Interview with Walter Bastos Cortes Filho, Director of MGM Construtora

What is your overview of the construction sector in Brazil right now?

My overview of the sector in general is good, particularly for the real estate segment. We at MGM work mainly in the industrial construction segment, which is not currently growing quite as much as real estate and not quite as much as we would like. The industrial segment is still running at a slower pace that what the country needs it to be. Other segments such as infrastructural construction have been doing well because of events such as the World Cup and the Olympics, which are to be held here in Brazil. There are many government resources available for these kind of projects because we are still lacking in this kind of infrastructure in order to be competitive. There are also government initiatives for the housing sector such as Minha Casa, Minha Vida (My House, My Life); and so the real estate segment is doing well.

I firmly believe in the future of the civil construction segment over the next few years, although with some restrictions. As everything here in Brazil is linked to the government, the upcoming elections are crucial. I think that there are still great things to be done here in Brazil but we are waiting for the results of the elections and the World Cup, etc.

Brazil is a strong, emerging country so I still believe that this is a good sector for investors and business people to enter because I believe it will be a very successful sector in the future. Brazil is still lacking in the area of civil construction; there is still so much to improve here, particularly in terms of the industrialisation of construction. Therefore, this sector needs lots of investment in a variety of areas in order to make the necessary advancements.

Can you tell us a bit about MGM Construtora?

MGM was founded in April 1978. The company began working in the field of project construction, working with a general scope of projects. Then MGM began working on residential constructions. In 1990, we began working on housing estates with other large construction companies. In 1991, when a new partner joined the company, MGM changed its focus to be on industrial construction. For the most part, the residential projects were concluded, as were the project constructions.

Ever since then, apart from a few residential projects our focus has been on commercial industrial construction. Year on year we have been growing; since 1991 until 1995 we had relatively small growth but since 1996, we have seen a steep growth curve. In the last three years, this market has been favourable and so we have experienced accelerated growth. This excellent growth has allowed MGM to feature as one of the companies with the most growth and it has allowed us to change our company´s profile, our internal structure, our investments and our outlook. The notable growth in the segment of commercial construction, for example shopping malls, meant that MGM could put into practice some of the projects that it had planned previously.

There are still more projects that MGM hopes to undertake in the coming years, aided by the growth that we have experienced and that we hope to continue to experience. There are some great challenges in this sector this year, but I believe that we can achieve our goals and accomplish the projects and contracts that we wish to complete.

What is the company's philosophy? What are the differentials that set you apart?

The main differential that sets MGM apart from its competition is the company´s integrity and the seriousness with which the company does business. We are always looking to improve and move forward. Therefore, our clients are always benefiting from these improvements and our 36 years of experience. MGM has completed more than 230 projects over the years and so the company can use all of that experience to the benefit of its clients. The engineering concept that you can do "more for less" is rooted in this company, and it is MGM´s extensive experience that allows the company to deliver this.

With respect to our company philosophy, we are constantly seeking top quality; in fact, our slogan is "Quality and perfection above all". Our objective therefore is to deliver the best quality service and product. This is what we try to make sure all of our employees deliver so that our clients are truly satisfied.

Could you tell us about one or two success cases that are good examples of your company´s work?

One of the projects that we are very proud to mention, because of its size and because of its swift conclusion, is the Ethanol Terminal in Paulinia. This project was for the company Copersucar, and represented a fine sum for MGM. It was carried out over a relatively short period of just twelve months. We were able to conclude this project on time and fulfil all of the demands of the client. It was a great success.

The Mogi Shopping Mall is another example of an excellent project that we have worked on. It is a rather interesting project and once again, we were able to meet all of the customer´s expectations.

We also worked on an industrial complex in Elias Fausto for the Mechanical Industry Sao Carlos, a client of ours that also has a structure built in Sao Bernardo do Campo. They decided to build a new, modern factory and chose us to build it. This project was very interesting and we were able to give this client an excellent price for the 18000m2 complex. They were expecting to have to pay much more for such a large complex and so were very happy with the result and the cost.

These are the kind of projects that we have been working on since 2010; projects that are large in volume and are work intensive. The periods of time that we work on projects has changed from 4 or 5 months to more than a year, which makes a big difference when it comes to the final product. When you try to shorten the construction time you can´t deliver the quality that you would like to deliver.

Can you describe some of your current projects?

We are working on a project here in Campinas with an investment partner, which is going to be four residential towers for 480 apartments. Initially the plan is that they are going to be done in two stages, two towers will be built first and after they have been launched, the construction of the other two towers will begin. However, there is the possibility that we shall build all four towers in one phase, it all depends on the sales. Our investment partner is working on the sales of these apartments right now and so it may be possible to execute the four towers at once. The first phase for the two towers is projected to take 27 months but if they were done all together, we expect the entire project to be completed in 36 months. This project should begin in September.

We are also having a meeting with a Spanish group to confirm another180 apartments. We hope to be able to chart this project from start to finish in 36 months.

These two projects are very important for us; they represent an investment worth more than 100 million.

Another project that MGM is working on this year is a large building that should be launched this year, and which includes a housing estate. Therefore, as I said at the beginning, MGM is working on some residential projects because the property segment is growing well due to the high demand for housing. Thus, we are able to make up for the slow growth in the industrial segment.

We do have industrial projects in the pipeline at the moment, some of which should be determined by the middle of the year but there are' any yet due to start immediately. Some projects are on hold for a while. We are expecting that after the World Cup we should be able to confirm and begin many of these projects.

Right now, our focus is on the four main groups in property development that are going to demand a lot of our energy.

You mentioned a partnership with a Spanish company. What is the company´s growth strategy? What kind of partnerships are you looking for?

These partnerships were something that MGM looked for in terms of our commercial strategy. We looked for investors that had land, experience in engineering, finances, etc., but who had' found a construction company to work with yet. We began to set up such partnerships and create a kind of mutual relationship. In the past, we had been interested in partnerships but we had not gone ahead with any until 2012, when we began to contact and meet up with investors to begin working together.

We are keen to work in partnership with other companies and investors. We would like to carry out more consultancies and see investment proposals from these groups so that we can join all of our collective experience, which at the end of the day will benefit our clients. The partnership with the Spanish company concerns a specific project that we are hoping to confirm by the end of this week and if it goes ahead, we hope that this could bring more joint projects in the future. The construction company is from Spain and has a lot of experience in residential construction. The company is now interested in doing business in Brazil and has the capital to invest over a good period of time. They are looking for partners to be able to invest the capital that they have made available.

MGM is very much interested in such partnerships for projects such as shopping malls and residential developments, etc. We are actively looking for such partnerships.

What are the main challenges that MGM faces?

One of the main challenges that I have perceived throughout my years at MGM as commercial director is that of maintaining the company strong in a rather unstable market. This market has a significant oscillation of ups and downs. You have to make sure you maintain business and healthy growth despite these difficulties. The company has to maintain not only its staff but also all those that are involved directly or indirectly with the company. It is the commercial director´s responsibility to bring in the work that will generate money for the company. Therefore, by working our own projects and projects with partners we are making ourselves more stable against the oscillations in the market.

Another significant challenge that we have in the area of civil construction is the matter of workforce. At the moment, the workforce available is not as qualified as it should be. It is increasingly more difficult to maintain a good team and to further qualify the workforce. Sometimes in some regions, you can be ready to go ahead with a project but be held back by the lack of people ready to work. This is not a challenge just for MGM but for the whole civil construction sector. We need to resolve this problem. The media is regularly showing projects in Brazil that are delayed or that have security issues and this is directly related to workforce problems. I think that this is a big challenge for the sector and it is not one that is easy to manage. There is a large informal workforce today. Nowadays, if someone wants to build a house, they can informally employ a mason, an apprentice or a team to build that house and they can pay them much more than I can because I have a lot of taxes to pay and many responsibilities to respect. Therefore, many builders are leaving the registered workforce to go and work in the informal market. Often these workers are good, capable people and the workers left over for me are those that are' as capable! As you can see, this is going to create a huge problem for me! The available workforce is not as qualified as it needs to be in order to deliver quality projects at competitive prices on time and so this matter is very important.

This is not something that you can change overnight, there is no legislation in place now to help organise this situation. This is only going to change if we can find a way to pay our workforce good rates and if all the companies can make sure that they effectively qualify their workforce to good standards. In this way, if an employee comes to MGM from another construction company we will know that they will have received good training and vice versa. The matter is very complex and there are many aspects involved, for example, many employees live a long way away and night transport services can be very bad, many can't work nightshifts, etc.

What is your vision for the future of the sector and for the company over the next two or three years?

In terms of the sector as a whole, over the next three years we are going to be working towards the Olympics. Brazil is going to need much more growth in this sector ahead of this important, world event. I believe that the Olympics is much more important on an international level than the World Cup. Hence, Brazil is going to need a lot of investment in this area. The projects for these events take 30 or more months to build and so over the next few years I think that we are going to be extremely busy and that there is no worry of a crisis in this sector. I think that perhaps once these events have finished then the demand for these constructions may fall somewhat. However, for now, over the next three years, I think the civil construction field is going to be experiencing a comfortable situation, perhaps not as great as we would like, but comfortable nonetheless. We are seeing an increase in workforce because when many of these projects are concluded often the companies do not keep the workforce on and so they become available for other projects. For example, the Viracopos airport has now finished which means there are 6000 workers available. This is going to help the companies that are looking to start new projects, as they will now have workforce available to do so.

For MGM, I think that the next few years are going to be good, particularly with our building and residential projects. We are also going to appear in the media in a more efficient way because we are going to gain publicity with the sales of these properties. I am going to be able to develop these projects as a new product for MGM. I am optimistic about the coming years. I am not as positive as I was perhaps in 2013 but still, I believe in our capabilities and our potential. We are in a stage of improving our quality, we are going to have an internal upgrade and make this company even more professional. Currently we work with just two partners but now we are trying to spread the responsibility amongst the directors and the board to improve the company´s management. I believe in this company and I think that we are going to be able to maintain the growth that we have seen in the last few years.

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