Gafisa S.A 6-K, filed Apr 22, 2021
Gafisa S.A. (GFASY)
About this 6-K
Gafisa S.A filed this 6-K on April 22, 2021.
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
For the month of April, 2021
(Commission File No. 001-33356),
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
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the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1)
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the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
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Financial Statements
Gafisa S.A.
December 31, 2020
Independent Auditor’s Report on the Financial Statements
(A free translation of the original report in Portuguese as published in Brazil)
Gafisa S.A.
Financial Statements
December 31, 2020
Contents
| Management Report | 1 |
| Independent Auditor’s Report on the Financial Statements | 7 |
| Audited financial statements | |
| Statements of financial position | 13 |
| Statement of profit or loss | 15 |
| Statement of comprehensive income | 16 |
| Statement of changes in equity | 17 |
| Statement of cash flows | 18 |
| Statement of value added | 19 |
| Notes to the financial statements | 20 |
| Statement of the executive officers about the financial statements | 78 |
| Statement of the executive officers about the opinion report of the independent auditors | 79 |
| Minutes of the Audit Committee’s meeting | 80 |
| Minutes of the Board of Directors’ meeting | 81 |
| Earnings release 4Q20 | 82 |
2020 MANAGEMENT REPORT
GAFISA RESUMES SUSTAINABLE GROWTH AND PROFITABILITY IN 2020
Recurring net income of R$ 29 million for the 4Q20 as compared to R$ 23 million down for the 4Q19, an increase of R$ 52 million.
Dear Shareholders,
In 2020 we have reaped the first fruits of the restructuring process initiated in 2019 in an incisive and assertive way. Supported by a capital structure strengthened by our shareholders, combined with the current Management’s determination and focus on results, we have successfully responded to the extraordinary challenges of an unprecedent crisis and achieved impressive results. The resumption of Gafisa’s growth has materialized in 2020 in the operational, financial and strategic levels.
In the operational level, we have launched R$898.0 million in TSV, the best annual performance since 2016. The resumption of launches in 2020 is a direct consequence of the Company’s growth strategy in organic way as well as through M&As, considering that 67.5% of launches arise from the assets acquired by the new management through M&A. Two transactions are worth noting: the acquisition of Upcon and four Calçada projects in Rio. In both, besides the landbank, there was an important Human Capital addition, with the joining of cooperative and high performance teams. The acquisition of Calçada also enabled “Gafisa Rio” to start its operations with an iconic launch already in the 4Q20, and to have active operations on a local office’s initiative.
In terms of landbank, we have a acquired a total of 14 land in 2020 with potential TSV of R$2.1 billion, considering that approximately 60.0% are also from M&A transactions. In the fourth quarter, our sales amounted to R$292.0 million, doubling our sales for the 3Q20, and the best quarterly sales performance since 2Q18. This increase shows that not only Gafisa’s launches resumed with differentiated ventures, but also the continuous strengthening of our sales force. Additionally, we have delivered a total of 12 ventures in 2020, with over 2,000 units and R$ 1.1 billion in TSV, all within the terms renegotiated by the new management with customers, which shows the Company’s focus on results and great delivery capacity. This large delivery volume was made in a year marked by the challenges posed by the pandemic, which reaffirms the great commitment and consistency of the new Management’s work with all of its stakeholders.
It is worth noting that the year 2020 was deeply marked by the Covid-19 pandemic, which required rapid and assertive changes to work practices, adjustments in operational and financial planning, among other changes introduced to assure that construction works continued, but without failing to give priority to the safety of our employees, customers and suppliers. As Company and part of a deeply shaken society, Gafisa understands its role and shows solidarity with the innumerous victims of this crisis. This experience heightened our sense of responsibility and our commitment to work for the benefit of the society, the environment and governance.
Our financial results for the 4Q20 and 2020 reflect the growth of our operating activities and start to reflect the new project era. We recorded a growth in adjusted gross margin from 24.6% for the 3Q20 to 29% for the 4Q20. Net revenue reached R$579.9 million, a growth above 290.0% as compared to the 3Q20, being determining factor in generating a net income of R$29 million (all of which recurring). When compared to the recurring net income for the 4Q19, which was R$ 23 million down, we have an increase of R$ 52 million in the latest quarter. It is also worth mentioning that the REF margin (unrecognized profit or loss) is still at a very healthy level of 32.8%.
This year can be considered as the company’s recovery in the credit agenda in the financial and capital markets. New funding for projects were negotiated at rates from CDI + 3.5% p.a. All projects that were launched have identified financing calculations, as well as all construction works in progress. Moreover, we have adopted for some projects the rationale of obtaining finance in advance, considering the business lifecycle, partially or fully refunding land disbursement and guaranteeing funds for completing works. We thus started to re-leverage the Company, with discipline and well-developed projects, to maximize the return of capital of shareholders and enjoying the good moment in the credit market.
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We rely on a well-devised business planning for the next cycles, and for 2021 we have disclosed the Launch Guidance of R$1.5 to R$1.7 billion. Our short and medium-term landbank considers a pipeline of 18 projects and approximately R$2.5 billion in estimated TSV. We continue to intensely seek growth through acquisitions of both land and assets for Gafisa or Gafisa Propriedades.
Also in 2020, we have structured Gafisa Propriedades according to our strategic planning devised in the end of 2019 and that included the transformation of Gafisa into a broad real estate business platform, with new business lines and use of innovation and technology to diversify its income generation. We gained leverage from the Company’s extensive expertise in the real estate sector, this new business unit will be Gafisa’s vehicle for real estate investment, development and management focused on income generation.
Gafisa understands its power and relevance in the development and construction market, potentialized by the tradition of its trademark – one of the top recognized trademarks in this sector of the Brazilian market. Our new management model has been adopted with energy and discipline, reviving the Company’s history of success and creation of value to our shareholders.
OPERATIONAL AND FINANCIAL PERFORMANCE
The year 2020 marked the consistent recovery of good operational performance by the Company, of which sales, launches and deliveries of construction works were noteworthy.
In the year 2020, the Company resumed its launches, relying on five ventures that totaled a TSV estimated at R$898 million. It is worth noting that the Covid-19 pandemic - that restricted travels, closed sales stands and affected the country’s economic activities - postponed for some months the launches planned for the beginning of the year, demonstrating our focus and commitment to the Company’s growth recovery.
Sales
In 2020, the Company recorded gross sales of R$ 516.9 million (without including a transaction between Gafisa and Gafisa Propriedades), 77.0% up on 2019. The growth can be explained by the resumption of launches, which had been discontinued from the 1Q19, besides the continuous strengthening of our sales force. Cancelled contracts totaled R$78.9 million, 18.1% drop from 2019, of R$96.4 million.
Changes in Gross Sales and Cancelled Contracts (R$ million)
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Total deliveries in 2020 was above the estimate of 10 ventures, reaching 12 delivered projects, with 2,115 units and a total TSV of R$1.1 billion. Such large delivery volume in a year marked by the pandemic, and little longer than 18 months after the new Management took over the Company.
Net revenue reached R$579.9 million for the 4Q20, an increase of over 290.0% as compared to the 3Q20, a result of the increase in sales, acquisitions made over the period, and construction progress. In relation to the same period of the previous year, the growth was nearly 400.0%. Considering yearly figures, in 2020 net revenue totaled R$884.0 million, up 120.8% from 2019.
Gafisa’s adjusted gross profit for the fourth quarter amounted to R$168.0 million, as compared to the R$36.6 million reported for the 3Q20 and R$44.2 million for the 4Q19. The adjusted gross margin for the quarter was 29.0%, a 4.4 p.p. increase quarter-on-quarter, due to the start of the recognition of the new management projects, which have overall shown better margins as compared to previous managements.
In the year-over-year comparison, we also note a growth in total adjusted gross profit, which reached R$260.9 million in 2020, up 76.1% from 2019.
1 Adjusted for capitalized interest
The net income was recorded in the amount of R$29.0 million for the 4Q20, while a net loss was recorded in the amount of R$56.5 million for the 3Q20, and profit of R$47.0 million was recorded for the 4Q19 – a drop of 38.3% year-over-year. Meanwhile, in the 4Q19 nearly R$ 33 million was non-recurring. Considering recurring net income, the 4Q20 is double as compared to the one recorded for the 4Q19. In relation to yearly amounts, the net loss for 2020 amounted to R$76.5 million.
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The net income for the 4Q20 starts to reflect the new era of ventures, with differentiated projects and more robust margins.
HUMAN RESOURCES
We have an experienced team who is at the vanguard of the Brazilian real estate sector and other business types, which positively contributes to the continuous improvement in our processes, client satisfaction and respect, as well as to attain favorable results to our Company.
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 direct or indirect staff, 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 some ventures.
The Company has 277 employees (base December 2020).
CORPORATE GOVERNANCE
Gafisa’s Board of Directors is responsible for making decisions and 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 disagreement, 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 eight members, most of whom are independent (62.5%). 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 | Birth date | Position | Election date |
| Leo Julian Simpson | 03/30/1956 | Chairman | April 15, 2019 |
| Antonio Carlos Romanoski | 02/12/1945 | Effective Member | April 15, 2019 |
| Eduardo Larangeira Jácome | 10/15/1955 | Effective Member | April 15, 2019 |
| Nelson Sequeiros Rodriguez Tanure | 11/21/1951 | Effective Member | April 15, 2019 |
| João Antonio Lopes Filho | 08/12/1963 | Effective Member | February 7, 2020 |
| Thomas Cornelius Azevedo Reichenheim | 12/04/1947 | Effective Member | April 15, 2019 |
| Nelson de Queiroz Sequeiros Tanure | 05/28/1985 | Effective Member | August 7, 2020 |
| Gilberto Benevides | 07/24/1951 | Effective Member | April 30, 2020 |
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. The Company’s Fiscal Council is not currently installed.
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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 |
| Ian Monteiro de Andrade | CFO and Investor Relations Officer | March 2, 2020 | March 2, 2023 |
| Guilherme Augusto Soares Benevides | COO | May 17, 2019 | May 16, 2022 |
| Guilherme Luis Pesenti e Silva | Statutory Officer | January 28, 2020 | January 28, 2023 |
| Luiz Fernando Ortiz | Statutory Officer | January 28, 2020 | January 28, 2023 |
| Fabio Freitas Romano | Statutory Officer | March 2, 2020 | March 2, 2023 |
| André Ackermann | Statutory Officer | March 2, 2020 | March 2, 2023 |
AUDIT COMMITTEE
The Audit Committee supervises the Company’s accounting and financial reporting, planning and analysis processes, including those of quarterly and financial reporting. It guides the involvement and disclosure of auditors throughout the auditing process, assuring the full compliance with legal requirements and accounting standards. Moreover, it is responsible for monitoring the internal control and internal audit processes, and choosing the accounting policies. The members are Gilberto Braga, Pedro Carvalho de Mello and Thomas Cornelius Azevedo Reichenheim.
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:
| ü | Vote in annual or extraordinary Shareholders' Meeting, and make recommendations and provide guidance to the Board of Directors on decision making; |
| ü | Receive dividends and participate in profit sharing or other share-related distributions, in proportion to their interests in capital; |
| ü | 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 |
| ü | 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.
Considering that the Company recognized loss for the year ended December 31, 2020, there is no proposal for allocation of net income and dividend distribution for such year.
CAPITAL MARKETS
The Company has diluted capital, and its securities 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.
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Gafisa is currently reevaluating the re-listing process of the New York Stock Exchange (NYSE), aiming to increase the visibility of the Company and access to new markets.
In 2020, we reached an average daily trading volume of R$35.6 million on B3 and US$ 33,071 on NYSE/OTC. The Company’s shares ended the year 2020 quoted at R$4.35 (GFSA3) and US$1.62 (GFASY).
INDEPENDENT AUDITORS
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 BKR Lopes Machado, the independent audit firm of the Company and its subsidiaries, did not provide services other than independent audit in 2020.
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 Independent Auditor’s Report on them.
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INDEPENDENT AUDITOR’S REPORT ON INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
To
Shareholders and Management of
Gafisa S.A.
São Paulo, SP
Opinion
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, 2020, and the respective statement of profit or loss, statement of comprehensive income, statement of changes in equity, and statement of cash flows for the year then ended, as well as the corresponding explanatory notes, including the summary of significant accounting policies.
Opinion on the individual financial statements
In our opinion, the aforementioned individual financial statements present fairly, in all material respects, the financial position of Gafisa S.A. as of December 31, 2020, and the performance of its operations and cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil, applicable to real estate development entities in Brazil, registered with the Brazilian Securities and Exchange Commission (CVM).
Opinion on the consolidated financial statements
In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of Gafisa S.A. as of December 31, 2020, and its consolidated performance of its operations and cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), applicable to real estate development entities in Brazil, registered with the Brazilian Securities and Exchange Commission (CVM).
Basis for opinion on the individual and consolidated financial statements
We conducted our audit in accordance with the Brazilian and International Standards on Auditing. Our responsibilities, according to such standards, are described in the following section, entitled “Auditor’s responsibility for the audit of individual and consolidated financial statements”. We are independent of the Company and its subsidiaries, according to the relevant ethical principles established in the Accountant’s Code of Professional Ethics and the professional standards issued by the Federal Accounting Council (CFC), and comply with other ethical responsibilities according to such standards. We believe that the audit evidence we have obtained is sufficient and appropriate to base 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 (Company) and consolidated financial statements have been prepared in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), applicable to real estate development companies in Brazil, 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 not yet completed, on aspects related to transfer of control, follows the understanding expressed by CVM in the Circular Letter/CVM/SNC/SEP 02/2018 on the application of NBC TG 47 (IFRS 15).
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Our opinion does not contain exception in relation to this matter.
Key audit matters
Key Audit Matters (KAM) are those that, in our professional judgment, were of most significance in our audit 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.
Recognition of revenues
The Company recognizes real estate sales revenue during construction as established in the Circular Letter CVM/SNC/SEP 02/2018, as described in the Notes 2.1 and 2.2.2 to the individual and consolidated financial statements. The recognition of the revenue of the Company and its subsidiaries requires the measurement of progress and satisfaction of performance obligation over time. This measurement requires significant and timely judgment by the Management of the Company and its subsidiaries of the estimate of inputs and expenditures necessary for satisfying the respective performance obligations, considering, for example, the costs to be incurred until the completion of construction works and measurement of the progress of the respective real estate ventures.
Consequently this matter was considered key for our audit because we consider the high risk of subjectivity in the evaluation of the estimates made by the Company’s Management, linked to the relevance and amounts involved in revenue recognition.
How our audit conducted this matter:
Our main audit procedures aimed at the appropriate recognition of the revenue from real estate sales during construction were the following: (i) Evaluation of the effectiveness of the internal controls directly related to the approval and revision of construction costs (incurred and to be incurred), used in the calculation of the percentage of completion of real estate ventures; (ii) On sampling basis, we have obtained budget maps – from the commencement of construction of the qualifiable asset until its latest version - and we compared them with the accounting records. We also compared, on sampling basis, the documents supporting the incurred costs, units sold, and amount of sales contracts used in revenue calculation. (iii) Recalculation of revenue recognized based on information extracted from budgets approved by the engineer responsible for the venture. (iv) analytical reviews of the estimates of costs incurred and to be incurred; and (v) evaluation of the disclosure in the individual and consolidated financial statements.
Based on the findings of the followed audit procedures, we understand that: (i) the assumptions adopted by Management to estimate the costs to be incurred are acceptable in the context of the individual and consolidated financial statements; and (ii) the calculations made by Management about the percentage of completion correspond to the criteria established in the Circular Letter CVM/SNC/SEP 02/2018.
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Provisions and contingent liabilities
According to Note 2.2.1 – item © and 16, the Company and its subsidiaries are parties to lawsuits of tax, civil and labor nature, for which Management estimates the involved amounts and records a provision in the individual and consolidated financial statements for the cases it considers that there will be a probable loss, as established in the accounting standard CPC 25 (IAS 17) - Provisions, Contingent Liabilities and Contingent Assets. Besides the lawsuits considered as probable loss, the Company is party to labor and civil lawsuits in progress, for which no provision is recorded, as the likelihood of loss is considered possible or remote by Management, based on the positions of its legal counsel. The risk evaluation and loss estimates are prepared by management based on available evidences and opinion of the Company’s legal counsel, involving high judgment level, given the complexity of themes. The progress of such lawsuits in the many applicable levels may result in change in the evaluation of risk of loss, and significantly impact the recognized provisions and the profit or loss of the Company and its subsidiaries.
Due to the volume 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.
How our audit conducted this matter:
Our audit procedures included, but were not limited to the following: (i) obtaining, reading and evaluating the mails of the legal counsel of the Company and its subsidiaries, (ii) matching the total contingent liabilities mentioned by the Company’s legal counsel that are expected to lead to a probable outflow of funds with the existing provision in the individual and consolidated financial statements, (iii) inspecting the Management’s meeting minutes, and (iv) analyzing the disclosures made in the notes to the individual and consolidated financial statements.
We consider that the criteria and assumptions adopted by Management for determining the provision for contingent liabilities, as well as the corresponding disclosures are reasonable, being consistent with the information received during our audit.
Business combination – Company and Consolidated
As detailed in Notes 2.1 and 9.1.1 to the financial statements, the Company completed the process of acquisition of the total shares in Upcon S.A. (“UPCON”) on September 23, 2020 and the process of acquisition of a total of four ventures of Calçada S.A. (SPE of Calçada) on November 16, 2020, companies that carry out operations in the same business segments of the Company. This transaction was recognized by using the acquisition method, which requires, among other procedures, that the Company determines at the effective control acquisition date, the fair value of the consideration transferred, the fair value of assets acquired and liabilities assumed, and the determination of goodwill or gain from bargain purchase. Such procedures often involve a high level of judgment and are subject to a high level of uncertainty. In view of the related high judgment level and the impact that any change in assumptions may have on the financial statements, we consider this to be a key audit matter.
Performed audit procedures
Our audit procedures included, but were not limited to, reading the documents that formalized the transaction, such as contracts and minutes, and obtaining evidences that support the determination of the control acquisition date and consideration transferred, and calculation of the acquisition cost. With the support of our corporate finance experts, we analyzed the methodology adopted for measuring the previously held interest in acquired assets and liabilities assumed, and evaluated whether the adopted assumptions for projecting cash flows and making calculations were reasonable, by comparing, when available, with market information, as well as evaluated the sensitivity analysis regarding the main adopted assumptions and the impacts of possible changes in such assumptions on the measured amounts and their relevance in relation to the financial statements as a whole.
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Based on the analyzed information, we analyzed the calculation to determine acquisition cost and goodwill, and evaluated the appropriateness of the disclosures made by the Company.
Based on the evidences obtained through the above-summarized procedures, we consider the balances related to the investments in UPCON and Calçada’s SPE acceptable, and we consider that the judgments and assumptions adopted by management to evaluate the recoverable amount of goodwill to be reasonable, and the disclosures are consistent with the obtained data and information.
Other matters
Statements of Value Added
The individual and consolidated statements of value added (DVA) for the year ended December 31, 2020, prepared under the responsibility of the Company’s management, and presented as supplementary information for IFRS purposes, were submitted to the audit procedures performed together with the audit of the financial statements of the Company. 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 were fairly prepared, in all material respects, according to the criteria established in such Standard and are consistent with the individual and consolidated 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 such other information, which comprise the Management Report.
Our opinion on the individual and consolidated financial statements does not include the Management Report, and we do not express any type of audit conclusion on such report.
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 such report is, in material respects, inconsistent with the financial statements or with the knowledge we 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 such fact. We have nothing to report in this regard.
Management’s and governance responsibility for the individual and consolidated financial statements
The Company’s Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), applicable to real estate development entities in Brazil, registered with the Brazilian Securities and Exchange Commission (CVM), and for the internal controls that it deemed 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, when applicable, the matters related to its going concern, and the use of this accounting basis in the preparation of the financial statements, unless Management intends to liquidate the Company and its subsidiaries, or cease their operations, or do not have any realistic alternative to avoid the discontinuance of operations.
Those charged with governance of the Company and its subsidiaries are those with responsibility for supervising the process of preparation of the financial statements.
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Independent auditor’s responsibilities for the audit of 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 any existing material misstatements. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could be reasonably 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 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.
· 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, and, consequently, the 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.
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From the matters communicated with those charged with governance, we determine those 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.
Rio de Janeiro, March 16, 2021.
| Mário Vieira Lopes |
| Accountant - CRC- RJ 060.611/O-0 |
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Gafisa S.A.
Statements of financial position – Assets
Years ended December 31, 2020 and 2019
(In thousands of Brazilian reais)
| Company | Consolidated | ||||
| Notes | 2020 | 2019 | 2020 | 2019 | |
| Current assets | |||||
| Cash and cash equivalents | 4.1 | 469 | 810 | 29,038 | 12,435 |
| Short-term investments | 4.2 | 413,438 | 401,243 | 593,082 | 401,895 |
| Trade accounts receivable | 5 | 340,096 | 361,649 | 487,083 | 445,303 |
| Properties for sale | 6 | 319,516 | 490,419 | 1,243,841 | 786,660 |
| Receivables from related parties | 21.1 | 147,369 | 23,388 | 1,102 | 77,606 |
| Prepaid expenses | - | 269 | 1,227 | 890 | 1,860 |
| Non-current assets held for sale | 8.1 | 3,709 | 3,709 | 7,014 | 7,014 |
| Other assets | 7 | 125,498 | 52,455 | 180,837 | 67,395 |
| Total current assets | 1,350,364 | 1,334,900 | 2,542,887 | 1,800,168 | |
| Non-current assets | |||||
| Trade accounts receivable | 5 | 182,117 | 98,368 | 217,169 | 112,135 |
| Properties for sale | 6 | 194,974 | 230,049 | 305,460 | 279,207 |
| Receivables from related parties | 21.1 | 44,972 | 33,416 | 115,502 | 33,416 |
| Other assets | 7 | 106,330 | 107,435 | 112,739 | 166,916 |
| 528,393 | 469,268 | 750,870 | 591,674 | ||
| Investments in ownership interests | 9.1 | 1,199,683 | 681,645 | 307,412 | 138,802 |
| Investment property | 9.2 | - | - | 119,119 | - |
| Property and equipment | 10 | 11,919 | 12,147 | 25,181 | 14,159 |
| Intangible assets | 11 | 4,444 | 6,552 | 4,530 | 7,084 |
| 1,216,046 | 700,344 | 456,242 | 160,045 | ||
| Total non-current assets | 1,744,439 | 1,169,612 | 1,207,112 | 751,719 | |
| Total assets | 3,094,803 | 2,504,512 | 3,749,999 | 2,551,887 | |
The accompanying notes are an integral part of these financial statements.
| 13 |
Gafisa S.A.
Statements of financial position – Liabilities
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais)
| Company | Consolidated | ||||
| Notes | 2020 | 2019 | 2020 | 2019 | |
| Current liabilities | |||||
| Loans and financing | 12 | 291,270 | 383,647 | 332,447 | 426,124 |
| Debentures | 13 | 120,399 | 158,179 | 120,737 | 158,179 |
| Financial instruments | 20 | 6,125 | - | 6,125 | - |
| Payables for purchase of properties and advances from customers | 17 | 65,969 | 89,825 | 336,029 | 129,353 |
| Payables for goods and service suppliers | - | 93,392 | 79,106 | 122,576 | 95,450 |
| Taxes and contributions | - | 57,280 | 58,556 | 86,831 | 69,868 |
| Salaries, payroll charges and profit sharing | - | 15,472 | 11,963 | 16,983 | 12,291 |
| Provisions for legal claims and commitments | 16 | 145,636 | 139,623 | 147,066 | 140,735 |
| Obligations assumed on the assignment of receivables | 14 | 10,829 | 14,755 | 13,296 | 20,526 |
| Payables to related parties | 21.1 | 295,261 | 191,364 | 98,430 | 64,384 |
| Other payables | 15 | 124,434 | 110,189 | 186,466 | 135,492 |
| Total current liabilities | 1,226,067 | 1,237,207 | 1,466,986 | 1,252,402 | |
| Non-current liabilities | |||||
| Loans and financing | 12 | 109,523 | 107,029 | 338,027 | 107,029 |
| Debentures | 13 | 18,543 | 39,346 | 143,588 | 39,346 |
| Payables for purchase of properties and advances from customers | 17 | 37,175 | 68,515 | 79,400 | 93,075 |
| Deferred income tax and social contribution | 19 | 12,114 | 12,114 | 14,649 | 12,114 |
| Provisions for legal claims and commitments | 16 | 103,003 | 123,858 | 103,417 | 123,878 |
| Obligations assumed on the assignment of receivables | 14 | 9,431 | 16,463 | 10,896 | 19,835 |
| Other payables | 15 | 16,570 | 6,272 | 34,648 | 9,065 |
| Total non-current liabilities | 306,359 | 373,597 | 724,625 | 404,342 | |
| Equity | |||||
| Capital | 18.1 | 1,083,249 | 2,926,280 | 1,083,249 | 2,926,280 |
| Treasury shares | 18.1 | (2,632) | (43,517) | (2,632) | (43,517) |
| Reserve for capital and granting stock options | - | 319,569 | 337,611 | 319,569 | 337,611 |
| Profit reserve | 18.2 | 162,191 | - | 162,191 | - |
| Retained losses | 18.2 | - | (2,326,666) | - | (2,326,666) |
| 1,562,377 | 893,708 | 1,562,377 | 893,708 | ||
| Non-controlling interests | - | - | (3,989) | 1,435 | |
| Total equity | 1,562,377 | 893,708 | 1,558,388 | 895,143 | |
| Total liabilities and equity | 3,094,803 | 2,504,512 | 3,749,999 | 2,551,887 | |
The accompanying notes are an integral part of these financial statements.
| 14 |
Gafisa S.A.
Statement of profit or loss
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais, except as otherwise stated)
| Company | Consolidated | ||||
| Notes | 2020 | 2019 | 2020 | 2019 | |
| Continuing operations | |||||
| Net operating revenue | 22 | 412,663 | 360,589 | 884,045 | 400,465 |
| Operating costs | |||||
| Real estate development and sales | 23 | (321,733) | (238,714) | (702,824) | (282,684) |
| Gross profit | 90,930 | 121,875 |
181,221 |
117,781 | |
| Operating (expenses)/income | |||||
| Selling expenses | 23 | (11,461) | (12,020) | (28,992) | (14,889) |
| General and administrative expenses | 23 | (78,772) | (46,954) | (81,553) | (54,133) |
| Income from equity method investments | 9 | 49,886 | 46,863 | (2,339) | (5,003) |
| Depreciation and amortization | 10 and 11 | (6,623) | (12,859) | (8,278) | (14,181) |
| Derecognition of goodwill from remeasurement of investment | - | - | (161,100) | - | (161,100) |
| Other income/(expenses), net | 23 | (52,474) | 79,483 | (56,455) | 141,771 |
| Profit (loss) before finance income and costs and income tax and social contribution |
(8,514) |
15,288 |
3,604 |
10,246 | |
| Finance costs | 24 | (93,478) | (82,920) | (101,532) | (76,830) |
| Finance income | 24 | 25,638 | 16,631 | 28,537 | 17,206 |
| Loss before Income tax and social contribution |
(76,354) |
(51,001) |
(69,391) |
(49,378) | |
| Current income tax and social contribution | (167) | - | (7,608) | (1,984) | |
| Deferred income tax and social contribution | - | 37,259 | - | 37,259 | |
| Total income tax and social contribution | 19.i | (167) | 37,259 | (7,608) | 35,275 |
| Net income (loss) from continuing operations |
(76,521) |
(13,742) |
(76,999) |
(14,103) | |
| Net income (loss) from discontinued operations | - | - | - | - | |
| Loss for the year |
(76,521) |
(13,742) |
(76,999) |
(14,103) | |
| (-) Loss attributable to: | |||||
| Non-controlling interests | - | - | (478) | (361) | |
| Owners of the parent | (76,521) | (13,742) | (76,521) | (13,742) | |
| Weighted average number of shares (in thousands) | 27 | 179,882 | 68,584 | ||
| Basic loss per thousand shares - In reais | 27 | (0.425) | (0.200) | ||
| From continuing operations | (0.425) | (0.200) | |||
| - | |||||
| Diluted loss per thousand shares - In reais | 27 | (0.425) | (0.200) | ||
| From continuing operations | (0.425) | (0.200) | |||
The accompanying notes are an integral part of these financial statements.
| 15 |
Gafisa S.A.
Statement of comprehensive income
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais, except as otherwise stated)
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Loss for the year | (76,521) | (13,742) |
(76,999) |
(14,103) |
| Total comprehensive income for the year, net of taxes |
(76,521) |
(13,742) |
(76,999) |
(14,103) |
| Attributable to: | ||||
| Owners of the parent | (76,521) | (13,742) | (76,521) | (13,742) |
| Non-controlling interests | - | - | (478) | (361) |
The accompanying notes are an integral part of these financial statements.
| 16 |
Gafisa S.A.
Statement of changes in equity
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais)
| Attributed to Owners of the Parent | |||||||||
| Notes | Capital | Treasury shares | Reserve for capital and granting shares | Profit reserve | Retained losses | Total Company | Non-controlling interests | Total consolidated | |
| Balance as of December 31, 2018 | 2,521,319 | (58,950) | 337,351 | - | (2,308,403) | 491,317 | 1,874 | 493,191 | |
| Capital increase | 18.1 | 404,961 | - | (157) | - | - | 404,804 | - | 404,804 |
| Stock option plan | 18.3 | - | - | 417 | - | - | 417 | - | 417 |
| Treasury shares sold | 18.1 | - | 141 | - | - | 7 | 148 | - | 148 |
| Treasury shares cancelled | 18.1 | - | 5,747 | - | - | (5,747) | - | - | - |
| Treasury shares reissued | 18.1 | - | (20,671) | - | - | 20,671 | - | - | - |
| Share repurchase program | 18.1 | - | 30,216 | - | - | (19,452) | 10,764 | - | 10,764 |
| Recognition of reserves | - | - | - | - | - | - | - | (78) | (78) |
| Loss for the year | - | - | - | - | - | (13,742) | (13,742) | (361) | (14,103) |
| Balances as of December 31, 2019 | 2,926,280 | (43,517) | 337,611 | - | (2,326,666) | 893,708 | 1,435 | 895,143 | |
| Capital reduction | 18.1 | (2,585,032) | - | - | 2,585,032 | - | - | - | |
| Capital increase | 18.1 | 742,001 | - | - | - | - | 742,001 | - | 742,001 |
| Expenditures for issuing shares | 18.1 | - | - | (18,288) | - | - | (18,288) | - | (18,288) |
| Recognized granted options | 18.1 | - | - | 246 | - | - | 246 | - | 246 |
| Stock option plan | 18.3 | - | - | - | - | - | - | - | - |
| Treasury shares sold | 18.1 | - | 40,885 | - | - | (19,654) | 21,232 | - | 21,232 |
| Recognition of reserves | - | - | - | - | - | - | - | (2) | (2) |
| Loss for the year | - | - | - | - | - | (76,521) | (76,521) | (478) | (76,999) |
| Acquisition of non-controlling interests | - | - | - | - | - | - | - | (4,945) | (4,945) |
| Retained earnings | 162,191 | (162,191) | - | - | - | ||||
| Balance as of December 31, 2020 | 1,083,249 | (2,632) | 319,569 | 162,191 | - | 1,562,377 | (3,989) | 1,558,388 | |
The accompanying notes are an integral part of these financial statements.
| 17 |
Gafisa S.A.
Statement of cash flows
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais)
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2018 | |
| Operating activities | ||||
| Profit (loss) before Income tax and social contribution | (76,354) | (51,001) | (69,393) | (49,378) |
| Expenses/(income) not affecting cash and cash equivalents: | ||||
| Depreciation and amortization (Notes 10 and 11) | 6,623 | 12,859 | 8,278 | 14,181 |
| Stock option plan (Note 18.3) | (347) | (2,366) | (347) | (2,366) |
| Unrealized interest and charges, net | 1,664 | 3,068 | 1,009 | 5.448 |
| Warranty provision (Note 15) | 9,208 | (7,521) | 9,208 | (7,521) |
| Provisions for legal claims and commitments (Note 16) | 64,302 | 9,990 | 56,148 | 8,300 |
| Provision for profit sharing (Note 25 (iii)) | 16,194 | 5,000 | 16,194 | 5,000 |
| Allowance for expected credit losses and cancelled contracts (Note 5) | 15,822 | (61,460) | 43,343 | (47,257) |
| Provision for realization of non-financial assets: | ||||
| Properties and land for sale (Notes 6 and 8) | (68,215) | (37,394) | (69,282) | (36,913) |
| Provision for penalties due to delay in construction work (Note 15) | (793) | 3,659 | 2,137 | 5,283 |
| Income from equity method investments (Note 9) | (49,886) | (46,863) | 2,340 | 5,003 |
| Derecognition of goodwill based on inventory surplus (Note 6 and 9) | - | 3,000 | - | - |
| Derecognition of goodwill from remeasurement of investment in associate (Note 9) | - | 161,100 | - | 161,100 |
| Acquisition of subsidiary (Note 9) | - | (43,954) | - | - |
| Goodwill based on inventory surplus and gain from bargain purchase (Note 9) | - | (39,886) | - | - |
| Assignment of investment shares (Note 9) | - | 27,843 | - | 2,759 |
| - | ||||
| Decrease/(increase) in operating assets | ||||
| Trade accounts receivable | (88,976) | 134,996 | (206,326) | 115,003 |
| Properties for sale and land for sale | 274,193 | 232,986 | (414,152) | 131,581 |
| Other assets | (185,783) | (36,498) | (151,536) | (98,544) |
| Prepaid expenses | 958 | 956 | 970 | 808 |
| Increase/(decrease) in operating liabilities | ||||
| Payables for purchase of properties and advances from customers | (55,196) | (75,759) | 193,001 | (87,003) |
| Taxes and contributions | (1,277) | 12,888 | 16,963 | 12,592 |
| Payables for goods and service suppliers | 14,095 | (48,714) | 27,559 | (37,750) |
| Salaries, payroll charges and profit sharing | (12,651) | 835 | (11,468) | 511 |
| Other payables | (71,016) | (87,818) | 51,061 | (76,443) |
| Transactions with related parties | 26,149 | (56,408) | 49,006 | 21,608 |
| Paid taxes | (167) | - | (7,608) | (1,983) |
| Cash and cash equivalents from (used in) operating activities | (181,453) | 13,538 | (452,895) | 44,019 |
| Investing activities | ||||
| Acquisition of property and equipment and intangible assets (Notes 10 and 11) | (4,287) | (3,275) | (16,746) | (3,581) |
| Increase in short-term investments | (500,350) | (360,294) | (564,749) | (387,319) |
| Redemption of short-term investments | 488,155 | 61,878 | 373,562 | 90,280 |
| Investments | (30,000) | - | (30,000) | - |
| Cash (used in) from investing activities | (46,482) | (301,691) | (237,933) | (300,620) |
| Financing activities | ||||
| Increase in loans, financing and debentures | 98,036 | 113,839 | 625,677 | 122,639 |
| Payment of loans, financing and debentures - principal | (213,524) | (200,937) | (382,666) | (229,846) |
| Payment of loans, financing and debentures - interest | (28,517) | (54,033) | (33,774) | (56,976) |
| Loan transactions with related parties | (125,552) | (11,179) | (12,604) | (11,179) |
| Treasury shares repurchase program (Note 18.1) | 19,251 | 7,132 | 19,251 | 7,132 |
| Capital increase | 477,900 | 404,962 | 477,900 | 404,962 |
| Cash and cash equivalents from (used in) financing activities | 227,594 | 259,784 | 693,784 | 236,732 |
| Cash acquired from Upcon and Calçada | - | - | 13,647 | - |
| Net increase/(decrease) in cash and cash equivalents | (341) | (28,369) | 16,603 | (19,869) |
| Cash and cash equivalents | ||||
| At the beginning of the year | 810 | 29,179 | 12,435 | 32,304 |
| At the end of the year | 469 | 810 | 29,038 | 12,435 |
| Net increase/(decrease) in cash and cash equivalents | (341) | (28,369) | 16,603 | (19,869) |
The accompanying notes are an integral
part of these financial statements.
| 18 |
Gafisa S.A.
Statement of value added
Years ended December 31, 2020 and 2019
(Amounts in thousands of Brazilian reais)
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Revenues | 451,706 | 394,252 | 935,013 | 437,289 |
| Real estate development and sales | 467,528 | 332,792 | 978,360 | 390,032 |
| Reversal (recognition) of allowance for doubtful accounts and cancelled contracts | (15,822) | 61,460 | (43,347) | 47,257 |
| Inputs acquired from third parties (including taxes on purchases) | (353,164) | (314,103) | (737,722) | (294,610) |
| Operating costs - Real estate development and sales | (259,538) | (208,823) | (623,106) | (244,409) |
| Materials, energy, outsourced labor and other | (93,626) | 39,228 | (114,616) | 94,307 |
| Gain from bargain purchase | - | 16,592 | - | 16,592 |
| Derecognition of goodwill from remeasurement of investment | - | (161,100) | - | (161,100) |
| Gross value added | 98,542 | 80,149 | 197,291 | 142,679 |
| Depreciation and amortization | (6,623) | (12,859) | (8,278) | (14,181) |
| Net value added produced by the entity | 91,919 | 67,290 | 189,013 | 128,498 |
| Value added received on transfer | 75,524 | 63,494 | 26,198 | 12,203 |
| Income from equity method investments | 49,886 | 46,863 | (2,339) | (5,003) |
| Finance income | 25,638 | 16,631 | 28,537 | 17,206 |
| Total value added to be distributed | 167,443 | 130,784 | 215,211 | 140,701 |
| Value added distribution | 167,443 | 130,784 | 215,211 | 140,701 |
| Personnel and payroll charges | 37,316 | 26,851 | 39,652 | 28,429 |
| Taxes and contributions | 47,417 | 1,647 | 67,271 | 7,106 |
| Interest and rents | 159,231 | 116,028 | 184,809 | 118,908 |
| Retained earnings attributable to non-controlling interests | - | - | 478 | 361 |
| Incurred losses | (76,521) | (13,742) | (76,999) | (14,103) |
The accompanying notes are an integral part of these financial statements.
| 19 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 Presidente Juscelino Kubitschek, 1.830, conjunto comercial 32, 3o andar, Bloco 2, 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 enters into real estate development projects with third parties through special purpose entities (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.
The Company has stocks traded on 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). The ADSs were delisted on the NYSE on December 17, 2018, and are currently traded Over the Counter (OTC).
| 1.1 | Coronavirus – COVID-19 |
In the year 2020, there has not been any significant impact from the outbreak of Coronavirus on the Company’s operations. A Crisis Management Committee has been created that holds daily meetings and total availability for discussing and taking important disease prevention measures.
Awareness campaigns to promote actions that mitigate transmission (frequent hygiene, distancing, meeting through virtual platforms, exclusive service channel, among others) have been created. We have implemented a series of educative and preventative measures targeted at our construction site employees, reducing the staff considered to be in the risk group. The sales activities have focused on digital interactions with prospective customers.
The Company will keep following the implementation of the necessary actions with the Government Authorities, Ministry of Health, and trade associations.
Until the disclosure date of these financial statements, the Company has not noted a significant increase in customer default and contract cancellation or reduction in sales volume. Moreover, the construction of ventures has been according to the original schedule, considered essential service by the federal government.
Also, due to the Covid-19 pandemic, the Company has postponed the launches planned for the second quarter to the second half of this year.
The Company has opted for deferring the payment of the federal taxes related to March, April and May 2020, collected later on, pursuant to Ordinances 139, 150 and 245. Under the terms of Provisional Measure 927, of March 22, 2020, the Company has also opted for deferring the FGTS deposits by employers, related to March, April and May 2020, with collection in six monthly installments from July 2020. Pursuant to Provisional Measure 936, of March 31, 2020, converted into Law 14,020 of 2020, the Company has reduced salaries by 25%, with proportional reduction in working hours, of a certain group of employees over a 90-day period. Additionally, there has been a voluntary 50% reduction in the fees of the Board of Director’s members over a 180-day period.
Moreover, a volatility in the Company’s stock price traded on the stock exchange has been noted as a result of the global concern for this pandemic and its developments.
| 20 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 1. | Operations--Continued |
| 1.1 | Coronavirus – COVID-19 |
Management understands that at present, the projections used in the analysis of realization of its assets shall not suffer significant changes in the face of this event, and keeps the adopted assumptions.
| 1.2 | Gafisa Propriedades |
In the year 2020, the Company created a new business unit, which will comprise real estate assets aimed to generate income, aimed to carry out management services of own and third-party real estate. Gafisa Propriedades (former Upcon S.A) borns with Gafisa’s assets that currently exist and others that are in development (Note 9.2) and with acquisitions of assets in unique locations and/or opportunities for operational turnaround. It is worthy of note the acquisitions made in the first quarter of 2021 of Hotel Fasano Itaim in the city of São Paulo, currently under construction, of Jardim Guadalupe Shopping and São Conrado Fashion Mall (pending closing), both in the city of Rio de Janeiro, and the entry in the venture Cidade Matarazzo in São Paulo, as mentioned below and in Note 31(ii).
On January 13, 2021, the Company completed the acquisition of 32 studio apartments and Hotel Fasano Itaim through the investment funds it controls. The transaction totaled R$ 310,000, with the interest of Gafisa Propriedades reaching 80.37% in Hotel Fasano Itaim and 100% in studio apartments.
Also in January 2021, Gafisa Propriedades completed the acquisition of Jardim Guadalupe Shopping and signed the agreement for the acquisition of São Conrado Fashion Mall. The transaction totals R$ 99,300, in two tranches, the first in January 2021, and the other in January 2022. The acquisition is being made through Equity Fund.
On March 8, 2021, the Company informed that Gafisa Propriedades entered into a contract for entering in Cidade Matarazzo, related to the acquisition of private suites with hotel services.
| 1.3 | Gafisa Rio |
On November 16, 2020, the Company completed the acquisition of four ventures of Calçada S.A. (Note 9.1.1), marking the return of Gafisa to Rio de Janeiro’s real estate development market. “Gafisa Rio” becomes the Company’s base for operating in the segment with local office, and performing an active role on the acquisition of new land and launches in progress.
| 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 16, 2021, 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).
| 21 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
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).
All material information characteristic of the financial statements, and only it, 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.
The individual and consolidated financial statements have been prepared based on historical cost, except for those measured at fair value, when indicated.
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.
| 22 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| 2.1.1. | Consolidated financial statements--Continued |
In the Company’s individual financial statements, the financial statements of direct and indirect subsidiaries are recognized using the equity method.
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 the Brazilian real, mainly because of its revenues and the incurred costs of operations.
| 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:
| 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 amount. The main assumptions used for determining the recoverable amount of cash-generating units are detailed in Note 9.
| 23 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
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.
| c) | Provision for legal claims |
The Company is party to many lawsuits and administrative proceedings and recognizes a provision for tax, labor and civil claims (Note 16). Provisions are recognized for all claims related to lawsuits which likelihoods of losses are considered probable. 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.
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 probable favorable decision are only disclosed in explanatory note.
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.
| 24 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| d) | Allowance for expected credit losses |
The Company makes an in-depth analysis of the contracts with customers outstanding for recognizing the 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. This allowance is calculated based on the percentage of completion of the construction work, the methodology used for recognizing profit or loss (Note 2.2.2). Such analysis is individually made by sale contract, in line with CPC 48 – Financial Instruments, item 5.5.17 (c).
The Company annually reviews its assumptions for recognizing the loss allowance, in the face of the review of the history of its current operations and improvement in its estimates.
| e) | Warranty provision |
The Company and its subsidiaries record 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, which is regularly reviewed, except for the subsidiaries that operate with third-party companies, which are the own guarantors of the provided construction services. The warranty term provided is five years from the delivery of the venture.
| 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.
| g) | Realization of deferred income tax |
The initial recognition and further analysis of the realization of a deferred income tax 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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 revenues 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.
| (i) | Real estate development and sales |
(a) For the sales of completed units, revenues are recognized when the sale is completed 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 recognized in 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"; |
| 26 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 revenues and expenses--Continued |
| (i) | Real estate development and sales |
| · | 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 accounts 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; |
| · | 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:
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
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 investment strategy and risk management. After initial recognition, related transaction costs are recognized in profit or loss when incurred.
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, 2020, the Company entered into derivative financial instruments to mitigate the risk arising from its exposure to index and interest volatility recognized at fair value in profit or loss for the year. In accordance with its treasury policies, the Company had derivative contracts to hedge the interest rate fluctuation, maturing in February 2021.
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--Continued December 31, 2020 (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 |
Derecognition (write-off)
When the Company has transferred its rights to receive cash inflows of an asset, or signed an agreement to transfer it, 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 amount of the asset and the highest consideration that may be required from the Company.
Impairment of financial assets
Financial assets, except for those designated at fair value through profit or loss, are tested for indication of impairment at the end of each reporting period. The impairment losses are recognized if, and only if, there is objective evidence of impairment of the financial asset as a result of one or more events that have occurred after its initial recognition, with impact on the estimated future cash flows of such asset.
For financial assets recorded at cost, the impairment loss corresponds to the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the current return rate of a similar asset. This impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is directly reduced by the impairment loss for all financial assets, except for accounts receivable, in which the carrying amount is reduced by allowance. Subsequent recoveries of previously derecognized amounts are credited to the allowance. The changes in the carrying amount of the allowance are recognized in profit or loss.
| (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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| (iii) | Financial liabilities--Continued |
A debt security convertible into the Company’s common shares is presented separately in the statement of financial position between the liability and equity components. The issuer’s obligation to make payments of interest and principal is a liability that exists while the instrument is not converted and the equity instrument is an embedded option to convert the liability into the issuer’s shares.
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 modification is treated as a derecognition of the original liability and recognition of a new liability, the difference in the corresponding carrying amounts being recognized in profit or loss.
| 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 accounts 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 Price 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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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. | 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 “finance costs” in the statement of profit or loss for the year in which the transaction is made.
| 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 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 on the venture incurred 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.
| 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 amount and the fair value less costs to sell, and is classified as held for sale if its carrying amount 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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| 2.2.10. | 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 upon disposal or 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 amount of the asset) is recognized in profit or loss for the year when the asset is derecognized.
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.
| 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 customers |
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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
(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 amounts.
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.
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.
| 2. | Presentation of financial statements and summary of significant accounting policies--Continued |
| 2.2. | Summary of significant accounting policies--Continued |
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 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 plan |
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 had 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.
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. | Presentation of financial statements and summary of significant accounting policies--Continued |
| 2.2. | Summary of significant accounting policies--Continued |
| 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
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
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.
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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| 2.2.21. | Borrowing costs |
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 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.
| 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) and 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.
| 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 |
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
The Company classifies a non-current asset as held for sale if its carrying amount 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 amount and the fair value less cost to sell. In case the carrying amount 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.
| 2.2.28. | Business combination |
The business combination transactions are recognized using the acquisition method. The cost of an acquisition is measured by the sum of the consideration transferred, measured at fair value at the acquisition date, and the amount of any non-controlling interests in the acquired entity. The acquisition directly related costs shall be recognized as expense when incurred.
In the acquisition of a business, Management evaluates the financial assets and liabilities assumed to classify and allocate them according to the contractual terms, the economic circumstances, and the pertinent conditions that exist at the acquisition date.
Goodwill is initially measured as the excess of the consideration transferred over the fair value of the acquired net assets (identifiable assets and liabilities assumed, net). If the consideration is lower than the fair value of acquired net assets, the difference shall be recognized as gain in the statement of profit or loss. Gains from a bargain purchase are immediately recognized in profit or loss.
After initial recognition, goodwill is measured at cost, less any accumulated loss on recoverable amount. For purposes of testing the recoverable amount, the goodwill acquired in a business combination, from the acquisition date, shall be allocated to each of the cash-generating units of the Company that are expected to be benefitted from the combination synergies, regardless of the other assets or liabilities of the acquired entity that are attributed to such units.
In the year ended December 31, 2020, the Company made a business combination transaction, related to the acquisition by Gafisa of the totality of shares issued by Upcon, which became a subsidiary of the Company, and the acquisition of the totality of interest in four real estate ventures of Calçada S.A. in Rio de Janeiro (Note 9.1.1).
| 37 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 |
| 2.2.29. | Investment property |
Investment properties are properties held to earn rentals or for capital appreciation, and are initially measured at cost, including transaction costs. After initial recognition, investment properties are measured at fair value. All income from operating lease of assets for purposes of earning rental or capital appreciation are recorded as investment properties and measured using the fair value model. The gains and losses arising from changes in the fair value of investment property are recognized in profit or loss for the period in which they arise.
An investment property is derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gain or loss arising from the property derecognition (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in the profit or loss for the period in which it is derecognized.
| 3. | New standards, changes and interpretation of standards issued and adopted from 2020, and not yet adopted |
3.1 New standards, changes and interpretation of standards issued and adopted from 2020
As of January 1, 2020, the following standards are in effect. The adoption of these standards and interpretations did not have any material impact on the disclosures or amounts disclosed in these financial statements.
| (i) | Amendments to CPC 15 (R1): Definition of business - clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. These amendments did not have impact on the Company’s financial statements. |
(ii) Amendments to CPC 38, CPC 40 (R1) and CPC 48: Interest Rate Benchmark Reform, provide exemptions that apply to all hedging relationships directly affected by the interest rate benchmark reform. A hedging relationship is directly affected if the reform gives rise to uncertainties about the timing or the amount of interest rate benchmark-based cash flows of the hedged item or of the hedging instrument. These amendments do not have impact on the financial statements of the Company, once the latter does not have interest rate hedging relationships.
(iii) Amendments to CPC 26 (R1) and CPC 23: Definition of material, provide a new definition of material that states that the “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity”. The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of financial statements. A misstated information is material if it could be reasonably expected to influence decisions taken by primary users. These amendments did not have any impact on the financial statements, nor are expected to have any future impact on the Company.
| 38 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 3. | New standards, changes and interpretation of standards issued and adopted from 2020, and not yet adopted--Continued |
3.1 New standards, changes and interpretation of standards issued and adopted from 2020--Continued
(iv) Revision of CPC 00 (R2): Conceptual Framework for Financial Reporting, provides updated definitions and criteria for recognition of assets and liabilities, and clarifies some important concepts. These amendments did not have impact on the Company’s financial statements.
(v) Amendments to CPC 06 (R2): Covid-19-related Rent Concessions, provides lessees with concessions in the application of the CPC 06 (R2) provisions about the modification of lease contract, by recognizing the concessions occurring as direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-related rent concession granted by the lessor is a lease modification. This amendment did not have any impact on the Company’s financial statements.
3.1 New standards, changes and interpretation of standards issued and not yet adopted
A series of new standards are coming into effect for years beginning after January 1, 2021. The Company has not adopted these standards in the preparation of the accompanying Financial Statements. The following amended standards and interpretations shall not have a significant impact on the Company’s consolidated financial statements.
| (i) | Onerous contracts - costs of fulfilling a contract (amendments to CPC 25/IAS 37) |
| (ii) | Interest rate benchmark reform – Phase 2 (amendments to CPC 48/IFRS 9, CPC 38/IAS39, CPC 40/IFRS 7, CPC 11/IFRS 4 and CPC 06/IFRS 16), |
| (iii) | Property, plant and equipment: Proceeds before intended use (amendments to CPC 27/IAS 16) |
| (iv) | Reference to the Conceptual Framework (amendments to CPC 15 / IFRS 3) |
| (v) | Classification of Liabilities as Current or Non-current (amendments to CPC 26/IAS 1) |
| (vi) | 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, however, studies on them are in progress.
| 39 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 | |||
| 2020 | 2019 | 2020 | 2019 | |
| Cash and banks (a) | 469 | 810 | 29,038 | 12,435 |
|
Total cash and cash equivalents (Note 20.i.d, 20.ii.a and 20.iii) |
469 |
810 | 29,038 | 12,435 |
(a) These are held to meet short-term cash commitments and not for investment or other purposes. They comprise cash balance with immediate liquidity and insignificant risk of change in value.
| 4.2. | Short-term investments |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Fixed-income funds (a) | 136,058 | 125,961 | 144,437 | 125,962 |
| Government bonds (LFT) (a) | 3,078 | 231,725 | 3,078 | 231,725 |
| Real estate investment fund (a) | 151,553 | - | 151,553 | - |
| Securities purchased under resale agreements | - | 125 | - | 125 |
| Bank certificates of deposit (b) | 99,489 | 10,460 | 118,466 | 10,523 |
| Restricted credits (c) | 23,260 | 32,972 | 175,548 | 33,560 |
|
Total short-term investments (Note 20.i.d, 20.ii.a and 20.iii) |
413,438 |
401,243 | 593,082 | 401,895 |
(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. The Company entered into a swap contract to mitigate the risk of its exposure to index and interest rate volatility (Note 20(i)(b)).
(b) As of December 31, 2020, Certificates of Bank Deposit (CDBs) include interest earned ranging from 93.5% to 103.5% (93.5% to 110% in 2019) of Interbank Deposit Certificates (CDI).
(c) Restricted credits are represented by funds pledged and asset separated from transactions with financial institutions.
| 5. | Trade accounts receivable |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Real estate development and sales | 518,847 | 492,205 | 749,065 | 605,067 |
| (-) Allowance for expected and incurred credit losses | (10,421) | (12,065) | (16,365) | (16,265) |
| ( - ) Allowance for cancelled contracts (a) | (44,947) | (27,481) | (80,727) | (37,485) |
| ( - ) Present value adjustment | (329) | (7,133) | (7,038) | (8,518) |
| Services and construction and other receivables | 59,063 | 14,491 | 59,317 | 14,639 |
|
Total trade accounts receivable (Note 20.i.d and 20.ii.a) |
522,213 |
460,017 |
704,252 |
557,43B8 |
| Current | 340,096 | 361,649 | 487,083 | 445,303 |
| Non-current | 182,117 | 98,368 | 217,169 | 112,135 |
(a) The increase in the allowance for cancelled contracts was mainly caused by the re-evaluation of the current contracts in relation to the uncertainty over cash inflows due to the impact of the Covid-19 pandemic on the Company’s portfolio of receivables.
| 40 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 5. | Trade accounts receivable--Continued |
The current and non-current portions have the following maturities:
| Company | Consolidated | |||
| Maturity | 2020 | 2019 | 2020 | 2019 |
| Past due: (a) | ||||
| Up to 90 days | 19,601 | 19,785 | 42,726 | 32,306 |
| From 91 to 180 days | 37,096 | 8,294 | 38,081 | 11,424 |
| Over 180 days | 116,290 | 90,216 | 157,484 | 115,619 |
| 172,987 | 118,295 | 238,291 | 159,349 | |
| Falling due: | ||||
| 2020 | - | 286,456 | - | 343,971 |
| 2021 | 221,301 | 83,082 | 350,078 | 97,213 |
| 2022 | 47,186 | 5,276 | 72,280 | 5,368 |
| 2023 | 36,049 | 3,180 | 46,790 | 3,247 |
| 2024 | 26,899 | 2,791 | 27,269 | 2,830 |
| 2025 onwards | 73,488 | 7,616 | 73,674 | 7,728 |
| 404,923 | 388,401 | 570,091 | 460,357 | |
| ( - ) Present value adjustment | (329) | (7,133) | (7,038) | (8,518) |
| (-) Allowance for expected and incurred credit losses and cancelled contracts | (55,368) | (39,546) | (97,092) | (53,750) |
| 522,213 | 460,017 | 704,252 | 557,438 | |
| (a) | The increase in the period is due to the relevance of the delivery of ten ventures in the year ended December 31, 2020. As reflection of the Covid-19 pandemic, the time required by banks and registry offices to process information for transferring the ownership of delivered units increased. |
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 Note 2.2.2(i)(b).
As of December 31, 2020, the amount received from customers in excess of the recognized revenues totaled R$1,471 (R$1,540 in 2019) in the Company’s statements, and R$151,172 (R$14,197 in 2019) in the consolidated statements, and are classified in the heading “Payables for purchase of properties and advances from customers" (Note 17). The change in the year is due to the acquisition of the totality of shares in Upcon S.A. and assets of Calçada S.A. (Note 9.2).
Accounts receivable from completed real estate units financed by the Company are in general adjusted by the 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 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, 2020 and 2019, the changes in the allowances for expected credit losses and cancelled contracts are summarized as follows:
| 41 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 5. | Trade accounts receivable--Continued |
| Company | Consolidated | |
| Balance as of December 31, 2018 | (101,006) | (101,006) |
| Additions (Note 22) | (10,630) | (26,150) |
| Write-offs / Reversals (Note 22) | 72,090 | 73,406 |
| Balance as of December 31, 2019 | (39,546) | (53,750) |
| Acquired balance Upcon/ assets of Calçada | - | (3,568) |
| Additions (Note 22) | (26,198) | (76,905) |
| Write-offs / Reversals (Note 22) | 10,376 | 37,131 |
| Balance as of December 31, 2020 | (55,368) | (97,092) |
The present value adjustment recognized in revenue from real estate development for the year ended December 31, 2020 totaled R$6,804 (R$10,764 in 2019), in the Company’s statements, and R$1,479 (R$10,873 in 2019) 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 2.21% for the year 2020 (6.64% in 2019), 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 balance Company (Note 14) | Transaction balance Consolidated (Note 14) | ||||||
| Transaction date | Assigned portfolio | Portfolio discounted to present value | 2020 | 2019 | 2020 | 2019 | |
| (i) | Jun 27, 2011 | 203,915 | 171,694 | 23 | 322 | 23 | 412 |
| (ii) | Nov 14, 2012 | 181,981 | 149,025 | - | - | 85 | 2,586 |
| (iii) | Dec 27, 2012 | 72,021 | 61,647 | 972 | 1,683 | 972 | 1,683 |
| (iv) | Nov 29, 2013 | 24,149 | 19,564 | 173 | 242 | 480 | 1,170 |
| (v) | Nov 25, 2014 | 15,200 | 12,434 | 371 | 833 | 486 | 1,203 |
| (vi) | Dec 3, 2015 | 32,192 | 24,469 | 1,232 | 2,342 | 3,148 | 5,300 |
| (vii) | Dec 19, 2016 | 27,954 | 27,334 | 3,287 | 5,845 | 3,682 | 6,429 |
| (viii) | May 9, 2016 | 17,827 | 17,504 | 2,250 | 3,385 | 3,062 | 4,625 |
| (ix) | Aug 19, 2016 (a) | 15,418 | 14,943 | 1,752 | 2,351 | 1,774 | 2,392 |
| (x) | Dec 21, 2016 | 21,102 | 19,532 | 4,964 | 5,961 | 5,067 | 6,106 |
| (xi) | Mar 29, 2017 | 23,748 | 22,993 | 5,236 | 8,254 | 5,413 | 8,455 |
| 20,260 | 31,218 | 24,192 | 40,361 | ||||
| (a) | The consolidated balance of the transaction as of December 31, 2020 and 2019 (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), (iii), (iv) and (v) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios Não Padronizados (Note 14).
Transactions (vi), (vii), (viii), (ix), (x) and (xi) 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.
| 42 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 6. | Properties for sale |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Land | 384,324 | 423,074 | 607,564 | 573,715 |
| ( - ) Provision for loss on realization of land | (111,307) | (122,621) | (111,307) | (122,621) |
| ( - ) Present value adjustment | (641) | (5,200) | (676) | (5,198) |
| Properties under construction (Note 29) | 148,865 | 190,383 | 880,471 | 355,980 |
| Completed units | 63,246 | 264,381 | 107,882 | 283,991 |
| ( - ) Provision for loss on realization of properties under construction and completed units |
(8,726) |
(65,627) |
(9,131) |
(67,099) |
| Allowance for cancelled contracts | 38,729 | 36,078 | 74,498 | 47,099 |
| Total properties for sale |
514,490 |
720,468 |
1,549,301 |
1,065,867 |
| Current | 319,516 | 490,419 | 1,243,841 | 786,660 |
| Non-current | 194,974 | 230,049 | 305,460 | 279,207 |
During the years ended December 31, 2020 and 2019, the changes in the provision for loss on realization is summarized as follows:
| Company | Consolidated | |
| Balance as of December 31, 2018 | (163,078) | (164,603) |
| Reclassification from land available for sale (Note 8.1) | (52,196) | (52,196) |
| Write-off (a) | 27,026 | 27,079 |
| Balance as of December 31, 2019 | (188,248) | (189,720) |
| Additions | (3,025) | (3,482) |
| Write-offs (a) | 59,926 | 61,450 |
| Reversal (b) | 11,314 | 11,314 |
| Balance as of December 31, 2020 | (120,033) | (120,438) |
| (a) | The amount of write-offs refers to the respective units sold and project revision in the year 2020. |
| (b) | Amount related to the reversal of land impairment in view of project revision and viability. |
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, 2020 was R$146,582 (R$193,798 in 2019) in the Company’s statements, and R$173,228 (R$206,935 in 2019) in the consolidated statements.
| 7. | Other assets |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Advances to suppliers | 11,091 | 20,142 | 15,217 | 20,702 |
| Advance - Fasano transaction (Notes 1.2 and 31(ii)) | 62,000 | - | 62,000 | - |
| Recoverable taxes (IRRF, PIS, COFINS, among other) | 13,739 | 11,733 | 18,833 | 17,285 |
| Judicial deposits (Note 16.a) | 110,314 | 122,238 | 120,407 | 129,933 |
| Arbitration decision amount (a) | 5,777 | 5,777 | 66,391 | 66,391 |
| Credit for land acquisition (b) | 25,570 | - | - | - |
| Other | 3,337 | - | 10,728 | - |
| Total other assets | 231,828 | 159,890 | 293,576 | 234,311 |
| Current | 125,498 | 52,455 | 180,837 | 67,395 |
| Non-current | 106,330 | 107,435 | 112,739 | 166,916 |
| (a) | Amount related to the outcome of the arbitration decision related to venture construction contracts with partners, which was awarded on November 12, 2019 by the Arbitration Court, managed by the Center for Arbitration and Mediation of the Chamber of Commerce Brazil – Canada. |
| (b) | Amount related to credits for acquisition of land located in Rio de Janeiro, carried out by subsidiary. |
| 43 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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. Their carrying amount, 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 as of December 31, 2018 | 146,182 | (71,340) | 74,842 | 149,488 | (71,340) | 78,148 | |
| Reclassification from properties for sale (Note 6) | - | - | - | - | - | - | |
| Reclassification to properties for sale (Note 6) | (83,579) | 52,196 | (31,383) | (83,579) | 52,196 | (31,383) | |
| Additions (Note 23) | - | - | - | - | - | - | |
| Reversal / write-offs (a) | (50,117) | 10,367 | (39,750) | (50,117) | 10,366 | (39,751) | |
| Balance as of December 31, 2019 | 12,486 | (8,777) | 3,709 | 15,792 | (8,778) | 7,014 | |
| Additions (Note 23) | - | - | - | - | - | - | |
| Reversal / write-offs | - | - | - | - | - | - | |
| Balance as of December 31, 2020 | 12,486 | (8,777) | 3,709 |
15,792 |
(8,778) | 7,014 | |
| (a) | The amount of write-offs over the period mainly refers to the cancelled land sales contract in January 2019, located in the city of Rio de Janeiro – RJ. |
The sale of assets held for sale is considered highly probable, and the Company keeps an active program to locate buyers. Additionally, Management has made the necessary efforts to successfully dispose such assets for amounts not below the recorded ones. Changes in economic conditions or transactions currently in discussion may result in the recognition of losses in addition to those already recognized.
| 44 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
9. Investments
| 9.1 | 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: | 2020 | 2019 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
| Gafisa Rio | - | 100% | 100% | 228,826 | 140,758 | 88,068 | - | 50,288 | - | 88,068 | - | 50,288 | - | - | - | - | - | |
| Gafisa Propriedades S.A. | - | 100% | 100% | 312,752 | 230,708 | 82,044 | - | (6,021) | - | 82,045 | - | (6,022) | - | - | - | - | - | |
| Novum Directiones SPE Ltda. | - | 100% | 100% | 207,585 | 130,311 | 77,274 | 44,120 | (3,089) | (6,078) | 77,274 | 44,120 | (3,089) | (6,078) | - | - | - | - | |
| Gafisa SPE 80 Emp. Imob. Ltda. | - | 100% | 100% | 82,479 | 6,062 | 76,417 | - | 315 | - | 76,417 | - | 315 | - | - | - | - | - | |
| Gafisa SPE-104 Emp. Imob. Ltda. | - | 100% | 100% | 91,079 | 24,296 | 66,783 | 55,422 | 11,140 | 5,454 | 66,783 | 55,422 | 11,361 | 5,454 | - | - | - | - | |
| Upcon SPE 29 Emp. Imob. Ltda | - | 100% | 100% | 53,776 | 38 | 53,738 | - | - | - | 53,738 | - | - | - | - | - | - | - | |
| Gafisa SPE-89 Emp. Imob. Ltda. | - | 100% | 100% | 51,991 | 979 | 51,012 | 51,015 | (3) | (15) | 51,012 | 51,015 | (3) | (15) | - | - | - | - | |
| Gafisa SPE-81 Emp. Imob. Ltda. | - | 100% | 100% | 48,914 | 825 | 48,089 | 47,964 | 125 | 47,963 | 48,089 | 47,964 | 125 | 47,963 | - | - | - | - | |
| Upcon Spe 28 Emp. Imob. Ltda | - | 100% | 100% | 44,047 | 26 | 44,021 | - | - | - | 44,021 | - | - | - | - | - | - | - | |
| GDU Loteamentos Ltda. | - | 100% | 100% | 43,206 | 19 | 43,187 | 43,206 | (19) | - | 43,187 | 43,206 | (19) | - | - | - | - | - | |
| Nuove Direzioni SPE Ltda | - | 100% | 100% | 54,793 | 17,509 | 37,283 | 30,887 | 6,396 | - | 37,283 | 30,887 | 6,396 | - | - | - | - | - | |
| Gafisa SPE- 132 Emp. Imob. Ltda. | - | 100% | 100% | 39,199 | 9,006 | 30,193 | 30,193 | - | (1) | 30,193 | 30,193 | - | (1) | - | - | - | - | |
| Gafisa SPE-137 Emp. Imob. Ltda. | - | 100% | 100% | 25,608 | 42 | 25,567 | 25,567 | - | - | 25,567 | 25,567 | - | - | - | - | - | - | |
| Edsp 88 Participações S.A. | - | 100% | 100% | 29,332 | 12,682 | 16,650 | 16,724 | (74) | 212 | 16,650 | 16,724 | (74) | 212 | - | - | - | - | |
| Gafisa SPE-111 Emp. Imob. Ltda. | - | 100% | 100% | 18,614 | 2,944 | 15,670 | 14,848 | 822 | 14,847 | 15,670 | 14,848 | 822 | 14,847 | - | - | - | - | |
| Gafisa SPE 33 Emp. Imob. Ltda. | - | 100% | 100% | 196,861 | 182,424 | 14,437 | 13,227 | 1,209 | (103) | 14,437 | 13,227 | 1,209 | (103) | - | - | - | - | |
| Maraville Gafsa SPE Emp. Imob. Ltda. | - | 100% | 100% | 15,222 | 1,711 | 13,511 | 13,257 | 254 | 1,172 | 13,511 | 13,257 | 254 | 1,172 | - | - | - | - | |
| Gafisa SPE-134 Emp. Imob. Ltda. | - | 100% | 100% | 13,748 | 2,232 | 11,516 | 11,630 | (114) | (1,073) | 11,516 | 11,630 | (114) | (1,073) | - | - | - | - | |
| Upcon SPE 7 Emp. Imob. Ltda | - | 100% | 100% | 14,091 | 4,759 | 9,331 | - | - | - | 9,331 | - | - | - | - | - | - | - | |
| Gafisa SPE 78 Emp. Imob. Ltda. | - | 100% | 100% | 9,123 | 2,717 | 6,406 | 6,479 | (73) | 1,415 | 6,406 | 6,479 | (73) | 1,415 | - | - | - | - | |
| OCPC01 adjustment - capitalized interest (d) | (a) | 100% | 100% | - | - | - | - | - | - | 16,481 | 21,923 | - | - | - | - | - | - | |
| Other | 100% | 100% | 356,111 | 318,912 | 37,200 | 127,682 | 4,483 | (10,676) | 36,601 | 86,720 | 4,490 | (11,027) | - | - | - | - | ||
| Subtotal Subsidiaries | 1,937,357 | 1,088,960 | 848,397 | 532,221 | 65,639 | 53,117 | 864,280 | 513,182 | 65,866 | 52,766 | - | - | - | - | ||||
| Jointly-controlled investees: | ||||||||||||||||||
| Gafisa e Ivo Rizzo SPE-47 Emp. Imob. Ltda. | 80% | 80% | 34,263 | 1,952 | 32,310 | 32,347 | (36) | 6 | 25,849 | 25,877 | (28) | 5 | 25,849 | 25,877 | (28) | 5 | ||
| Sitio Jatiuca Emp. Imob. SPE Ltda | 50% | 50% | 36,190 | 3,844 | 32,345 | 29,636 | 2,709 | 223 | 16,173 | 14,818 | 1,355 | 111 | 16,173 | 14,818 | 1,355 | 111 | ||
| Varandas Grand Park Emp. Imob. Spe Ltda. | (b) | 50% | 50% | 34,093 | 5,034 | 29,059 | 28,773 | 457 | 2,742 | 14,529 | 14,387 | 143 | 1,917 | 14,529 | 14,387 | 143 | 1,917 | |
| Parque Arvores Empr. Imob. Ltda. | (b) | 50% | 50% | 29,533 | 3,622 | 25,911 | 24,616 | 1,716 | 3,116 | 12,956 | 12,308 | 648 | 1,407 | 12,956 | 12,308 | 648 | 1,407 | |
| Atins Emp. Imob.s Ltda. | 50% | 50% | 19,952 | 659 | 19,293 | 20,813 | 4,859 | 3,084 | 9,646 | 10,406 | 2,430 | 1,542 | 9,646 | 10,406 | 2,430 | 1,542 | ||
| Gafisa SPE-116 Emp. Imob. Ltda. | 50% | 50% | 24,278 | 3,414 | 20,863 | 25,111 | (909) | 2,574 | 10,432 | 12,555 | (454) | 1,287 | 10,432 | 12,555 | (454) | 1,287 | ||
| FIT 13 SPE Emp. Imob. Ltda. | 50% | 50% | 21,423 | 1,699 | 19,724 | 19,779 | (55) | 72 | 9,862 | 9,889 | (27) | 36 | 9,862 | 9,889 | (27) | 36 | ||
| Performance Gafisa General Severiano Ltda | 50% | 50% | 11,658 | 33 | 11,625 | 11,631 | (6) | (69) | 5,813 | 5,816 | (3) | (35) | 5,813 | 5,816 | (3) | (35) | ||
| Other (*) | 69,334 | 27,769 | 41,567 | 38,751 | (6,802) | (1,080) | 21,532 | 19,850 | (3,462) | (6,895) | 32,711 | 29,122 | (3,494) | (6,650) | ||||
| Subtotal jointly-controlled investees | 280,724 | 48,026 | 232,697 | 231,457 | 1,933 | 10,668 | 126,792 | 125,906 | 602 | (625) | 137,971 | 135,178 | 570 | (380) | ||||
| Associates: | ||||||||||||||||||
| Alphaville Urbanismo S.A | 0% | 0% | - | - | - | (1,479,312) | - | (603,985) | - | - | - | - | - | - | - | - | ||
| Città Ville SPE Emp. Imob. Ltda. | 50% | 50% | 4,912 | 534 | 4,378 | 4,272 | 107 | 1,571 | 2,189 | 2,136 | 53 | 785 | 2,189 | 2,136 | 53 | 785 | ||
| Gafisa Tiner Campo Belo I Emp. Imob. Ltda. | 45% | 45% | 1,153 | 25 | 1,128 | 1,189 | (60) | 55 | 508 | 535 | (27) | 25 | 508 | 535 | (27) | 25 | ||
| Other | - | - | - | (2) | (1) | - | - | - | - | 4 | 716 | 953 | - | 5 | ||||
| Indirect jointly-controlled investees Gafisa | 6,065 | 559 | 5,506 | (1,473,853) | 46 | (602,359) | 2,697 | 2,671 | 26 | 814 | 3,413 | 3,624 | 26 | 815 | ||||
| Goodwill arising from acquisition of subsidiaries (Note 9.1.1) | (c) | 166,028 | - | - | - | 166,028 | - | - | - | |||||||||
| Goodwill based on inventory surplus | (d) | 39,886 | 39,886 | - | - | - | - | - | - | |||||||||
| Total investments | 1,199,683 | 681,645 | 66,494 | 52,955 | 307,412 | 138,802 | 596 | 435 | ||||||||||
| (*) Includes companies with investment balances below R$ 5,000. | ||||||||||||||||||
| 45 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
9. Investments--Continued
| 9.1 | 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 | ||||||||||
| Provision for net capital deficiency (e): | 2020 | 2019 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
| Gafisa SPE 45 Ltda | 100% | 100% | 4,091 | 10,773 | (6,682) | - | (6,986) | - | (6,682) | - | (6,986) | - | - | - | - | - | ||
| Manhattan Square Emp. Im. Resid. 01 SPE Ltda | 50% | 50% | 2,499 | 15,431 | (12,932) | (6,569) | (149) | (313) | (6,467) | (3,284) | (3,178) | (1,130) | (6,467) | (3,284) | (3,178) | (1,130) | ||
| Manhattan Square Emp. Im. Com. 01 SPE Ltda | 50% | 50% | 3,342 | 9,888 | (6,546) | (6,558) | (4) | (294) | (3,273) | (3,279) | 4 | (2,175) | (3,273) | (3,279) | 4 | (2,175) | ||
| Upcon SPE26 Emp. Imob. Ltda | 100% | 100% | 103,644 | 106,780 | (3,135) | - | - | - | (3,135) | - | - | - | - | - | - | - | ||
| Gafisa Spe- 130 Emp. Imobiliários Ltda. | 100% | 100% | 8,594 | 10,072 | (1,477) | (1,137) | (340) | (1,138) | (1,477) | (1,137) | (340) | (1,138) | - | - | - | - | ||
| Delfim Moreira RJ | 100% | 100% | 111,660 | 112,550 | (890) | - | (890) | - | (890) | - | (890) | - | - | - | - | - | ||
| Gafisa SPE-133 Emp. Imob. Ltda. | 100% | 100% | 394,838 | 395,080 | (241) | - | (328) | - | (241) | - | (328) | - | - | - | - | - | ||
| Other | 232,687 | 235,722 | (18,491) | (10,138) | (10,158) | (12,457) | 632 | (7,094) | (4,890) | (1,649) | 3,010 | (4,400) | 239 | (2,133) | ||||
| Total provision for net capital deficiency | 861,355 | 896,296 | (50,394) | (24,402) | - | (18,855) | (14,202) | (21,533) | (14,794) | (16,608) | (6,092) | (6,730) | (10,963) | (2,935) | (5,438) | |||
| Total income from equity method investments | 49,886 | 46,863 | (2,339) | (5,003) | ||||||||||||||
(*) Includes companies with investment balances below (R$ 5,000).
| (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$386 in Income from equity method investments for the year ended December 31, 2020 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) | Recognition of goodwill on acquisition of the totality of UPCON S.A.’s shares and Calçada S.A.’s four ventures in the amounts of R$130,643 and R$35,385, respectively. The Company commissioned a study from a company specialized in determining Purchase Price Allocation (PPA) for allocation of goodwill over a period of up to one year, according to CPC 15(R1) - Business Combinations. |
| (d) | Amount related to the goodwill arising from purchase of the control of SPE GDU Loteamentos Ltda. granted on December 27, 2019 by Alphavile Urbanismo for the urban development business. |
| (e) | The provision for net capital deficiency is recorded in the line item “Other payables” (Note 15). |
| (ii) | Information on significant investees |
| Other investees: | ||||||
| Subsidiaries | Jointly-controlled investees | Associates | ||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| Cash and cash equivalents | 139,172 | 4,611 | 12,174 | 37,267 | 1,615 | 2,087 |
| Current assets | 1,432,951 | 636,457 | 239,756 | 265,219 | 5,883 | 6,702 |
| Non-current assets | 504,394 | 409,773 | 40,968 | 30,084 | 182 | 84 |
| Current liabilities | 936,767 | 550,908 | 28,661 | 42,975 | 486 | 1,159 |
| Non-current liabilities | 152,169 | 6,307 | 19,366 | 20,871 | 73 | 167 |
| Net revenue | 354,506 | 57,038 | 40,601 | 63,551 | 30 | 264 |
| Operating costs | (256,353) | (37,503) | (18,545) | (45,014) | - | - |
| Depreciation and amortization | (885) | (1,294) | (5) | (21) | - | - |
| Finance income (cost) | (10,544) | (657) | (273) | 670 | 12 | 312 |
| Income tax and social contribution | (2,338) | (1,603) | (1,182) | (1,883) | (14) | (94) |
| Profit or loss from continuing operations | 65,639 | 53,117 | 10,594 | 10,668 | 46 | 1,626 |
| (iii) | Change in investments |
| Company | Consolidated | ||
| Balance as of December 31, 2019 | 681,645 | 138,802 | |
| Income from equity method investments | 66,494 | 596 | |
| Capital contribution (reduction) | (1,111) | 92 | |
| Dividends receivable | (5,005) | (5,005) | |
| Goodwill arising from acquisition of subsidiaries (Note 9.1.1) | 166,028 | 166,028 | |
| Acquisition of subsidiaries (Note 9.1.1) | 160,032 | - | |
| Acquisition of subsidiaries of Upcon (a) | 76,074 | - | |
| Merger of subsidiaries (b) | 55,757 | - | |
| Other investments | (231) | 6,899 | |
| Balance as of December 31, 2020 | 1,199,683 | 307,412 |
(a) Amount related to the acquisition of shares in SPEs controlled by Upcon S.A., which is fully controlled by Gafisa S.A.
(b) Amount related to the assignment of shares in SPEs controlled by Gafisa S.A., to SPE 80 Emp. Imob. Ltda, which is fully controlled by the Company.
| 46 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
9. Investments--Continued
| 9.1 | Investments in ownership interests--Continued |
9.1.1 Business combination
(i) Acquisition Upcon S.A.
On September 23, 2020, the Company disclosed the completion of the acquisition of the totality of Upcon S.A.’s shares, settled with the Company’s shares. Such transaction gave rise to a goodwill in the amount of R$130,063, for which the Company commissioned a study from a company specialized in determining Purchase Price Allocation (PPA) for allocation of goodwill over a period of up to one year, according to CPC 15(R1) - Business Combinations.
The following table shows the determination of the acquisition cost, pursuant to CVM Resolution 665/11:
| Acquisition cost | 252,895 |
| Acquired net assets | 122,252 |
| Goodwill not allocated | 130,643 |
(ii) Acquisition of Calçada S.A.’s ventures
On November 16, 2020, the Company disclosed the completion of the acquisition of the totality of four ventures from Calçada S.A., settled through shares of the Company and financial disbursement. Such transaction gave rise to a total net goodwill in the amount of R$35,385, for which the Company commissioned a study from a company specialized in determining Purchase Price Allocation (PPA) for allocation of goodwill over a period of up to one year, according to CPC 15(R1) - Business Combinations.
The following table shows the determination of the acquisition cost, pursuant to CVM Resolution 665/11:
| Acquisition cost | 73,165 |
| Acquired net assets | 37,780 |
| Goodwill not allocated | 35,385 |
| 47 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
9. Investments--Continued
| 9.2 | Investment property |
As mentioned in Note 1, in the year of 2020 the Company created a new business unit, Gafisa Propriedades, for carrying out the management of real estate that are completed and of third parties. In this context, as of December 31, 2020 the investment properties of this new business unit comprise commercial properties of ventures located in the state of São Paulo and Rio de Janeiro and acquired of Gafisa S.A. and subsidiaries. These properties were initially recognized at cost and will be measured at fair value in subsequent years.
The Company does not have restriction to the capacity of realization of its investment property or for repairs, maintenance or improvements.
| Consolidated | |
| Balance as of December 31, 2019 | - |
| Additions of commercial properties: | |
| Rio de Janeiro | 73,229 |
| São Paulo | 45,890 |
| Balance as of December 31, 2020 | 119,119 |
| 10. | Property and equipment |
| Company | ||||||||||||||
| Description | 2019 | Additions | Write-offs | 100% depreciated items | 2020 | 2019 | Additions | Write-offs |
Additions Upcon |
100% depreciated items | 2020 | |||
| Cost | ||||||||||||||
| Hardware | 8,922 | - | - | (4,918) | 4,004 | 9,111 | - | - | - | (4,946) | 4,165 | |||
| Leasehold improvements and installations | 785 |
2,655 |
(1,389) |
- |
2,051 |
771 |
2,655 |
(1,389) |
9 |
- |
2,046 | |||
| Furniture and fixtures | 637 | - | - | - | 637 | 741 | - | - | 122 | - | 863 | |||
| Machinery and equipment | 2,561 | - | - | (2,528) | 33 | 2,561 | - | - | 22 | (2,528) | 55 | |||
| Right-of-use assets | 3,235 | 1,039 | 617 | - | 4,891 | 3,235 | 1,039 | 617 | 726 | - | 5,617 | |||
| Sales stands | 5,794 | 779 | (2,188) | - | 4,385 | 11,638 | 8,666 | (3.018) | 7,904 | - | 25,190 | |||
| 21,934 | 4,473 | (2,960) | (7,446) | 16,001 | 28,057 | 12,360 | (3,790) | 8,783 | (7,474) | 37,936 | ||||
| Accumulated depreciation | ||||||||||||||
| Hardware | (3,826) | (2,333) | - | 4,918 | (1,241) | (3,905) | (2,372) | - | - | 4,946 | (1,331) | |||
| Leasehold improvements and installations | (782) |
(399) |
1,984 |
- |
803 |
(737) |
(406) |
1,984 |
(7) |
- |
834 | |||
| Furniture and fixtures | (511) | (64) | - | - | (575) | (604) | (66) | - | (78) | - | (748) | |||
| Machinery and equipment | (2,315) | (240) | - | 2,528 | (27) | (2,315) | (240) | - | (8) | 2,528 | (35) | |||
| Right-of-use assets | (1,711) | (689) | - | - | (2,400) | (1,711) | (688) | - | (714) | - | (3,113) | |||
| Sales stands | (642) | - | - | - | (642) | (4,626) | (1,386) | 826 | (3,176) | - | (8,362) | |||
| (9,787) | (3,725) | 1,984 | 7,446 | (4,082) | (13,898) | (5,158) | 2,810 | (3,983) | 7,474 | (12,755) | ||||
| Total property and equipment | 12,147 | 748 | (976) | - | 11,919 | 14,159 | 7,202 | (980) | 4,800 | - | 25,181 | |||
The following useful lives and rates are used for calculating depreciation:
| Useful life | Average annual depreciation rate - % | |
| Leasehold improvements and installations | 4 years | 25 |
| Furniture and fixtures | 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 assessments of impairment. As of December 31, 2020 and 2019 there was no indication of impairment of property and equipment.
| 48 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 11. | Intangible assets |
| Company | ||||||
| 2019 | 2020 | |||||
| Balance | Additions | Write-offs | Amortizations | 100% amortized items | Balance | |
| Software – Cost | 15,953 | 42 | (2,162) | - | (3,514) | 10,319 |
| Software – Depreciation | (9,401) | - | 1,405 | (2,804) | 3,514 | (7,286) |
| Other | - | 1,505 | - | (94) | - | 1,411 |
| Total intangible assets | 6,552 | 1,547 | (757) | (2,898) | - | 4,444 |
| Consolidated | ||||||
| 2019 | 2020 | |||||
| Balance | Additions | Write-offs | Amortizations | 100% amortized items | Balance | |
| Software – Cost | 17,353 | 42 | (3,190) | - | (3,514) | 10,691 |
| Software – Depreciation | (10,269) | - | 2,209 | (3,026) | 3,514 | (7,572) |
| Other | - | 1,505 | - | (94) | - | 1,411 |
| Total intangible assets | 7,084 | 1,547 | (981) | (3,120) | - | 4,530 |
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, 2020, 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$981 (R$536 in 2019), related to the Company’s software.
| 12. | Loans and financing |
| Company | Consolidated | |||||
| Type | Maturity | Annual interest rate | 2020 | 2019 | 2020 | 2019 |
| National Housing System - SFH /SFI (i) | May 2019 to July 2025 |
7.00% to 14.20% + TR 13.66% and 143% of CDI |
341,495 |
421,382 | 389,258 | 456,247 |
|
Certificate of Bank Credit (CCB) (ii)
|
March 2021 to October 2025
|
Fixed 16.77% 3.5%/ 3.70%/ 4.25%/ 6%+CDI
|
48,954
|
55,022
|
257,123
|
55,022
|
| Other transactions | 10,344 | 14,272 | 24,093 | 21,884 | ||
| Total loans and financing (Note 20.i.d, 20.ii.a and 20.iii) | 400,793 | 490,676 | 670,474 | 533,153 | ||
| Total current | 291,270 | 383,647 | 332,447 | 426,124 | ||
| Non-current | 109,523 | 107,029 | 338,027 | 107,029 | ||
| (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, 2020, the Company made payments totaling R$293,029, of which R$274,237 related to principal and R$18,793 related to the interest payable. Additionally, during the year, the Company entered into CCB transactions in the total amount of R$195,000, with final maturity between October 2023 and November 2025. |
| Rates |
| · | CDI - Interbank Deposit Certificates; |
| · | TR - Referential Rate |
| 49 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
12. Loans and financing--Continued
The current and non-current portions have the following maturities:
| Company | Consolidated | |||
| Maturity | 2020 | 2019 | 2020 | 2019 |
| 2020 | - | 383,647 | - | 426,124 |
| 2021 | 291,270 | 103,269 | 332,447 | 103,269 |
| 2022 | 11,560 | 3,760 | 27,664 | 3,760 |
| 2023 | 7,800 | - | 73,106 | - |
| 2024 | 7,800 | - | 7,800 | - |
| 2025 | 82,363 | - | 229,457 | - |
| 400,793 | 490,676 | 670,474 | 533,153 | |
The Company and its subsidiaries have restrictive covenants under certain loans and financing that limit their ability to perform certain actions, such as issuing debt, and that could require the acceleration or refinancing of loans if the Company does not fulfill certain restrictive covenants.
The ratios and minimum and maximum amounts required under restrictive covenants for loan and financing transactions are as follows:
| 2020 | 2019 | |
| Loans and financing | ||
| Total accounts receivable(1) plus inventories required to be below zero or 2.0 times over venture debt(2) | 7.35 times | 4.52 times |
| Total accounts receivable(1) plus inventories of completed units required to be below zero or 2.0 times over net debt less venture debt(2) | (34.63) times | (9.04) 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 | -2.03% | -15.81% |
| Total receivables(1) plus unrecognized income plus total inventories of completed units required to be 1.5 time over the net debt plus payable for purchase of properties plus unrecognized cost | 2.52 times | 3.79 times |
| (1) | Total receivables, whenever mentioned, refer 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. |
Finance costs 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 average capitalization rate used in the determination of costs of loans eligible to capitalization was 8.93% as of December 31, 2020 (10.84% in 2019).
The following table shows the summary of finance costs and charges and the capitalized portion in the line item properties for sale.
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Total financial charges for the year | 80,081 | 88,230 | 95,116 | 89,737 |
| Capitalized financial charges (Note 30) | (18,819) | (21,179) | (35,516) | (30,358) |
| Subtotal (Note 24) | 61,262 | 67,051 | 59,600 | 59,379 |
| Financial charges included in “Properties for sale”: | ||||
| Opening balance | 193,798 | 211,465 | 206,935 | 223,807 |
| Capitalized financial charges | 18,819 | 21,179 | 35,516 | 30,358 |
| Financial charges related to cancelled land sales contract | (3,840) | (8,955) | (3,840) | (8,955) |
| Charges recognized in profit or loss (Note 23) | (62,195) | (29,891) | (79,719) | (38,275) |
| Balance acquired from subsidiaries | - | - | 14,336 | - |
| Closing balance (Note 6) | 146,582 | 193,798 | 173,228 | 206,935 |
The recorded amount of properties for sale offered as guarantee for loans, financing and debentures is R$307,233 (R$421,120 in 2019).
| 50 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 13. | Debentures |
| Company | Consolidated | ||||||
| Program/placements | Principal - R$ | Annual interest | Final maturity | 2020 | 2019 | 2020 | 2019 |
| Tenth placement (i) | 22,453 | IPCA + 7.8% | December 2023 | 29,833 | 38,038 | 29,833 | 38,038 |
| Eleventh placement – 1st Series A (ii) | - | - | - | - | 52,008 | - | 52,008 |
| Twelfth placement (iii) | 39,843 | CDI + 3.75 % | December 2020 | 32,503 | 57,139 | 32,503 | 57,139 |
| Thirteenth placement (iv) | 17,777 | CDI + 3.00% | June 2022 | 9,236 | 33,792 | 9,236 | 33,792 |
| Fourteenth placement (v) | 22,835 | CDI + 5.00% | October 2020 | 1,920 | 16,548 | 1,920 | 16,548 |
| Fifteenth placement (a) | 33,750 | IGPM - 0.50% | July 2021 | 39,875 | - | 39,875 | - |
| RB Capital (b) | 90,083 | CDI + 6.00% | September 2024 | - | - | 125,383 | - |
| Sixteenth placement (c) | 25,570 | 100% CDI | February 2021 | 25,575 | - | 25,575 | - |
| Total debentures (Note 20.i.d, 20.ii.a, 20.iii and 30.ii) | 138,942 | 197,525 | 264,325 | 197,525 | |||
| Current portion | 120,399 | 158,179 | 120,737 | 158,179 | |||
| Non-current portion | 18,543 | 39,346 | 143,588 | 39,346 | |||
| (a) | In the context of the acquisition of the totality of UPCON’s shares, on July 17, 2020, the Company signed the indenture of the 15th convertible debenture, of the subordinate type, into two series, in the total amount of R$33,750, maturing on July 15, 2020. The coupon rate applied to the face value corresponds to 0.50% per year and the index is the IGPM. The principal and coupon payments are only made on the respective maturity date, and may be settled by using the Company’s shares. |
| (b) | On September 15, 2020, the subsidiary Novum signed the indenture of the first non-convertible debenture issue, with secured guarantee, in sole series, in the total amount of R$190,000, maturing in September 2024. The net proceeds from this issue will be fully and only used to develop the residential real estate development ventures “Scena Tatuapé", "Parque Ecoville", "Moov Belém", "Moov Estação Brás", "Moov Parque Maia", "Belvedere" and "Upside Paraíso". The funds shall be released according to the construction works’ needs, amortization and interest payments shall be made at the end of the operation. The coupon rate applied to the face value corresponds to the cumulative change of Interbank Deposits (DI) plus a surcharge equivalent to 6% p.a. |
| (c) | On October 21, 2020, the Company approved the indenture of the 16th convertible debenture issue, in two series, in the total amount of R$ 117,570, each with unit value of R$10. The first series, in the amount of R$42,000, was converted in the context of the acquisition of interest in four ventures of Calçada S.A. (Note 9.1). The second series, in the amount of R$25,570, was subscribed on December 28, 2020, with final maturity on March 31, 2021. As of December 31, 2020, the amount of option for converting liabilities into the Company’s shares is R$6,125 (Note 20 (i)(d)). The coupon rate applied to the face value corresponds to the cumulative change of Interbank Deposits (DI). |
In the year ended December 31, 2020, the Company made the following payments:
| Face value placement | Interest payable | Total amortization | ||
| (i) | 9,704 | 2,709 | 12,413 | |
| (ii) | 52,026 | 2,928 | 54,954 | |
| (iii) | 25,720 | 2,983 | 28,703 | |
| (iv) | 25,181 | 1,486 | 26,667 | |
| (v) | 36,730 | 1,401 | 38,131 | |
| (a) | - | 1,578 | 1,578 | |
| 149,361 | 13,085 | 162,446 |
The current and non-current portions have the following maturities:
| Company | Consolidated | |||
| Maturity | 2020 | 2019 | 2020 | 2019 |
| 2020 | - | 158,179 | - | 158,179 |
| 2021 | 120,399 | 23,119 | 120,737 | 23,119 |
| 2022 | 11,428 | 11,243 | 11,428 | 11,243 |
| 2023 | 7,115 | 4,984 | 7,115 | 4,984 |
| 2024 | - | - | 125,045 | - |
| 138,942 | 197,525 | 264,325 | 197,525 | |
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 restrictive covenants are as follows:
| 2020 | 2019 | |
| Tenth placement | ||
| Total accounts receivable(1) plus inventories required to be below zero or 2.0 times over net debt less venture debt(2) | (81.57) times | (14.62) times |
| Total debt, less venture debt(2), less cash and cash equivalents and short-term investments(3), cannot exceed 75% of equity plus non-controlling interests | -2.03-% | -15.81% |
| (a) |
(1) Total receivables, whenever mentioned, refer 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.
| 14. | Obligations assumed on the assignment of receivables |
The transactions of assignment of the receivable portfolio are as follows:
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Obligation CCI June/2011 - Note 5(i) | 23 | 322 | 23 | 412 |
| Obligation CCI November/2012 - Note 5(ii) | - | - | 85 | 2,586 |
| Obligation CCI December/2012 - Note 5(iii) | 972 | 1,683 | 972 | 1,683 |
| Obligation CCI November/2013 - Note 5(iv) | 173 | 242 | 480 | 1,170 |
| Obligation CCI November/2014 - Note 5(v) | 371 | 833 | 486 | 1,203 |
| Obligation CCI December/2015 - Note 5(vi) | 1,232 | 2,342 | 3,148 | 5,300 |
| Obligation CCI February/2016 - Note 5(vii) | 3,287 | 5,845 | 3,682 | 6,429 |
| Obligation CCI May/2016 - Note 5(viii) | 2,250 | 3,385 | 3,062 | 4,625 |
| Obligation CCI August/2016 - Note 5(ix) | 1,752 | 2,351 | 1,774 | 2,392 |
| Obligation CCI December/2016 - Note 5(x) | 4,964 | 5,961 | 5,067 | 6,106 |
| Obligation CCI March/2017 - Note 5(xi) | 5,236 | 8,254 | 5,413 | 8,455 |
|
Total obligations assumed on assignment of receivables (Note 20.i.d and 20.ii.a) |
20,260 | 31,218 | 24,192 | 40,361 |
| Current | 10,829 | 14,755 | 13,296 | 20,526 |
| Non-current | 9,431 | 16,463 | 10,896 | 19,835 |
The current and non-current portions have the following maturities:
| Company | Consolidated | ||||
| Maturity | 2020 | 2019 | 2020 | 2019 | |
| 2020 | - | 14,755 | - | 20,526 | |
| 2021 | 10,829 | 5,193 | 13,296 | 7,020 | |
| 2022 | 2,953 | 3,620 | 2,977 | 4,284 | |
| 2023 | 2,127 | 1,895 | 2,493 | 2,221 | |
| 2024 onwards | 4,351 | 5,755 | 5,426 | 6,310 | |
| 20,260 | 31,218 | 24,192 | 40,361 | ||
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.
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), (iii), (iv) and (v) 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 (vi), (vii), (viii), (ix), (x) and (xi) 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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 15. | Other payables |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Provision for penalties due to delay in construction work | 2,866 | 3,659 | 7,420 | 5,283 |
| Cancelled contract payable and allowance for cancelled contracts | 60,514 | 71,549 | 91,711 | 97,255 |
| Warranty provision | 23,627 | 14,419 | 23,628 | 14,419 |
| Long term PIS and COFINS (deferred and payable) | 17,130 | 5,780 | 18,166 | 8,372 |
| Provision for net capital deficiency (Note 9.i.e) | 21,533 | 14,794 | 6,730 | 10,963 |
| Long-term suppliers (Note 20.i.d) | 987 | 1,179 | 1,816 | 1,382 |
| Share-based payment - Phantom Shares (Note 18.4) | 1,109 | 1,702 | 1,109 | 1,702 |
| Other liabilities (a) | 13,238 | 3,379 | 70,534 | 5,181 |
| Total other payables | 141,004 | 116,461 | 221,114 | 144,557 |
| Current | 124,434 | 110,189 | 186,466 | 135,492 |
| Non-current | 16,570 | 6,272 | 34,648 | 9,065 |
(a) Other liabilities related to several diluted amounts.
| 16. | Provisions for legal claims and commitments |
The Company and its subsidiaries are parties to lawsuits and administrative proceedings at various courts and government bodies that arise from the ordinary course of business, involving tax, labor, civil, and other matters. Management, based on information provided by its legal counsel, 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, 2020 and 2019, the changes in provision are summarized below:
| Company | Civil lawsuits | Tax proceedings | Labor claims | Total |
| Balance as of December 31, 2018 | 235,294 | 637 | 55,133 | 291,064 |
| Additional provision (Note 23) (i) | 5,744 | 1,313 | 2,933 | 9,990 |
| Payment and reversal of provision not used (i) | (14,087) | 732 | (24,218) | (37,573) |
| Balance as of December 31, 2019 | 226,951 | 2,682 | 33,848 | 263,481 |
| Additional provision (Note 23) (i) | 64,302 | - | - | 64,302 |
| Payment and reversal of provision not used (ii) | (62,765) | (1,607) | (14,772) | (79,144) |
| Balance as of December 31, 2020 | 228,488 | 1,075 | 19,076 | 248,639 |
| Current | 141,397 | 1,075 | 3,164 | 145,636 |
| Non-current | 87,091 | - | 15,912 | 103,003 |
| Consolidated | Civil lawsuits | Tax proceedings | Labor claims | Total |
| Balance as of December 31, 2018 | 235,482 | 637 | 57,690 | 293,809 |
| Additional provision (Note 23) | 5,456 | 1,369 | 1,475 | 8,300 |
| Payment and reversal of provision not used | (13,769) | 696 | (24,423) | (37,496) |
| Balance as of December 31, 2019 | 227,169 | 2,702 | 34,742 | 264,613 |
| Additional provision (Note 23) | 56,148 | - | - | 56,148 |
| Payment and reversal of provision not used | (62,665) | (971) | (15,666) | (79,302) |
| Acquired balance of Upcon | 9,024 | - | - | 9,024 |
| Balance as of December 31, 2020 | 229,676 | 1,731 | 19,076 | 250,483 |
| Current | 142,171 | 1,731 | 3,164 | 147,066 |
| Non-current | 87,505 | - | 15,912 | 103,417 |
| 53 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 16. | Provisions for legal claims and commitments--Continued |
(a) Civil lawsuits, tax proceedings and labor claims
As of December 31, 2020, the Company and its subsidiaries have deposited in court the amount of R$110,314 (R$122,238 in 2019) in the Company’s statements, and R$120,407 (R$129,933 in 2019) in the consolidated statements (Note 7).
| Company | Consolidated | ||||
| 2020 | 2019 | 2020 | 2019 | ||
| Civil lawsuits | 58,416 | 50,308 | 65,401 | 54,706 | |
| Tax proceedings | 43,767 | 40,516 | 46,537 | 41,989 | |
| Labor claims | 8,131 | 31,414 | 8,469 | 33,238 | |
| Total (Note 7) | 110,314 | 122,238 | 120,407 | 129,933 | |
| (i) | As of December 31, 2020, the provisions related to civil lawsuits (R$5,397 in 2019) 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) are present. |
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 for obtaining 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.
(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$375 in the Company’s and consolidated statements (R$375 in the Company’s and consolidated statements in 2019).
| 54 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 16. | Provisions for legal claims and commitments--Continued |
| (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 Almeida de Martins Ltda., in view of the breach of contractual obligations. As of December 31, 2020, no decision has been awarded yet. |
| (iv) | Lawsuits which likelihood of loss is rated as possible |
As of December 31, 2020, the Company and its subsidiaries are aware of other claims, and civil, labor and tax risks. Based on the history of probable lawsuits and the specific analysis of main claims, the measurement of the claims with likelihood of loss considered possible amounted to R$421,242 (R$563,239 in 2019) in the Company’s statements and R$425,045 (R$565,410 in 2019) in the consolidated statements, 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 any losses. The change in the period was caused by the change in the volume of lawsuits with diluted amounts, and review of the involved amounts.
| Company | Consolidated | ||||
| 2020 | 2019 | 2020 | 2019 | ||
| Civil lawsuits | 253,403 | 398,325 | 254,219 | 398,676 | |
| Tax proceedings | 117,647 | 97,871 | 117,987 | 98,186 | |
| Labor claims | 50,192 | 66,243 | 52,839 | 68,548 | |
| 421,242 | 562,439 | 425,045 | 565,410 | ||
| (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, 2020, 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 has commitments related to the rental of two commercial properties where its facilities are located, at a monthly cost of R$171 (including rent, condominium fees, and IPTU), indexed to the IGP-M/FGV change and termination of contract in August 2024.
The estimate of minimum future rent payments of this new contract for commercial property (cancellable leases) totals R$7,474, considering the above-mentioned contract expiration, as follows.
| 55 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 16. | Provisions for legal claims and commitments--Continued |
| Consolidated | |
| Estimate of payment | 2020 |
| 2021 | 2,153 |
| 2022 | 2,239 |
| 2023 | 2,329 |
| 2024 onwards | 753 |
| 7,474 |
| 17. | Payables for purchase of properties and advances from customers |
| Company | Consolidated | ||||
| Maturity | 2020 | 2019 | 2020 | 2019 | |
| Payables for purchase of properties | January 2021 to November 2022 | 42,310 | 68,020 |
163,597 |
68,133 |
| Present value adjustment | (783) | (5,295) | (819) | (5,298) | |
| Advances from customers | |||||
| Development and services (Note 5) | 1,471 | 1,540 | 151,172 | 14,197 | |
| Barter transaction – Land (Note 30 (i)) | 60,146 | 94,075 | 101,479 | 145,396 | |
| Total payables for properties and advances from customers (Notes 20.i.d and 20.ii.a) | 103,144 | 158,340 | 415,429 | 222,428 | |
| Current | 65,969 | 89,825 | 336,029 | 129,353 | |
| Non-current | 37,175 | 68,515 | 79,400 | 93,075 | |
The current and non-current portions have the following maturities:
| Company | Consolidated | |||
| Maturity | 2020 | 2019 | 2020 | 2019 |
| 2020 | - | 89,825 | - | 129,353 |
| 2021 | 65,969 | 28,352 | 336,029 | 40,219 |
| 2022 | 27,594 | 29,208 | 32,177 | 33,396 |
| 2023 | 9,424 | 10,599 | 38,086 | 10,597 |
| 2024 | 157 | 356 | 586 | 8,863 |
| 2025 onwards | - | - | 8,551 | - |
|
103,144 |
158,340 | 415,429 | 222,428 | |
18. Equity
| 18.1. | Capital |
At the Extraordinary Shareholders’ Meeting held on April 30, 2020, shareholders approved the absorption of the Company’s retained losses by its capital in the amount of R$2,585,032.
The Company’s Board of Directors ratified the following capital increases in the period ended September 30, 2020:
| · | On August 7, 2020: subscription and payment of 75,610,000 new common shares at the price of R$4.10, totaling R$ 310,001. |
| · | On September 25, 2020: subscription and payment of 95,121,951 new common shares at the price of R$4.10, totaling R$390,000. |
| · | On November 16, 2020: subscription and payment of 9,944,150 new common shares at the price of R$4.22, totaling R$42,000. |
Accordingly, as of December 31, 2020, the Company's authorized and paid-in capital amounted to R$1,083,248 (R$2,926,280 in 2019), represented by 300,676,101 registered common shares (120,000,000 in 2019), with no par value, of which 341,570 (2,981,052 in 2019) were held in treasury.
| 56 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 18. | Equity--Continued |
| 18.1. | Capital--Continued |
According to the Company’s Articles of Incorporation, capital may be increased without need of making amendment to it, upon resolution of the Board of Directors, which shall set the conditions for issuance within the limit of 600,000,000 (six hundred million) common shares.
| Treasury shares | ||||||||
| Type | GFSA3 | R$ | % | Market value (*) R$ thousand | Carrying amount R$ thousand | |||
| Acquisition date | Number (i) | Weighted average price | % - on shares outstanding | 2020 | 2019 | 2020 | 2019 | |
| 2001 | 11/20/2001 | 44,462 | 38.9319 | 0.11% | 193 | 385 | 1,731 | 1,731 |
| 2013 | Acquisitions | 1,372,096 | 51.9927 | 3.46% | 5,969 | 11,896 | 71,339 | 71,339 |
| 2014 | Acquisitions | 3,243,947 | 35.5323 | 8.19% | 14,111 | 28,125 | 115,265 | 115,265 |
| 2014 | Transfers | (405,205) | 43.3928 | -1.02% | (1,763) | (3,513) | (17,583) | (17,583) |
| 2014 | Cancellations | (2,039,086) | 44.9677 | -5.15% | (8,870) | (17,679) | (91,693) | (91,693) |
| 2015 | Acquisitions | 884,470 | 27.3124 | 2.23% | 3,847 | 7,668 | 24,157 | 24,157 |
| 2015 | Transfers | (90,622) | 33.3473 | -0.23% | (394) | (786) | (3,022) | (3,022) |
| 2015 | Cancellations | (2,225,020) | 33.3543 | -5.61% | (9,679) | (19,291) | (74,214) | (74,214) |
| 2016 | Acquisitions | 334,020 | 26.0254 | 0.84% | 1,453 | 2,896 | 8,693 | 8,693 |
| 2016 | Transfers | (68,814) | 31.2290 | -0.17% | (299) | (597) | (2,149) | (2,149) |
| 2017 | Transfers | (112,203) | 30.6320 | -0.28% | (488) | (973) | (3,435) | (3,435) |
| 2018 | Acquisitions | 13,221,300 | 13.4953 | 33.36% | 57,513 | 114,629 | 178,425 | 178,425 |
| 2018 | Transfers | (17,319) | 30.6022 | -0.04% | (75) | (150) | (530) | (530) |
| 2018 | Cancellations | (1,030,326) | - | -2.60% | (4,482) | (8,933) | - | - |
| 2018 | Disposal | (9,168,280) | 16.1463 | -23.14% | (39,882) | (79,489) | (148,034) | (148,034) |
| 2019 | Acquisitions | 6,794,011 | 14.7355 | 10.01% | 29,554 | 58,904 | 100,113 | 100,113 |
| 2019 | Transfers | (9,174) | 15.3695 | -0.01% | (40) | (80) | (141) | (141) |
| 2019 | Cancellations | (370,000) | 15.5324 | -0.54% | (1,610) | (3,208) | (5,747) | (5,747) |
| 2019 | Disposal | (7,377,205) | 14.5999 | -10.84% | (32,091) | (63,960) | (109,658) | (109,658) |
| 2020 | Disposal | (2,639,482) | 14.5979 | -0.91% | (11,481) | - | (40,885) | - |
| 341,570 | 9.0131 | 1.64% | 1,486 | 25,844 | 2,632 | 43,517 | ||
| (*) | Market value calculated based on the closing share price on December 31, 2020 of R$4.35 (R$8.67 in 2019) not considering the effect of occasional volatilities. |
The Company holds shares in treasury acquired in 2001 in order to guarantee the performance of lawsuits (Note 16(a)(i)).
The change in the number of shares outstanding is as follows:
| Common shares - In thousands | |
| Shares outstanding as of December 31, 2018 | 38,599 |
| Subscription of shares | 76,642 |
| Repurchase of shares | (7,164) |
| Disposal of shares | 7,386 |
| Cancellation of treasury shares | 370 |
| Change in shares held by the management members of the Company | 1,172 |
| Shares outstanding as of December 31, 2019 | 117,005 |
| Subscription of shares | 180,677 |
| Disposal of shares | 2,640 |
| Change in shares held by the management members of the Company | (9,809) |
| Shares outstanding as of December 31, 2020 | 290,513 |
| Weighted average shares outstanding (Note 27) | 179,882 |
| 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.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 18. | Equity--Continued |
| 18.2. | Allocation of profit (loss) for the year--Continued |
The Board of Directors, by resolution at the Annual Shareholders’ Meeting, shall examine the accounts and financial statements related to the fiscal year 2020.
In view of the retained losses as of December 31, 2020, the allocation of profit or loss for the year is not applicable.
| Balance of retained losses for 2018 | (2,308,403) |
| Net loss for the year 2019 | (13,742) |
| Proceeds from disposal of treasury shares | (4,521) |
| Balance of retained losses for 2019 | (2,326,666) |
| Incurred retained losses | 2,585,032 |
| Net loss for the year 2020 | (76,521) |
| Proceeds from disposal of treasury shares | (19,654) |
| Retained earnings | (162,191) |
| Balance of retained losses for 2020 | - |
|
|
| 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, 2020 and 2019:
| 2020 | 2019 | |
| Equity-settled stock option plans |
246 |
534 |
| Phantom Shares (Note 18.4) | (593) | (2,900) |
| Total option grant expenses (Note 23) | (347) | (2,366) |
| (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 subscribe 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.
The changes in the stock options outstanding in the years ended December 31, 2020 and 2019, including the respective weighted average exercise prices, are as follows:
| 58 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 18. | Equity--Continued |
| 18.3. | Stock option plan--Continued |
| 2020 | 2019 | |||
| Number of options | Weighted average exercise price (reais) | Number of options | Weighted average exercise price (reais) | |
| Options outstanding at the beginning of the year | 1,230,383 | 16.64 | 1,239,557 | 15.58 |
| Options granted | - | - | - | - |
| Options exercised (i) | - | - | (9,174) | (16.16) |
| Options expired | (244,944) | (16.98) | - | - |
| Options outstanding at the end of the year | 985,439 | 16.56 | 1,230,383 | 16.64 |
(i) In the year ended December 31, 2019, the amount received through exercised options was R$148.
As of December 31, 2020, the stock options outstanding and exercisable are as follows:
| Options outstanding | Options exercisable | |||
| Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price (reais) | Number of options | Weighted average exercise price (reais) |
| 985,439 | 5.50 | 16.98 | 552,041 | 17.78 |
During the years ended December 31, 2020 and 2019, the Company did not grant any option in connection with its stock option plans comprising common shares.
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.
| 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, 2020, the amount of R$1,109 (R$1,702 in 2019), related to the fair value of the phantom shares granted, is recognized in the line item “Other payables” (Note 15).
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 19. | Income tax and social contribution |
The reconciliation of the effective tax rate for the years ended December 31, 2020 and 2019 is as follows:
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Loss before income tax and social contribution, and statutory interest | (76,354) | (51,001) | (69,632) | (49,378) |
| Income tax calculated at the applicable rate - 34% | 25,960 | 17,340 | 23,593 | 16,789 |
| Net effect of subsidiaries and ventures taxed by presumed profit and RET | - | - | 18,559 | 17,951 |
| Income from equity method investments | 21,248 | 15,933 | 21,248 | (1,701) |
| Stock option plan | (84) | (142) | (84) | (142) |
| Net effect of divestment in associate | - | 22,610 | - | 22,610 |
| Other permanent differences | 33,036 | 22,555 | 10,913 | 19,102 |
| Charges on payables to venture partners | - | - | - | 18 |
| Recognized (unrecognized) tax credits | (80,327) | (41,037) | (81,837) | (39,352) |
| (167) | 37,259 | (7,608) | 35,275 | |
| Tax expenses - current | (167) | - | (7,608) | (1,984) |
| Tax income (expenses) - deferred | - | 37,259 | - | 37,259 |
| (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, 2020 and 2019, deferred income tax and social contribution are from the following sources
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Assets | ||||
| Provisions for legal claims | 84,538 | 89,584 | 85,164 | 89,968 |
| Temporary differences - deferred PIS and COFINS | 15,708 | 14,997 | 15,708 | 14,997 |
| Provisions for realization of non-financial assets | 258,904 | 261,816 | 256,227 | 261,816 |
| Temporary differences - CPC adjustment | 8,363 | 12,114 | 8,363 | 12,114 |
| Other provisions | 18,204 | 6,489 | 18,204 | 6,479 |
| Income tax and social contribution loss carryforwards | 494,113 | 411,064 | 516,369 | 431,311 |
| 879,829 | 796,064 | 900,035 | 816,685 | |
| Unrecognized tax credits of continued operations | (804,313) | (725,475) | (827,055) | (746,707) |
| (804,313) | (725,475) | (827,055) | (746,707) | |
| Liabilities | ||||
| Discounts | (2,069) | (2,069) | (2,069) | (2,069) |
| Temporary differences - CPC adjustment | (6,212) | (42,273) | (6,211) | (41,671) |
| Income taxed between cash and accrual basis | (79,349) | (38,361) | (79,349) | (38,352) |
| (87,630) | (82,703) | (87,629) | (82,092) | |
| Total, net | (12,114) | (12,114) | (14,649) | (12,114) |
| 60 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 19. | Income tax and social contribution--Continued |
The balances of income tax and social contribution loss carryforwards for offset are as follows:
|
Company |
|||||||
| 2020 | 2019 | ||||||
| Income tax | Social contribution |
Total |
Income tax | Social contribution |
Total |
||
| Balance of income tax and social contribution loss carryforwards | (1,453,272) | (1,453,272) | - | 1,209,011 | 1,209,011 | - | |
| Deferred tax assets (25%/9%) | (363,318) | (130,794) | (494,113) | 302,253 | 108,811 | 411,064 | |
| Recognized deferred tax assets | 1,826 | 658 | 2,484 | 9,781 | 3,521 | 13,302 | |
| Unrecognized deferred tax assets | (365,144) | (131,452) | (496,597) | 292,472 | 105,290 | 397,762 | |
|
Consolidated | |||||||
| 2020 | 2019 | ||||||
| Income tax | Social contribution |
Total |
Income tax | Social contribution |
Total | ||
| Balance of income tax and social contribution loss carryforwards | (1,518,733) | (1,518,733) | - | 1,268,563 | 1,268,563 | - | |
| Deferred tax assets (25%/9%) | (379,683) | (136,686) | (516,369) | 317,141 | 114,170 | 431,311 | |
| Recognized deferred tax assets | 1,826 | 658 | 2,484 | 9,781 | 3,521 | 13,302 | |
| Unrecognized deferred tax assets | (381,509) | (137,344) | (518,853) | 307,360 | 110,649 | 418,009 | |
In the years ended December 31, 2020 and 2019, the credit effect of income tax and social contribution on statement of profit or loss of the Company is mainly caused by the write-off and impairment recorded at the initial value of the portion of remeasurement of the investment stated at fair value, respectively.
| 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 ongoing monitoring of 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.
| 61 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 20. | Financial instruments--Continued |
| (i) | Risk considerations--Continued |
As of December 31, 2020 and 2019, there was no significant credit risk concentration associated with customers.
| b) | Derivative financial instruments |
In the year ended December 31, 2020, the Company entered into derivative financial instruments to mitigate the risk arising from its exposure to index and interest volatility recognized at fair value in profit or loss for the year.
As of December 31, 2020, the Company had derivative contracts to hedge the interest rate fluctuation, maturing in February 2021. The derivative contracts are as follows:
| Reais | Percentage | Maturity | Unrealized gains/(losses)on derivative instruments, net | ||||
| Interest rate swap contracts | Face value | Swap – Liability position | Beginning | End | 2020 | 2019 | |
| Swap 1 | 79,003 | 120% CDI | 08/05/2020 | 02/04/2021 | 236 | - | |
| Swap 2 | 100,000 | Fixed 7% | 09/10/2020 | 02/16/2021 | 141 | - | |
| Total derivative financial instruments | 617 | - | |||||
| 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%, recognized on a pro rata basis.
| 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 and 13).
| 62 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 20. | Financial instruments--Continued |
| (i) | Risk considerations--Continued |
| d) | Liquidity risk--Continued |
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:
| Year ended December 31, 2020 | Company | ||||
| Liabilities | Less than 1 year | 1 to 3 years | 4 to 5 years | Over 5 years | Total |
| Loans and financing (Note 12) | 291,270 | 109,523 | - | - | 400,793 |
| Debentures (Note 13) | 120,399 | 18,543 | - | - | 138,942 |
| Financial instrument – premium of debenture option (Note 13) | 6,125 | - | - | - | 6,125 |
| Obligations assumed on assignment of receivables (Note 14) | 10,829 | 6,189 | 2,408 | 834 | 20,260 |
| Suppliers (Note 15 and Note 20.ii.a) | 93,392 | 987 | - | - | 94,379 |
| Payables for purchase of properties and advances from customers (Note 17) | 65,969 | 37,018 | 157 | - | 103,144 |
| 587,984 | 172,260 | 2,565 | 834 | 763,643 | |
| Assets | |||||
| Cash and cash equivalents and short-term investments (Notes 4.1 and 4.2) | 413,907 | - | - | - | 413,907 |
| Trade accounts receivable (Note 5) | 340,096 | 82,899 | 99,218 | - | 522,213 |
| 754,003 | 82,899 | 99,218 | - | 936,120 | |
| Year ended December 31, 2020 | Consolidated | ||||
| Liabilities | Less than 1 year | 1 to 3 years | 4 to 5 years | Over 5 years | Total |
| Loans and financing (Note 12) | 332,447 | 338,027 | - | - | 670,474 |
| Debentures (Note 13) | 120,737 | 143,588 | - | - | 264,325 |
| Financial instrument – premium of debenture option (Note 13) | 6,125 | - | - | - | 6,125 |
| Obligations assumed on assignment of receivables (Note 14) | 13,296 | 7,229 | 2,471 | 1,196 | 24,192 |
| Suppliers (Note 15 and Note 20.ii.a) | 122,576 | 1,816 | - | - | 124,392 |
| Payables for purchase of properties and advances from customers (Note 17) | 336,029 | 70,264 | 9,136 | - | 415,429 |
| 931,210 | 560,924 | 11,607 | 1,196 | 1,504,937 | |
| Assets | |||||
| Cash and cash equivalents and short-term investments (Notes 4.1 and 4.2) | 622,120 | - | - | - | 622,120 |
| Trade accounts receivable (Note 5) | 487,083 | 117,461 | 99,708 | - | 704,252 |
| 1,109,203 | 117,761 | 99,708 | - | 1,326,372 | |
Fair value classification
The Company uses the following classification to determine and disclose the fair value of financial instruments by 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, 2020 and 2019 is as follows:
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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--Continued
| Company | Consolidated | |||||
| Fair value classification | ||||||
| As of December 31, 2020 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
| Financial assets | ||||||
| Short-term investments (Note 4.2) | - | 413,348 | - | - | 593,082 | - |
| Financial liabilities | ||||||
| Premium of convertible debenture option (Note 13) | - | 6,125 | - | - | 6,125 | - |
| Company | Consolidated | |||||
| Fair value classification | ||||||
| As of December 31, 2019 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
| Financial assets | ||||||
| Short-term investments (Note 4.2) | - | 401,243 | - | - | 401,895 | - |
In the years ended December 31, 2020 and 2019, there was no transfer 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 estimated 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.
The following methods and assumptions were used in order to estimate the fair value of 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. |
| 64 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 most significant carrying amounts and fair values of financial assets and liabilities as of December 31, 2020 and 2019 are as follows:
| Company | |||||
| 2020 | 2019 | ||||
| Carrying amount | Fair value | Carrying amount | Fair value | Classification | |
| Financial assets | |||||
| Cash and cash equivalents (Note 4.1) | 469 | 469 | 810 | 810 | (*) |
| Short-term investments (Note 4.2) | 413,438 | 413,438 | 401,243 | 401,243 | (*) |
| Trade accounts receivable (Note 5) | 522,213 | 522,213 | 460,017 | 460,017 | (**) |
| Loans receivable (Note 21.1) | 169,321 | 169,321 | 33,416 | 33,416 | (**) |
| Financial liabilities | |||||
| Loans and financing (Note 12) | 400,793 | 429,373 | 490,676 | 502,909 | (**) |
| Debentures (Note 13) | 138,942 | 169,104 | 197,525 | 278,727 | (**) |
| Financial instrument – premium of debenture option (Note 20(i)(d)) | 6,125 | 6,125 | - | - | (**) |
| Suppliers | 94,379 | 94,379 | 80,285 | 80,285 | (**) |
| Obligations assumed on assignment of receivables (Note 14) | 20,260 | 20,260 | 31,218 | 31,218 | (**) |
| Payables for purchase of properties and advances from customers (Note 17) | 103,144 | 103,144 | 158,340 | 158,340 | (**) |
| Loan payable (Note 21.1) | 19,633 | 19,633 | 9,280 | 9,280 | (**) |
| Consolidated | |||||
| 2020 | 2019 | ||||
| Carrying amount | Fair value | Carrying amount | Fair value | Classification | |
| Financial assets | |||||
| Cash and cash equivalents (Note 4.1) | 29,038 | 29,038 | 12,435 | 12,435 | (*) |
| Short-term investments (Note 4.2) | 593,082 | 593,082 | 401,895 | 401,895 | (*) |
| Trade accounts receivable (Note 5) | 704,252 | 704,252 | 557,438 | 557,438 | (**) |
| Loans receivable (Note 21.1) | 44,972 | 44,972 | 33,416 | 33,416 | (**) |
| Financial liabilities | |||||
| Loans and financing (Note 12) | 670,474 | 436,294 | 533,153 | 542,909 | (**) |
| Debentures (Note 13) | 264,325 | 294,487 | 197,525 | 278,727 | (**) |
| Financial instrument – premium of debenture option (Note 20(i)(d)) | 6,125 | 6,125 | - | - | (**) |
| Suppliers | 124,392 | 124,392 | 96,832 | 96,832 | (**) |
| Obligations assumed on assignment of receivables (Note 14) | 24,192 | 24,192 | 40,361 | 40,361 | (**) |
| Payables for purchase of properties and advances from customers (Note 17) | 415,429 | 415,429 | 222,428 | 222,428 | (**) |
| Loan payable (Note 21.1) | 8,232 | 8,232 | 9,280 | 9,280 | (**) |
(*) Fair value through profit or loss
(**) Amortized cost
| a) | Risk of debt acceleration |
As of December 31, 2020, the Company has loans and financing contracts 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 performance 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.
| 65 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 20. | Financial instruments--Continued |
| (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, take out new loans and issue debentures, among others.
There were no changes in objectives, policies or procedures during the years ended December 31, 2020 and 2019.
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 | |||
| 2020 | 2019 | 2020 | 2019 | |
| Loans and financing (Note 12) | 400,793 | 490,676 | 670,474 | 533,153 |
| Debentures (Note 13) | 138,942 | 197,525 | 264,325 | 197,525 |
| ( - ) Cash and cash equivalents and short-term investments (Notes 4.1 and 4.2) |
(413,907) |
(402,053) |
(622,120) |
(414,330) |
| Net debt | 125,828 | 286,148 | 312,679 | 316,348 |
| Equity | 1,562,377 | 893,708 | 1,558,388 | 895,143 |
| (iv) | Sensitivity analysis |
The sensitivity analysis of financial instruments for the years ended December 31, 2020 and 2019 describes the risks that may give rise to material changes in 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, 2020, besides the derivative instruments, the Company has the following financial instruments.
| a) | Financial investments, loans and financing and debentures linked to the Interbank Deposit Certificate (CDI); |
| b) | Loans and financing linked to the Referential Rate (TR) and CDI, and debentures linked to the CDI and Broad Consumer Price Index (IPCA); |
| c) | Accounts receivable and payables for purchase of properties, 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, 2020, the Company considered the interest rates of investments, loans and accounts receivable, the CDI rate at 2.75%, TR at 0%, INCC at 8.81%, IPCA at 4.52% and IGP-M at 23.14%. The scenarios considered were as follows:
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 20. | Financial instruments–Continued |
| (iv) | Sensitivity analysis--Continued |
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 as of December 31, 2020. 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 | 1,088 | 2,720 | 5,439 | (5,439) | (2,720) | (1,088) |
| Loans and financing | Increase/decrease of CDI | (861) | (2,151) | (4,303) | 4,303 | 2,151 | 861 |
| Debentures | Increase/decrease of CDI | (112) | (280) | (560) | 560 | 280 | 112 |
| Net effect of CDI change | 115 | 289 | 576 | (576) | (289) | (115) | |
| Loans and financing | Increase/decrease of TR | - | - | - | - | - | - |
| Net effect of TR change | - | - | - | - | - | - | |
| Debentures | Increase/decrease of IPCA | (129) | (322) | (645) | 645 | 322 | 129 |
| Net effect of IPCA change | (129) | (322) | (645) | 645 | 322 | 129 | |
| Accounts receivable | Increase/decrease of INCC | 3,759 | 9,397 | 18,794 | (18,794) | (9,397) | (3,759) |
| Payables for purchase of properties | Increase/decrease of INCC | (3,364) | (8,409) | (16,818) | 16,818 | 8,409 | 3,364 |
| Net effect of INCC change | 395 | 988 | 1,976 | (1,976) | (988) | (395) | |
| Accounts receivable | Increase/decrease of IGP-M | 4,510 | 11,275 | 22,550 | (22,550) | (11,275) | (4,510) |
| Net effect of IGP-M change | 4,510 | 11,275 | 22,550 | (22,550) | (11,275) | (4,510) | |
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 | 2020 | 2019 | 2020 | 2019 |
| Assets | ||||
| Current account (a): | ||||
| Total SPEs | 354 | 354 | 56,964 | 64,441 |
| Subsidiaries | - | - | 51,421 | 57,027 |
| Jointly-controlled investees | 321 | 321 | 5,510 | 7,381 |
| Associates | 33 | 33 | 33 | 33 |
| Condominium, consortia (b) and third-party works (c) | 14,668 | 13,162 | 14,668 | 13,165 |
| Loan receivable (d) (Note 20.ii.a) | 169,321 | 33,416 | 44,972 | 33,416 |
| Dividends receivable | 7,998 | 9,872 | - | - |
| 192,341 | 56,804 | 116,604 | 111,022 | |
| Current | 147,369 | 23,388 | 1,102 | 77,606 |
| Non-current | 44,972 | 33,416 | 115,502 | 33,416 |
| Liabilities | ||||
| Current account (a): | ||||
| Total SPEs | (275,628) | (182,084) | (90,198) | (55,104) |
| Subsidiaries | (223,995) | (156,192) | (38,565) | (29,211) |
| Jointly-controlled investees | (48,749) | (23,228) | (48,749) | (23,229) |
| Associates | (2,884) | (2,664) | (2,884) | (2,664) |
| Loan payable (Note 20.ii.a) | (19,633) | (9,280) | (8,232) | (9,280) |
| (295,261) | (191,364) | (98,430) | (64,384) | |
| Current | (295,261) | (191,364) | (98,430) | (64,384) |
| Non-current | - | - | - | - |
| (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 operations 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 provided 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 2021 and are tied to the cash flows of the related ventures.
| Company | Consolidated | |||||
| 2020 | 2019 | 2020 | 2019 | Nature | Interest rate | |
| Gafisa Propriedades S.A. and subsidiaries | 124,349 | - | - | - | Working capital | n/a |
| Lagunas - Tembok Planej. e Desenv. Imob. Ltda. | 6,624 | 6,272 | 6,624 | 6,272 | Construction | 12% p.a. + IGPM |
| Manhattan Residencial I - OAS Empreendimentos | 407 | 392 | 407 | 392 | Construction | 10% p.a. + TR |
| Target Offices & Mall- SPE Yogo Part. Emp. Im. e Comasa Const. | 37,941 | 26,752 | 37,941 | 26,752 | Construction | 12% p.a. + IGPM |
| Total receivable | 169,321 | 33,416 | 44,972 | 33,416 | ||
| Gafisa Propriedades S.A. and subsidiaries | 11,401 | - | - | - | Working capital | n/a |
| Dubai Residencial - Franere, Com. Const. e Imob. Ltda. | 1,273 | 1,025 | 1,273 | 1,025 | Construction | 6% p.a. |
| Parque Árvores - Franere, Com. Const. e Imob. Ltda. | 3,724 | 5,372 | 3,724 | 5,372 | Construction | 6% p.a. |
| Parque Águas - Franere, Com. Const. e Imob. Ltda. | 3,235 | 2,883 | 3,235 | 2,883 | Construction | 6% p.a. |
| Total payable | 19,633 | 9,280 | 8,232 | 9,280 | ||
| 68 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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, 2020 the recognized finance income from interest on loans amounted to R$12,160 (R$4,195 in 2019) 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$323,125 as of December 31, 2020 (R$132,336 in 2019).
| 22. | Net operating revenue |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Gross operating revenue | ||||
| Real estate development, sale, barter transactions and construction services |
467,528 |
332,792 |
974,787 |
390,032 |
| (Recognition) Reversal of allowance for expected losses and cancelled contracts (Note 5) |
(15,822) |
61,460 |
(39,774) |
47,257 |
| Taxes on sale of real estate and services | (39,043) | (33,663) | (50,968) | (36,824) |
| Net operating revenue | 412,663 | 360,589 | 884,045 | 400,465 |
| 69 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 23. | Costs and expenses by nature |
These are represented by the following:
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Cost of real estate development and sales: | ||||
| Construction cost | (277,555) | (169,355) | (619,791) | (199,538) |
| Land cost | (10,255) | (62,328) | (28,798) | (67,082) |
| Development cost | (14,175) | (5,526) | (18,038) | (6,227) |
| Provision for loss on realization of properties for sale (Note 6 and 8) | 68,215 | 27,026 | 69,282 | 27,079 |
| Capitalized financial charges (Note 12) | (62,195) | (29,891) | (79,719) | (38,275) |
| Maintenance/warranty | (25,768) | 1,360 | (25,760) | 1,359 |
| Total cost of real estate development and sales | (321,733) | (238,714) | (702,824) | (282,684) |
| Selling expenses: | ||||
| Product marketing | (4,431) | (3,223) | (11,222) | (3,950) |
| Brokerage and sale commission | (4,785) | (2,893) | (8,356) | (4,331) |
| Customer Relationship Management (CRM) and corporate marketing | (2,168) | (5,790) | (8,337) | (6,473) |
| Other | (77) | (114) | (1,077) | (135) |
| Total selling expenses | (11,461) | (12,020) | (28,992) | (14,889) |
| General and administrative expenses: | ||||
| Salaries and payroll charges | (23,507) | (18,143) | (23,507) | (20,650) |
| Employee benefits | (3,784) | (1,677) | (3,784) | (1,982) |
| Travel and utilities | (643) | (185) | (643) | (218) |
| Services | (29,077) | (13,564) | (29,077) | (16,035) |
| Rents and condominium fees | (3,558) | (3,217) | (3,558) | (3,803) |
| IT | (4,123) | (6,556) | (4,123) | (7,751) |
| Stock option plan (Note 18.3) | 347 | 2,366 | 347 | 2,366 |
| Reversal (Expense) of reserve for profit sharing (Note 25.iii) |
(16,194) |
(5,000) |
(16,194) |
(5,000) |
| Other | 1,767 | (978) | (1,014) | (1,060) |
| Total general and administrative expenses | (78,772) | (46,954) | (81,553) | (54,133) |
| Other income (expenses), net | ||||
| Expenses with lawsuits (Note 16) | (64,302) | (9,990) | (56,148) | (8,300) |
| Result of the transaction of acquisition of GDU Loteamentos | - | 66,500 | - | 66,500 |
| Gain from bargain purchase | - | 16,592 | - | 16,592 |
| Other (a) | 11,828 | 6,381 | (307) | 66,979 |
| Total other income (expenses), net | (52,474) | 79,483 | (56,455) | 141,771 |
| (a) | Amount of R$5,777 in the Company’s statements and R$66,391 in the consolidated statements related to the outcome of the arbitration decision related to venture construction contracts with partners, which was awarded on November 12, 2019 by the Arbitration Court, managed by the Center for Arbitration and Mediation of the Chamber of Commerce Brazil – Canada. |
| 24. | Finance income (cost) |
| Company | Consolidated | |||
| 2020 | 2019 | 2020 | 2019 | |
| Finance income | ||||
| Income from financial investments | 9,440 | 12,601 | 10,178 | 12,649 |
| Finance income on loan (Note 21.1) | 12,160 | 4,195 | 12,160 | 4,195 |
| Other finance income | 4,038 | (165) | 6,199 | 362 |
| Subtotal finance income | 25,638 | 16,631 | 28,537 | 17,206 |
| Finance costs | ||||
| Interest on funding, net of capitalization (Note 12) | (61,262) | (67,051) | (59,600) | (59,379) |
| Amortization of debenture cost | (2,609) | (2,857) | (2,609) | (2,857) |
| Banking expenses | (13,213) | (7,480) | (14,042) | (8,931) |
| Derivative transactions (Note 20.i.b) | (6,125) | - | (6,125) | - |
| Offered discount and other finance cost (a) | (10,269) | (5,532) | (19,156) | (5,663) |
| Subtotal finance cost | (93,478) | (82,920) | (101,532) | (76,830) |
| Total finance income (cost), net | (67,840) | (66,289) | (72,995) | (59,624) |
| (a) | Of this amount, R$6,578 refer to the loss incurred on the sale of Tecnisa’s shares (TCSA3), and mark to market as of December 31, 2020. On February 3, 2021, the Company ended the totality of Tecnisa's shares that it held. |
| 70 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 25. | Transactions with management and employees |
| (i) | Management compensation |
In the years ended December 31, 2020 and 2019, the amounts recorded in the line item “General and administrative expenses” related to the compensation of the Company’s Management are as follows:
| Management compensation | |||
| Year ended December 31, 2020 | Board of Directors | Executive Management | Fiscal Council |
| Number of members | 8 | 7 | - |
| Annual fixed compensation (in R$) | |||
| Salary/fees | 859 | 3,955 | - |
| Direct and indirect benefits | - | 396 | - |
| Other (INSS) | 152 | 563 | - |
| Average monthly compensation (in R$) | - | , | - |
| Total compensation | 1,011 | 5,004 | - |
| Profit sharing (Note 25.iii) | - | 5,304 | - |
| Total management compensation | 1,011 | 10,308 | - |
| Management compensation | |||
| Year ended December 31, 2019 | Board of Directors | Executive Management | Fiscal Council |
| Number of members | 11 | 5 | 2 |
| Annual fixed compensation (in R$) | |||
| Salary/fees | 658 | 5,415 | 66 |
| Direct and indirect benefits | - | 10 | - |
| Other (INSS) | 142 | 1,083 | 38 |
| Monthly compensation (in R$) | 67 | 542 | 9 |
| Total compensation | 800 | 6,508 | 104 |
| Profit sharing (Note 25.iii) | - | - | - |
| Total compensation and profit sharing | 800 | 6,508 | 104 |
There is no amount related to expenses with option grant to current management members of the Company for the years ended December 31, 2020 and 2019.
The maximum aggregate compensation of the Company’s management members for the year 2020 was established at R$16,527 (R$7,782 in 2019), as fixed and variable compensation, as approved at the Annual Shareholders’ Meeting held on April 30, 2020.
| (ii) | Sales transactions |
In the years ended December 31, 2020 and 2019 no transaction of sale of units to current Management was carried out.
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Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 25. | Transactions with management and employees--Continued |
| (iii) | Profit sharing |
The Company has a variable compensation plan that entitles its employees and management members, as well as 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, 2020, the Company recorded a reserve for profit sharing expenses amounting to R$16,194 in the Company’s and Consolidated statement (R$500 in 2019) in the account “General and Administrative Expenses " (Note 23).
| Company and Consolidated | ||
| 2020 | 2019 | |
| Executive officers (Note 25.i) | 5,304 | - |
| Other employees | 10,890 | 5,000 |
| Total profit sharing | 16,194 | 5,000 |
Profit sharing is calculated and reserved based on the achievement of the Company’s targets for the year.
As shown in the previous tables and paragraphs, the maximum 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 30, 2020.
| 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, 2020 are as follows:
| Insurance type | Coverage |
| Engineering risks and completion bond | 627,935 |
| Civil liability (Directors and Officers – D&O) | 205,600 |
| 833,535 |
| 72 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 27. | Earnings and loss per share |
In accordance with CPC 41, the Company is required to report basic and diluted losses per share. The comparison data of basic and diluted earnings/losses 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 non-controlling 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 losses per share. In view of the losses for the years ended December 31, 2020 and 2019, shares with dilutive potential are not considered, because the impact would be antidilutive.
| 2020 | 2019 | |
| Basic numerator | ||
| Undistributed loss from continuing operations | (76,521) | (13,742) |
| Undistributed loss, available for the holders of common shares |
(76,521) |
(13,742) |
| Basic denominator (in thousands of shares) | ||
| Weighted average number of shares (Note 18.1) | 179,882 | 68,584 |
| Basic loss per share in reais | (0.425) | (0.200) |
| From continuing operations | (0.425) | (0.200) |
| Diluted numerator | ||
| Undistributed loss from continuing operations | (76,521) | (13,742) |
| Undistributed loss, available for the holders of common shares | (76,521) | (13,742) |
| Diluted denominator (in thousands of shares) | ||
| Weighted average number of shares (Note 18.1) | 179,882 | 68,584 |
| Stock options | 6,613 | 447 |
| Anti-dilution effect | (6,613) | (447) |
| Diluted weighted average number of shares | 179,882 | 68,584 |
| Diluted loss per share in reais | (0.425) | (0.200) |
| From continuing operations | (0.425) | (0.200) |
| 73 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 28. | Segment information |
From the year ended December 31, 2020, the Company’s Management analyses segment information through the different segments in which it operates and the geographical location of its operations.
The segments in which the Company operates are the following: Gafisa, for luxury and medium-income ventures in Brazil, except Rio de Janeiro, Gafisa Rio, for luxury and medium-income ventures in the state of Rio de Janeiro, and Gafisa Propriedades, focused on management of own and third-party real estate aimed to generate income.
The Company’s Management, responsible for allocating funds to businesses and monitor their progresses, uses present value information, derived from a combination of historical and projected operational results.
The Company shows below the main line items of the statement of profit or loss and statement of financial position related to each operating segment.
Segment information do not separate operating expenses. Revenues from individual customers do not represent more than 10% of net sales or service revenue.
| Consolidated | ||||
| Gafisa S.A. | Gafisa Rio | Gafisa Propriedades | 2020 | |
| Net operating revenue | 625,575 | 258,470 | - | 884,045 |
| Operating costs | (506,574) | (196,250) | - | (702,824) |
| Gross profit | 119,001 | 62,220 | - | 181,221 |
| Selling expenses | (21,914) | (7,078) | - | (28,992) |
| General and administrative expenses | (79,200) | (2,353) | - | (81,553) |
| Other income/(expenses), net | (59,624) | 829 | - | (58,795) |
| Depreciation and amortization | (8,278) | - | - | (8,278) |
| Finance costs | (97,153) | (4,379) | - | (101,532) |
| Finance income | 27,310 | 1,227 | - | 28,537 |
| Tax expenses | (7,431) | (177) | - | (7,608) |
| Net income (loss) for the year attributed to the owners of the parent | (126,809) | 50,288 | - | (76,521) |
| Customers (short and long terms) | 648,495 | 55,757 | - | 704,252 |
| Inventories (short and long terms) | 1,403,078 | 146,223 | - | 1,549,301 |
| Investment property | - | - | 119,119 | 119,119 |
| Other assets | 1,350,481 | 26,846 | - | 1,377,327 |
| Total assets | 3,402,054 | 228,826 | 119,119 | 3,749,999 |
| Total liabilities | 1,931,734 | 140,758 | 119,119 | 2,191,611 |
| 74 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 under construction as of December 31, 2020:
| Consolidated | ||
| 2020 | ||
| Unrecognized sales revenue of units sold | 449,530 | |
| Unrecognized estimated cost of units sold | (138,595) | |
| Unrecognized estimated cost of units in inventory | (84,044) | |
| (i) Unrecognized sales revenue of units sold | ||
| Ventures under construction: | ||
| (a) Contracted sales revenue | 1,128,843 | |
| Recognized sales revenue: | ||
| Recognized sales revenue | 692,443 | |
| Cancelled contracts - reversed revenue | (13,130) | |
| (b) Recognized sales revenue, net | 679,313 | |
| Unrecognized sales revenue (a+b) (a) | 449,530 | |
| (ii) Income from damages for cancelled contracts | 667 | |
| (iii) Unrecognized sales revenue of contracts not eligible to revenue recognition | 48,889 |
| (iv) Allowance for cancelled contracts (liabilities) | ||
| Adjustments in recognized revenue | 129,980 | |
| Adjustments in trade accounts receivable | 87,912 | |
| Income from damages for cancelled contracts | (16,827) | |
| Liabilities – refund due to cancelled contracts | 25,241 | |
| (v) Unrecognized estimated costs of units sold | ||
| Ventures under construction: | ||
| (a) Estimated cost of units | (439,330) | |
| Incurred cost of units: | ||
| Construction cost | (315,792) | |
| Cancelled contracts – construction costs | 15,057 | |
| (b) Incurred cost, net | (300,735) | |
| Cost to be incurred of units sold (a+b) (b) | (138,595) |
| (iii) Unrecognized estimated costs of units in inventory | ||
| Ventures under construction: | ||
| Estimated cost of units | (964,515) | |
| Incurred cost of units (Note 6) | 880,471 | |
| Unrecognized estimated cost | (84,044) | |
| (a) | The unrecognized 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 recognized in profit or loss. |
| (b) | The estimated cost of units sold and in inventory to be incurred do not include financial charges, which are recognized in 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, 2020, the percentage of assets consolidated in the financial statements related to ventures included in the equity segregation structure of the development stood at 53.0% (29.0% in 2019).
| 75 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (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 | |||
| 2020 | 2019 | 2020 | 2019 | |
| Capital contribution (reduction) | 4,448 | 681,074 | 3,246 | 19,846 |
| Capitalized financial charges (Note 12) | (18,819) | (21,179) | (33,107) | (30,358) |
| Barter transaction – Land (Note 17) | (33,929) | (23,070) | (43,917) | (39,480) |
| (48,300) | 636,825 | (73,778) | (49,992) | |
| (ii) | Reconciliation of the asset and liability changes with the cash flows from financing activities: |
| Transactions affecting cash | Transactions not affecting cash | ||||||
| Company | Closing balance 2019 |
Funding/ Receipt |
Payment Interest |
Principal payment | Interest and inflation adjustment | Other | Closing balance 2020 |
| Loans, financing and debenture (Notes 12 and 13) | (688,201) | (23,650) | (45,869) | 213,524 | (1,664) | - | (545,860) |
| Loans (Note 21.1) | 24,136 | - | - | 104,155 | 17,550 | - | 145,841 |
| Paid-in capital (Note 18.1) | (2,926,280) | (519,899) | - | - | - | 2,362,930 | (1,083,249) |
| Capital reserve (Note 18.1) | (250,599) | - | - | - | - | - | (250,599) |
| (3,840,944) | (543,549) | (45,869) | 317,679 | 15,886 | 2,362,930 | (1,733,867) | |
| Transactions affecting cash | Transactions not affecting cash | ||||||
| Consolidated | Closing balance 2019 |
Funding/ Receipt |
Payment Interest |
Principal payment | Interest and inflation adjustment | Other | Closing balance 2020 |
| Loans, financing and debenture (Notes 12 and 13) | (730,678) | (549,746) | (42,159) | 382,652 | (993) | (940,924) | |
| Loans (Note 21.1) | 24,136 | (4,945) | 17,549 | 36,740 | |||
| Paid-in capital (Note 18.1) | (2,926,280) | (519,899) | - | - | - | 2,362,930 | (1,083,249) |
| Capital reserve (Note 18.1) | (250,599) | - | - | - | - | - | (250,599) |
| (3,883,421) | (1,069,645) | (42,159) | 377,707 | 16,556 | 2,362,930 | (2,238,032) | |
| 76 |
Gafisa S.A.
Notes to the financial statements--Continued December 31, 2020 (Amounts in thousands of Brazilian Reais, except as otherwise stated) |
| 31. | Events after the reporting period |
(i) Coronavirus – COVID-19
As of the disclosure date of these financial statements, the Company, through its Crisis Management Committee, continues to perform periodic analysis and monitoring of the actions to be taken to anticipate any impact on business.
Until the disclosure date of these financial statements, the Company has not noted a significant increase in customer default or reduction in sales volume, having even recording a sales increase in the year. However, even though it has not noted a significant increase in default in the period, the Company recognized an increase in the allowance for cancelled contracts because of the revaluation of the contracts in effect in relation to the uncertainty over cash inflows during the pandemic. Moreover, the construction of ventures has been according to the original schedule.
However, due to the Covid-19 pandemic, the Company has postponed the launches planned for the second quarter to the second half of this year, and launched five ventures in the year, after two years without any launch.
Therefore, even considering the scenario of uncertainty over the end of the pandemic outbreak for resuming activities and its negative impact on the country’s economy, with possible pressure on construction input cost, management has evaluated the effects after the reporting period of the financial statements, including on its projections of profit or loss and cash generation, based on its best estimate, and has concluded that there is no need to recognize additional loss allowance, nor is any material adverse effect on its operations. The Company is going to keep monitoring the pandemic to continually update its projections and analysis on any effect on its financial information.
| (ii) | Acquisitions of Gafisa Propriedades |
| (a) | On January 13, 2012, the Company disclosed a Material Fact whereby it informed that it exercised the purchase option regarding EVEN Construtora e Incorporadora S.A., thus completing the acquisition, through investment funds that it controls, of 32 studio apartments, and the venture Hotel Fasano Itaim, including restaurants and event centers. The transaction totaled R$ 310,000, with the share of Gafisa Propriedades reaching 80.37% in Hotel Fasano Itaim and 100% in 32 studio apartments. |
| (b) | On January 20, 2021, the Company disclosed a Material Fact whereby it informed that, in line with the strategy of investments in assets with potential turnaround, Gafisa Propriedades completed the acquisition of Jardim Guadalupe Shopping, and signed an agreement for the acquisition of São Conrado Fashion Mall, both located in Rio de Janeiro. In the case of Fashion Mall, the completion of the acquisition is subject to the approval of the current creditors of Fashion Mall. The transaction totals R$ 99,300 million, in two tranches, the first upon closing, and the other in January 2022. The acquisition is being made through Equity Fund. |
| (c) | On March 8, 2021, the Company disclosed a Material Fact whereby it informed that Gafisa Propriedades entered into a contract for entering in Cidade Matarazzo, related to the acquisition of private suites with hotel services. |
***
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Gafisa S.A.
Statement of the executive officers about the financial statements December 31, 2020 |
Statement of the Executive Officers about the Financial Statements
S T A T E M E N T
The Executive Officers of Gafisa S.A., registered with the Ministry of Finance under the National Corporate Taxpayers’ Registry (CNPJ) 01.545.826/0001-07, with registered office at Avenida Presidente Juscelino Kubitschek, nº 1.830, 3º andar, conjunto 32, bloco 2, Edifício Sao Luiz, Vila Nova Conceição, São Paulo, SP, state, for the purposes of Article 25 of the Brazilian Securities and Exchange Commission (CVM) instruction 480, of December 7, 2009, the following:
i) reviewed, discussed and agreed with the opinions issued in the independent auditor’s report on the financial statements for the year ended December 31, 2020; and
i) reviewed, discussed and agreed with the financial statements for the year ended December 31, 2020.
São Paulo, March 16, 2021
GAFISA S.A.
Executive Management
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Gafisa S.A.
Statement of the executive officers about the financial statements December 31, 2020 |
Statement of the Executive Officers about the Opinion Report of the Independent Auditors
S T A T E M E N T
The Executive Officers of Gafisa S.A., registered with the Ministry of Finance under the National Corporate Taxpayers’ Registry (CNPJ) 01.545.826/0001-07, with registered office at Avenida Presidente Juscelino Kubitschek, nº 1.830, 3º andar, conjunto 32, bloco 2, Edifício Sao Luiz, Vila Nova Conceição, São Paulo, SP, state, for the purposes of Article 25 of the Brazilian Securities and Exchange Commission (CVM) instruction 480, of December 7, 2009, the following:
i) reviewed, discussed and agreed with the opinions issued in the independent auditor’s report on the financial statements for the year ended December 31, 2020; and
i) reviewed, discussed and agreed with the financial statements for the year ended December 31, 2020.
São Paulo, March 16, 2021
GAFISA S.A.
Executive Management
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Gafisa S.A.
Minutes of the Audit Committee’s meeting December 31, 2020 |
GAFISA S.A.
CNPJ/MF 01.545.826/0001-07
NIRE 35.300.147.952
Public Company
MINUTES OF THE AUDIT COMMITTEE’S MEETING
HELD ON MARCH 15 AND 16, 2021
1. DATE, TIME AND VENUE: On March 15, 2021, at 2:30 p.m., in the city of São Paulo, state of São Paulo, at Av. Pres. Juscelino Kubitschek, 1830, cj 32, Bloco 2, Cond. Ed. São Luiz, Vila Nova Conceição, CEP: 04543-900 and by conference call (“Company”).
2. CALL AND ATTENDANCE: All of members of the Audit Committee are in attendance, in addition to Ms. Iris Rubins, Planning and Control Officer, Ms. Taimir Larissa Contro Barbosa, the Company’s controller, and Ms. Renata Lopes and Marcio Marçal, representatives of the Company’s independent audit firm.
3. RESOLUTIONS: The following issues were resolved:
i. After the presentation by those invited to the meeting, a debate was held with the independent audit representative, and the meeting was adjourned, having been resumed on March 16, 2021 at 1:30 p.m. The independent auditors who will issue unqualified opinion were unanimously approved by the members, and the opinion report without exceptions of the Audit Committee’s members, in the sense of recommending to the Board of Directors the approval of the financial information for the year ended December 31, 2021 comprising the following: the Management Report, Financial Statements with accompanying Explanatory Notes, and the Independent Auditor’s Report, which will issue unqualified opinion on such date.
4. CLOSING: With no further matters to be discussed, these minutes were written up, approved and signed by the Committee members who attended the meeting.
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Gilberto Braga President |
João Pedro Figueiredo Secretary | |
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Thomas Cornelius Azevedo Reichenheim |
Pedro Carvalho de Mello |
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GAFISA S.A.
CNPJ/MF 01.545.826/0001-07
NIRE 35.300.147.952
Public Company
EXTRACT OF MINUTES OF THE BOARD OF DIRECTORS’ MEETING
HELD ON MARCH 16, 2021
Certifies that on March 16, 2021, at 2:00 p.m., in the headquarters of Gafisa S.A. (“Company”), in the capital city of the state of São Paulo, at Av. Pres. Juscelino Kubitschek, 1830, cj. 32, Bloco 2, Cond. Ed. São Luiz, Vila Nova Conceição, CEP: 04543-900 and through conference call, a regularly convened meeting was held with the attendance of the majority of members of the Company’s Board of Directors, when the following resolutions were taken:
“(i) After the presentation by those invited to the meeting, and considering the favorable opinion expressed by the Audit Committee members, the members unanimously approved, without exception, the disclosure of the Company’s financial statements for the fiscal year ended December 31, 2021, accompanied by the management report, explanatory notes, and report of independent auditors.
(ii) It was written up the resignation of the Board member Denise dos Passos Ramos, according to resignation letter submitted by herself, for personal reasons.
(...)”
Signatures: Leo Julian Simpson (Chairman), João Pedro Figueiredo (Secretary). Board members: Leo Julian Simpson; Antonio Carlos Romanoski; Eduardo Laranjeira Jácome; João Antonio Lopes Filho, Nelson Rodriguez Sequeiros Tanure, Thomas Cornelius Azevedo Reichenheim, Gilberto Benevides.
The above information were taken from the original drafted in the respective book.
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João Pedro Figueiredo Desk Secretary |
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FOR IMMEDIATE RELEASE - São Paulo, March 16, 2021 - Gafisa S.A. (B3: GFSA3; OTC: GFASY), one of Brazil’s leading homebuilders, announced today the operational and financial results for the fourth quarter and 2020, ended on December 31, 2020.
GAFISA ANNOUNCES
4Q20 & 2020 RESULTS
GAFISA RESUMES GROWTH AND SUSTAINABLE PROFITABILITY IN 2020
Recurring Net Income of R$29 million in 4Q20 vs. negative R$23 million in 4Q19,
a R$52 million increase
In 2020 we reaped the benefits of our restructuring process initiated in 2019, consistently and assertively. With a capital structure reinforced by our shareholders, coupled with current management’s dynamism, focus on results, we overcome challenges of an unparalleled crisis, and we achieved significant results. Gafisa’s growth upturn became a reality in 2020 within the operational, financial, and strategic scopes.
Within the operational scope, we launched R$898.0 million in PSV, the best annual performance since 2016. Launches resumption in 2020 is a direct result of the Company’s growth strategy, both organically and through M&As, since 67.5% of these launches derived from assets acquired via M&A by the new management. Two transactions, the Upcon acquisition, and four Calçada projects in the city of Rio de Janeiro were the highlights. In both transactions, besides landbank, we had a great human capital contribution, by consolidating fully connected and high-performance teams. The Calçada acquisition, also enabled the “Gafisa Rio” to start its operations with an iconic launch in 4Q20, besides an active operation with a local office.
In terms of landbank, we acquired a total of 14 plots of land in 2020 with a potential PSV of R$2.1 billion, of which around 60% also derived from M&A operations.
In the fourth quarter, we sold R$292 million, the double amount we sold in 3Q20 and the best quarterly sales performance since 2Q18. This increase reflects not only a resumption of Gafisa's launches with differentiated projects but also a continued strengthening of our sales force. We also delivered 12 projects in 2020, with over 2,000 units and R$1.1 billion in PSV, all of them within terms renegotiated by new management with clients, thus, evidencing the Company’s focus on results and great delivery capacity. This large volume of deliveries happened in a year marked by the challenges of the pandemic, which reinforces the new management’s great commitment and consistent performance with all its stakeholders.
It is worth noting that 2020 was deeply affected by the Covid-19 pandemic, which required quick and assertive measures concerning modes of work, adjustments to the operational and financial planning, among other changes executed to ensure the continuity of construction works, while prioritizing the protection of our employees, clients, and suppliers. As a Company, and as part of a society severely damaged, Gafisa understands its role and shows solidarity for the countless victims of this crisis. This experience reinforced our sense of responsibility, and our commitment to act on behalf of society, the environment, and governance.
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Our financial results in 4Q20 and 2020 reflect the growth of our operating activities, which now start reflecting on the new line of projects. We recorded an increase in the adjusted gross margin from 24.6% in 3Q20 to 29% in 4Q20. Net revenue amounted to R$579.9 million, an increase of more than 290.0% compared to 3Q20, being decisive to record a net income of R$29 million (recurring net income). When compared to recurring net income of 4Q19, which came negative at R$23 million, we had a R$52 million increase in 4Q20. It is worth noting that the REF margin (backlog results) remains at a healthy level of 32.8%.
The year 2020 marked the Company’s return to the credit agenda with financial and capital markets. New funding for projects was negotiated at rates from CDI +3.5% p.a. All projects launched have identified financing equations, as well as all works in progress. We also adopted in certain projects the reasoning of contracting financing in advance, considering the business life cycle, partially or fully reimbursing the land disbursement, and ensuring the funds to conclude the works. Thus, we began levering again the Company, in a disciplined manner and through well-defined projects, so that to maximize the return of shareholders’ capital, and taking advantage of the favorable momentum of the credit market.
We rely on well-prepared business planning for the next cycles, and for the year 2021, we have released a Launch Guidance from R$1.5 to R$1.7 billion. Our short and medium-term landbank considers a pipeline with 18 projects and approximately R$2.5 billion in estimated PSV. We remain actively in search of growth opportunities via the acquisition of land and assets for Gafisa or Gafisa Properties.
Also in 2020, we set up Gafisa Properties observing our strategic planning elaborated at the end of 2019, which envisaged Gafisa’s transformation into a real estate business platform, with new lines of business, the use of innovation, and technology to diversify its generation of results. Bolstering the Company’s broad expertise in the real estate sector, this new business unit will be Gafisa’s vehicle of investments, development, and asset management with a focus on generating income.
Gafisa understands its strength in the development and construction sector, potentialized by its traditional brand, one of the top-of-mind brands in the Brazilian market. Our new management model has applied dynamism and discipline, putting the Company on course for a history of success and value creation for our shareholders.
Ian Andrade
Chief Financial and Investor Relations Officer
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OPERATIONAL RESULTS
1Adjusted to exclude non recurring events
2 Backlog results net of PIS/COFINS taxes (3.65%), excluding the impact of the PVA (Present Value Adjustment) method according to Law No. 11.638.
3 Backlog results comprise the projects restricted by a condition precedent.
Launches
In 4Q20, we marked the return of Gafisa’s launches in Rio de Janeiro in high style, with the iconic Cyano Exclusive Residences, whose total PSV is R$560,8 million. All units have ocean view, and the project is located in the most exclusive region of Barra's seaside, bringing strong exclusivity and an innovative concept of suspended mansions. In addition, we launched the last phase of Parque Ecoville, in Curitiba, with R$ 66.4 million PSV - the two launches correspond to R$ 627.2 million PSV. If we consider the launches for this quarter, in 2020 we launched five projects, with 215 units and total PSV of R$ 898.2 million.
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Launches (R$ million)
Sales
Gross sales in 4Q20 reached R$ 292.9 million, an increase of 103.6% from the previous quarter, and 301.5% year on year. This increase reflects not only the resumption of Gafisa's launches with differentiated projects, but also the ongoing strengthening of our sales force. An important indication of this aspect is that, at the peak of pandemic in 2Q20, our sales were slightly higher compared to 1Q20, even without new launches in that quarter.
Gross sales reached R$ 516.9 million in 2020, 77.0% higher compared to 2019. Such growth can be explained by the resumption of launches, which had been discontinued as of 1Q19.
Dissolutions in the same period stood at R$ 21.0 million, a decline of 19.8% from 3Q20, and 60.3% y-o-y. It is worth highlighting that gross sales were higher both in the quarterly and annual comparisons, and dissolutions dropped significantly in both periods. Year on year, dissolutions reached R$ 78.9 million, decreasing by 18.1% from 2019, at R$ 96.4 million.
Evolution of Gross Sales and Dissolutions (R$ million)
Net sales reached R$ 271.9 million in 4Q20 and R$ 438.0 year to date.
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Sales Over Supply (SoS)
Sales Over Supply (SoS) reached 20.5% in 4Q20, an increase of 9.9 pp from 3Q20 and 14,2 pp y-o-y. The increase stems from the sales volume, which more than doubled in 4Q20 compared to 3Q20. In addition, the increase in supply resulting from launches R$ 355.6 million was partially offset by a sale of R$ 120.0 million of Gafisa to its commercial properties subsidiary Gafisa Imóveis. This transaction will allow Gafisa Propriedades to maximize the value of properties by turning them into income assets, with the required investments and dedicated and specialized management. As a result, our inventory reflects with higher accuracy the units that are effectively for sale.
Inventory (Property for Sale)
Inventory at market value, consolidated with the projects acquired from Upcon in 4Q20, reached R$ 1.0 billion. It’s importante to highlight that Gafisa Propriedades have acquired a commercial properties’ portfolio of Gafisa though a transaction of about R$ 120 million. These properties will be operated as income assets, and the inventory reflects in a better way the units for sale.
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Table 3 - Inventory at Market Value 3Q20 vs. 4Q20 (R$ 000)
¹Adjustments in the period reflect the updates related to the project scope, launch date, and pricing.
Inventory turnover in the last 12 months recorded another decline from 53 months in 3Q20 to 29 months in 4Q20, 45.4% lower than previous quarter, due to the higher sales volume in the period. A similar evolution can be observed in annual terms, with a 46.6% decline from 4Q19.
Inventory Turnover LTM (in months)
Approximately 96.0% of our inventory is composed of residential units, most of which located in São Paulo, at locations that present good liquidity.
Table 4 - Inventory at Market Value – Financial Progress – POC – (R$ 000)
*% POC does not necessarily reveal the status of the works, but rather the financial progress of the project.
Table 5 – Inventory at Market Value – Commercial x Residential Breakdown – (R$ 000)
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Delivered Projects and Transfer
In the fourth quarter of 2020, we delivered five projects totaling 831 units, with a total PSV of R$ 403.2 million. Total deliveries in 2020 exceeded the 10 projects forecast and reached 12, with total PSV of R$ 1.1 billion and 2,115 units. This large volume of deliveries in a year marked by the challenges of the pandemic, only 18 months after the new Management took over the Company, attests to our result-driven focus and strong delivery capacity.
Table 6 - Deliveries
¹ Number of units corresponding to a 100% share in projects, net of swaps;
PSV transferred in 4Q20 reached R$ 71.4 million, a slight decrease of 2.9% from 3Q20, and 215.3% from the same period of last year. The number of projects delivered jumped from two to five quarter on quarter. No projects were delivered in the fourth quarter of 2019.
In 2021 we will also have a positive impact on the volume of transfers, due to the large volumes of delivered projects in 2020. The pandemic led to limitations in the functioning of notaries, banks and people circulation, thereby affecting the speed of transfers. In addition, we delivered 5 projects in the last quarter of the year, and naturally most of their transfers would take place within 60 to 90 days from delivery in periods.
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Table 7 – Transfer and Delivery - (R$ 000)
¹ PSV transferred refers to the effective cash inflow from units transferred to financial institutions;
² Number of units corresponding to a 100% share in projects, net of swaps;
³ PSV = Potential Sales Value of units, net of brokerage and swap.
Landbank
With an estimated PSV of R$ 5.1 billion, totalizing 23,735 units. Approximately 48.4% of the acquisition value of our land consists of swaps. In the quarter, the Company acquired land in São Paulo, Campo Belo, Brooklin and Consolação; in Rio de Janeiro it acquired Cyano (Barra) and R. Sorocaba (Botafogo).
Table 8 – Landbank (R$ 000)
¹ The PSV (% Gafisa) reported is net of swap and brokerage fee.
² The swap percentage is measured compared to the historical cost of land acquisition.
³ Potential units are net of swap and refer to the Gafisa’s and/or its partners’ interest in the project.
Table 9 – Changes in the Landbank (3Q20 vs. 4Q20 - R$ 000)
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OPERATIONAL RESULTS - GAFISA PROPRIEDADES
Since Gafisa Properties was formally created in 4Q20 as a subsidiary of Gafisa S.A., its operational results will be reported separately. The three main focuses of investments are unreplicable assets, turnaround opportunities, and the transformation into commercial income assets developed by Gafisa.
In 2020, Gafisa set up its new business unit, the Gafisa Properties, focused on income asset management, diversifying its portfolio of assets and revenue, maximizing the use of its expertise in the Brazilian real estate market. The three main focuses of investment are unreplicable assets, turnaround opportunities, and the transformation into commercial income assets developed by Gafisa.
Gafisa Inventory
In 2020, Gafisa Properties acquired from Gafisa a portfolio of commercial properties with over 700 units among stores and offices, in finished assets in the cities of Rio de Janeiro and São Paulo.
Acquisitions / M&A
Subsequent Events. In January 2021, Gafisa Properties acquired the Hotel Fasano Itaim, adding an unreplicable asset to its portfolio, which will be one of the main references in the luxury hospitality of the city of São Paulo over the next decades. In line with its strategy of investing in assets with turnaround potential, the Gafisa Properties concluded the acquisition of Jardim Guadalupe Shopping and signed an agreement for the acquisition of São Conrado Fashion Mall, both located in the city of Rio de Janeiro.
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FINANCIAL RESULTS
Revenue
Net revenue reached R$ 579.9 million, an increase of more than 290.0% from 3Q20, reflecting higher sales and works in progress in the period. Year on year, net revenue grew by nearly 400.0%. In annual terms, in 2020 net revenue reached R$ 884.0 million, an increase of 120.8% from 2019.
Table 10 – Revenue Recognition (R$ 000)
¹ Contracted sales exclude UPCON sales, as it does not have revenue recognized in the quarter.
Gross Profit & Margin
Gafisa's adjusted gross profit in the fourth quarter reached R$ 168.0 million, compared to R$ 36.6 million in 3Q20 and R$ 44.2 million in 4Q19. The adjusted gross margin in the quarter rose by 4.4 pp in the quarter to 29.0%, due to the initial recognition of the new management’s projects, which have better margins compared to some of the former projects of the previous management. Year on year, it is also possible to observe growth: total adjusted gross profit in 2020 reached R$ 260.9 million, 76.1% higher than that recorded in 2019.
Table 11 - Gross Margin (R$ Thousand)
¹ Adjusted for capitalized interest.
Selling, General and Administrative Expenses (SG&A)
Due to the significant increase in sales and resumption of launches in 2020, in 4Q20 selling, general and administrative expenses reached R$ 48.7 million, up by 107.5% from the previous quarter and by 91.4% y-o-y. In the annual evolution, 2020 recorded a total of R$ 110.6 million versus R$ 69.0 million in 2019, an increase of 60.2%.
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General and administrative expenses came to R$ 30.4 million, 55.6% higher than the previous quarter, structuring the Company for the projects to be launched and the works to be started in 2021, in line with its new size and comparing to its peers.
Table 12 – SG&A Expenses (R$ 000)
Other Net Operating Expenses were reversed from a negative R$ 26.4 million in 3Q20 to R$ 2.8 million. Of this amount, only R$ 3.4 million refer to the provision for legal claims and settlements made by the Company as part of the project for the resolution of contingent liabilities. Total expenses in 2020 came to R$ 56.5 million, 192.1% higher than in 2019.
Table 13 – Other Operating Income/Expenses (R$ 000)
Adjusted EBITDA
In 4Q20, Adjusted EBITDA came to R$ 128.6 million, an increase of 1,523.6% from the R$ 7.9 million reported in the previous quarter. In relation to 4Q19, the result decreased by 16.5%. Year on year, adjusted EBITDA reached R$147.4 million, 31.1% lower than in 2019.
Table 14 – Adjusted EBITDA (R$ 000)
¹ Adjusted by capitalized interests, with stock option plan (non-cash) and minority shareholders.
Financial Result
The net financial result came to a negative R$ 34.2 million in 4Q20 compared to the negative R$ 28.0 million reported in the previous quarter - an increase of 21.9%. Year on year, financial result increased 22.4% from 2019, with a negative R$ 73.0 million in 2020.
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Net Result
Adjusted net recurring result in 4Q20 came to R$ 29.0 million, compared to net losses of R$ 29.2 million in 3Q20 and net losses of R$ 22.6 million reported in 4Q19. In annual terms, the net recurring loss for 2020 was R$ 18,1 million, 51.8% lower than the loss reported in 2019.
Net income for 4Q20 starts reflecting the new developments, with differentiated projects and higher margins.
Table 15 – Net Result (R$ 000)
1 Adjusted by capitalized interests.
2 Adjusted by capitalized interests, with a stock option plan (non-cash) and minority shareholders.
3 Adjusted by non recurring some items
Revenue Backlog and Results
At the end of 4Q20, the balance of revenue backlog according to the PoC method totaled R$ 109.4 million, compared to R$ 100.3 million and R$ 150.6 million in 3Q20 and 4Q19, respectively. Margin to be recognized stood at 32.8%, in line with 3Q20.
Table 16 – Backlog Results (REF) (R$ 000)
Notes: 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 a condition precedent.
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BALANCE SHEET
Cash and Cash Equivalents and Marketable Securities
As of December 31, 2020, cash and cash equivalents and marketable securities totaled R$ 622.1 million, in line with R$ 630.7 million in 3Q20. The Company believes that disciplined cost control and maintenance of a liquidity reserve are essential for the operation. This business vision and the team’s readiness allowed the company to overcome the most critical moments of the Pandemic, in a very consistent and smooth manner.
Receivables
At the end of 4Q20, total accounts receivable came to R$ 1,050.6 million. Of this amount, R$ 704.2 million were already recognized in the balance sheet.
Table 17 – Total Receivables (R$ 000)
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 18 – Receivables Schedule (R$ 000)
Cash Generation
Table 19 – Cash Generation (R$ 000)
¹ Cash and cash equivalents and marketable securities.
² Reflects year-to-date.
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Liquidity
By returning the Company’s releveraging process, in a disciplined manner and through its projects, taking advantage of the good moment of the credit market, the Net Debt/Shareholders’ Equity ratio at the end of 4Q20 reached 20.5%, compared to 7.6% reported in 3Q20. Within one year, we went from a Net Debt/Shareholders’ Equity ratio of 35.3% in 4Q19. Net debt increased from R$ 114.8 million reported in the previous quarter to R$ 318.8 million, as a result of strict discipline in relation to the funding of projects in which all works in progress have adequate financing structures, and all launches are only carried out after financing is contracted. In addition, we are increasingly anticipating funding in the business life cycle, and even making acquisitions of land/assets with a contracted or identified financing structure.
Table 20 – Debt and Investor Obligation (R$ 000)
¹ Cash and cash equivalents and marketable securities.
The Company ended 2020 with R$ 394.6 million indebtedness due this year, or 52.5% of total debt. It is important to highlight that approximately 93.4% of the Company's debt is linked to projects, whose maturities are related to the delivery of projects. On December 31, 2020, the consolidated debt average cost was 9.5% p.a.
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Table 21 – Debt Maturity (R$ 000)
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Consolidated Income Statement
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Consolidated Balance Sheet
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Consolidated Cash Flow
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SIGNATURE
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Gafisa S.A. | |
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By: |
/s/ Ian Andrade |
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Name: Ian Andrade
Title: Chief Financial Officer | |