15,456

36,026

(955)

-

-

-

-

-

Gafisa SPE 33 Emp. Imob. Ltda.

-

100%

100%

195,787

182,773

13,014

13,480

 

(465)

(79)

13,014

13,480

(465)

(79)

-

-

-

-

Gafisa SPE 71 Emp. Imob. Ltda.

-

100%

100%

12,676

177

12,500

12,505

 

(6)

(1,257)

12,500

12,505

(6)

(1,257)

-

-

-

-

Gafisa SPE 65 Emp. Imob. Ltda.

-

100%

100%

11,378

287

11,091

11,014

 

78

(703)

11,091

11,014

78

(703)

-

-

-

-

Gafisa SPE 36 Emp. Imob. Ltda.

-

100%

100%

9,145

301

8,845

8,872

 

(27)

(58)

8,845

8,872

(27)

(58)

-

-

-

-

Gafisa SPE-81 Emp. Imob. Ltda.

-

100%

100%

9,227

866

8,360

8,440

 

(80)

(277)

8,360

8,440

(80)

(277)

-

-

-

-

Manhattan Square Emp. Im. Com.02Ltda

-

100%

100%

8,854

601

8,254

17,958

 

30

-

8,254

17,958

30

-

-

-

-

-

Gafisa Vendas Interm. Imobiliaria Ltda

-

100%

100%

12,781

4,732

8,049

17,727

 

(9,679)

(13,067)

8,049

17,727

(9,679)

(13,067)

-

-

-

-

Gafisa SPE-38 Emp. Imob. Ltda.

-

100%

100%

7,946

-

7,946

7,948

 

(2)

(6)

7,946

7,948

(2)

(6)

-

-

-

-

Gafisa SPE-109 Emp. Imob. Ltda.

-

100%

100%

7,205

43

7,162

7,181

 

(20)

26

7,162

7,181

(20)

26

-

-

-

-

Gafisa SPE-37 Emp. Imob. Ltda.

-

100%

100%

7,210

652

6,559

6,663

 

(104)

(89)

6,559

6,663

(104)

(89)

-

-

-

-

Gafisa SPE-90 Emp. Imob. Ltda.

-

100%

100%

8,251

1,825

6,426

6,470

 

(44)

(2)

6,426

6,470

(44)

(2)

-

-

-

-

OCPC01 adjustment – capitalized interest

(a)

 

 

-

-

-

-

 

-

-

22,005

22,805

(801)

(11,306)

-

-

-

-

Other (*)

 

 

 

125,313

77,396

47,915

59,177

 

(8,937)

(10,863)

46,040

55,328

(10,833)

(1,228)

-

-

-

-

Subtotal Subsidiaries

 

 

 

1,553,238

472,404

1,080,834

1,114,486

 

(30,250)

(41,622)

1,100,964

1,133,443

(32,947)

(43,293)

-

-

-

-

 

 

 

 

 

53


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

9.    Investments in ownership interests --Continued

 

(i)      Information on subsidiaries, associates and jointly-controlled investees --Continued

 

 

 

 

 

 

 

 

 

 

 

Company

Consolidated

 

 

Interest in capital - %

Total assets

Total liabilities

Equity and advance for future capital increase

Profit (loss) for the year

Investments

Income from equity method investments

Investments

Income from equity method investments

Jointly-controlled investees:

 

2018

2017

2018

2018

2018

2017

 

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gafisa E Ivo Rizzo SPE-47 Emp. Imob. Ltda.

-

80%

80%

33,225

886

32,339

32,393

 

(52)

5

25,872

25,914

(42)

4

25,872

25,914

(42)

4

Parque Arvores Empr. Imob. Ltda.

(b)

50%

50%

34,784

3,631

31,153

30,616

 

755

4,001

15,577

15,308

269

2,000

15,577

15,308

269

2,000

Sitio Jatiuca Emp. Imob. SPE Ltda

-

50%

50%

32,367

2,954

29,413

28,143

 

1,270

(10,041)

14,707

14,072

635

(5,021)

14,707

14,072

635

(5,021)

Varandas Grand Park Emp. Imob. Spe Ltda.

(b)

50%

50%

53,366

28,377

24,989

19,858

 

2,685

(5,970)

12,495

9,929

1,450

(2,984)

12,495

9,929

1,450

(2,984)

Gafisa SPE-116 Emp. Imob. Ltda.

-

50%

50%

31,488

8,951

22,537

116,085

 

(20,972)

(4,709)

11,268

58,043

(10,486)

(2,354)

11,268

58,043

(10,486)

(2,354)

FIT 13 SPE Empreendimentos Imobiliários Ltda.

-

50%

50%

21,906

2,200

19,706

20,885

 

5

(7)

9,853

10,442

3

(3)

9,853

10,442

3

(3)

Atins Emp. Imob.s Ltda.

-

50%

50%

24,644

6,916

17,728

18,998

 

(1,269)

797

8,864

9,499

(635)

398

8,864

9,499

(635)

398

Performance Gafisa General Severiano Ltda

-

50%

50%

11,709

10

11,700

11,371

 

204

(33)

5,850

5,686

102

(17)

5,850

5,686

102

(17)

Other (*)

(b)

 

 

126,816

70,472

56,343

84,738

 

(9,431)

(9,501)

30,223

34,674

(6,404)

(5,097)

40,449

44,966

(6,701)

(6,573)

Subtotal Jointly-controlled investees

 

 

 

370,305

124,397

245,908

363,087

 

(26,805)

(25,458)

134,709

183,567

(15,108)

(13,074)

144,935

193,859

(15,405)

(14,550)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Associates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alphaville Urbanismo S.A.

(e)

30%

30%

1,883,471

2,820,839

(937,369)

(141,290)

 

(755,032)

(764,142)

-

-

-

(186,856)

-

-

-

(186,856)

Citta Ville SPE Emp. Imob. Ltda.

-

50%

50%

17,146

2,680

14,466

12,555

 

2,235

(4,102)

7,233

6,277

1,118

(2,051)

7,233

6,277

1,118

(2,051)

Other (*)

 

 

 

1,150

17

1,133

1,119

 

14

20

510

504

6

(68)

1,237

5,090

2

(15)

Indirect jointly-controlled investees Gafisa

 

 

 

1,901,767

2,823,536

(921,770)

(127,616)

 

(752,783)

(768,224)

7,743

6,781

1,124

(188,975)

8,470

11,367

1,120

(188,922)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,825,310

3,420,337

404,972

1,349,957

 

(809,838)

(835,304)

1,243,416

1,323,791

(46,931)

(245,342)

153,405

205,226

(14,285)

(203,472)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill based on inventory surplus

-

 

 

 

 

 

 

 

 

 

3,000

462

-

-

-

-

-

-

Goodwill from remeasurement of investment in associate

(c)

 

 

 

 

 

 

 

 

 

161,100

273,900

-

-

161,100

273,900

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

 

 

 

 

 

 

 

 

 

1,407,516

1,598,153

(46,931)

(245,342)

314,505

479,126

(14,285)

(203,472)

(*) Includes companies with investment balances below R$ 5,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

Consolidated

 

Interest in capital - %

Total assets

Total liabilities

Equity and advance for future capital increase

Profit (loss) for the period

Investments

Income from equity method investments

Investments

Income from equity method investments

Provision for net capital deficiency

2018

2017

2018

2018

2018

2017

 

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserva Das Palmeiras Incorp. SPE Ltda.

100%

100%

135

3,734

(3,598)

1,597

 

(5,196)

-

(3,598)

1,597

(5,196)

-

-

-

-

-

Manhattan Square Emp. Im. Res. 01 SPE Ltda

50%

50%

3,149

7,373

(4,224)

(2,481)

 

(1,395)

(3,214)

(2,113)

(1,240)

(872)

(1,581)

(2,113)

(1,240)

(872)

(1,581)

Manhattan Square Emp. Im. Com. 01 SPE Ltda

50%

50%

3,925

6,173

(2,247)

(1,573)

 

(232)

(2,267)

(1,124)

(787)

(337)

(1,131)

(1,124)

(787)

(337)

(1,131)

Gafisa SPE 69 Emp. Imob. Ltda.

100%

100%

-

1,013

(1,013)

(519)

 

(494)

(519)

(1,013)

(519)

(494)

(519)

-

-

-

-

Other (*)

 

 

634

1,852

(1,220)

(1,734)

 

(1,475)

(260)

(575)

(1,681)

2,901

(8,297)

(298)

(36)

11

1,321

Total provision for net capital deficiency

 

 

7,843

20,145

(12,302)

(4,710)

-

(8,792)

(6,260)

(8,423)

(2,630)

(3,998)

(11,528)

(3,535)

(2,063)

(1,198)

(1,391)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Income from equity method investments

 

 

 

 

 

 

 

 

 

 

 

(50,929)

(256,870)

 

 

(15,483)

(204,863)

(*) Includes companies with investment balances below R$ 5,000)..

 

 

 

 

 

54


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

9.    Investments in ownership interests --Continued

 

 

 

(a)    Financial charges of the Company not recorded in the profit or loss of subsidiaries, as required by paragraph 6 of OCPC01.

(b)    The Company recorded expense of R$791 in Income from equity method investments for the period ended December 31, 2018 related to the recognition, by jointly-controlled entities, of prior year adjustments, in accordance with the ICPC09 (R2) - Individual, Separate and Consolidated Financial Statements and the Equity Method of Accounting.

(c)    Amount related to the goodwill arising from the remeasurement of the portion of the remaining investment of 30% in the associate AUSA, in the amount of R$161,100 (R$273,900 in 2017), arising from the sale of control over the entity. As of December 31, 2018, the impairment test, which is performed annually based on the estimate of future economic benefit, or when circumstances indicate impairment of carrying value, identified the need for recognizing an impairment provision for loss on realization of R$112,800 (R$127,429 in 2017). The main assumptions adopted for determining the recoverable amount of the remaining investment of AUSA are detailed in this Note.

(d)    The provision for net capital deficiency is recorded in the heading “Other payables” (Note 15).

(e)    In view of the net capital deficiency of AUSA, and in line with CPC 18 (R2) – Investment in Associates, Subsidiaries and Joint Ventures, the Company discontinued the recognition of its interest in future losses after reducing to zero the carrying amount of the 30% interest.

 

(ii)    Information on significant investees

 

 

Significant investee:

 

Other investees:

 

Alphaville Urbanismo S.A.

 

Subsidiaries

Jointly-controlled investees

Associates

 

2018

2017

 

2018

2017

2018

2017

2018

2017

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

11,282

43,478

 

989

10,645

33,193

49,912

1,511

773

Current assets

974,853

1,049,221

 

1,278,206

1,499,490

322,413

499,438

18,253

18,826

Non-current assets

908,617

1,195,723

 

275,032

294,787

47,892

47,030

43

4

Current liabilities

549,884

413,469

 

433,047

590,836

95,864

149,100

1,782

2,923

Non-current liabilities

2,255,091

1,947,452

 

39,357

88,956

28,533

34,280

915

2,233

 

 

 

 

 

 

 

 

 

 

Net revenue

68,629

108,321

 

151,610

197,243

67,846

(1,344)

1,210

(2,493)

Operating costs

(189,917)

(420,381)

 

(152,165)

(157,550)

(76,256)

(753)

(1,266)

1,526

Depreciation and Amortization

(13,469)

(13,733)

 

(1,354)

(880)

(5)

(624)

-

-

Financial income (expenses)

(366,627)

(252,114)

 

(4,081)

(5,868)

(4,787)

(7,879)

64

4

Income tax and social contribution

(6,388)

3,385

 

(3,344)

(2,651)

(1,938)

(203)

(38)

(8)

Profit (loss) from Continued Operations

(755,032)

(764,142)

 

(30,250)

(41,622)

(26,805)

(25,458)

2,249

(4,082)

 

(iii)   Change in investments

 

 

 

 

 

 

 

Company

Consolidated

 

 

 

 

Balance at December 31, 2017

 

1,598,153

479,126

Income from equity method investments (a)

 

(76,281)

(14,285)

Capital contribution (decrease)

 

2,537

2,415

Transfer of investments with net capital deficiency

 

3,598

-

Dividends receivable

 

(8,427)

(8,031)

Recognition of goodwill (b)

 

3,000

-

Assignment of shares (c)

 

-

(28,289)

Loss on realization of investment measured at fair value (Note 9.i.c)

 

(112,800)

(112,800)

Write-off of goodwill based on inventory surplus (Note 9.i)

 

(462)

-

Other investments

 

(1,802)

(3,631)

Balance at December 31, 2018

 

1,407,516

314,505

 

(a) The change in income from equity method investments recorded in profit or loss for the year, for the amount shown in item 9(i), substantially refers to the realization of loss on investee, which was already recognized in the Company, without effect on the consolidated statements.

(b) In September 2018, the Company recognized goodwill related to the acquisition of 100% of the shares of SPE  Pavão Arlequin Empreendimentos Imobiliários Ltda.

(c) In October 2018, the shares of Gafisa SPE-116, a jointly-controlled entity, were assigned to Gafisa SPE-137, which is fully controlled by the Company, in the amount of R$ 28,289.

55


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

9.    Investments in ownership interests --Continued

 

The reported goodwill arises from the difference between the consideration and the equity of acquirees, calculated on acquisition date, and is based on the expectation of future economic benefits.

 

The Company evaluated the recovery of the carrying value of goodwill using the “value in use” concept, applying discounted cash flow models of the cash-generating units. The process for determining the value in use involves the use of assumptions, judgments and estimates relating to cash flows, such as growth rate of revenues, costs and expenses, estimates of investment and future working capital, and discount rates. The assumptions relating to projections of growth, cash flow and future cash flows are based on the Company’s business plan, approved by the Management, as well as on comparable market data, and represent the Management’s best estimate of the economic conditions that will prevail during the economic life of the different cash-generating units, group of assets that provides the generation of cash flows. The future cash flows were discounted based on the rate representative of the cost of capital. The evaluation of the value in use is made for a twenty-year period, consistently with economic valuation techniques and performed evaluations, and after such period, considering the perpetuity of assumptions in view of the ability to continue as going concern. The main assumptions used in the estimate of value in use are the following: (a) revenue – revenues were projected for the period between 2019 and 2038, considering projection of launches and growth in sales, construction progress and client base of the different cash-generating units, considering the inflation adjustments to trade accounts receivable and provided services; (b) Operating costs and expenses – costs and expenses were projected in line with historical performance, as well as the historical growth of revenues; (c) discount rate at 15.30% in nominal terms,(d) calculation of perpetuity considering a growth of 3.8% p.a. equivalent to the long-term inflation estimate projected by the Brazilian Central Bank, and (e) going concern assumption, in line with the Company’s business plan. The key assumptions were based on the historical performance of business units, and on reasonable macroeconomic assumptions, and supported by the financial market projections.

 

In the year ended December 31, 2018, the test for impairment of goodwill of the Company resulted in the need for recognition of a provision for realization (impairment) in the amount of R$112,800, related to the goodwill remeasurement of investment in the associate AUSA (R$127,429 in 2017).

 

10Property and equipment

 

 

 

Company

Consolidated

 

Type

2017

Addition

Write-off

100% depreciated items

2018

2017

Addition

Write-off

100% depreciated items

2018

Cost

 

 

 

 

 

 

 

 

 

 

Hardware

9,567

2,937

(124)

(2,272)

10,108

9,729

2,990

(124)

(2,298)

10,297

Leasehold improvements and installations

5,166

29

(4,410)

-

785

5,272

29

(4,467)

-

834

Furniture and fixtures

675

-

-

(38)

637

907

-

-

(143)

764

Machinery and equipment

2,640

-

-

-

2,640

2,640

-

-

-

2,640

Sales stands

9,547

8,497

(6,773)

(270)

11,001

13,881

9,720

(6,773)

(287)

16,541

 

27,595

11,463

(11,307)

(2,580)

25,171

32,429

12,739

(11,364)

(2,728)

31,076

   

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

Hardware

(1,283)

(3,264)

175

2,272

(2,100)

(1,291)

(3,311)

175

2,298

(2,129)

Leasehold improvements and installations

(1,631)

(478)

1,682

-

(427)

(1,677)

(498)

1,739

-

(436)

Furniture and fixtures

(419)

(66)

-

38

(447)

(632)

(74)

-

143

(563)

Machinery and equipment

(1,872)

(264)

-

-

(2,136)

(1,872)

(264)

-

-

(2,136)

Sales stands

(2,671)

(6,241)

5,865

270

(2,777)

(4,615)

(7,292)

5,881

287

(5,739)

 

(7,876)

(10,313)

7,722

2,580

(7,887)

(10,087)

(11,439)

7,795

2,728

(11,003)

 

 

 

 

 

 

 

 

 

 

 

Total property and equipment

19,719

1,150

(3,585)

-

17,284

22,342

1,300

(3,569)

-

20,073

56


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

10Property and equipment --Continued

 

The following useful lives and rates are used for calculating depreciation:

 

 

Useful life

Annual depreciation rate - %

Leasehold improvements and installations

4 years

25

Furniture and fixture

10 years

10

Hardware

5 years

20

Machinery and equipment

10 years

10

Sales stands

1 year

100

 

The residual value, useful life, and depreciation methods are reviewed at the end of each year; no change having been made in relation to the information for the prior year.

 

Property and equipment are subject to periodic analysis of impairment. As of December 31, 2018 and 2017 there was no indication of impairment of property and equipment.

 

11.  Intangible assets

 

 

Company

 

2017

 

 

 

2018

 

Balance

Addition

Write-down / amortization

100% amortized items

Balance

 

 

 

 

 

 

Software – Cost

31,931

5,656

(12,597)

(105)

24,885

Software – Depreciation

(14,501)

-

510

105

(13,886)

Other

-

2,008

(2,008)

-

-

Total intangible assets

17,430

7,664

(14,095)

-

10,999

 

 

 

 

               

 

 

 

Consolidated

 

2017

 

 

 

2018

 

Balance

Addition

Write-down / amortization

100% amortized items

Balance

 

 

 

 

 

 

Software – Cost

32,658

6,398

(12,666)

(105)

26,285

Software – Depreciation

(14,965)

-

345

105

(14,515)

Other

587

2,008

(2,595)

-

-

Total intangible assets

18,280

8,406

(14,916)

-

11,770

 

 

 

 

               

 

 

Other intangible assets comprise expenditures on the acquisition and implementation of information systems and software licenses, amortized over the average term of five years (20% per year).

 

As of December 31, 2018, the test of recovery of the intangible assets of the Company resulted in the need for recognition of a provision for loss on realization (impairment) in the amount of R$4,962 (R$710 in 2017), related to the Company’s software.

 

 

57


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

12.  Loans and financing

 

 

 

 

Company

Consolidated

Type

Maturity

Annual interest rate

2018

2017

2018

2017

 

 

 

 

 

 

 

National Housing System - SFH /SFI (i)

April 2019 to July 2021

8.30% to 14.30% + TR

12.87% and 143% of CDI

464,992

598,047

528,140

733,103

Certificate of Bank Credit - CCB (ii)

 

January 2021 to August 2021

 

 

135% do CDI

2.5%/ 3%/ 3.70%/ 4.25%+CDI

 

 

95,607

 

164,083

 

95,607

 

164,082

 

 

 

 

 

 

 

Total loans and financing(Note 20.i.d, 20.ii.a and 20.iii)

560,599

762,130

623,747

897,185

 

 

 

 

 

 

 

Current

 

 

180,702

386,605

213,395

442,073

Current – reclassification for breach of covenant

 

72,217

39,000

72,217

39,000

Current portion

 

 

252,919

425,605

285,612

481,073

Non-current portion

 

 

307,680

336,525

338,135

416,112

 

                                                                                                                                                                                                                                                                                                                                                        

(i)   The SFH financing is used for covering costs related to the development of real estate ventures of the Company and its subsidiaries, and backed by secured guarantee by the first-grade mortgage of real estate ventures and the fiduciary assignment or pledge of receivables.

 

(ii)  In the year ended December 31, 2018, the Company made payments in the total amount of  R$123,039, of which R$111,168 related to principal and R$11,871 related to the interest payable. Additionally, during the year, the Company entered into three CCB transaction in the amount of R$40,000, with final maturity on August 2021.

 

(iii)  Of this amount, R$24,282 refer to the breach of the covenant of a CCB transaction, settled in February 2019 (Note 32(iv)), and  R$47,935 refer to the reclassification of debt due to the need for re-establishment of guarantees.

 

Rates

 

·   CDI - Interbank Deposit Certificate;

·   TR - Referential Rate.

 

The current and non-current portions have the following maturities:

 

 

Company

 

Consolidated

Maturity

2018

2017

 

2018

2017

 

 

 

 

 

 

2018

-

425,605

 

-

481,073

2019

252,919

235,076

 

285,612

287,227

2020

186,163

92,118

 

216,618

116,799

2021

121,517

9,331

 

121,517

12,086

 

 

 

 

 

 

 

560,599

762,130

 

623,747

897,185

 

In line with the conditions to the commitment to the subscription of investors (Note 1), the Company renegotiated with creditors the postponement of the due date of debts in the amount of R$456,316 from 2018 and 2019 to 2020 and 2021, on suspensive condition until the ratification of the capital increase in February 2018. The Company and its subsidiaries have restrictive covenants under certain loans and financing that limit their ability to perform certain actions, such as the issuance of debt, and that could require the early maturity or refinancing of loans if the Company does not fulfill certain restrictive convents. The Company analyzed the debt contracts and, besides the above-described situations (item (iii)), it did not identify any impact on cross restrictive covenants.

 

 

 

58


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

12.  Loans and financing --Continued

 

The Company’s management, who signs these Financial Statements, determined that the Company assigned to third parties, in the years 2016 and 2017, real estate receivables from real estate sales.

 

These real estate receivables served as guarantee to certain bank financing contracts that the Company had entered into between 2012 and 2014. In view of the assignments of real estate receivables in 2016 and 2017 to third parties, the Company’s management, who signs these Financial Statements, is negotiating with the financial institution, as requested by the latter, the immediate regularization of its obligations.

 

The ratios and minimum and maximum amounts required under restrictive covenants for loan and financing transactions are as follows:

 

 

2018

2017

 

 

 

 

 

 

Loans and financing

 

 

Net debt cannot exceed 100% of equity plus noncontrolling interests (a)

152.53%

126.08%

Total accounts receivable(1) plus inventory required to be below zero or 2.0 times over venture debt(2)

4.51 times

3.62 times

Total accounts receivable(1) plus inventory of completed units required to be below zero or 2.0 times over net debt less venture debt(2)

7.09 times

7.51 times

Total debt, less venture debt, less cash and cash equivalents and short-term investments(3), cannot exceed 75% of equity plus non-controlling interests

45.44%

29.54%

Total receivables(1) plus unappropriated income plus total inventories of completed units required to be 1.5 time over the net debt plus payable for purchase of properties plus unappropriated cost

1.81 time

1.93 time

Total accounts receivable(1) plus total inventories required to be below zero or 2.0 times over net debt

3.17 times

2.77 times

 

 

 

 

(1)   Total receivables, whenever mentioned, refers to the amount reflected in the Statement of Financial Position plus the amount not shown in the Statement of Financial Position.

(2)   Venture debt and secured guarantee debt refer to SFH debts, defined as the sum of all disbursed borrowing contracts which funds were provided by the SFH.

(3)   Cash and cash equivalents and short-term investments refer to cash and cash equivalents and marketable securities.

 

(a)  For the periods ended December 31, 2018 and 2017, the covenant limit is 100%, according to the waiver obtained from the creditor.

 

Financial expenses of loans, financing and debentures (Note 13) are capitalized at the cost of each venture and land, according to the use of funds, and recognized in profit or loss for the year, according to the criteria for revenue recognition. The capitalization rate used in the determination of costs of loans eligible to capitalization was 11.55% as of December 31, 2018 (11.52% in 2017).

 

The following table shows the summary of financial expenses and charges and the capitalized portion in the line item properties for sale.

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Total financial charges for the year

91,898

152,785

104,066

178,137

Capitalized financial charges (Note 30)

(18,270)

(37,324)

(35,686)

(74,310)

Subtotal  (Note 24)

73,628

115,461

68,380

103,827

 

 

 

 

 

Financial charges included in “Properties for sale”:

 

 

 

 

 

 

 

 

 

Opening balance

290,631

329,651

301,025

343,231

Capitalized financial charges

18,270

37,324

35,686

74,310

Charges recognized in profit or loss (Note 23)

(97,436)

(76,344)

(112,904)

(116,516)

 

 

 

 

 

Closing balance (Note 6)

211,465

290,631

223,807

301,025

 

The recorded amount of properties for sale offered as guarantee for loans, financing and debentures is R$552,752 (R$796,800 in 2017).

 

59


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

13.  Debentures

 

 

 

 

 

Company and

Consolidated

Program/placement

Principal - R$

Annual interest

Final maturity

2018

2017

 

 

 

 

 

 

Ninth placement (i)

-

CDI + 3.00%

January 2021

-

49,877

Tenth placement (ii)

36,667

IPCA + 8.37%

January 2021

49,299

71,011

Eleventh placement – 1st series A (iii)

70,305

CDI + 5.25%

February 2020

69,831

86,825

Twelfth placement (iv) (a)

66,668

CDI + 3.75%

July 2020

65,714

-

Thirteenth placement (v) (b)

80,793

CDI + 3.00%

June 2022

80,822

-

Total debentures (Note 20.i.d, 20.ii.a, 20.iii and 30.ii)

265,666

207,713

 

 

 

 

 

 

Current portion

 

 

 

62,783

88,177

Non-current portion

 

 

 

202,883

119,536

 

(a)    On May 21, 2018, the Company approved the 12th Private Placement of Non-convertible Debentures, with general guarantee, in sole series in the total amount of R$76,000, with final maturity in July 2020. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees are represented by the conditional sale of real estate receivables and the purchase of completion bond related to a specific venture. The face value of the Placement will accrue interest corresponding to the cumulative variation of Interbank Deposit (DI) plus a surcharge equivalent to 3.75% p.a..

 

(b)    On July 3, 2018, the Company approved the 13th Private Placement of Non-convertible Debentures, with general guarantee, in sole series in the total amount of R$90,000, with final maturity in June 2022. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees are represented by the conditional sale of real estate receivables. The face value of the Placement will accrue interest corresponding to the cumulative variation of Interbank Deposit (DI) plus a surcharge equivalent to 3%p.a..

 

In the year ended December 31, 2018, the Company made the following payments:

 

 

Face Value placement

Interest payable

Total amortization

(i)

50,195

2,054

52,249

(ii)

18,333

9,129

27,462

(iii)

17,505

9,123

26,628

(iv)

9,332

3,737

13,069

(v)

9,207

3,533

12,740

 

104,572

27,576

132,148

 

The current and non-current portions have the following maturities:

 

 

Company and Consolidated

Maturity

2018

2017

 

 

 

2018

-

88,177

2019

62,783

51,530

2020

157,700

68,006

2021

43,391

-

2022

1,792

-

 

265,666

207,713

 

In line with the conditions to the investor’s subscription commitment, the Company renegotiated with creditors the postponement of debt maturities from 2018 and 2019 to 2020 and 2021, which was ratified with the Board of Directors’ approval of the capital increase on February 28, 2018 (Note 18.1).

 

 

 

60


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

13.  Debentures--Continued

 

The Company is compliant with the restrictive covenants of debentures at the reporting date of these financial statements. The ratios and minimum and maximum amounts required under such restrictive covenants are as follows:

 

 

2018

2017

 

 

 

Ninth placement

 

 

Total account receivable (1)plus inventory required to be below zero or 2.0 times over net debt

-

2.77 times

Net debt cannot exceed 100% of equity plus noncontrolling interests

-

126.08%

 

 

 

Tenth placement

 

 

Total account receivable (1)plus inventory required to be below zero or 2.0 times over net debt less venture debt (2)

10.63 times

11.83 times

Total debt less venture debt (2), less cash and cash equivalents and short-term investments( (3), cannot exceed 75% of equity plus noncontrolling interests

45.44%

29.54%

 

 

 

 

 

 

 

 

 

(b)        

(1) Total receivables, whenever mentioned, refers to the amount reflected in the Statement of Financial Position plus the amount not shown in the Statement of Financial Position.

(2) Venture debt and secured guarantee debt refer to SFH debts, defined as the sum of all disbursed borrowing contracts which funds were provided by SFH.

(3) Cash and cash equivalents and short-term investments refer to cash and cash equivalents and marketable securities.

 

 

14.  Obligations assumed on assignment of receivables

 

The transactions of assignment of the receivable portfolio are as follows:

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Obligation CCI June/2011 - Note 5(i)

376

769

882

1,502

Obligation CCI December/2011 - Note 5(ii)

363

1,729

372

1,827

Obligation CCI July/2012 - Note 5(iii)

10

29

10

29

Obligation CCI November/2012 - Note 5(iv)

-

-

2,547

2,491

Obligation CCI December/2012 - Note 5(v)

3,151

3,796

3,151

3,796

Obligation CCI November/2013 - Note 5(vi)

348

876

1,877

2,850

Obligation CCI November/2014 - Note 5(vii)

1,299

1,772

1,895

3,191

Obligation CCI December/2015 - Note 5(viii)

3,569

5,126

7,797

10,523

Obligation CCI February/2016 - Note 5(ix)

8,863

10,463

9,645

11,287

Obligation CCI May/2016 - Note 5(x)

5,064

7,623

6,790

9,548

Obligation CCI August/2016 - Note 5(xi)

2,985

7,525

3,075

7,574

Obligation CCI December/2016 - Note 5(xii)

7,158

13,710

7,441

14,158

Obligation CCI March/2017 - Note 5(xiii)

11,458

15,357

11,704

15,487

Obligation FIDC

-

37

-

130

Total obligations assumed on assignment of receivables

 (Note 20.i.d and 20.ii.a)

44,644

68,812

57,186

84,393

 

 

 

 

 

Current portion

18,554

23,953

25,046

31,001

Non-current potion

26,090

44,859

32,140

53,392

                                                                                                                                                                      

The current and non-current portions have the following maturities:

 

 

Company

 

Consolidated

Maturity

2018

2017

 

2018

2017

 

 

 

 

 

 

2018

-

23,953

 

-

31,001

2019

18,554

16,588

 

25,046

20,042

2020

10,326

11,645

 

12,381

14,068

2021

5,366

7,299

 

7,791

8,967

2022

2,629

9,327

 

3,092

10,315

2023 onwards

7,769

-

 

8,876

-

 

44,644

68,812

 

57,186

84,393

 

Regarding the above transactions, the assignor is required to fully formalize the guarantee instruments of receivables in favor of the assignee. Until it is fully fulfilled, these amounts will be classified into a separate account in current and non-current liabilities.

 

 

61


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

14.  Obligations assumed on assignment of receivables --Continued

 

 

Transaction (i) was entered into with Banco BTG Pactual S.A. at rates of 11.48% plus INCC for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate of occupancy.

 

Transactions (ii) and (iii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios at rates that range between 11.25% and 11.50%, plus INCC for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate of occupancy.

 

Transactions (iv), (v), (vi) and (vii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios Não Padronizados at rates that range between 10.50% and 11.48%, plus INCC for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate of occupancy.

 

Transactions (viii), (ix), (x), (xi), (xii) and (xiii) were entered into with Polo Capital Securitizadora S.A.at rates of 12.00%, plus INCC for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate of occupancy.

                

15.  Other payables

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Cancelled contract payable and allowance for cancelled contracts

71,065

85,533

89,461

103,924

Warranty provision

21,940

26,070

21,940

26,070

Deferred sales taxes (PIS and COFINS)

8,284

3,627

9,622

5,446

Provision for net capital deficiency (Note 9.i.d)

8,423

2,630

3,535

2,063

Long-term suppliers(Note 20.i.d)

12,049

2,324

14,734

3,187

Forward transactions – Share Repurchase Program (Note 20.ii a and 20.iii)

38,879

-

38,879

-

Share-based payment - Phantom Shares (Note 18.4)

4,602

4,060

4,602

4,060

Other liabilities

9,418

9,001

11,038

9,288

Total other payables

174,660

133,245

193,811

154,038

 

 

 

 

 

Current portion

156,498

126,204

173,951

146,943

Non-current portion

18,162

7,041

19,860

7,095

 

 

16.  Provisions for legal claims and commitments

 

The Company and its subsidiaries are parties to lawsuits and administrative proceedings at various courts and government agencies that arise from the ordinary course of business, involving tax, labor, civil, and other matters. Management, based on information provided by its legal counsel and analysis of the pending claims and, with respect to the labor claims, based on past experience regarding the amounts claimed, recognized a provision in an amount considered sufficient to cover the estimated losses on pending decisions. The Company does not expect any reimbursement in connection with these claims.

 

In the years ended December 31, 2018 and 2017, the changes in the provision are summarized as follows:

 

 

Company

Civil lawsuits

Tax proceedings

Labor claims

Total

Balance at December 31, 2016

98,050

3,124

57,168

158,342

Additional provision (Note 23) (i)

89,704

-

17,931

107,635

Payment and reversal of provision not used (i)

(49,273)

(2,365)

(18,896)

(70,534)

Balance at December 31, 2017

138,481

759

56,203

195,443

Additional provision (Note 23) (i)

150,011

8

22,084

172,103

Payment and reversal of provision not used (ii)

(53,198)

(130)

(23,154)

(76,482)

Balance at December 31, 2018

235,294

637

55,133

291,064

 

 

 

 

 

Current portion

116,835

637

20,729

138,201

Non-current portion

118,459

-

34,404

152,863

 

 

 

 

 

 

62


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

16.  Provisions for legal claims and commitments --Continued

 

 

 

Consolidated

Civil lawsuits

Tax proceedings

Labor claims

Total

Balance at December 31, 2016

98,179

3,124

61,655

162,958

Additional provision (Note 23)

89,704

-

18,144

107,848

Payment and reversal of provision not used

(49,247)

(2,365)

(20,817)

(72,429)

Balance at December 31, 2017

138,636

759

58,982

198,377

Additional provision (Note 23) (i)

150,140

8

22,284

172,432

Payment and reversal of provision not used (ii)

(53,294)

(130)

(23,576)

(77,000)

Balance at December 31, 2018

235,482

637

57,690

293,809

 

 

 

 

 

Current portion

116,835

637

20,729

138,201

Non-current portion

118,647

-

36,961

155,608

 

(i)    Of this amount: (a) R$ 23,306 refer to the provision related to the lawsuit seeking damages, in view of the rescission of a contract for purchase of land, which decision was awarded in 2015; (b) R$ 23,240 refer to the provision for the fine imposed in March 2017, in view of the supposed fail to repair the common area of a venture located in Rio de Janeiro; (c) R$33,688 refer to the settlement of final and unappealable court decision awarded in April 2018, (d) R$15,000 refer to the provision related to two arbitration cases, and (e) R$26,747 refer to provision related to the lawsuit filed by condominium.

(ii)   Of this amount, R$15,000 refer to the payment in connection with two arbitration cases, and R$5,700 refer to payment of lawsuit related to construction defects of venture which initial responsibility rested with a former shareholder of the Company.

 

 

(a)     Civil lawsuits, tax proceedings and labor claims

 

As of December 31, 2018, the Company and its subsidiaries have deposited in court the amount of R$103,701 (R$80,903 in 2017) in the Company’s balance, and R$106,793 (R$83,523 in 2017) in the consolidated balance (Note 7).

 

   

Company

Consolidated

 

 

2018

2017

2018

2017

 

 

 

 

 

 

Civil lawsuits

 

48,411

40,837

48,992

42,147

Tax proceedings

 

38,859

24,679

40,031

25,500

Labor claims

 

16,431

15,387

17,770

15,876

Total (Note 7)

 

103,701

80,903

106,793

83,523

 

 

(i)         As of December 31, 2018, the provisions related to civil lawsuits include R$21,274 (R$23,980 in 2017) related to lawsuits in which the Company is included in the defendant side to be liable for in and out of court debts which original debtor is a former shareholder of the Company, Cimob Companhia Imobiliária (“Cimob”), or involve other companies of the same economic group of Cimob. In these lawsuits, the plaintiff argues that the Company should be liable for Cimob’s debts, because in its understanding the requirements for piercing of the corporate veil of Cimob to reach the Company (business succession, merger of assets and/or formation of a same economic group involving the Company and the Cimob Group). In addition, there is judicial deposit in the amount of R$16,361 (R$16,818 in 2017) related to such lawsuits.

 

The Company does not agree with the statement of facts based on which it has been included in these lawsuits and continues to dispute in court its liability for the debts of a third company, as well as the amount charged by the plaintiffs. The Company has already obtained favorable and unfavorable decisions in relation to this matter, reason why it is not possible to estimate a uniform outcome in all lawsuits. The Company also aims by filing a lawsuit against Cimob and its former and current parent companies the recognition that it should not be liable for the debts of that company, as well as indemnity of the amounts already paid by the Company in lawsuits relating to the charge of debts owed by Cimob.

 

 

 

 

 

63


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

16.  Provisions for legal claims and commitments --Continued

 

(ii)     Environmental risk

 

Considering the diversity of environmental legislation in the federal, state and municipal levels, which may restrict or impede the development of real estate ventures, the Company analyzes all environmental risks, including the possible existence of hazardous or toxic materials, residues, vegetation and proximity of the land to permanent preservation areas, in order to mitigate risks in the development of ventures, during the process of land acquisition for future ventures.

 

In addition, the environmental legislation establishes criminal, civil and administrative sanctions to individuals and legal entities for activities considered as environmental infringements or offense. The penalties include the stop of development activities, loss of tax benefits, confinement and fines. The lawsuits in dispute by the Company in civil court are considered by the legal counsel as possible loss in the amount of R$18,324 in the Company’s and Consolidated statement (R$3,440 in the Company’s and Consolidated statement in 2017).

 

(iii)    The Company requested an Arbitration Procedure to the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada, on July 31, 2018,  against Yogo Participações e Empreendimentos Imobiliários S.A. (“Yogo”); Polo Real Estate Fundo de Investimentos e Participações, and Polo Capital Real Estate Gestão de Recursos Ltda. as shareholders of Yogo; and Comasa – Construtora Almeidade Martins Ltda., in view of the breach of contractual obligations. As of December 31, 2018, the arbitration is in initial stage, no decision being awarded yet. 

 

(iv)    Lawsuits in which likelihood of loss is rated as possible

 

As of December 31, 2018, the Company and its subsidiaries are aware of other claims, and civil, labor and tax risks. Based on the history of probable processes and the specific analysis of main claims, the measurement of the claims with likelihood of loss considered possible amounted to R$318,322 (R$350,843 in 2017) in the Company’s statement and R$319,902 (R$357,089 in 2017) in the consolidated statement, based on average past outcomes adjusted to current estimates, for which the Company’s Management believes it is not necessary to recognize a provision for occasional losses. The change in the period was caused by change in the volume of lawsuits with diluted amounts, and review of the involved amounts.

 

 

 

Company

Consolidated

 

 

2018

2017

2018

2017

 

 

 

 

 

 

Civil lawsuits

 

197,090

251,341

197,142

251,402

Tax proceedings

 

94,341

45,150

94,541

45,240

Labor claims

 

26,891

54,352

28,219

60,447

   

318,322

350,843

319,902

357,089

 

 

 

 

 

 

 

 

64


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

16.  Provisions for legal claims and commitments --Continued

 

(b)     Payables related to the completion of real estate ventures

 

The Company commits to complete units sold and to comply with the laws regulating the civil construction sector, including obtaining licenses from the proper authorities, and compliance with the terms for starting and delivering the ventures, being subject to legal and contractual penalties. As of December 31, 2018, the Company and its subsidiaries have restricted cash in guarantee to loans, which will be released to the extent the guarantee ratios described in Note 4.2 are met, which include land and receivables pledged in guarantee of 120% of the debt outstanding.

 

(c)      Other commitments

 

In addition to the commitments mentioned in Notes 6, 12 and 13, the Company currently has commitments related to the rental of a commercial property where its facilities are located, at a monthly cost of R$383 (including rent, condominium fees, and IPTU), indexed to the IGP-M/FGV change. Additionally, in line with Note 32(i), related to the move of the Company’s registered office expected to occur up to April 2019, the monthly cost will be R$88, indexed to the IGP-M/FGV change, and the contract expires in January 2024. The estimate of minimum future rent payments of this new contract for commercial property (cancellable leases) totals R$5,347, considering the above-mentioned contract expiration, as follows.

 

 

Consolidated

Estimate of payment

2018

 

 

2019

              590

2020

           1,095

2021

           1,139

2022

           1,184

2023 onwards

           1,339

 

           5,347

 

17.  Payables for purchase of properties and advances from customers

 

 

 

Company

Consolidated

 

Maturity

2018

2017

2018

2017

 

 

 

 

 

 

Payables for purchase of properties

January 2018 to November 2022

122,072

104,361

137,170

118,201

Present value adjustment

 

(14,455)

(9,718)

(15,075)

(10,352)

Advances from customers

 

 

 

 

 

Development and sales (Note 5)

 

9,337

61,039

12,069

63,748

Barter transaction - Land(Note30 (i))

 

117,145

113,608

175,267

137,237

 

 

 

 

 

 

Total payables for purchase of properties and advance from customers (Notes 20.i.d and 20.ii.a)

 

234,099

269,290

309,431

308,834

 

 

 

 

 

 

Current portion

 

82,264

132,098

113,355

156,457

Non-current portion

 

151,835

137,192

196,076

152,377

 

The current and non-current portions have the following maturities:

 

 

Company

 

Consolidated

Maturity

2018

2017

 

2018

2017

 

 

 

 

 

 

2018

-

132,098

 

-

156,457

2019

82,265

61,212

 

113,354

67,632

2020

56,591

40,771

 

85,504

40,987

2021

44,203

19,553

 

50,954

19,553

2022

50,130

15,656

 

58,696

24,205

2023 onwards

910

-

 

923

-

 

234,099

269,290

 

309,431

308,834

 

 

65


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

18.  Equity

 

18.1.  Capital

 

On February 28, 2018, the Board of Directors partially ratified the capital increase approved at the Extraordinary Shareholders’ Meeting held on December 20, 2017, considering the subscription and contribution of 16,717,752 new common shares at a price per share of R$15.00, of which R$0.01 allocated to capital, and R$14.99 allocated to capital reserve, totaling R$167 and R$250,599, respectively.

 

Therefore, as of December 31, 2018, the Company's authorized and paid-in capital amounts to R$2,521,319 (R$2,521,152 in 2017), represented by 43,727,589 (28,040,162 in 2017) registered common shares, with no par value, of which 3,943,420 (938,044 in 2017) where held in treasury.

 

According to the Company’s Articles of Incorporation, capital may be increased without need of making amendment to it, upon resolution of the Board of Directors, which shall set the conditions for issuance within the limit of 71,031,876 (seventy one million, thirty one thousand, eight hundred and seventy six) common shares.

 

On September 28, 2018, the Company approved the opening of the Share Repurchase Program. The acquired shares will be held in treasury, and may be cancelled, disposed of and/or used later on, up to the limit of 3,516,970 common shares. The maximum period for share acquisition will be 12 (twelve) months, beginning on October 1, 2018 and ending on October 1, 2019.

 

The Company transferred 17,319 share (112,203 in 2017), in the total amount of R$530 (R$3,435 in 2017) related to the exercise of options under the stock option plan of common shares by the beneficiaries, for which it received the total amount of R$418 (R$818 in 2017), and disposed 59,480 shares, for which it received the total amount of R$714.

 

 

Treasury shares

 

 

 

Type

GFSA3

R$

%

Market value (*) R$ thousand

Carrying value R$ thousand

Acquisition date

Number (i)

Weighted average price

% - on shares outstanding

2018

2017

2018

2017

2001

11/20/2001

44,462

38.9319

0.11%

751

910

1,731

1,731

 

 

 

 

 

 

 

 

 

 

2013

Acquisitions

1,372,096

51.9927

3.46%

23,188

28,073

71,339

71,339

 

 

 

 

 

 

 

 

 

2014

Acquisitions

3,243,947

35.5323

8.19%

54,823

66,371

115,265

115,265

2014

Transfers

(405,205)

43.3928

-1.02%

(6,848)

(8,290)

(17,583)

(17,583)

2014

Cancellations

(2,039,086)

44.9677

-5.15%

(34,461)

(41,720)

(91,693)

(91,693)

 

 

 

 

 

 

 

 

 

2015

Acquisitions

884,470

27.3124

2.23%

14,948

18,096

24,157

24,157

2015

Transfers

(90,622)

33.3473

-0.23%

(1,531)

(1,854)

(3,022)

(3,022)

2015

Cancellations

(2,225,020)

33.3543

-5.61%

(37,603)

(45,524)

(74,214)

(74,214)

 

 

 

 

 

 

 

 

 

2016

Acquisitions

334,020

26.0254

0.84%

5,645

6,834

8,693

8,693

2016

Transfers

(68,814)

31.2290

-0.17%

(1,163)

(1,408)

(2,149)

(2,149)

 

 

 

 

 

 

 

 

 

2017

Transfers

(112,203)

30.6320

-0.28%

(1,896)

(2,296)

(3,435)

(3,435)

 

 

 

 

 

 

 

 

 

2018

Acquisitions

13,221,300

13.4953

33.36%

223,440

-

178,425

-

2018

Transfers

(17,319)

30.6022

-0.04%

(293)

-

(530)

-

2018

Cancellations

(1,030,326)

-

-2.60%

(17,412)

-

-

-

2018

Disposal

(9,168,280)

16.1463

-23.14%

(154,944)

-

(148,034)

-

 

 

3,943,420

14.9490

9.95%

66,644

19,192

58,950

29,089

                                   

(*)     Market value calculated based on the closing share price on December 31, 2018 at R$16.90 in 2018(R$20.46 in 2017) not considering the effect of occasional volatilities.

(i) Amount shown adjusted by the reverse split of shares at the ratio of 13.483023074 to 1, performed on March 23, 2017.

 

The Company holds shares in treasury acquired in 2001 in order to guarantee the performance of lawsuits(Note 16(a)(i)).

 

 

66


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

18.  Equity --Continued

 

18.1.  Capital --Continued

 

The change in the number of outstanding shares is as follows:

 

 

Common shares - In thousands

Outstanding shares as of December 31, 2016 adjusted

26,779

Transfer related to the stock option plan

81

Change in shares held by the management members of the Company

112

Outstanding shares as of December 31, 2017

26,972

Subscription of shares

16,718

Transfer related to the stock option plan

17

Repurchase of shares

(13,221)

Disposal of shares

9,168

Cancellation of treasury shares

(1,030)

Change in shares held by the management members of the Company

(25)

Outstanding shares as of December 31, 2018

38,599

 

 

Weighted average shares outstanding (Note 27)

41,147

 

18.2.  Allocation of profit (loss) for the year

 

According to the Company’s Articles of Incorporation, profit for the year is allocated as follows, after deduction for any accumulated losses and provision for income taxes: (i) 5% to legal reserve, reaching up to 20% of paid-in capital, or when the legal reserve balance plus capital reserves is in excess of 30% of capital; (ii) 25% of the remaining balance to pay mandatory dividends; and (iii) amount not in excess of 71.25% to set up the Reserve for Investments, with the purpose of financing the expansion of the operations of the Company and its subsidiaries.

 

The Board of Directors, by resolution at the Annual Shareholders’ Meeting, shall examine the accounts and financial statements related to the fiscal year 2018.

 

In view of the accumulated losses as of December 31, 2018, the allocation of profit or loss for the year is not applicable.

 

Balance of accumulated losses for 2016

(861,761)

Net loss for 2017

(849,856)

Balance of accumulated losses for 2017

(1,711,617)

Net loss for 2018

(419,526)

Balance of accumulated losses for 2018

(2,131,143)

 

 

 

18.3.  Stock option plan

 

Expenses for granting stocks are recorded under the account “General and administrative expenses” (Note 23) and showed the following effects on profit or loss in the years ended December 31, 2018 and 2017:

 

 

2018

2017

 

 

 

Equity-settled stock option plans (i)

1,304

3,500

Phantom Shares (Note 18.4)

623

1,464

Total option grant expenses (Note 23)

1,927

4,964

(i) In the year ended December 31, 2018, the amount of R$2,104 was reversed because the options of beneficiaries were cancelled for forfeiture.

 

 

 

 

 

 

67


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

18.  Equity --Continued

 

18.3.  Stock option plan --Continued

 

(i)    Gafisa

 

The Company has a total of six stock option plans comprising common shares, launched in 2012, 2013, 2014, 2015, 2016 and 2018 which follows the rules established in the Stock Option Plan of the Company.

 

The granted options entitle their holders (employees) to purchase common shares of the Company’s capital, after periods that range from one to four years of employment (essential condition to exercise the option), and expire  six to ten years after the grant date.

 

The fair value of options is set on the grant date, and it is recognized as expense in profit or loss (as contra-entry to equity) during the grace period of the plan, to the extent the services are provided by employees and management members.

 

Changes in the stock options outstanding in the years ended December 31, 2018 and 2017, including the respective weighted average exercise prices are as follows:

 

 

2018

2017

 

Number of options

Weighted average exercise price (Reais)

Number of options

Weighted average exercise price (Reais)

Options outstanding at the beginning of the year

841,172

16.99

957,358

28.50

  Options granted

2,685,474

15.00

-

-

  Options exercised (i)

(21,079)

(16.25)

(112,203)

(14.65)

Options cancelled for forfeiture (ii)

(2,252,076)

(15.00)

-

-

 Options cancelled and adjustment to number due to the discontinued operations of Tenda, net

(13,934)

(0.09)

(3,983)

(21.07)

Options outstanding at the end of the year

1,239,557

15.58

841,172

16.99

 

(i) In the year ended December 31, 2018, the amount received through exercised options was R$418 (R$818 in 2017).

(ii)                     Options cancelled for forfeiture as the beneficiaries who would be entitled were dismissed as part of the process of turnaround and streamlining of the corporate structure of the Company (Note 1).

 

As of December 31, 2018, the stock options outstanding and exercisable are as:

Options outstanding

Options exercisable

Number of options

Weighted average remaining contractual life (years)

Weighted average exercise price (R$)

Number of options

Weighted average exercise price (R$)

 

 

 

 

 

1,239,557

2.92

15.58

629,938

16.99

 

 

During the year ended December 31, 2018, the Company granted 2,685,474 options in connection with its stock option plans comprising common shares (no option grant in 2017).

 

 

 

 

68


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

18.  Equity --Continued

 

18.3.  Stock option plan --Continued

 

 

The models used by the Company for pricing granted options are the Binomial model for traditional options and the MonteCarlo model for options in the Restricted Stock Options format.

 

In 2018, the fair value of the options granted totaled R$17,032, which was determined based on the following assumptions. In view of the cancellation of options for forfeiture of beneficiaries, the program’s fair value, considering the remaining options, is R$1,071.

 

 

2018

Pricing model

Binomial

Exercise price of options (R$)

R$15.00

Weighted average price of options ( (R$)

R$15.00

Expected volatility (%) – (*)

52%

Expected option life (years)

4.6 years

Dividend income (%)

1.98%

Risk-free interest rate (%)

6.64%

 

               (*)The volatility was determined based on regression analysis of the ratio of the share volatility of Gafisa S.A. to the Ibovespa index.

 

18.4.  Share-based payment – Phantom Shares

 

The Company has a total of two cash-settled share-based payment plans with fixed terms and conditions, according to the plans approved by the Company, launched in 2015 and 2016.

 

As of December 31, 2018, the amount of R$4,602 (R$4,060 in 2017), related to the fair value of the phantom shares granted, is recognized in the heading “Other payables” (Note 15).

 

19.  Income tax and social contribution

 

The reconciliation of the effective tax rate for the years ended December 31, 2018 and 2017 is as follows:

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Profit (loss) before income tax and social contribution, and statutory interest

(444,626)

(884,347)

(443,027)

(881,796)

Income tax calculated at the applicable rate - 34 %

151,173

300,678

150,629

299,811

 

 

 

 

 

Net effect of subsidiaries taxed by presumed profit and RET

-

-

(11,892)

(17,876)

Income from equity method investments

(17,316)

(83,493)

(5,264)

(65,810)

Stock option plan

(443)

(1,190)

(443)

(1,190)

Reversal of goodwill

-

(56,614)

-

(56,614)

Other permanent differences

(968)

(2,169)

(968)

(2,169)

Charges on payables to venture partners

(138)

(429)

211

(1,146)

Net effect on discontinued operations (a)

-

(25,413)

-

(25,413)

Recognized (unrecognized) tax credits

(107,208)

(105,438)

(110,522)

(106,493)

 

25,100

25,932

21,751

23,100

 

 

 

 

 

Tax expenses  - current

-

-

(3,349)

(2,832)

Tax income (expenses) - deferred

25,100

25,932

25,100

25,932

 

(a)   Effect attributable to discontinued operations not reflected in the profit base before taxes, however, with effect of reducing the tax base of the entity.

 

 

 

 

 

69


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

19.  Income tax and social contribution --Continued

 

(ii)    Deferred income tax and social contribution

 

The Company recognized deferred tax assets on tax losses and income tax and social contribution carryforwards for prior years, which have no expiration, and for which offset is limited to 30% of annual taxable profit, to the extent the taxable profit is probable to be available for offsetting temporary differences, based on the assumptions and conditions established in the business model of the Company.

 

As of December 31, 2018 and 2017, deferred income tax and social contribution are from the following sources:

 

 (ii)   Deferred income tax and social contribution --Continued

 

 

Company

Consolidated

 

2018

2017

2018

2017

Assets

 

(restated)

 

(restated)

Provisions for legal claims

98,962

66,451

99,895

67,448

Temporary differences – Deferred PIS and COFINS

15,722

10,117

15,722

10,117

Provisions for realization of non-financial assets

264,022

255,703

264,022

255,703

Temporary differences –  CPC adjustment

22,796

20,613

22,796

20,613

Other provisions

11,838

23,397

11,838

23,479

Income tax and social contribution loss carryforwards

356,474

295,860

375,007

310,933

 

769,814

672,141

789,280

688,293

 

 

 

 

 

Unrecognized tax credits of continued operations

(686,400)

(609,661)

(705,866)

(625,813)

 

(686,400)

(609,661)

(705,866)

(625,813)

Liabilities

 

 

 

 

Discounts

(2,069)

(2,069)

(2,069)

(2,069)

Temporary differences –CPC adjustment

(67,170)

(104,321)

(67,170)

(104,321)

Income taxed between cash and accrual basis

(63,547)

(30,563)

(63,547)

(30,563)

 

(132,786)

(136,953)

(132,786)

(136,953)

 

 

 

 

 

Total net

(49,372)

(74,473)

(49,372)

(74,473)

         

 

The balances of income tax and social contribution loss carryforwards for offset are as follows:

 

 

Company

 

2018

 

2017

 

Income tax

Social contribution

Total

 

Income tax

Social contribution

Total

Balance of income tax and social contribution loss carryforwards

1,048,452

1,048,452

-

 

870,176

870,176

-

Deferred tax asset (25%/9%)

262,113

94,361

356,474

 

217,544

78,316

295,860

Recognized deferred tax asset

15,273

5,498

20,771

 

23,468

8,449

31,917

Unrecognized deferred tax asset

246,840

88,863

335,703

 

194,076

69,867

263,943

 

 

 

Consolidated

 

2018

 

2017

 

Income tax

Social contribution

Total

 

Income tax

Social contribution

Total

Balance of income tax and social contribution loss carryforwards

1,104,648

1,104,648

-

 

914,509

914,509

-

Deferred tax asset (25%/9%)

276,162

99,418

375,580

 

228,627

82,306

310,933

Recognized deferred tax asset

15,273

5,498

20,771

 

23,468

8,449

31,917

Unrecognized deferred tax asset

260,889

93,920

354,809

 

205,159

73,857

279,016

 

 

In the year ended December 31, 2018 and 2017, the credit effect of income tax and social contribution on statement of profit or loss of the Company is mainly caused by the impairment recorded at the initial value of the portion of remeasurement of the investment stated at fair value.

 

70


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments

 

The Company and its subsidiaries engage in operations involving financial instruments. These instruments are managed through operational strategies and internal controls aimed at providing liquidity, return and safety. The use of financial instruments for hedging purposes is achieved through a periodical analysis of exposure to the risk that the management intends to cover (exchange, interest rate, etc.) which is submitted to the corresponding Management bodies for approval, and performance of the proposed strategy. The control policy consists of continuously monitoring the contracted conditions in relation to the prevailing market conditions. The Company and its subsidiaries do not use derivatives or any other risky assets for speculative purposes. The result from these operations is consistent with the policies and strategies devised by the Company’s management. The Company and its subsidiaries operations are subject to the risk factors described below:

 

(i)     Risk considerations

 

a)    Credit risk

 

The Company and its subsidiaries restrict their exposure to credit risks associated with cash and cash equivalents, investing only in short-term securities of top tier financial institutions.

 

With regards to accounts receivable, the Company restricts its exposure to credit risks through sales to a broad base of customers and ongoing credit analysis. Additionally, there is no relevant history of losses due to the existence of secured guarantee, represented by real estate unit, for the recovery of its products in the cases of default during the construction period. As of December 31, 2018 and 2017, there was no significant credit risk concentration associated with customers.

 

b)    Derivative financial instruments

 

The Company holds derivative instruments to mitigate the risk arising from its exposure to index and interest volatility recognized at their fair value in profit or loss for the year.

 

In the year ended December 31, 2018, the Company settled the following derivative contract for hedge against interest rate fluctuation.

 

 

Reais

Percentage

Validity

Gain (loss) not realized by derivative instruments - net

 

 

 

 

 

 

Swap agreements (Fixed for CDI)

Face value

Original Index – asset position

Swap – liability position

Beginning

End

2018

2017

 

 

 

 

 

 

 

 

Banco Votorantim S.A.

130,000

CDI + 1.90%

118% CDI

07/22/2014

07/26/2018

-

404

 

Total derivative financial instruments(Note 20.i.d and Note 20.ii.a)

-

404

 

 

 

 

 

 

 

 

 

 

 

 

Current

-

(5,290)

 

 

 

 

Non-current

-

9,030

 

 

 

71


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments --Continued

 

(i)     Risk considerations --Continued

      

b)    Derivative financial instruments --Continued

 

During the year ended December 31, 2018, the income amount of R$763 (R$818 in 2017) in the Company’s and consolidated statements, which refers to net proceeds of the interest swap transaction, arising from the payment in the amount of R$404 and the downward market variation of R$1,168, was recognized in the “financial income (expenses)” line in the statement of profit or loss for the year, allowing correlation between the effect of such transactions and interest rate fluctuation in the Company’s statement of financial position (Note 24).

 

Additionally, during the year ended December 31, 2018, in the context of the treasury share repurchase program (Note 18.1), the Company used derivative financial instruments, through forward contracts, to make transactions with shares traded in the market. The contracts entered into total R$38,879 (Note 15), adjusted by the average rate of 0.71% over an average term of 41 days.

 

       The estimated fair value of derivative financial instruments purchased by the Company was determined based on information available in the market and specific valuation methodologies. However, considerable judgment was necessary for interpreting market data to produce the estimated fair value of each transaction, which may vary upon the financial settlement of transactions.

 

c)    Interest rate risk

 

Interest rate risk arises from the possibility that the Company and its subsidiaries may experience gains or losses arising from fluctuations in the interest rates of its financial assets and liabilities. Aiming to mitigate this kind of risk, the Company and its subsidiaries seek to diversify funding in terms of fixed and floating rates. The interest rates on loans, financing and debentures are disclosed in Notes 12 and 13. The interest rates contracted on financial investments are disclosed in Note 4. Accounts receivable from completed real estate units (Note 5), are subject to annual interest rate of 12%, appropriated on a pro rata basis.

 

 

 

 

 

 

 

 

 

 

 

 

72


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments --Continued

 

(i)     Risk considerations --Continued

 

d)    Liquidity risk

 

Liquidity risk refers to the possibility that the Company and its subsidiaries do not have sufficient funds to meet their commitments in view of the settlement terms of its rights and obligations.

 

To mitigate liquidity risks, and to optimize the weighted average cost of capital, the Company and its subsidiaries monitor on an on-going basis the indebtedness levels according to the market standards, and the fulfillment of covenants provided for in loan, financing and debenture agreements, in order to guarantee that the operating-cash generation and the advance funding, when necessary, are sufficient to meet the schedule of commitments, appropriately mitigating liquidity risk to the Company or its subsidiaries (Notes 12 e 13).

 

The maturities of financial instruments of loans, financing, suppliers, debentures, forward transactions, obligations assumed on assignment of receivables, suppliers, payables for purchase of properties and advance from customers are as follows:

 

 

Period ended December 31, 2017

Company

Liabilities

Less than 1 year

1 to 3 years

4 to 5 years

Over 5 years

Total

Loans and financing (Note 12)

252,919

307,680

-

-

560,599

Debentures (Note 13)

62,783

202,883

-

-

265,666

Forward transactions (Note 15)

38,879

-

-

-

38,879

Obligations assumed on assignment of receivables (Note 14)

18,554

15,121

4,929

6,040

44,644

Suppliers (Note 15 and Note 20.ii.a)

116,948

12,049

-

-

128,997

Payables for purchase of properties and advance from customers (Note 17)

82,264

100,793

51,042

-

234,099

 

572,347

638,526

55,971

6,040

1,272,884

Assets

 

 

 

 

 

Cash and cash equivalents and short-term investments (Notes 4.1 and 4.2)

132,007

-

-

-

132,007

Trade account receivable (Note 5)

410,615

132,028

4,335

-

546,978

 

542,622

132,028

4,335

-

678,985

 

Period ended December 31, 2018

Consolidated

Liabilities

Less than 1 year

1 to 3 years

4 to 5 years

Over 5 years

Total

Loans and financing (Note 12)

285,612

338,135

-

-

623,747

Debentures (Note 13)

62,783

202,883

-

-

265,666

Forward transactions (Note 15)

38,879

-

-

-

38,879

Obligations assumed on assignment of receivables (Note 14)

25,046

19,898

5,856

6,386

57,186

Suppliers (Note 15 and Note 20.ii.a)

119,847

14,734

-

-

134,581

Payables for purchase of properties and advance from customers (Note 17)

113,355

136,457

59,619

-

309,431

 

645,522

712,107

65,475

6,386

1,429,490

Assets

 

 

 

 

 

Cash and cash equivalents and short-term investments (Notes 4.1 and 4.2)

137,160

-

-

-

137,160

Trade account receivable (Note 5)

484,879

167,986

6,031

-

658,896

 

622,039

167,986

6,031

-

796,056

 

 

 

 

 

 

73


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments --Continued

 

(i)     Risk considerations --Continued

 

d)    Liquidity risk --Continued

 

Fair value classification

 

The Company uses the following classification to determine and disclose the fair value of financial instruments by the valuation technique:

 

Level 1: quoted prices (without adjustments) in active markets for identical assets or liabilities;

 

Level 2: inputs other than the quoted market prices within Level 1 that are observable for asset or liability, either directly (as prices) or indirectly (derived from prices); and

 

Level 3: inputs for asset or liability not based on observable market data (unobservable inputs).

 

The classification level of fair value for financial instruments measured at fair value through profit or loss of the Company as of December 31, 2018 and 2017 is as follows:

 

 

Company

Consolidated

 

Fair value classification

As of December 31, 2018

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Short-term investments (Note 4.2)

-

102,827

-

-

104,856

-

 

 

Company

Consolidated

 

Fair value classification

As of December 31, 2017

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Short-term investments (Note 4.2)

-

110,945

-

-

118,935

-

Derivative financial instruments (Note 20.i.b)

-

404

-

-

404

-

 

In the years ended December 31, 2018 and 2017, there were no transfers between the Levels 1 and 2 fair value classifications, nor were transfers between Levels 3 and 2 fair value classifications.

 

(ii)    Fair value of financial instruments

 

a)    Fair value measurement

 

The following estimate fair values were determined using available market information and proper measurement methodologies. However, a considerable amount of judgment is necessary to interpret market information and estimate fair value. Accordingly, the estimates presented in this document are not necessarily indicative of amounts that the Company could realize in the current market. The use of different market assumptions and/or estimation methodology may have a significant effect on estimated fair values.

 

 

 

 

74


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments —Continued

 

(ii)    Fair value of financial instruments --Continued

 

a)    Fair value measurement --Continued

 

The following methods and assumptions were used in order to estimate the fair value for each financial instrument type for which the estimate of values is practicable.

 

(i)      The amounts of cash and cash equivalents, short-term investments, accounts receivable, other receivables, suppliers, and other current liabilities approximate to their fair values, recorded in the financial statements.

 

(ii)     The fair value of bank loans and other financial debts is estimated through future cash flows discounted using benchmark interest rates available for similar and outstanding debts or terms.

 

The most significant carrying values and fair values of financial assets and liabilities as of December 31, 2018 and 2017 are as follows:

 

 

Company

 

 

2018

2017

 

 

Carrying value

Fair value

Carrying value

Fair value

Classification

 

 

 

(restated)

 

Financial assets

 

 

 

 

 

Cash and cash equivalents (Note 4.1)

29,180

29,180

7,461

7,461

(*)

Short-term investments (Note 4.2)

102,827

102,827

110,945

110,945

(*)

Derivative financial instruments (Note 20(i)(b))

-

-

404

404

(**)

Trade accounts receivable (Note 5)

546,978

546,978

421,955

421,955

(**)

Loans receivable (Note 21.1)

28,409

28,409

22,179

22,179

(**)

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Loans and financing (Note 12)

560,598

491,198

762,130

806,977

(**)

Debentures (Note 13)

265,666

302,126

207,713

227,655

(**)

Forward transactions – Share repurchase program (Note 15)

38,879

38,879

-

-

(**)

Suppliers

128,997

128,997

88,014

88,014

(**)

Obligations assumed on assignment of receivables(Note 14)

44,644

44,644

68,812

68,812

(**)

Payables for purchase of properties and advance from customers (Note 17)

234,099

234,099

269,290

269,290

(**)

Loans payables (Note 21.1)

15,451

15,451

10,511

10,511

(**)

 

 

Consolidated

 

 

2018

2017

 

 

Carrying value

Fair value

Carrying value

Fair value

Classification

 

 

 

(restated)

 

Financial assets

 

 

 

 

 

Cash and cash equivalents (Note 4.1)

32,304

32,304

28,527

28,527

(*)

Short-term investments (Note 4.2)

104,856

104,856

118,935

118,935

(*)

Derivative financial instruments (Note 20(i)(b))

-

-

404

404

(**)

Trade accounts receivable (Note 5)

642,009

642,009

574,203

574,203

(**)

Loans receivable (Note 21.1)

28,409

28,409

22,179

22,179

(**)

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Loans and financing (Note 12)

623,747

555,855

897,185

944,821

(**)

Debentures (Note 13)

265,666

302,126

207,713

227,655

(**)

Forward transactions – Share repurchase program (Note 15)

38,879

38,879

-

-

(**)

Suppliers

134,581

134,581

101,849

101,849

(**)

Obligations assumed on assignment of receivables (Note 14)

57,186

57,186

84,393

84,393

(**)

Payables for purchase of properties and advance from customers (Note 17)

309,431

309,431

308,834

308,834

(**)

Loans payables (Note 21.1)

15,451

15,451

10,511

10,511

(**)

 

 

(*) Fair value through profit or loss

(**) Amortized cost

 

 

 

75


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments --Continued

 

(ii)    Fair value of financial instruments --Continued

 

a)      Risk of debt acceleration

 

As of December 31, 2018, the Company has loans and financing, with restrictive covenants related to cash generation, indebtedness ratios, capitalization, debt coverage, maintenance of shareholding position, and others. The breach of such obligations by the Company may give rise to the acceleration of its debts and/or acceleration of other debts of the Company, including due to the perform of any cross default or cross acceleration clauses, which may negatively impact the profit or loss of the Company and the value of its shares.

These restrictive covenants have been complied with by the Company and do not limit its ability to conduct its business as usual.

 

As mentioned in Note 12, in view of the breach of the covenants of a CCB issue, the non-current portions of such transaction were reclassified into short term. This transaction was settled on February 28, 2019, according to Note 32(iv).

 

The balance of certain bank financing contracts was also reclassified into short term, because of the assignment, in 2016 and 2017, of receivables provided in guarantee to financing contracts, as indicated in Note 12.

 

The Company analyzed other debt contracts and did not identify any impact on the cross restrictive covenants in relation to the aforementioned breach.

 

(iii)   Capital stock management

 

The objective of the Company’s capital stock management is to guarantee the maintenance of a strong credit rating in institutions, and an optimum capital ratio, in order to support the Company’s business and maximize value to shareholders.

 

The Company controls its capital structure by making adjustments and adapting to current economic conditions. In order to maintain its structure adjusted, the Company may pay dividends, return on capital to shareholders, raise new loans and issue debentures, among others.

 

There were no changes in objectives, policies or procedures during the years ended December 31, 2018 and 2017.

 

The Company included in its net debt structure: loans and financing, debentures, obligations assumed on assignment of receivables, and payables to venture partners less cash and cash equivalents and short-term investments:

 

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Loans and financing (Note 12)

560,599

762,130

623,747

897,185

Debentures (Note 13)

265,666

207,713

265,666

207,713

( - ) Cash and cash equivalents and

   short-term investments (Note 4.1 and 4.2)

(132,007)

(118,406)

(137,160)

(147,462)

Net debt

694,258

851,437

752,253

957,436

Equity

491,317

711,222

493,191

715,069

 

 

76


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

20.  Financial instruments --Continued

 

(iv)   Sensitivity analysis

 

The sensitivity analysis of financial instruments for the years ended December 31, 2018 and 2017, except swap contracts, which are analyzed through their due dates, describes the risks that may incur material losses on the Company’s profit or loss, as provided for by CVM, through Rule 475/08, in order to show a 10%, 25% and 50% increase/decrease in the risk variable considered.

 

As of December 31, 2018, the Company has the following financial instruments:

 

a)   Short-term investments, loans and financing, and debentures linked to Interbank Deposit Certificates (CDI);

b)   Loans and financing and debentures linked to the Referential Rate (TR) and CDI, and debentures indexed to the CDI and IPCA;

c)   Accounts receivable and payables for purchase of property, linked to the National Civil Construction Index (INCC) and General Market Price Index (IGP-M).

 

For the sensitivity analysis in the year ended December 31, 2018, the Company considered the interest rates of investments, loans and accounts receivables, the CDI rate at 6.40%, TR rate at 0%, INCC rate at 3.84%, IPCA rate at 3.75% and IGP-M rate at 7.55%. The scenarios considered were as follows:

 

Scenario I – Probable: 10% increase/decrease in the risk variables used for pricing

Scenario II – Possible: 25% increase/decrease in the risk variables used for pricing

Scenario III – Remote: 50% increase/decrease in the risk variables used for pricing

 

The Company shows in the following chart the sensitivity to risks to which the Company is exposed, taking into account that the possible effects would impact the future results, based on the exposures shown at December 31,  2018. The effects on equity are basically the same of the profit or loss ones.

 

   

Scenario

   

I

II

III

III

II

I

Transaction

Risk

Increase 10%

Increase 25%

Increase 50%

Decrease  50%

Decrease  25%

Decrease  10%

 

 

 

 

 

 

 

 

Financial investments

Increase/decrease of CDI

715

1,786

3,573

(3,573)

(1,786)

(715)

Loans and financing

Increase/decrease of CDI

(1,862)

(4,654)

(9,308)

9,308

4,654

1,862

Debentures

Increase/decrease of CDI

(1,301)

(3,254)

(6,507)

6,507

3,254

1,301

   

 

 

 

 

 

 

Net effect of CDI variation

 

(2,448)

(6,122)

(12,242)

12,242

6,122

2,448

   

 

 

 

 

 

 

Loans and financing

Increase/decrease of TR

-

-

-

-

-

-

   

 

 

 

 

 

 

Net effect of TR variation

 

-

-

-

-

-

-

   

 

 

 

 

 

 

Debentures

Increase/decrease of IPCA

(178)

(445)

(890)

890

445

178

 

 

 

 

 

 

 

 

Net effect of IPCA variation

 

(178)

(445)

(890)

890

445

178

   

 

 

 

 

 

 

Accounts receivable

Increase/decrease of INCC

1,375

3,438

6,877

(6,877)

(3,438)

(1,375)

Payables for purchase of properties

Increase/decrease of INCC

(1,144)

(2,861)

(5,721)

5,721

2,861

1,144

 

 

 

 

 

 

 

 

Net effect of INCC variation

 

231

577

1,156

(1,156)

(577)

(231)

 

 

 

 

 

 

 

 

Accounts receivable

Increase/decrease of IGP-M

1,896

4,741

9,482

(9,482)

(4,741)

(1,896)

 

 

 

 

 

 

 

 

Net effect of IGP-M variation

 

1,896

4,741

9,482

(9,482)

(4,741)

(1,896)

 

 

77


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

21.  Related parties

 

21.1.  Balances with related parties

 

The transactions between the Company and related companies are made under conditions and prices established between the parties.

 

 

Company

Consolidated

Current account

2018

2017

2018

2017

 

 

 

 

 

Assets

 

 

 

 

Current account(a):

 

 

 

 

Total SPEs

606

1,785

51,624

39,491

Subsidiaries

-

-

43,004

29,697

Jointly-controlled investees

573

1,752

8,587

9,761

Associates

33

33

33

33

Condominium and consortia (b) and thirty party’s works (c)

13,036

12,398

13,036

12,399

Loan receivable (d) (Note 20.ii.a)

28,409

22,179

28,409

22,179

Dividends receivable

12,977

13,876

-

-

 

55,028

50,238

93,069

74,069

 

 

 

 

 

Current portion

26,619

28,059

64,660

51,890

Non-current

28,409

22,179

28,409

22,179

 

 

 

 

 

Liabilities

 

 

 

 

Current account (a):

 

 

 

 

Total SPEs and Tenda

(924,152)

(960,491)

(40,713)

(52,686)

Subsidiaries

(899,219)

(926,418)

(15,780)

(18,613)

Jointly-controlled investees

(16,532)

(25,471)

(16,532)

(25,471)

Associates

(8,401)

(8,602)

(8,401)

(8,602)

Loan payable(d) (Note 20.ii.a)

(15,451)

(10,511)

(15,451)

(10,511)

 

(939,603)

(971,002)

(56,164)

(63,197)

 

 

 

 

 

Current portion

(939,603)

(971,002)

(56,164)

(63,197)

Non-current portion

-

-

-

-

 

(a)     The Company participates in the development of real estate ventures with other partners, directly or through related parties, based on the formation of condominiums and/or consortia. The management structure of these ventures and the cash management are centralized in the lead partner of the venture, which manages the construction schedule and budgets. Thus, the lead partner ensures that the investments of the necessary funds are made and allocated as planned. The sources and use of resources of the venture are reflected in these balances, observing the respective interest of each investor, which are not subject to indexation or financial charges and do not have a fixed maturity date. Such transactions aim at simplifying business relations that demand the joint management of amounts reciprocally owed by the involved parties and, consequently, the control over the change of amounts reciprocally granted which offset against each other at the time the current account is closed. The average term for the development and completion of the ventures in which the resources are invested is between 24 and 30 months. The Company receives a compensation for the management of these ventures.

(b)     Refers to transactions between the lead partner of consortium, partners, and condominiums..

(c)     Refers to operations in third-party’s works.

(d)     The loans of the Company with its subsidiaries, shown below, are made to provide subsidiaries with cash to carry out their respective activities, subject to the respective agreed-upon financial charges. The businesses and operations with related parties are carried out strictly at arm’s length, in order to protect the interests of the both parties involved in the business.

         

The composition, nature and conditions of the balances of loans receivable and payable of the Company are as follows. Loans have maturity from January 2019 and are tied to the cash flows of the related ventures.

 

 

 

Company and Consolidated

 

 

 

2018

2017

Nature

Interest rate

 

 

 

 

 

Lagunas - Tembok Planej. E Desenv. Imob. Ltda.

5,486

4,778

Construction

12% p.a. + IGPM

Manhattan Residencial I - OAS Empreendimentos

685

1,791

Construction

10% p.a. + TR

Target Offices & Mall- SPE Yogo Part. Emp. Imob. e Comasa Const.

22,238

15,610

Construction

12% p.a. + IGPM

Total receivable

28,409

22,179

   

 

 

 

 

 

Dubai Residencial - Franere, Com. Const. e Imob. Ltda.

4,787

3,887

 Construction

 6% p.a. 

Parque Árvores- Franere, Com. Const. e Imob. Ltda.

7,877

4,673

 Construction

 6% p.a. 

Parque Águas- Franere, Com. Const. e Imob. Ltda.

2,787

1,951

 Construction

 6% p.a. 

Total payable

15,451

10,511

 Construction

 

 

 

 

78


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

21.  Related parties --Continued

 

21.1.  Balances with related parties --Continued

 

In the year ended December 31, 2018 the recognized financial income from interest on loans amounted to R$4,899 (R$2,220 in 2017) in the Company’s  and Consolidated statement (Note 24).

 

The information regarding management transactions and compensation is described in Note 25.

 

21.2.  Endorsements, guarantees and sureties

 

The financial transactions of the subsidiaries are guaranteed by the endorsement or surety in proportion to the interest of the Company in the capital stock of such companies, in the amount of R$218,344 as of December 31, 2018 (R$317,716 in 2017).

 

22.  Net operating revenue

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Gross operating revenue

 

 

 

 

Real estate development, sale, barter transactions and construction services

871,820

472,056

1,006,317

647,781

(Recognition) Reversal of allowance for expected credit losses and cancelled contracts (Note 5)

41,828

187,283

41,828

187,283

Taxes on sale of real estate and services

(81,320)

(42,724)

(87,254)

(48,890)

Net operating revenue

832,328

616,615

960,891

786,174

 

 

 

 

 

79


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

23.  Costs and expenses by nature

 

These are represented by the following:

 

 

Company

Consolidated

 

2018

2017

2018

2017

 

 

(restated)

 

(restated)

Cost of real estate development and sale:

 

 

 

 

Construction cost

(382,483)

(329,372)

(406,156)

(428,458)

Land cost

(126,985)

(102,714)

(211,962)

(142,544)

Development cost

(24,122)

(24,014)

(28,799)

(31,130)

Provision for loss on realization of properties for sale (Note 6 and 8)

(59,607)

(147,332)

(63,145)

(147,332)

Capitalized financial charges (Note 12)

(97,436)

(76,344)

(112,904)

(116,516)

Maintenance / warranty

(23,203)

(40,505)

(23,203)

(40,506)

Total cost of real estate development and sale

(713,836)

(720,281)

(846,169)

(906,486)

 

 

 

 

 

Selling expenses:

 

 

 

 

Product marketing

(36,385)

(32,569)

(40,137)

(37,407)

Brokerage and sale commission

(23,899)

(25,497)

(29,659)

(29,652)

Customer Relationship Management (CRM) and corporate marketing

(12,825)

(17,227)

(14,386)

(19,815)

Other

(124)

(692)

(249)

(694)

Total selling expenses

(73,233)

(75,985)

(84,431)

(87,568)

 

 

 

 

 

General and administrative expenses:

 

 

 

 

Salaries and payroll charges

(26,562)

(22,069)

(33,921)

(33,547)

Employee benefits

(2,783)

(2,129)

(3,554)

(3,236)

Travel and utilities

(722)

(288)

(922)

(437)

Services

(10,971)

(11,266)

(14,011)

(17,125)

Rents and condominium fees

(4,526)

(3,662)

(5,780)

(5,567)

IT

(8,633)

(8,920)

(11,026)

(13,559)

Stock option plan (Note 18.3)

(1,927)

(4,964)

(1,927)

(4,964)

Reversal (Expense) of reserve for profit sharing (Note 25.iii)

14,750

(13,375)

14,750

(13,375)

Other

(573)

(593)

(698)

(903)

Total general and administrative expenses

(41,947)

(67,266)

(57,089)

(92,713)

 

 

 

 

 

Other income (expenses), net:

 

 

 

 

Expenses with lawsuits (Note 16)

(172,103)

(107,635)

(172,432)

(107,848)

Other

(8,907)

5,659

(13,703)

(1,749)

Total other income/(expenses), net

(181,010)

(101,976)

(186,135)

(109,597)

         

 

 

24.  Financial income (expenses)

 

 

Company

Consolidated

 

2018

2017

2018

2017

Financial income

 

 

 

 

Income from financial investments

11,381

17,183

11,955

19,876

Derivative transactions (Note 20.i.b)

763

818

763

818

Financial income on loans (Note 21.i)

4,899

2,220

4,898

2,220

Other financial income

1,251

6,406

1,937

6,819

Total financial income

18,294

26,627

19,553

29,733

 

 

 

 

 

Financial expenses

 

 

 

 

Interest on funding, net of capitalization (Note 12)

(73,628)

(115,461)

(68,380)

(103,827)

Amortization of debenture cost

(4,224)

(5,016)

(4,224)

(5,016)

Payables to venture partners

-

(314)

-

(314)

Banking expenses

(6,107)

(13,644)

(6,919)

(16,714)

Offered discount and other financial expenses

(17,603)

(12,189)

(20,551)

(11,130)

Total financial expenses

(101,562)

(146,624)

(100,074)

(137,001)

 

 

80


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

25.  Transactions with management and employees

 

(i)     Management compensation

 

The amounts recorded in the account “general and administrative expenses” for the years ended  December 31, 2018 and 2017, related to the compensation of the Company’s management members are as follows:

 

 

Management compensation

 

Year ended December 31, 2018

Board of Directors

Executive Management

Fiscal Council

 

 

 

 

Number of members

5,5

5,0

2,8

Annual fixed compensation (in R$)

 

 

 

Salary / Fees

1,264

3,576

183

Direct and indirect benefits

-

151

-

Others (INSS)

253

715

37

Monthly compensation (in R$)

126

370

18

Total compensation

1,517

4,442

220

Total compensation and profit sharing

1,517

4,442

220

 

 

 

 

 

Management compensation

 

Year ended December 31, 2017

Board of Directors

Executive Management

Fiscal Council

 

 

 

 

Number of members

7

5

3

Annual fixed compensation (in R$)

 

 

 

Salary / Fees

1,693

3,460

203

Direct and indirect benefits

-

203

-

Others (INSS)

339

692

41

Monthly compensation (in R$)

169

363

20

Total compensation

2,032

4,355

244

Profit sharing (Note 25 (iii))

-

1,625

-

Total compensation and profit sharing

2,032

5,980

244

         

 

There is no amount related to expenses with option grant to current management members of the Company for the year ended December 31, 2018 (R$3,317 in 2017).

 

The maximum aggregate compensation of the Company’s management members for the year 2018 was established at R$23,599 (R$18,739 in 2017), as fixed and variable compensation, as approved at the Annual Shareholders’ Meeting held on April 27, 2018.

 

On the same occasion the compensation limit of the Fiscal Council members for their next term of office that ends in the Annual Shareholders’ Meeting to be held in 2019, was set at 10% of the compensation that, on average, was allocated to each officer of the Company, excluding the benefits, representation allowances and profit sharing (R$261 in 2017)..

 

(ii)    Sales transactions

 

In the years ended December 31, 2018 and December 31, 2017 no transaction of sale of units to current Management was carried out.

 

 

 

81


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

25.  Transactions with management and employees --Continued

 

(iii)   Profit sharing

 

The Company has a profit sharing plan that entitles its employees  and management members, and those of its subsidiaries to participate in the distribution of profits of the Company.

 

This plan is tied to the achievement of specific targets, established, agreed-upon and approved by the Board of Directors at the beginning of each year.

 

In the year ended December 31, 2018, the Company recorded a reserve for profit sharing amounting to R$14,750 in the Company’s  and Consolidated  statement (expense of R$13,375 in 2017) in the account “General and Administrative Expenses" (Note 23).

 

 

Company and Consolidated

 

2018

2017

 

 

 

Executive officers (Note 25.i)

-

1,625

Other employees

-

11,750

Reversal of provision

(14,750)

-

Total profit sharing

(14,750)

13,375

 

Profit sharing is calculated and reserved based on the achievement of the Company’s targets for the period.

 

As shown in the previous tables and paragraphs, the aggregate compensation of Management and Fiscal Council members of the Company is according to the limit approved at the Annual Shareholders’ Meeting held on April 27, 2018.

 

 

26.  Insurance

 

Gafisa S.A. and its subsidiaries maintain insurance policies against engineering risk, barter guarantee, completion bond, and civil liability related to unintentional personal damages caused to third parties and material damages to tangible assets, as well as against fire hazards, lightning strikes, electrical damages, natural disasters and gas explosion. The contracted coverage is considered sufficient by management to cover possible risks involving its assets and/or responsibilities.

 

The liabilities covered by insurance and the respective amounts as of December 31, 2018 are as follows:

 

 

Insurance type

Coverage – R$

Engineering risks and completion bond

700,601

Civil liability (Directors and Officers – D&O)

154,992

 

855,593

 

 

82


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

27.  Earnings (loss) per share

 

In accordance with CPC 41, the Company is required to report basic and diluted loss per share. The comparison data of basic and diluted earnings/loss per share is based on the weighted average number of shares outstanding for the year, and all dilutive potential shares outstanding for each reported year, respectively.

Diluted earnings per share is computed similarly to basic earnings per share except that the outstanding shares are increased to include the number of additional shares that would have been outstanding if the potential dilutive shares attributable to stock options and redeemable shares of noncontrolling interest had been issued during the respective periods, using the weighted average stock price.

 

The following table shows the calculation of basic and diluted earnings and loss per share. In view of the loss for the year ended December 31, 2018 and 2017, shares with dilutive potential are not considered, because the impact would be antidilutive.

 

 

 

 

2018

2017

Basic numerator

 

(restated)

Undistributed loss from continued operations

(419,526)

(858,415)

Undistributed profit (loss) from discontinued operations

-

98,175

Undistributed profit (loss), available for the holders of common shares

(419,526)

(760,240)

 

 

 

Basic denominator (in thousands of shares)

 

 

Weighted average number of shares (Note 18.1)

41,147

26,891

 

 

 

Basic earnings (loss) per share in Reais

(10,196)

(28,271)

From continued operations

(10,196)

(31,922)

From discontinued operations

-

3,651

 

 

Diluted numerator

 

 

Undistributed loss from continued operations

(419,526)

(858,415)

Undistributed profit (loss) from discontinued operations

-

98,175

Undistributed loss, available for the holders of common shares

(419,526)

(760,240)

 

 

 

Diluted denominator (in thousands of shares)

 

 

Weighted average number of shares (Note 18.1)

41,147

26,891

Stock options

572

61

Anti-dilution effect

(572)

(61)

Diluted weighted average number of shares

41,147

26,891

 

 

 

 

 

 

Diluted earnings (loss) per share in Reais

(10,196)

(28,271)

From continued operations

(10,196)

(31,922)

From discontinued operations

-

3,651

 

28.  Segment information

 

With the completion of the discontinuation of Tenda’s operations (Note 8.2), the Company operates only in one segment, according to the nature of its products.

 

Accordingly, the reports used for making decisions are the consolidated financial statements, and no longer the analysis by operating segments. Therefore, in line with CPC 22 – Operating Segments, the Company understands that there is no reportable segment to be disclosed in the years ended December 31,  2018 and 2017.

 

 

83


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

29.  Real estate ventures under construction – information and commitments

 

In compliance with Circular Letter CVM/SNC/SEP 02/2018, related to the recognition of revenue from contracts for purchase and sale of real state units not yet completed in Brazilian real estate development companies, the Company reports information on the ventures in construction as of December 31, 2018:

 

 

 

Consolidated

 

 

2018

 

 

 

Unappropriated sales revenue of units sold

 

533,228

Unappropriated estimated cost of units sold

 

(328,199)

Unappropriated estimated cost of units in inventory

 

(167,942)

 

 

 

(i) Unappropriated sales revenue of units sold

 

 

Ventures under construction:

 

 

(a)     Contracted sales revenue

 

1,389,230

          Appropriated sales revenue:

 

 

Appropriated revenue

 

889,593

Cancelled contracts – reversed revenue

 

(33,591)

(b)     Net appropriated sales revenue

 

(856,002)

Unappropriated sales revenue (a+b) (a)

 

533,228

 

 

 

(ii) Income from damages for cancelled contracts

 

1,335

 

 

 

(iii) Unappropriated sales revenue of contracts not eligible to revenue recognition

 

36,011

 

(iv) Allowance for cancelled contracts (liabilities)

 

 

Adjustments in appropriated revenues

 

131,863

Adjustments in trade accounts receivable

 

82,847

Income from damages for cancelled contracts

 

(19,606)

Liabilities – reversal/return due to cancelled contracts

 

29,410

 

 

 

(v) Unappropriated estimated costs of units sold

 

 

Ventures under construction:

 

 

(a)     Estimated cost of units

 

(868,655)

Incurred cost of units:

 

 

Construction cost

 

(561,256)

Cancelled contracts – construction costs

 

20,800

(b)     Net incurred cost

 

(540,456)

Cost to be incurred of units sold (a+b) (b)

 

(328,199)

 

(iii) Unappropriated estimated cost of units in inventory

 

Ventures under construction:

 

Estimated cost of units

 

(571,674)

Incurred cost of units (Note 6)

 

403,732

Unappropriated estimated cost

 

(167,942)

 

(a)   The unappropriated sales revenue of units sold are measured by the face value of contracts, plus the contract adjustments and deducted for cancellations, not considering the effects of the levied taxes and adjustment to present value, and do not include ventures that are subject to restriction due to a suspensive clause (legal period of 180 days in which the Company can cancel a development), and therefore is not appropriated to profit or loss.

(b)   The estimated cost of units sold and in inventory to be incurred do not include financial charges, which are appropriated to properties for sale and profit or loss (cost of real estate sold) in proportion to the real estate units sold as they are incurred.

 

       As of December 31, 2018, the percentage of assets consolidated in the financial statements related to ventures included in the equity segregation structure of the development stood at 25.1% (18.0% in 2017).

 

84


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

30.  Additional Information on the Statement of Cash Flows

 

(i)   Transactions that did not affect Cash and Cash Equivalents

 

The Company and its subsidiaries performed the following investing and financing activities that did not affect cash and cash equivalents, which were not included in the statements of cash flows:

 
 
 

 


Company

Consolidated

 

2018

2017

2018

2017

 

 

 

 

 

Capital contribution (reduction)

(2,215)

(12,237)

(2,215)

(12,360)

Capitalized financial charges (Note 12)

(18,270)

(37,324)

(35,686)

(74,310)

Physical barter – Land (Note 17)

3,537

(10,209)

38,030

(14,648)

 

(16,948)

(59,770)

129

(101,318)

 

(ii)  Reconciliation of the asset and liability changes with the cash flows from financing activities

 

 

 

Transactions affecting cash

Transactions not affecting cash

 

Company

Opening balance

2017

Funding/

Receipt

Interest

Payment

Principal

Payment

Interests and inflation adjustment

Other

Closing balance 2018

 

 

 

 

 

 

 

 

Loans, financing and debentures (Notes 12 and 13)

(969,843)

(273,510)

6,733

415,059

(4,703)

-

(826,264)

Loans (Note 21.1)

11,668

-

-

(2,169)

3,459

-

12,958

Paid-in capital (Note 18.1)

(2,521,152)

(167)

-

-

-

-

(2,521,319)

Capital reserve (Note 18.1)

-

(250,599)

-

-

-

-

(250,599)

 

(3,479,327)

(524,276)

6,733

412,890

(1,244)

-

(3,585,224)

 

 

 

 

Transactions affecting cash

Transactions not affecting cash

 

Consolidated

Opening balance

2017

Funding/

Receipt

Interest

Payment

Principal

Payment

Interests and inflation adjustment

Other

Closing balance 2017

 

 

 

 

 

 

 

 

Loans, financing and debentures (Notes 12 and 13)

(1,104,897)

(315,231)

13,620

528,252

(11,156)

-

(889,412)

Loans (Note 21.1)

11,668

-

-

(2,169)

3,459

-

12,958

Paid-in capital (Note 18.1)

(2,521,152)

(167)

-

-

-

-

(2,521,319)

Capital reserve (Note 18.1)

-

(250,599)

 

 

 

-

(250,599)

 

(3,614,381)

(565,997)

13,620

526,083

(7,697)

-

(3,648,372)

 

31.  Communication with regulatory bodies

 

On June 14, 2012, the Company received a subpoena from the Securities Exchange Commission’s Division of Enforcement related to the Home Builders listed at SEC, Foreign Private Issuers (FPI). The subpoena requests that the Company provide all documents from January 1, 2010 to July 10, 2012, the Company’s reply date related to the preparation of our financial statements, including, among other things, copies of our financial policies and procedures, board and audit committee’s and operations committee’s meeting minutes, monthly closing reports and any documents relating to possible financial or accounting irregularities or improprieties, and internal audit reports. The SEC’s investigation is a non-public, fact-finding inquiry and is not clear what action, if any, the SEC intends to take with respect to the information it gathers. The SEC subpoena does not specify any charges. Until the publication of these financial statements, SEC has not issued any opinion.

 

85


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

32.  Subsequent events

 

(i)      Change of registered office

The Company disclosed a Notice to the Market on January 8, 2019, informing about the signature of a rental contract of a property where the new registered office of the Company will be located, in Condomínio São Luiz, at Av. Pres. Juscelino Kubitschek, 1830, conjunto comercial, nº 32, 3º andar, Bloco 2, Itaim Bibi, in the city of São Paulo, state of São Paulo.

(ii)     Cancellation of treasury shares

In the meeting of the Board of Directors held on January 22, 2019, the cancellation of 370,000 shares was approved, acquired in the scope of the Repurchase Program approved on September 28, 2018 (“Repurchase Program”), without reduction in capital, which is represented by 43,357,589 registered book-entry common shares, with no par value.

(iii)    Change in shareholding

As mentioned in Note 1, on February 14, 2019, 14,600,000 shares held by the group of its majority shareholder, GWI Asset Management S.A., corresponding to 33.67% stake in the Company were auctioned. As a result of this auction, Planner Corretora de Valores S.A., by means of the investment funds it manages, became the holder of 8,000,000 common shares, corresponding to 18.45% of total common shares issued by the Company.

In the meeting of the Board of Directors held on February 17, 2019, Augusto Marques da Cruz Filho and Oscal Segall were appointed to occupy two vacant positions for a term of office that expires in the following Annual Shareholders’ Meeting. Immediately thereafter, the resignation of Messrs. Mu Hak You and Thiago Hi Joon You as Board members was recorded, the Board of Directors remaining with five effective members.

On February 20, 2019, the Company disclosed a Material Fact informing that the GWI Group, to which GWI Asset Management S.A. belongs, started to hold, in aggregate, a total of 2,199,300 common shares, equivalent to 4.89% of the common shares issued by the Company.

In the meeting of the Board of Directors held on March 13, 2019, in view of the confirmation, by the GWI Group, that it did not formulate, under the terms of the Company’s Articles of Incorporation, a tender offer (“OPA”) by reaching significant shareholding on January 22, 2019, an unanimous resolution was taken to call an Extraordinary Shareholders’ Meeting of the Company to take resolution about the suspension of the GWI Group’s shareholder rights, under the terms of art. 52 of the Company’s Articles of Incorporation. In view of the imminent call of annual and extraordinary shareholders’ meetings of the Company, it was decided that such theme will be included in such meetings. On March 15, 2019, the Board of Directors took the resolution to call the Extraordinary Shareholders’ Meeting to be held on April 15, 2019 (item vi), so that this item is included in such ESM agenda.

 

 

86


 
 

 

 

 

Gafisa S.A.

 

Notes to the financial statements

December 31, 2018

(Amounts in thousands of Brazilian Reais, except as otherwise stated)

 

32.  Subsequent events --Continued

 

(iii)    Change in shareholding --Continued

On March 15, 2019, Messrs. Thomas Reichenheim and Roberto Portella were elected to the remaining positions in the Company’s Board of Directors, whose terms of office will expire in the following Shareholders’ Meeting.

The Board of Directors is thus currently composed of seven members.

(iv)    Settlement of CCB

As mentioned in Note 12, on February 28, 2019, the Company settled the CCB transaction that exceeded the provision set in a restrictive covenant in the total amount of R$24,301.

(v)     Polo Capital Securitizadora

On February 5, 2019, Polo Capital Securitizadora disclosed a material fact informing that the Company started from January 2019 to issue payment slips aiming to receive amounts arising from contracts for assignment of real estate receivables, entered into between the parties. Immediately thereafter, the Company disclosed a notice to shareholders informing that (i) the theme was being disputed at the appropriate level, including in court; (ii) the Polo Group and Gafisa, together with a construction company, partnered to build a venture in Rio de Janeiro, for which the other partners did not make the necessary contribution of funds, equivalent to each ownership interest, totaling the amount receivable by Gafisa of R$22,238 (Note 21.1), which is currently in dispute in an arbitration process. Additionally, the Company informs that these matters are being disputed in court and arbitration process.

(vi)    Extraordinary Shareholders’ Meeting

On March 15, 2019, the Company received a letter signed by Planner Corretora de Valores S.A. and Planner Redwood Asset Management Admnistração de Recursos Ltda. (collectively referred to as “Planner”), in the capacity of administrators of investment funds  that hold, in aggregate, 18.45% stake in Gafisa’s capital, requiring the Company’s Board of Directors to call the Extraordinary Shareholders’ Meeting (ESM), in order to change the administrative structure of Gafisa.

The ESM is scheduled for April 15, 2019, at 9 a.m. at the Company’s registered office.

 

***

 

 

 

87


 
 

 

 

MANAGEMENT STATEMENT ON THE FINANCIAL STATEMENTS

 

STATEMENT

 

Gafisa S.A. management, CNPJ 01.545.826/0001-07, located at Av. Nações Unidas, 8501, 19th floor, Pinheiros, São Paulo, states as per article 25 of CVM Instruction 480 issued in December 07, 2009:

i)    Management has reviewed, discussed and agreed with the auditor’s conclusion expressed on the report on review interim financial Information for the year ended December 31, 2018; and

 

ii)   Management has reviewed and agreed with the interim information for the year ended December 31, 2018.

 

São Paulo, March 28, 2019

 

GAFISA S.A.

Management

 

 

 

88


 
 


 

MANAGEMENT STATEMENT ON THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT

STATEMENT

 

 

Gafisa S.A. management, CNPJ 01.545.826/0001-07, located at Av. Nações Unidas, 8501, 19th floor, Pinheiros, São Paulo, states as per article 25 of CVM Instruction 480 issued in December 07, 2009:

i)    Management has reviewed, discussed and agreed with the auditor’s conclusion expressed on the report on review interim financial Information for the period ended December 31, 2018; and

 

ii)  Management has reviewed and agreed with the interim information for the period ended December 31, 2018.

 

São Paulo, March 28, 2019

 

 

GAFISA S.A.

Management

 

 

89


 
 


 

GAFISA S.A.

CNPJ/MF n° 01.545.826/0001-07

NIRE 35.300.147.952

Publicly-held Company

Minutes of the Audit Committee’s Meeting

held on March 28, 2018

 

1. DATE, TIME AND PLACE: On March 28, 2018, at 08:30 a.m. in the City of São Paulo, State of São Paulo, at Avenida das Nações Unidas 8,501, 19th floor.

 

2. CALL NOTICE AND ATTENDANCE: Present all members of the Company’s Audit Committee’s.

 

3. RESOLUTIONS: The opinion of all the present Audit Committee members, without any restrictions, was to recommend for the Board of Directors the approval of the Board of Directors of the final version of the documents related to the fiscal year ended on 12.31.2018, as follows: administration report, Company’s Financial Statements, along with the Explanatory Notes and the Accounting Firm Report, which issued an opinion with no reservations, dated as of March 28, 2019.

 

4. CLOSING: As there were no further issues to be addressed, the present Minutes were drawn up, approved and signed by all Committee Members.  

 

 

 

 

Pedro Carvalho de Mello

Chairman

 

Marcelo Janson Angelini

Secretary

 

 

Audit Committee members:

 

 

 

 

 

Augusto Marques da Cruz Filho

 

Pedro Carvalho de Mello

 

 

 

 

 

 

Thomas Cornelius Azevedo Reichenheim

 

 

 

 

 

90


 
 


 

GAFISA S.A.

CNPJ/MF n° 01.545.826/0001-07

NIRE 35.300.147.952

 

Publicly-held Company

 

FISCAL COUNCIL REPORT

 

The Fiscal Council of Gafisa SA ("Company"), in compliance with legal and statutory provisions, examined the Management Report and Financial Statements for the fiscal year ended December 31, 2018. Based on the examinations made and clarifications provided considering the opinion of the independent auditors - BDO RCS Auditores Independentes, dated March 28, 2019, is of the opinion that the aforementioned documents, in all material respects, are capable of being appraised by the Ordinary Shareholders' Meeting of the Company to be called, under the terms of Law 6,404 / 76.

 

São Paulo, March 28, 2019.

 

 

 

 

 

 

Fabio Naum Salim Mansur

 

Marcelo Martins Louro

 

 

 

 

 

 

Olavo Fortes Campos Rodrigues Junior

 

 

 

 

91


 
 

 

 

 

GAFISA S.A.

CNPJ/MF n° 01.545.826/0001-07

NIRE 35.300.147.952

 

Publicly-Held Company

Minutes of the Board of Directors’ Meeting held on March 28, 2019

 

1. Date, Time and Place: On March 28, 2019, at 10:30 a.m., in the City of São Paulo, State of São Paulo, at Avenida das Nações Unidas 8,501, 19th floor.

2. Call Notice and Attendance: Present all members of the Company’s Board of Directors, instatement and approval quorum having been verified.

3. Presiding Board: Chairman: Augusto Marques da Cruz. Secretary: Marcelo Janson Angelini.

4. Resolutions: The members of the Board of Directors attending the meeting unanimously and with no restrictions decided, as set forth in the terms of Article 142, V, Law 6,404/76 and Article 20 (m) of Company’s Bylaws, the Board of Directors recommend the approval, by Company’s shareholders, assembled in the annual shareholders’ general meeting, of (i) administration report and Company’s financial statements related to the fiscal year ended on 12.31.2018, along with explanatory notes and the accounting firm report, which issued an opinion with no reservations, dated as of March 28, 2019.

5. Closing: With no further matters to be discussed, these minutes were prepared, approved and signed by all members of the Board of Directors. Signatures: Presiding Board: Augusto Marques da Cruz (Chairman), Marcelo Janson Angelini (Secretary); Board members: Antonio Carlos Romanoski, Augusto Marques da Cruz Filho, Pedro Carvalho de Mello, Roberto Luz Portella e Thomas Cornelius Azevedo Reichenheim.

 

I hereby certify that this is a true copy of the minutes drawn on the respective corporate book.

92


 
 

 

FOR IMMEDIATE RELEASE - São Paulo, March 28, 2019 – Gafisa S.A. (B3: GFSA3; OTC: GFASY), one of Brazil’s leading homebuilders, today reported its financial results for the fourth quarter ended December 31, 2018.

 

GAFISA ANNOUNCES  
4Q18 and 2018 RESULTS

 

During 2018, the Company underwent a restructuring process. The R$250.8 million capital increase was concluded in February, lessening immediate cash pressure. In September, a change in the Company’s management led to the establishment of a new turnaround strategy in the last quarter, which focused on structure and cost adjustment including the shutdown of a branch in Rio de Janeiro; the relocation of our headquarters; and the revision of our processes.

This new turnaround strategy should save approximately R$110 million p.a. by reducing (i) headcount by 50%, accounting for savings of R$45 million/year; (ii) marketing by R$40 million/year; (iii) IT by R$18 million/year; (iv) sales stand expenditure by R$4 million; and saving (v) R$4 million/year with the relocation of our headquarters. Part of these gains already materialized in Nov/18 and Dec/18 but will become more evident in upcoming quarters.

Adjustment needs mapped out during 4Q18, such as impairment of land/inventories, the goodwill impairment test to remeasure the 30% stake in Alphaville and reversal/entry of provision, amongst others, were recorded in 4Q18, adversely affecting results by R$276 million.

Thus, Gafisa starts 2019 well-positioned for the  new cycle in the real estate sector, equipped with quality assets and a renowned brand. Our pipeline launches rely on profitable residential projects that are fine-tuned to the market demand and located in the City of São Paulo. In this way, a higher volume of launches are scheduled for the second half of 2019.

Inventory PSV totals R$1.2 billion, with higher market liquidity (73% of total inventory PSV) concentrated in São Paulo residential units.

Dissolutions, which for several years caused an imbalance in various projects, significantly decreased in 2018. The monthly average volume of dissolutions declined from R$34 million in 2017 to R$19 million in 2018. This downward trend should continue in 2019, with the approval of a law that regulates dissolutions. Pursuant to new legislation, developers may retain up to 50% of the amount paid by the consumer in cases where the purchase has been waived, conferring greater legal safety to the sector.

Net debt totaled R$752 million in Dec/18, down 21% from the previous year. Leverage, measured by net debt/shareholders’ equity ratio, jumped to 153% at the end of 2018, mainly impacted by negative results in the period and impairments recorded. Excluding project financing, the net debt/shareholders’ equity ratio was 45%. Funding alternatives are being analyzed to remodel the Company’s ownership structure.

Our expectations for 2019 are positive, the macroeconomic scenario is improving, and the market has begun to show signs of recovery. The growth upturn will occur gradually and sustainably, aiming for a solid performance that will create value for shareholders and stakeholders.

 

Roberto Luz Portella

 

93


 
 

 

CEO, CFO, and Investor Relations Officer

 

MAIN CONSOLIDATED INDICATORS

 

Table 1 - Operational Performance (R$ 000)

 

4Q18

3Q18

Q/Q (%)

4Q17

Y/Y (%)

12M18

12M17

Y/Y (%)

Launches

118,936

71,144

67.2%

90,113

32.0%

728,670

553,954

31.5%

Gross Sales

153,406

188,125

-18.5%

216,988

-29.3%

1,040,848

1,131,823

-8.0%

Cancellations

(58,401)

(51,661)

13.0%

(95,407)

-38.8%

(227,677)

(411,658)

-44.7%

Net Pre-Sales

95,005

136,464

-30.4%

121,851

-22.0%

813,172

720,164

12.9%

Speed of Sales (SoS)

7.20%

9.40%

-2.2 p,p,

7.40%

-0.2 p,p,

39.90%

32.00%

7.9 p,p,

Delivered PSV

263,254

346,009

-23.9%

41,171

539.4%

910,255

861,325

5.7%

Inventories

1,225,066

1,318,698

-7.1%

1,581,402

-22.5%

1,225,066

1,581,402

-22.5%

 

Table 2 – Financial Performance (R$ 000)

 

4Q18

3Q18

Q/Q (%)

4Q17

Y/Y (%)

12M18

12M176

Y/Y (%)

Net Revenue

192,917

252,306

-24%

342,057

-44%

960,891

786,174

22%

Recurring Adjusted Gross Profit¹

46,942

80,330

-42%

91,620

-49%

290,771

143,535

103%

Recurring Adjusted Gross Margin

24.3%

31.8%

-751 bps

26.8%

-245 bps

30.3%

18.3%

1,200 bps

Recurring Adjusted EBITDA²

29,247

37,776

-23%

44,324

-34%

126,954

(50,828)

-350%

Recurring Adjusted EBITDA Margin

15.2%

15.0%

19 bps

13.0%

220 bps

13.2%

-6.5%

1,968 bps

Recurring Adjusted Net Income

11,559

(19,984)

-158%

(11,459)

1%

(66,186)

(190,065)

-65%

Backlog Revenues

551,270

587,344

-6%

620,821

-11%

551,270

620,821

-11%

Backlog Results ³

196,812

215,778

-9%

215,758

-9%

196,812

215,758

-9%

Backlog Results Margin ³ 5

35.7%

36.7%

-104 bps

34.8%

95 bps

35.7%

34.8%

95 bps

Net Debt

752,253

765,898

-2%

957,436

-21%

752,253

957,436

-21%

Cash and Cash Equivalents 4

137,160

194,445

-29%

147,462

-7%

137,160

147,462

-7%

Equity + Minority Shareholders

493,191

871,955

-43%

715,069

-31%

493,191

715,069

-31%

(Net Debt – Proj. Fin.) / (Equity + Minorit.)

45.4%

22.7%

2,271 bps

31.4%

1,407 bps

45.4%

31.4%

1,407 bps

 

¹ Adjusted by capitalized interests and impairment of inventories and land.

² Adjusted by stock option plan expenses (non-cash), minority shareholders, and impairment of inventories, land, and Alphaville.

³ Backlog  results  net  of PIS/COFINS  taxes (3.65%) and  excluding  the  impact  of  PVA  (Present Value Adjustment) method  according  to  Law  No. 11.638.

4 Cash and cash equivalents, and marketable securities.

5 Backlog results comprise the projects restricted by condition precedent.

6 Resubmitted by adoption of IRFS 15 and IFRS 9.

94


 
 

 

OPERATIONAL RESULTS

 

Table 3 - Operational Performance (R$ 000)

 

4Q18

3Q18

Q/Q (%)

4Q17

Y/Y (%)

12M18

12M17

Y/Y (%)

Launches

118,936

71,144

67,2%

90,113

32,0%

728,670

553,954

31,5%

Gross Sales

153,406

188,125

-18,5%

216,988

-29,3%

1,040,848

1,131,823

-8,0%

Cancellations

(58,401)

(51,661)

13,0%

(95,407)

-38,8%

(227,677)

(411,658)

-44,7%

Net Pre-Sales

95,005

136,464

-30,4%

121,851

-22,0%

813,172

720,164

12,9%

Speed of Sales (SoS)

7,20%

9,40%

-2,2 p,p,

7,40%

-0,2 p,p,

39,90%

32,00%

7,9 p,p,

Delivered PSV

263,254

346,009

-23,9%

41,171

539,4%

910,255

861,325

5,7%

 

 

Launches

The Company launched one project in 4Q18, the Scena Tatuapé, with total PSV of R$118.9 million, which, when added to other launches in the year, totaled R$728.7 million in 2018, 31.5% higher than the total volume launched in 2017. In 4Q18, the estimated launch of three other projects with a PSV of approximately R$320 million was postponed to 2019. One of the projects was located in an oversupplied region; the two other projects, located in regions that did not reach an adequate development level, required adjustments.

 

 

Table 4 - Launches (R$ 000)

Project

City

Period

PSV

Upside Pinheiros

São Paulo/SP

1Q18

138,715

Upside Paraíso

São Paulo/SP

2Q18

147,949

Belvedere Lorian

Osasco/SP

2Q18

165,130

MOOV Belém

São Paulo/SP

2Q18

86,797

Vision Pinheiros

São Paulo/SP

3Q18

71,144

Scena Tatuapé

São Paulo/SP

4Q18

118,936

TOTAL

 

 

728,671

95


 
 

 

Sales

In 4Q18, gross sales totaled R$153.4 million, down 18.5% quarter-over-quarter and 29.3% year-over-year. This quarter was a period marked by transformation. Sales lists and several business conditions were reassessed, with the goal of preserving margin and profitability. For instance, we increased the percentage of clients’ down payments, which had the initial effect of reducing the speed of sales in the quarter—but will ensure healthier sales and fewer dissolutions going forward.

 

In the last 12 months, gross sales totaled R$1.04 billion in 2018 versus R$1.13 billion in 2017.

 

Dissolutions came to R$58.4 million in 4Q18, 38.8% lower than in 4Q17, despite a significantly higher volume of projects delivered year-over-year. Dissolutions reached R$227.7 million in 2018, reflecting a consistent downward trend (-44.7% p.a.). The average monthly dissolutions decreased from R$34.3 million in 2017 to R$19 million in 2018.

 

 

The net pre-sales totaled R$95 million in 4Q18. In 2018, net pre-sales came to R$813.2 million, 12.9% higher than in 2017.

 

 

 


96


 
 

 

Sales Over Supply (SoS)

Quarterly SoS was 7.2% in 4Q18, in line with the same period in the previous year. In the last 12 months, SoS reached 40%, 8 p.p. higher than in 4Q17, bolstered by inventory sales and launch successes. With 100% sales, Upside Pinheiros, a project launched in 1Q18, was the highlight.

 

 


Inventory (Property for Sale)

Inventory at market value was R$1.225 billion in 4Q18, down 7.1% quarter-over-quarter. This decrease can be attributed to sales in the period as well as sales prices in the quarter that were adjusted with the aim of pricing inventory units at actual market value.

 

Table 5 – Inventory at Market Value 4Q18 x 3Q18 (R$ 000)

 

Inventories  3Q18

Launches

Dissolutions

Gross Sales

Adjustments¹

Inventories  4Q18

Q/Q(%)

São Paulo

1,091,812

118,936

46,269

(142,234)

(80,770)

1,034,013

-5.3%

Rio de Janeiro

176,596

-

11,567

(7,253)

(37,747)

143,163

-18.9%

Other Markets

50,290

-

564

(3,919)

954

47,890

-4.8%

Total

1,318,698

118,936

58,401

(153,406)

(117,563)

1,225,066

-7.1%

¹ Adjustments reflect the updates related to the project scope, launch date, and pricing update in the period.

 

The positive inventory sales performance decreased inventory turnover from 25 months in 4Q17 to 18 months at the end of 2018.

 

We emphasize that out of R$460.6 million finished units, approximately 60% are residential units, which should contribute to sustaining the current level of inventory turnover and the monetization of these assets over the upcoming months. In addition, we point out that 73.5% of total inventory are residential units located in the state of São Paulo, where we are well-positioned to seize opportunities that result from the economic upturn.

97


 
 

 

 

Table 6 – Inventory at Market Value – Financial Progress – POC - (R$ 000)

 

Not Initiated

Up to 30% built

30% to 70% built

More than 70% built

Finished Units

Total 4Q18

São Paulo

181,745

75,514

365,287

127,304

284,164

1,034,013

Rio de Janeiro

-

-

-

-

143,163

143,163

Other Markets

-

-

14,647

-

33,243

47,890

Total

181,745

75,514

379,934

127,304

460,570

1,225,066

 

Table 7 – Inventory at Market Value – Commercial x Residential Breakdown - (R$ 000)

GFSA Inventory %

Residential

Commercial

Total

São Paulo

900,948

133,065

1,034,013

Rio de Janeiro

41,905

101,258

143,163

Other Markets

47,890

-

47,890

Total

990,743

234,323

1,225,066

 

 

Delivered Projects and Transfer

In 4Q18 alone, the Company delivered four projects totaling 549 units, with total PSV reaching R$263.3 million, fives times higher than the R$41.1 million seen in 4Q17. Currently, Gafisa has 14 projects underway, four of which will start works in 2019.

 

Table 8 – Deliveries

Project

Delivery Date

Launch Date

Location

% Share

Units 100%

PSV % R$000

Mood Lapa

May/18

Aug/15

Rio de Janeiro/RJ

100%

153

87,775

Smart Vila Madalena

Jun/18

Oct/15

São Paulo/SP

100%

230

82,190

Vision Paulista

Jun/18

Apr/15

São Paulo/SP

100%

200

88,151

Barra Viva 2

Jun/18

Sep/15

São Paulo/SP

50%

221

21,462

Barra Viva 1 – Torre Alegria

Jun/18

Aug/16

São Paulo/SP

50%

221

21,414

Vision Capote Valente

Jul/18

Nov/15

São Paulo/SP

100%

151

97,414

Bosque Marajoara

Aug/18

Jun/15

São Paulo/SP

100%

339

164,691

Smart Santa Cecília

Sep/18

Oct/15

São Paulo/SP

100%

290

83,904

Scena Alto da Lapa

Oct/18

Oct/15

São Paulo/SP

100%

42

52,119

Alphamall

Nov/18

Sep/15

Rio de Janeiro/RJ

100%

53

24,272

Hermann Jr

Dec/18

Oct/15

São Paulo/SP

100%

22

111,343

Barra Vista

Dec/18

Dec/16

São Paulo/SP

50%

432

75,520

Total 4Q18

 

 

 

 

549

263,254

Total 2018

 

 

 

 

2,354

910,255

98


 
 

 

 

PSV transferred in 4Q18 was up 10%, reaching R$82.4 million year-over-year, boosted by higher PSV of projects delivered. In 2018, PSV transferred totaled R$321.3 million, down 27.2% from 2017. This reduction is because approximately 71% of PSV delivered in the quarter occurred in December (Hermann Jr and Barra Vista), with transfer foreseen in the first quarter of 2019.

 

Table 9 – Transfer and Deliveries - (R$ 000)

 

4Q18

3Q18

Q/Q (%)

4Q17

Y/Y (%)

12M18

12M17

Y/Y (%)

PSV Transferred¹

82,400

93,027

-11.42%

74,824

10.13%

321,262

441,217

-27.19%

Delivered Projects

4

3

33.33%

1

300.00%

12

9

33.33%

Delivery Units

549

780

-29.62%

293

87.37%

2,354

2,182

7.88%

Delivered PSV²

263,254

346,009

-23.92%

41,171

539.42%

910,255

861,325

5.68%

¹ PSV transferred refers to the potential sales value of the units transferred to financial institutions;

² PSV = Potential sales value of delivered units.

 

Landbank

The Company’s landbank, with an estimated PSV of R$3.75 billion, represents 32 potential projects/phases, totaling 6,620 units. Approximately 70% of land was acquired through swaps and was mostly located in the city of São Paulo.

 

Table 10 - Landbank (R$ 000)

 

PSV
(% Gafisa) ¹

% Swap Total ²

% Swap Units

% Swap Financial

Potential Units
(% Gafisa) ³

Potential
Units Total

São Paulo

2,410,522

79.2%

73.6%

5.5%

4,816

5,107

Rio de Janeiro

748,745

60.1%

60.1%

0.0%

755

892

Other Markets

594,327

30.0%

30.0%

0.0%

1,050

1,320

Total

3,753,594

69.8%

66.2%

3.6%

6,620

7,319

¹ The PSV (% Gafisa) reported is net of swap and brokerage rate.

² The swap percentage is measured compared to the historical cost of land acquisition.

³ Potential units are net of swaps and refer to the Gafisa’s and/or its partners’ interest in the project.

 

Table 11 – Changes in the Landbank (4Q18 x 3Q18 - R$ 000)

 

Initial Landbank

Land Acquisition

Launches

Dissolutions

Adjustments

Final Landbank

São Paulo

2,645,527

-

118,936

-

(116,069)

2,410,522

Rio de Janeiro

1,230,529

-

-

-

(481,784)

748,745

Other Markets

43,074

-

-

-

551,253

594,327

Total

3,919,130

-

118,936

-

(46,600)

3,753,594

*The amounts reported are net swap and brokerage.

99


 
 

 

FINANCIAL RESULTS

Revenue

Net revenues rose to R$960.9 million in 2018, up by 22% from 2017, driven by higher sales volume and work evolution in the period. In 4Q18, nearly 30,5% of net revenue is related to projects launched during 2018, reflecting our launches assertiveness.

Table 12 – Revenue Recognition (R$ 000)

 

4Q18

4Q17¹

Launches

Pre-Sales

%
Sales

Revenue

%

Revenue

Pre-Sales

%
Sales

Revenue

%

Receita

2018

36,296

38.2%

58,808

30.5%

-

-

-

-

2017

10,673

11.2%

20,911

10.8%

52,872

43.5%

40,021

11.7%

2016

25,612

27.0%

70,009

36.3%

22,514

18.5%

58,834

17.2%

2015

17,262

18.2%

39,249

20.3%

31,236

25.7%

152,215

44.5%

<2014

5,161

5.4%

3,939

2.0%

14,959

12.3%

90,987

26.6%

Total

95,005

100%

192,917

100.0%

121,581

100%

342,057

100.0%

                 

    ¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

 

Gross Profit & Margin

In 4Q18, gross profit & margin were impacted by provisions totaling R$63.1 million, deriving from impairment of certain plots of land and inventory units. Excluding the effect of these adjustments, recurring adjusted gross profit recorded in 4Q18 totaled R$46.9 million versus approximately R$91.6 million in 4Q17. In the last 12 months, recurring adjusted gross profit totaled R$290.8 million in 2018, twice higher than the amount recorded in 2017. Recurring adjusted gross margin in 2018 was 30.3%, 12 p.p. higher than in 2017.

Table 13 – Gross Margin (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17¹

Y/Y (%)

12M18

12M17¹

Y/Y (%)

Net Revenue

192,917

252,306

-24%

342,057

-44%

960,891

786,174

22%

Gross Profit

(29,710)

48,746

-161%

(81,111)

-63%

114,722

(120,312)

-195%

Gross Margin

-15.4%

19.3%

-3,472 bps

-23.7%

831 bps

11.9%

-15.3%

2,724 bps

(-) Financial Costs

(13,506)

(31,584)

-57%

(25,399)

-47%

(112,904)

(116,515)

-3%

Adjusted Gross Profit²

(16,204)

80,330

-120%

(55,712)

-71%

227,626

(3,797)

-6,095%

Adjusted Gross Margin²

-8.4%

31.8%

-4,024 bps

-16.3%

789 bps

23.7%

-0.5%

2,417 bps

(-) Inventory and landbank adjustment

(63,145)

-

-

(147,332)

-57%

(63,145)

(147,332)

-57%

Recurring Adjusted Gross Profit³

46,942

80,330

-42%

91,620

-49%

290,771

143,535

103%

Recurring Adjusted Gross Margin³

24.3%

31.8%

-751 bps

26.8%

-245 bps

30,3%

18.3%

1,200 bps

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.
² Adjusted by capitalized interests.
³ Adjusted by impairment of land and inventories.

100


 
 

 

 

Selling, General, and Administrative Expenses (SG&A)

Selling, general, and administrative expenses totaled R$6.6 million, 85% below 3Q18 and 86% below 4Q17. In the last 12 months, selling, general, and administrative expenses totaled R$141 million, down 22% from 2017.

Selling expenses totaled R$11.4 million, down 45% from 3Q18 due to a reduction in i) product marketing and selling expenses, reflecting the gains earned during the 4Q18 turnaround process; and ii) brokerage and sales commission expenses, reflecting lower sales volume in the period. In 2018, the decrease was 4% versus 2017.

General and administrative expenses totaled R$4.7 million, down 121% from 3Q18 mainly due to (i) the net reversal of bonus provisions for the previous year and current year, amounting to R$14.8 million in 2018; (ii) reduced services expenses; and (iii) lower salaries and charges expenses. In the last 12 months, general and administrative expenses decreased from R$92.7 million in 2017 to R$57.1 million in 2018 due to a reversal of provision for bonus mentioned above as well as lower services and IT expenses.

Table 14 – SG&A Expenses (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17

Y/Y (%)

12M18

12M17

Y/Y (%)

Selling Expenses

(11,389)

(20,653)

-45%

(24,399)

-53%

(84,431)

(87,568)

-4%

G&A Expenses

4,752

(22,300)

-121%

(24,165)

-120%

(57,089)

(92,713)

-38%

Total SG&A Expenses

(6,637)

(42,953)

-85%

(48,564)

-86%

(141,520)

(180,281)

-22%

 

In contrast to other periods in the year, the total amount of other operating expenses reached R$251.4 million in 4Q18, 67% higher than in 4Q17. A significant amount of this total, 45% or R$112.8 million derived from the goodwill impairment test to remeasure the 30% stake in Alphaville, yearly conducted based on the future profitability estimate or when circumstances indicate impairment losses.

Another relevant impact in the quarter was the expense relating to provision for contingencies. During the revision of contingency proceedings, we identified a provisioning need for four relevant contingencies: (i) execution referring to the loss of suit totaling R$33.7 million; (ii) indemnification in affirmative covenant involving former shareholder of the Company, in the amount of R$26.7 million; (iii) lawsuit referring to construction guarantee totaling R$23.2 million, the injunction of which was granted relief on March 7, 2017 ; and (iv) indemnification due to land dissolution, with judgment rendered on September 9, 2015, totaling R$23.3 million. Furthermore, it is important to note that the impairment of software reached approximately R$5 million.

 

Table 15 – Other Operating Revenues/Expenses (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17

Y/Y (%)

12M18

12M17

Y/Y (%)

Litigation Expenses

(127,668)

(17,241)

640%

(46,417)

175%

(172,432)

(107,848)

60%

Impairment of Alphaville

(112,800)

-

-

(101,953)

11%

(112,800)

(101,953)

11%

Impairment of Software

(4,963)

-

-

(710)

599%

(4,963)

(710)

599%

Others

(6,003)

(337)

1,681%

(1,166)

415%

(8,741)

(1,039)

741%

Total

(251,434)

(17,578)

1,330%

(150,246)

67%

(298,936)

(211,550)

41%

101


 
 

 

Adjusted EBITDA

Recurring adjusted EBITDA (excluding litigation expenses and the impairment of inventories, land, software and investment losses in Alphaville) amounted to positive R$127 million in 2018 versus negative R$50,8 million in 2017. In 4Q18, adjusted EBITDA according to the same criteria totaled positive R$29.3 million, 34% below 4Q17.

Table 16 – Adjusted EBITDA (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17¹

Y/Y (%)

12M18

12M17¹

Y/Y (%)

Net Income (Loss)

(297,017)

(37,225)

698%

(372,998)

-20%

(419,526)

(760,240)

-45%

 

Discontinued Operation Result

-

-

-

-

-

-

(98,175)

-100%

 

(+) Inventory and landbank adjustment

63,145

-

-

147,332

-57%

63,145

147,332

-57%

 

Adjusted Net Income

(233,872)

(37,225)

528%

(225,666)

4%

(356,381)

(711,083)

-50%

 

(+) Financial Results

22,310

19,179

16%

24,249

-8%

80,521

107,268

-25%

 

(+) Income Tax / Social Contribution

(24,085)

670

-3,695%

(24,773)

-3%

(21,751)

(23,100)

-6%

 

(+) Depreciation and Amortization²

5,772

6,393

-10%

6,084

-5%

21,290

32,046

-34%

 

(+) Capitalized Interest

13,506

31,584

-57%

25,399

-47%

112,904

116,515

-3%

 

(+) Expenses w Stock Option Plan

15

634

-98%

2,067

-99%

1,927

4,964

-61%

 

(+) Minority Shareholders

170

(700)

-124%

(161)

-206%

(1,750)

(281)

523%

 

(+) AUSA Income Effect

-

-

-

62,569

-100%

-

186,856

-100%

 

(+) AUSA loss on investment realization Effect

112,800

-

-

127,429

-11%

112,800

127,429

-11%

 

(+) Litigation Expenses

127,668

17,241

640%

46,417

175%

172,432

107,848

60%

 

(+) Impairment of Software

4,963

-

-

710

599%

4,963

710

599%

 

Recurring Adjusted EBITDA³

29,247

37,776

-23%

44,324

-34%

126,954

(50,828)

-350%

 

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

² Adjusted by goodwill impairment test to remeasure the acquisition of Alphaville.

³ Adjusted by capitalized interests, litigation and stock option plan expenses (non-cash), minority shareholders, and impairment of inventories, land, software and Alphaville.

 

Financial Result

In 4Q18, financial results totaled R$4.3 million, down 29% quarter-over-quarter, reflecting lower balance of cash and cash equivalents in the period; and down 28% year-over-year, due to the interest rate drop in the period. Financial expenses reached R$26.7 million in 4Q18, 12% lower than in 4Q17 due to reduced interest rates on funding in view of a lower level of indebtedness. Thus, 4Q18 reported a negative net financial result of R$22.3 million, compared to a negative net financial result of R$24.3 million in 4Q17.

In the last 12 months, the net financial result was negative R$80.5 million versus a net loss of R$107.3 million in 2017.

 

102


 
 

 

 

Taxes

In 4Q18, income tax and social contribution had a positive impact of R$24 million, reflecting a tax credit of R$26 million deriving from the goodwill impairment recorded in the Alphaville investment. For this reason, the provision for income tax and social contribution (IR/CSLL) had a positive impact of R$21.8 million in 2018.

 

Net Result

As a result of effects mentioned above, 4Q18’s recorded a positive result of R$11.6 million, compared to a net loss of around R$20 million in 3Q18 and in line with R$11.5 million in 4Q17, excluding results from the impairment of inventories, land, and goodwill of the stake in Alphaville. In the last 12 months, recurring adjusted net loss was R$66.2 million versus R$190.1 million in 2017.

Table 17 – Net Result (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17¹

Y/Y (%)

12M18

12M17¹

Y/Y (%)

Net Revenue

192,917

252,306

-24%

342,057

-44%

960,891

786,174

22%

Gross Profit

(29,710)

48,746

-161%

(81,111)

-63%

114,722

(120,312)

-195%

Gross Margin

-15.4%

19.3%

-3,472 bps

-23.7%

8,312 bps

11.9%

-15.3%

2,724 bps

(-) Financial Costs

(13,506)

(31,584)

-57%

(25,399)

-47%

(112,904)

(116,515)

-3%

(-) Inventory and landbank adjustment

(63,145)

-

-

(147,332)

-57%

(63,145)

(147,332)

-57%

Recurring Adjusted Gross Profit

46,942

80,330

-42%

91,620

-49%

290,771

143,535

103%

Recurring Adjusted Gross Margin

24.3%

31.8%

-751 bps

26.8%

2,453 bps

30.3%

18.3%

1,200 bps

Adjusted Net Income²

(233,872)

(37,225)

528%

(225,666)

4%

(356,381)

(612,908)

-42%

( - ) Equity income from Alphaville

-

-

-

(62,569)

-100%

-

(186,856)

-100%

( - ) Loss of investment in Alphaville

(112,800)

-

-

(127,429)

-11%

(112,800)

(127,429)

-11%

(-) Litigation Expenses

(127,668)

(17,241)

640%

(46,417)

175%

(172,432)

(107,848)

60%

(-) Impairment of Software

(4,963)

-

-

(710)

599%

(4,963)

(710)

599%

Recurring  Adjusted Net Result³

11,559

(19,984)

-158%

11,459

1%

(66,186)

(190,065)

-65%

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

² Adjusted by impairment of inventories and land.

³ Adjusted by capitalized interests, litigation expenses, impairment of inventories, land, software and Alphaville.

 

Backlog of Revenues and Results

The balance of backlog revenues totaled R$196.8 million in 4Q18, with a margin to be recognized of 35.7%, 95 basis points higher than in 4Q17.

Table 18 – Backlog Results (REF) (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17

Y/Y (%)

Backlog Revenues

551,270

587,344

-6%

620,821

-11%

Backlog Costs (units sold)

(354,458)

(371,566)

-5%

(405,064)

-12%

Backlog Results

196,812

215,778

-9%

215,758

-9%

Backlog Margin

35.7%

36.7%

-104 bps

34.8%

95 bps

Note: Backlog    results  net of  PIS/COFINS  taxes ( 3.65%)  and     excluding  the   impact   of  PVA(Present Value Adjustment)   method     according  to  Law No. 11.638.

Backlog results comprise the projects restricted by condition precedent.

103


 
 

 

BALANCE SHEET

 

Cash and Cash Equivalents and Marketable Securities

On December 31, 2018, cash and cash equivalents and marketable securities totaled R$137.2 million.

 

Receivables

At the end of 4Q18, total accounts receivable totaled R$1.2 billion, down 13% versus 3Q18. Of this amount, R$642 million were already recognized in the balance sheet, and R$468 million are expected to be received in 2019.

Table 19 – Total Receivables (R$ 000)

 

4Q18

3Q18

Q/Q(%)

4Q17

Y/Y (%)

Receivables from developments (off balance sheet)

572,154

609,594

-6%

644,340

-11%

Receivables from PoC- ST (on balance sheet)

467,992

569,166

-18%

374,886

25%

Receivables from PoC- LT (on balance sheet)

174,018

214,405

-19%

199,317

-13%

Total

1,214,164

1,393,165

-13%

1,218,543

-0,4%

Notes: ST – Short term | LT- Long term | PoC – Percentage of Completion Method.

Receivables from developments: accounts receivable not yet recognized according to PoC and BRGAAP.

Receivables from PoC: accounts receivable already recognized according to PoC and BRGAAP.

 

Table 20 – Receivables Schedule (R$ 000)

 

Total

2019

2020

2021

2022

2023 – and after

Receivables from PoC

642,010

467,992

108,726

59,753

1,413

4,126

 

Cash Generation

Cash generation totaled R$13.7 million in 4Q18 due to greater control of expenses in the quarters, a result of the Company’s turnaround process.

 

Table 21 – Cash Generation (R$ 000)

 

1Q18

2Q18

3Q18

4Q18

Availabilities 1

204,938

212,897

194,445

137,160

Change in Availabilities (1)

57,476

7,959

(18,452)

(57,285)

Total Debt + Investor Obligations

983,468

964,770

960,344

889,413

Change in Total Debt + Investor Obligations (2)

(121,430)

(18,698)

(4,426)

(70,931)

Capital Increase (3)

250,766

-

-

-

Cash Generation in the period (1) - (2) - (3)

(71,860)

26,657

(14,026)

13,646

Final Accumulated Cash Generation

(71,860)

(45,203)

(59,229)

(45,583)

  ¹ Cash and cash equivalents. and marketable securities.

104


 
 

 

Liquidity

In 4Q18, net debt reached R$752.3 million, down 21.0% year-over-year.

Table 22 – Debt and Investor Obligations (R$ 000)

 

4Q18

3Q18

Y/Y(%)

4Q17

Y/Y (%)

Debentures – Working Capital (A)

265,666

281,325

-6%

207,713

28%

Project Financing SFH – (B)

528,140

567,696

-7%

733,103

-28%

Working Capital (C)

95,607

111,323

-14%

164,082

-42%

Total Debt (A)+(B)+(C)= (D)

889,413

960,344

-7%

1,104,898

-20%

Cash and Availabilities ¹ (E)

137,160

194,446

-29%

147,462

-7%

Net Debt (D)-(E) = (F)

752,253

765,898

-2%

957,436

-21%

Equity + Minority Shareholders (G)

493,191

871,955

-43%

715,069

-31%

(Net Debt) / (Equity)  (F)/(G) = (H)

152.5%

87.8%

6,469 bps

133.9%

1,863 bps

(Net Debt – Proj, Fin,) /Equity  ((F)-(B))/(G) = (I)

45.4%

22.7%

2,271 bps

31.4%

1,407 bps

¹ Cash and cash equivalents and marketable securities.

 

The Company ended 4Q18 with R$348.4 million in total short-term debt, 39% of total debt versus 51.5% at the end of 4Q17. We point out that during 2018, the Company amortized approximately R$639.4 million of debts contracted. On December 31, 2018, the consolidated debt average cost was 11.44% p.a., or 178.2% of CDI accumulated in 2018.

                                                    Table 23 – Debt Maturity (R$ 000)

 

Average Cost (a.a.)

Total

Until Dec/19

Until Dec/20

Until Dec/21

Until Dec/22

Debentures – Working Capital (A)

CDI + 3% / CDI + 3.75% / CDI + 5.25% / IPCA + 8.37%

265,666

62,783

157,700

43,391

1,792

Project Financing SFH (B)

TR + 8.30% a 14.19% / 12.87% / 143% CDI

528,140

250,935

201,035

76,170

-

Working Capital (C)

135% CDI / CDI + 2.5% / CDI + 3% / CDI + 3.70% / CDI + 4.25%

95,607

34,678

15,583

45,346

-

Total (A)+(B)+(C) = (D)

 

889,413

348,396

374,318

164,907

1,792

Obligations with investors (E)

 

-

-

-

-

-

Total Debt (D)+(E) = (F)

 

889,413

348,396

374,318

164,907

1,792

% of Total Maturity per period

 

39%

42%

19%

0.2%

Project  debt  maturing  as  %  of  total  debt  (C)/ (F)

 

72%

54%

46%

-

Corporate  debt  maturing  as  %  of  total  debt  ((A)+(C) + (E))/ (F)

 

28%

46%

54%

100%

Ratio Corporate Debt / Mortgage

40.6% / 59.4%

     
                     

 

 

105


 
 

 

SUBSEQUENT EVENTS

 

New Headquarters Address

On January 8, 2019, a lease agreement was signed for the Company’s new headquarters in São Luiz Condominium, at Av. Pres. Juscelino Kubitschek, 1830. With our headquarters moving to a location better-suited to us, there will be a reduction in leasing, condominium, and IPTU (municipal real estate tax) expenses by approximately R$4 million p.a.

 

Change in Relevant Shareholding

GWI’s reduced stake

On February 14, 2019, the GWI Group reduced its stake in the Company to 7.70% of common shares issued by the Company (3,338,600 shares). On February 20, 2019, GWI Group then held 2,199,300 shares, accounting for 4.89% of the Company’s capital stock, no longer holding relevant shareholding in Gafisa.

 

Planner’s increased interest

On February 14, 2019, Planner, by means of investment funds managed by it, reached an equity interest of eight million (8,000,000) common shares issued by Gafisa, corresponding to 18.45% of total common shares issued by the Company. In a notice sent to the Company, Planner stated its intention to change Gafisa’s administrative structure, undertaking to keep the market informed on this issue.

 

Change in the Board of Directors

On February 17, 2019, the following Messrs. were elected to hold two remaining positions in the Company’s Board of Directors, with terms lasting until the next General Meeting of the Company:

Augusto Marques da Cruz Filho:  Augusto holds a PhD in Economic Theory from the Institute of Economic Research (IPE) of the University of São Paulo, graduated in Economic Sciences from the Economic and Administration University of the University of São Paulo (FEA-USP), and attended Abroad Developmente in Insead – Institut Européen d’Aministration des Affaires. For 11 years he has occupied various roles at Grupo Pão de açúcar: Executive Officer, Administrative and Financial Officer, and Chief Officer until leaving the position in 2005. Between 2005 and 2010 he was a member of the Board of Directors and Audit Committee of B2W. Since April 2016, he has been President of the Board of Directors of BR Distribuidora. He is also a member of the Board of Directors of JSL S.A. and General Shopping.

Oscar Segall: Oscar is a strong figure in the Brazilian real estate market. He co-founded Klabin Segall and headed BTG Pactual’s real estate department. He led the launch of over 130 projects, delivered more than 25,000 units, and won several real estate awards. In addition to his vast experience in the domestic market, Oscar has experience buying and selling land in the US market and developing real estate projects.

 

106


 
 

 

On this same date, Messrs. Mu Hak You and Thiago Hi Joon You tendered their resignation as members of the Board of Directors, which continues being composed of five (5) sitting members.

 

On March 15, 2019, the following Messrs. were elected to hold two remaining positions in the Company’s Board of Directors, with a term of office until the next Shareholders’ Meeting of the Company:

                Thomas Reichenheim: he holds a degree in Business Administration from Getúlio Vargas Foundation (1972) and in Law from FMU (Faculdades Metropolitanas Unidas) - 1972. Mr. Reichenheim is a former officer of several companies, notably, Banco Auxiliar, Banco Auxiliar de Investimento, Auxiliar Seguradora, La Fonte Fechaduras, and LFTel S.A. He is the general partner of Carisma Comercial Ltda., T.R Portfolios Ltda. and advisor in IPOs and financial institutions.

Roberto Portella: he is a partner of the law firm Demarest Almeida, Advisory Sector, member of the Legal Committee of the American Chamber for Brazil (AMCHAN-SP), member of Petro S.A.’s Fiscal Council.

The Board of Directors is now composed of 7 sitting members.

 

Annual Shareholders’ Meeting

In view of the nomination of new members of the Board of Directors, and the new composition of the Audit Committee, with a 2/3 change of its members to better assess the financial statements, the Company altered the date of the Annual Shareholders’ Meeting from April 24, 2019, to April 30, 2019.

 

Extraordinary Shareholders’ Meeting

On March 15, 2019, the Company received a letter from Planner Corretora de Valores S.A. and Planner Redwood Asset Management Administração de Recursos Ltda. (both jointly referred to as “Planner”), in the capacity of investment fund managers, which jointly hold 18.55% of Gafisa’s capital stock, requesting the Company’s Board of Directors to call for an Extraordinary Shareholders’ Meeting (“ESM”). Referred Planner’s call for an ESM follows its intention of altering Gafisa’s administrative structure.

The Extraordinary Shareholders’ Meeting is scheduled for April 15, 2019, at 9:00 a.m. at the Company’s headquarters.

 

 

107


 
 

 

 
 

São Paulo, March 28, 2019.

 

Alphaville Urbanismo SA released its results for the fourth quarter of 2018.

Financial Results

In 4Q18, net revenue came in at negative R$32 million and net loss totaled R$222 million.

 

 

 

 

 

 

 

 

 

 

 

4Q18

4Q17

12M18

12M17

4Q18 vs. 4Q17

2018 vs. 2017

Net revenue

-32

-45

69

108

-29%

-36%

Net Income

-222

-350

-755

-764

-37%

-1%

 

 

 

 

 

 

 

                     

 

It is worth mentioning that Gafisa discontinued the recognition of its share in future losses after reducing the accounting balance of its 30% stake in Alphaville's share capital to zero.

 

For further information, please contact our Investor Relations team at ri@alphaville.com.br or +55 11 3038-7131.

108


 
 

 

Consolidated Income Statement

 

4Q18

3Q18

Q/Q (%)

4Q17¹

Y/Y (%)

12M18

12M17¹

Y/Y (%)

Net Revenue

192,917

252,306

-24%

342,057

44%

960,891

786,174

22%

Operating Costs

(222,627)

(203,560)

9%

(423,168)

-47%

(846,169)

(906,486)

-7%

Gross Profit

(29,710)

48,746

-161%

(81,111)

-63%

114,722

(120,312)

-195%

Gross Margin

-15.4%

19.3%

-3,472 bps

-6.5%

-892 bps

11.9%

-15.3%

2,724 bps

Operating Expenses

(268,912)

(66,822)

302%

(292,572)

-8%

(477,228)

(654,216)

-27%

Selling Expenses

(11,389)

(20,653)

-45%

(24,399)

-53%

(84,431)

(87,568)

-4%

General and Administrative Expenses

4,752

(22,300)

-121%

(24,165)

-120%

(57,089)

(92,713)

-38%

Other Operating Revenue/Expenses

(251,434)

(17,578)

1,330%

(150,246)

67%

(298,935)

(211,550)

41%

Depreciation and Amortization

(5,772)

(6,393)

-10%

(31,560)

-82%

(21,290)

(57,522)

-63%

Equity Income

(5,069)

102

-5,070%

(62,202)

-92%

(15,483)

(204,863)

-92%

Operational Result

(298,622)

(18,076)

1,552%

(373,683)

-20%

(362,506)

(774,528)

-53%

Financial Income

4,342

6,130

-29%

6,053

-28%

19,553

29,733

-34%

Financial Expenses

(26,652)

(25,309)

5%

(30,302)

-12%

(100,074)

(137,001)

-27%

Net Income Before Taxes on Income

(320,932)

(37,255)

761%

(397,932)

-19%

(443,027)

(881,796)

-50%

Deferred Taxes

25,100

-

-

25,932

-3%

25,100

25,932

-3%

Income Tax and Social Contribution

(1,015)

(670)

51%

(1,159)

-12%

(3,349)

(2,832)

18%

Net Income After Taxes on Income

(296,847)

(37,925)

683%

(373,159)

-20%

(421,276)

(858,696)

-51%

Continued Op. Net Income

(296,847)

(37,925)

683%

(373,159)

-20%

(421,276)

(858,696)

-51%

Discontinued Op. Net Income

-

-

-

-

-

-

98,175

-100%

Minority Shareholders

170

(700)

-124%

(161)

-206%

(1,750)

(281)

523%

Net Income

(297,017)

(37,225)

698%

(372,998)

-20%

(419,526)

(760,240)

-45%

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

 

 

109


 
 

 

Consolidated Balance Sheet

 

4Q18

3Q18

Q/Q (%)

4Q17¹

Y/Y (%)

Current Assets

 

 

 

 

 

Cash and Cash equivalents

32,304

7,931

307%

28,527

13%

Securities

104,856

186,515

-44%

118,935

-12%

Receivables from clients

467,993

569,166

-18%

374,886

25%

Properties for sale

890,460

858,726

4%

990,286

-10%

Other accounts receivable

106,943

104,116

3%

110,626

-3%

Prepaid expenses and other

2,668

3,184

-16%

5,535

-52%

Land for sale

78,148

34,212

128%

102,352

-24%

Non-current asset for sale

-

-

-

-

-

SubTotal

1,683,371

1,763,850

-5%

1,731,147

-3%

 

 

 

 

 

 

Long-term Assets

 

 

 

 

 

Receivables from clients

174,017

214,405

-19%

199,317

-13%

Properties for sale

198,941

263,937

-25%

339,797

-41%

Other

123,603

116,874

6%

86,351

43%

Subtotal

496,561

595,216

-17%

625,465

-21%

Intangible, Property and Equipment

31,843

43,047

-26%

40,622

-22%

Investments

314,505

465,438

-32%

479,126

-34%

 

 

 

 

 

 

Total Assets

2,526,280

2,867,551

-12%

2,876,360

-12%

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Loans and financing

285,612

170,171

68%

481,073

-41%

Debentures

62,783

31,196

101%

88,177

-29%

Obligations for purchase of land advances

from customers

113,355

145,468

-22%

156,457

-28%

Material and service suppliers

119,847

106,363

13%

98,662

21%

Taxes and contributions

57,276

56,822

1%

46,430

23%

Other

400,142

297,503

35%

385,444

4%

Subtotal

1,039,015

807,523

29%

1,256,243

-17%

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

Loans and financings

338,135

508,848

-34%

416,112

-19%

Debentures

202,883

250,129

-19%

119,536

70%

Obligations for Purchase of Land and

advances from customers

196,076

207,765

-6%

152,377

29%

Deferred taxes

49,372

74,473

-34%

74,473

-34%

Provision for Contingencies

155,608

98,557

58%

82,063

90%

Other

52,000

48,301

8%

60,487

-14%

Subtotal

994,074

1,188,073

-16%

905,048

10%

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Shareholders’ Equity

491,317

870,252

-44%

711,222

-31%

Minority Interest

1,874

1,703

10%

3,847

-51%

Subtotal

493,191

871,955

-43%

715,069

-31%

Total liabilities and Shareholders’ Equity

2,526,280

2,867,551

-12%

2,878,360

-12%

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

 

110


 
 

 

Consolidated Cash Flow

 

4Q18

4Q17¹

12M18

12M17¹

Net Income (Loss) before taxes

(320,931)

(397,932)

(443,027)

(881,796)

Expenses/revenues that does not impact working capital

203,511

193,567

227,218

481,285

Depreciation and amortization

5,772

6,084

21,290

32,046

Impairment

(35,220)

147,332

(74,689)

136,191

Expense with stock option plan

15

2,066

1,927

4,964

Unrealized interest and fees, net

927

(807)

11,156

46,168

Equity Income

5,069

62,202

15,483

204,863

Provision for guarantee

(474)

3,941

(4,130)

(3,498)

Provision for contingencies

127,668

46,417

172,432

107,848

Profit Sharing provision

(18,545)

3,981

(14,750)

13,375

Provision (reversal) for doubtful accounts

(22,790)

(205,050)

(41,827)

(187,283)

Gain / Loss of financial instruments

-

(28)

(763)

(818)

Impairment losses

112,800

101,953

112,800

101,953

Goodwill write-off AUSA

-

25,476

-

25,476

Stock sale update

28,289

-

28,289

-

Clients

21,332

79,562

(95,740)

260,090

Properties held for sale

132,643

82,661

339,575

346,210

Other accounts receivable

(6,516)

(45)

(15,880)

(9,317)

Prepaid expenses and deferred sales expenses

516

(9)

2,867

(2,987)

Obligations on land purchase and advances from clients

(43,802)

40,037

597

13,137

Taxes and contributions

454

(3,982)

10,846

(5,412)

Suppliers

24,202

8,163

32,732

18,683

Payroll, charges, and provision for bonuses

(9,539)

(5,379)

(6,459)

(14,266)

Other liabilities

59,599

15,052

(3,434)

(20,341)

Related party operations

(2,055)

(4,642)

(14,497)

(27,548)

Taxes paid

(1,014)

(1,159)

(3,348)

(2,832)

Cash provided by/used in operating activities /discontinued operation

-

-

-

51,959

Net cash from operating activities

58,390

5,924

31,450

206,865

Investment Activities

-

-

-

-

Acquisition of properties and equipment

5,432

(2,093)

(12,511)

(20,463)

Capital contribution to parent company

(641)

(3,892)

(4,629)

(2,598)

Redemption of securities, collaterals, and credits

222,333

332,660

1,104,875

1,183,878

Investment in marketable securities and restricted credits

(140,674)

(322,223)

(1,090,796)

(1,079,167)

Cash provided by/used in investment activities / discontinued operation

-

-

-

48,663

Transaction costs from discontinued operation

-

-

-

(9,545)

Receivable of preemptive right exercise ref, Tenda

-

-

-

219,510

Net cash from investment activities

-

105,170

-

105,170

Cash provided by/used in investment activities / discontinued operation

86,450

109,622

(3,061)

445,448

Funding Activities

-

-

-

-

Related party contributions

-

-

-

(1,237)

Addition of loans and financing

34,927

197,565

412,768

453,370

Amortization of loans and financing

(106,785)

(311,130)

(639,409)

(1,032,206)

Assignment of credit receivables, net

-

-

-

21,513

Related Parties Operations

(446)

(581)

(1,289)

5,044

Sale of treasury shares

-

501

715

818

Cash provided by/used in financing activities/ discontinued operation

-

-

-

24,089

Proceeds from sale of treasury shares

(48,163)

-

(48,163)

-

Capital Increase

-

-

167

-

Subscription and payment of common shares

-

-

250,599

-

Net cash from financing activities

(120,467)

(113,645)

(24,612)

(528,609)

Net cash variation for sales operations

-

-

-

(124,711)

Increase (decrease) in cash and cash equivalents

24,373

1,901

3,777

(1,007)

Beginning of the period

7,931

26,626

28,527

29,534

End of the period

32,304

28,527

32,304

28,527

Increase (decrease) in cash and cash equivalents

24,373

1,901

3,777

(1,007)

¹ Resubmitted by adoption of IRFS 15 and IFRS 9.

 

111


 
 

 

This release contains forward-looking statements about business prospects, estimates for operating and financial results, and Gafisa’s growth prospects. These are merely projections and, as such, are based exclusively on the expectations of management concerning the future of the business and its continued access to capital to fund the Company’s business plan. Such forward-looking statements depend, substantially, on changes in market conditions, government regulations, competitive pressures, the performance of the Brazilian economy, and the industry, among other factors; therefore, they are subject to change without prior notice.


 

 

112

 

SIGNATURE

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 12, 2019
 
Gafisa S.A.
 
By:
/s/ Roberto Portella

 
Name:   Roberto Portella
Title:     Chief Executive Officer