THE BRAZILIAN DECADE - Roland Berger

THE BRAZILIAN
DECADE
Time 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 The global l b l crisis i i –
Where are we after year one
Unique strengths –
A Brazilian decade –
page 3
Why Brazil is doing so much better page 11
Yes, but no time to lay back
Innovation oatois skey ey–
Joint public and private effort required
Corporate p Brazil as innovation driver –
page 17
page 26
Strategies for global growth page 36
2

The global crisis –
Where are we after
year one
3

Situation at start of 2010 – All the key indicators move upwards
COLLAPSE
ECONOMY FINANCE MOOD
Global GDP Dow Jones (index) Ifo global business climate
(index)
-3.1% -54% -64
points
RECOVERY +3.0% +58% +49
points
Source: IMF, Bloomberg, Ifo Institute, Roland Berger analysis
As at start of 2008 Down 47% compared
to 06/07 average
TODAY COMPARED TO BEFORE THE CRISIS
Down 16 pts. compared
to 06/07 average
4

Global GDP has recovered quickly – V-shaped trend
Global GDP, indexed (Q2 2008 = 100) and global GDP
growth quarter-on-quarter
98.6
Q4
+1 +1.0% 0%
2007
Source: IMF
100.0
+0.4% +1.0%
-0.1%
-1.4% 14%
-1.6%
96.9
+0.9%
+1.1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009
99.9
Q4
OUR CRISIS SCENARIOS
> Turning point mid-2009
> Strong recovery
> Our predicted likelihood in
2009 2009: 75%
> Scenario realized
> Turning point 2010
> Almost zero growth until then
> Our predicted likelihood in
2009: 23%
> Scenario not realized
> Depression continues until
2010
> Our predicted likelihood in
2009: 2%
> Scenario not realized
5

Stock markets have made partial recoveries
Key share indexes
(highs, lows and index at start of month)
Dow Jones Dax Shanghai Composite
14,165 8,106 6,092
+58%
10,326
+54%
5,653 ,
6,547 3,666 1,707
+81%
3,088
10/07 02/09 03/10 06/07 03/09 03/10 10/07 11/08 03/10
Source: Bloomberg
Are stock markets a
good indicator?
YES
> They react immediately to
company figures, shifts in
the market, etc.
> They reflect growth
potential and general
economic outlook
NO
> Market speculation p and
irrationality ignore
fundamental data
> Not all companies are
listed on stock markets –
not the full story
6

Other key indicators are also pointing toward recovery
Brent oil price
(U$/barrel 1) )
Global exports
(U$ bn)
140 4,321
115
42
+88%
79
+31% 31%
2,685
3,517
Ifo global business climate
(index)
+96%
08/08 02/09 03/10 Q2 2008 Q1 2009
Q4 2009 Q3 2007 Q1 2009 Q1 2010
1) At start of month
Source: Bloomberg, Ifo Institute
51
100
7

But it ain't over yet …
Economic growth is still below pre-crisis levels
(IMF 2010 forecast is +3 +3.9%, 9% compared to +5 +5.2% 2% in 2007)
Lagging indicators have not yet bottomed out
(unemployment (unemployment, insolvency rate, rate state indebtedness)
Causes of the crisis have not been dealt with
(regulation of financial markets, markets structural problems in some industries, industries etc etc.) )
Risk of flash in the pan effects
(economic ( stimulus programs, p g , trust) )
Boom markets fuelled not just by fundamental data, but also cheap money
from central banks
8

HOW LONG WILL THE CRISIS LAST?
Forecasts are difficult and still vary widely
GDP growth [%]
Source: IMF, Consensus Economics
IMF forecasts for development of global GDP 2010 growth forecasts
in 2009
3.0
WORLD
2.2 IMF 3.9
World Bank 2.7
0.5
OECD 19 1.9
-1.3
-1.1
-0.8
Ot Oct 08 N Nov 08 J Jan 09 A Apr 09 Ot Oct 09 J Jan 10
BRAZIL
OECD 4.8
IMF 4.7
World Bank 36 3.6
9

OUR ASSESSMENT – Three countries have the key for global
economic recovery
Global share [%]
Source: CIA World Factbook
Population 1) GDP 2)
Recovery in 2010
possible, if
CHINA 19 11 CHINA > 7% GDP growth th
INDIA 17 5
USA 4 21
TOTAL 40 37
1) World population 2008: 6.7 bn 2) World GDP 2008: USD 70.7 tr
AND
INDIA keeps up
AND
USA show first signs of
recoveryy
10

Unique strengths –
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 [%]
4.9
-0.8
World
7.4
4.7
39 3.9
4.7
36 3.6
-0.2
Annual average 2004-2007 2009 2010 (IMF forecast)
Source: IWF
-9.0
9.1
5.6
7.7
11 11.3 3
Brazil Russia India China
8.7
10.0
12

Ibovespa has nearly reached its all-time high again – It has
recovered much better than RTS and Shanghai Composite
Ibovespa [Index] RTS [Index]
Shanghai Composite [Index]
All-time
high
May 2008
38,383
All-time low
October 2008
73,438
29,435
67,228
1,126
All-time All time
high
Jun 2008
All-time low
Jan 2009
2,464
492
1,430
All-time All time
high
Sep 2007
6,124
11,707 707
1,161
Nov 2008
All-time low Jan 2006
Jan 1, 2006 Mar 1, 2010 Jan 1, 2006 Mar 1, 2010 Jan 1, 2006 Mar 1, 2010
Source: Bloomberg
3,088
13

Brazil is already an economic heavyweight
Brazil's global ranking in selected areas
Economy (according to
purchasing power
Agricultural land
parity) it )
Size, population
10
9
Currency stocks
8
7
6
5
4
Exports of sugar,
ethanol, soy and
bbeef f
Ethanol
production
3
2
1
14

Brazil's potential is based on unique strengths and on strong
opportunities
> Young, dynamic population
> SService-oriented i i t d attitude ttit d and d flexibility fl ibilit
> Large, partially unexploited offshore oil fields near the coast
> The world's world s largest land reserves
(200 million hectares of unused agricultural land)
> Largest rainforests on earth
(enormous CO CO2 sink 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 ethanol-based based technologies
> Major upcoming events: World Cup in 2014 and Olympic Games in 2016
BRAZIL'S OPPORTUNITIES
15

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 O e co ghistorical sto ca economic eco o c volatilities oat tes
(inflation, exchange rates, etc.) – weathering the
economic crisis well, better than most other
countries
> Verylarge domestic market – public sector,
companies, households
> Growing middleclass, with increasing buying
power
> Enthusiastic consumers – also in "crisis year"
2009
> Conservative banking regulation prevented the
collapse of the financial system (compared to US,
Europe, etc.)
> Net et foreign oeg cedto creditor – recent ece t eelevation e at o to
investment 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 Transportation, ee.g. g TAV High Speed Train:
BRL 35 bn
> Positive secondary effects on supplier industries,
e.g. shipyards: > 40,000 new jobs created
DOMESTIC DEMAND INFRASTRUCTURE PROGRAMS
16

A Brazilian decade –
Yes Yes, but no time
to lay back
17

Brazil's future: The window is open for strong growth
EIKE BATISTA, Business Week,
February 22 22, 2010
"We believe that in five years Brazil will
be the fifth-largest economy in
th the world." ld "
DB RESEARCH, report
"Brazil 2020", January 20, 2010
"In 2020 Brazil will have outrun
France and the UK and will be
the seventh seventh-largest largest economy in 2020 2020.
"
18

However, the look from the outside on Brazil shows the areas of
concern for the country's future
The most problematic factors for doing business [% of responses]
Tax regulations 19.0
Tax rates
Restrictive labor regulations
Inefficient government g bureaucracy y
Access to financing
Inadequate supply of infrastructure 9.5
11.0
10.4
14.0
18.5
–
Corruption 7.0
Inadequately educated workforce 49 4.9
Policy instability 1.1
Inflation
1.0
Poor work ethic in national labor force 0.9
Foreign currency regulations 09 0.9
Crime and theft 0.7
+
Poor public health 0.6
Government instability/coups 0.3
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
Source: WEF, Global Competitiveness Report 2009-2010
19

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
2. Not enough savings – only 14,6% of GDP in 2009, the
lowest o estlevel e e ssince ce2001 00 (a (and dvs. s 45% 5% for o CChina) a)
3. First time since 2001 current account is negative – Central
Bank estimates deficit of USD 49 bn in 2010
4. Not investing enough in innovation – only 0,82% of GDP
(vs (vs. 33,40% 40% for Japan and 11,42% 42% for China)
Source: World Bank; Brazilian Central Bank; Associação de Comércio Exterior do Brasil
QUESTION
How do these
weaknesses
interrelate and what
is the key for
solution?
20

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 BRAZIL
Share VA
Products 1) [%]
> Brazil's low investment in R&D highly
correlates with its low degree of value
100 added dd d products–huge d t h gap to t leading l di
economies
90
80
70
60
50
0
Brazil
USA
Germany
Japan
Expenditures
on R&D/GDP2) [%] [ ]
0 1 2 3 4
1) Data for 2008 2) Data for 2006, except for Brazil (2005)
Source: World Bank; OECD; UN-TradeCom
> Low share of value added products means
th that t exports t revenues are very sensible ibl to t
market price of commodities
> Conclusion: Brazil has to invest in
inno innovation ation to develop de elop a ssustainable stainable
position as a world-leading economy
21

Brazil is not investing enough in innovation
Expenditures on R&D (public and private) as share of GDP
3.40%
261% 2.61% 2.52%
142% 1.42%
Japan USA Germany China
1.08%
Russia
0.82%
0.69%
Brazil India
(2006) (2006) (2006) (2006) (2006) (200 (2005) ) (200 (2004) )
Source: World Bank
22

As a result, Brazil dropped down 18 positions in global innovation
ranking
Results 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
Source: Global Innovation Index 2010 (INSEAD, Confederation of Indian Industry)
23

Brazil has to overcome structural weaknesses to take advantage of
its opportunities – Innovation becomes key
> Only few innovative competence
clusters so far
– Oil exploration in deep waters
– TTropical i l agriculture i lt
– Aircraft manufacturing
> Overall, Brazil's ranking in innovation
is low "WE NEED
MORE EMBRAERS"
EMBRAERS
INNOVATION AS KEY TO BRAZIL'S FUTURE
Source: Press research
J. Stiglitz et al.
Economics Nobel Prize Winner & Team
24

Close the innovation gap – The areas for action are clear
Brazil's world ranking in innovation categories
INNOVATION CATEGORY WORLD RANK 1)
Capacity Capac y for o innovation o a o
Company spending on R&D
University-industry collaboration in R&D
Quality of scientific research institutions
Utility patents
GGovernment t procurement t of f advanced d d ttech h products d t
Availability of scientists and engineers
Competitive disadvantage
1) Of 132 countries
Source: WEF, Global Competitiveness Report 2009-2010
28
29
34
41
59
60
60
25

Innovation is key –
Joint public and private
effort required
26

To stimulate innovation, joint public and private effort is needed
Prerequisites to stimulate innovation
GOVERNMENT
> Allocate the resources needed for innovation
from public and private sources
> Stimulate the creation of technology clusters
and networks, also between universities and
companies
> Foster the creative class/creative cities
Roland Berger Creative Cities Approach
COMPANIES
> "Key Innovation Drivers" push innovation in the
world's most innovative companies
> The CEO has paramount influence on both
innovation performance and innovation culture
> 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
27

GOVERNMENT
Foster the creative class/creative cities – Example: USA
Economic success and creativity
High
Low
Economic success 1)
–
LOSERS
–
– Detroit
Cleveland
– Milwaukee
– New Orleans
Buffalo
1) GDP, growth, per capita income, etc. 2) Technology, talent, tolerance
Source: Richard Florida, Roland Berger
+
+
+ San Francisco
+ Seattle
Boston
WINNERS
Creativity index 2)
Austin CREATIVITY INDEX
High
Technology (innovation)
Talent (human capital)
Tolerance (openness)
28

GOVERNMENT
To enable and stimulate innovation you need the creative class
Definition of the creative class 1) SHARE OF CREATIVE PEOPLE IN THE USA
Members of the creative class
develop new, useful things
through their work
> IT & mathematical th ti l professions f i
> Engineers, architects, scientists
> Art, media, entertainment
> Managers
50% Share of working population
45%
40%
35%
30%
25%
20%
15%
SERVICE
class
CREATIVE
class
WORKING
class
10%
FARMING,
5%
FORESTRY
0%
& FISHING
1900 1910 1920 1930 1940 1950 1960 1970 1980 1991 1999
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
Source: Richard Florida, Roland Berger
29

GOVERNMENT
The creativity index of a region or city consists of the three elements
technology, talent and tolerance
The three "Ts" in detail
Technology gy
Talent
Tolerance
Source: Richard Florida, Roland Berger
How much high tech is in the region?
Patents, technical universities, expenditures for
R&D, etc.
How many creative people live in the region?
Scientists Scientists, engineers engineers, architects architects, advertising
people, etc.
How tolerant is a region?
Share of different ways of life, artists, immigrants,
ethnical mixture, openness for new cultures, etc.
30

GOVERNMENT
Our successful "growing city" strategy for Hamburg suggests
pursuing a "combination strategy" of technology and talent
Creativity strategy Hamburg
Innovation
cycle
Short
Long
Source: Roland Berger
Regenerative
energy
IT Media
Nanotechnology
Life sciences
"COMBINED STRATEGY"
Technology/
talent
> Highly innovative and more
traditional clusters exist side
by side
> Fewer "natural" interfaces
between clusters
> Creative sector forms its own
cluster thanks to its economic
importance
Maritime
Need for talent
and d way of f
> Maintain the existing creative
class l and d artistic/cultural ti ti / lt l scene
attracting it > Strong focus on strengthening
Aviation Logistics/ports
the technology base to attract
"innovators"
High R&D invest
Low
Very successful cluster
Successful cluster Being developed
Planning stage
31

GOVERNMENT
Successful cities in Europe driving innovation – Strategic options for
Brazil?
STRATEGY DESCRIPTION
PEOPLE COPENHAGEN
> Established high-tech g cluster
FOLLOW
INNOVATIVE
TECHNOLOGY
DUBLIN
Technology
Talent
Tolerance
> Creative diversity (tolerance)
being developed: used as
image
JOBS FOLLOW
CREATIVE
DIVERSITY
COMBINATION
OF THE TWO
BARCELONA
AMSTERDAM
VIENNA
Berlin and Hamburg have no clear strategy targeting the creative class
Source: Roland Berger, Project Team
Technology
Technology
Talent
Talent
Tolerance
Tolerance
> High-tech cluster being
developed
> Established creative diversity
used as breeding ground
> Hi High-tech h t h should h ld b be expanded dd
> Creative diversity plays different
role for different clusters: catalyst
for creative sector, less important
as an i image ffactor t
32

COMPANIES
What drives innovation on company level – Findings of our joint
study with INSEAD
WHAT WE WANTED TO FIND OUT
> How leading companies drive innovation – and achieve
higher growth and profits
> How CEOs personally push innovation –
and implement innovation policies and practices
> What other companies p can learn from top p innovators –
across regions and across different industries
Source: Roland Berger, INSEAD
WHAT WE
DISCOVERED
SCO
> Ten "Key Innovation
Drivers" push innova-
tion in the world world's s most
innovative companies
> TheCEO has paramount
influence on both innovation
performance and
innovation culture
> Th There are many bbarriers i
to innovation that need to
be overcome by CEOs and
their colleagues
33

COMPANIES
The global perspective – We talked with the CEOs of the world's
most innovative companies
Source: Roland Berger, INSEAD
George Buckley,
CEO
Jim Balsillie,
Co-CEO
Olli-Pekka Kallasvuo,
CEO
Patrick Cescau,
Group CEO
Fujio Cho,
Chairman
Art Levinson,
Franz Fehrenbach,
N.R. Narayana
Murthy,
CEO CEO
Chairman
HHenning i Kagermann,
K
CEO
34

COMPANIES
The outcome of our study – Innovation at the top needs strong
leadership, ten key innovation drivers
1. Appoint the CEO as the innovation champion
22. Celebrate an innovation culture
3. Engage more innovation partners by sharing knowledge
4. Organize g diversity yto ppromote ppositive
friction and cross-fertilization
5. Use customer needs to drive simultaneous R&D and business
model innovation
66. Set high standards and demanding challenges
7. Encourage youth and keep a challenger mentality
8. Appoint pp appropriate pp p decision-makers and encourage g transparent p
information sharing
9. Use processes judiciously
10 10. Incentivize to innovate continuously
Source: Roland Berger, INSEAD
35

Corporate Brazil
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 investments, reducing capacity, capacity cutting costs
> They are now navigating "at sight and with low speed" – continuously observing
their markets markets, clients, clients competitors
> Now is the time for smart and fundamental strategic moves
– Consolidating the competitive landscape, 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
Source: Roland Berger
37

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 – World's largest exporter of f iron ore and second largest mining
company
EMBRAER – World's third largest passenger aircraft manufacturer
GERDAU – Largest g manufacturer of long gsteel
in the Americas with
26 production sites in North and South America
CAMARGO CORRÊA – Dynamic conglomerate, with operations in
engineering i i & construction, t ti cement, t steel, t l concessions, i among others
th
38

Brazilian companies are outperforming their international peers in
key industries
Performance of top players
Brazil vs. Global Leaders (EBITDA Margin 2008)
1 Aerospace
2 Cosmetics
3 Mining
4 Oil & Gas
5 Steel
BR
EU
US
BR
EU
US
BR
EU
BR
EU
US
BR
IN
JP
6 BBreweries i BR
EU
JP
12%
10%
9%
10%
20% 24%
20%
23%
15%
18%
22%
20%
19%
15%
25%
29%
42%
43%
Share price evolution of top players
from selected sectors 2008-today
1 Aerospace
2 Cosmetics
3 Mining
Europe US Brazil
-29%
-23%
-25%
-21%
+7%
4 Oil & Gas -32% 32% -20% 20%
5 Steel
-38% 1)
-48% 2)
-51%
+106%
-2%
-12% 12%
+8%
6 B i
+7% 16% 2)
6 Breweries +7% -16% +34%
2) +34%
Brazilian industries gain g competitive p advantage g on a global g Weak global g markets create take-over opportunities
pp
scale
1) Indian Company 2) Japanese Companies
Sources: Thomson Reuters
39

Brazilian companies can now act out of the position of strength to
become global leaders
1 Keep pyyour focus on creating gp profitable growth g
2
Align your corporate strategy to a changing environment
3 Innovate and invest in new business models
4
5
Consolidate the industry on international scale
Secure access to capital markets
6 Rethink the role of the corporate p headquarter q
7
And become a truly global player
40

1
Keep your focus on creating profitable growth
Profitable Growth : Example Camargo Corrêa
Evolution of net operating revenues [BRL bn]
Growth of top 100 companies and Bovespa Index
5.2
19.9%
2002
6.2
18.5%
2003
EBITDA margin
6.0
19.9%
2004
Source : Roland Berger, Company Annual Report
CAGR +17%
6.6
18.1%
2005
8.4
19.2%
2006
10.5
18.2%
2007
13.2
18.4%
2008
> Brazilian companies have been managing
profitable growth
– EBTIDA growth 07-08: + 129%
– Bovespa Index CAGR06-08: + 38%
> For o the e yea years s aahead ead these ese co companies pa es aare e
pursuing ambitious growth plans with high
investment budgets
> Effective, , value-based portfolio p manage- g
ment becomes key to success
> The principle for true value creation is
simple: p the return on capital p must be
higher than the cost of capital!
41

2
Align your corporate strategy to a changing environment
Conglomerate Discount
Brazilian conglomerates ROE performance [BRL bn ; 2004 2004-2008] 2008]
Net revenues
CAGR 04-08 [%]
Top 1000
Brazilian
companies2) average net
revenues
CAGR 07-08
55
50
45
40
35
30
25
20
15
10
5
0
Top 1.000 Brazilian companies 2)
average Ebitda 2008
Underperformers
Overperformers
ROE 1) [%]
-25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45
Net revenues in 2008 [BRL bn]
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
Source: Annual Report s 2008, press research, Valor 1000, Valor 200 Grandes Grupos, Roland Berger
> Brazilian conglomerates have been
remarkably successful managing diversified
business portfolios
> In a changing domestic and global economy
these portfolios p should be reassessed
– Clearly defining the portfolio logic:
related vs. unrelated diversification,
industry focus, competence clusters
– Id Identifying tif i ffuture t core bbusinesses i t to
invest in, and businesses to be divested
> Making the overall stock market the
bbenchmark h k for f the th portfolio tf li performance f
42

3
Innovate and invest in new business models
Innovation made in Brazil
Example Natura Cosmeticos SS.A. A
INNOVATIVE BUSINESS MODEL
> Innovation is the key challenge for the
> Direct sales model for cosmetics Brazilian economy for the next decade
> Full sustainability appeal
> Although overall ranking on innovation is
INNOVATION MANAGEMENT
> BRL 104 m investment in R&D 2008 (2 (2,9% 9% of revenue)
> Around 180 new products on average per year
low and even decreasing, there are positive
Brazilian a a eexamples a pes to obu build d oon – oil o
exploration in deep waters, tropical
agriculture, aircraft manufacturing
INNOVATION BENEFITS
> Market share from 8% in 2002 to leadership with 13%
in 2008
> 17% sales increase 2008-2009
> 19% EBITDA increase 2008-2009
> Beyond y that also in other key y industries, ,
such as consumer goods, international high
performers evolve – Natura as one Brazilian
example for innovation
Source: Roland Berger, INSEAD, Clippings, Annual Report
43

4
Consolidate the industry on international scale
Consolidation path: Brazilian companies
Examples
Meat Processing
Breweries
Petrochemicals
Ethanol
Source: Roland Berger, INSEAD, Clippings, Annual Report
JBS acquires Australian Tatiara Meat Company
(Dec 2009) and Pilgrim's Pride (Dec 2009) and
merges g with Bertin ( (Sep p 2009), ) becoming g#1
meat producer and #1 tanning company
Inbev (through AmBev) acquires Anheuser-
Busch (Nov 2008), becoming the #1 brewer in
the world and #2 beverage company
Braskem acquires Sunoco Chemicals division
(Feb 2010) and Quattor (Jan 2010)
Cosan acquires Exxon Mobile Brazilian distribution
(Esso; Dec 2008) and merges its ethanol
and fuel distribution unit with Royal Dutch Shell
(Feb 2010)
> Synergies of scale and scope are the
driving factors for global M&A activities
– 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
> The competitive strength of Brazilian
companies now allows them to play a major
role in the consolidation of industries on a
global scale
> And Brazilian companies do not hesitate to
take their chances
44

5
Secure access to capital markets
Recent track record of IPOs
Examples of recent IPOs
OSX Brasil S.A.
Ship construction
firm
BR Properties
Real estate firm
Renova Energia
Renewable energies
firm
International Meal
Company
HHolding ldi of f
restaurants
Source: Clippings, Annual Reports, Roland Berger
> Company raised BRL 2,8 bn, less
than 30% of initially expected
> Stock price down 12,5% on the
first day of trade
> Raised 7% less money that
minimum price expected
> Stock price down 2,7% 2 7% on the
first day of trade
discounts
> IPO suspended due to low
demand
> IPO cancelled due to low demand
even after price lowering
> After an IPO boom in 2007, there were only 10
IPOs in 2008-2009 due to the effects of the
ffinancial
crisis
> In 2010, IPOs are back, but investors are much
more selective and demanding significant
di t
– More critical, especially with greenfield
companies
– A Averse to t risk i k correlation l ti (i (ie. OSX and d
OGX, two strongly linked companies)
– Focusing only on big operations (more than
BRL 500 m)
45

6
Rethink the role of the corporate headquarter
Corporate headquarter: A decisive element to create value
Business portfolio
Relatedness of the business in the portfolio
High LOST
SYNERGIES
Low
KKR
Portfolio
investor
Low
Source: Roland Berger
Hutchison
Swire 3M
Hanson
Strategic
architect
Shell
Emerson ICI
CCanon
Strategic
controller
Unilever
Role of the center
(involvement in operative decisions)
Singapore
Airlines
DESTRUCTION
OF VALUE
Operator
High
> Sustainable growth, internationalization and
new businesses increase the requirements
ffor
Brazilian corporate headquarters
> The ability of the corporate headquarter to
contribute to business development depends
on the h portfolio f li llogic i
– Related diversification: facilitating
synergies
– Unrelated diversification: allocating
(financial) resources
> Not aligning the corporate headquarter to the
business specifics destroys corporate value
46

7
And become a truly global player
Global Leader from Brazil
Company Global Market Position % Internat Rev 1)
Company
Global Market Position % Internat. Rev. 1)
Anheuser-Busch
InBev
#1 Brewery 80%
JBS #1 Food Products 33%
Cosan #1 Sugar Cane & Ethanol 55%
Embraco #1 Compressors N.A.
Marcopolo #1 Bus Body Building 39%
Vale #2 Mining 83%
Embraer #3 Aerospace Commercial
Planes
1) 2008 values
Source : Thomson Reuters, Annual reports
96%
> Different industries with different success
factors require different strategies for growth
> However, there is one common pattern for
successfully becoming a global leader
– First creating g a national champion in
Brazil
– Then, based on a strong national
footprint, pursuing global expansion
> The global leaders cannot and will not stand
still – looking for global opportunities,
reinventing their business models and
aligning their corporate structures
47

CONCLUSION
Brazil – creating the ffuture
with its
entrepreneurial p spirit p and courage 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 pp Gottfried
von Clausewitz
48

Hauke Moje
PARTNER
Corporate Strategy
Portfolio Management,
Mergers & Acquisitions,
Post Merger Integration
Rodrigo Dantas
PARTNER
Financial Services
Head of Financial Services
and Co-Managing Partner of
Brazilian Office
Avenida Presidente Juscelino Kubitschek, Kubitschek 510 Avenida Presidente Juscelino Kubitschek, Kubitschek 510
04543-906 São Paulo I Brazil
Phone +55 11 3046-7039
Fax +55 11 3046-7222
Mobile +5511 7203-7222
hauke_moje@de.rolandberger.com
04543-906 São Paulo I Brazil
Phone +55 11 3046-7111
Fax +55 11 3046-7222
Mobile +5511 7203-7322
rodrigo_dantas@br.rolandberger.com
49