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Teleconference and
Webcast
Date: August 4, 2016,
Thursday
Time: 11:00 pm Braslia time
10:00 am New York time
3:00 pm London time
Teleconference:
+1 888 700-0802 (toll free) or
+1 786 924-6977
Code: Mills
Replay: +55 11 3193-1012 or
+55 11 2820-4012, code:
3946760# or
www.mills.com.br/ri
Webcast:
www.mills.com.br/ri
The financial and operational information contained in this press release, except as
otherwise indicated, is in accordance with the accounting policies adopted in Brazil, which
are in compliance with the International Financial Reporting Standards - IFRS.
2Q16
Highlights
Rio de Janeiro, August 3, 2016 - Mills Estruturas e Servios de Engenharia S.A. (Mills) announces its results for the
second quarter of 2016 (2Q16).
The strong deterioration in Brazils economic activities resulted in continued pressure on the price and volume of our
business units. The Company has several initiatives aiming for its continuing cash generation, such as i) reduction of
delinquency rate, especially ADD, ii) rationalization of branches and equipment to adapt to the new market reality, iii)
intensification of initiatives to enter the non-construction market with the utilization of the equipment of the Rental
business unit and iv) pursuit of overall operational efficiency.
Positive free cash flow before interest of R$ 48.6 million in 2Q16, totaling R$ 128.1 million in the first half of 2016
(1H16).
Net Revenue of R$ 105.4 million in 2Q16, 19.0% below the first quarter of 2016 (1Q16).
Provision of R$ 1.4 million in 2Q16 to reduce the net realizable value of the sale of the remaining equipment of
the agreement in Euro closed in August 2015 due to the devaluation of the Euro currency.
Non-recurring items of R$ 3.9 million in 2Q16, of which R$ 2.5 million related to the expenses of closing branches
and R$ 1.4 million resulting from liabilities of the Industrial Services business unit sold in 2013.
EBITDA, excluding non-recurring items, of R$ 17.6 million, with EBITDA margin of 16.7%.
Payment in April of the last parcel of the first issue of debentures, totaling R$ 96.8, R$ 90 million in principal.
Received in July the third instalment of R$ 21.2 million related to the payment of the sale of the Industrial Services
business unit, sold in 2013.
Hiring of Fernanda Pinheiro as Director of People and Management in July, responsible for the areas of Human
Resources and Safety, Health and Environment.
millls.com.br/ri
2Q16
Business Perspective
According to a survey conducted by the National Confederation of Industry (CNI), the
expectations for the infrastructure in construction sector showed a slight recovery from
the previous month, as reported by the indicator of activity level perspective, which
reached 42.9 points in June 2016, but slightly below the amount recorded in June 2015,
of 43.0 points.
In the medium term there is uncertainty, which compromise the continuity of
investments in the infrastructure sector, with the consequent paralysis of the works in
progress and the execution of new contracts. The new government seeks greater
participation of the private sector through concessions, seeking to stimulate economic
growth without compromising fiscal adjustment. However, the success of the
concession program will depend on the equation of the concession model and its
funding.
As stated in research carried out by CNI, one of the reasons for the low investment in
infrastructure in the country is the high concentration of funding of the public sector. In
the transportation area, responsible for most of the countrys infrastructure investments,
the public sector represents about 50% of this amount. A CNI study shows that in the
last 20 years, Brazil has invested an average of just over 2% of Gross Domestic Product
(GDP) in infrastructure. From 2001 to 2014, the average investment was R$ 967 billion,
equivalent to 2.18% of GDP. According to CNI, the number should be at least 3%. To
approach other emerging countries the investment should give a jump and stand
between 4% to 5%.
According to market sources, the 1st half of 2016 ended with 79,900 units launched, a
reduction of 41% over the same period of 2015. Compared to the 1st half of 2014 the
drop is even steeper, about 54% fewer launches. The housing as construction activity in
the country m built presented retraction of 7.9% in the 12 month period ended June. All
segments presented a drop, and the residential and commercial segments were down
7.0% and 11.7% respectively, together the two segments account for 97% of the real
estate market.
In the market for motorized access equipment, 93 machines entered in Brazil in the first
half of 2016, a decrease of 194% over the same period last year, as a reflection of the
high idle capacity in the market.
millls.com.br/ri
2Q16
Revenue
In 2Q16 net revenue reached R$ 105.4 million, compared to R$ 130.1 million in 1Q16. The decline quarter over
quarter (qoq) was primarily due to lower sales of semi-new equipment, which dropped 80.5%. The sales revenue of
new and semi-new equipment totaled R$ 8.5 million this quarter. We accounted this quarter R$ 2.3 million related to
the sale of equipment agreement of EUR 8.0 million closed in August 2015. A total amount of R$ 20.6 million was
already recognized from this contract until 2Q16. Net revenue from equipment rental was R$ 85.0 million, negatively
impacted by lower rented volume in both business units.
Per Type
In R$ million
In R$ million
-19,0%
-28,8%
130.1
147.9
147.9
105.4
6.8
5.5
105.4
9.0
11.8
29.2
5.7
2.1
76.4
54.4
41.8
21.9
31.8
17.9
33.1
2Q15
1Q16
2Q16
Heavy Construction
130.1
9.6
74.5
31.6
-19,0%
-28,8%
Real Estate
89.6
85.0
2Q15
1Q16
2Q16
Others
Sales of new equipment
Rental
2.8
125.9
Rental
Construction
39.7
2.3
1Q16
Rented
Volume
0.4
37.8
2Q16
49.9
2.7
0.0
1Q16
Rented
Volume
47.2
2Q16
The utilization rate (UR), the ratio between the amount of rented equipment and the total equipment in the last twelve
months (LTM) ended in June 30, 2016 was equal to 46.1% in Construction, and 60.9% in Rental. In the quarter, UR
was 42.7% in Construction and 57.0% in Rental, indicating a downward trend in UR in the last 12 months.
57.0%
42.7%
40.0%
20.0%
0.0%
Construction
millls.com.br/ri
Rental
2Q16
Costs
Cost of Goods Sold (COGS), excluding depreciation, totaled R$ 42.2 million in 2Q16 a 22.4% lower result than 1Q16,
due to lower volume of sales of semi new equipment and indemnities. Sales of semi new equipment costs and
indemnities amounted to R$ 5.2 million and R$ 2.6 million, respectively.
COGS
COGS and Assets
Write-off
30.0
11.4
9.8
24.1
In R$ million
62. 0%
37.0
2.9
1.3
3.9
25.0
61.8%
30.3
37.1
42.0
63. 0%
61. 0%
32.0
60. 0%
25.1%
20.0
27.0
58.2%
19.5
15.0
56.5%
23.3%
2.2
1.1
2.3
2.6
1.4
2.0
9.2
10.5
22. 0%
17. 0%
12. 0%
56. 0%
12.0
5.2
1.5
3.1
3.2
2Q15
18.4
55. 0%
7.0 %
2.1
2.6
1Q16
2Q16
15.9
15.6
7.0
0.0
54. 0%
2.0 %
2.0
53. 0%
2Q15
Personal
-3.0
1Q16
Freight
2Q16
Construction/maintenance
and repair materials
Third parties
Others
Expenses
General and administrative expenses excluding ADD increased 14.5% over the previous quarter (1Q16), equivalent
to R$ 5.5 million. The main reasons for this change were: i) provision to the net realizable value of inventories, which
affected the Company's results in R$ 1.4 million; ii) an increase in personal expenses due to the provision and
payment of collective agreements in the branches of Rio de Janeiro, Brasilia, Recife and Camaari; iii) increase in
expenses with third-party services mainly due to the consulting firm that is assisting the Company in the review of
operational and billing processes and iv) non-recurring expenses of which R$ 1.0 million due to closing of branches.
This quarter we demobilized the branches of Manaus, Cuiab and Goinia of the Construction business unit.
45.5
37.7
43.2
3.2
10.9
31.5
2Q15
9.1
7.0
8.7
10.3
22.0
23.7
1Q16
2Q16
Other Expenses
General Services
Commercial, Operational and Administrative
The cost of sale of new equipment is tied to the sale of new equipment revenue. The cost of sale of semi new equipment is tied to
the sales revenue of semi new equipment and is equivalent to the write-off of these assets (residual cost) .The cost the asset writeoff is linked to Indemnities revenue, this value is the cost of the asset we write off.
Provision for reduction to net realizable value of the sale of the remaining machines of the sale agreement of EUR equipment 8
million closed in August 2015 due to the devaluation of the Euro currency. According to CPC 16, the inventory must be reduced to its
net realizable value. The sale price of each machine engaged in Euros converted at the exchange rate of the reais this quarter, less
the value of inventories, including the cost of maintenance and freight, generated a negative change material in this quarter, and
thus there was a need recognize the provision.
millls.com.br/ri
32. 0%
27. 0%
17.0
57. 0%
4.3
5.0
10.6
22.0
58. 0%
4.0
10.0
59. 0%
32.4
30.7%
-3.0%
2Q16
Delinquency and Allowance for Doubtful Debts (ADD)
In 2Q16 accumulated ADD amounted to R$ 6.3 million, equivalent to 6.0% of net revenue. In 1Q16 there was a
strong impact from customers who went into bankruptcy and customers involved in ongoing investigations impacting,
mainly, the provisions made in Heavy Construction unit. This quarter there was no significant impact, therefore, the
percentage of ADD on net revenue suffered downturns. Currently, the Company remains with initiatives to reduce the
balance of past due accounts receivable and credit analysis.
Ebitda
The operation cash generation, measured by EBITDA, summed R$ 13.7 million with a margin of 13.0%. Excluding
non-recurring items of R$ 3.9 million in 2Q16, of which R$ 2.5 million related to expenses of closing branches and R$
1.4 million related to liabilities of Industrial Services business unit sold in 2013, and net result of sales of semi new
equipment, the adjusted EBITDA would be R$ 18.5 million with a margin of 23.3%. The decline between quarters
was due to the decrease in net revenue of 19.0% and an increase in SG&A of 10.3%. Some items that affected the
Company's EBITDA are non-cash, such as inventory adjustment provision (R$ 1.4 million).
35. 0
30. 0
29.0
Ebitda Evolution
6.3
In R$ million
25. 0
22.7
1.9
0.0
1.5
20. 0
3.5
2.7
18.5
4.8
13.7
15. 0
10. 0
5.0
Ebitda 1Q16
millls.com.br/ri
Result/Provision
of sales of semi
new equipment
and nonrecurring items
ADD
Result/Provision
of sales of semi
new equipment
and nonrecurring items
Ebitda 2Q16
2Q16
Financial Result
The financial result was negative R$ 7.2 million, an improvement of 42.8% compared to 1Q16. This result was due to
investment income from the capital increase and lower financial expenses. In April, we amortized the last instalment
of the principal of the first issuance of debentures in the amount of R$ 90 million.
Net Earnings
In this quarter, the Company recorded a loss of R$ 20.9 million against a loss of R$ 17.8 million in 1Q16. The change
qoq is explained by the lower operating income partially offset by the income tax effect.
Amortization Schedule
In R$ million
356.8
150.3
106.2
82.0
106.2
38.9
Cash position
2016
2017
2018
Finame
2nd emission of Debentures - IPCA +5.5%
millls.com.br/ri
2019
2020+
2Q16
ROIC
ROIC LTM, excluding impairment (R$57.1 million, which affected 4Q15 results) was 2.9% negative in 2Q16 and 1.0%
negative against 1Q16. If we considered the impairment for calculation of NOPAT, ROIC LTM would be 5.8%
negative.
ROIC Decomposition
Net Revenue
499,8
COGS
(192,9)
SG&A
(259,6)
(202,5)
NOPAT
(79,8)
(39,8)
depreciation:
(163,5)
ROIC LTM
-5,8%
Adjusted -2,9%
372.7
295.5
158.9
2010
288.3
281.9
198.9
116.1
2011
2012
-31.2
2013
2014
2015
80.8 79.5
50.1 48.6
1Q16
2Q16
-154.3
-208.9
-356.5
Adjusted Operating Cash Flow
It is considered the last thirteen months to the average invested capital calculation.
Current and non-current liabilities unpaid and fixed assets in use, intangible assets and investments,
For the adjusted operating cash flow to disregard them interest on debentures and Finame and investment in rental
equipment. For the adjusted free cash flow disregard the interest paid.
millls.com.br/ri
2Q16
Tables
In R$ million
Table 1 Net revenue per type
Table 3 Cost of goods and services sold (COGS) and General, administrative and operating
expenses (SG&A), ex-depreciation
millls.com.br/ri
2Q16
Continuation Tables
Table 5 Ebitda Reconciliation
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2Q16
Continuation Tables
Table 8 Construction Business Unit
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2Q16
Continuation Tables
Table 9 Rental Business Unit
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12
2Q16
Income Statement
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13
2Q16
Balance Sheet
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14
2Q16
Indirect Cash Flow
millls.com.br/ri
15
2Q16
Glossary
(a) Asset Write-off - is linked to Indemnities revenue, this value is the cost of the asset write off.
(b) Capex (Capital Expenditure) - Acquisition of tangible and intangible assets to non-current assets.
(c) Invested capital - For the company, invested capital is defined as the sum of shareholders' equity (net assets) and
third-party capital (including all costly, bank and non-bank debt), both being the average values for the period. By
business unit, is the average amount of capital invested by the company by weighted average assets of each
business unit (assets plus net fixed assets). The asset base in the year is calculated as the average asset base of the
last thirteen months.
(d) Net Cash Flow - Net cash provided by operating activities less net cash used in investing activities.
(e) Job execution costs - Job execution cost include: (i) labor costs from construction jobs supervision and technical
assistance; (ii) labor costs for erection and dismantling of the equipment rented to our clients, when such tasks are
carried out by the Mills workforce; (iii) equipment freight costs, when under Mills responsibility; (iv) cost of materials
used in the maintenance of the equipment, when it is returned to our warehouse; and (v) cost of equipment rented
from third-parties.
(f) Warehouse costs - This cost includes the costs directly related to administration of the deposit, storage, handling
and maintenance of lease assets and resale, covering costs with hand labor, IPE used in the activities of deposit
(drive, storage and maintenance), inputs (forklift gas, gas welding, plywood, paints, wood battens, among others) and
maintenance of machinery and equipment (forklifts, welding machines, water-blasting hoists and tools in general).
(g) Cost of sales - Cost of sales of new equipment is linked to sales of new equipment revenue. The sales of seminew equipment cost is tied to sales of semi new equipment revenue and is equivalent to the cost of the assets writeoff (residual cost).
(h) General and administrative expenses - (i) The SG&A Commercial, Operational and Administrative includes
current expenses such as salaries, benefits, travel, representation of the various departments including Sales,
Marketing, Engineering, Projects and administrative back office departments, as HR and Finance; (ii) General
Services includes the equity costs of head officer and several branches (rents, fees, security and cleaning, mainly);
and (iii) Other expenses are items largely non-cash, as provisions for stock option programs, provisions for
contingencies, provisions for slow-moving inventories and some non-permanent disbursements.
(i) Net debt - Gross debt less financial resources.
(j) EBITDA - EBITDA is a non-accounting measure prepared by the Company, reconciled with our financial
statements in compliance with the provisions of CVM Circular No. 01/2007, where applicable. We calculate EBITDA
as our operating income before financial results, the effects of depreciation of use of property and rental equipment
and amortization of intangible assets. EBITDA is not a measure recognized by GAAP in Brazil, IFRS or US GAAP,
does not have a standard meaning and may not be comparable to measures with similar titles provided by other
companies. We reported EBITDA because we use to measure our performance. EBITDA should not be considered in
isolation or as a substitute for net income or operating income as measures of operating performance or cash flows
or to measure liquidity or debt payment capacity.
millls.com.br/ri
16
2Q16
Glossary
(K) ROIC - Return on Invested Capital, calculated as Operating Income before financial results and after income
tax and social contribution (theoretical rate of 30%) on this income, plus the remuneration companies in which it
has a minority interest, divided by the average capital invested. ROIC is not a measure recognized by the
accounting practices adopted in Brazil, does not have a standard meaning and may not be comparable to
measures with similar titles provided by other companies.
LTM ROIC: ((Operating profit in the last twelve months - (30% IR) + compensation of companies in which it has a
minority interest) / Capital invested average of the last thirteen months)
This press release may contain statements that express management's expectations about future events or results. All statements
are based on future expectations rather than on historical facts involve various risks and uncertainties. Mills can not guarantee that
such statements will prove to be correct. Such risks and uncertainties include factors: relating to the Brazilian economy, the capital
markets, the sectors of heavy construction, real estate, oil and gas, among others, and governmental rules that are subject to
change without notice. For additional information on factors that may give different results from those estimated by the Company,
please consult the reports filed with the Securities and Exchange Commission - CVM.
millls.com.br/ri
17