passport to brazil - eyfile/passa... · telemar/oi 29.4 eletrobras 27.4 braskem 25.4 ambev ......

1Ernst & 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 — whichshould register a real growth rateof 3.56% of GDP*, and, accordingto the Central Bank in its latestreport, attract over US$ 56 billionin direct foreign investment in2011 — has made the country akey part of the strategic plansof international investors, andmade it move from being acountry of the future to acountry of the present.

Factors such as the 2014 Soccer World Cup and the 2016 OlympicGames, as well as the increasedspending power of a burgeoningmiddle class, and the futureinvestments in the deepwater“pre-salt” oil reserves, contributeeven more to attract theattention of foreign investors.

The 2014 Soccer World Cup, for example, is projected to injectR$ 183.2 billion into the Brazilianeconomy until 2019. 600 000

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

*Source: Central Bank of Brazil. Projections from September 2011

Aerial view from Rio de Janeiro (RJ)

The collective GDP of all Bric countries - group of which Brazil is one of the leading exponents - is set to overtake that of the United States by 2013 according to the investment bank Goldman

Sachs. In a note to investors, the bank said Bric GDP is now worth 75 percent of US GDP, that is estimated in US$ 11,2 bn. Goldman Sachs's optimistic outlook is based on the expectation that they will grow at a rapid clip and their currencies will appreciate in the process.

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 — whichshould register a real growth rateof 3.56% of GDP*, and, accordingto the Central Bank in its latestreport, attract over US$ 56 billionin direct foreign investment in2011 — has made the country akey part of the strategic plansof international investors, andmade it move from being acountry of the future to acountry of the present.

Factors such as the 2014 Soccer World Cup and the 2016 OlympicGames, as well as the increasedspending power of a burgeoningmiddle class, and the futureinvestments in the deepwater“pre-salt” oil reserves, contributeeven more to attract theattention of foreign investors.

The 2014 Soccer World Cup, for example, is projected to injectR$ 183.2 billion into the Brazilianeconomy until 2019. 600 000

*Source: Central Bank of Brazil. Projections from September 2011

Aerial view from Rio de Janeiro (RJ)

The collective GDP of all Bric countries - group of which Brazil is one of the leading exponents - is set to overtake that of the United States by 2013 according to the investment bank Goldman

Sachs. In a note to investors, the bank said Bric GDP is now worth 75 percent of US GDP, that is estimated in US$ 11,2 bn. Goldman Sachs's optimistic outlook is based on the expectation that they will grow at a rapid clip and their currencies will appreciate in the process.

According to numbers releasedby the 2016 Rio Committee, the2016 Olympic Games will lead toinvestments estimated at R$ 28.8billion, with R$ 23.2 billionof that sum coming forinfrastructure projects from thethree levels of Braziliangovernment (Federal, State andMunicipal) and the remainingR$ 5.6 billion coming from theInternational Olympic Committee.

Considering this, Brazilian companiescould be on the crest of a wave ofeconomic growth generated bythese opportunities, gaining moreprestige in the global economy.Companies not only in the oil andgas industry, such as Petrobras,

Group Net revenue (R$ billion)

Petrobras 213.2

Vale 83.2

JBS Friboi 55.0

Ultra 42.4

Pão de Açúcar 32.0

Gerdau 31.3

Telemar/Oi 29.4

Eletrobras 27.4

Braskem 25.4

AmBev 25.2

Carrefour 25.0

BRF Brasil Foods 22.6

Volkswagen 22.6

Fiat Automóveis 20.6

Walmart 19.2

Bunge Alimentos 18.6

Vivo 18.1

Cosan 18.0

ArcelorMittal Brasil 16.9

Odebrecht 16.2

20 largest companiesestablished in Brazil in 2010

Source: Valor 1000 Maiores Empresas (2011).

tourists and 3 million people are expected, who should be responsible for incremental spendings of about US$ 9.4 billion and additional taxcontributions of R$ 16.8 billion,according to the magazine CadernoDestaques, produced by the Brazilian Federal Government in July 2011.

but also those in mining - such as Vale and Gerdau - and consumer products - like Pão de Açúcar - headthe list of Brazilian companiesestablished in international markets.

The beginning of the exploration of deposits in the pre-salt fields of Santos, Campos and Espirito Santo gave a new dimension to the

local oil and gas industry, with great repercussions on the international market. Exploitation and production should attract investments exceeding US$ 250 billion over ten years, including infrastructure and transport. However, some believe that overall spending in this market may reach US$ 1 trillion, as Brazil currently offers the greatest opportunities for the global high seas offshore oil industry.

According to numbers releasedby the 2016 Rio Committee, the2016 Olympic Games will lead toinvestments estimated at R$ 28.8billion, with R$ 23.2 billionof that sum coming forinfrastructure projects from thethree levels of Braziliangovernment (Federal, State andMunicipal) and the remainingR$ 5.6 billion coming from theInternational Olympic Committee.

Considering this, Brazilian companiescould be on the crest of a wave ofeconomic growth generated bythese opportunities, gaining moreprestige in the global economy.Companies not only in the oil andgas industry, such as Petrobras,

Group Net revenue (R$ billion)

Petrobras 213.2

Vale 83.2

JBS Friboi 55.0

Ultra 42.4

Pão de Açúcar 32.0

Gerdau 31.3

Telemar/Oi 29.4

Eletrobras 27.4

Braskem 25.4

AmBev 25.2

Carrefour 25.0

BRF Brasil Foods 22.6

Volkswagen 22.6

Fiat Automóveis 20.6

Walmart 19.2

Bunge Alimentos 18.6

Vivo 18.1

Cosan 18.0

ArcelorMittal Brasil 16.9

Odebrecht 16.2

20 largest companiesestablished in Brazil in 2010

Source: Valor 1000 Maiores Empresas (2011).

tourists and 3 million people are expected, who should be responsible for incremental spendings of about US$ 9.4 billion and additional taxcontributions of R$ 16.8 billion,according to the magazine CadernoDestaques, produced by the Brazilian Federal Government in July 2011.

but also those in mining - such as Vale and Gerdau - and consumer products - like Pão de Açúcar - headthe list of Brazilian companiesestablished in international markets.

The beginning of the exploration of deposits in the pre-salt fields of Santos, Campos and Espirito Santo gave a new dimension to the

local oil and gas industry, with great repercussions on the international market. Exploitation and production should attract investments exceeding US$ 250 billion over ten years, including infrastructure and transport. However, some believe that overall spending in this market may reach US$ 1 trillion, as Brazil currently offers the greatest opportunities for the global high seas offshore oil industry.

Brazilian Economy: Key Indicators and ForecastsDetailed Economic Indicators

2007 2008 2009 2010 2011 2012 2013 2014 2015

Real GDP (% change) 6.1 5.2 -0.6 7.5 3.6 4.1 5.2 5.8 4.7

Nominal GDP (US$ bil.) 1366.9 1653.4 1593 2089 2496.7 2619.5 2822.4 3126.1 3444.7

Nominal GDP Per Capita (US$) 7202 8632 8243 10716 12696 13206 14108 15499 16944

Consumer Price Index (% change) 3.6 5.7 4,9 5 6.5 4.7 4.4 4.6 4

Policy Interest Rate (%) 11.25 13.75 8.75 10.75 12.75 9.7 9.09 8.56 8.26

Fiscal Balance (% of GDP) -2.8 -2 -3.3 -2.5 -1.6 -1.5 -1,3 -1 -1

Population (mil.) 189.8 191.54 193.25 194.95 196.66 198.36 200.05 201.7 203.29

Unemployment Rate (%) 9.3 7.9 8.1 6.8 6 6.1 5.6 5.4 5.4

Current Account Balance (% of GDP) 0.1 -1.7 -1.5 -2.3 -2 -1.8 -1.7 -1.4 -1.3

BOP Exports of Goods US$bn 160.6 197.9 153 201.9 243.2 255.5 269 281.5 294.8

Source: Global Insight Report: Brazil (2011)

Brazilian Economy:Key Indicators and Forecasts

Exchange Rate (LCU/US$, end of period) 1.77 2.34 1.74 1.69 1.64 1.72 1.74 1.71 1.74

Brazilian Economy: Key Indicators and ForecastsDetailed Economic Indicators

2007 2008 2009 2010 2011 2012 2013 2014 2015

Real GDP (% change) 6.1 5.2 -0.6 7.5 3.6 4.1 5.2 5.8 4.7

Nominal GDP (US$ bil.) 1366.9 1653.4 1593 2089 2496.7 2619.5 2822.4 3126.1 3444.7

Nominal GDP Per Capita (US$) 7202 8632 8243 10716 12696 13206 14108 15499 16944

Consumer Price Index (% change) 3.6 5.7 4,9 5 6.5 4.7 4.4 4.6 4

Policy Interest Rate (%) 11.25 13.75 8.75 10.75 12.75 9.7 9.09 8.56 8.26

Fiscal Balance (% of GDP) -2.8 -2 -3.3 -2.5 -1.6 -1.5 -1,3 -1 -1

Population (mil.) 189.8 191.54 193.25 194.95 196.66 198.36 200.05 201.7 203.29

Unemployment Rate (%) 9.3 7.9 8.1 6.8 6 6.1 5.6 5.4 5.4

Current Account Balance (% of GDP) 0.1 -1.7 -1.5 -2.3 -2 -1.8 -1.7 -1.4 -1.3

BOP Exports of Goods US$bn 160.6 197.9 153 201.9 243.2 255.5 269 281.5 294.8

Brazilian Economy:Key Indicators and Forecasts

Exchange Rate (LCU/US$, end of period) 1.77 2.34 1.74 1.69 1.64 1.72 1.74 1.71 1.74

Elements such as a stable economy,the 2014 Soccer World Cup,the 2016 Olympic Games and thedeepwater “pre-salt” oil reservesdiscovered off the Brazilian coastare huge incentives for economicgrowth across the board that

will stimulate Private Equity andVenture Capital markets, IPOsand mergers and acquisitions inBrazil. However, knowing howto capitalize on each of theseopportunities is a challenge forthe administrators of these funds.

Major events give even more stimulus tothe economy

With these events, the numberof funds investing in companieswith a large potential for growthis increasing — in companies thathave passed the initial stages andare preparing themselves to gopublic on the markets.

the higher potential returns in these countries outweigh anyrisks and structural instabilities.

companies that are concerned aboutadopting best practices in corporategovernance, resulting in moretransparency in their financialstatements. The natural next stepis to go public on the worldstock markets.

The impact of the 2014 Soccer World Cup 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

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)

With the strong economy, newbusinesses have excellentchances of attracting investment.In 2010, according to the Emerging Markets Private Equity Association (EMPEA), total PE investments in the country were US$4.6 billion, representing69% of the Latin American PE industry. According to a recent survey published by EMPEA and Coller Capital, Brazil is today the most attractive emerging market for private equity investments. These funds are looking toemerging markets more and

more, since they understand that

In a 2010 Ernst & Young global survey with 263 of the world’s leading entrepreneurs*, 82% of the respondents agreed strongly that the ability to innovate was critical to the growth of their organizations. Currently, thecountry has many companies that,in addition to being innovative, enjoy solid financial structures anda firm economic base. They are

*Source: Ernst & Young internal entrepreneurship survey, September 2010

Elements such as a stable economy,the 2014 Soccer World Cup,the 2016 Olympic Games and thedeepwater “pre-salt” oil reservesdiscovered off the Brazilian coastare huge incentives for economicgrowth across the board that

will stimulate Private Equity andVenture Capital markets, IPOsand mergers and acquisitions inBrazil. However, knowing howto capitalize on each of theseopportunities is a challenge forthe administrators of these funds.

Major events give even more stimulus tothe economy

With these events, the numberof funds investing in companieswith a large potential for growthis increasing — in companies thathave passed the initial stages andare preparing themselves to gopublic on the markets.

the higher potential returns in these countries outweigh anyrisks and structural instabilities.

companies that are concerned aboutadopting best practices in corporategovernance, resulting in moretransparency in their financialstatements. The natural next stepis to go public on the worldstock markets.

The impact of the 2014 Soccer World Cup 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

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)

With the strong economy, newbusinesses have excellentchances of attracting investment.In 2010, according to the Emerging Markets Private Equity Association (EMPEA), total PE investments in the country were US$4.6 billion, representing69% of the Latin American PE industry. According to a recent survey published by EMPEA and Coller Capital, Brazil is today the most attractive emerging market for private equity investments. These funds are looking toemerging markets more and

more, since they understand that

In a 2010 Ernst & Young global survey with 263 of the world’s leading entrepreneurs*, 82% of the respondents agreed strongly that the ability to innovate was critical to the growth of their organizations. Currently, thecountry has many companies that,in addition to being innovative, enjoy solid financial structures anda firm economic base. They are

*Source: Ernst & Young internal entrepreneurship survey, September 2010

Transactions on the rise

Brazil: Top-10 Sectors Ranked by Value Added

2010 Level 2011 Percent Change Percent Share of GDP

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

1. Retail Trade - Total 200.5 3.5 11.4

2. Public Admin. and Defense 164.6 3.0 9.4

3. Wholesale Trade 131.7 4.0 7.5

4. Agriculture 111.4 4.1 6.3

5. Construction 90.3 6.6 5.1

6. Banking and Related Financial 84.4 4.1 4.8

7. Education 82.4 6.1 4.7

8. 68.3 6.6 3.9

9. Refined Petroleum and Coke Production 62.9 4.3 3.6

10. Telecommunications 61.2 6.9 3.5

Top-10 Total 1,057.7 60.3

Since 2007, 95 companies havecompleted IPOs in Brazil. In the first half of 2011, there were nineIPOs — compared to 11 in all of last year. According to specialists,the segments of which companiesare most likely to go public areretail (due to a heated

internal market), financing (due toexpansion in credit), infrastructure(due to the 2014 Soccer WorldCup, 2016 Olympics), real state(due to housing programmes andthe rise in credit for the segment)and oil and gas (due to the“pre-salt” oil discoveries).

Health and Social Services

Despite economic turbulence,41% of leading international companies expect to make acquisitions in the next 12 months, according toErnst & Young’s latest Capitalconfidence barometer, based on a survey with more than 1,000 senior executives around the world.

Fundraising for Latin America private equity and venture capital surged through June 2011, with14 funds raising $4.9 bln, according to 2011 LAVCA Mid-year Data released by the Latin America Venture Capital Association (LAVCA). The totals marked a 59% increase from the same period the previous year. Committed capital is heavily weighted towards Brazilwith 67% of the total raised dedicated to that market.

In mergers and acquisitionsthe expectation is even morepositive owing to the naturalconsolidation of the markets.

Transactions on the rise

Brazil: Top-10 Sectors Ranked by Value Added

2010 Level 2011 Percent Change Percent Share of GDP

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

1. Retail Trade - Total 200.5 3.5 11.4

2. Public Admin. and Defense 164.6 3.0 9.4

3. Wholesale Trade 131.7 4.0 7.5

4. Agriculture 111.4 4.1 6.3

5. Construction 90.3 6.6 5.1

6. Banking and Related Financial 84.4 4.1 4.8

7. Education 82.4 6.1 4.7

8. 68.3 6.6 3.9

9. Refined Petroleum and Coke Production 62.9 4.3 3.6

10. Telecommunications 61.2 6.9 3.5

Top-10 Total 1,057.7 60.3

Since 2007, 95 companies havecompleted IPOs in Brazil. In the first half of 2011, there were nineIPOs — compared to 11 in all of last year. According to specialists,the segments of which companiesare most likely to go public areretail (due to a heated

internal market), financing (due toexpansion in credit), infrastructure(due to the 2014 Soccer WorldCup, 2016 Olympics), real state(due to housing programmes andthe rise in credit for the segment)and oil and gas (due to the“pre-salt” oil discoveries).

Health and Social Services

Despite economic turbulence,41% of leading international companies expect to make acquisitions in the next 12 months, according toErnst & Young’s latest Capitalconfidence barometer, based on a survey with more than 1,000 senior executives around the world.

Fundraising for Latin America private equity and venture capital surged through June 2011, with14 funds raising $4.9 bln, according to 2011 LAVCA Mid-year Data released by the Latin America Venture Capital Association (LAVCA). The totals marked a 59% increase from the same period the previous year. Committed capital is heavily weighted towards Brazilwith 67% of the total raised dedicated to that market.

In mergers and acquisitionsthe expectation is even morepositive owing to the naturalconsolidation of the markets.

How can growing companiesget in on the action with international and national investors? Besides the attractiveness of Brazil on the international stage, the business that prepares itselffor the influx of investmentfunds should have, along with a differentiatingentrepreneurial idea, soundgovernance and efficientadministration. Awarenessof social and environmental issues is another point ofrapidly increasing importance.

But, besides corporate mattersthat should be dealt with bycompanies, the 2010 GlobalPrivate Equity Watch Report,carried out by Ernst & Young,states that there still aregovernmental economicchallenges. According to the

findings, the biggest challengesfor Brazil to maintain its appealto foreign investors and haveinfluence in funding allocationdecisions by multinational companies are: a fall in itshistorically high interest rates,the need for tax reform and the improvement of infrastructure.It is the combination of theseand other factors that result in the so called country risk index. Calculated by IPEA Data, in March 2011, this variable totaled 184 points — that is an additional cost of 18.4 per cent on a company that operatesin the country.

The good news is, though, that this percentage has been fallingconsistently during the last fewyears. If compared with October2008, when the country risk

How to attract resources and grow

points, there was a drop of 493 points in a short space of time,not forgetting the turbulenceof the global markets in this period. With this reductionand the current status of the “Investment Grade” agreedby the main international

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

2007 2008 2009 2010 2011 2012*

Foreign Direct Investment (US$ billion)

Source: Central Bank of Brazil* expected

index reached a peak of 677

How can growing companiesget in on the action with international and national investors? Besides the attractiveness of Brazil on the international stage, the business that prepares itselffor the influx of investmentfunds should have, along with a differentiatingentrepreneurial idea, soundgovernance and efficientadministration. Awarenessof social and environmental issues is another point ofrapidly increasing importance.

But, besides corporate mattersthat should be dealt with bycompanies, the 2010 GlobalPrivate Equity Watch Report,carried out by Ernst & Young,states that there still aregovernmental economicchallenges. According to the

findings, the biggest challengesfor Brazil to maintain its appealto foreign investors and haveinfluence in funding allocationdecisions by multinational companies are: a fall in itshistorically high interest rates,the need for tax reform and the improvement of infrastructure.It is the combination of theseand other factors that result in the so called country risk index. Calculated by IPEA Data, in March 2011, this variable totaled 184 points — that is an additional cost of 18.4 per cent on a company that operatesin the country.

The good news is, though, that this percentage has been fallingconsistently during the last fewyears. If compared with October2008, when the country risk

How to attract resources and grow

points, there was a drop of 493 points in a short space of time,not forgetting the turbulenceof the global markets in this period. With this reductionand the current status of the “Investment Grade” agreedby the main international

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

2007 2008 2009 2010 2011 2012*

Foreign Direct Investment (US$ billion)

Source: Central Bank of Brazil* expected

index reached a peak of 677

Ernst & Young Terco | Passport to Brazil

Exports

30%US$ 72,1 billion from January to May

with the same period of 2009.

Public sector net debt

5%Equivalent to 40.4% of GDP in 2010.Decrease of 5% in comparison with2009 (42.9% of GDP).

International Reserves

21%US$ 249,8 billion in May 2010. Increase of 21% in comparison withMay 2009.

Industrial Production

17%124.94 in April 2010 (Fixed Base Index: 2002 = 100). Growth of 17% inrelation to April 2009.

Brazil Risk

20%In March 2011 it was 184 basispoints. Fall of 72% in comparisonwith October 2008.

Total credit

5%45,3% of GDP in May2010: +5% in comparison with May 2009.

Balance of trade

40%Accumulated result from January to May 2010 is US$ 5.6 billion: -40% compared with the same period of 2009.

Currency

12%The average US dollar exchange rate inMay 2010 was R$ 1.81. Decrease of 12% in comparison with the same period of 2009.

Base (Selic) interest rates 3

23%Closed 2010 at 10.75% per year.Increase of 23% in comparison with2009 (8.75% per year).

Direct foreign investment

86%US$ 48.4 billion in 2010.Growth of 86% in relation to 2009(US$ 25.9 billion).

IPCA Inflation 1

41%Accumulated 3.09% from January to May 2010: +41% in comparison with the same period of 2009.

Basic-need grocery package 4

The average value of the basic-needgrocery package in January 2011 was R$ 264.61. Increase of 35% in comparisonwith 2003 (R$ 195.00).

Formal employment

126%298 thousand job positions createdin May 2010: +126% in comparisonwith the same period of 2009.

Sales of automobiles

17%1.01 million units were sold in the first quarter of 2010. Growth of 17% compared to 2009.

Grain harvest2

21%161.5 million tons in 2010: +21%in comparison with 2009 (133.8million tons).4

Commercial sales

9%158.19 in April 2010 (Fixed Base Index: 2003 = 100). Increase of 9% in relation to the same period of 2009.

1 - Extended Consumer Price Index - IBGE.2 - Harvest estimate by IHS Global Insight Report: Brazil.3 - Central Bank of Brazil - Focus.4 - Average price of the basic-need grocery package as per Dieese in January 2011.

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

14 Ernst & Young Terco | Passport to Brazil 15

2010. Increase of 30% in comparison

Ernst & Young Terco | Passport to Brazil

Exports

30%US$ 72,1 billion from January to May

with the same period of 2009.

Public sector net debt

5%Equivalent to 40.4% of GDP in 2010.Decrease of 5% in comparison with2009 (42.9% of GDP).

International Reserves

21%US$ 249,8 billion in May 2010. Increase of 21% in comparison withMay 2009.

Industrial Production

17%124.94 in April 2010 (Fixed Base Index: 2002 = 100). Growth of 17% inrelation to April 2009.

Brazil Risk

20%In March 2011 it was 184 basispoints. Fall of 72% in comparisonwith October 2008.

Total credit

5%45,3% of GDP in May2010: +5% in comparison with May 2009.

Balance of trade

40%Accumulated result from January to May 2010 is US$ 5.6 billion: -40% compared with the same period of 2009.

Currency

12%The average US dollar exchange rate inMay 2010 was R$ 1.81. Decrease of 12% in comparison with the same period of 2009.

Base (Selic) interest rates 3

23%Closed 2010 at 10.75% per year.Increase of 23% in comparison with2009 (8.75% per year).

Direct foreign investment

86%US$ 48.4 billion in 2010.Growth of 86% in relation to 2009(US$ 25.9 billion).

IPCA Inflation 1

41%Accumulated 3.09% from January to May 2010: +41% in comparison with the same period of 2009.

Basic-need grocery package 4

The average value of the basic-needgrocery package in January 2011 was R$ 264.61. Increase of 35% in comparisonwith 2003 (R$ 195.00).

Formal employment

126%298 thousand job positions createdin May 2010: +126% in comparisonwith the same period of 2009.

Sales of automobiles

17%1.01 million units were sold in the first quarter of 2010. Growth of 17% compared to 2009.

Grain harvest2

21%161.5 million tons in 2010: +21%in comparison with 2009 (133.8million tons).4

Commercial sales

9%158.19 in April 2010 (Fixed Base Index: 2003 = 100). Increase of 9% in relation to the same period of 2009.

1 - Extended Consumer Price Index - IBGE.2 - Harvest estimate by IHS Global Insight Report: Brazil.3 - Central Bank of Brazil - Focus.4 - Average price of the basic-need grocery package as per Dieese in January 2011.

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

14 Ernst & Young Terco | Passport to Brazil 15

2010. Increase of 30% in comparison

South Korea

Brazil

Mexico

Russia

United States

Argentina

Germany

Great Britain

France

16,685

38,066

36,622

34,261

34,298

35,686

39,384

31,294

14,536

55,137

49,453

44,393

43,986

45,496

49,711

Country 2007 2030 Growth(% per year)

Projection of average annual salariesthrough 2030, in US$

Minimum wage

Source: Sustainable Brazil - Economic growth and consumption potential (2008) Source: Highlights - Actions andProgrammes of the Federal Governmentof Brazil (2011)

The variation in the National Consumer Price Index published by the Brazilian Institute of Geography and Statistics (INPC-IBGE) for the period from January to December 2010 was estimated at 6.47%. In view of the new minimum wage of R$ 545.00, this means a nominal variation of 6.86% and a net increase of 0.37% in the period. With his new value and the basic-need grocery package price of January 2011 estimated at R$ 264.61, the minimum wage is expected to have a purchasing power equivalent to 2.06 baskets.

South Korea

Brazil

Mexico

Russia

United States

Argentina

Germany

Great Britain

France

16,685

38,066

36,622

34,261

34,298

35,686

39,384

31,294

14,536

55,137

49,453

44,393

43,986

45,496

49,711

Country 2007 2030 Growth(% per year)

Projection of average annual salariesthrough 2030, in US$

Minimum wage

Source: Sustainable Brazil - Economic growth and consumption potential (2008) Source: Highlights - Actions andProgrammes of the Federal Governmentof Brazil (2011)

The variation in the National Consumer Price Index published by the Brazilian Institute of Geography and Statistics (INPC-IBGE) for the period from January to December 2010 was estimated at 6.47%. In view of the new minimum wage of R$ 545.00, this means a nominal variation of 6.86% and a net increase of 0.37% in the period. With his new value and the basic-need grocery package price of January 2011 estimated at R$ 264.61, the minimum wage is expected to have a purchasing power equivalent to 2.06 baskets.

15,58512,755

5,2652,8182,507

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

in US$ billion*

United StatesChinaIndiaJapanGermanyGreat BritainFranceBrazilItalyRussiaMexicoSpainCanadaSouth KoreaIndonesiaTurkeyAustraliaArgentinaPhilippinesThailand

20079,125

3,8622,5302,357

1,4891,3651,0981,0661,019823820723626618602458400373373353

United StatesChinaIndiaJapanBrazilGreat BritainMexicoGermanyFranceItalyIndonesiaRussiaSouth KoreaSpainCanadaTurkeyPhilippinesPakistanSouth AfricaAustralia

in US$ billion*

2030The 20 biggest consumer markets

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

15,58512,755

5,2652,8182,507

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

in US$ billion*

United StatesChinaIndiaJapanGermanyGreat BritainFranceBrazilItalyRussiaMexicoSpainCanadaSouth KoreaIndonesiaTurkeyAustraliaArgentinaPhilippinesThailand

20079,125

3,8622,5302,357

1,4891,3651,0981,0661,019823820723626618602458400373373353

United StatesChinaIndiaJapanBrazilGreat BritainMexicoGermanyFranceItalyIndonesiaRussiaSouth KoreaSpainCanadaTurkeyPhilippinesPakistanSouth AfricaAustralia

in US$ billion*

2030The 20 biggest consumer markets

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

Ernst & Young Terco was chosenas one of the leading players whowill stimulate global corporationgrowth due to the robustpotential of the Brazilian marketand because of the country’sspeedy recovery following theglobal financial crisis.

Our target for the next threeyears is to achieve 30 per centgrowth per year, taking into

have a huge impact on the Brazilian economy, thus,creating opportunitiesfor Ernst & Young Terco toenergize its business deals.

The expertise needed for this growth is already in place. In2011, the Ernst & Young University(EYU) was acknowledged bythe market as one of the threebest corporate universities in Brazil – this acknowledgmentwas given by the CUBIC AwardsBrazil in March 2011.

In 2010, for the second yearrunning, Ernst & Young Terco was elected the best Latin American company in the field of tax advisory services. Thesurvey was carried out byWorld Finance.In Brazil,Ernst & Young Terco operatesin 12 cities with a team of 4,100 professionals allocated in 15 offices,offering consulting and auditing services to companies that do business in all sectors and of all sizes.

About Ernst & Young Terco

The Entrepreneur of the YearAward is the most outstandingevent held annually byErnst & Young Terco. In its13th edition in the country, theaward has already honored 130Brazilian entrepreneurs whodistinguished themselves withrevolutionary and sustainableideas over time. This year theevent was held in partnershipwith Endeavor, a nonprofitorganization that promotessustainable development in Brazil,through support to innovativeentrepreneurs and encouragingthe entrepreneurial culture.

Main numbers

Personnel 4,100

Partners 170

Offices 15

Cities where Ernst & Young Terco has offices 12

Revenue growthin 2011

Ernst & Young Terco gross revenueperformance 2007 - 2011 (in R$ millions)

2007 2008 2009 2010 2011

373428

488519

Globally, Ernst & Young announced combined revenues of US$ 22.9 billion for the financial year ended 30 June 2011, compared with US$ 21.3 billion in 2010. In this period, Brazil saw organic revenue growth of 26%, while India, Africa, China and Russia increased revenues by 22%, 19%, 18% and 16%, respectively. In a list of the biggest 500 companiescompiled in 2010 by the Brazilianeconomic magazine Exame, 90 are our clients — of which 27 are publicly traded companiesand 63 are private. In 2010, these companies recordedaudited revenues of US$ 178,9 billion — equivalent to 9 per cent of the local GDP in 2010 of US$ 2 trillion.

the 2014 Soccer World Cup,the 2016 Olympic Gamesand the deepwater “pre-salt”oil discovery that will

consideration factors such as

Ernst & Young Terco was chosenas one of the leading players whowill stimulate global corporationgrowth due to the robustpotential of the Brazilian marketand because of the country’sspeedy recovery following theglobal financial crisis.

Our target for the next threeyears is to achieve 30 per centgrowth per year, taking into

have a huge impact on the Brazilian economy, thus,creating opportunitiesfor Ernst & Young Terco toenergize its business deals.

The expertise needed for this growth is already in place. In2011, the Ernst & Young University(EYU) was acknowledged bythe market as one of the threebest corporate universities in Brazil – this acknowledgmentwas given by the CUBIC AwardsBrazil in March 2011.

In 2010, for the second yearrunning, Ernst & Young Terco was elected the best Latin American company in the field of tax advisory services. Thesurvey was carried out byWorld Finance.In Brazil,Ernst & Young Terco operatesin 12 cities with a team of 4,100 professionals allocated in 15 offices,offering consulting and auditing services to companies that do business in all sectors and of all sizes.

About Ernst & Young Terco

The Entrepreneur of the YearAward is the most outstandingevent held annually byErnst & Young Terco. In its13th edition in the country, theaward has already honored 130Brazilian entrepreneurs whodistinguished themselves withrevolutionary and sustainableideas over time. This year theevent was held in partnershipwith Endeavor, a nonprofitorganization that promotessustainable development in Brazil,through support to innovativeentrepreneurs and encouragingthe entrepreneurial culture.

Main numbers

Personnel 4,100

Partners 170

Offices 15

Cities where Ernst & Young Terco has offices 12

Revenue growthin 2011

Ernst & Young Terco gross revenueperformance 2007 - 2011 (in R$ millions)

2007 2008 2009 2010 2011

373428

488519

Globally, Ernst & Young announced combined revenues of US$ 22.9 billion for the financial year ended 30 June 2011, compared with US$ 21.3 billion in 2010. In this period, Brazil saw organic revenue growth of 26%, while India, Africa, China and Russia increased revenues by 22%, 19%, 18% and 16%, respectively. In a list of the biggest 500 companiescompiled in 2010 by the Brazilianeconomic magazine Exame, 90 are our clients — of which 27 are publicly traded companiesand 63 are private. In 2010, these companies recordedaudited revenues of US$ 178,9 billion — equivalent to 9 per cent of the local GDP in 2010 of US$ 2 trillion.

the 2014 Soccer World Cup,the 2016 Olympic Gamesand the deepwater “pre-salt”oil discovery that will

consideration factors such as

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)

ContactsAndré Viola Ferreira

Strategic Growth Markets

Partner-leader

+55 11 3054 0039

[email protected]

Romero Tavares

Tax Partner

+55 11 2573 3407

[email protected]

Antonio Almeida

Advisory Partner

+55 11 2573 3021

[email protected]

Rogerio Villa

Corporate Transactions Partner

+55 11 3055 0123

[email protected]

Goiânia (GO)

Fortaleza (CE)

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)

ContactsAndré Viola Ferreira

Strategic Growth Markets

Partner-leader

+55 11 3054 0039

[email protected]

Romero Tavares

Tax Partner

+55 11 2573 3407

[email protected]

Antonio Almeida

Advisory Partner

+55 11 2573 3021

[email protected]

Rogerio Villa

Corporate Transactions Partner

+55 11 3055 0123

[email protected]

Goiânia (GO)

Fortaleza (CE)

24 Ernst & Young | Passport to Brazil

Ernst & Young Terco Assurance | Taxes | Corporate Transactions Advisory | Middle Market | GovernmentFinancial Services

About Ernst & Young �

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 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 their potential.

In Brazil, Ernst & Young Terco is the most complete firm providing advisory and assurance services, with 4,100 professionals that give support and provide services to more than 3,800 small, medium and large-sized clients, of which 117* are listed on the Brazilian Securities & Exchange Commission (CVM) and are part of the special portfolio of the auditing team.

www.ey.com.br

This is a publication of the Communication and Brand Management Department.

The reproduction of this content, on the whole or in part, is allowed as long as the source is mentioned.

*Data referring to December 2010

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