Guilherme Barros Renan Criscio A high quality stock with great - - PowerPoint PPT Presentation

Bernardo Calvente Danilo Kamiji Danton Koga Guilherme Barros Renan Criscio

28/11/2012 2

“A high quality stock with great growth potential”

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 Valuation & Financials Risk Analysis Conclusion Company Overview

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

Source: Company data.

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 Valuation & Financials Risk Analysis Conclusion Company Overview

*International data Source: Company data and Bloomberg. Source: Company data.

MDB Kraft* Nestlé* Selmi J.Macêdo

EBITDA Margin

18.0% 17.6% 7.6% 5.5% 18.4%

FURTHER POTENTIAL

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

Business Model

Innovation Vertical integration Sales strategy Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Distribution Center (DC)

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration Sales strategy

Branding Distribution Model

36% 3% 1% 16% 44%

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration 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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration Sales strategy

Power of Brands Distribution Model Cross-selling Brand- streching

ENTRY BARRIERS

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview Innovation Vertical integration Sales strategy

Sales Strategy Strong Brands

Adding value in current portfolio…

BRL7.68/kg BRL21.30/kg BRL2.48/kg BRL36.35/kg +1,365%

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

+177%

Innovation Vertical integration Sales strategy

... and entering new higher margins segments

2012 FUTURE

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

Innovation Vertical integration 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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

Vertical Integration Level

Cost reduction & Quality control

Innovation Vertical integration Sales strategy

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

Sales Strategy Innovation Vertical Integration

Northeast presence New markets Consumer preference Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

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 Valuation & Financials Risk Analysis Conclusion Company Overview

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 Valuation & Financials Risk Analysis Conclusion Company Overview

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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: IBGE. Source: Company data.

Northeast presence New markets Consumer preference

2008 2011 2011 2012 Past acquisitions in the Northeast

Northeast 2nd largest market in Brazil 2nd largest market in Brazil

Income tax ICMS (VAT)

300bps

• f Gross Margin

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

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

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

Cookies Market-share 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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Copany data. Source: IBGE and Team’s estimates.

Northeast presence New markets Consumer preference

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

Sales Strategy Innovation Vertical Integration Consumer preferences Northeast presence New markets

Revenue Regional National Cookies & Pasta Other Products

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Valuation: 10y projected FCFF + Terminal Value

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

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. 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 Valuation & Financials Risk Analysis Conclusion Company Overview

Target Price

Source: Team’s estimates.

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 Valuation & Financials Risk Analysis Conclusion Company Overview

*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 Valuation & Financials Risk Analysis Conclusion Company Overview

UPSIDE

21.1% Multiples Considering peer’s target mutiples…

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

Sales Strategy Innovation Vertical Integration Consumer preferences Northeast presence New markets DCF Multiples

Investment risks

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Tax Benefits Governance Stocks Liquidity M&A Execution CADE Regulation

Source: Team’s estimates.

Commodities Competition Currency

Commodities

Raw Materials: 66% of COGS Wheat

• V. Shortening

Others

32% 11% 23%

WHEAT HEDGE

INVENTORIES OTHER PRODUCTS ICMS DISCOUNT 100 200 300 400 500 600 700 0% 10% 20% 30% 40% 50% 60%

Gross Margin Wheat Price (BRL/ton)

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates. Source: Company data and Team’s estimates.

Tax Benefits

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Income tax ICMS (VAT)

300bps

• f Gross Margin

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

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

200 400 600 800 1000 1200 42 50 57 65 72 80 88 95 103 110 118 126 133

Frequency (x) Target Price (BRL)

Distribution of estimated Target Prices

HOLD: 23.7% SELL: 9.3% BUY: 67% Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

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 Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

“A high quality stock with great growth potential”

Upside 25.1%

Sales Strategy Innovation Vertical Integration Consumer preferences Northeast presence New markets DCF Multiples

28/11/2012 3 4 Bernardo Calvente Danilo Kamiji Danton Koga Guilherme Barros Renan Criscio

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

Balance Sheet (BRLmm) 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

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Balance Sheet 2016E-2022E - Assets

Balance Sheet (BRLmm) 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

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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

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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/Amortiz ation (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

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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

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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

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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

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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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Vertical Integration

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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Source: Company data and Team’s estimates.

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

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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

Source: Company data

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Debt in details - 2

Debt in BRL (millions)

2009 2010 2011 Index BRL BRL Interest YoY BRL

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

Source: Company data

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Debt in details - 3

FX (millions)

2009 2010 2011 Index BRL BRL Interest YoY BRL

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

Source: Company data

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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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Source: Company data.

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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Source: Company data.

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 mar-06 jul-06 nov-06 mar-07 jul-07 nov-07 mar-08 jul-08 nov-08 mar-09 jul-09 nov-09 mar-10 jul-10 nov-10 mar-11 jul-11 nov-11 mar-12 jul-12 nov-12 mar-13 jul-13 nov-13 mar-14 jul-14 nov-14 mar-15 jul-15 nov-15

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% 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

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

Source: Company data and Team’s estimates

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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

Historical and Projection

Source: Company data and Team’s estimates

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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

Historical and Projection

Source: Company data and Team’s estimates

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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

Historical and Projection

Source: Company data and Team’s estimates

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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

Historical and Projection

Source: Company data and Team’s estimates

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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%

Source: Company data and Team’s estimates

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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

Historical and Projection

Source: Company data and Team’s estimates

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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

Source: Company data and Team’s estimates

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Valuation: EPS

Source: Company data and Team’s estimates

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0,70 1,87 3,10 3,05 3,17 2007A 2008A 2009A 2010A 2011A

Valuation: EPS

Source: Company data and Team’s estimates

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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*

• M. Dias Branco

16.8x

Kraft

16.5x

Nestlé

18.2x

BR Foods**

34.0x

Bimbo**

28.4x

Kellogg Company

16.1x

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*

• M. Dias Branco

16.8x

Kraft

16.5x

Nestlé

18.2x

BR Foods**

18.6x

Bimbo**

21.3x

Kellogg Company

16.1x

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

Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 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
• f 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

Source: Company Data

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Commodities – Historical Wheat Prices

100 150 200 250 300 350 400 450 500 jan/06 abr/06 jul/06

• ut/06

jan/07 abr/07 jul/07

• ut/07

jan/08 abr/08 jul/08

• ut/08

jan/09 abr/09 jul/09

• ut/09

jan/10 abr/10 jul/10

• ut/10

jan/11 abr/11 jul/11

• ut/11

jan/12 abr/12 jul/12

• ut/12

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

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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 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12

Soy oil - BRL/ton

Market Price MDB's average inventory acquisition price 100 150 200 250 300 350 400 450 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12

Wheat - US$/ton

Source: Company Data

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

• x

x

Spring

x x

• Canada

x x

• European

Union

• x

x

Russia Winter

• x

x

Spring

x x

• China

Winter

• x

x

Spring

x x

• India
• x

x x

Australia

x x x

• Argentina
• x

x x

• Brazil

x x x

• : 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

20 40 60 80 100 Oct-06 Dec-07 Mar-09 May-10 Jul-11 Oct-12 Dec-13

BRL

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Bullish Case: Variables

Bullis h Cas e (Bull) Bull Target Price (BRL) 101.96 Bull Ups ide 56.6% Ass umptions Impact Tax Benefits contracts are fully renewed Maintenance

• f 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.

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Bullish Case – Acquisition Assumptions

Impact of Revenue per year (R$ M) Vitarella 369,30 Pilar 107,50 Es trela 190,60 Moinho Santa Lúcia 88,10 Cos t of Acquis ition (R$ M) Vitarella 595,50 Pilar 69,90 Es trela 240,00 Moinho Santa Lúcia 90,00 Impact of Revenue per Cos t of Acquis ition per year Vitarella 0,62 Pilar 1,54 Es trela 0,79 Moinho Santa Lúcia 0,98 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.

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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

20 40 60 80 100 Oct-06 Dec-07 Mar-09 May-10 Jul-11 Oct-12 Dec-13

BRL

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Bearish Case: Variables

Bearis

h Cas e (Bear) Bear Target Price (BRL) 49.96 Bear Downs ide 23.2% As s umptions Impact Tax Benefits contracts are not renewed Decrease in margin and increase in income tax Fiercer competition s cenario Decrease in margins

• Bearish Case.
• Complete end of tax benefits in

the perpetuity and as they expired throughout the first ten years of

• ur 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

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Sensitivity Analysis – g and WACC

TARGET PRICE Perpetual Growth (%) WACC (%) 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

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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%

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Monte Carlo simulation

200 400 600 800 1000 1200 42 50 57 65 72 80 88 95 103 110 118 126 133

Frequency (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.

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Monte Carlo simulation

Probab. Time

P0

Price

                   

 

t σ t 2

• T

2

e S 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]

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Tax Benefits ICMS

Fiscal Incentive Tax Reduction (ICMS) Expiration DESENVOLVE – Bahia 81% over all operations Nov/2015 PROVIN – Ceara 63,75% over wheat

• perations and 56,25% over

M&F operations Nov/2024 PROADI – Rio Grande do Norte 74,25% over wheat

• perations

Aug/2020 FAIN – Paraíba 81% over wheat operations Dec/2032 PRODEPE – Pernambuco 75% over wheat operations Mar/2024

Source: Company Data

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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

Source: Company Data

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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

?

S E NE

Very unlikely to happen during our projected horizon

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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)

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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.

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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%

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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

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MDB: Leading producer of Cookies and Pasta in Brazil

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Net Revenue breakdown

56% 21% 18% 4% 1%

Wheat Flour and Bran Margarine and Fats Pasta Snacks and Cakes

Source: Company data.

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%

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72% 16% 6% 4% 2%

MDB: Leading producer of Cookies and Pasta in Brazil

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Net Revenue breakdown

South Middlewest North Southeast Northeast

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

*International data Source: Company data and Bloomberg. Source: Company data.

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Market Leadership Vertical Integration New Products Organic & Acquisition Growth

SUCCESSFUL STRATEGY EXCELLENT RESULTS

204 378 469 461 475 2007A 2008A 2009A 2010A 2011A

EBITDA

23% CAGR2007-2011

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

*International data Source: Company data and Bloomberg. Source: Company data.

MDB Kraft* Nestlé* Selmi J.Macêdo

EBITDA Margin

18.0% 17.6% 7.6% 5.5% 18.4%

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Distribution Center (DC)

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration Sales strategy

Branding Distribution Model

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36% 3% 1% 16% 44%

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration Sales strategy

Direct Sales (40% of sales) Indirect Sales (60% of sales)

Small Retailers Industry Others Large Chains Whole Sale and Intermediate

CLIENT MIX

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Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data.

Innovation Vertical integration Sales strategy

Power of Brands Distribution Model Cross-selling Brand- streching

ENTRY BARRIERS

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Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview Innovation Vertical integration Sales strategy

Sales Strategy Strong Brands

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Adding value in current portfolio…

BRL7.68/kg BRL21.30/kg BRL2.48/kg BRL36.35/kg +1,365%

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

+177%

Innovation Vertical integration Sales strategy

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... and entering new higher margins segments

2012 FUTURE

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

Innovation Vertical integration Sales strategy

MDB Avg. Ticket

BRL2.26/kg BRL22.25/kg BRL16.00/kg Sales Margins

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Mills Shortening Division

Wheat Flour 72% Shortening 67%

Fully integrated by 2015

100bps gain in Gross Margin

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

Vertical Integration Level

Cost reduction & Quality control

Innovation Vertical integration Sales strategy

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: IBGE. Source: IBGE.

Northeast presence New markets Consumer preference

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

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

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: IBGE. Source: Company data.

Northeast presence New markets Consumer preference

2008 2011 2011 2012 Past acquisitions in the Northeast

Northeast 2nd largest market in Brazil 2nd largest market in Brazil

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: IBGE. Source: Company data.

Northeast presence New markets Consumer preference

Northeast 2nd largest market in Brazil 2nd largest market in Brazil

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Income tax ICMS (VAT)

300bps

• f Gross Margin

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

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates.

Northeast presence New markets Consumer preference

Tax Benefits

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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

Cookies Market-share 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 Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Copany data. Source: IBGE and Team’s estimates.

Northeast presence New markets Consumer preference

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Revenue Regional National Cookies & Pasta Other Products

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Valuation: 10y projected FCFF + Terminal Value

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Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

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. 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

Debt: 15% Equity: 85%

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Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

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. Source: Team’s estimates.

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%

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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 BRL44.37 Assumptions (nominal terms) WACC 10.4% g 5.0% Tax Benefits cut by half

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Team’s estimates.

CAGR2012E-2022E: 11.3%

Market Price BRL65.10 Target Price BRL81.42

BUY

UPSIDE

25.1%

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

Target Price

Source: Team’s estimates.

CAGR2012E-2022E: 11.3%

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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 Valuation & Financials Risk Analysis Conclusion Company Overview

*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.

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Market Price BRL65.10 Avg Peer Target P/E 17.6x Target Price BRL78.82 EPS E13 BRL4.48

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UPSIDE

21.1% Multiples Considering peer’s target price…

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Investment risks

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Tax Benefits Governance Stocks Liquidity M&A Execution CADE Regulation

Source: Team’s estimates.

Commodities Competition Currency

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Commodities

Raw Materials: 66% of COGS Wheat

• V. Shortening

Others

32% 11% 23%

WHEAT HEDGE

INVENTORIES OTHER PRODUCTS ICMS DISCOUNT 100 200 300 400 500 600 700 0% 10% 20% 30% 40% 50% 60%

Gross Margin Wheat Price (BRL/ton)

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

Source: Company data and Team’s estimates. Source: Company data and Team’s estimates.

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Tax Benefits

Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

END OF TAX BENEFITS? Partial Tax benefits maintenance (50% tax cut in terminal value) NE’s socioeconomic perspectives Contracts effective in the long run

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Reasons to BUY Valuation & Financials Risk Analysis Conclusion Company Overview

UNMATCHED BUSINESS MODEL GROWTH OPPORTUNITIES CONFIRMATIVE VALUATION

BUY

“A high quality stock with great growth potential”

Upside 25.1%

Sales Strategy Innovation Vertical Integration Consumer preferences Northeast presence New markets DCF Multiples

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28/11/2012 1 3 4 Bernardo Calvente Danilo Kamiji Danton Koga Guilherme Barros Renan Criscio

Thank You