morgan stanley 7th annual latin america conference
TRANSCRIPT
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September 2014
Corporate Presentation
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Executive Summary
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H e a v y
C o n s t r u c t
i o n
Market leader, extensive trackrecord, with more than 60 yearsof experience
Focus on: large and complexinfrastructure projects
Products: engineeringsolutions and rental offormwork and shoring
Services: planning, design,technical supervision,
equipment and related services
Main clients:
R e a
l E s t a
t e
Market leader; acquired in 2008
Focus on: residential and
commercial constructions Products: engineering solutions
and rental of formwork, shoringand suspended access
Services: planning, design,technical supervision, equipmentand related services
Clients: real estate companies,such as:
R e n
t a l
Market leader; started in2008
Focus on: civil construction,industry, retail e others
Products: rental and sale ofmotorized accessequipment, such as aerialwork platforms andtelescopic handlers
Cross-selling with all otherMills business units
Elected "Best Company for Access of the Year" by theInternational Awards forPowered Access (IAPA
Awards) for the year of 2011
Mills - Business Units
2
http://www.pdgrealty.com.br/pdg/Capa.aspx -
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387.0
221.8
245.0
90.1
220.9
109.9
852.8
421.9
Net Revenue EBITDA
Heavy Construction
Real Estate
Rental
3
Mills 2Q14LTM Financial highlights per business unit
EBITDAMargin ROIC
49.8% 16.3%
36.8% 6.5%
57.3% 16.2%
49.5% 13.0%
26%
21%
53%
26%
29%
45%
Excluding the Industrial Services business unit.
In R$ million
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4
Mills - Financial Performance
2Q14/2Q13 2Q14/1Q14 LTM2Q14/LTM2Q13 CAGR 10-13Net Revenue +1% 2% 12% 33%
EBITDA +7% -1% 13% 34%
Net Earnings -31% -1% -9% 19%
In R$ millions
Reclassified excluding the Industrial Services business unit, for comparison.
ROIC: Return on Invested Capital. Until 2010, ROIC was calculated considering the effective income tax rate for the period, while from 2011 onwards ROIC was calculated considering atheoretical 30% income tax rate.
* Excluding non-recurring items related to the former Industrial Services business unit
188.4
211.8222.0
210.1 207.8213.0 213.0
95.7 98.9106.1 102.4 107.5 105.9 105.9
39.348.1
39.6 45.6 33.9 33.4 37.6
50.8%
46.7% 47.8% 48.7%51.7%
49.7% 49.7%
14.9% 14.2% 13.9% 13.4%11.5%
9.2%10.4%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 2Q14*
Net Revenue EBITDA Net Earnings EBITDA Margin (%) ROIC
354.5
462.8
665.5
832.3 852.8
168.4217.4
339.0
403.1 421.9
103.3 92.2
151.5 172.6 152.5
47.5% 47.0%50.9% 48.4% 49.5%
21.0%
12.3%
14.7% 14.1% 13.0%
2010 2011 2012 2013 LTM2Q14
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Estamos presentes em 16 estados no Brasil com 56 unidades
Geographic Presence
5
Branches location As of June 30, 2014
MinasGerais
Rio Grandedo Sul
Santa Catarina
So Paulo
Mato Grosso
do Sul
Rio deJaneiro
(headquarters)
EspiritoSanto
Bahia
DistritoFederal
Goias
Sergipe
Paraiba
Rio GrandeCear
Piaui
Maranho
Tocantins
Par
Rondnia
Acre
Roraima Amap
Amazonas
Mato Grosso
Parana
Alagoas
States with Mills' presence
Pernambuco
do Norte
Rental
Heavy Construction
Real Estate
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Business Units
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Castelo stadium Fortaleza, CE
Rental
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Growth drivers in the motorized access equipment market:safety and productivity
Source: Mills
Market penetrationthroughsubstitution of lesssecure andefficient accessmethods
Recent safety standards (NR-18 and NR-35) oblige the use of aerial platforms to lift people,increasing safety and productivity in the work site
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Aerial workplatforms
95%
Telescopichandlers
5%
Brazil - 2013Total: 29,500
Growth drivers in the motorized access equipment market:low penetration
9Source: Mills and Yengst Associates
Aerial workplatforms
78%
Telescopichandlers
22%
USA - 2011Total: 785,000
Fleet Profile
The Brazilian aerial platforms and telehandler fleet is very small compared to the US fleet; less
than 5%.
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Modest rental penetration of 15% in Brazil. Rental penetration is approximately 50% in the USA,
60% in Japan and 80% in England.
Rental penetration in the USA increased to approximately 50% in 2014 from 5% in 1993: 20
years of continuous penetration growth.
Growth drivers in the motorized access equipment market:low penetration
10Source: Goldman Sachs and United Rentals
20%
35%
40%43%
50%
0%
20%
40%
60%
1993 1998 2004 2009 2011 2014E
Rental penetration in the USA
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21%
13%
28%
24%
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013
Penetration of use has enabled the branches opened prior to the IPO to have an average annual
growth of 22% in the last four years.
Growth drivers in the motorized access equipment market:low penetration
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Revenue Breakdown
69%
42% 38% 31%
31%
58% 62%69%
2009 2010 2011 2012 2013
New branches
Established branches
Growth drivers in the motorized access equipment market:geographic expansion
121 Branches opened since January 2010
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Revenues per type of use
Construction sector is the major user of motorized access inBrazil
13Source: Mills 2013, United Rental 2011 and Ramirent 1Q14
58%69% 73%
60% 63%
25%
23% 16% 35%19%
17%8% 11% 5% 18%
Brazilian Market Mills United Rentals(pre-merger RSC)
United Rentals(post-merger RSC)
Ramirent
Others
Spot
Industry
Construction
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2Q14/2Q13 2Q14/1Q14 LTM2Q14/LTM2Q13 CAGR 10-13
Net Revenue +9% +1% +26% 55%
EBITDA +12% -6% +32% 58%
Rental Financial Performance
14
In R$ million
1 ROIC: Return on Invested Capital. Until 2010, ROIC was calculated considering the effective income tax rate for the period, while from 2011 onwards ROIC was calculated considering atheoretical 30% income tax rate.
76.1
90.193.9
97.2 97.3 98.6
43.649.3 52.3
56.0 58.4 55.1
57.3% 54.7% 55.7%57.7% 60.1%
55.8%
19.1% 18.5% 18.1% 17.5% 17.1%13.2%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Net Revenue EBITDA EBITDA Margin (%) ROIC
95.1
175.4
253.5
357.3387.0
51.0
93.6
141.2
201.2221.8
53.6% 53.4%55.7%
56.3%
57.3%
19.2% 16.5% 18.2% 18.1% 16.2%
2010 2011 2012 2013 LTM2Q14
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Heavy ConstructionCinta costeira - Panam
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Transposition of theSo Francisco river* Belo Montehydroelectric powerplant* North beltway* Subway line 5 SP* Transnordestina
railroad* Oeste-Leste railroad* Paraguau shipyard* Silver monorail line -SP* Gold monorail line-SP* Reduc-ComperjPipeline
Belo Monte hydroelectricpower plant Jirau hydroelectric powerplant* Vales S11D project Oeste-Leste railroad Norte-Sul railroad North beltway Subway line 5 SP Companhia Siderrgicado Pecm steel mill Salvador subway Olympic Park
Colder and Teles Pireshydroelectric power plants Comperj refinery Transposition of the SoFrancisco river Vale projects Gold monorail line- SP Subway line 4 RJ Subway line 4 SP Cuiab light rail Goinia airport Pulp mill expansion- RS Paraguau shipyard
Jirau hydroelectric power plant Viracopos and Guarulhos airports Braslia airport BRT Transcarioca Metropolitan Arch RJ East beltway- SP Jacu-Pssego highway
Important contracts per stage 1 in the evolution of monthlyrevenue from projects
16
Newcontracts*
Contracts with growingvolume of equipment
Contracts with high volumeof equipment
Contracts in thedemobilization process
E
v o
l u t i o n o
f r e v e n u e g e n e r a
t i o n
( B a s i s
1 0 0 =
M a x i m u m
m o n
t h l y r e v e n u e
i n t h e
l i f e o
f c o n s t r u c t
i o n
)
Length of time of Mills participation in the construction work average cycle is 24 months
* New stretches
1 In 2Q14
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Important construction work already started, which we are hired
17
Construction work Investiment Conclusion % formworkand shoring*
Vales S11D project US$ 20 billion 2H18 0.4% 1
Belo Monte hydroelectric power plant R$ 26 billion 2019 0.6% 2
Companhia Siderrgica do Pecm
steel mill
US$ 5 billion 2H15 0.4% 1
Subway line 4 - RJ R$ 8.5 billion 2016 2.0% 3
Transnordestina railroad R$ 7.4 billion 2016 0.5% 4
Subway line 5 - SP R$ 7.4 billion 2016 2.0% 3
North beltway R$ 6.5 billion 2016 2.2%5
Guaba expansion R$ 5 billion 2015 0.4% 1
Salvador subway R$ 3.9 billion 2017 2.0% 3
Norte-Sul railroad, southern stretch R$ 4 billion 2H15 0.4% 6
*In similar construction jobs: 1) CSN plant; 2) Jirau hydroelectric power plant ; 3) Subway line 4 SP;4) stretch of Transnordestina railroad; 5) South beltway SP; 6) stretch of Norte-Sul railroad.
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Characteristics of the major projects in progress
Average term: 18 months
Public-PrivatePartnership
20%
Public21%
Private59%
Source of Funds
Industry33%
Infrastructure62%
Others5%
Per sector
1 In 2Q14
Of th R$ 104 billi l d i t l R$ 70 billi
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Of the R$ 104 billion planned, approximately R$ 70 billionhave been successfully auctioned, surpassing the projectsawarded to the private sector in the past ten years
19
Campinorte - Lucas do Rio Verde railway
Curitiba subway
Ports - 2nd stage - 18 contracts
Ports - 1st stage - 31 contracts
BR 262 (MG/ES)
BR 116 (MG)BR 101 (BA)
Tamoios
So Paulo subway line 18
BR 153 (GO/TO)
BR 040 (DF-MG)
BR 163/267/262 (MS)
BR 060/153/262 (DF/GO/MG)
BR 163 (MT)
VLT Goinia
Confins airport
Galeo airport
So Paulo subway line 6
BR 262 (MG/ES)
BR 050 (MG/GO)
Salvador subway line 2
InvestmentsIn R$ billion
2 0
1 3
2 0
1 4
Source: Mills, Goldman Sachs, and Credit Suisse
Concessions should invest R$ 300 billion from 2015 to 2017
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Source: Valor newspaper, June 24,2014, using data from BNDES, ministries and public agencies. Do notinclude railways that are part of the Programa de Investimentos em Logstica (Logistic Investment Program).
Concessions should invest R$ 300 billion from 2015 to 2017,of which R$ 92 billion in logistics and R$ 88 billion in powergeneration
2011-2017CAGR (%)
Total
27.0%
9.0%
5.6%
11.5%
7.8 13.015.6
22.8 27.631.3 32.823.5
30.831.8
35.636.4
40.3 39.5
22.8
25.826.6
28.2
29.3
30.5 31.7
54.1
69.674.0
86.6
93.3
102.1 104.0
-
20.0
40.0
60.0
80.0
100.0
120.0
2011 2012 2013 2014 2015 2016 2017
Telecom
Energy
Logistics
Infrastructure investments from concessionsin R$ billlion
20
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In R$ million
2Q14/2Q13 2Q14/1Q14 LTM2Q14/LTM2Q13 CAGR 10-13Net Revenues +1% +9% +13% +12%
EBITDA +2% 0% +17% +14%
Heavy Construction Financial Performance
21
* Excluding the positive effect of tax reversal in the amount of R$ 1.5 million in 3Q13.
1 ROIC: Return on Invested Capital. Until 2010, ROIC was calculated considering the effective income tax rate for the period, while from 2011 onwards ROIC was calculated considering atheoretical 30% income tax rate.
47.5
55.1 55.7 55.7 58.6
51.055.5
24.3 25.129.4 28.2 29.3
25.6 25.6
51.3%
45.5%
52.8%50.6%
49.9% 50.2%
46.2%
18.6% 17.8%20.9% 19.7% 19.1%
14.0% 12.5%
1Q13 2Q13 3Q13 3Q13* 4Q13 1Q14 2Q14Net Revenue EBITDA EBITDA Margin (%) ROIC
154.3
131.6
174.1
217.0 220.9
73.657.8
84.3
108.1 109.9
47.7%43.9%
48.5% 49.8% 49.8%
24.1%
12.1%
17.2%19.2%
16.3%
2010 2011 2012 2013 LTM2Q14
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Real EstateMast climbing platform
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23
13.7
17.0
10.3 10.210.6
24.4%
-39.3%
-1.7% 4.5%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1H10 1H11 1H12 1H13 1H14
Y o
Y ( % )
L a u n c h e s
( i n
R $ m
i l l i o n )
1 Brookfield, Cyrela, Direcional, Even, Eztec, Gafisa, Helbor, MRV, PDG, Rodobens, Rossi, Tecnisa, Trisul and Viver
Launches were up 4.5% in the 1H14, while sales declined16.0%
15.7
17.0
14.2 14.3
12.0
8.4%
-16.8%
1.3%
-16.0%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1H10 1H11 1H12 1H13 1H14
Y o
Y ( % )
S a
l e s
( i n
R $ m
i l l i o n s )
Total launches 1in R$ billion
Total sales 1in R$ billion
Source: Operational reports from companies and Mills
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24
Growth drivers of the residential market
High housing deficit
Growing housing financing
Higher purchasing power
Lack of labor and higher labor cost
Industrialization of the construction process
Geographic expansion
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The major challenge for the sector: labor
25Source: Sondagem Especial Construo Civil, April 2011, CBIC, CNI, and Mills
89% of companies from the construction industry stated that
lack of qualified labor is a problem for the company
94% of companies from the construction industry facing
shortages of skilled manpower have difficulty finding workers
for basic construction activities, such as bricklayers and
laborers
Solution: Industrialization of the construction process
Only 7% of companies from the construction industry plan to
deal with the shortage of skilled labor by changing the
building process to an industrial assembly model
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Stages of industrialization of the construction process
26
1 Approximately 800 m 2Source: Tchne Magazine, June 2012 and Mills
System Traditional with wood Traditional with steel Deck type Flying table
Cycle betweenconcreting activities 15 days 7-10 days 6-8 days 4-7 days
Labor required 1 30 people 20 people 12 people 10 people
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2Q14/2Q13 2Q14/1Q14 LTM2Q14/LTM2Q13 CAGR 10-13
Net Revenue -12% -1% -5% +35%
EBITDA +2% +7% -20% +29%
Real Estate Financial Performance
27
In R$ million
1 ROIC: Return on Invested Capital. Until 2010, ROIC was calculated considering the effective income tax rate for the period, while from 2011 onwards ROIC was calculated considering atheoretical 30% income tax rate.
64.9 66.5
72.4
54.2
59.5 58.8
27.7
24.6 24.417.1
23.5 25.2
42.8%
37.0%33.7%
31.5%
39.4%
42.8%
12.8%9.3% 8.2%
3.2%
6.6%7.9%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14Net Revenue EBITDA EBITDA Margin(%) ROIC
105.1
155.8
238.0258.0
245.0
43.9
66.0
113.4
93.8 90.1
41.7% 42.4%47.7%
36.4% 36.8%
23.5%
14.3% 15.7%
8.1% 6.5%
2010 2011 2012 2013 LTM2Q14
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Growth Plan
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il l l l f d i i d h
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30Source: The Conference Board Total Economy Database, January 2014
Brazil presents a low level of productivity compared to otherdeveloping countries
17.2%
34.0%
8.1%
17.1%
28.2%
34.5%
31.4%
Brazil Russia India China South Africa Chile Mexico
GDP per person employed, % of U.S. 2013
Productivity growth is essential for higher sustainable GDP growth
Mill i d R$ 142 illi i l i i 1H14 f
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7447 51
106
26 37
104185
60
90
1325
131
163
161
267
102
169
15
18
20
36
16
324
413
292
499
157
231
2010 2011 2012 2013 1H14 2014E
Rental
Real Estate
Heavy Construction
In R$ millionCapex
Realized 1H14 /2014 CapexBudget (%)
71%
53%
60%
Mills invested R$ 142 million in rental equipment in 1H14, ofwhich R$ 49 million in 2Q14
31
Total 61%
Rental equipment
Reclassified excluding the Industrial Services business unit, for comparison.
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Cash flow becomes positive
33
(340)
(219)
(31)
(154)
(13)
11
(400)
(350)
(300)
(250)
(200)
(150)
(100)
(50)
-
50
2010 2011 2012 2013 1T14 2T14
Free cash flow
1 Net cash generated by operating activities less net cash used in investment activities
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Mills Investor Relations
Tel.: +55 21 2123-3700
E-mail: [email protected]
www.mills.com.br/ri