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Gafisa Reports Unaudited Full Year 2011 Preliminary Results


“Since my appointment as CEO on July 5, 2011, I have engaged the entire management team and worked along with the Board of Directors and our management consultants, Bain & Company, in a review of our Company’s operating units and overall strategy. The results of this review led to our decision in October 2011 to: (i) establish a new operating structure by brands; (ii) reduce risk at Tenda; (iii) expand the contribution of AlphaVille´s successful developments in our product mix and; (iv) refocus the Gafisa brand on its core markets of São Paulo and Rio de Janeiro,” commented Duilio Calciolari, Chief Executive Officer.

During the fourth quarter the Company established three separate operating units corresponding to the Gafisa, AlphaVille and Tenda brands headed by executives with profit and loss responsibility. As a result of the analysis conducted by the new teams, the Company identified important adjustments related to the strategic redirection at Gafisa and the new operating model adopted at Tenda which are reflected in the fourth quarter as follows:

  1. In the 4Q11, cost overruns related to construction of R$587 million (R$231 million in Gafisa and R$356 million in Tenda) equivalent to 8% of the original total cost base of projects. 49% of the preliminary value relates to developments executed by third parties and franchisees, 26% relates to developments in regions that have been discontinued, and 25% from construction managed in-house. The impact in the fourth quarter is R$440.9 million.
  2. A thorough review of the Tenda portfolio of receivables identified 4K customers who are no longer eligible for bank mortgages and whose contracts were terminated, resulting in an impact of R$91.2 million. The dissolution of contracts with potential property owners involves units that are, on average, more than 70% complete; where we collected an average down payment of 6% of the total value of the unit. The units were returned to inventory and became eligible for resale to qualified mortgage borrowers. Additionally, provisions were made for future dissolutions equivalent to 8K units, resulting in a net impact of R$80 million in the period. Also, provisions for bad debt amounted to R$79.3 million.
  3. An impairment related write-down of R$37.9 million based on a downward valuation of land bank Gafisa no longer intends to develop in the near term as result of its narrowed geographic focus, and R$57.9 million related to Tenda’s land bank. These tracts of land may be sold in the future. Development expenses related to the land acquisition process at Gafisa of R$14.9 million and R$10.6 million at Tenda were recognized as a sunk cost.
  4. Other provisions related to penalties from delayed projects equivalent to R$12.7 million at Gafisa and R$38.5 million at Tenda. Also, the cancellation of projects had an impact on Tenda’s results of R$17.4 million.

For detailed information on the factors contributing to the outcome explained above, please refer to the following table.

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