THE BRAZILIANDECADEDECADETime to act in a unique situationTime to act in a unique situation

Strategies driving Innovation and Growth

São Paulo – April, 2010

BRAZIL 2010 – Time to act in a unique situation

Th l b l i i The global crisis –Where are we after year oneUnique strengths

page 3

A Brazilian decade –

Unique strengths –Why Brazil is doing so much better page 11

A Brazilian decade Yes, but no time to lay backInnovation is key –

page 17

o at o s eyJoint public and private effort requiredCorporate Brazil as innovation driver –

page 26

2

pStrategies for global growth page 36

The global crisis –Where are we afterWhere are we afteryear one

3

Situation at start of 2010 – All the key indicators move upwards

ECONOMY FINANCE MOODGlobal GDP Dow Jones (index) Ifo global business climate Global GDP Dow Jones (index) Ifo global business climate

(index)

COLLAPSE-3.1% -54% -64

points

RECOVERY +3.0% +58% +49 points

As at start of 2008 Down 47% comparedto 06/07 average

Down 16 pts. compared to 06/07 average

4

TODAY COMPARED TO BEFORE THE CRISIS

Source: IMF, Bloomberg, Ifo Institute, Roland Berger analysis

Global GDP has recovered quickly – V-shaped trend

OUR CRISIS SCENARIOSGlobal GDP, indexed (Q2 2008 = 100) and global GDPgrowth quarter-on-quarter

100.0 99.9+1 0%

+0.4% +1.0%

> Turning point mid-2009> Strong recovery> Our predicted likelihood in

2009 75%+1.0%-0.1%

1 4%

+1.1%

2009: 75%> Scenario realized

> Turning point 201098.6 -1.4%

-1.6%

+0.9%> Almost zero growth until then> Our predicted likelihood in

2009: 23%> Scenario not realized

Q1 Q2 Q3 Q4 Q1 Q2 Q3Q4

96.9Q4

> Depression continues until2010

> Our predicted likelihood in

5Source: IMF

2008 20092007 2009: 2%> Scenario not realized

Stock markets have made partial recoveries

Are stock markets a Key share indexes (highs, lows and index at start of month)

good indicator?YES> They react immediately to

Dow Jones Dax Shanghai Composite

14,165 8,106 6,092> They react immediately to

company figures, shifts in the market, etc.

> They reflect growth potential and general

+58%+54%

10,326 5,653

+81%

potential and general economic outlook

NO> Market speculation and

10,3263,088

,

pirrationality ignore fundamental data

> Not all companies are listed on stock markets –10/07 03/10 06/07 03/10 10/07 03/1002/09 03/09 11/08

6,547 3,666 1,707

6

not the full story10/07 03/10 06/07 03/10 10/07 03/1002/09 03/09 11/08

Source: Bloomberg

Other key indicators are also pointing toward recovery

Brent oil price (U$/barrel1))

Ifo global business climate (index)

Global exports(U$ bn)

140 115+96%

4,321

+31%100

+88%3,517

31%

79

42 512,685

08/08 03/1002/09 Q3 2007 Q1 2010Q1 2009Q2 2008 Q4 2009Q1 2009

7

1) At start of month

Source: Bloomberg, Ifo Institute

08/08 03/1002/09 Q3 2007 Q1 2010Q1 2009Q2 2008 Q4 2009Q1 2009

But it ain't over yet …

Economic growth is still below pre-crisis levels (IMF 2010 forecast is +3 9% compared to +5 2% in 2007)(IMF 2010 forecast is +3.9%, compared to +5.2% in 2007)

Lagging indicators have not yet bottomed out (unemployment insolvency rate state indebtedness)

Causes of the crisis have not been dealt with (regulation of financial markets structural problems in some industries etc )

(unemployment, insolvency rate, state indebtedness)

(regulation of financial markets, structural problems in some industries, etc.)

Risk of flash in the pan effects (economic stimulus programs, trust)( p g , )

Boom markets fuelled not just by fundamental data, but also cheap money from central banks

8

from central banks

HOW LONG WILL THE CRISIS LAST?Forecasts are difficult and still vary widelyGDP growth [%]

IMF forecasts for development of global GDP 2010 growth forecasts

3.0

IMF forecasts for development of global GDPin 2009

2010 growth forecasts

WORLD2.2 IMF 3.9

World Bank 2.7OECD 1 9OECD 1.9

BRAZIL

0.5

-0.8-1.1-1.3

OECD 4.8IMF 4.7World Bank 3 6O t 08 N 08 J 09 A 09 O t 09 J 10

9Source: IMF, Consensus Economics

World Bank 3.6Oct 08 Nov 08 Jan 09 Apr 09 Oct 09 Jan 10

OUR ASSESSMENT – Three countries have the key for global economic recovery

Recovery in 2010

Global share [%]

Population1) GDP2)

CHINA 19 11 CHINA 7% GDP th

Recovery in 2010 possible, if

CHINA 19 11

INDIA 17 5

CHINA > 7% GDP growth

ANDINDIA 17 5

USA 4 21

INDIA keeps up

ANDUSA 4 21

TOTAL 40 37USA show first signs of recovery

10Source: CIA World Factbook

y

1) World population 2008: 6.7 bn 2) World GDP 2008: USD 70.7 tr

Unique strengths –Why Brazil is doing so Why Brazil is doing so much better

11

According to the IMF forecast, Brazil will be the only BRIC country to grow at a pre-crisis rate in 2010 Average annual GDP growth: 2004-2007, 2009 and forecast for 2010 [%]

11 3

4.7 4.7

7.4

3 6

9.17.7

11.3

8.7

10.0

4.93 9 3.6

5.63.9

-0.2-0.8

-9.0

Brazil Russia India ChinaWorld

12Source: IWF

Annual average 2004-2007 2009 2010 (IMF forecast)

Ibovespa has nearly reached its all-time high again – It has recovered much better than RTS and Shanghai Composite

Ibovespa [Index] Shanghai Composite [Index]

All-time All-time

RTS [Index]

All-time

67,228

All-time highMay 2008

73,438All time highSep 2007

6,124All time highJun 2008

2,464

3,0881,430

38,383

1 707

1,126

Nov 2008All-time lowOctober 2008 29,435

1,7071,161

All-time low Jan 2006492All-time low

Jan 2009

13

Jan 1, 2006 Mar 1, 2010 Jan 1, 2006 Mar 1, 2010Jan 1, 2006 Mar 1, 2010

Source: Bloomberg

Brazil is already an economic heavyweight

Brazil's global ranking in selected areas

Economy (according to purchasing power

it )

Exports of sugar,ethanol, soy andb f

Agricultural land

parity) Size, population

Currency stocks

beefEthanol production

1122334455667788991010

14

Brazil's potential is based on unique strengths and on strong opportunities

> Young, dynamic populationS i i t d ttit d d fl ibilit> Service-oriented attitude and flexibility

> Large, partially unexploited offshore oil fields near the coast> The world's largest land reserves> The world s largest land reserves

(200 million hectares of unused agricultural land)> Largest rainforests on earth

(enormous CO sink source of biodiversity and natural substances)> Technology leaders in ethanol-driven engines and in offshore oil extraction> Globally, growing demand for ethanol and ethanol-based technologies

(enormous CO2 sink, source of biodiversity and natural substances)

Globally, growing demand for ethanol and ethanol based technologies> Major upcoming events: World Cup in 2014 and Olympic Games in 2016

15

BRAZIL'S OPPORTUNITIES

Brazil has a unique combination of four strengths to foster sustainable economic growth

POLICY CAPITAL MARKETS> Stable domestic and foreign policies – stabilizing

institutions, balancing competing stakeholders' interests, acting responsively on international scale

> Overcoming historical economic volatilities

> Conservative banking regulation prevented the collapse of the financial system (compared to US, Europe, etc.)

> Net foreign creditor – recent elevation to O e co g sto ca eco o c o at t es(inflation, exchange rates, etc.) – weathering the economic crisis well, better than most other countries

et o e g c ed to ece t e e at o toinvestment grade status

> Solid, transparent and efficient stock-market

> Brazil investing heavily in its future– Energy sector 2010-2030: BRL 1.960 bn– World Cup/Olympics: BRL 97 bn– Transportation e g TAV High Speed Train:

> Very large domestic market – public sector, companies, households

> Growing middleclass, with increasing buying Transportation, e.g. TAV High Speed Train:

BRL 35 bn> Positive secondary effects on supplier industries,

e.g. shipyards: > 40,000 new jobs created

power > Enthusiastic consumers – also in "crisis year"

2009

16

DOMESTIC DEMAND INFRASTRUCTURE PROGRAMS

A Brazilian decade –Yes but no timeYes, but no timeto lay back

17

Brazil's future: The window is open for strong growth

EIKE BATISTA, Business Week,February 22 2010February 22, 2010"We believe that in five years Brazil will be the fifth-largest economy inth ld "the world."

DB RESEARCH, report"Brazil 2020", January 20, 2010"In 2020 Brazil will have outrun France and the UK and will be the seventh largest economy in 2020 "

18

the seventh-largest economy in 2020.

However, the look from the outside on Brazil shows the areas of concern for the country's futureThe most problematic factors for doing business [% of responses]

Inefficient government bureaucracy 11.0Restrictive labor regulations 14.0Tax rates 18.5Tax regulations 19.0

Inadequately educated workforce 4 9Corruption 7.0Inadequate supply of infrastructure 9.5Access to financing 10.4

g y –1.0

Policy instability 1.1Inadequately educated workforce 4.9

Foreign currency regulations 0 9Poor work ethic in national labor force 0.9Inflation +Government instability/coups 0.3Poor public health 0.6Crime and theft 0.7Foreign currency regulations 0.9 +

19Source: WEF, Global Competitiveness Report 2009-2010

From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings

The Brazilian economy in early 2010 – some signs of concern

Observations

1. Limited value added on products – in 2009, for the first time since 1978, export of basic products was higher than manufactured ones QUESTIONmanufactured ones

2. Not enough savings – only 14,6% of GDP in 2009, the lowest level since 2001 (and vs. 45% for China)

How do these weaknesses interrelate and what o est e e s ce 00 (a d s 5% o C a)

3. First time since 2001 current account is negative – Central Bank estimates deficit of USD 49 bn in 2010

interrelate and what is the key for solution?

4. Not investing enough in innovation – only 0,82% of GDP (vs 3 40% for Japan and 1 42% for China)

20Source: World Bank; Brazilian Central Bank; Associação de Comércio Exterior do Brasil

(vs. 3,40% for Japan and 1,42% for China)

There is a strong correlation between innovation and the share of value added products in exports

CORRELATION BETWEEN INNOVATION AND SHARE OF VALUE ADDED PRODUCTS IN EXPORTS IMPACTS FOR BRAZILShare VA Products1)[%]

100

SHARE OF VALUE ADDED PRODUCTS IN EXPORTS

> Brazil's low investment in R&D highly correlates with its low degree of value dd d d t h t l di

IMPACTS FOR BRAZIL

90

80

Japan

100 added products – huge gap to leading economies

> Low share of value added products means th t t ibl t 80

70

Germany

USA

that exports revenues are very sensible to market price of commodities

> Conclusion: Brazil has to invest in inno ation to de elop a s stainable

Brazil

60

50

0

innovation to develop a sustainable position as a world-leading economy

Expenditures on R&D/GDP2) [%]

21Source: World Bank; OECD; UN-TradeCom

0 1 2 3 40

[ ]

1) Data for 2008 2) Data for 2006, except for Brazil (2005)

Brazil is not investing enough in innovation

Expenditures on R&D (public and private) as share of GDP

3.40%

2 61%

1 42%

2.61% 2.52%

1.08%1.42%

0.69%0.82%

Brazil IndiaRussiaJapan USA Germany China(2006) (2006) (2006) (2006) (2006) (200 ) (200 )

22

(2006) (2006) (2006) (2006) (2006) (2005) (2004)

Source: World Bank

As a result, Brazil dropped down 18 positions in global innovation rankingResults from the survey Global Innovation Index 2010

According to the Global Innovation Index 2010 Brazil fell from 50th to 68th position in the world rankings for innovation in 2010

Among Latin American countries, the country was only the 7th place compared to the 3rd highest rank last year

In the group of BRIC countries, Brazil was the one who recorded the worst result this year

23Source: Global Innovation Index 2010 (INSEAD, Confederation of Indian Industry)

Brazil has to overcome structural weaknesses to take advantage of its opportunities – Innovation becomes key

> Only few innovative competence > Only few innovative competence clusters so far– Oil exploration in deep waters

T i l i lt– Tropical agriculture– Aircraft manufacturing

> Overall, Brazil's ranking in innovation is low "WE NEED

MORE EMBRAERS"

INNOVATION AS KEY TO BRAZIL'S FUTUREINNOVATION AS KEY TO BRAZIL'S FUTURE

MORE EMBRAERS J. Stiglitz et al.Economics Nobel Prize Winner & Team

24

INNOVATION AS KEY TO BRAZIL'S FUTUREINNOVATION AS KEY TO BRAZIL'S FUTURESource: Press research

Close the innovation gap – The areas for action are clear

Brazil's world ranking in innovation categories

INNOVATION CATEGORY WORLD RANK1)

28Capacity for innovationCapac y o o a o29Company spending on R&D34University-industry collaboration in R&D

59Utility patents60G t t f d d t h d t

41Quality of scientific research institutions

60Government procurement of advanced tech products60Availability of scientists and engineers

25Source: WEF, Global Competitiveness Report 2009-2010

1) Of 132 countriesCompetitive disadvantage

Innovation is key –Joint public and private Joint public and private effort required

26

To stimulate innovation, joint public and private effort is needed

Prerequisites to stimulate innovation

COMPANIES GOVERNMENT > Allocate the resources needed for innovation

from public and private sources> "Key Innovation Drivers" push innovation in the

world's most innovative companiesfrom public and private sources

> Stimulate the creation of technology clusters and networks, also between universities and companies

world's most innovative companies

> The CEO has paramount influence on both innovation performance and innovation culture

companies

> Foster the creative class/creative cities> There are many barriers to innovation that

need to be overcome by CEOs and their colleagues

Results from "Innovating at the Top" – A joint study from Roland Berger and INSEAD

Roland Berger Creative Cities Approach

27

study from Roland Berger and INSEAD

GOVERNMENT

Foster the creative class/creative cities – Example: USA

Economic success and creativity

HighEconomic success1)

San FranciscoAustin CREATIVITY INDEX +

+Seattle

Boston

LOSERSTechnology (innovation)

++

WINNERS

ClevelandDetroit Talent (human capital)–

–

Creativity index2)

Milwaukee

BuffaloNew Orleans Tolerance (openness)

––

–

28Source: Richard Florida, Roland Berger

1) GDP, growth, per capita income, etc. 2) Technology, talent, tolerance

HighLow

GOVERNMENT

To enable and stimulate innovation you need the creative class

Definition of the creative class1) SHARE OF CREATIVE PEOPLE IN THE USA

Members of the creative class develop new, useful things through their work

IT & th ti l f i 40%

45%50% Share of working population

SERVICEclass> IT & mathematical professions

> Engineers, architects, scientists> Art, media, entertainment> Managers 25%

30%35%40%

CREATIVEclassWORKING

class

> Managers

10%15%20%25% class

0%5%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1991 1999

FARMING, FORESTRY & FISHING

29Source: Richard Florida, Roland Berger

1) The data in this section is based largely on research by Prof. Richard Florida of Carnegie Mellon University, who looks mainly at US cities

GOVERNMENT

The creativity index of a region or city consists of the three elements technology, talent and toleranceThe three "Ts" in detail

How much high tech is in the region? Patents, technical universities, expenditures forR&D, etc.Technologygy

How many creative people live in the region?Scientists engineers architects advertisingScientists, engineers, architects, advertisingpeople, etc.Talent

How tolerant is a region? Share of different ways of life, artists, immigrants,ethnical mixture, openness for new cultures, etc.Tolerance

30Source: Richard Florida, Roland Berger

Tolerance

GOVERNMENT

Our successful "growing city" strategy for Hamburg suggests pursuing a "combination strategy" of technology and talentCreativity strategy Hamburg

InnovationInnovationcycleShort

IT Media

"COMBINED STRATEGY"> Highly innovative and more

traditional clusters exist side by side

Technology/talent

NanotechnologyRegenerative energy

by side> Fewer "natural" interfaces

between clusters > Creative sector forms its own

cluster thanks to its economic

Life sciences

Maritime

importance

> Maintain the existing creative l d ti ti / lt l

Need for talent d f

LongAviation Logistics/ports

Maritime class and artistic/cultural scene> Strong focus on strengthening

the technology base to attract "innovators"

and way of attracting it

31Source: Roland Berger

Very successful cluster

High LowR&D investPlanning stageSuccessful cluster Being developed

GOVERNMENT

Successful cities in Europe driving innovation – Strategic options for Brazil?

STRATEGY DESCRIPTION

COPENHAGENPEOPLE > Established high-tech clusterTech-nology Talent Toler-

anceFOLLOW INNOVATIVE TECHNOLOGY

g> Creative diversity (tolerance)

being developed: used asimage

DUBLIN

BARCELONAJOBS FOLLOW CREATIVE DIVERSITY Tech- Talent Toler-

> High-tech cluster being developed

> Established creative diversity

AMSTERDAMCOMBINATION

DIVERSITY nology Talent ance

Hi h t h h ld b d d

> Established creative diversity used as breeding ground

AMSTERDAMCOMBINATION OF THE TWO

Tech-nology Talent Toler-

ance

> High-tech should be expanded> Creative diversity plays different

role for different clusters: catalyst for creative sector, less important

i f t

VIENNA

32Source: Roland Berger, Project Team

Berlin and Hamburg have no clear strategy targeting the creative class

as an image factor

COMPANIES

What drives innovation on company level – Findings of our joint study with INSEAD

WHAT WE DISCOVEREDSCO> Ten "Key Innovation

Drivers" push innova-tion in the world's most

WHAT WE WANTED TO FIND OUT

tion in the world s most innovative companies

> The CEO has paramount influence on both innovaWHAT WE WANTED TO FIND OUT

> How leading companies drive innovation – and achieve higher growth and profits

influence on both innova-tion performance and innovation cultureTh b i > How CEOs personally push innovation –

and implement innovation policies and practices> What other companies can learn from top innovators –

> There are many barriers to innovation that need to be overcome by CEOs and their colleagues

33

p pacross regions and across different industries their colleagues

Source: Roland Berger, INSEAD

COMPANIES

The global perspective – We talked with the CEOs of the world's most innovative companies

George Buckley, CEO

Olli-Pekka Kallasvuo, CEO

Jim Balsillie,Co-CEO

Fujio Cho,Chairman

Patrick Cescau, Group CEO

Art Levinson,CEO

N.R. Narayana Murthy,Chairman

Franz Fehrenbach, CEOCEO ChairmanCEO

H i K

34Source: Roland Berger, INSEAD

Henning Kagermann, CEO

COMPANIES

The outcome of our study – Innovation at the top needs strong leadership, ten key innovation drivers

1. Appoint the CEO as the innovation champion2 Celebrate an innovation culture2. Celebrate an innovation culture3. Engage more innovation partners by sharing knowledge4. Organize diversity to promote positive friction and cross-fertilizationg y p p5. Use customer needs to drive simultaneous R&D and business

model innovation6 Set high standards and demanding challenges6. Set high standards and demanding challenges7. Encourage youth and keep a challenger mentality8. Appoint appropriate decision-makers and encourage transparent pp pp p g p

information sharing9. Use processes judiciously10 Incentivize to innovate continuously

35Source: Roland Berger, INSEAD

10. Incentivize to innovate continuously

Corporate Brazilas innovation driver –as innovation driver Strategies for global growth

36

Starting point 2010 – Why strategy and innovation in turbulent times?

> Most companies have been reacting remarkably quick and decisive on the crisis –stopping investments reducing capacity cutting costsstopping investments, reducing capacity, cutting costs

> They are now navigating "at sight and with low speed" – continuously observing their markets clients competitorstheir markets, clients, competitors

> Now is the time for smart and fundamental strategic movesConsolidating the competitive landscape taking over (undervalued) competitors– Consolidating the competitive landscape, taking over (undervalued) competitors

– Reshaping the industry, investing in new business models and innovation

> Shaping the future competitive position of Brazil's companies now! … while (international) competitors are busy about cost cutting

37Source: Roland Berger

Brazilian companies are increasingly successful in global markets

Selected multinationals from Brazil

PETROBRAS – One of the largest oil companies in the world, a major exporter of offshore oil extraction technology

VALE fVALE – World's largest exporter of iron ore and second largest mining company

EMBRAER – World's third largest passenger aircraft manufacturer

GERDAU – Largest manufacturer of long steel in the Americas withg g26 production sites in North and South America

CAMARGO CORRÊA – Dynamic conglomerate, with operations in i i & t ti t t l i th

38

engineering & construction, cement, steel, concessions, among others

Brazilian companies are outperforming their international peers in key industries

Performance of top players Brazil vs. Global Leaders (EBITDA Margin 2008)

Share price evolution of top playersfrom selected sectors 2008-today

Europe BrazilUS

20%24%

9%10%

12%1 Aerospace

2 CosmeticsUS

BREU

BR

1 Aerospace

2 Cosmetics

-29%

-23%

-21%

+7%

-51%

+106%

29%

25%42%

23%20%

3 Mining

4 Oil & Gas

BREU

EUUS

BR

3 Mining

4 Oil & Gas

-25%

-32% -20%

-2%

-12%

43%18%

15%22%

19%20%

29%4 Oil & Gas

5 Steel

6 B i

BRINJP

BREUUS

6 B i

5 Steel

4 Oil & Gas 32%

-38%1)

+7%

20%

-48%2)

16%2)

12%

+8%

+34%

Brazilian industries gain competitive advantage on a global Weak global markets create take-over opportunities

10%15%

43%6 Breweries BREUJP

6 Breweries +7% -16%2) +34%

39Sources: Thomson Reuters

g p g gscale

g pp

1) Indian Company 2) Japanese Companies

Brazilian companies can now act out of the position of strength to become global leaders

Keep your focus on creating profitable growth1 p y g p g

Align your corporate strategy to a changing environment

Innovate and invest in new business models

2

3 Innovate and invest in new business models

Consolidate the industry on international scale

3

4

Secure access to capital markets

Rethink the role of the corporate headquarter

5

6 p q

And become a truly global player7

40

Keep your focus on creating profitable growth1Profitable Growth : Example Camargo Corrêa

Evolution of net operating revenues [BRL bn] Growth of top 100 companies and Bovespa IndexEvolution of net operating revenues [BRL bn]

CAGR +17% > Brazilian companies have been managing profitable growth

Growth of top 100 companies and Bovespa Index

13.2

10.5

– EBTIDA growth 07-08: + 129% – Bovespa Index CAGR06-08: + 38%

> For the years ahead these companies are 8.4

6.66.06.25.2

o e yea s a ead ese co pa es a epursuing ambitious growth plans with high investment budgets

> Effective, value-based portfolio manage-18.4%18.2%19.2%18.1%19.9%18.5%19.9%

, p gment becomes key to success

> The principle for true value creation is simple: the return on capital must be

41

2008200720062005200420032002EBITDA margin

Source : Roland Berger, Company Annual Report

p phigher than the cost of capital!

Align your corporate strategy to a changing environment2Conglomerate Discount

Brazilian conglomerates ROE performance [BRL bn ; 2004 2008]Brazilian conglomerates ROE performance [BRL bn ; 2004-2008]

> Brazilian conglomerates have been remarkably successful managing diversified 50

55Top 1.000 Brazilian companies2)

average Ebitda 2008Net revenuesCAGR04-08 [%]

remarkably successful managing diversified business portfolios

> In a changing domestic and global economy these portfolios should be reassessed30

35404550

p– Clearly defining the portfolio logic:

related vs. unrelated diversification, industry focus, competence clustersId tif i f t b i t

Top 1000 Brazilian companies2)

average net revenues

15202530

Overperformers

– Identifying future core businesses to invest in, and businesses to be divested

> Making the overall stock market the b h k f th tf li f

revenues CAGR 07-08

05

10

-25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45

UnderperformersROE1)[%]

42Source: Annual Report s 2008, press research, Valor 1000, Valor 200 Grandes Grupos, Roland Berger

2) Return on Equity (net results/shareholder equity)2) Average of Top 1 000 companies in 2008 in the industrial sectors (no Banking & Insurance sector) – valor 1000

benchmark for the portfolio performanceNet revenues in 2008 [BRL bn]

Innovate and invest in new business models3Innovation made in Brazil

Example Natura Cosmeticos S A Example Natura Cosmeticos S.A.

> Innovation is the key challenge for the Brazilian economy for the next decade

INNOVATIVE BUSINESS MODEL> Direct sales model for cosmetics Brazilian economy for the next decade

> Although overall ranking on innovation is low and even decreasing, there are positive Brazilian examples to build on – oil

> Full sustainability appeal

INNOVATION MANAGEMENT> BRL 104 m investment in R&D 2008 (2 9% of revenue) a a e a p es o bu d o o

exploration in deep waters, tropical agriculture, aircraft manufacturing

> Beyond that also in other key industries,

> BRL 104 m investment in R&D 2008 (2,9% of revenue)> Around 180 new products on average per year

INNOVATION BENEFITS> Market share from 8% in 2002 to leadership with 13% y y ,

such as consumer goods, international high performers evolve – Natura as one Brazilian example for innovation

> Market share from 8% in 2002 to leadership with 13% in 2008

> 17% sales increase 2008-2009> 19% EBITDA increase 2008-2009

43Source: Roland Berger, INSEAD, Clippings, Annual Report

Consolidate the industry on international scale 4Consolidation path: Brazilian companies

ExamplesExamples

> Synergies of scale and scope are the driving factors for global M&A activities

JBS acquires Australian Tatiara Meat Company (Dec 2009) and Pilgrim's Pride (Dec 2009) and merges with Bertin (Sep 2009), becoming #1

Meat Processing

– M&As totals USD 1.810 bn globally in 2009, a 27% drop from 2008

– Latin American deals declined only 9.5% between 2008 and 2009 to USD 115 bn

g ( p ) gmeat producer and #1 tanning company

Inbev (through AmBev) acquires Anheuser-Busch (Nov 2008), becoming the #1 brewer in the world and #2 beverage company

Breweries

between 2008 and 2009 to USD 115 bn

> The competitive strength of Brazilian companies now allows them to play a major role in the consolidation of industries on a

the world and #2 beverage company

Braskem acquires Sunoco Chemicals division (Feb 2010) and Quattor (Jan 2010)

Petrochemicalsrole in the consolidation of industries on a global scale

> And Brazilian companies do not hesitate to take their chances

Cosan acquires Exxon Mobile Brazilian distri-bution (Esso; Dec 2008) and merges its ethanol

Ethanol

44Source: Roland Berger, INSEAD, Clippings, Annual Report

take their chances and fuel distribution unit with Royal Dutch Shell (Feb 2010)

Secure access to capital markets5Recent track record of IPOs

Examples of recent IPOs Examples of recent IPOs

> After an IPO boom in 2007, there were only 10 IPOs in 2008-2009 due to the effects of the f

OSX Brasil S.A. Ship constructionfirm

> Company raised BRL 2,8 bn, less than 30% of initially expected

> Stock price down 12,5% on the financial crisis

> In 2010, IPOs are back, but investors are much more selective and demanding significant di t

BR PropertiesReal estate firm

first day of trade

> Raised 7% less money that minimum price expected

> Stock price down 2 7% on the discounts– More critical, especially with greenfield

companiesA t i k l ti (i OSX d

Renova EnergiaRenewable energies firm

> Stock price down 2,7% on the first day of trade

> IPO suspended due to low demand

– Averse to risk correlation (ie. OSX and OGX, two strongly linked companies)

– Focusing only on big operations (more than BRL 500 m)

firm

International Meal CompanyH ldi f

> IPO cancelled due to low demand even after price lowering

45Source: Clippings, Annual Reports, Roland Berger

BRL 500 m)Holding of restaurants

Rethink the role of the corporate headquarter6Corporate headquarter: A decisive element to create value

Business portfolioBusiness portfolio

> Sustainable growth, internationalization and new businesses increase the requirements f

Relatedness of the business in the portfolio

High LOST for Brazilian corporate headquarters

> The ability of the corporate headquarter to contribute to business development depends

h f li l i

High LOST SYNERGIES

Emerson ICIC

Shell SingaporeAirlines

on the portfolio logic– Related diversification: facilitating

synergiesUnrelated diversification: allocating

KKR

Hutchison

Swire 3M

Unilever

Canon

– Unrelated diversification: allocating (financial) resources

> Not aligning the corporate headquarter to the business specifics destroys corporate value

Low

HighLow

DESTRUCTION OF VALUE

Hanson3M

Portfolioinvestor

Strategic architect

Strategic controller

Operator

46Source: Roland Berger

business specifics destroys corporate value HighLowRole of the center

(involvement in operative decisions)

And become a truly global player7Global Leader from Brazil

Company Global Market Position % Internat Rev 1)Company

> Different industries with different success factors require different strategies for growth

Global Market Position % Internat. Rev.1)

Anheuser-Busch InBev

#1 Brewery 80%

> However, there is one common pattern for successfully becoming a global leader– First creating a national champion in

JBS #1 Food Products 33%

Cosan #1 Sugar Cane & Ethanol 55% gBrazil

– Then, based on a strong national footprint, pursuing global expansion

Embraco #1 Compressors N.A.

Marcopolo #1 Bus Body Building 39%> The global leaders cannot and will not stand

still – looking for global opportunities, reinventing their business models and aligning their corporate structures

Marcopolo #1 Bus Body Building 39%

Vale #2 Mining 83%

47

aligning their corporate structures

Source : Thomson Reuters, Annual reports

Embraer #3 Aerospace Commercial Planes

96%

1) 2008 values

CONCLUSIONfBrazil – creating the future with its

entrepreneurial spirit and couragep p g

"By itself, resolution is an act of courage and, if it develops into a personal trait, becomes a habit of the soul"

Carl Philipp Gottfried

48

ppvon Clausewitz

Hauke MojePARTNER

Rodrigo DantasPARTNER

Corporate Strategy

PARTNERFinancial Services

PARTNER

Portfolio Management, Mergers & Acquisitions, Post Merger Integration

Head of Financial Services and Co-Managing Partner of Brazilian Office

Avenida Presidente Juscelino Kubitschek 510 Avenida Presidente Juscelino Kubitschek 510Avenida Presidente Juscelino Kubitschek, 51004543-906 São Paulo I Brazil Phone +55 11 3046-7039Fax +55 11 3046-7222

Avenida Presidente Juscelino Kubitschek, 51004543-906 São Paulo I Brazil Phone +55 11 3046-7111Fax +55 11 3046-7222

49

Mobile +5511 7203-7222hauke_moje@de.rolandberger.com

Mobile +5511 7203-7322rodrigo_dantas@br.rolandberger.com