�Ernst & Young | Passport to Brazil

Passport to BrazilA summary of the opportunities and challenges

The time has come for the Brazilian economyThere are no longer any doubts or misgivings over the economic scenario in Brazil. The constant development and solid basis of the Brazilian economy — which should register a real growth rate of 6.46% of GDP*, and, according to the Central Bank in its latest report, attract over US$ 37 billion in direct foreign investment in 20�0 — has made the country a key part of the strategic plans of international investors, and made it move from being a country of the future to a country of the present.

According to Goldman Sachs, Brazil presents the best conditions for sustained growth over the next few years among the BRICs (Brazil, Russia, India

and China). Goldman Sachs points out that these countries are vital for a global economic upturn after the crisis of the last two years and gives positive evaluations to Brazil in questions of inflation, foreign debt and education.

Factors such as the 20�4 Football World Cup and the 20�6 Olympic Games, as well as the increased spending power of a burgeoning middle class, and the future investments in the deepwater “pre-salt” oil reserves, contribute even more to attract the attentions of foreign investors.

The 20�4 Football World Cup, for example, is projected to inject R$ �42 billion into the Brazilian economy, with a direct impact

2 Ernst & Young | Passport to Brazil 3Ernst & Young | Passport to Brazil

*Source: Central Bank of Brazil. Projections from May 2010

Aerial view from Rio de Janeiro (RJ)

on GDP of R$ 64.5 billion in the period from 20�0 to 20�4, with additional tax contributions of R$ �8.� billion, according to a study undertaken by Ernst & Young in partnership with the Getulio Vargas Foundation (FGV).

According to numbers released by the 20�6 Rio Committee, the 20�6 Olympic Games will lead to investments estimated at R$ 28.8 billion, with R$ 23.2 billion of that sum coming for infrastructure projects from the three levels of Brazilian government (Federal, State and Municipal) and the remaining R$ 5.6 billion coming from the International Olympic Committee.

The deepwater “pre-salt” petroleum discovery – the largest in the country’s history – will lead to around US$ 560 billion being

spent on technological processes and drilling in the Santos Basin, according to a study published last May by FGV. The study states that an investment of US$ �4 is needed for each barrel of oil. The return, therefore, would be promising: every R$ � billion invested in oil drilling would be capable of creating 33,000 new jobs, either directly or indirectly.

In view of this, Brazilian companies could be on the crest of a wave of economic growth generated by these opportunities, gaining more prestige in the global economy. Companies not only in the oil and gas industry, such as Petrobras, but also those in civil construction, mining and iron and steel works, such as Camargo Corrêa, Vale and Gerdau, head the list of Brazilian companies established in international markets.

Group Gross revenue (R$ billion)

Petrobras 284.6

Itausa 92.1

Vale 72.8

Gerdau 41.9

Odebrecht 40.9

Votorantim 40.8

Ambev 39.7

JBS Friboi 31.1

Ultra 29.5

Usiminas 21.2

CSN 17.9

Camargo Corrêa 15.2

Brasil Foods 13.2

Embraer 11.9

Andrade Gutierrez 11.8

Tam 11.1

Organizações Globo 9.2

Cosan 7.9

Marfrig 6.8

Gol 6.7

20 largest Brazilian companies in 2009

Source: Valor Grandes Grupos (December 2009)

4 Ernst & Young | Passport to Brazil 5Ernst & Young | Passport to Brazil

6 Ernst & Young | Passport to Brazil 7Ernst & Young | Passport to Brazil

Brazilian Economy: Key Indicators and ForecastsDetailed Economic Indicators

2006 2007 2008 2009 2010 2011 2012 2013 2014

Real GDP (% change) 4.0 6.1 5.1 -0.2 5.5 4.9 5.0 5.1 5.4

Nominal GDP Per Capita (US$) 5,749 7,102 8,387 7,932 9,769 10,282 10,744 11,368 11,918

Real Exports of Goods and Services(% change) 5.0 6.2 -0.6 -10.3 8.4 6.1 5.3 3.0 4.0

Industrial Production Index (% change) 2.8 6.0 3.1 -7.4 7.7 6.0 6.0 4.9 4.8

Consumer Price Index (% change) 4.2 3.6 5.7 4.9 5.1 4.5 4.2 4.0 4.0

Base Interest Rate (%) 15.06 11.98 12.54 9.92 9.68 10.08 9.96 8.67 8.58

Population (million) 189 192 195 198 200 203 206 209 212

Unemployment Rate (%) 10.0 9.3 7.9 8.1 7.8 7.7 7.5 7.5 7.5

Trade Balance (US$ billion) 46.5 40.0 24.8 25.4 10.8 13.8 15.6 14.9 13.7

BOP Exports of Goods (US$ billion) 137.8 160.6 197.9 153.0 175.4 189.8 201.5 211.0 219.9

Source: Global Insight Report: Brazil (May 2010)

Brazilian Economy: Key Indicators and Forecasts

8 Ernst & Young | Passport to Brazil �Ernst & Young | Passport to Brazil

Elements such as a stable economy, the 20�4 World Cup, the 20�6 Olympic Games and the deepwater “pre-salt” oil reserves discovery off the Brazilian coast are huge incentives for economic growth across the board that

will stimulate Private Equity and Venture Capital markets, IPOs and mergers and acquisitions in Brazil. However, knowing how to capitalize on each of these opportunities is a challenge for the administrators of these funds.

Major events give even more stimulus to the economy

With these events, the number of funds investing in companies with a large potential for growth is increasing — in companies that have passed the initial stages and are preparing themselves to go public on the markets.

It is fair to say that, with the strong economy, new businesses have excellent chances of attracting investment. Along these lines, Private Equity and Venture Capital funds, for instance, hold more than US$ �0 billion waiting to be invested in Brazil in the coming years, according to data from the Brazilian Association of Private Equity and Venture Capital (ABVCAP). These funds are looking to emerging markets more and more, since companies are of the view that the higher

potential returns in these countries outweigh any political or legal risks and structural instabilities.

In this favorable economic scenario, innovating companies with an entrepreneurial spirit are sometimes able to reach a growth rate of 60 to 70 per cent per year. Currently, the country has many companies that, along with these characteristics, enjoy solid financial structures and a firm economic base. They are companies that concern themselves in adopting best practice in corporate governance, resulting in more transparency in their financial statements. The natural next step, after following these processes, is to go public on the world stock markets.

The impact of the World Cup 2014 a) Impact over final demand

(expendituresrelatedtotheWorldCup in Brazil)• Investments• Operating expenses• Visitors’ expenditures

b) Impact over the national services and goods productionc) Impact over incomed) Impact over employmente) Impact over tax collection

The most benefited sectors(economic activities

with increased production)

Civilconstruction

Food andbeverage

Services Utilities (gas,water, energy

etc.)

Informationservices

R$29.60 billion

R$ 112.79 billion

R$ 63.48 billion

3.63 million

R$ 18.13 billion

R$ 22.50 billion

R$ 5.90 billion

R$ 1.20 billion

Source: Study Ernst & Young in partnership with Getulio Vargas Foundation (FGV)

�0 Ernst & Young | Passport to Brazil ��Ernst & Young | Passport to Brazil

In the last three years, 74 companies have completed IPOs in Brazil. Only in the first quarter of 2010, there were five IPOs — compared to six in all of last year. According to specialists, the sectors where companies are more likely to go public are retail (due to a heated internal market),

financing (due to expansion in credit), infrastructure (due to the 20�4 World Cup, 20�6 Olympics), real estate (due to housing programmes and the rise in credit for the sector) and oil and gas (due to the “pre-salt” oil discoveries).

Transactions on the rise

Brazil: Top-10 Sectors Ranked by Value Added

2008 Level 2009 Percent Change Percent Share of GDP

(Billion US$) (Real terms) (Nominal terms)

1. Public Admin. and Defense 120.4 3.9 9.7

2. Agriculture 91.3 -1.2 7.4

3. Real Estate 78.5 2.0 6.4

4. Refined Petroleum and Coke Production 72.9 -2.0 5.9

5. Construction 72.7 -8.8 5.9

6. Business Services 56.8 1.1 4.6

7. Banking and Related Financial 56.6 6.3 4.6

8. Retail 55.7 3.4 4.5

9. Education 49.9 6.7 4.0

10. Food Products 44.8 -1.5 3.6

Top-10 Total 699.5 56.6

In mergers and acquisitions the expectation is even more positive owing to the natural consolidation of the markets. A return to accelerated growth in these types of businesses is expected in 20�0. Just in the first quarter of this year a little more than �50 operations were registered, an increase of 60 per cent in comparison with the same period of 200�. In relation to PE and VC investments, the report Fundraising & Investment Review 2010, put out by the Emerging Markets Private Equity Association, shows that emerging countries, such as Brazil, received 26 per cent of global investments from those funds totaling US$ 22.6 billion in 200�.

Source: Global Insight Report: Brazil (May 2010)

�2 Ernst & Young | Passport to Brazil �3Ernst & Young | Passport to Brazil

How can growing companies get in on the action with international and national investors? Besides the attractiveness of Brazil on the international stage, the business that prepares itself for the influx of investment funds should have, along with a differentiating entrepreneurial idea, sound governance and efficient administration. Awareness of socio-environmental questions is another point of rapidly increasing importance.

But, besides corporate matters, that should be dealt with by companies, the 2010 Global Private Equity Watch Report, carried out by Ernst & Young, states that there still exist governmental economic challenges. According to the

findings, the biggest challenges for Brazil to maintain its appeal to foreign investors and have influence in funding allocation decisions by multinational companies are: a fall in its historically high interest rates, the need for tax reform and the improvement of infrastructure. It is the combination of these and other factors that result in the so called country risk index. Calculated by JP Morgan, in May 20�0, this variable totaled 242 points — that is an additional cost of 24.4 per cent on a company that operates in the country.

The good news is, though, that this percentage has been falling consistently during the last few years. If compared with the same period of the previous year, when the country risk

How to attract resources and grow

index reached a peak of 3�5 points, there was a drop of 73 points in a short space of time, not forgetting the turbulence of the global markets in this period. With this reduction and the current status of the “Investment Grade” agreed by the main international

agencies of risk classification, the Brazilian market shows itself to be an attractive option, demanding that the up and coming companies, with strong potential for growth, prepare themselves for the arrival of investors.

18.78

34.62

45.1

25.95

37.3339.99

2006 2007 2008 2009 2010 2011

Foreign Direct Investment (US$ billion)

Source: Central Bank of Brazil

Ernst & Young | Passport to Brazil

Exports

109%US$ 153 billion in 2009. Increase of 109% in comparison with 2003 (US$ 73 billion).

Public sector net debt

20%Equivalent to 43% of GDP in 2009.Decrease of 20% in comparison with2003 (53.53% of GDP).

International Reserves

385%US$ 239 billion in 2009.Increase of 385% in comparison with2003 (US$ 49.2 billion).

Industrial Production

20%118.20 in 2009 (Fixed Base Index:2002 = 100). Growth of 20% inrelation to 2003 (98.23).

Brazil Risk

59%At the end of 2009 it was 192 basispoints. Fall of 59% in comparisonwith 2003 (463 basis points).

Total credit

76%45% of GDP in the end of 2009: +76% in comparison with 2003 (25.5% of the GDP).

Balance of trade

2%Accumulated result in 2009 isUS$ 25 billion: +2% compared to 2003 (US$ 25 billion).

Currency

35%The average US dollar exchange rate in 2009was R$ 2.00. Decrease of 35% inrelation to 2003 (R$ 3.08).

Base (Selic) interest rates 1

47%Closed 2009 at 8.75% per year.Decrease of 47% in comparison with2003 (16.50% per year).

Direct foreign investment

156%US$ 25.3 billion in 2009.Growth of 156% in relation to 2003(US$ 10.1 billion).

IPCA Inflation 2

54%Closed 2009 at 4.31% per year: -54% in comparison with 2003 (9.30% per year).

Basic-need grocery package 3

4%

The average value of the basic-needgrocery package closed 2009 at R$202.00. Increase of 4% in comparisonwith 2003 (R$ 195.00).

Formal employment

37%40.4 million job positions at the end of 2009: +37% in relation to 2003 (29.5 million).

Sales of automobiles

150%3 million units were sold in 2009. Growth of 150% compared to 2003 (1.2 million units).

Grain harvest4

8%133.8 million tons in 2009: +8%in comparison with 2003 (123.5million tons).4

Commercial sales

113%213.05 in 2009 (Fixed Base Index: 2003= 100). Increase of 113% in relation to2003 (100.00).

1 Special System for Liquidation and Custody – Central Bank Rate.2 Extended Consumer Price Index - IBGE.3 Average price of the basic-need grocery package as per Dieese in December, 2003; price corrected by IPCA on December, 2009.4 Harvest estimate by Conab for 2009/2010 is 144 million tons (page 16).

A p

ictu

re o

f th

e ec

onom

y

Sele

cted

eco

nom

ic in

dica

tors

of

2009

com

pare

d to

200

3

Source: Highlights - Actions and Programmes of the Federal Government of Brazil (May/June 2010)

�4 Ernst & Young | Passport to Brazil �5

�6 Ernst & Young | Passport to Brazil �7Ernst & Young | Passport to Brazil

6.2%

2.8%

2.5%

2.4%

2.2%

1.6%

1.3%

1.2%

1.1%

1.1%

1.1%

1.0%

China

South Korea

Brazil

Mexico

Russia

United States

Italy

Argentina

Japan

Germany

Great Britain

France

1,294

16,685

4,240

8,347

4,979

38,066

36,622

4,672

34,261

34,298

35,686

39,384

5,165

31,294

7,549

14,536

8,263

55,137

49,453

6,135

44,393

43,986

45,496

49,711

Country 2007 2030 Growth(% per year)

Projection of average annual salaries through 2030, in US$ Minimum wage

From January 2003 up to March 20�0, the minimum wage had a nominal increase of �55%, and real increase of 73% (above inflation as measured by indexes like INPC/IBGE). In January 2003, the minimum wage would buy �.4 Basic-need grocery packages. With the adjustment to R$ 5�0, this capacity grew to 2.3 Basic-need grocery packages (+64%) in March 20�0.

Source: Sustainable Brazil - Economic growth and consumption potential (2008)

Source: Highlights - Actions and Programmes of the Federal Government of Brazil (May/June 2010)

�8 Ernst & Young | Passport to Brazil ��Ernst & Young | Passport to Brazil

15,58512,755

5,2652,8182,507

1,9241,8541,8131,5281,3401,1411,1361,0721,047989974966734729721

in US$ billion*

United StatesChinaIndiaJapanGermanyGreat BritainFranceBrazilItalyRussiaMexicoSpainCanadaSouth KoreaIndonesiaTurkeyAustraliaArgentinaPhilippinesThailand

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

2007 9,125

3,8622,5302,357

1,4891,3651,0981,0661,019823820723626618602458400373373353

United StatesChinaIndiaJapanBrazilGreat BritainMexicoGermanyFranceItalyIndonesiaRussiaSouth KoreaSpainCanadaTurkeyPhilippinesPakistanSouth AfricaAustralia

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

in US$ billion*

2030 The 20 biggest consumer markets

Source: Sustainable Brazil - Economic growth and consumption potential (2008)(*) 2005 US$ adjusted for Purchase Power Parity

20 Ernst & Young | Passport to Brazil 2�Ernst & Young | Passport to Brazil

Ernst & Young Brazil was chosen as one of the leading players who will stimulate global corporation growth due to the robust potential of the Brazilian market and because of the country’s speedy recovery following the global financial crisis.

Ernst & Young has recorded annual revenue growth of 20 per cent over the last few years and gained ever growing penetration in the market. In a list of the biggest and best 500 companies compiled by the Brazilian economic magazine, Exame, 76 are clients of Ernst & Young Brazil — of which 26 are publicly traded companies and 50 are private. In 200�, these companies recorded sales of US$ �33 billion — equivalent to � per cent of the Brazilian GDP in 200� of US$ �,5 trillion.

Our target for the next three years is to achieve 30 per cent growth per year, taking into consideration factors such as the 20�4 Football World Cup, the 20�6 Olympic Games and the deepwater “pre-salt” petroleum discovery that

will have a huge impact on the Brazilian economy, thus, creating opportunities for Ernst & Young Brazil to energize its business deals.

The expertise needed for this growth is already in place. In 20�0, the Ernst & Young University (EYU) was acknowledged by the market as one of the two best corporate universities in Brazil – this acknowledgment was given by the CUBIC Awards Brazil in 20�0.

Also, for the second year running, Ernst & Young Brazil was elected the best Latin American company in the field of tax advisory services for the year 20�0. The survey was carried out by the International Tax Review. In Brazil, Ernst & Young operates in �0 cities with a team of 2,300 professionals (including �� partners) allocated in 12 offices, offering consulting and auditing services to companies that do business in all sectors and of all sizes – from those which are starting up to organizations which are active players in the global market.

About Ernst & Young in Brazil

The Entrepreneur of the Year Award is the most outstanding event held annually by Ernst & Young in Brazil. In its �2th edition in the country, the award has already honored �30 Brazilian entrepreneurs who distinguished themselves with revolutionary and sustainable ideas over time. This year the event was held in partnership with Endeavor, a nonprofit organization that promotes sustainable development in Brazil, through support to innovative entrepreneurs and encouraging the entrepreneurial culture.

Main numbersPersonnel 2,300

Partners ��

Offices �2

Cities where E&Y has offices �0

Annual growth 20%

Target annual growth until 20�3 30%

180222

272341

373428

489

2003 2004 2005 2006 2007 2008 2009

Ernst & Young gross revenue performance 2003 - 2009 (in R$ millions)

Our offices

Recife (PE)

Salvador (BA)

Brasília (DF)

Belo Horizonte (MG)

Rio de Janeiro (RJ)

Campinas (SP)

São Paulo (SP)

Curitiba (PR)

Blumenau (SC)

Porto Alegre (RS)

ContactsMaria Helena PetterssonStrategic Growth Markets Partner-leader+55 �� 2573 370�maria-helena.pettersson@br.ey.com

Carlos AsciuttiCorporate Transactions Partner +55 �� 2573 3636carlos.asciutti@br.ey.com

Paulo Sergio DortasAssurance Partner - IPO+55 �� 2573 370�paulo-sergio.dortas@br.ey.com

Antonio CocurulloAdvisory Director+55 �� 2573 370�antonio.cocurullo@br.ey.com

Edson NevesTax Director+ 55 �� 2573 370�edson.neves@br.ey.com

22 Ernst & Young | Passport to Brazil 23Ernst & Young | Passport to Brazil

24 Ernst & Young | Passport to Brazil

Ernst & Young

Assurance | Tax Transactions | Advisory

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

www.ey.com.br © 2010 EYGM Limited.All rights reserved.