Latin American Equity Research Sector Periodical · During 2007 the conglomerate and industrial...

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Latin American Equity Research Sector Periodical

Mexico, January 9, 2008 Latam – Conglomerates & Industrials

CONGLOMERATE & INDUSTRIAL CORNER ISSUE # 582007 Recap: Business Portfolio Restructures Continue Luis Miranda, CFA Conglomerates and Industrial TeamMexico: Banco Santander S.A. (5255) 5269-1926/[email protected]

SECTOR HIGHLIGHTS During 2007 the conglomerate and industrial sector in Latam was marked by two main themes: (1) the restructuring of portfolios in Mexico and Chile; and (2) in Brazil, recovery and growth in industrial production and a positive outlook for infrastructure, which led to a high demand for trucks. Under this scenario, the outperformers versus the local indexes were the small caps in Mexico (Mexichem, Kuo, Gissa and Vitro), Quiñenco (not rated) in Chile, and Iochpe and Randon in Brazil. In this report, we present the highlights of 2007, our updated estimates for 2008 and 2009 (see Figure 3), and our YE2008 target prices for the conglomerates and industrials in our universe of coverage. We believe that the 2008 outlook for this sector will be challenging, given the expected economic slowdown in the U.S. and its potential effect in Mexico, as well as higher cost of raw materials across the board, including energy. For Brazil, we maintain a positive outlook, as we expect the automotive sector to post an average growth rate of 10% this year. Furthermore , we believe that demand for machine tools will remain high, as the capacity utilization rate of Brazilian industrial companies is high.Our top picks for 2008 are Alfa (Mexico) among conglomerates and Romi (Brazil) among industrials. Alfa. We estimate that the company will deliver 14% EBITDA growth in U.S. dollar terms in 2008 versus 2007, with the highest quality among its peers. We anticipate growth will be driven by expansion in the chemical division (Alpek): PTA and PET in 2007 and polypropylene in the first half of 2008. Also, we believe that the synergies due to the integration of the acquisition in the automotive division (Nemak) will support growth. Finally, due to its recent acquisitions, the company has reduced its exposure to the U.S. economy and U.S. OEMs. Romi. Small-caps analyst Daniel Gewehr sees this key supplier of tools in Brazil as a leverage play on industrial production growth. In addition, the company’s three main client segments are currently working at capacity utilization rates higher than their three-year averages. We estimate that the company will post EBITDA growth of 32% in U.S. dollar terms for 2008 while trading at a discount to its peers.

Figure 1. Latam Conglomerates & Industrials – Performance Table, December 31, 2007 Price %1 Day %5 Days %1 Month %3 Months % YTD 52-wk Low % f/Low 52-wk H igh % f/H igh

ALFAA (M$) 70.80 0.9% -1.7% -1.7% -6.6% -1.0% 66.05 7.2% 88.43 -19.9%GCARSOA1 (M$) 41.28 -0.7% -3.6% 7.3% -2.3% 3.2% 36.00 14.7% 47.40 -12.9%GISSA* (M$) 18.47 0.0% 2.4% -1.8% -2.3% 16.5% 14.20 30.1% 20.00 -7.7%KUOB (M$) 12.50 0.0% 12.1% 19.0% 30.2% 78.8% 6.00 108.3% 12.50 NMVITROA (M$) 24.00 -0.4% 2.8% 19.7% -12.9% 18.2% 18.60 29.0% 31.30 -23.3%MEXICHEMB (M$) 43.61 0.1% 3.0% 7.9% 12.1% 142.5% 17.93 143.2% 44.38 -1.7%PASA (M$) 56.90 0.0% -2.7% -10.5% -10.4% -1.4% 56.90 0.0% 82.07 -30.7%IPC Index (M $) 29,537 -0.6% -0.3% -0.8% -4.3% 11.7% 25,400 16.3% 32,851 -10.1%MX$ per US Dollar 10.92 0.1% 0.9% 0.2% -0.1% 1.0% 10.66 2.4% 11.27 -3.1%SIGDO KOPPERS (Ch$) 425 0.0% 2.4% -1.2% -10.5% 3.2% 400.00 6.3% 540.00 -21.3%MADEDO (US$) 56.90 0.0% -2.7% -10.5% -10.4% -1.4% 56.90 0.0% 82.07 -30.7%CRISTAL (Ch$) 6,000 0.0% 1.7% 0.0% -17.8% 4.9% 5,450 10.1% 7,500 -20.0%QUINENCO (Ch$) 1,010 -1.0% 0.6% -9.0% -6.0% 19.2% 766.27 31.8% 1,393.22 -27.5%IPSA Index (Ch$) 3,052 0.0% -0.9% -4.8% -6.1% 13.3% 2,689 13.5% 3,500 -12.8%Ch$ per US Dollar 498 0.0% 0.4% -1.6% -2.5% -6.6% 493.50 0.9% 549.35 -9.4%IOCHPE (R$) 37.40 0.0% -2.1% 5.9% 21.2% 106.1% 16.89 121.4% 39.84 -6.1%RANDON (R$) 17.25 0.0% -2.0% -8.5% -3.1% 79.7% 9.60 79.7% 20.45 -15.6%ROMI (R$) 22.19 0.0% 3.2% 0.9% 5.0% 40.4% 15.20 46.0% 24.50 -9.4%BOVESPA Index (R$) 63,886 0.0% 1.2% 1.4% 5.7% 43.6% 41,179 55.1% 65,791 -2.9%R$ per US Dollar 1.78 -0.1% -0.6% -1.0% -2.9% -16.7% 1.74 2.5% 2.15 -17.3%

Source: Bloomberg. NM not meaningful.

Conglomerate Corner # 58: Year End 2007 Recap

2 Important disclosures/certifications are in the “Important Disclosures” section of this report. U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.

Latam Conglomerates and Industrials Team Analyst Name Country Email TelephoneLuis Miranda, CFA México [email protected] (5255) 5269-1926Diego Laresgoiti Mexico [email protected] (5255) 5269-2200Daniel Gewehr Brazil [email protected] (55 11) 3012 5787Bruno Giardino Brazil [email protected] (55-11)-3012 5914Nicole Weisser Chile [email protected] (562)-336-3437Felipe Mercado Chile [email protected] (562)-336-3386

2007 HIGHLIGHTS:

ALFA. A year of consolidation and transition. We believe that 2007 was a very challenging year for Alfa, as its automotive division faced the task of starting to integrate the acquisitions announced in late 2006, but had to finalize them in 2007.

In April of last year, the company paid a regular dividend of US$0.10 and an extraordinary dividend of US$0.11 per share, delivering a total dividend of M$2.31 and a yield of 3.0%.

Nemak. Last February, Nemak, Alfa’s autoparts division, announced that the European Union approved the acquisition of Hydro Casting Assets (first announced in late November 2006). The acquired assets included four plants (Hungary, Germany, Austria, and Sweeden). In March, this division announced the completion of the acquisition of six of the eight Teksid plants (first announced in early November 2006). These plants were in Mexico, Brazil, Argentina, and the U.S. The acquisition of plants in Poland and China were finalized in June, after government approval was granted. Finally, in mid-May, Nemak announced the acquisition of Castech, which was Gissa’s aluminum casting operations. On November 2, 2007, on Alfa Day in New York, management announced the synergies that they expect to generate from these acquisitions – US$30 million of annual EBITDA in synergies by the end of 2008 and twice that much by the end of 2009.

Sigma, Alfa’s food subsidiary, was also active in mergers and acquisitions. In July 2007, the company announced the acquisition of Mexican Cheese Producers, Inc. (MCP) in the U.S., a manufacturer of cheese and dairy products in Darlington, Wisconsin with an installed capacity of 10,000 tons per year. The company has distribution centers in Chicago, Houston, and Atlanta and supplies products to the Hispanic population in the U.S. under the brands “La Chona”, “Playero,” and “Los Portales”. In 2007, the construction of the cold cuts plant in Seminole (OK) continued and it is expected to start operations in 1Q08.

Alpek (petrochemical division). During the first half of 2007, the company completed the expansion of the PTA plant in Mexico, increasing its capacity by 29% to more than 2.0 million tons per year and its PET plant in the U.S., increasing its capacity by 63% to 490,000 tons. The company continued the construction of the PP plant in Mexico, which should be up and running in the first half of 2008 and is expected to increase capacity by almost 180% to 670,000 tons per year. In early December, the division finalized the acquisition of Eastman Chemical’s PET plants in Mexico and Argentina. This boosted PET capacity by 68%, reaching 825,000 tons per year.

GCARSO. Divesting Porcelanite and ending consolidation of the tobacco business. We see 2007 as a restructuring year for the company in terms of their “traditional” businesses, while the company continues to expand its presence in the infrastructure and construction business (CICSA).

In July 2007, the company paid a M$0.50 regular dividend, which implied a 1.29% dividend yield.

CICSA, infrastructure and construction. In early May 2007, CICSA, signed an agreement with IDEAL for the construction of two electricity plants in Panama for approximately US$250 million. On August 21, the company announced the acquisition of the housing development company, Casas Urvitec. Urvitec (formerly privately owned) began operating in 1994 and develops low-income and residential homes in four Mexican states. The acquisition was finalized in October. In November, the company was awarded a contract for the extension of the Panama Canal.

Cigatam (tobacco operations). In July, the company reached a preliminary agreement to sell a 30% stake in Cigatam (tobacco business), to its partner Phillip Morris (deal concluded in November). The operations involved US$1.1 billion in cash for Gcarso, reducing its stake in the tobacco business from 50% to 20%.

3Important disclosures/certifications are in the “Important Disclosures” section of this report. U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.

Porcelanite (ceramic tile). In July, Gcarso agreed to sell its ceramic tile business operations, Porcelanite, to Lamosa for a total of US$800 million including net debt of approximately US$125 million. It was approved by the antitrust commission in late November 2007.

Retail operation. Also in late November, the company inaugurated the first Saks Fifth Avenue store in Mexico, located in the Santa Fe shopping mall, where it used to have one Sears store.

VITRO. Impressive operating results, finalization of debt refinancing process, and changes in CFO. Last year, Vitro finalized its refinancing process and posted impressive results which were driven by an outstanding performance of the containers division. In addition, Alvaro Rodriguez left the company, and Enrique Osorio became the new CFO.

Debt refinancing and ratings. On January 25, Vitro announced that it sold US$1.0 billion of notes, US$250 million above the US$750 million originally planned. The bonds were guaranteed by its Vitro Envases Norteamerica SA unit (VENA), and Vimexico SA. The company sold US$700 million of 9.125% percent debt due in 2017 and $300 million of 8.625% notes due in 2012. Later in the month, the company’s local & foreign currency Issuer Default Rating (IDR) was upgraded by Fitch Ratings to 'B' from ‘CCC’. The increase reflected the improvement in the company's capital structure and debt profile.

On March 29, Vitro sent a press release stating that, given the completion of the financial restructuring of Vitro, Alvaro Rodriguez, had left the company to pursue other endeavors after serving as CFO for more than three and a half years. Vitro’s new CFO is Enrique Osorio who has been CFO of public companies such as Savia and Seminis and has worked as Treasurer for La Moderna (a tobacco company that is part of BAT) and Alfa.

On April 18, the company paid a regular dividend of M$0.37 per share for 2007 or approximately US$0.10 per ADR. The dividend implied a 1.57% dividend yield and a total payment of US$11.9 million. Recall that the number of shares increased from 295.7 million to 358.5 million after the capital increase in 4Q06.

Last July, Vimexico, Vitro’s flat glass subsidiary, notified AFG Industries that it was exercising its right to purchase the 50% stake in the Mexican joint venture Vitro AFG that was currently owned by AFG. Vitro AFG is a flat-glass manufacturer located in Mexicali, Baja California, Mexico. The facility started operating in November 2003 and represented a total investment of approximately US$100 million. AFG Industries is a subsidiary of the Japanese company Asahi Glass Co. Ltd. This plant supplies the U.S. and Mexican construction markets with a wide range of flat-glass products, from the traditional 2-mm clear glass to 12 mm-thick glass.

In June and September, the company was affected by attacks on Pemex’s natural gas distribution network, which affected the company for two days and seven days, respectively.

KUO. In 2007, the company finalized the divestiture of its real estate division, changed its name from Desc to Grupo Kuo, and started a JV with Herdez in the food division.

On May 7, Kuo announced that Negro de Humo, its carbon black operations, would increase capacity by approximately 25% to 150,000 tons per year, with an investment of approximately US$20 million-US$25 million. Negro de Humo is an association with Cabot (51% Desc/49% Cabot). The capacity increase would be effective during the second half of 2008. The project also includes an energy cogeneration facility that will allow the company to use tail gas from current operations (recycling), which will improve the business operating margins.

On May 30, the company spun-off the real estate division (DINE) and changed its ticker from DESC to KUO. After the spin-off, the company has exposure to the chemicals, autoparts, and food industries.

On May 21, Kuo and Herdez announced the creation of a new JV in the food division, excluding the pork operations in Kuo and some operations where Herdez does not has 100% stake. The approval and creation of the company was in December 2007. Kuo contributed the shares of all its branded businesses in Mexico and the U.S. (Corfuerte and Authentic Specialty Foods), which include Del Fuerte, Nair, La Gloria, and Blasón in Mexico and La Victoria and Embasa in the U.S. Grupo Herdez will contribute the shares of its wholly-owned businesses, which include Herdez, Búfalo, Doña María, Carlota, Festín, among others. The pork and particle board business were not included, as well as some other operations where Herdez does not have a 100% stake.



On May 24, the company announced that it had reached an agreement for the dissolution of its partnership in Grupo Porcícola Mexicano, S.A. (Kekén) with its partner Propiedades Vanguardia, S.A. on the pork operations. As a result, Kuo increased its stake in Kekén from 63% to 100%. The operation includes production facilities in Yucatán, in Mexico’s Southeast, and processing plants in Yucatán and Guanajuato, as well as a network of meat retail stores “Mexicarne” in Mexico’s Southeast.

On August, the company prepaid and refinanced local medium-term-notes notes (Certificados Bursátiles) corresponding to the first issuance that matured in July 2010. The company refinanced these notes with bank debt but at more favorable terms, estimating savings of US$3.5 million in interest, which represent approximately an estimated saving of 7.5% of its net interest expenses for the last twelve months as of June 2007. As a result, Standard & Poor’s raised Grupo Kuo’s corporate credit rating from “B+“ to “BB-”.

On August 28, Grupo Kuo’s joint venture with CIE in Spain(CIE-DESC) agreed to purchase plants from Duroplast for U$31.2 million. The plants, which are located in Ramos Arizpe, (Coahuila, Mexico) produce plastic parts for the auto industry with sales of U$55 million for 2006. This acquisition complements the stamping business of the JV.

In October, the company completed a debt restructure of US$370 million. The first issue, a 10-year bond for US$200 million, tapped the international markets with a rate of 9.75%. The second bond was a syndicated loan for US$170 million.

GISSA. In January 2007, the company announced the inauguration of the plant of its new project, Technocast, which will focus on the manufacturing and iron casting of engine heads and blocks exclusively for Caterpillar. The plant will have an installed capacity of 90,000 tons per year (approximately a 40% increase on the iron foundry installed capacity of Gissa). As a reference, Gissa has an installed capacity of 220,000 tons at its iron foundry facilities (gasoline and diesel) and 46,000 tons at its small parts foundry (ductile iron foundry). Technocast started full production during 2H07, and management estimates that during 2007, production will be 7,000 tons, 40,000 tons for 2008, reaching 90,000 in 2009. The total investment in the plant was US$150 million, with Gissa holding a 67% stake in the company and Caterpillar a 33% stake.

In May, the company announced the agreement to sell Castech, its aluminum casting division to Alfa. Castech was a JV between Gissa and Norsk Hydro, with a manufacturing plant in Saltillo.

On September 6, Gissa held a shareholders meeting, where the payment of a dividend of M$1.10 per share was approved. This dividend was paid on October 11. The dividend implied a yield of 6.0% considering the closing price of M$18.20. This dividend was on top of the dividend of M$0.72 per share that was announced on April 27 and paid on May 8, indicating a yield of 4.7%. The M$1.10 dividend implies a total distribution for Gissa of approximately U$31 million, which represent 41.3% of cash as of June 2007.

During June and September, the company was affected by the sabotage to Pemex’s distribution network, which disrupted the supply of natural gas. The company was affected in three of the five facilities that produce ceramic tile (two in Guanajuato and one in San Luis Potosi).

MEXICHEM. Acquisition of Amanco, the highlight in a very active 2007. We initiated coverage of Mexichem in December 2007, with a year-end 2008 target price of M$53.00 . The highlights during the year are as follows.

On February, the company announced its agreement to acquire 100% of Grupo Amanco, becoming the leading manufacturer of PVC pipes in Latam. Amanco sells its products in 29 different countries, grouped in five geographical regions: Brazil, Colombia, Mexico, and the Central American and Andean regions. The company was forced by the Colombian Antitrust Commission to divest one of its PVC production facilities located in Colombian city of Barranquilla. Nevertheless, the company maintained its brands. Also in February, the company agreed to acquire Petco, a manufacturer of PVC in Colombia. Both acquisitions were completed in March 2007. The acquisition of Pavco, Colombian subsidiary of Amanco, was finalized in September 2007, after the government requirements were met. Mexichem paid almost US$800 million for Amanco and Petco.

In May, Mexichem signed a long-term contract with one of the largest consumers of fluorhidric acid in North America. This contract would allow its plant to operate at full capacity for the next five years.


In April, the company held a public offering of 58.8 million shares, increasing its shares outstanding from 490 million to 548.8 million. Thus, the company’s float increased to 31.5% from 28.2%. The resources acquired from the offering were used to finance the acquisition of Petco and Amanco. The price of the offer was M$29.00 per share.

In July, the company acquired 50% of Geo Andina, a Colombian manufacturer of chemical compounds. Results of this company are recognized through the equity method.

In July, shareholders approved the spin-off of Dermet, the chemical distribution business. The distribution of shares was on August 2, 2007.

In late August, the company inaugurated the new Santa Clara facility for the production of chlorine and caustic soda. This is a state-of-the-art plant that should allow the company to generate important energy savings.

In September, the company acquired Frigocel Mexicana, a company that produces expandable polystyrene and was one of his competitors in Mexico.

PASA. Diversification into new businesses and turnaround in services to Pemex. We initiated coverage on Pasa on December 14, 2007, with a target price of M$39.20 per share for year-end 2008. Among the most relevant news in 2007 are:

In January, the company signed contracts to operate sanitary landfills in Guadalajara and Navolato, Sinaloa. Meanwhile, on February Pasa signed a contract to collect and dispose of the residential waste of Rosarito, Baja California for 15 years. This replaced a short-term contract that was already operational.

In May, Pasa signed a contract to collect and dispose waste in Cuernavaca, Morelos, and in October it renewed the contract for the collection of waste in the cities of Puebla and Monterrey.

In the oil industry division, Pasa won the bidding process and signed a contract to operate a waste management program for hazardous special and non hazardous waste generated by Pemex´s exploration and production unit. The contract will run from January 15, 2007 through December 31, 2009 for a maximum amount of M$591 million. It is worth mentioning that during the year, Pasa was able to successfully turn around the operations in the Services to Pemex division, which were reporting negative margins in 2006.

As for Pasa´s PET recycling division, the company achieved to finance its PET plant and initiated the construction of the plant which will be located in Toluca and will allow the company to improve the margins of this division. We believe the effects will be fully reflected in 2009. Finally, regarding Pasa’s ship dismantling business unit, it signed a joint venture and the company started the construction of the shipyard. The business will be operating in early 2008.

ROMI. A landmark year for the company. After the R$482 million share offering at R$15/share (of which 50% was a secondary offering) in April 2007 and the conversion of PN shares into ON shares, Romi was listed in the Bovespa’s Novo Mercado segment. The offering increased the company’s free float from 33% of equity to 55%. The purpose of the primary offering was to provide capital for capacity expansion and acquisitions, mainly in the castings business.

On August 16, Romi announced its new CEO, Livaldo Aguiar dos Santos. Américo Romi Neto had left the position to be the chairman of board, in a step towards institutionalization of the company. Livaldo is a mechanical engineer with a post-graduate degree from Corporate University, in Crottonville (NY), and has 15 years of experience in engineering (such General Electric), logistics, and capital goods companies.

On October 25, Romi hired an institution to function as market-maker for its shares, in order to increase share liquidity (with a three-month ADTV of US$1.9 million).

On October 31, the board approved a capex plan to build a new foundry and castings machining unit, totaling R$110 million and R$120 million, respectively. Funding will come from cash and new loans. The projects are scheduled to start in 2008 in locations still to be defined. The annual production capacity of each unit will be 40,000 tons/year, which management expects will double Romi’s casting capacity. Facilities will be used to supply rough and machined castings for industrial machinery, as well as the automotive, energy, oil, and naval segments. We highlight that it add value through the transformation of rough to machined casting (with a price per kg 80% higher than previously).



The company announced dividends of 0.45/share on February 8. It also announced interest on equity of R$0.165/share on May 31, R$0.18/share on September 6 and R$0.20/share on October 31. This totals R$1.00/share and represents a yield of 4.5%.

RANDON. Remarkable operating results and some corporate events.

The company announced dividends of 0.073/share on April 13. It also announced interest on equity of R$0.10/share on June 18 and R$0.15/share on December 3. This totals R$0.33/share and represents a yield of 1.9%.

On April 26, Randon’s Board approved a share buyback of 1,300,000 non-voting shares (RAPT4) totaling 1.55% of free-float. The program was finalized in July 4 at an average price of R$15.98/share, totaling R$20.7 million.

On August, management recently revised up its guidance by 10% for 2007 revenues, on the back of stronger auto parts and truck trailer sales delivered in 1H07. This led us to revise upward our net revenue estimates for 2007 by 6.5%.

On December 12, Randon’s board of directors announced that Randon plans to create an in-house bank, which would have to be approved by the Brazilian Central Bank (expected within four months). The objective of the bank would be to finance Randon truck and autoparts clients, as well as its suppliers in the domestic market. The bank would begin with R$25 million in capital and it expects to begin with around 20 Employees. So far, no more details were disclosed about the bank. We welcome this initiative because it would give the bank access to a loyal base of clients. However, we believe that the initial impact of such a move would be marginal, as R$25 million is a small amount compared with Randon’s equity of R$614 million. We point out that there are positive examples of companies that created a bank to support operating activities, such as Gerdau (Banco Gerdau) and Marcopolo (Moneo).

On December 18, as part of the company’s guidance for 2008, the company announced that it expects investments of R$250 million in capex for 2008.

Randon is already in the process of expanding its production capacity as part of its 2005-2009 capex plan. Randon’s truck trailer backlog remains at an all-time high (10,800 units), accounting for almost six months of sales. Randon is working at full capacity, but we are optimistic about its ability to meet demand, as the company is steadily increasing the size of its production line. At the end of 2007, the company should be able to produce 21,000 units per year, and this figure could reach between 23,000 and 24,000 units per year in 2008. After the e-coating process is built in October 2008, the current painting bottleneck should be eliminated, and the company on track to producing close to 36,000 truck trailers a year. Management plans to release its new five-year capex plan in 1Q08, which could be a trigger for stock prices, in our view.

IOCHPE-MAXION. A difficult start but positive 2007. During the year, the wheels & chassis segment (70% of revenues) delivered a impressive performance, while the Railcar segment presented a mild year with just 1,131 units in 2007 backlog. In terms of corporate events, Iochpe posted some improvements.

The journey to the Novo Mercado. On February 16, Iochpe-Maxion announced its intention to join the Novo Mercado corporate governance level. On July 12, the company proposed a preliminary conversion ratio of 1.2 PN (non-voting share) per ON (voting share). On December 13, Iochpe-Maxion announced that its board approved the share conversion exchange ratio to be presented to the preferred shareholders on January 17, 2008. This is a step toward Iochpe-Maxion complying with the Novo Mercado corporate governance level. Only holders of PN shares have the right to vote on this matter; for approval, the proposal needs 50% + 1 vote. We believe that the chance of conversion ratio being approved by the shareholders is high, considering that the PN dilution is lower than 5%. We highlight that the BNDES is an important part of this decision, as it holds 21.8% of ONs and 27.6% of PNs (25.6% of total shares). Following an approval by PN shareholders, BNDES would have 25.4% of the total shares of Iochpe-Maxion. If we add that to the 29.2% owned by the Iochpe family, we arrive at 54.6%, implying that the family will retain control, considering the agreement with BNDES.

In the rail car business, which is a cyclical business in Brazil, and dependant upon orders of big clients such as CVRD and MRS, on November 13, through its subsidiary Amsted-Maxion, the company announced that it has an agreement to sell an additional 412 railcars to MRS Logística. This was the third order MRS placed in two months (on October 4 and 29, MRS ordered 549, and 411 railcars, respectively, from Iochpe). The delivery for a third of MRS’s order is scheduled from March to June 2008. With these new orders, Iochpe’s railcar backlog for 2008 is now 1,940 units,


accounting for revenue of R$320 million. For 2007, Iochpe had a backlog of 1,131 units (100 units more than we had previously estimated), of which 569 were delivered in the first nine months of the year. We believe that the company is on track to deliver an estimated 3,000 units in 2008.

The company announced dividends of 0.44177/share on February 14, representing a yield of 1.2%.

MADECO. A dramatic change in 2007.

On November 15, Madeco announced the sale of its wire and cable business in Latam to the French company Nexans. The price of the transaction totaled US$823 million, of which US$448 million will be in cash and US$375 million in shares in Nexans, and involves all of Madeco’s wire and cable operations located in Argentina, Brazil, Chile, and Colombia. According to preliminary information disclosed by the company, this transaction would imply an extraordinary income of US$283 million. We believe the price to be paid to Madeco is fair, at a premium of some 5.0%, as we valued the wire and cable division at US$786 million. In addition, after this transaction is complete Madeco would become the largest shareholder in Nexans, the world leader in the cable business, with reported sales of US$9,885 million sales in 2006. According to both parties, the transaction should be finalized by mid-2008. According to our estimates, the wire and cable business would represent 67% of Madeco’s revenues as of 2007E.

SIGDO KOPPERS. Consolidation of carbon bonds project and start-up of new capacity.

Regarding Enaex, on October 12, 2007, the project to sell Certified Emission Reduction Credits (CER) to the Japanese company Mitsubishi Corporation received official approval from the United Nations. The project should impact Enaex’s results between 2008 through 2012, and its objective is to gain approximately 822,000 CER Credits, through the reduction of 2,800 tpy of nitrous oxide. We note that, despite the significant contribution of this project in terms of results, given its relative short duration the impact on our DCF model is marginal.

Sigdopack: On October 2007, operations of the new 37,500 tpy BOPP plant (bi-oriented polypropylene film) in Argentina began. This plant is expected to increase Sigdopack’s capacity up to 63,850 tpy.

Finally, on December 14, 2007, the construction and infrastructure subsidiary ICSK, announced that it will carry out the expansion of Los Bronces mine. According to our estimates this project could add some US$30 million to consolidated EBITDA over a three-year period.



Figure 2. Latam Conglomerates & Industrials – Valuation Table, December 31, 2007. Company ALFA GCARSO KUO VITRO GISSA MEXICHEM PASA SK MADECO IOCHPE RANDON ROMIADR NA GPOVY NA VTO GISQY MEXCHEM PASA NA MAD NA NA NATicker ALFAA MM ARSOA1 MM KUOB MM VITRO MM GISSA MMEXCHEM* MM PASA MM SK CI MADECO CI MYPK4 BZ RAPT4 BZ ROMI3 BZCountry Mexico Mexico Mexico Mexico Mexico Mexico Mexico Chile Chile Brazil Brazil BrazilRating BUY HOLD BUY BUY HOLD BUY HOLD HOLD BUY BUY BUY BUYLocal Price M$ 70.80 M$ 41.28 M$ 12.50 M$ 24.00 M$ 18.47 M$ 43.61 M$ 33.50 Ch$ 425.00 Ch$ 56.90 R$ 37.40 R$ 17.25 R$ 22.19US Price (US$) US$ 6.49 US$ 3.78 US$ 1.15 US$ 5.81 US$ 1.69 US$ 4.00 US$ 3.07 US$ 0.85 US$ 11.74 US$ 21.02 US$ 9.70 US$ 12.4752 weeks-Max M$ 88.43 M$ 47.40 M$ 12.50 M$ 31.30 M$ 20.00 M$ 44.38 M$ 82.07 Ch$ 540.00 Ch$ 82.07 R$ 39.84 R$ 20.45 R$ 24.5052 weeks-Min M$ 66.05 M$ 36.00 M$ 6.00 M$ 18.60 M$ 14.20 M$ 17.93 M$ 56.90 Ch$ 400.00 Ch$ 56.90 R$ 16.89 R$ 9.60 R$ 15.20Target Local M$ 92.00 M$ 48.00 M$ 13.50 M$ 27.00 M$ 21.10 M$ 53.00 M$ 39.20 Ch$ 500.00 Ch$ 91.00 R$ 39.70 R$ 23.00 R$ 26.00Target US$ US$ 8.20 US$ 4.30 US$ 1.20 US$ 7.20 US$ 1.90 US$ 4.75 US$ 3.50 US$ 0.95 US$ 17.25 US$ 20.90 US$ 12.10 US$ 13.70Upside (US$) 26% 14% 5% 24% 12% 19% 14% 11% 47% -1% 25% 10%Shares Out. 563 2,336 456 296 304 549 130 800 5,348 53 163 79 Shares / ADR NA 2 NA 3 NA NA NA NA 100 NA NA NAADR Outs. NA 1,168 NA 99 51 91 22 NA 53 NA NA NAFloat 45% 30% 20% 40% 18% 28% 43% 25% 54% 38% 55% 55%Mkt. Cap. US$M 3,653 8,835 523 572 515 2,193 399 683 628 1,119 1,576 980 Avg.Vol. 3mo.US$M 5.7 2.6 0.2 1.0 0.4 2.9 2.8 0.7 5.2 2.1 3.5 1.6 FV/EBITDA2005 4.2 7.1 7.2 4.9 6.1 3.5 6.2 7.9 7.9 5.6 7.6 4.42006 6.2 7.8 7.3 4.8 6.4 4.3 8.7 12.7 6.7 6.8 5.6 8.92007E 6.2 8.7 6.5 4.3 7.6 7.6 10.0 7.7 7.3 14.6 11.6 14.02008E 5.5 8.1 6.0 4.4 6.5 6.5 7.8 7.5 2.3 9.3 9.1 10.52009E 5.1 8.0 6.0 4.4 4.8 6.0 6.2 6.1 3.3 7.6 7.6 9.3EPS (Local)2005 13.42 3.64 0.67 0.16 0.24 1.31 1.08 27.46 2.09 1.36 0.73 0.982006 9.26 3.17 -0.07 1.00 0.72 2.34 0.30 32.52 5.37 1.09 0.82 1.062007E 6.76 2.51 0.74 0.39 0.89 3.40 0.59 29.43 4.09 1.29 1.01 1.272008E 7.07 2.56 1.00 0.47 0.39 4.28 0.82 39.40 25.60 2.41 1.21 1.542009E 8.18 2.77 1.16 1.36 1.20 4.70 1.11 54.79 3.23 3.02 1.46 1.71EPS (US$)2005 1.24 0.68 0.06 0.04 0.02 0.12 0.10 0.05 0.04 0.56 0.30 0.402006 0.85 0.57 -0.01 0.28 0.07 0.22 0.03 0.06 0.10 0.50 0.38 0.482007E 0.63 0.43 0.06 0.10 0.08 0.32 0.05 0.06 0.08 0.66 0.52 0.652008E 0.63 0.42 0.08 0.12 0.03 0.38 0.07 0.07 0.47 1.27 0.64 0.812009E 0.71 0.44 0.09 0.33 0.10 0.41 0.10 0.10 0.06 1.57 0.76 0.89P/E2005 4.4 7.1 19.7 79.9 50.0 9.4 18.4 13.1 19.0 14.6 10.0 6.12006 7.7 12.1 -25.2 20.2 22.0 7.7 59.4 11.5 11.4 17.0 11.9 12.72007E 10.4 11.5 17.9 55.9 20.4 12.7 56.7 14.7 11.0 32.0 18.7 19.32008E 10.3 9.1 13.7 49.1 48.4 10.5 41.9 11.4 1.8 16.6 15.2 15.42009E 9.1 7.7 12.5 17.6 16.2 9.7 31.8 8.3 14.6 13.4 12.8 14.0ROE2005 29.1% 25.9% 3.3% 0.9% 1.3% 21.4% 12.3% 11.2% 0.8% 30.2% 40.8% 23.1%2006 16.7% 20.3% -3.2% 5.7% 3.8% 28.1% 2.6% 10.5% 2.3% 23.9% 31.5% 24.1%2007E 10.2% 24.6% -2.4% -3.0% 4.5% 26.1% 4.6% 9.0% 2.4% 24.0% 29.1% 20.2%2008E 9.1% 26.5% 7.6% 2.8% 1.9% 21.3% 5.8% 11.2% 10.4% 35.9% 28.2% 17.5%P/BV2005 1.2 1.6 0.6 0.7 0.7 1.7 1.8 1.2 1.1 4.4 3.4 1.32006 1.2 2.4 0.8 1.0 0.8 1.9 1.5 1.3 1.3 3.7 3.0 3.02007E 1.0 3.2 0.9 0.8 0.9 2.3 2.5 1.3 1.2 6.7 4.8 2.92008E 0.9 1.9 0.8 0.8 0.9 1.8 2.3 1.2 0.9 5.3 3.9 2.52009E 0.8 1.5 0.7 0.7 0.8 1.5 2.0 1.1 0.8 4.4 3.3 2.3 NA Not available. Target prices are year-end 2008. Sources: Company reports, Bloomberg, and Santander Investment estimates.


Figure 3. Latam Conglomerates & Industrials – Financial Highlights and Estimates (U.S. Dollars in Millions a) _Revenues ALFA GCARSO KUO VITRO GISSA M EXICHEM PASA SK M ADECO IOCHPE RANDON ROM I2005 6,214 7,097 2,242 2,168 865 787 190 959 611 613 795 210 2006 6,862 8,162 1,989 2,355 932 1,078 193 1,051 1,016 572 927 252 2007E 9,598 8,625 2,094 2,467 793 2,122 271 1,198 1,251 641 1,257 315 2008E 10,541 8,934 2,150 2,642 879 2,618 318 1,323 1,027 818 1,487 396 2009E 11,431 8,934 2,150 2,642 945 2,727 357 1,477 500 911 1,657 444 Revenues YoY Grow th06/05 10% 15% -11% 9% 8% 37% 1% 10% 66% -7% 17% 20%07E/06 40% 6% 5% 5% -15% 97% 41% 14% 23% 12% 36% 25%08E/07E 10% 4% 3% 7% 11% 23% 17% 10% -18% 28% 18% 26%09E/08E 8% 0% 0% 0% 7% 4% 12% 12% -51% 11% 11% 12%Operating Profit2005 587 842 106 149 25 137 23 98 47 73 89 37 2006 528 1,084 89 178 41 175 9 105 94 63 115 46 2007E 591 1,062 95 180 24 305 19 128 88 67 173 56 2008E 711 1,063 106 186 26 364 21 141 73 110 224 75 2009E 792 1,056 109 186 59 380 24 169 32 131 264 85 Op. Profit YoY Grow th06/05 -10% 29% -16% 19% 66% 27% -62% 7% 102% -14% 29% 24%07E/06 12% -2% 7% 1% -42% 74% 122% 21% -6% 7% 51% 21%08E/07E 20% 0% 11% 3% 11% 20% 11% 10% -17% 64% 29% 35%09E/08E 11% -1% 3% 0% 124% 4% 12% 19% -57% 19% 18% 13%Operating M argin2005 9.4% 11.9% 4.7% 6.9% 2.8% 17.4% 11.9% 10.3% 7.6% 11.9% 0.0% 17.6%2006 7.7% 13.3% 4.5% 7.6% 4.4% 16.2% 4.5% 10.0% 9.3% 10.9% 12.4% 18.2%2007E 6.2% 12.3% 4.5% 7.3% 3.0% 14.3% 7.1% 10.7% 7.0% 10.5% 13.8% 17.7%2008E 6.7% 11.9% 4.9% 7.0% 3.0% 13.9% 6.7% 10.7% 7.2% 13.5% 15.1% 19.0%2009E 6.9% 11.8% 5.1% 7.0% 6.2% 13.9% 6.7% 11.4% 6.3% 14.4% 15.9% 19.2%EBITDA2005 804 1,056 201 349 93 177 38 146 65 84 106 41 2006 765 1,304 164 372 110 218 28 152 118 75 135 51 2007E 968 1,287 168 378 83 385 45 190 119 83 199 63 2008E 1,106 1,315 178 383 98 465 58 204 98 129 258 83 2009E 1,195 1,298 179 371 131 501 72 239 48 151 302 94 EBITDA YoY Grow th06/05 -5% 23% -18% 7% 19% 23% -26% 4% 81% -11% 28% 26%07E/06 26% -1% 2% 1% -25% 77% 58% 25% 0% 11% 47% 22%08E/07E 14% 2% 6% 1% 19% 21% 29% 7% -18% 55% 29% 33%09E/08E 8% -1% 1% -3% 33% 8% 24% 17% -51% 17% 17% 13%EBITDA M argin2005 12.9% 14.9% 9.0% 16.1% 10.7% 22.5% 20.1% 15.3% 10.7% 13.7% 13.3% 19.3%2006 11.2% 16.0% 8.3% 15.8% 11.8% 20.2% 14.7% 14.5% 11.7% 13.0% 14.6% 20.3%2007E 10.1% 14.9% 8.0% 15.3% 10.4% 18.1% 16.5% 15.9% 9.5% 12.9% 15.8% 19.8%2008E 10.5% 14.7% 8.3% 14.5% 11.2% 17.8% 18.1% 15.4% 9.5% 15.7% 17.3% 21.0%2009E 10.5% 14.5% 8.3% 14.0% 13.8% 18.4% 20.1% 16.2% 9.6% 16.6% 18.2% 21.2%Net Incom e2005 698 782 28 4 7 58 13 43 20 30 49 32 2006 464 657 (3) 32 20 102 3 49 55 27 61 38 2007E 342 504 29 12 25 169 7 46 42 35 84 51 2008E 351 494 38 14 11 208 9 60 264 68 104 64 2009E 395 497 41 37 32 223 12 82 33 83 123 70 Net Debt2005 (82) 624 587 1,188 196 82 (6) 99 125 53 49 (21) 2006 645 584 564 1,025 224 123 33 144 134 62 28 (27) 2007E 1,807 702 430 945 88 731 34 205 183 88 96 (110) 2008E 1,925 680 403 978 103 821 34 253 (449) 74 52 (106) 2009E 1,992 634 374 959 88 780 28 151 (511) 34 (20) (111) Total Debt to EBITDA2006 0.8 0.4 3.4 2.8 2.0 0.6 1.2 0.9 1.1 0.8 0.2 (0.5) 2007E 1.9 0.5 2.6 2.5 1.1 1.9 0.8 1.1 1.5 1.1 0.5 (1.8) Sources: Company reports, Bloomberg, and Santander Investment estimates.



FV/EBITDA and P/E to Growth

Figure 4 shows the FV/EBITDA estimate for 2008 and expected EBITDA growth for the same year, while Figure 5 shows the same graph for PE and net income growth for 2008 in U.S. dollar terms.

Figure 4. Latam Conglomerates & Industrials – FV/EBITDA 2008 to 2008 EBITDA Growth in U.S. Dollars

SK

Randon

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Figure 5. Latam Conglomerates & Industrials – PE 2008 to 2008 Net Income Growth in U.S. Dollars*

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Source: Santander Investment Estimates. * Madeco not included due to NM figures.


PRICE PERFORMANCE AND DAILY AVERAGE VOLUME CHARTS (3-MONTH AND 1-YEAR) Figure 6 through 18, show the price performance of our universe in U.S. dollar terms as well as it average daily volume for the last three months.

Figure 6. ALFAA, 2003 to Date Figure 7. GCARSOA1, 2003 to Date

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Figure 12. MEXICHEM*, 2003 to Date Figure 13. Pasa, 2005 to Date

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Figure 14. SK, 2005 to Date Figure 15. MADECO, 2003 to Date

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Figure 16 QUIÑENCO, 2000 to Date Figure 17. CRISTALES, 2005 to Date

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FV/EBITDA CHARTS

Figures 19 through 29 show the one-year forward-looking FV/EBITDA from 2001 to date. The middle horizontal line represents the five-year average, while the lines above and below signify one and two standard deviation from the average.

Figure 19. ALFAA – FV/EBITDA, 2000 to Date Figure 20. GCARSOA1 – FV/EBITDA, 2000 to Date

Figure 21. KUOB – FV/EBITDA, 2000 to Date Figure 22. VITROA – FV/EBITDA, 2000 to Date

Figure 23. GISSA* – FV/EBITDA, 2000 to Date Figure 24. MEXICHEM – FV/EBITDA, 2005 to Date

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Figure 27. IOCHPE – FV/EBITDA, 2000 to Date Figure 28. RANDON – FV/EBITDA, 2000 to Date

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Figure 29. ROMI – FV/EBITDA, 2000 to Date

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KEY INDICATORS

Figure 30-36 show some key indicators that affect operating performance of the Mexican conglomerates.

Figure 30. Oil – WTI and Mexican Mix US$/Barrel Figure 31. Natural Gas (Henry Hubb) – US$/MMBtus

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Figure 32. Key Chemicals – USC / gallon Figure 33. Key Chemicals – USC / Lb.

Figure 34. US Construction Spending – US$ Billion Figure 35. US Consumer Conf.and Unemployment

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Figure 36. - Latam Steel – US$/Ton

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H o t R o l le d C o ld R o l l le d S c ra p S la b




Figure 37. Latam Conglomerates & Industrials – Valuation and Risk to Target Prices Company Valuation Methodology1 Risks Alfa Alfa’s five-year FV/EBITDA multiple is 5.5 times, which

compares favorably with its current multiple of 5.2 times. In terms of NAV, our 2008YE target price implies that the company would be trading at a 14% discount. We used our DCF model as a cross-reference.

- Profitability pressure at Alpek and Nemak. - Exposure to the U.S. economy and the “Big Three” US OEMs. - Weaker operating margins at Sigma. - Strength of the Mexican peso.

Gcarso Our target price is based on a forward FV/EBITDA multiple of 5.9 times and 7.3 times trailing by year-end 2008. This figure represents a premium to its five-year average of 5.6 times. We believe this is achievable given that the company is one of the few players to invest in the construction and infrastructure division via the controlling group of CICSA.

- Weaker-than-expected growth in Mexico. - Stronger growth in backlog in CICSA. - Weaker demand for Telcos for CICSA in Mexico. - Execution risk at CICSA. - Stronger competition in the retail operations. - Higher cost of raw materials. - Acquisition risk.

Kuo Our target price is based on our DCF model, and implies that the stock would be trading at 6.6 times trailing FV/EBITDA by the end of 2008 or at a 6.1 times forward multiple.

- Further margin pressure in petrochemicals. - Exposure to the U.S. and automotive division. - Strength of the peso. - Synergies with Herdez. - Liquidity.

Vitro Our year-end 2008 target price of US$7.20 per ADR or M$27.00 per share, is based on a FV/EBITDA methodology and implies that the stock would be trading at a 4.8 times 2008 FV/EBITDA multiple.

- Slower-than-expected growth in the Mexican and U.S. economies. - Higher raw material prices. - Strength of the Mexican peso. - Exposure to auto manufacturers.

Gissa Our target price is based on our DCF model and a FV/EBITDA methodology. Our DCF price implies that the company would be trading at 7.1 times our trailing FV/EBITDA estimate and 5.1 times our forward 2008 estimate.

- Execution risk. - Cost of raw materials. - Lower economic growth. - Limited stock liquidity.

Mexichem The stock is currently trading at a FV/EBITDA for 2008 of 6.0 times and 5.4 times for 2009, and a P/E multiple of 9.5 times 2008E and 8.7 times our 2009 estimate. This represents a discount to a sample of Latam peers in terms of P/E and a premium in term of FV/EBITDA, offering more attractive growth rates in terms of EBITDA and net income compared with its peers.

- Overpaying for acquisitions. - Economic slowdown in Latam. - Exposure to commodity prices. - Slower than expected growth in construction. - Diversification in other non-related business. - Exposure to different currencies.


Figure 37 (Continued) Latam Conglomerates & Industrials – Valuation and Risk to Target Prices

Company Valuation Methodology1 - Risks Pasa Our target price implies that the stock would be trading

at 8.6 times trailing FV/EBITDA by year-end 2008 or 6.7 times considering a forward multiple. Our target price implies that the company will not pay dividends in the future.

- Economic slowdown. - Dependence and volatility in regard to Pemex’s business. - Political and governmental risk. - Tougher competition. - Execution risk. - Environmental risk.

SK We valued SK’s operations based on our estimates and a sum-of-the-parts analysis (to value each subsidiary adequately), considering the different cash flows and risks associated with each business and assuming a 20% holding discount.

- Further appreciation of the Chilean peso. - Downturn in the economic activity in Latam (especially in Chile). - Volatility in ammonia prices. - Potential development of an ammonia production project by Enaex.

Madeco We valued Madeco's seven units using a sum-of-the-parts methodology to adequately price in the various country risks where the company operates.

- The investment case in Madeco could weaken significantly in our view, as we believe there is limited potential for growth in the company's remaining businesses (brass mills, flexible packaging, aluminum profile).

- Increased cost pressures. - Increased competition/substitution of its core products.

Iochpe Our 2008YE target price is based on a DCF model with a WACC of 9.14%. Our target implies that the company would be trading at 9.9 times our 2008 FV/EBITDA estimate.

- Customer base concentration. - Higher prices of key raw materials. - Lower-than-expected growth in the primary sector. - Automotive supply chain bottlenecks. - Sharp interest rates and currency fluctuations.

Randon Our YE2008 target price is based on a DCF with a WACC of 9.7%. Our target implies that the company would be trading at 11.2 times our 2008 FV/EBITDA estimate.

- Higher prices of key raw materials. - Lower-than-expected growth in the agricultural sector. - Increase in interest rates. - Higher-than-expected strength of the real.

Romi Our YE2008 target price is based on a DCF with a WACC of 10.2%. Our target implies that the company would be trading at 11.4 times our 2008 FV/EBITDA estimate.

- Increasing competition. - Limited experience in M&A. - Lack of international scale. - Macroeconomic volatility.

1Note: For current trading multiples of each company’s stock, see Figure 1. Source: Santander Investment.

2008

IMPORTANT DISCLOSURES Key to Investment Codes Rating

Definition

% of Companies

Covered with This Rating

% of Companies Provided Investment Banking

Services in the Past 12 Months

Buy Expected to outperform the local market benchmark by more than 5.0%. 56.80% 82.35%Hold Expected to perform within a range of 5.0% above or below the local market

benchmark. 35.50% 17.65%

Underperform/Sell Expected to underperform the local market benchmark by more than 5.0%. 7.69% –The numbers above reflect our Latin American universe as of Friday, December 7, 2007. For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2008 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53rd Street, 17th Floor (Attn: Research Disclosures), New York, NY 10022 USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus or minus the 5.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974. This report has been prepared by Santander Investment Securities Inc. (“SIS”) (a subsidiary of Santander Investment I S.A which is wholly owned by Banco Santander, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Banco Santander, S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SIS, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Luis Miranda, Diego Laresgoiti, Daniel Gewehr, Bruno Giardino,Nicole Weisser, Felipe Mercado. As per the requirements of the Brazilian CVM, the following analysts hereby certify that we do not maintain a relationship with any individual working for the companies whose securities were evaluated in the disclosed report. That we do not own, directly or indirectly, securities issued by the company evaluated. That we are not involved in the acquisition, disposal and intermediation of such securities on the market: Daniel Gewehr, Bruno Giardino. Grupo Santander receives non-investment banking revenue from the subject companies, with the exception of Gissa, Grupo Kuo, and Vitro. In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Gissa, . Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them do not have any direct or indirect ownership interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report, and are not] involved in the acquisition, disposal and intermediation of such securities on the market. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States. © 2008 by Santander Investment Securities Inc. All Rights Reserved.

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