SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

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

For the month of April, 2021

(Commission File No. 001-33356),


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


 
Av. Juscelino Kubitschek 1830 |03º andar| Conj. 32 Torre 2 - Cond. São Luiz
São Paulo, SP, 04543- 000
Federative Republic of Brazil
(Address of principal executive office)



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

Form 20-F ___X___ Form 40-F ______



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


Yes ______ No ___X___

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

Yes ______ No ___X___

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

Yes ______ No ___X___

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

 
 

 

 

Financial Statements

 

Gafisa S.A.

 

December 31, 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.

1  
 

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)

 

2  
 

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.

3  
 

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. 

4  
 

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.

5  
 

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. 

 

6  
 
 

 

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).

7  
 
 

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.

 

8  
 
 

 

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.

 

 

10  
 
 

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                                     

 

12  
 

 

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 policiesContinued

 

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. 

 

25  

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 policiesContinued

 

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: 

 

27  

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.

 

  

 

 

28  

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. 

 

29  

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.

 

30  

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.

 

31  

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.

 

32  

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

 

33  

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

34  

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.

 

35  

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

 

36  

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