bernardo calvente danilo kamiji danton koga renan criscio insper 2012.pdf · bernardo calvente...

Bernardo Calvente Danilo Kamiji Danton Koga Guilherme Barros Renan Criscio

28/11/2012 2

“A high quality stock with great growth potential”

0

20

40

60

80

100

Oct-06 Dec-07 Mar-09 May-10 Jul-11 Oct-12 Dec-13

BRL

UPSIDE

25.1%

Reference Date 19-oct

Ticker MDIA3

Market Cap. BRL7,362 mn

Avg. Daily Traded Volume

BRL19.7 mn

Governance Level

Novo Mercado

Recommendation

Market Price

BRL65.10

Target Price

BRL81.42

Source: Bloomberg and Team’s estimates.

Reasons to BUY

Valuation & Financials

Risk Analysis

Conclusion Company Overview

BUY

72%

16%

6% 4%

2%

MDB: Leading producer of Cookies and Pasta in Brazil

Reasons to BUY


Risk Analysis


Source: Company data.

Net Revenue breakdown

South

Middlewest North

Southeast

56%

21%

18%

4% 1%

Wheat Flour and

Bran

Margarine and Fats

Pasta

Snacks and Cakes


Cookies market share in volume

MDB 26.3%

Nestlé 8.9%

Nabisco 7.2% Source: Company data.

Northeast

Cookies

Pasta market share in volume

MDB 25.1%

Selmi 11.7%

J.Macêdo 9.5%

1,507

2,193 2,348 2,444 2,911

2007A 2008A 2009A 2010A 2011A

Net Revenue

Market Leadership

Vertical

Integration

New Products

Organic & Acquisition

Growth

SUCCESSFUL STRATEGY EXCELLENT RESULTS

18% CAGR2007-2011

204

378 469 461 475

2007A 2008A 2009A 2010A 2011A

EBITDA 23% CAGR2007-2011

Reasons to BUY


Risk Analysis


*International data Source: Company data and Bloomberg.


MDB Kraft* Nestlé* Selmi J.Macêdo

EBITDA Margin

18.0% 17.6%

7.6% 5.5%

18.4%

FURTHER POTENTIAL

Reasons to BUY


Risk Analysis


UNMATCHED BUSINESS MODEL

GROWTH OPPORTUNITIES

CONFIRMATIVE VALUATION

BUY

Business Model

Innovation

Vertical integration

Sales strategy

Reasons to BUY


Risk Analysis


Distribution Center (DC)

Reasons to BUY


Risk Analysis



Innovation


Sales strategy

Branding Distribution

Model

36%

3% 1%

16%

44%

Reasons to BUY


Risk Analysis



Innovation


Sales strategy Direct Sales

(40% of sales)

Indirect Sales

(60% of sales)

Small Retailers

Industry

Others

Large Chains

Whole Sale and

Intermediate CLIENT

MIX

Reasons to BUY


Risk Analysis



Innovation


Sales strategy Power of Brands

Distribution

Model Cross-selling

Brand-streching

ENTRY

BARRIERS

Reasons to BUY


Risk Analysis


Innovation


Sales strategy Sales

Strategy

Strong

Brands

Adding value in current portfolio…

BRL7.68/kg BRL21.30/kg


+1,365%

Reasons to BUY


Risk Analysis


Source: Company data and Team’s estimates.

+177%

Innovation


Sales strategy

... and entering new higher margins segments

2012 FUTURE

Reasons to BUY


Risk Analysis



Innovation


Sales strategy

MDB Avg. Ticket

BRL2.26/kg

BRL22.25/kg

BRL16.00/kg

Sales

Margins

Mills Shortening Division

Wheat Flour

72%

Shortening

67%

Fully integrated by 2015

100bps gain in Gross Margin

Reasons to BUY


Risk Analysis



Vertical Integration

Level

Cost reduction & Quality control

Innovation


Sales strategy

Reasons to BUY


Risk Analysis





BUY Sales Strategy Innovation Vertical Integration

Northeast presence

New markets

Consumer preference

Reasons to BUY


Risk Analysis


Growth Opportunities

Monthly In BRL terms

Above 4,000 2,000 to 3,000 400 to 1,200 Below 400

6.000

7.000

8.000

9.000

10.000

11.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

As income per capita increases…

11,000

10,000

9,000

8,000

7,000

6,000

100 125

104 86 100

139 146

187

100 135

165

271 … families spend more with Cookies and Pasta

Rice Pasta Cookie

Income per capitaannual-USD

Reasons to BUY


Risk Analysis


Source: IBGE.

Source: IBGE.

Northeast presence

New markets

Consumer preference

9.2 9 8.8 8.5 8.4 8.4 8 8 7.3 7.2 6.7 6.6 6.6 6

Brazilian cookies consumption has potential...

13 11.9 10.4 9.7 9 8.8 8.4 8.3 8

6.6 6.4

...the same for pasta consumption

Reasons to BUY


Risk Analysis


Source: International Pasta Organization (2011).

Source: Lafis/Simabesp (2011).

Northeast presence

New markets

Consumer preference Per capita consumption kg/year

Per capita consumption kg/year

Household income/capita (BRL)

250

350

450

550

650

750

850

2003 2004 2005 2006 2007 2008 2009

Northeast Other regions Southeast

CAGR 6.9%

CAGR 3.9% CAGR 5.2%

1.5%

58.6% 2.5%

37.2%

Others

4.3%

0.8%

52.2% 0.6%

30.1% 16.3%

Others

Cookies Market-share

Pasta Market-share

Reasons to BUY


Risk Analysis


Source: IBGE.


Northeast presence

New markets

Consumer preference

2008 2011 2011 2012

Past acquisitions in the Northeast

Northeast

2nd largest market in

Brazil


Brazil

Income tax ICMS (VAT)

300bps of Gross Margin

Effective I.T. of 16% (from 34%)

Reasons to BUY


Risk Analysis



Northeast presence

New markets

Consumer preference

Tax Benefits

Southeast – Largest market in Brazil

10.5% 9.4% 8.6%

52.4%

Others

10.1%

15.2% 17.2% 15.9% 41.7% 10.0%

Others


Pasta Market-share

NE MG Population2012E mn 55.5 20.6

Est. Population CAGR2012E-2022E

0.63% 0.60%

Household Per capita Income2009

(in BRL) 443.05 703.74

MG Targets: 328

MG

Reasons to BUY


Risk Analysis


Source: Copany data.

Source: IBGE and Team’s estimates.

Northeast presence

New markets

Consumer preference

Reasons to BUY


Risk Analysis






Consumer preferences Northeast presence New markets

Revenue

Regional

National

Cookies & Pasta

Other Products

Reasons to BUY


Risk Analysis


Valuation: 10y projected FCFF + Terminal Value

Reasons to BUY


Risk Analysis


Net Revenu

e

Revenue

Consumer preference Northeast dominance

Vertical integration Consolidation of past acquisitions

EBITDA

Net Profit

Deleverage Tax benefits

CAGR2012E-2016E: 12.2%

CAGR2012E-2016E: 14.5%

CAGR2012E-2016E: 17.2%

Source: Team’s estimates.


643 741

884 1,027

1,104

447 494 621

759 842

2012E 2013E 2014E 2015E 2016E

EBITDA

Net Profit

3,521 4,018

4,570 5,170

5,580

2012E 2013E 2014E 2015E 2016E

Net Revenue

18.3% 18.4% 19.3% 19.9% 19.8%

12.7% 12.3% 13.6%

14.7% 15.1%

2012E 2013E 2014E 2015E 2016E

EBITDA Margin Net Profit Margin

ROIC 2012E → 2016E 14.6% → 19.0%

ROE 2012E → 2016E 19.6% → 22.9%

Debt: 15% Equity: 85%

238

401 527

624 705 750 804 861

947 995

700

2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Free Cash Flow to the Firm

10Y DCF

Terminal Value

BRL37.05

BRL44.37

BRL81.42

Assumptions (nominal terms)

WACC 10.4%

g 5.0%

Tax Benefits cut by half

Tax Benefits

30% of Target Price (BRL24.2)

Reasons to BUY


Risk Analysis


Target Price


CAGR2012E-2022E: 11.3%

Market Price

BRL65.10

Target Price

BRL81.42

BUY UPSIDE

25.1%

Comparables P/E

LTM*

M. Dias Branco 16.8x

Kraft 16.5x

Nestlé 18.2x

BR Foods 49.9x

Bimbo 33.6x

Kellogg Company 16.1x

H.J. Heinz 16.8x

General Mills 15.5x

Average 23.8x

Multiples

Reasons to BUY


Risk Analysis


*LTM: Last 12-months Source: Bloomberg.

Current 16.8x

Historical average

20.1x

10

15

20

25

30

35

40

Trading below peer’s average and historical average

Source: Bloomberg.

Market Price

BRL65.10

Avg Peer Target P/E

17.6x Target Price

BRL78.82 EPS E13

BRL4.48

Reasons to BUY


Risk Analysis


UPSIDE

21.1%

Multiples

Considering peer’s target mutiples…

Reasons to BUY


Risk Analysis







DCF Multiples

Investment risks

Reasons to BUY


Risk Analysis


Tax Benefits

Governance

Stocks Liquidity

M&A Execution

CADE Regulation


Commodities

Competition

Currency

Commodities

Raw Materials: 66% of COGS

Wheat V. Shortening Others

32% 11% 23%

WHEAT HEDGE

INVENTORIES

OTHER

PRODUCTS

ICMS DISCOUNT

0

100

200

300

400

500

600

700

0%

10%

20%

30%

40%

50%

60%Gross Margin Wheat Price (BRL/ton)

Reasons to BUY


Risk Analysis




Tax Benefits

Reasons to BUY


Risk Analysis





END OF TAX BENEFITS?

Partial Tax benefits maintenance (50% tax cut in terminal value)

NE’s socioeconomic perspectives

Contracts effective in the long run

Monte Carlo simulation

0

200

400

600

800

1000

1200

42 50 57 65 72 80 88 95 103 110 118 126 133

Fre

qu

en

cy (

x)

Target Price (BRL)

Distribution of estimated Target Prices

HOLD: 23.7% SELL: 9.3% BUY: 67%

Reasons to BUY


Risk Analysis


Variables •Inflation rate (Normal)

• Wheat prices (Lognormal)

• GDP growth (Normal)

• Exchange rate (Lognormal)

Source: Company data, Central Bank of Brazil and Team’s estimates.

Reasons to BUY


Risk Analysis





BUY


Upside 25.1%

Sales Strategy Innovation Vertical Integration


DCF Multiples

28/11/2012 34


Thank You

Q&A Session 1

Multiples 1. Why P/E? 2. P/E Multiples 3. P/E Target 4. EV Multiples 5. Target Prices

Industry Overview 1. Competition – Cookies Market 2. Competition – Pasta Market 3. Cookies Producer in Brazil 4. Cookie Consumption in Brazil 5. MDB vs. Cookies Market 6. MDB vs. Pasta Market

Valuation 1. Wheat Costs 2. CAPEX 3. Inflation and Currency 4. Gross Margin 5. EBITDA Margin 6. Net Profit Margin 7. ROIC 8. ROE 9. ROE – DuPont Analysis 10. ROA 11. Net Debt/EBITDA 12. WACC Assumptions 13. Beta Calculation 14. Tax Shield 15. Expenses 16. EPS

Company Data 1. Balance Sheet – 2010A-2015E – Assets 2. Balance Sheet – 2010A-2015E – Liabilities & Equity 3. Balance Sheet – 2016E-2022E – Assets 4. Balance Sheet – 2016E-2022E – Liabilities & Equity 5. Income Statement – 2010A-2016E 6. Income Statement – 2017E-2022E 7. Cash-Flow Statement – 2010A-2015E 8. Cash-Flow Statement – 2015E-2022E 9. FCFF 10. Vertical Integration 11. Creditors in BR

Q&A Session 2 → Q&A Session 3 →→

Q&A Session 2 Risks 1. Currency 2. Stocks Liquidity 3. Corporate Governance – Stockholders 4. Corporate Governance – Board of Directors 5. Commodities – Historical Wheat Prices 6. Commodities – Inventories Management 7. Commodities – Plantation/Harvest 8. Bullish Case – Result 9. Bullish Case – Variables 10. Bullish Case – Acquisition Assumptions 11. Bearish Case – Result 12. Bearish Case – Variables 13. Sensitivity Analysis – g and WACC 14. Montecarlo Simulation

Tax Benefits 1. ICMS 2. Income Tax 3. Reasons to Maintain 4. Reasons to Remove 5. The ICMS Debate 6. Sensitivity Analysis – ICMS and I.T.

Static slides 1. Recommendation 2. Overview I 3. Overview II 4. Past Performance I 5. Past Performance II 6. Sales Strategy I 7. Sales Strategy II 8. Sales Strategy III 9. Innovation I 10. Innovation II 11. Innovation III 12. Vertical Integration 13. Consumer preferences I 14. Consumer preferences II 15. Northeast presence I 16. Northeast presence II 17. Northeast presence III 18. New markets I 19. Valuation I 20. Valuation II 21. Valuation III 22. Valuation IV 23. Valuation V

← Q&A Session 1 Q&A Session 3 →

Q&A Session 3 Static slides 1. Recommendation 2. Overview I 3. Overview II 4. Past Performance I 5. Past Performance II 6. Sales Strategy I 7. Sales Strategy II 8. Sales Strategy III 9. Innovation I 10. Innovation II 11. Innovation III 12. Vertical Integration 13. Consumer preferences I 14. Consumer preferences II 15. Northeast presence I 16. Northeast presence II 17. Northeast presence III 18. New markets I 19. Valuation I 20. Valuation II 21. Valuation III 22. Valuation IV 23. Valuation V

← ← Q&A Session 1 ← Q&A Session 2

Static slides 1. Multiples I 2. Multiples II 3. Risks I 4. Risks II 5. Risks III 6. Conclusion

Balance Sheet 2010A-2015E - Assets

Balance Sheet (BRLmm)

2010 2011 2012E 2013E 2014E 2015E

ASSETS Cash and Cash

Equivalents 54.4 95.3 200.4 388.9 691.0 1,037.7

Receivable 359.9 436.1 524.6 567.2 645.0 729.7 Inventories 264.5 308.0 380.6 400.7 448.9 504.5

Other Current Assets 1.6 1.3 - - - - Total Current Assets 680.4 840.7 1,105.6 1,356.8 1,784.9 2,271.8

Net Fixed Assets 977.7 1,181.3 1,318.6 1,439.5 1,500.1 1,567.3 Intangible 557.4 861.2 897.4 861.5 827.0 793.9

Other Non Current Assets

146.1 175.0 188.9 189.1 189.3 189.4

Total Non Current Assets

1,535.1 2,042.5 2,215.9 2,300.9 2,327.1 2,361.2

Total Assets 2,215.5 2,883.2 3,321.6 3,657.7 4,112.0 4,633.1

Main Menu

Balance Sheet 2010A-2015E – Liabilities & Equity


2010 2011 2012E 2013E 2014E 2015E

LIABILITIES & EQUITY Suppliers 62.4 92.4 88.7 93.3 104.6 117.5

Short Term Debt 41.0 227.3 129.8 125.7 129.2 131.5 Other Current Liabilities 183.9 240.1 348.0 394.5 493.2 607.2 Total Current Liabilities 287.3 559.8 566.5 613.6 726.9 856.3

Long Term Debt 235.2 348.2 469.5 477.3 483.2 487.9 Other Non Current

Liabilities 78.7 144.4 200.7 200.7 200.7 200.7

Total Non Current Liabilities

313.8 492.6 670.2 678.0 683.8 688.6

Capital Stock 746.5 777.8 801.3 801.3 801.3 801.3 Revaluation Account 123.2 122.0 122.0 122.0 122.0 122.0

Retained Earnings 890.8 1,105.9 1,350.5 1,632.0 1,967.2 2,354.3 Total Equity 1,760.5 2,005.8 2,273.8 2,555.3 2,890.6 3,277.6

Total Liabilities 2,361.6 3,058.2 3,510.5 3,846.8 4,301.3 4,822.5

Main Menu

Balance Sheet 2016E-2022E - Assets


2016E 2017E 2018E 2019E 2020E 2021E 2022E

ASSETS Cash and Cash

Equivalents 1,406.2 1,783.4 2,174.5 2,578.5 2,992.2 3,392.6 3,439.6

Receivable 785.5 845.7 904.6 988.7 1,048.8 1,116.4 1,183.0 Inventories 543.7 585.5 626.2 684.4 725.9 772.8 840.1

Other Current Assets

- - - - - - -

Total Current Assets

2,735.4 3,214.6 3,705.3 4,251.6 4,766.9 5,281.8 5,462.6

Net Fixed Assets 1,643.3 1,727.2 1,818.4 1,916.9 2,022.7 2,135.7 2,345.4 Intangible 762.2 731.7 702.4 674.3 647.3 621.4 596.6

Other Non Current Assets

189.6 189.9 190.1 190.3 190.4 190.6 190.8

Total Non Current Assets

2,405.5 2,458.9 2,520.8 2,591.2 2,670.0 2,757.1 2,942.0

Total Assets 5,140.9 5,673.5 6,226.1 6,842.8 7,436.9 8,038.9 8,404.6

Main Menu

Balance Sheet 2016E-2022E – Liabilities & Equity Balance Sheet

(BRLmm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E

LIABILITIES & EQUITY Suppliers 126.7 136.4 145.9 159.4 169.1 180.0 195.7

Short Term Debt 134.2 134.3 135.3 138.4 140.8 142.0 144.0

Other Current Liabilities 691.6 786.7 889.3 1,029.8 1,150.2 1,281.6 1,255.7

Total Current Liabilities 952.5 1,057.4 1,170.4 1,327.6 1,460.1 1,603.6 1,595.4

Long Term Debt 495.4 503.7 511.9 518.5 525.1 531.5 538.0 Other Non Current

Liabilities 200.7 200.7 200.7 200.7 200.7 200.7 200.7

Total Non Current Liabilities

696.1 704.3 712.6 719.1 725.8 732.2 738.7

Capital Stock 801.3 801.3 801.3 801.3 801.3 801.3 801.3 Revaluation Account 122.0 122.0 122.0 122.0 122.0 122.0 122.0

Retained Earnings 2,758.5 3,178.3 3,609.9 4,063.0 4,518.2 4,970.4 5,338.0

Total Equity 3,681.9 4,101.6 4,533.2 4,986.3 5,441.5 5,893.7 6,261.3

Balance Sheet (BRLmm) 5,330.5 5,863.3 6,416.2 7,033.1 7,627.3 8,229.5 8,595.4

Main Menu

Income Statement 2010A-2016E

Income Statement (BRLmn)

2010 2011 2012E 2013E 2014E 2015E 2016E

Gross Revenue 2,887.5 3,436.3 4,164.3 4,819.2 5,480.9 6,200.3 6692.6 (-) Taxes and

Discounts (443.5) (525.3) (643.5) (801.1) (911.1) (1,030.7) (1,112.5)

Net Revenue 2,444.0 2,911.0 3,520.8 4,018.1 4,569.8 5,169.6 5,580.1 (-) Cost of Products (1,423.7) (1,812.5) (2,088.0) (2,342.7) (2,624.6) (2,949.4) (3,187.5)

(=) Gross Profit 1,020.3 1,098.5 1,432.8 1,675.4 1,945.2 2,220.2 2,392.6 (-) Sales Expenses (452.6) (525.5) (649.2) (747.5) (850.2) (961.7) (1,038.1)

(-) G&A (148.0) (150.1) (194.3) (238.2) (268.4) (292.1) (314.5) (-)

Depreciation/Amortization

(12.7) (13.9) (41.2) (63.5) (63.5) (62.6) (61.9)

(=) EBIT 406.9 409.0 548.0 626.2 763.2 903.8 978.1 (+) Financial Revenues 39.4 37.6 41.7 14.9 29.9 55.7 87.7 (-) Financial Expenses (55.2) (50.6) (57.8) (53.4) (53.9) (56.0) (63.3)

(=) EBT 391.1 396.0 531.9 587.8 739.2 903.5 1,002.4 (-) Taxes (45.2) (36.1) (85.1) (94.0) (118.3) (144.6) (160.4)

(=) Net Profit 345.8 359.9 446.8 493.7 620.9 758.9 842.0

Main Menu

Income Statement 2017E-2022E

Income Statement (BRLmn) 2017E 2018E 2019E 2020E 2021E 2022E

Gross Revenue 7185.6 7686.4 8401.2 8935.7 9486.1 10051.6

(-) Taxes and Discounts (1,194.5) (1,277.7) (1,396.5) (1,485.4) (1,576.9) (1,670.9)

Net Revenue 5,991.2 6,408.7 7,004.7 7,450.4 7,909.3 8,380.8

(-) Cost of Products (3,423.0) (3,661.1) (4,001.3) (4,255.8) (4,518.1) (4,911.8)

(=) Gross Profit 2,568.2 2,747.6 3,003.4 3,194.5 3,391.2 3,468.9

(-) Sales Expenses (1,114.6) (1,192.3) (1,303.1) (1,386.1) (1,471.4) (1,559.1)

(-) G&A (337.0) (359.9) (383.4) (407.7) (432.9) (458.7)

(-) Depreciation/Amortization (61.5) (61.2) (61.0) (61.0) (61.2) (61.6)

(=) EBIT 1,055.1 1,134.3 1,255.8 1,339.7 1,425.7 1,389.5 (+) Financial Revenues 121.9 157.6 195.0 235.5 276.9 316.9 (-) Financial Expenses (66.6) (68.5) (67.7) (70.0) (71.2) (72.6)

(=) EBT 1,110.4 1,223.4 1,383.1 1,505.2 1,631.4 1,633.8 (-) Taxes (177.7) (195.7) (221.3) (240.8) (261.0) (408.4)

(=) Net Profit 932.7 1,027.6 1,161.8 1,264.3 1,370.4 1,225.3

Main Menu

Cash-Flow Statement 2010A-2015E Cash flow statemennt (BRL mn) 2010 2011 2012E 2013E 2014E 2015E

EBIT 406.9 409.0 548.0 626.2 763.2 903.8

Depriciation and amortization 53.6 65.6 95.1 115.0 120.8 123.1

(+/-) Working capital need (27.0) (62.0) (111.1) (45.8) (91.5) (101.6)

Cash flow from activity 433.5 412.7 531.9 695.5 792.5 925.3

Financial result (15.9) (13.0) 0.5 (28.7) (16.8) 5.6

Other non-cash expenses (102.7) (50.3) 31.4 0.0 0.0 0.0

Net change in other current liabilities and assets

2.1 2.7 (3.2) 0.0 0.0 0.0

Income tax (45.2) (36.1) (129.3) (93.2) (116.3) (142.4)

Cash flow from operating activities 271.8 315.9 431.3 573.5 659.4 788.4

Capital expenditure (240.7) (273.6) (208.7) (200.0) (147.0) (157.2)

Cash flow from investing activities (240.7) (273.6) (208.7) (200.0) (147.0) (157.2)

Net changes in debt (30.8) 78.6 (41.2) (6.3) 1.9 1.1

Net common stock issued 0.0 0.0 0.0 0.0 0.0 0.0

Dividends paid (76.3) (87.5) (84.2) (178.7) (212.3) (285.6)

Cash flow from financing activities (107.0) (8.9) (125.4) (185.0) (210.4) (284.5)

Total cash flow (75.9) 33.5 97.1 188.5 302.0 346.7

Initial cash 54.4 54.4 95.3 200.4 388.9 691.0

Final cash 95.3 95.3 200.4 388.9 691.0 1,037.7

Main Menu

Cash-Flow Statement 2016E-2022E

Cash flow statemennt (BRL mn) 2016 2017 2018 2019 2020 2021 2022

EBIT 978.1 1,055.1 1,134.3 1,255.8 1,339.7 1,425.7 1,389.5 Depriciation and amortization 125.8 129.1 132.9 137.2 142.0 147.3 153.0

(+/-) Working capital need (68.7) (73.8) (72.1) (103.0) (73.5) (82.8) (95.8)

Cash flow from activity 1,035.1 1,110.4 1,195.1 1,290.0 1,408.2 1,490.1 1,446.7 Financial result 33.7 65.5 99.3 135.4 173.7 213.7 252.3

Other non-cash expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net change in other current

liabilities and assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income tax (159.1) (176.2) (194.3) (219.2) (239.3) (259.3) (396.3)

Cash flow from operating activities

909.7 999.7 1,100.1 1,206.2 1,342.6 1,444.5 1,302.7

Capital expenditure (170.1) (182.5) (194.9) (207.6) (220.8) (234.4) (337.8)

Cash flow from investing activities (170.1) (182.5) (194.9) (207.6) (220.8) (234.4) (337.8)

Net changes in debt 0.7 (2.2) (1.2) 1.4 0.6 (0.5) 0.2 Net common stock issued 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dividends paid (371.9) (437.9) (513.0) (596.0) (708.7) (809.2) (918.1)

Cash flow from financing activities (371.2) (440.0) (514.2) (594.7) (708.1) (809.7) (917.9)

Total cash flow 368.4 377.2 391.1 404.0 413.7 400.4 46.9

Initial cash 1,037.8 1,406.2 1,783.4 2,174.5 2,578.5 2,992.2 3,392.6 Final cash 1,406.2 1,783.4 2,174.5 2,578.5 2,992.2 3,392.6 3,439.6

Main Menu

FCFF

FCFF 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016

EBIT 547,990 626,225 763,248 903,804 978,067

Tax -85,098 -94,069 -118,281 -144,558 -160,380

EBIAT 462,892 532,156 644,966 759,246 817,687

Depreciation & Amortization 95,079 115,010 120,827 123,088 125,794

Change in Working Capital -111,138 -45,775 -91,526 -101,621 -68,736

Capex (net of assets sale) -208,700 -200,000 -147,023 -157,168 -170,073

Free Cash Flow 238,133 401,392 527,245 623,545 704,672

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FCFF

FCFF 31/12/2017 31/12/2018 31/12/2019 31/12/2020 31/12/2021 31/12/2022

EBIT 1,055,120 1,134,313 1,255,839 1,339,689 1,425,677 1,389,526

Tax -177,667 -195,741 -221,298 -240,826 -261,022 -408,442

EBIAT 877,453 938,572 1,034,541 1,098,863 1,164,656 981,084

Depreciation & Amortization

129,086 132,899 137,202 141,986 147,253 152,998

Change in Working Capital

-73,771 -72,126 -102,993 -73,509 -82,845 -95,834

Capex (net of assets sale)

-182,475 -194,851 -207,571 -220,779 -234,376 -337,834

Free Cash Flow 750,293 804,494 861,179 946,561 994,687 700,413

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61.7% 64.5% 73.1%

81.4%

100% 38.3% 35.5% 26.9% 18.6%

10 11 12E 13E 14E

Own Wheat flour Third party Wheat flour

Wheat flour Vertical integration – Year End estimates

Company City EBITDA Margin

Moinhos Cruzeiro do Sul (Rosa Branca) São Paulo/SP 6%

Moinho Paulista (Nita) São Paulo/SP 7%

Moinho do Nordeste Antônio Prado/RS 7%

EBITDA Margin - % Depreciation –Tax rate

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Creditors in BRL - 2011

Source: Company data

121.4 41%

21.9 7%

95.3 32%

57.70 20%

BNDES State funding BNB Others

Excluding Acquisitions contracts

Main Menu

Debt in details - 1 Debt in BRL (millions) 2009 2010 2011

Index BRL BRL Interest YoY BRL

BNDES – FINAME TJLP 29.0 16.0 1.97% 11.8

BNDES- PSI BRL 3.0 46.3 4.52% 94.8

BNDES - PSI URTJLP - - 6.11% 1.5

State funding (CE) TJLP 2.8 3.0 - 17.9

State funding (BA) TJLP 2.8 3.0 - 4.0

BNB - FNE - 91.9 95.6 10.0% 95.3

MODERMAQ - 0.2 - - -

MODERMAQ (Pós) TJLP 4.0 2.7 1.03% 1.7

BNB – FNE – Working Capital - 2.9 1.2 - -

Working Capital – Fixed rate - - - 18.49% 18.5

Working Capital - CDI - - - 4.49% 27.7


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Debt in details - 2

Debt in BRL (millions) 2009 2010 2011


PEC - BNDES - - - 6.47% 10.9

Guaranteed – Fixed rate - - - 23.46% 1.5

Guranteed - CDI - - - 4.58% 10.0

BNDES - Automatic TJLP 0.5 0.7 2.49% 0.5

BNDES – Automatic Floating 0.2 0.3 2.49% 0.2

Vitarella’s quotes instrument 100% CDI 293.1 90.1 - 100.4

Pilar’s quotes instrument 100% CDI - - - 22.7

Estrela’s quotes/stocks instrument 100% CDI - - - 140.3

TOTAL 444.3 271.8 559.7


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Debt in details - 3

FX (millions) 2009 2010 2011


Inputs imports USD 56.3 - 2.52% 11.3

Machinery and equipments USD - - 4.96% 0.6

Machinery and equipments CHF 5.3 4.4 LIBOR + 1.50%

3.7

TOTAL 61.6 4.4 15.6


Main Menu

Competition – Cookies Market Cookies Market

Company Brands

M. Dias Branco Vitarella, Adria, Fortaleza, Isabela, Zabet, Pilar, Richester, Estrela

Nestlé Bono, Calipso, Classic, Negresco, Passatempo, Tostines

Kraft Foods Amandita, Oreo, Trakinas

Pepsico Mirabel, Mabel

J. Macêdo Águia

Bauducco Bauducco, Torradas, Maxi, Gulosos

Itamaraty Itamaraty, Fioretto, Saltita, Jumbolino

Marilan Marilan, Max, Pit Stop, Teens, Vitallitá

A.C. - Alimentos & Condimentos Leve Supreme, Todeschini, Pica-Pau

Piraquê Piraquê

Arcor Aymoré, Danix, Triunfo

Different Positioning in market 1. Chocolates 2. Dairy and

Powdered Drink

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Competition – Pasta Market Pasta Market

Company Brands

M. Dias Branco Vitarella, Adria, Fortaleza, Isabela, Basilar, Pilar, Richester

Vilma Vilma, Bendita Terra, Oregon

Santa Amália Santa Amália

Selmi Renata, Galo

J. Macêdo Dona Benta, Petybon, Brandini

Barilla Barilla

Piraquê Piraquê

Cadore Cadore

A.C. - Alimentos & Condimentos Leve Supreme, Todeschini

Parati Grano Duro

Emegê Alimentos Emegê

Strong Brands in MG

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Cookies Producers in Brazil

State Units State Units

AC 1 PB 51

AL 24 PR 125

AP 1 PE 94

AM 2 PI 13

BA 127 RJ 60

CE 51 RN 91

DF 26 RS 186

ES 29 RO 9

GO 63 RR 1

MA 12 SC 139

MT 15 SP 225

MS 10 SE 13

MG 328 TO 3

PA 15 Total 1714

Source: ANIB

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Cookie Consumption in Brazil

BA 6% CE

7%

ES 2% MA

3%

MG 11%

PA 2%

PR 4%

PE 3%

RJ 13%

RS 4%

SC 6%

SP 27%

Others 12%

3rd Largest Market in Brazil

Source: ANIB

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M. Dias Branco vs. Cookies Market

COOKIES MARKET 2007 2008 2009 2010 2011 CAGR

2007-2011

Production (1000 tonnes) 1,131 1,177 1,206 1,242 1,220 1.9%

Growth rate 1.70% 4.10% 2.50% 3% -1.77%

Per capita consumption (annual) 6 6.1 6.3 6.22 6.09 0.4%

Sales (billions) 5.19 5.65 5.96 6.47 6.8 7.0%

M. DIAS BRANCO 2007 2008 2009 2010 2011 CAGR

2007-2011

Cookies vol 203.2 301.1 363.3 383.9 423.4 20.1%

Cookies Gross revenue 939 1416.2 1506.3 1594.6 1883.6 19.0%

Source: ANIB and Company Data

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M. Dias Branco vs. Pasta Market

Pasta Market (1000 tones)

2007 2008 2009 2010 2011 CAGR 2007-

2011

Pasta vol 1275 1231 1227 1232 1195 -1.6%

Sales (billions) 5157 5650 5879 5915 6119 4.4%

M. Dias Branco 2007 2008 2009 2010 2011 CAGR 2007-

2011

Pasta vol 194 232.6 256.9 244.8 277.4 9.4%

Gross revenue 473.2 662.3 685.7 630.4 728.6 11.4%

Consumption of pasta (1000 tones) 2007 2008 2009 2010 2011 CAGR

2007-2011

Dry Pasta 5.7 5.4 5.3 5.2 5 -3.2%

Instant Pasta 0.8 0.9 0.9 0.9 1 5.7%

Fresh Pasta 0.2 0.2 0.2 0.2 0.3 10.7%

Total Pasta 6.7 6.5 6.4 6.4 6.2 -1.9%

Population 188 190 191 191 192 0.5%

Source: ABIMA, A.C. Nielsen and Company Data

Source: ABIMA and A.C. Nielsen

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Valuation: Wheat Costs • Wheat prices spikes: 2007-2008; 2011’; mid-2012’. • Wheat Futures contract prices until 2015. • Inflation adjusted by 2016.

100

150

200

250

300

350

400

450

ma

r-0

6

jul-

06

no

v-0

6

ma

r-0

7

jul-

07

no

v-0

7

ma

r-0

8

jul-

08

no

v-0

8

ma

r-0

9

jul-

09

no

v-0

9

ma

r-1

0

jul-

10

no

v-1

0

ma

r-1

1

jul-

11

no

v-1

1

ma

r-1

2

jul-

12

no

v-1

2

ma

r-1

3

jul-

13

no

v-1

3

ma

r-1

4

jul-

14

no

v-1

4

ma

r-1

5

jul-

15

no

v-1

5

Wheat Prices

Source: CBOT & Team’s estimates

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Valuation: CAPEX • Company guidance • Facilities built already considering further expansion • Vertical Integration & maintenance. • Construction of Mills for full integraton.

Pernambuco Mill Other Mills

33

70

120 135 143 140

200

147 157

2007A 2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E

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Source: Company data and Team’s estimates

Valuation: Inflation and Currency • IPCA index from Futures contract.

• Inflation target of 4.5% by 2016. • Currency from Futures contract.

Target: 4.5%

1,92

1,94

1,96

1,98

2,00

2,02

2,04

2,06

2012E 2013E 2014E 2015E 2016E 2017E

Currency

4,0%

4,1%

4,2%

4,3%

4,4%

4,5%

4,6%

4,7%

4,8%

4,9%

5,0%

20

12

E

20

13

E

20

14

E

20

15

E

20

16

E

20

17

E

20

18

E

20

19

E

20

20

E

Inflation

Source: Central Bank of Brazil and BMF Bovespa.

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Valuation: Margins – Gross Margin

37,2% 37,4%

42,4% 41,7%

37,7%

41,7%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

37,4%

42,4% 41,7%

37,7%

40,7% 41,7%

42,6% 42,9% 42,9%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E

Historical and Projection


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Valuation: Margins – EBITDA Margin

13,5%

17,2% 20,0% 18,8%

16,3% 18,6%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

17,2% 20,0% 18,8%

16,3% 18,3% 18,4% 19,3% 19,9% 19,8%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E



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Valuation: Margins – Net Profit Margin

5,3%

9,8%

15,0% 14,1% 12,4%

13,3%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

9,8%

15,0% 14,1% 12,4% 12,7% 12,3%

13,6% 14,7% 15,1%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E



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Valuation: Profitability – ROIC

4,4%

12,2%

18,3% 17,8%

14,4% 15,3%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

12,2%

18,3% 17,8%

14,4% 12,7% 12,3%

13,6% 14,7% 15,1%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E



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Valuation: Profitability – ROE

8,4%

17,8%

23,6%

19,6% 17,9% 19,1%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

17,8%

23,6%

19,6% 17,9%

19,6% 19,3% 21,5%

23,2% 22,9%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E



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ROE Improvements – DuPont Analysis

2011A 2012E 2013E 2014E 2015E 2016E

Operational Margin

14.1% 15.6% 15.6% 16.7% 17.5% 17.5%

Asset Turnover

0.95 1.00 1.04 1.06 1.07 1.05

Financial Leverage

1.52 1.54 1.51 1.49 1.47 1.45

Tax Burden 0.91 0.84 0.84 0.84 0.84 0.84

Interest Burden

0.97 0.97 0.94 0.97 1.00 1.02

ROE 17.9% 19.6% 19.3% 21.5% 23.2% 22.9%


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Valuation: Profitability – ROA

3,9%

11,0%

16,2% 15,3%

12,2% 13,2%

2007A 2008A 2009A 2010A 2011A 2S-2012A

Historical

11,0%

16,2% 15,3%

12,2% 12,7% 12,8% 14,4%

15,7% 15,8%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E



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Valuation: Debt

1,0

0,6

0,3

-0,1

-0,4

-0,7

2011A 2012E 2013E 2014E 2015E 2016E

Net Debt/EBITDA ratio


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Valuation: EPS


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0,70

1,87

3,10 3,05 3,17

2007A 2008A 2009A 2010A 2011A

Valuation: EPS


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0,70

1,87

3,10 3,05 3,17

2007A 2008A 2009A 2010A 2011A

3,94 4,35

5,47

6,69 7,42

2012E 2013E 2014E 2015E 2016E

WACC Assumptions

WACC Assumptions:

Cost of Equity:

• Risk free rate (2.5%): geometric average of 1929-2011 returns of 10-years-T-Bond.

• Expected market return (5.0%): geometric average returns of S&P 500 since 1929.

• Beta: we use the average unleveraged beta of MDB's peers in the global market and leveraged by the company capital structure.

• Country risk premium (2.5%): historical geometric average of Credit Default Swap of Brazil.

• Inflation Differential (2.5%): BRL inflation (IPCA YoY%) over US$ inflation (CPI YoY%).

• Cost of Debt: We took the weighted average rate paid on MDIAS most recent debt issued.

• Tax rate: 16%, which is the current average tax rate of M. Dias in the last 4 years.

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WACC Calculation

Beta 0.7

Risk-Free Rate 2.5%

Market Risk Premium 5.0%

Country Risk Premium 2.5%

Inflation Rate US 2.0%

Inflation Rate BR 4.5%

Cost of Equity 11.0%

After-tax Cost of Debt 6.0%

E/D+E (%) 85.0%

D/D+E (%) 15.0%

Perpetual Growth (%) 5.0%

WACC (%) 10.4%

Beta Calculation

From Comparable Peers:

Unleveraged Beta from Industry 0,61

M DIAS BRANCO Debt/Equity LF Tax Burden LF Beta:Y-2

17,65% 84,00% 0,7

Source: Bloomberg

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Tax Shield Assuming 16% in tax shield, we are being more conservative, because any number higher than 16% would increase our target price. Also, if we consider the low financial leverage of MDB, the changes in tax shield it wouldn’t affect our target price too much. Considering this question, we did a sensitive analysis for tax shield.

Tax Shield Target Price

16% BRL 81.42

25% BRL 83.04

34% BRL 84.73

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Valuation: Expenses Sales Expenses

• Economy of Scale: expansion and consolidation of acquisitions. • Branding: promotion and other expenses.

G&A Expenses • Economy of Scale: expansion and consolidation of acquisitions. • Vertical Integration: expenses from operations of mills.

18,4%

19,4%

18,5% 18,1%

18,6% 18,6%

2008A 2009A 2010A 2011A 2012E 2013E

4,6% 4,8% 6,1%

5,2% 5,5% 5,5%

2008A 2009A 2010A 2011A 2012E 2013E

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Why P/E? EV/EBITDA P/E

No tax benefits Tax Benefits and Net profits

Be Careful! Tax Benefits cannot be distributed as dividends

Reinvestment ROIC2012 = 14.6% > Cost of Equity = 11%

In our Investment case, Tax benefits are considered a competitive advantage of MDB, given its strategic position in the NE. Therefore, Tax benefits should be taken into account when comparing to peers.

More than a Benefit

Net Profit More relevant than EBITDA for shareholders’ return.

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P/E Multiples

MDB’s Fair Value2012

LTM EPS

MDB’s Fair Multiple

19.7x

Source: Bloomberg

EPS EPS EPS EPS

Company LTM 2012E 2013E Target E13

M. Dias Branco 16.8x 16.5x 15.0x 18.2x

Kraft Foods 16.5x 16.3x 17.1x 18.1x

Nestlé 18.2x 18.1x 16.8x 17.2x

BR Foods 49.9x 34.0x 18.5x 19.9x

Bimbo 33.6x 28.4x 21.3x 23.0x

Kellogg Company 16.1x 15.8x 14.6x 15.2x

General Mills 15.5x 15.1x 13.9x 14.6x

H.J. Heinz 16.8x 16.4x 15.2x 15.1x

Average 23.8x 20.6x 16.8x 17.6x

Median 16.8x 16.4x 16.8x 17.2x

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Comparables P/E

LTM*


Kraft 16.5x

Nestlé 18.2x

BR Foods** 34.0x

Bimbo** 28.4x


H.J. Heinz 16.8x

General Mills 15.5x

Average 20.8x

** P/E F12

P/E Multiples (2012)

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Comparables P/E

LTM*


Kraft 16.5x

Nestlé 18.2x

BR Foods** 18.6x

Bimbo** 21.3x


H.J. Heinz 16.8x

General Mills 15.5x

Average 17.5x

** P/E F13

P/E Multiples (2013)

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Comparables

Target Price (BRL)

EPS Target P/E

Dec - 13 2013 2013

M. Dias Branco 81.4 4.48 18.2x

Kraft 48.6 2.69 18.1x

Nestlé 63.2 3.67 17.2x

BR Foods** 40.1 2.01 19.9x

Bimbo** 33.4 1.45 23.0x

Kellogg Company 55.7 3.65 15.2x

H.J. Heinz 57.1 3.79 15.1x

General Mills 42.2 2.89 14.6

Average

17.6x

P/E Target Multiples

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EV Multiples

Sales Sales Sales EBITDA EBITDA EBITDA EBIT EBIT EBIT

Company LTM 2012E 2013E LTM 2012E 2013E LTM 2012E 2013E

M. Dias Branco 2.4x 2.2x 1.7x 13.6x 12.2x 10.6x 16.5x 14.8x 12.6x

Kraft Foods 1.5x 1.5x 1.4x 8.4x 8.0x 8.1x 9.4x 9.3x 9.3x

Nestlé 2.4x 2.3x 2.2x 13.5x 12.3x 11.3x 15.0x 15.4x 14.1x

BR Foods 1.5x 1.4x 1.3x 16.2x 14.5x 10.3x 26.2x 23.8x 14.8x

Bimbo 1.3x 1.1x 1.1x 12.4x 12.7x 10.4x 17.9x 18.9x 14.6x

Kellogg Company 2.0x 1.9x 1.8x 11.9x 11.4x 10.5x 14.3x 13.7x 12.6x

General Mills 2.0x 1.9x 1.8x 9.9x 9.6x 9.1x 11.9x 10.4x 10.8x

H.J. Heinz 2.0x 1.9x 1.9x 12.3x 10.9x 10.3x 15.2x 13.0x 12.2x

Average 1.8x 1.7x 1.6x 12.1x 11.3x 10.0x 15.7x 14.9x 12.6x

Median 2.0x 1.9x 1.8x 12.3x 11.4x 10.3x 15.0x 13.7x 12.6x

Source: Bloomberg

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Target Price

40,00 50,00 60,00 70,00 80,00 90,00 100,00 110,00

Kraft Nestlé BR Foods Bimbo Kellogg Company H.J. Heinz General Mills Average

MDB’s Current Price

P/E

Target P/E

EV/Sales

EV/EBITDA

EV/EBIT

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Currency Risk

Debt in BRL 591.2 93%

Inputs in USD 41

6%

Equipments in CHF 3.3

1%

Debt in FX 44.3 7%

Debt (millions) in BRL and FX

Source: Company’s Latest Press-release (3Q12)

Commodities are imported mostly from United States, Argentina and Canada

Company commonly finances these imports for a 1 year period

Credit constraint risk and FX-Debt risk

FX Debt due to Inputs imports fully hedged with Swap Contracts (Currency for CDI)

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2011

BRL 4.03

1.8 0.9 1.5

23.2

4 3.3 4.1 5 4.1 4.9 5.9

2.2 4.4

3.3 2.7 4.3 4.1 3.2

7.4 7

10.9 11.6 11.6

19.2

13.8

8.7

Au

g-1

0

Se

p-1

0

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Fe

b-1

1

Ma

r-1

1

Ap

r-1

1

Ma

y-1

1

Jun

-11

Jul-

11

Au

g-1

1

Se

p-1

1

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Fe

b-1

2

Ma

r-1

2

Ap

r-1

2

Ma

y-1

2

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

2012

BRL 10.38 +58%

Average Daily Treaded Volume (BRL mn)

* Block Trade

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Corporate Governance – Stockholders

Dibra Fundo de Investimentos

63%

Others 12%

Free Float – Novo Mercado

25%

MDB's Stockholders

Source: Company Data

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Corporate Governance – Board of Directors

Name Position Short Bio Years at MDB

Francisco Ivens de Sá Dias Branco

President - Son of Manuel Dias Branco, founder of MDB. Director of MBD since April 2006.

60

Maria Das Graças Dias Branco

Counselor - Director of MDB since 2006. 12

Maria Regina Dias Branco

Counselor - Vice President of Adm. & Development of MDB

32

Fabio Alperowitch

Independent Counselor

- Independent member of the board (CFA) 13

Affonso Celso Pastore

Independent Counselor

- In post since April 2011. A former President of Central Bank of Brazil.

1

BOARD OF DIRECTORS


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Commodities – Historical Wheat Prices

100

150

200

250

300

350

400

450

500

jan

/06

abr/

06

jul/

06

ou

t/0

6

jan

/07

abr/

07

jul/

07

ou

t/0

7

jan

/08

abr/

08

jul/

08

ou

t/0

8

jan

/09

abr/

09

jul/

09

ou

t/0

9

jan

/10

abr/

10

jul/

10

ou

t/1

0

jan

/11

abr/

11

jul/

11

ou

t/1

1

jan

/12

abr/

12

jul/

12

ou

t/1

2

Wheat Prices (USD/ton)

Worst US drought in last 25 years

Climatic problems in Russia, U.S. and Western Europe

Drought in China, Western Europe (Ukraine), European Union, Canada and Australia

Source: CBOT

Main Menu

Inventories Management 1. MDB operates with 4 months of storage capacity 2. Average MDB price reduction: 6.32% for wheat and 9.37% for oils

1.000

1.500

2.000

2.500

3.000

3.500

Ma

r-0

6

Oct

-06

Ma

y-0

7

De

c-0

7

Jul-

08

Fe

b-0

9

Se

p-0

9

Ap

r-1

0

No

v-1

0

Jun

-11

Jan

-12

Au

g-1

2

Soy oil - BRL/ton

Market Price

MDB's average inventory acquisition price

100

150

200

250

300

350

400

450

Ma

r-0

6

Oct

-06

Ma

y-0

7

De

c-0

7

Jul-

08

Fe

b-0

9

Se

p-0

9

Ap

r-1

0

No

v-1

0

Jun

-11

Jan

-12

Au

g-1

2

Wheat - US$/ton


Wheat (%) Gross Margin

1Q06-2Q08 112% -4.1%

2Q11-4Q09 39% -4.9%

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Commodities Risk – Wheat Plantation/Harvest

Country Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

United States

Winter o o x x

Spring x x o o

Canada x x o o

European Union

o o x x

Russia Winter o o x x

Spring x x o o

China Winter o o x x

Spring x x o o

India o o o x x x

Australia x x x o o o

Argentina o x x x o o

Brazil x x x o o o o

o: Harvest x: Plantation Source: Company Data

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Market Price

BRL65.10

Bullish Case

BRL101.96

Bearish Case

BRL49.96

Target Price

BRL81.42

Bullish Case: Result

UPSIDE

+56.6%

Market Price

BRL65.10

Bullish Case

BRL101.96

BUY

0

20

40

60

80

100


BRL

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Bullish Case: Variables

Bullish Case (Bull)

Bull Target Price (BRL)

101.96

Bull Upside 56.6%

Assumptions Impact

Tax Benefits contracts are fully renewed

Maintenance

of margins

Well executed

acquisitions

Increase in

earnings

• Company which will be acquired has the same Margin

EBITDA of average industry and in four years will be at the same level of MDIAS.

• Size of the future acquisitions: cash available, past

acquisitions and potential targets.

• Four companies , BRL330mn on average

• Acquisitions offer an upside of 10% of our base case fair value.

• MDB will continue to have the tax benefits that it is receiving today, and this assumption offers additional 21.5% of upside.

Main Menu

Bullish Case – Acquisition Assumptions

Impact of Revenue per year (R$ M)

Vitarella 369,30

Pilar 107,50

Estrela 190,60

Moinho Santa Lúcia 88,10

Cost of Acquisition (R$ M)

Vitarella 595,50

Pilar 69,90

Estrela 240,00


Impact of Revenue per Cost of Acquisition per year

Vitarella 0,62

Pilar 1,54

Estrela 0,79


Average Weighted by Value 0,76

• Multiple of the impact of acquisition in net revenue, based on the acquisitions since IPO.

• Net Revenue of each company /Cost of acquisition.

• Weighted average of this multiple,

considering the size of the company.

Main Menu

Market Price

BRL65.10

Bullish Case

BRL101.96

Bearish Case

BRL49.96

Target Price

BRL81.42

Bearish Case: Result

DOWNSIDE

-23.2%

Market Price

BRL65.10

Bearish Case

BRL49.96

SELL

0

20

40

60

80

100


BRL

Main Menu

Bearish Case: Variables

Bearish Case (Bear)

Bear Target Price (BRL)

49.96

Bear Downside 23.2%

Assumptions Impact

Tax Benefits contracts are not renewed

Decrease in margin and increase in

income tax Fiercer competition scenario

Decrease in margins

Bearish Case. • Complete end of tax benefits in

the perpetuity and as they expired throughout the first ten years of our model.

• We also consider the incapacity of

MDB, due the competition, in pass-through the prices to consumer in cookies and pasta, penalizing margins.

• BRL49.96, with 23.2% downside

Main Menu

Sensitivity Analysis – g and WACC

TARGET PRICE

Perpetual Growth (%)

WA

CC

(%

)

4.0% 4.5% 5.0% 5.5% 6.0%

9.6% 84.2 89.0 94.7 101.9 111.1

10.0% 78.9 82.8 87.5 93.3 100.6

10.4% 74.2 77.5 81.4 86.2 92.0

10.8% 70.2 73.1 76.4 80.4 85.2

11.2% 66.7 69.2 72.0 75.4 79.4

Main Menu

Bearish Case vs. Base Case

Bearish Case. The difference of 25.1% of upside and 23.1% of downside is explain by 24% due to the end of renews in contracts of tax benefits and 24.2% due to the deterioration in the margins of MDB.

Average Margins of 2013-2021

Base Case

Bearish Case

Gross Margin 42.7% 40.5%

EBITDA Margin 19.6% 17.6%

Net Profit Margin 15.3% 11.3%

Main Menu


0

200

400

600

800

1000

1200

42 50 57 65 72 80 88 95 103 110 118 126 133

Fre

qu

en

cy (

x)

Target Price (BRL)

Distribution of estimated Target Prices

HOLD: 23.7% SELL: 9.3% BUY: 67%

Variables •Inflation rate (Normal)

• Wheat prices (Lognormal)

• GDP growth (Normal)

• Exchange rate (Lognormal)

Source: Company data, Central Bank of Brazil and Team’s estimates.

Main Menu


Probab.

Time

P0

Price

t σ t

2 -

0T

2

eS S

i

Geometric Brownian Motion (GBM) Normal and Lognormal distributions

Variables Distribution

Wheat Prices Lognormal

Inflation rate Normal

GDP growth Normal

Exchange rate Lognormal

• 10,000 iterations • Mean: BRL84.27 • St. Dev: BRL15.85 • Median: BRL82.85 • Interval (95%): [57.30;114.20]

Main Menu

Tax Benefits ICMS

Fiscal Incentive Tax Reduction

(ICMS) Expiration

DESENVOLVE – Bahia 81% over all operations Nov/2015

PROVIN – Ceara 63,75% over wheat

operations and 56,25% over M&F operations

Nov/2024

PROADI – Rio Grande do Norte 74,25% over wheat

operations Aug/2020

FAIN – Paraíba 81% over wheat operations Dec/2032 PRODEPE – Pernambuco 75% over wheat operations Mar/2024


Main Menu

Tax Benefits: Income Tax

Industrial Units Income Tax

Reduction (%) Expiration

Cookie and Pasta Factory (Eusébio - CE) 75% Dec. 2016

Wheat Mill (Fortaleza – CE) 75% Dec. 2019

Shortening and Margarine Factory (Fortaleza – CE) 75% Dec. 2012

Wheat Mill and Pasta Factory (Natal – RN) 12.5% Dec. 2013

Wheat Mill (Salvador - BA) 75% Dec. 2013

Cookie and Pasta Factory (Salvador - BA) 75% Dec. 2016

Wheat Mill and Pasta Factory (Cabedelo – PB) 75% Dec. 2016

Wheat Mill and Pasta Factory (Cabedelo - PB) 75% Dec. 2020

Pasta Factory (Recife - PE ) 12.5% Dec. 2013

Cookies Factory (Recife – PE) 75% Dec. 2012

Cookies and Pasta Factory (Jabotao dos Guararapes – PE) 75% Dec. 2018

Cakes and Snaks Factory (Maracanau – CE)) 75% Dec. 2013

Cakes Factory (Maracanau – CE) 75% Dec. 2016

Cookies Factory ( Maracanau - CE) 12.5% Dec. 2016

Pasta Factory (Maracanau - CE) 37.5% to 12.5% Dec. 2013

Pasta Factory (Maracanau - CE) 75% Dec. 2015


Main Menu

Tax Benefits: Reasons to maintain 1. The NE region has been improving, but we do not expect it to match SE and S in the

coming two decades. Therefore, there might be socioeconomic reasons to sustain further tax benefits.

2. Companies would invest less in the NE, eventually, would even leave the region. 3. Political Cost in changing food industry policies: Inflation

BRL 443.05

BRL 847.57

Household Per capita Income: BRL/Month ?

SE NE

Very unlikely to happen during our projected horizon

Main Menu

Tax Benefits: Reasons to remove

1. Risk of non-renewal of some of the existing contracts must be considered. 2. NE socioeconomic scenario which justifies such benefits, could improve beyond our expectations. This would finish some of these benefits (ICMS depending on state)

Main Menu

Tax Benefits: ICMS debate

Unification of ICMS: Currently under debate on the Senate

- Federal Government suggests 4% national ICMS rate to avoid “fiscal war”

between states. The current ICMS is 7% or 12% depending on the state - Existing socioeconomic disparities justify different ICMS per state.

- Notably, the Ceará Governor, Cid Gomes (PSB), is against unification in 4%.

- Even with ICMS unification, there might be room for industrial incentives in

underdeveloped regions, such as the NE.

Main Menu

Tax Benefits: Sensitivity Analysis

TARGET PRICE (in BRL)

Reduction in Income Tax Benefits in Perpetuity

Reduction in

ICMS Benefits in Perpetuity

0% 50% 100%

0% 99,22 88,62 78,03

50% 91,27 81,42 74,26

100% 83,33 74,23 67,4

Upside Reduction in Income

Tax Benefits in Perpetuity

Reduction in

ICMS Benefits in Perpetuity

0% 50% 100%

0% 52,4% 36,1% 19,9%

50% 40,2% 25,1% 14,1%

100% 28,0% 14,0% 3,5%

Main Menu

0

20

40

60

80

100


BRL

UPSIDE

25.1%

Reference Date 19-oct

Ticker MDIA3

Market Cap. BRL7,362 mn

Avg. Daily Traded Volume

BRL19.7 mn

Governance Level

Novo Mercado

Recommendation

Market Price

BRL65.10

Target Price

BRL81.42

Source: Bloomberg and Team’s estimates.

Reasons to BUY


Risk Analysis


BUY

Main Menu


Reasons to BUY


Risk Analysis




56%

21%

18%

4% 1%

Wheat Flour and

Bran

Margarine and Fats

Pasta

Snacks and Cakes


Cookies market share in volume

MDB 26.3%

Nestlé 8.9%

Nabisco 7.2% Source: Company data.

Cookies

Pasta market share in volume

MDB 25.1%

Selmi 11.7%

J.Macêdo 9.5%

Main Menu

72%

16%

6% 4%

2%


Reasons to BUY


Risk Analysis




South

Middlewest North

Southeast

Northeast

Main Menu

1,507

2,193 2,348 2,444 2,911

2007A 2008A 2009A 2010A 2011A

Net Revenue

Market Leadership

Vertical

Integration

New Products


Growth


18% CAGR2007-2011

204

378 469 461 475

2007A 2008A 2009A 2010A 2011A


Reasons to BUY


Risk Analysis




Main Menu

Market Leadership

Vertical

Integration

New Products


Growth


204

378 469 461 475

2007A 2008A 2009A 2010A 2011A


Reasons to BUY


Risk Analysis




MDB Kraft* Nestlé* Selmi J.Macêdo

EBITDA Margin

18.0% 17.6%

7.6% 5.5%

18.4%

Main Menu

Distribution Center (DC)

Reasons to BUY


Risk Analysis



Innovation


Sales strategy

Branding Distribution

Model

Main Menu

36%

3% 1%

16%

44%

Reasons to BUY


Risk Analysis



Innovation


Sales strategy Direct Sales

(40% of sales)

Indirect Sales

(60% of sales)

Small Retailers

Industry

Others

Large Chains

Whole Sale and

Intermediate CLIENT

MIX

Main Menu

Reasons to BUY


Risk Analysis



Innovation


Sales strategy Power of Brands

Distribution

Model Cross-selling

Brand-streching

ENTRY

BARRIERS

Main Menu

Reasons to BUY


Risk Analysis


Innovation


Sales strategy Sales

Strategy

Strong

Brands

Main Menu

Adding value in current portfolio…



+1,365%

Reasons to BUY


Risk Analysis



+177%

Innovation


Sales strategy

Main Menu

... and entering new higher margins segments

2012 FUTURE

Reasons to BUY


Risk Analysis



Innovation


Sales strategy

MDB Avg. Ticket

BRL2.26/kg

BRL22.25/kg

BRL16.00/kg

Sales

Margins

Main Menu

Mills Shortening Division

Wheat Flour

72%

Shortening

67%

Fully integrated by 2015

100bps gain in Gross Margin

Reasons to BUY


Risk Analysis




Level

Cost reduction & Quality control

Innovation


Sales strategy

Main Menu

Monthly In BRL terms

Above 4,000 2,000 to 3,000 400 to 1,200 Below 400

6.000

7.000

8.000

9.000

10.000

11.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

As income per capita increases…

11,000

10,000

9,000

8,000

7,000

6,000

100 125

104 86 100

139 146

187

100 135

165

271 … families spend more with Cookies and Pasta

Rice Pasta Cookie

Income per capitaannual-USD

Reasons to BUY


Risk Analysis


Source: IBGE.

Source: IBGE.

Northeast presence

New markets

Consumer preference

Main Menu

9.2 9 8.8 8.5 8.4 8.4 8 8 7.3 7.2 6.7 6.6 6.6 6

Brazilian cookies consumption has potential...

13 11.9 10.4 9.7 9 8.8 8.4 8.3 8

6.6 6.4

...the same for pasta consumption

Reasons to BUY


Risk Analysis


Source: International Pasta Organization (2011).

Source: Lafis/Simabesp (2011).

Northeast presence

New markets

Consumer preference Per capita consumption kg/year

Per capita consumption kg/year

Main Menu

1.5%

58.6% 2.5%

37.2%

Others

4.3%

0.8%

52.2% 0.6%

30.1% 16.3%

Others


Pasta Market-share

Reasons to BUY


Risk Analysis


Source: IBGE.


Northeast presence

New markets

Consumer preference

2008 2011 2011 2012

Past acquisitions in the Northeast

Northeast


Brazil


Brazil

Main Menu

Household income/capita (BRL)

250

350

450

550

650

750

850

2003 2004 2005 2006 2007 2008 2009

Northeast Other regions Southeast

CAGR 6.9%

CAGR 3.9% CAGR 5.2%

1.5%

58.6% 2.5%

37.2%

Others

4.3%

0.8%

52.2% 0.6%

30.1% 16.3%

Others


Pasta Market-share

Reasons to BUY


Risk Analysis


Source: IBGE.


Northeast presence

New markets

Consumer preference

Northeast


Brazil


Brazil

Main Menu




Reasons to BUY


Risk Analysis



Northeast presence

New markets

Consumer preference

Tax Benefits

Main Menu

Southeast – Largest market in Brazil

10.5% 9.4% 8.6%

52.4%

Others

10.1%

15.2% 17.2% 15.9% 41.7% 10.0%

Others


Pasta Market-share

NE MG Population2012E mn 55.5 20.6

Est. Population CAGR2012E-2022E

0.63% 0.60%

Household Per capita Income2009

(in BRL) 443.05 703.74

MG Targets: 328

MG

Reasons to BUY


Risk Analysis


Source: Copany data.

Source: IBGE and Team’s estimates.

Northeast presence

New markets

Consumer preference

Main Menu

Revenue

Regional

National

Cookies & Pasta

Other Products

Reasons to BUY


Risk Analysis


Valuation: 10y projected FCFF + Terminal Value

Main Menu

Reasons to BUY


Risk Analysis


Net Revenu

e

Revenue



EBITDA

Net Profit


CAGR2012E-2016E: 12.2%

CAGR2012E-2016E: 14.5%

CAGR2012E-2016E: 17.2%



643 741

884 1,027

1,104

447 494 621

759 842

2012E 2013E 2014E 2015E 2016E

EBITDA

Net Profit

3,521 4,018

4,570 5,170

5,580

2012E 2013E 2014E 2015E 2016E

Net Revenue


Main Menu

Reasons to BUY


Risk Analysis


Net Revenu

e

Revenue



EBITDA

Net Profit


CAGR2012E-2016E: 12.2%

CAGR2012E-2016E: 14.5%

CAGR2012E-2016E: 17.2%



18.3% 18.4% 19.3% 19.9% 19.8%

12.7% 12.3% 13.6%

14.7% 15.1%

2012E 2013E 2014E 2015E 2016E

EBITDA Margin Net Profit Margin

ROIC 2012E → 2016E 14.6% → 19.0%

ROE 2012E → 2016E 19.6% → 22.9%


Main Menu

238

401 527

624 705 750 804 861

947 995

700

2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E


BRL44.37


WACC 10.4%

g 5.0%


Reasons to BUY


Risk Analysis



CAGR2012E-2022E: 11.3%

Market Price

BRL65.10

Target Price

BRL81.42

BUY UPSIDE

25.1%

Main Menu

238

401 527

624 705 750 804 861

947 995

700

2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E


10Y DCF

Terminal Value

BRL37.05

BRL44.37

BRL81.42


WACC 10.4%

g 5.0%


Tax Benefits

30% of Target Price (BRL24.2)

Reasons to BUY


Risk Analysis


Target Price


CAGR2012E-2022E: 11.3%

Main Menu

Comparables P/E

LTM*


Kraft 16.5x

Nestlé 18.2x

BR Foods 49.9x

Bimbo 33.6x


H.J. Heinz 16.8x

General Mills 15.5x

Average 23.8x

Multiples

Reasons to BUY


Risk Analysis


*LTM: Last 12-months Source: Bloomberg.

Current 16.8x

Historical average

20.1x

10

15

20

25

30

35

40

Trading below peer’s average and historical average

Source: Bloomberg.

Main Menu

Market Price

BRL65.10

Avg Peer Target P/E

17.6x Target Price

BRL78.82 EPS E13

BRL4.48

Reasons to BUY


Risk Analysis


UPSIDE

21.1%

Multiples

Considering peer’s target price…

Main Menu

Investment risks

Reasons to BUY


Risk Analysis


Tax Benefits

Governance

Stocks Liquidity

M&A Execution

CADE Regulation


Commodities

Competition

Currency

Main Menu

Commodities

Raw Materials: 66% of COGS

Wheat V. Shortening Others

32% 11% 23%

WHEAT HEDGE

INVENTORIES

OTHER

PRODUCTS

ICMS DISCOUNT

0

100

200

300

400

500

600

700

0%

10%

20%

30%

40%

50%

60%Gross Margin Wheat Price (BRL/ton)

Reasons to BUY


Risk Analysis




Main Menu

Tax Benefits

Reasons to BUY


Risk Analysis


END OF TAX BENEFITS?

Partial Tax benefits maintenance (50% tax cut in terminal value)

NE’s socioeconomic perspectives

Contracts effective in the long run

Main Menu

Reasons to BUY


Risk Analysis





BUY


Upside 25.1%

Sales Strategy Innovation Vertical Integration


DCF Multiples

Main Menu

28/11/2012 134


Thank You

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