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International Conference Call

Mills - Estruturas e Serviços de Engenharia

1st Quarter 2014 Earnings Results

May 7, 2014 Operator: Good morning ladies and gentlemen. Welcome to Mills conference call during which we will be discussing the results of 1Q 14. At this moment all participants are connected in listen-only mode. 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 simultaneously translated into English. Questions may be asked normally by participants connected from abroad. The recording will be available at the company's website www.mills.com.br/ir. This call is being broadcast simultaneously on the Internet and you may access it at www.mills.com.br/ir as well. Before proceeding we would like to clarify that forward-looking statements that might be made during this call related to the business perspectives of the company as well as projections are forecasts based on expectations by the Management of the company regarding Mills’ future. These expectations are subject to macroeconomic risks and market risks and other factors. Today with us we have Mr. Ramon Vazquez, CEO of the company; Mr. Frederico Neves, CFO and Mrs. Alessandra Gadelha, Investor Relations Officer. Mr. Ramon Vazquez will make the initial remarks about Mills’ performance in 1Q 14 and afterwards he will be available to answer any questions that you might have. Now we would like to turn the conference over to Mr. Ramon Vazquez. Mr. Vazquez you may proceed. Mr. Ramon Vazquez: Good morning ladies and gentlemen and thank you very much for participating in this conference call about Mills’ 1Q 14 results. On slide number 2 we present the highlights for the quarter. For comparison purposes we will be making the presentation with the historical data of the company including the values of the industrial services business unit whose divestment was concluded in the last quarter of 2013. Net revenue was R$ 207.8 million, a 10% growth on a year on year basis; Ebitda amounted to 107.5 million and Ebitda margin was 51.7%, the highest margin obtained in the last 18 months; net income was 33.9 million; ROIC 11.5%, negatively impacted by the lower utilization rates and lower sales volume.

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In this quarter we had lower sales revenues from all segments contributing to the slight drop of over 1% of total revenues on a quarter on quarter basis; investments in new equipment were concentrated in March with insufficient time to rent them out and as a consequence no increase in the rental revenues between quarters. On slide 3 we show the revenue breakdown for the quarter: rental was the business unit that delivered the highest net revenue representing 47% of total revenues; infrastructure accounted for 29% and real estate for 24%. Related to the kind of service 80% of Mills’ revenues in the quarter came from equipment rental and 8% from sales. We launched at the beginning of this year a program to reduce expenses in the corporate areas in order to minimize the impact of the higher G&A allocated to the remaining business units after the divestment from industrial services. And as seen on slide number 4 there was a 12% drop in G&A pre-allocation between quarters and the amount that was before allocated to industrial services now is allocated among the three business units increasing by 3% the consolidated G&A for the three business units, and the part of G&A allocated to industrial services was included only in the results of discontinued operations and was not considered in the consolidated Ebitda of Mills. Slide number 5, infrastructure. Revenues came to R$ 51 million and there was an increase in rental revenues by 11% on a year-over-year basis; however, due to the lower utilization rate that went back to normal levels in 1Q, rental revenues went down 6% between quarters. Ebitda was 25.6 million; Ebitda margin 50.2%; ROIC 14%, the latter negatively impacted by the lower utilization rate and lower sales volume. On slide number 6 we show that in the first half of the year we had many projects in disablement phase such as airports, Abreu Lima refinery, Jirau hydropower plant contributing to the lower utilization rate; however, we already have long-term projects that are very big and contracted and are in mobilization phase such as the Vale S11D; the hydropower plant Belo Monte; the expansion of the pulp plant Guaíba (Rio Grande do Sul); Ring road North in São Paulo; subway lines Salvador and São Paulo that will be contributing to increasing the number of equipment rented, and we expect a positive impact from the concession auction at the end of 2013 that will start in the next few quarters and will last for the next three years. For this month there are scheduled two new highway concession auctions for Tamoios and stretch BR 153, a R$ 2 billion of road. We increased our portfolio with two new kinds of equipment that aim at increasing productivity and safety and you can see on slide number 7: Mills Light and lifting cars. Mills Light is a self-aligning formwork easy to assemble and with a wide range of applications in large projects; and the lifting cars are used to lift and assemble precast staves in overpass bridges with wide span.

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We started a partnership with STRUKTURAS, a Norwegian company that is the leader in the market and build construction technologies aiming at bringing to Brazil the most modern technologies for the construction of highways and railways. On slide number 8 we show the results of real estate posted 59.9 million revenues, a 10% growth on a quarter on quarter basis; Ebitda was 23.5 million; Ebitda margin 39.4%; ROIC 6.6%, all higher on a quarter on quarter basis. The volume of proposals has already returned to historical levels in 1Q showing that the utilization rate should return to normal levels in the next few months. There is usually a period of two to three months that elapses between the approval of the proposal and the beginning of use of equipment in the new project. According to the chart on slide number 9 55.3% was the growth rate in the total launches of listed homebuilders in 1Q 14 on a year on year basis; however, with sales growing at a slower speed (25.7%) in the same period. In the medium and long run we continue to be confident in the large opportunities of the real estate market where the growth drivers are the major housing deficit; the increase in the purchasing power of the Brazilian population; and the higher availability of mortgage loans besides the industrialization of the construction process in a scenario of an increasingly more expensive, even scarce labor. On slide 10 we show the results from the rental division: 97.3 million revenue; Ebitda 58.4 million, both record growing around 30% on a year on year basis; between quarters the increase of 5% in rental revenue offset the lower revenue from sales and the arrival of new equipment was concentrated at the end of the quarter with no sufficient time to rent them out. The Ebitda margin was 60.1%, positively impacted by the lower sales volume and ROIC was 17.1% negatively impacted by the higher working capital because we offered only this time a longer payment term to our clients for a better appreciation of the first batch of invoices after the SAP implementation. We received the IPAF training center award for the year as you can see on slide number 11. IPAF is the international association that promotes the safe operation of access machinery. We have the highest number of certified instructors by the IPAF in specialized centers to carry out these courses and in Latin America we account for 74% of all platform operation certificates of IPAF in Brazil. On slide number 12 we show that there was an inflow of 1500 machines in 1Q 14 with a 5% growth on a year on year basis increasing the total fleet to 31,000 aerial platforms and telescopic handlers in Brazil. And lastly we present our growth plan. As you can see on slide 13 investments in rental equipment amounted to 93 million in 1Q representing 40% of the amount budgeted for investments in rental assets for 2014. The remaining investment from the rental division

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should be made according to the opening of the new units estimated for the second half of the year. Thank you very much and we are now available to answer any questions that you might have.

Q&A Session Operator: Ladies and gentlemen now we will start the question-and-answer 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. Our first question comes from Mr. Alexandre Falcão from HSBC. Mr. Alexandre Falcão: Good morning everyone. I have two questions, the first one has to do with your Capex program up to the end of the year. As you have already spent 40% of your Capex already what about the slowdown? When will it come in the Capex pace? Do you see this for 2Q of this year already or is there a possibility for you to review your Capex estimate for the year? And the second question has to do with real estate. In spite of the increase in margin you say in the release that the utilization rate is even lower than normal levels still. When will this go back to normal levels? What do you call normal levels and what could we expect in terms of margins when your utilization rate rebounds to normal levels? Mr. Vazquez: Regarding Capex our estimate is for higher investment in the case of rental for the second half of the year. We invested about 40% of our Capex for the year for the rental division already in 1Q and this meets our needs for the already existing branches and the additional Capex will be spent in the implementation of these new units that we intend to open during the second half of the year. Regarding Capex in general for the company around the middle of the year we make an assessment about our Capex and we might be making new investments; however, this is not clear to us yet and one of the ways you can have an increase in investments is in the case of infrastructure for instance. Let us say we see a higher acceleration in the implementation mainly of the projects that are focused on the concessions that were made in the last part of last year. As there is a time lapse between when the order is placed and the order is delivered and it is about 90 days we are not very much worried about having to bring forward our investments and these are long-term projects that are focused on concessions as I said. Regarding margins from real estate today we have a utilization rate that is still lower than what we call normal levels; but we already see an improvement in the market vis-à-vis proposals and there are signs such as the increase in launches last year as I mentioned and we also see a major increase in 1Q in launches and for the next few months this unit of our company will go back to historical levels of utilization.

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Mr. Falcão: Could you tell us what is the historical level? Mr. Vazquez: It is about... 25% is idle capacity, normal that is to say 75% utilization is normal. Operator: Eduardo Couto from Morgan Stanley. Mr. Eduardo Couto: Good morning Alessandra. Regarding heavy construction now as you have already disabled some of your… Or you are disabling some of your projects in terms of utilization so the first half is a little bit weaker in heavy construction and in the second half we will see a rebound. Is this right? How do you see this and what about rental for new projects? Mr. Vazquez: What we have here is the demobilization mainly regarding airports... Or disablement. You have eight airports that are closing their needs in this regard almost simultaneously. We already have other large projects where we are placing equipment but they have to go to our warehouses to be maintained, they do not go straight from one project to the other; so of course there is a delay there because they have to go to the warehouse for maintenance. But we have very large projects in the pipeline already contracted and over the next few quarters what you will see will be a higher utilization rate of this kind of equipment. And mainly in the second half of the year there should be a growth that will last for the next few quarters thanks to these large concessions that will bring about results, but it will be more in the long run. So as of the last quarter we already had this positive impact of these concessions but the bulk of the revenues will come in 2015, 16 and 17. Mr. Couto: Very clear Ramon. Another point about real estate: you saw a recovery of your margins close to 40%. So could we work with this new level of 40% for the next few quarters or is there a risk for the margin to go down again? Because the recovery was quite fast and quite extensive. Mr. Vazquez: We believe that we will be converging towards an Ebitda margin of at least 42% in this unit, this real estate division, which is a historical level and growth will be occurring in the next few months stemming from an improvement in the market conditions and also stemming from the fact that we do not make investments in this unit. Mr. Couto: Thank you. Operator: We would like to remind you that in order to ask a question you should press star one. Ms. Sara Delfim from Bank of America. Ms. Sara Delfim: My question has already been answered, but maybe you could give us some more color, Ramon: you said that the demobilized equipment mainly in airports

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would already be reallocated to other projects such as Vale, Guaíba and others; but is there something new we could expect in terms of announcement in the next few quarters or months of maybe a very large project that you have negotiations under way about and that could bring you an upside regarding Capex for this division? Mr. Vazquez: In this division what we had were many projects that are being negotiated and they are being contracted and already with this number of projects that we have already contracted we already have a backlog that guarantees a very expressive growth for 2014. So we are not concerned with that; what we have are other projects that are going out: the Transnordestina for instance we recently signed contracts for some stretches of Transnordestina that has been going on for many years and that is being re-auctioned now; but what will have a higher impact, besides the projects that have already been contracted, are the concessions that will be carried out. One of the concessions, which is the Salvador subway, we are already placing our equipment there. So the faster we have the startup of the works of the Rio airport and the Belo Horizonte airport that were given to the private sector and also concessions in the highway area the faster will be the growth of this business unit. Ms. Delfim: Thank you very much. Operator: Renata Stulberg from Goldman Sachs. Ms. Renata Stulberg: Good morning, thank you for the question. About the rental division the ROIC was a little bit lower this quarter. Could you give us some more color about what lies behind this longer payment terms that you have given to your clients due to the implementation of the SAP? Mr. Vazquez: We implemented SAP in this specific case of rental, that is to say we ended the implementation of SAP for the company in February and there is a very big issuance of invoices in the rental division and the rental is different from our other units: our other two units you have the equipment that is there in the construction site and after some period, usually by the end of the month, you issue an invoice. And in the case of the rental division as of the moment the machine leaves your warehouse you already issue an invoice. Because of this operational detail we wanted to give more time to our clients so that they could analyze their invoices and so that we could be certain that the process was going smoothly in terms of the implementation of the SAP. So this is what we did and the effect was just a one-shot effect, a one-off, and after the issuance of the first invoice is in the SAP system things go back as they were in terms of the time when the invoices are issued. Operator: Mr. Rodrigo Olivares from Votorantim Corretora, Votorantim Brokers.

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Mr. Sami XXX: Good morning everyone, this is Sami XXX in fact and just one question, a follow-up question: due to the strong disablement and the return of equipment in infrastructure could we expect additional costs in the results of 2Q regarding maintenance or even the freight costs between the different units of Mills could we expect an increase in expenses? Mr. Vazquez: No. We do not expect a higher impact in 2Q because of the factors that you alluded to and they are occurring; they have already occurred most of them in 1Q and some are still occurring in 2Q. You can see that in 1Q we had no impact whatsoever. Mr. XXX: Thank you. Operator: Mr. Bruno Savaris from Credit Suisse. Mr. Bruno Savaris: Good morning everyone and thank you for the call. Can you hear me? He asks. I have two questions, one has to do with the CNI Index regarding the level of activity in the industry, and as we see historically we have an expansion of activities however the realized ones are lower; so how do you see this? How do you measure the level of the activity in the industry and investments in infrastructure and in real estate? We see that the result was a little bit better with a slight recovery in the ROIC but basically due to a more value-added mix than the increase in the utilization rate itself. So how can we see… I am sorry if this question has already been answered because it was late in my participation in the call. Mr. Vazquez: Well first regarding the indices these are the indices that we try to track among other sources of information, be it from clients or level of proposals or the estimates that are being done by our project division. And the outlook, first regarding infrastructure the outlook is very positive. The backlog that we already have as I mentioned before already allows us to have over this year a very good result, and also the project that are about to begin in the concession areas will be giving us very good years ahead of us. In the rental division we see a recovery and the recovery is much more focused on a better issue of proposals and still a very low increase, but anyway a slight increase in rental revenues and what you will see over the year will be the recovery of the utilization rate because we see an improvement also in the number of launches and the execution of construction work. And also on our side we are not making new investments in this area; we are focused on the case of the rental division and on the case of the real estate division we are focused on cost control, the increase in the utilization rate and the improvement in

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prices as well, and we understand that over the next few months you will see the results from this business unit bouncing back to normal levels. Mr. Savaris: Thank you. Operator: Once again, in order to ask a question please press star one. Mr. Alexandre Falcão from HSBC. Mr. Alexandre Falcão: Thank you for the follow-up. Talking about the real estate division, talking with some of your competitors in April we saw a relevant drop vis-à-vis 1Q mainly for the residential construction area, home building. Have you felt the impact of that? Will this have any seasonal effect on you and how do you see the market until the end of 2014? Mr. Vazquez: Well we do not see any drop there, it is quite the opposite; we see that the market has been improving since December last year. In December last year there was a marked drop as we mentioned already during previous calls, and in December due to the holidays that were right in the middle of the week practically the second half of December was nonexistent, there was no activity whatsoever in the second half of December and because of that many projects that should have been started in December they were postponed to the beginning of January or February. So what we see is that December was the worst month and from then on the market has been gradually improving, so we see no drop whatsoever in April. Mr. Falcão: And where or when do you expect to have a close to 11 ROIC considering the next few quarters? Mr. Vazquez: We cannot give you guidance about our ROIC. What we expect is that over the year both the margin and the ROIC will be going back to the historical levels in this real estate division. Mr. Falcão: Thank you. Operator: Once again we remind you that in order to ask a question you should press star one. Mr. Marcos Kawakami from BNP Paribas. Mr. Bruno XXX: This is Bruno, Marcos is just listening to us, good morning. If you are saying that you do not have any new projects to deliver over the year as Sara asked and due to the deceleration that happened in heavy construction in 1Q the companies are saying that they have a very short visibility. It is rather complicated to imagine an acceleration of your business from now on?

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It seems to me that you have changed your expectation regarding heavy construction. Could we expect a more significant drop in your growth rate for this division? Mr. Vazquez: Let me see if I have understood your question: we have no problem whatsoever regarding infrastructure, it is quite the opposite in fact; we are extremely bullish about it and today with the backlog that we have we will be having a very good result for 2014 and due to the concessions that were granted of which… And we are already studying some of them for 15, 16 and 17 we expect very good years as well. And the equipment that has to be taken from one project and goes to the warehouse and they go the other projects of course we have to do maintenance work in our equipment so that they can be maintained before they are sent to new projects. We would be concerned if we had no new projects but it is exactly the opposite: we are taking equipment from airports for instance and taking them to Vale S11D for instance and they are being shipped. So we see no problem whatsoever in infrastructure. Mr. XXX: So the market should not be scared because of your 1Q results. This is totally seasonal but you still see an upward curve from now on? Mr. Vazquez: Would have no doubt whatsoever regarding this. We see no problem at all in infrastructure: the infrastructure market should be growing during the next few quarters and what happens in 1Q has to do with projects that are coming to an end in terms of utilization of our equipment and then others start. This is just business as usual in our business. Mr. XXX: Thank you. Operator: Once again, in order to ask the question you should press star one. Our next question comes from Sara Delfim, Bank of America. Ms. Sara Delfim: It is not a question Ramon. I would like to give you feedback on our side and due to the development of the call it is more a concern in terms of the infrastructure division. You had been growing your revenues about 8% year on year and in a way this division should be growing up to 15%, and based on your speech during the call you believe that this is achievable and that it should continue to improve over the year. But one concern that I have been seeing and people ask us about that is the following: last year there was an impact of this demobilization or disablement and there was a major pressure and margins suffered in 1Q - I do not remember the exact figure - but there was freight costs and the disablement cost and the maintenance cost. And for this year do you think it will be smoother or do you believe we should see a bigger pressure on your margins in 2Q because of the process that is just business as usual as you said? The question that is very much or very often asked is whether this

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could have a negative impact on the results of your 2Q such as we saw in 2Q 13. So do you expect this to be smoother this year? Mr. Vazquez: I think there is a certain degree of impact but this is not relevant because this impact has already occurred in 1Q, which means that in 1Q we already had the return of quite a lot of equipment to our warehouses and also the exit of a lot of equipment at the same time, so there is nothing relevant regarding this. We do not expect a drop in our margin because of this factor, because of equipment maintenance. The equipment maintenance is being carried out over the half-year; part of that has already happened and part of that is already happening in 2Q and so we do not see this negative impact on our results. Ms. Delfim: So according to this seasonality, which is to have a weaker 1Q and a stronger 2Q we could expect a growth in our profitability and in your revenues? Mr. Vazquez: Going back to your first question about the expectation of revenue increase for this year I can answer that it is perfectly according to our budget. We already expected this, there is no surprise there. We are not talking about projects that are mobilizing… demobilizing in the very short span of time; we are talking about projects that have a very long duration so to say, and we know exactly when they will start returning equipment to us. So this is within our plan for this year: that in the first half we will have quite a lot of return of equipment and at the same time equipment will be leaving our warehouses going to new projects and then in the second half we will have the results coming from these that are - I repeat - long-term projects and because of that our revenue growth expectation is very positive for the next few quarters. So there is nothing different there from what we had already planned for 2014. Ms. Delfim: Thank you very much. Operator: Now we would like to close our Q&A session and I would like to give the floor back to Mr. Ramon Vazquez for his closing remarks. Mr. Vazquez: Once again I would like to thank you very much for participating in our call about Mills’ results for 1Q 14 and the investor relations team is available to you to solve any questions or doubts that you might have. Thank you very much. Operator: Mills’ conference call is closed. We thank you for participating in the call and wish you all a very good day. Thank you.