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International Conference Call

Mills - Estruturas e Servios de Engenharia


3rd Quarter 2015 Earnings Results
November 8, 2016

Operator: Good afternoon ladies and gentlemen. Welcome to Mills' conference call
during which we will be discussing the results of 3Q 16. At this time all participants are
connected in listen only mode and afterwards we will have a question-and-answer
session when further instructions will be given for you to participate.
Should you need assistance during the call please press star zero to reach the operator.
I would like to remind you that this call is being recorded and translated simultaneously
into English. Questions may be asked normally by participants connected from abroad
and the recording will be available on the company's website www.mills.com.br/ir.
This call is being broadcast simultaneously on the Internet and you may also access it at
www.mills.com.br/ir.
Before proceeding we would like to clarify that forward-looking statements that might be
made during this call related to the company's business perspectives and the business
of the company as well as projections are forecasts based on the company's expectations
regarding the future of Mills, and these forward-looking statements are subject to
macroeconomic conditions, market risks and other factors.
Today with us we have Mr. Sergio Kariya, CEO; Mr. Gustavo Zeno, CFO and Investor
Relations Officer and Mrs. Camila Conrado, Investor Relations Coordinator.
For the opening remarks of 3Q 16 call we would like to give the floor to Mr. Sergio Kariya,
CEO of the company.
Mr. Sergio Kariya: Good morning ladies and gentlemen and thank you very much for
participating in this call about Mills' results of 3Q 16. The economic scenario in Brazil
continues to have an economic negative impact on our results with increasing idle rate of
our equipment and pressure on prices.
And the new initiatives aiming at preserving and generating cash continue ongoing with
the objective of reducing our delinquency mainly in ADD, where will affect directly our
cash and our Ebitda in August we launched internally a credit recovery campaign that will
end in December this year.
Together with that we are changing our credit policy looking for a higher engagement of
the commercial area in the matters related to the collection. The study of equipment and
brand rationalization and other initiatives underway should be concluded by the end of

the year and could bring about an improvement in profitability with better capital
allocation.
The internal process of process improvement that we call MAPA is being developed with
the specialized consultancy and continues at full steam. Some results already reflect
Are already reflecting in the routine of our employees such as the management ratio,
which is applied at all hierarchical levels in order to standardize the company indicators
tracking.
As mentioned before the project has the objective of mapping, redesigning and improving
our processes and as a consequence improving our productivity in operations and
maintenance of equipment bringing about a higher operating efficiency.
We believe in our growth drivers, in the fundamentals and the financial strength of the
company and we are prepared to face 2017, which will also be a tough year and of slow
recovery.
For 2017 we have some events that might increase our revenues such as the increase in
the penetration of the nonconstruction market for the rental unit; the resumption of
interrupted projects; and the contract amendments of already existing of infrastructure
and the new concession program of the government launched in September. The latter
will impact our revenue in the longer run, probably more than 12 months, due to time is
needed to analyze documents and auctions, signing the contracts, contracting the
construction company and contracting our services.
And in order to talk about results of 3Q 16 I would like to give the floor to Gustavo Zeno,
our CFO and IRO.
Mr. Gustavo Zeno: Good morning everyone. I would like to start my presentation by slide
number three. As expected our net revenue had a drop of 18% on a QoQ basis and the
rental business unit had the biggest drop, 20% QoQ. The rental business unit continues
to give the highest contribution to our net revenue, about 50%; infrastructure accounting
for 31%; and real estate for 19% of the total net revenue.
Costs and expenses net of depreciation totaled 74.9 million in 3Q 16, 26% lower on a
YoY basis. The main reasons for the drop in Cogs were cost of sales and assets writeoffs in line with the drop in the volume of sales in the period and the cost of execution of
the projects and storage due to the lower expenditures with consumption materials,
maintenance and repair.
In spite of the drop in direct costs the percentage of participation of the work execution
cost and storage as well increased to 35% this quarter vis--vis 31 in the previous quarter.
This increase in the participation of costs over revenues is a consequence of the
operating leverage of the company.

The company in spite of the drop in demand we have a cost of unloading with the
demobilization of projects and handling in our warehouses is high because of the high
idleness rate our equipment because we have an internal verticalization work to do with
our equipment.
As Kariya said the company has been seeking to increase productivity in the process of
maintenance and handling of equipment. In the medium run we expect a lower
participation of direct cost over net revenue.
SG&A expenses net of ADD dropped by 16% this quarter, 7.1 million. Of the total variation
3.7 million were restructuring expenses and 1.4 million related to the reversal of the
provision for the reduction to the net realizable value of our inventories maintained for
sales in 2Q 16.
Of this amount based on the realization value of the 98 machines that we still have of the
equipment sale agreement amounting to 8 million signed in August 2015 due to basically
to the exchange rate evaluation according code 66616 and inventories must be reduced
to the net realizable value. The selling value of each machine was calculated by the
conversion of the values in euros based on the exchange rate at the quarter closing. The
comparison of this amount with the inventories including expenses with maintenance and
freight generated a material negative variation this quarter and we have been to
recognize this provision.
And the remaining balance of our contract this was canceled for commercial reasons and
the provision was reversed. Of this contract we received in total 20.6 million equivalent to
209 machines. In this quarter we also had a reduction in our ADD expenses by 56% due
to lower provisions.
Up to September 2016 the company wrote off securities matured up to five years
amounting to 10.2 million BRL overall with no cash impact, no Ebitda impact and only
impact on the total balance of the ADD. Ebitda and net income were negatively impacted
by lower utilization rate in the prices charged. The Ebitda margin was 13% and we posted
a loss of 22.2 million BRL.
In August the Board of Directors approved the transfer of our So Paulo branch from
Osasco to Cotia. We believe we will be moving in 1Q 17 and with that we will be
transferring the branches of Ribeiro Preto and Campinas to this new branch.
Investments will be necessary to adapt.
Excluding the result and the provision for the sale of semi-new and the nonrecurring items
our margin would have been 10.8% in the period.
On slide number four we can see rental revenue which was 13% lower due to the lower
volume rented in the two business units with a negative impact of 5.5 million in the period

and the negative impact on the price and mix of 5.6 million mainly in the rental business
unit.
We continue to see a drop in our utilization rate which as of the quarter was 40.7% in
construction and 52.7% in rental. The average utilization rate LTM had a downward trend
in these two units. Total sales revenue dropped by 27% and technical assistance and
indemnification 49% lower.
The resumption of construction projects will depend on many different factors such as the
evolution of the projects that have been interrupted or that are slowly executed; the
approval of the provisional measure for the renewal of the existing concession contracts;
and the development of the new concession program by the federal government.
In the area of platform markets we believe that the recovery will happen more quickly due
to the exposure to many different sectors.
On slide five we show the evolution of the Ebitda that went from 13.7 million in 2Q to 11.2
million in 3Q. Net of the effect of the result and that the provisions for sale of semi-new a
nonrecurring items Ebitda would have been 8.8 million in 3Q vis--vis 18.5 in 2Q. And the
biggest impact on the Ebitda was the drop of the rental net revenue as well as technical
assistance and indemnification partially offset by the reduction in total costs and
expenses.
Now on slide six we see the ADD which reached 3.2% of net revenue in 3Q vis--vis 6%
in the previous quarter. We still cannot affirm any consistent impact from the internal credit
recovery campaign launched in August. In this quarter the percentage was atypically
lower than the previous quarter due to the lower value of the provision, 10 million vis-vis 14 million provisioned in the previous quarter. The reversal level continues to be 7
million in the quarter and this value atypically lower can be explained by the drop in
revenue.
Per business unit the quarterly variation of the ADD was the following: in the infrastructure
there was a positive impact of 3.5 million with expenses representing less than 3.6% of
the net revenue; in real estate ADD was -3.2% of the net revenue, whereas in rental the
participation was 9.9% of net revenue.
On slide seven we show for the first time the reconciliation of the Ebitda with the operating
cash flow. In order to consider Ebitda as a good proxy of the company's operating cash
flow we must exclude some provisions and asset write offs that are relevant amounts.
The bars indicated in gray show the variations between quarters and the Ebitda net of all
non-cash items that impacted the same would be 18.4 million. In this quarter we had 27.7
million of cash items and we paid 20.1 million in interest and with that our operating cash
flow was 26.1 million.

As you can see on slide eight the adapted operating cash flow before interests paid and
investments in rental assets reached 46.4 million in the quarter accumulating 177 million
in the year representing the cash generation capacity of the company's operations.
Now let us turn to slide number 10 where we have the consolidated results of the
construction business unit, 16% lower net revenue QoQ; rental revenue QoQ decreasing
9% of the 73% due to the lower volume rented. The biggest drivers of this revenue drop
were indemnification revenue, recovery of expenses and technical assistance.
The drop in the technical assistance revenue was already estimated as we said in the
webcast of 2Q because it was a nonrecurring profit due to the new profile of contracts
that we cater to in order to fill in the gap of the access of large works. The construction
expenses and costs reduced 16% mainly due to the lower cost of sales, rental and labor
and the reversal of ADD.
On slide 11 segmentation of the infrastructure rental, 66% of net revenue of the
construction rental per origin of resources and sector. We show the breakdown also on
the real estate between residential and commercial markets.
Going to slide 12 we show the main projects with Mills participation. In this quarter Rio de
Janeiro projects referring to the Olympics came to an end and the highlights are the urban
ability works. We had some coming back such as the monorail in So Paulo, the Gold
line and we believe that in the next quarters this movement might occur in other projects
as well. We continue to have a low visibility about when we will see a recovery in this
segment, although the expectations are more bullish right now.
Now let us analyze the rental unit going to slide 14. Net revenue of this unit dropped by
11 million BRL and the rental revenue accounted for 7.6 million and in August a large
project in the North East came to an end. It started in December 2015 and it required
many big which are our highest altitude equipment and with that the impact in our
revenue was relevant.
We can split the reduction between a drop in volume and also the equipment price and
mix. The reduction coming from the drop in the utilization rate from 57% to 53% impacted
our revenues in 2.9 million and the change in the mix of rented machines and the average
prices had an impact of 4.7 million BRL.
Between quarters there was a drop in the costs and expenses of this business unit;
however this drop was not enough for us to maintain our Ebitda margin that went from
27.7% in 2Q 16 to 24.2%. In 3Q we recognized in our results 4.3 million in allowance for
doubtful debt - ADD.
Now we would like to show data about the company's indebtedness and the debt
indicators on slide 16. We closed the quarter with a net debt position of 130 million BRL

vis--vis 181 at the close of 2Q 16. In August we paid 80.5 million BRL of principal
referring to the second debentures insurance. Our cash position at the end of the quarter
was 322.6 million BRL.
The company remains cash generator in order to serve our debt. As you can see on the
chart our debt amortization schedule does not include relevant payments this year. Next
year we will be amortizing 150 million BRL principal.
The company debt is formed by 36% short-term debt; 64% long-term debt with an
average weighted term of 2.8 years and the cost of CDI close 0.17%.
Our indebtedness indicators continue to be at comfortable levels as you can see on slide
17. LTM Ebitda financial result rate was 2.5x in 3Q net of nonrecurring items in the period.
Leverage measured by net debt/Ebitda ratio also excluding nonrecurring items closed the
quarter at 1.4x.
We continue to be cautious. We continue to reduce expenses and preserving cash.
Uncertainty in relation to the extension and the depth debt of the low activity cycle of
construction in the country and its impact on the company still remains.
And finally on slide 19 we show our historical data since 2010. We still see a market in
deterioration but we believe that we will be exiting this crisis better structured and
stronger.
Thank you very much and now we are available to answer your questions, thank you.

Q&A Session

Operator: Ladies and gentlemen now we will start the Q&A session. In order to ask a
question please press star one and in order to remove your question from the queue
please press star two. We would like to remind you that in order to ask a question you
should press star one. Once again in order to ask a question is should press star one
Now we would like to close the Q&A session and we would like to give the floor back to
Mr. Sergio Kariya. Mr. Kariya you may proceed.
Mr. Kariya: I would like to finalize this call mentioning the main takeaways that we would
like to leave with you. We continue to be positive cash flow generators. We maintain the
focus on the reduction of our Accounts Receivable. We are rationalizing the equipment
and our branches in order to improve our capital allocation looking for better productivity
and lastly our fundamentals have not changed in the long run.

I would like to thank you very much for your participation in this call about Mills 3Q 16
results. Our Investor Relations team will remain at your disposal for additional
clarifications thank you.
Operator: Mills' conference call is closed. We thank you for participating and wish you all
a very good afternoon. Thank you for using Chorus Call.