Gafisa S.A. Management Discusses Q1 2013 Results - Earnings Call Transcript

May.13.13 | About: Gafisa S.A. (GFA)

Gafisa S.A. (NYSE:GFA)

Q1 2013 Earnings Call

May 13, 2013 10:00 am ET

Executives

Alceu Duilio Calciolari - Chief Executive Officer, Member of Executive Board, Coordinator of Finance Executive Committee and Coordinator of Investment Executive Committee

Andre Bergstein - Chief Financial Officer, Investor Relations Officer, Coordinator of Ethics Executive Committee, Member of Finance Execuive Committee and Member of Investment Executive Committee

Fernando Cesar Calamita - Operational Executive Officer, Member of Ethics Executive Committee and Member of Finance Executive Committee

Analysts

Vivian Salomon-Karam - Itaú Corretora de Valores S.A., Research Division

Gustavo Cambauva - Banco BTG Pactual S.A., Research Division

Rafael C. Pinho - Morgan Stanley, Research Division

Eduardo Silveira - Espirito Santo Investment Bank, Research Division

Luiz Mauricio Garcia - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

Marcelo Garaldi Motta - JP Morgan Chase & Co, Research Division

René Brandt

Operator

Good morning, and welcome to Gafisa's First Quarter 2013 Results Presentation. On the call today, we have Duilio Calciolari, Gafisa CEO; Andre Bergstein, the company's CFO and IRO; Fernando Cesar Calamita, Planning and Control Officer; and Luciana Doria, the Head of IR.

We would like to inform you that the presentation is being recorded. [Operator Instructions] Before we begin, I would like to inform you that this teleconference will relate to Gafisa's financial results of the first quarter 2013, as well as information currently available. Statements made by management involve risks, uncertainties and may relate to future events. Any changes in macroeconomic policies or legislation and other operational results could affect Gafisa's performance. Please proceed, Mr. Calciolari.

Alceu Duilio Calciolari

Thank you very much for being with us today. As we have already said last quarter, 2012 was a year focused on generation of operating cash and deleverage. In 2013, we will seek a greater balance between cash generation, investment and profitability. As [ph] we are allocating capital to acquire land both for [indiscernible] and Tenda, serves to make our Land Bank -- to adjust our Land Bank. In terms of segments, we are glad to inform that we have relaunched the brand under a new business model, 2 projects were introduced, one in São Paulo and one in [indiscernible] accounting for 1/3 of the total launches of the group. The Tenda brand has a huge potential and its relaunch is part of expansion strategy needed at long term. At this moment, we are being conservative in the resumption of operations precisely to ensure a controlled operation and guaranteed sustainable growth.

Talking a little bit about the performance of the quarter. We have a stable market typically with a lower activity level when compared to other periods of the year. As we have already said, the high volume of deliveries in the second half of 2012 led to a significant amount of sales terminations in this quarter, which we should resell during the year.

Regarding our cash burn in the quarter, the same is related particularly to our decision of adjusting our Land Bank to our future launch projection. Besides that, we have substantially reduced discounts built into our sales when compared to the currency applied in 2012. I would also like to say that having achieved the [indiscernible] established for 2012, we are confident that in 2013, we will take another step which is necessary to create the conditions which are attractive to our shareholders.

Slide 3. I would like to quickly discuss the results of the first quarter. Launches were BRL 308 million, accounting for 10% of the midpoint of our guidance. This is in line with the proportion of launches which has directly occurred in the first quarter. Contracted sales reflect the significant sales terminations which we had because of the high volume of delivery in the second half of 2012, as we have already disclosed. And this impacted the velocity of sales, 6% of the first quarter.

We delivered 1,300 units in the first 3 months of the year. We expect this to grow during the year, in line with our guidance. Our financial results continue to be affected by projects with lower margins, but the impact on the group's results have already decreased. We expect to conclude the delivery of the projects for the Gafisa segment launched in the noncore markets this year, and also mostly the remaining projects for Tenda. This should open the way to better margins and financial earnings in 2014.

Another relevant prospect [ph], which I will talk about later, is the resumption of Tenda launches after 18 months of tidying up house, and at the same time, the development of an efficient operating model from -- efficient from all aspects.

Slide 4, we will see that, that's from the second quarter of 2012, our cash generation became positive, improving our liquidity, debt profile and capital structure, which has made us able to seek, in 2013, proper balance between cash generation, investment and profitability.

Cash burn in the first quarter was BRL 89 million, relating to the new investments in land, totaling BRL 53 million [ph], vis-a-vis acquisitions of the last 6 months, and also a more restrictive fiscal policy.

Slide 5. In this quarter, we launched BRL 307 million to resume launches of Tenda, accounting for 1/3 [ph] of the total. Gross sales totaled BRL 700 million, 42% in Gafisa, 23% in AlphaVille and 35% in Tenda. We had sales terminations of BRL 481 million, 40% of Gafisa, 48% in Tenda, 12% in AlphaVille, particularly because of a high volume of deliveries in the second half of 2012.

Regarding the sales terminations, the velocity of sales -- consolidated sales, were negatively impacted, achieving 6% in the first quarter 2012 and 10% one year before. The consolidated speed of sales of the launches was 25% in the first quarter against 46% year-on-year. In the first quarter 2013, we acquired land equivalent to BRL 2 billion in PSV: BRL 1.8 billion AlphaVille, 100% in swaps [ph]; BRL 150 million in Gafisa; and BRL 60 million in Tenda, substantially in cash, in line with our strategies of adjusting our Land Bank in core markets.

Slide 7 talks about the relaunching of Tenda. After having managed to control the financial and operating cycle of the company in 2012, in the first quarter of this year, we resumed Tenda launches. Our first project was in [indiscernible] where we had a better performance in the past in São Paulo and Salvador. Launches sold for BRL 114 million, including 2 projects in these 2 cities. This is 1/3 of the activities, consolidated launches of the first quarter.

Sales terminations have been resold to qualified clients. Of the 1,473 Tenda units that was terminated and returned to inventory in the first quarter, 41% have been resold. In the first quarter, 2,451 units were transferred, and 92% were contracted through financing of the Minha Casa Minha Vida program, as you can see on the chart on the right side.

[Technical Difficulty]

6 projects in construction within Tenda in Slide 9 [ph] represent our business model encompassing all the main branch progresses. We have acquisition of land only for projects for the Minha Casa Minha Vida program. Launches will be carried out after the definite contracting of the project with financial agents.

Sales carried out by our own team and registered only after the transfer for financial agents. Our sales model is developed so we won't have peaks in the launch maintaining constant speed throughout the project. And the use of aluminum molds in 100% of the projects. Constant launches in strategic regions are allowing for the efficient use of technology and the mold theme [ph]. We are convinced with the market served by Tenda will continue to grow and prosper in the median and long term.

I would now like to ask Andre, our CFO, to take the floor, and he will recap our financial results for the first quarter.

Andre Bergstein

Thank you very much, and good morning. On Slide 10, I would like to say that jointly controlled entities are consolidated by the equity method instead of the proportional method, generating an impact particularly on net revenues, costs and these financial results. For better understanding, we have detailed this on the table on this slide, and we can see the impact for each one of the items.

As you can see on Slide 11, the adjusted EBITDA the first quarter was BRL 68 million compared to BRL 100 million registered in the same period of 2012, a margin of 10%. The results consists particularly of the contribution for Gafisa and AlphaVille. Tenda's contribution for the results was negative and impacted the consolidated results. Excluding Tenda operations, the EBITDA margin was 18%.

Gafisa reported a loss of BRL 55 million in the first quarter compared to a loss of BRL 32 million in the first quarter 2012. The result reflects particularly the lower margins of Tenda projects and the effect of forward terminations in Gafisa, being partially offset by the net profit of BRL 29 million of AlphaVille in the same period.

Slide 12, you see the consolidated margins, which should continue to recover and to be delivered in the last project located in noncore regions. Gafisa's margin of those projects launched in São Paulo and Rio de Janeiro was aimed at 26%, whilst we had a negative margin in other markets.

Slide 13 shows us the revenues of our 3 groups' brands broken down by launches in previous periods. In the first quarter, the Gafisa brand accounted for 55% of the revenues, AlphaVille for 24% and Tenda the remaining 21%. The contribution of revenues per date of project launch depends on the financial cycle of each brand. The revenue of the first quarter was BRL 669 million, a drop of 20% year-on-year. This drop was influenced by the increase of sales termination of the Gafisa brand.

Slide 14, we have the backlog revenues to be recognized through the POC [indiscernible] BRL 3.3 billion in the first quarter compared to BRL 3.7 billion in the former quarter and BRL 3.6 billion in the first quarter 2012. Consolidated margin increased 35% in the first quarter 2012 to 39% in this quarter, particularly due to the increased contribution of new projects to our product mix, a smaller contribution with the old Tenda project with a greater contribution from AlphaVille.

Slide 15 shows the growth of debt and cash during the year. We've finished the first quarter 2013 with cash balance of BRL 1.4 billion, which we think is comfortable to execute our development plans. Considering the former accounting standards, the consolidated generation of free cash was positive at BRL 20 million for the first quarter. Now with the new accounting standards, we have BRL 89 million of cash burn in the quarter.

The net debt over equity ratio was 89% compared to 94%, or 114% year-on-year. Excluding project financing, the net debt over equity ratio was 19%. This small increase of leverage is consistent with our reinvestment focus and with the expansion of our operations in 2013, with debt related to project finance accounted to 50% of the total debt at the end of March and the corporate debt was responsible for the other 50%.

Now let's go to Slide 16. The table presents a summary of the debt profile and payment schedule. In the first quarter of 2013, our debt totaled BRL 3.9 billion, with a nominal average cost of 9.33% a year. Due to the rollover of Frontline from the restructuring of others, we have today 30% of our total debt maturing in the next 12 months. Of this amount, 38% refers to projects and the other 62% represents corporate debt. Gafisa is in compliance with all its debt covenants.

Slide 17, receivables and inventory. We have the position of our receivables with the volume dropping 6% quarter-on-quarter, reaching BRL 6.7 billion. The total inventory was BRL 3.5 billion in the first quarter, while contribution from the cost of constructions to occur totaled BRL 2.9 billion. The [indiscernible] of the total receivables with inventories at market value totaled BRL 10.2 billion, and this leads us to make good liquidity position to execute future projects.

Slide 18. In 2012, Gafisa tried to land the investment cycle with a cash return relative to previous investment periods. Our focus is on delivering units for cash generation and deleveraging the balance sheet. This year, we are gradually stepping up investments in the business through increasing our launch activities and land acquisitions. The results of the first quarter reflect seasonal activity levels, and we see a certain step-up of activity in the next quarters.

We will deliver, in 2013, most of the remaining Tenda projects and noncore markets of Gafisa and consistent operating results, leading the way to better margins and profitability. We are confident that the current success in the implementation of our strategy will lead to an improvement of our results.

Thank you for your attention and now we will go on to our Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Vivian Karam with Itaú Corretora.

Vivian Salomon-Karam - Itaú Corretora de Valores S.A., Research Division

I have 2 quick questions. The first, inventories. Reimbursed [ph] inventory was 20% of the total inventory of the company at the first quarter. Could you break this down per region? I'd like to know how this is outside Rio and São Paulo. Second, the question of the debt rollover. Could you elaborate about the debt rollout with BRL 600 million of corporate debt that you have to mature in the next 12 months? So are the banks still -- do they still have an appetite to contribute to this for profit? That's my question.

[Technical Difficulty]

Alceu Duilio Calciolari

Our inventory is approximately BRL 700 million. You said that this is a ready-made stock. Outside São Paulo and Rio, this inventory accounts for more than 50%, with...

[Technical Difficulty]

I'll give you a breakdown per region. I will ask Andre to take the floor.

Andre Bergstein

Regarding the rollover, the BRL 600 million, our expectation today to roll over BRL 200 million. We are hoping to do this, to continue at this pace, to pay back the debt which we have been doing already this year and rolling bad [ph] debt over.

[Technical Difficulty]

Operator

Our next question comes from Gustavo Cambauva from the BTG Pactual.

Gustavo Cambauva - Banco BTG Pactual S.A., Research Division

I have 2 questions. The first has to do with the sales terminations. They continue to be very strong after your cleanup last year. So I'd like you to talk first about what you expect. When do you think that this level of terminations will decrease? And secondly, the resale, it's -- so will you be continuing this process and especially with Tenda? And have you had any problems with resales? I mean, these things come and go back to inventory. And secondly, could you give us an update in AlphaVille -- of timing to define the question perhaps of sale or PO [ph] or how you're going to define the future of AlphaVille?

Alceu Duilio Calciolari

Well, Gustavo, regarding the sales terminations, really the quarter was important in terms of volume. In the second quarter, it also will be high, I think less than the first quarter, because it was very much associated to the volume of deliveries in the second. In the first quarter, we delivered -- in the second half of the year, 15,000, 16,000 units, and many of these clients did not manage to get the financing to honor their obligations. This should happen partially now -- less so now. We don't think we'll have a number similar to that, it should drop on the one hand, because in the first quarter, we did not have many deliveries and also because we have worked with all the pipeline and the portfolio. We have worked hard in the first quarter to eliminate this risk of sales terminations throughout the year. But the second quarter will have a high volume as well. Resales are doing well. Resales in São Paulo and Rio are now double. We are reselling well. We have mortgage equities in resales, in the sales terminations coming from other regions except outside Rio and São Paulo, the north northeast, because we have inventories already -- units in these areas so the sales terminations they go back to inventory. So we have supply already; therefore, resale is slower. Now on AlphaVille, we are open there. We have, in September, we opened the options -- it's all open sales. We went -- the process is still ongoing to evaluate the alternatives. The IPO -- we have taken the necessary steps with CBM [ph], and we are also being assisted by investment bank on the operations front and possibly with the sale. And the process is open. There is nothing really new to tell you. When we have, of course, we will do this immediately in a structured fashion and with all the detailed information that we can give you. This will be at the moment as soon as we can.

Gustavo Cambauva - Banco BTG Pactual S.A., Research Division

Going back quickly to the question of sales termination. I really want to know more about the resale in the markets. Because there had been terminations with the resale as well or not? Can you transfer things quickly or do you still -- or do you have terminations of the resale as well, the second sale that is?

Alceu Duilio Calciolari

Well, Gustavo, remember that we changed all our sales model, so when you talk about this terminations, the major volume came from Tenda last year. The volume this quarter came from Gafisa because of the delivery volume, and it's not associated -- which will be for another sale or resale of the same unit that was terminated. As soon as the units are ready, it's different. The sales project or process is different. They have to have the financing for Gafisa and Tenda. So we do not see resales being terminated. Remember that Tenda now only operates, in fact, when the quality of the client allows him to have a mortgage pick up immediately with Caixa Economica or Banco do Brasil. So the process now is pretty much more under control from this point of view. We are much more stringent in the processes of delivery, so not to have the risk of a drop of sales when it is transferred to the financial agents. And as for Gafisa, it's ready. It's a ready unit and the client has to have an important [indiscernible], we're talking about 20% or 30% at least and has to already bring the financing. So the risk of resale or terminating a resale is minimum. There might be regrets, of course, but I would say that it's irrelevant at this particular moment that we are seeking the resale of a terminated.

Operator

Our next question comes from Rafael Pinho from Morgan Stanley.

Rafael C. Pinho - Morgan Stanley, Research Division

My first question regarding this question of resale again. Could you tell us a little bit more how does it work? So you have the marketing, the sale, and does it work through brokerage or can you project your revenue [indiscernible] also? What is the method -- the best method to use there? What percentage of volume is resold, and it's a commercial expense or a trade expense? Do you have any kind of marketing to expedite the sales? That's my first question. Could you explain that a bit more? Second, back to the question of AlphaVille. What we keep asking is what is the timing? I know that it's difficult to give me this precisely, but do you have a deadline to take good care [ph] of AlphaVille or not, it will pretty much continue indefinitely? And could you comment a little bit more on this -- is the management long term -- are you thinking long term or do you have a more -- a definite deadline?

Alceu Duilio Calciolari

Going back to the resale question. Obviously, you have the cost of the brokerage, and you have additional sales assets. This is the nice thing [ph], which is perhaps the most important for the resale is the price which you're going to be operating. But the stock [ph] we will be working with, with a more important rate in the regions where we have an excess supply. We have an excess inventory outside São Paulo and Rio maybe. In São Paulo, we don't have this problem. It's less, volume is really not so high. But outside São Paulo and Rio, you have to work with brokerage and with price discounts. You have to find your point of liquidity. Sometimes, that's so low that it's better for you to carry the stock until the market settles down. So this is how we consider the resale. Across the brokerage, some marketing assets, of course, to be able to do everything. And a discount with the sale, because of the way the market operates and the excess supply in certain markets.

Rafael C. Pinho - Morgan Stanley, Research Division

Well, this cost, is it greater or lower than the sale -- the contracted sale of a launch? I'm just trying to understand because this is important. I wanted to know what kind of projections you have on this item so we can estimate the cost.

Alceu Duilio Calciolari

Well, Rafael, when you talk about launches, you have some expenses which do not occur when your unit is ready. You have the booth [ph], the assembly of the decorated model, the brokerage is the same, you have to pay the broker, whether it's a launch or whether it's already from the inventory. A lot depends on the market situation. I would say that on the whole, you will have less on the launch because -- or the relaunch because you don't have the sales stand expenses and the marketing expenses. But on the other hand, you have the liquidity, so I can be giving you a price discount to find the average liquidity price. And this discount can be greater than the expense of a launch. Now the question of AlphaVille. You ask, well, do we have a deadline? Do we not have a deadline? I would say the following. We are in no hurry to make this decision. We want to make the best decision possible regarding value generation for our shareholders. So no decision will be made in a hurry. This process started in September. It takes its time. We are now 7 months on, discussing this. It will mature, and a decision will be made, however, with no hurry, Rafael. Obviously, it's not struggle, so we are not going to take 2 years. We will just take a decision. I think this year, we will solve this.

Rafael C. Pinho - Morgan Stanley, Research Division

Okay, that's clear.

Operator

Our next question comes from Eduardo Silveira from Banco Espirito Santo.

Eduardo Silveira - Espirito Santo Investment Bank, Research Division

I have 2 questions. Going back to the question of the concluded inventory. You talked about possible discounts of these units. So how much of these concluded units outside São Paulo and Rio, and what would be the discounts? And second, the operating expenses. 23% of the revenue, although there has been an effect of BRL 60 million less with the accounting change and sale terminations. So what would be the total operating expense from now on?

Alceu Duilio Calciolari

Eduardo, this is Duilio. If you go back to David's question about our inventory, we're reminding you the company has an inventory of approximately BRL 700 million, BRL 275 million in Gafisa, BRL 117 million in AlphaVille and BRL 280 million in Tenda. And this [indiscernible] inventory, in the case of Gafisa, half of it is São Paulo and Rio and the other half in other markets, which is Salvador, São Luis, Belém and Porto Velho. And of these markets, Salvador is most important, and the other half, Salvador, 50%. In the case of Tenda, it is spread out, more strongly, Rio and [indiscernible]. These are the 2 regional offices that have the great inventory. This BRL 290 million, approximately BRL 200 million are in the region of Rio de Janeiro and Minas Gerais. Could you repeat the second question, please, Eduardo?

Eduardo Silveira - Espirito Santo Investment Bank, Research Division

The second question is the operating expenses. We have seen in this quarter because of the effect of BRL 94 million of sales terminations on the revenue, the operating expenses accounted for 23%. And so could you give me -- how do you consider this for the future operating expenses over revenue?

Alceu Duilio Calciolari

Well, the comments that I have about this, this operating expense will find a more balanced operation from the stronger cap [ph] into the company. We have a significant operating expense without generating value. This is a distortion of the operations. We have to look at each operation vis-à-vis the moment that it's experiencing and it can be distorted. It should operate Tenda about 12%, 13% maximum over sales in terms of general and administrative expenses, and today, it cannot do this because of the process that it is going through of the new launches. We already built these launches with these expectation. We have 2 launches in March and we will monitor the operating assets to develop this from now on. So you have a structural aspect at this moment in Tenda which distorts the numbers. I will answer this, and then on a consolidated fashion, what we expect. Looking at AlphaVille, the operation is growing and as demands are relatively greater, operating expense, when compared to Tenda and Gafisa, I am talking about 200, 300 basis points greater than AlphaVille, and as in Tenda and Gafisa. And Gafisa has an interesting situation as well of transition. It allocates the important parts of operating -- Gafisa's operating expenses and concentrates on markets that have no more launches due to the markets that I mentioned, Salvador, Belém, São Luis. São Luis still have some operations, therefore, the operating efforts of bringing back the company's cash to sell off these units does not have the offset of a new launch generating future value. So this will take some time, so this year, we finish all activities outside the São Paulo and Rio markets. There will be some remaining inventories. Obviously, we will continue to make an effort, but much less than we have today. So there is no reason why, considering the operations in São Paulo and Rio, in the case of Gafisa, and assuming that Gafisa continues as it is to continue with expense over sales or launching of 12% and 13%. And so what the market works with is [indiscernible] to be different, the fact is that we are correcting an operation. If you take -- I'm elaborating a bit, if you take information that we disclose in the book, you will see, for example, have a look at Tenda's statement. They have an operation that has -- the expenses with sales and admin about BRL 42 million, just general and administrative expenses. Tenda has no launches after 18 months, they've been operating without launching. So then, you'd see the distortion which is structural. As soon they start launching volume again, this problem will be corrected. With the first step being taken, launches have now started this quarter. The second quarter, we will have more Tenda launches to come to the ideal amount to pay this bill.

Operator

.

[Operator Instructions] Our next question comes from Mr. Luiz Mauricio from Banco Bradesco.

Luiz Mauricio Garcia - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

I have 2 questions. The first about your input [ph] to table on Page 23. We see 160 [ph] [indiscernible] of sales terminations of Tenda projects. I'd like to understand why if you look at the fourth quarter, we have BRL 120 million -- BRL 126 million. Does this involve the projects that were already being executed? And another point, the financial lines [indiscernible], there were 2 expenses at BRL 6 billion each, one was [indiscernible] securitization discount, BRL 6 million. Could you talk a little bit about the securitization and the [indiscernible] curve? Could you have a reverse operation? Could you tell us a little bit more about that -- about the greater losses at the end of the curve?

[Technical Difficulty ]

Alceu Duilio Calciolari

And for projects launched in the past so. And makes on the division when Tenda -- when some of that changes. These projects, when they are integrated, are considered canceled. This means either we will not launch those projects anymore, we will sell the land, or we will review it and change the project. And to do this, we must cancel the development. This is a technical project. We have to cancel the development, give the client the money back and sell the land. Why was this not done? Because throughout this period, we studied the feasibility of continuing the project and we concluded that it was not feasible to do so, so we canceled it. And we will have other cancellations, smaller ones, but there is a risk of canceling projects that were considered launched, and in our evaluation, they should not be continued. So that's basically what it is. If you look from our point of view today of what we have being produced, Tenda should produce and deliver 9,000 units this year and next year about 5,000. As we see it today, these 14,000 units will finish Tenda's [indiscernible] from the past. Tenda [indiscernible], so we have 14,000 units to be delivered to finish all Tenda's old projects. Perhaps, one project or enough projects. We have not yet decided what to do with it. We might still take it on, but under different conditions. But this is a very small part of Tenda's business.

Luiz Mauricio Garcia - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

What about the impact, you put 58...

Unknown Executive

You have a provision for canceling which was used last year, and so as things happen, you will be releasing that position so you will not have an impact on this statement, of the whole financial statement. If you take this provision lease, you will see that one year ago, it had BRL 30 million. So we have used the provision throughout the year. In certain situations that we have in the changes in Gafisa and Tenda and this list of divisions, helped us to understand that the company has provisions in the balance sheet, we've got BRL 500 million. But in cancellations, there is a risk of BRL 2 million. So this is what is expected. And regarding what [indiscernible] that took out of it through financial expenses. [indiscernible], you talked about the amount of financial expenses about last quarter. We have an impact in this quarter referring to the mark-to-market in swap. We have some [indiscernible] operations where we have a contract with a certain [indiscernible] for another, and the mark-to-market in this quarter has an impact of about BRL 8 million. So when we see the financial expense of BRL 79 million, without the BRL 8 million, it's similar to the former quarter, which is BRL 172 million. We had a higher financial revenue this quarter because of the greater balance of cash that we finished the year with, so we had a revenue of BRL 23 million compared to the revenue slightly lower in the former quarter. And also, the question of the -- in the financials -- or the question in securitization. We have an item where we put that in, other securitization operations, and on this line, we have expenses on securitization and some credit assignment that we have made, we marry the mortgage takeover with the assignment of the portfolio that we have. And sometimes, we have [indiscernible] and this generates our expense which is slightly higher because it weighs a bit more heavily. So generally speaking, this is what we have for the period of -- because [indiscernible] generated comes on financial revenue as it is set in the quarter.

Operator

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[Operator Instructions] Our next question comes from Mr. Marcelo Motta from JPMorgan.

Marcelo Garaldi Motta - JP Morgan Chase & Co, Research Division

My question with regards to -- with Slides -- Items 12 and 14. Your expectations of gross margin, there has been a gentle improvement this quarter -- it dropped a bit [ph]...

[Technical difficulty]

Andre Bergstein

... our expectation indeed the deliveries on the sale terminations that we had. As Duilio said we will have a more relevant amount in the second quarter, dropping into the second half of the year, so we already had an expectation that we have in the guidance and the year would start with our margin a little lower and indirectly with delivery of the project, and this will converge to the guidance which we established for you. So gradually, we will see the margin increasing to the point that we had as imagined.

Operator

Our next question comes from Mr. René Brandt from Banco Safra.

René Brandt

I'd like to go back to the terminations accumulated as from the fourth quarter level. We considered 80%, the total of receivables are somewhat -- we will have a total receivables of the terminations and resales. Have you done -- broken down Gafisa and Tenda as well?

Alceu Duilio Calciolari

I'm sorry, I did not understand the question. Could you repeat it?

René Brandt

Well, as from the first quarter, you have a greater amount of terminations in Tenda, 80% of the average balance of receivables of segment -- of the segment. And I'd like to know whether you mapped out how much of the Gafisa's portfolio you have in sales terminations and what the risk is?

Alceu Duilio Calciolari

Well, Gafisa's sale termination level is slightly higher. We have today a portfolio, in Tenda specifically, which we still see this year some receivables that cannot be transferred unless we can sell directly to the client. And 2012, the volume is much higher and we are reducing this. In time, it will be reduced. I think at the end of the year, beginning of next year, we will be delivering these projects. Tenda, we'll see throughout the year a certain amount of sale terminations but certainly, at a lower level. So we still have a portfolio. We also have a position, but we have a portfolio which is subject to a level of termination. The portfolio which we have -- in which we have received a little, but in Gafisa, we should maintain about 10% of terminations, which is a track record that we have. Nothing too different. And so in Tenda, there is still a good pipeline, and Gafisa, we have lost. Considering the terminations in this quarter we've had in Gafisa, BRL 190 million terminations. In the first quarter 2012, BRL 78 million. So this shows you -- in Tenda, you have BRL 330 million terminations in the first quarter 2012 and BRL 230 million now. In the last quarter in '12, there were BRL 200 million. So the trend is downwards. Gafisa come back to the normal levels and less and less because our strategy now is -- we're transferred to such a [ph] removal risk from our portfolio.

René Brandt

When you say 10%, is it 10% of the gross contracted sales or what?

Alceu Duilio Calciolari

10% of the gross contracted sales.

René Brandt

And the second question, I understood that the targets for variable compensation have changed. Net profit and leverage is not clear to me. Could you determine what the level this and consolidate the terms by business unit both net profit and leverage and the performance -- it looks like the performance should be evaluated biannually, so how is that going to be?

Alceu Duilio Calciolari

This is Duilio speaking. Recap, last year, the company focused on cash generation and -- of the company as a whole. Cash generation, naturally you had leveraged a bit. The most important thing was the delivery of the units. So the directions for the organization, were, in general, to generate cash. It's important to understand that to maintain a target of this kind for a long period and just one target alone, can become counterproductive in that you might be destroying value because naturally, you give up price, you have more aggressive discount policies, you take it from bringing cash back. And changing to the year 2013, the company had achieved and surpassed its target, and has brought the cash and brought the [indiscernible] to much better levels, and we understand that it would be the moment to seek balance between cash generation and investment and profitability for the company. And the plan was built in this fashion for 2013 on, involving investment in land purchase, a more conservative policy vis-a-vis discounts, and naturally, when we look at the inventory, which has a low sales velocity, we will have to give up sometimes a little bit on the price. And we were talking today about the regions that have greater difficulty in liquidity because of oversupply, and in this world, we are considering the company with 2 metrics as from '13. One is results generation, net profit. And this is a very important metric which has a very important weight, half is concentrated on this. And the other is the maintenance of our leverage -- our more stable leverage, which is [indiscernible] of the guidance even given the market to maintain leverage similar to what we have today and generate results. At the same time, we can see, and this biannually, we can see not the year, but a 4-year plan and the reflection of results that we -- '13 moving to '14. So [indiscernible] the targets as we advance and it consolidates, it will include the expectation of results for 2014. This is how we target the 2013 results. At the end of the year in 2013 [indiscernible] of 14 [ph] to 18 [ph] , you will evaluate whether you delivered or are in line with that which is planned with the actual 2013, with the expected of 2014, with targets of net profit well with guidance, probably the company will come back -- will come to profit more.

Fernando Cesar Calamita

Yes, all these items talk to one another. Look, you have 3 businesses. One generating an important profit, which is AlphaVille. Tenda is still consuming results and has a negative result. And Gafisa's in transition, close to -- for the balance. Yes, they do talk to one another.

Operator

Our next question comes from Mr. Roman Alaji [ph] from [indiscernible].

Unknown Analyst

Your balance sheet [indiscernible] Gafisa. So I'd like to know is this in continuation of the 3 operations? Would that be at the monetization of this?

[Technical Difficulty]

Mr. Calciolari, about the receivables, you have 590 units to be delivered. So would there be a monetization of the receivables?

Alceu Duilio Calciolari

Well, AlphaVille. We have AlphaVille in most of Gafisa. The strategy is monetization. Gafisa [indiscernible] most is in AlphaVille.

[Technical Difficulty]

Could you break down this to AlphaVille? This column, we have BRL 400 million in AlphaVille and the rest in Gafisa.

Unknown Executive

So we would now like to conclude our Q&A session, and I would like to ask Duilio to make his final remarks.

Alceu Duilio Calciolari

I would like to thank you all for your participation. I think that we are going in the right direction and this year, expectation is good. There is no reason to think that we will not be in line with what we have planned. I hope to have you all back at the next call, and we are at your disposal if you need more details. Thank you so much, and have a good day.

Operator

Gafisa's call is now closed. Thank you very much for your participation, and have a good day.

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