Rafael Mastrocola December 2013

Helping CEOs and their teams achieve a winning performance and develop their businesses!

Healthcare Products and Services Distribution NASDAQ: HSIC USA

Brazilian Market Entry Strategy

Pharmaceuticals China

Brazilian Market Entry and Strategic Partnership

Beverages Canada

Brazilian Distribution Strategy Advisory

Beverages United Kingdom

Brazilian Distribution Strategy Advisory

Clients Sector / Country Projects

1967 - 1994

1.142.332.741.811.850 % 6 currencies from 1967 – 1993 * Introduction of Real Plan in 1994

Fiscal Responsability Floating Exchange Rate Regulatory Agencies Privatizations Inflation Targeting in 1999

* Cruzeiro Novo (1967), Cruzeiro (moeda) (1970), Cruzado (BRC) (1986), Cruzado Novo (1989), Cruzeiro (moeda) (1990) e Cruzeiro Real (1993)

3,1% average annual growth last 20 years 3 different moments 3 different presidents

2,5*

-1

0

1

2

3

4

5

6

7

8

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

GDP (% yoy)

2,6

4,1 2,0

Sources: IBGE, Focus Report Central Bank of Braszil, RBCE * Market expectations ranging from 0,5% to 3,5%. Median 2,5%

GDP Weigth (%) 2008 2009 2010 2011 2012 2013e 2014eAgriculture 5,2 6,3 -3,1 6,3 3,9 -2,3 8,2 1,0Industry 26,3 4,4 -5,6 10,4 1,6 -0,8 1,3 2,2Services 68,5 4,9 2,1 5,5 2,7 1,7 2,3 1,9Private Consumption 62,3 5,7 4,4 6,9 4,1 3,1 2,3 2,2Gov. Consumption 21,5 3,2 3,1 4,2 1,9 3,2 1,7 3,0Investments 18,1 13,6 -6,7 21,3 4,7 -4,0 5,9 1,0Exports 12,6 0,5 -9,1 11,5 4,5 0,5 1,1 4,0Imports -14,5 15,4 -7,6 35,8 9,7 0,2 8,3 0,0

Supp

lyDe

man

d

Sources: IBGE, Focus Report Central Bank of Braszil, CS, RBCE

5,2

-0,3

7,5

2,7 0,9 2,5* 2,1*

GDP (% yoy)

* Market expectations ranging from 0,5% to 3,5%, Median 2,5% in 2013

7

Actual inflation target is 4,5% with ± 2% tolerance level

Recently the goverment has tried to keep inflation lower with “artificial measures”

CPI (IPCA) 2014 – 5.94%

Sources: IBGE, Focus Report Central Bank of Braszil, RBCE

5,5 5,8

6,3

7,2 7,3 7,7 7,5

7,1

6,2

6,6 6,5 6,7

6,3

5,8

11/12 1/13 3/13 5/13 7/13 9/13

CPI with Gov. Intervention

0

5

10

15

20

25

30

2003 2005 2007 2009 2011 2013

CPI (IPCA) 12-Month (%) SELIC Target Rate (%)

* monetary tightening Including pauses

8

Public Financial Institutions financed most of the consumer boom in the past recent years

The Govt. should not reach the minimum primary balance in 2013

58,0 57,4 60,9

53,4 54,2 58,7 58,6 58,0 56,9 56,3

45,5 38,5

42,1 39,2 36,4 35,2 34,8 33,9 32,4 31,0

13,2 11,7 14,7 13,5 14,2 16,6

0,5 1,4 4,5 6,8 7,7 9,2

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e

Gross General Government Debt (% GDP) Net Public Sector Debt (% GDP)

International Reserves (% GDP)

Financial Public Institutions Debt (% GDP)

Sources: Ministry of Finance of Brazil, RBCE * We are using data from the Ministry of Finance and not taking into account changes on the accountig of the debt

3,3 3,7 3,8 3,2 3,3 3,4 2,0 2,7 3,1

2,4 2,3

-5,2

-2,9 -3,6 -3,6

-2,8 -2,0

-3,3 -2,5 -2,6 -2,5 -2,3

3,1

2003 2005 2007 2009 2011 2013

Minimum primary balance required to stabilize the Debt/GDP ratio has diminished

Primary Nomial

9

Recent Evolution of Brazil’s Credit Rating. In contrast with the crisis that split up in the global financial markets in 2011, Brazil’s credit rate was raised by the main international Credit Rating agencies.

Sources: Ministry of Finance of Brazil, RBCE

90

100

110

120

130

2005 2007 2009 2011 2013

Consumer Confidence (In Points, Seasonally Adjusted)

Sources: FGV, Ministry of Finance, RBCE

World Cup investments has not impacted Brazil in a significant way. R$28 bn in 4 years

Infrastructure and Logistics Program R$470,1 bn

Confidence is lower

60,00

80,00

100,00

120,00

140,00

2005 2007 2009 2011 2013

Business Confidence (In Points, Seasonally Adjusted)

Manufacturing Services

8,9

8,4

7,6

1,9 1,3

World Cup Investments (R$ bn)

Transportation

Airports

Stadiums

Security

Others

Sources: FGV, CAGED, Central Bank of Brazil, RBCE

5%

7%

9%

11%

13%

15%

2003 2005 2007 2009 2011 2013

Unemployment Rate (%, Seasonally Adjusted)

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

1.400

1.500

1.600

1.700

1.800

1.900

2.000

2003 2005 2007 2009 2011 2013

Average Real Wage (R$) YoY Growth 3MMA (RHS)

15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 45,0% 50,0%

2005 2007 2009 2011 2013

Household Leverage Ratio

Going foward, we should expect unemployment to pick up slightly along with lower increases in real wages which should contribute less for 2014 growth

Sources: IBGE, Focus Report Central Bank of Braszil, CS, RBCE

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

-78.000

-63.000

-48.000

-33.000

-18.000

-3.000

12.000

27.000

42.000

57.000

72.000

2000 2002 2004 2006 2008 2010 2012 Current Account Balance (in US$ mn) FDI (in US$ mn) Current Account Balance as a % of GDP (RHS)

1,40

1,60

1,80

2,00

2,20

2,40

2,60

2007 2008 2009 2010 2011 2012

BRL

BRL should continue devaluated PBR helped to increase CA deficit Market Expectations

2,30 Year End 2013 2,40 Year End 2013

13

14

North: Extractive/ mining (18,5% of total); agriculture (10%), construction (7,1%), manufacturing (4,8%)

Northeast: Utilities (20% of total), construction

(17.5%), agriculture (17.1%), commerce (15.9%), manufacturing (9.3%)

Midwest: Agriculture (19.1% of total), construction

(9.4%), finance (9%), commerce (8.4%), manufacturing (4.7%)

Southeast: Oil & mining (71.1% of total); IT

services (70%); finance (67%), manufacturing (60%), transportation/ storage (59.4%)

South: Agriculture (25.5% of total), manufacturing

(21%), utilities (20%), commerce (19.5%), transportation and storage (18%)

202; 5%

507; 14%

350; 9%

2.088; 57%

536; 15%

GDP (R$ bn) North

Northeast

Midwest

Southeast

South

45%

18%

19%

11% 7% Area

North

Northeast

Midwest

Southeast

South

Sources: IBGE, RBCE

15

Categories Rank #

Overall Index 51

Regulatory framework 82

Business environment and infrastructure 76

Human, cultural and natural resources 12

Source: World Bank

Rank Country

1 Switzerland

5 USA

10 United Kingdom

29 China

55 Mexico

56 Brazil

60 India

64 Russia

16

Factors (in order)

Infrastructure

Tax Regulations

Tax Rates

Gov. Bureaucracy

Labor Regulations

Corruption

Worforce Education

Source: World Bank

Infrastructure Rank/144

Quality of overall infrastructure 107

Quality of roads 123

Quality of railroad infrastructure 100

Quality of port infrastructure 135

Quality of air transport infrastructure 134

17

2013 Other Latin

America OECD China Brazil

Procedures to start a business (number) 9 5 13 13

Time to start a business (days) 53 12 33 119

Time to pay taxes (hours per year) 367 176 338 2,600

Cost to export* ( USD per container) 1,268 1,028 580 2,215

Cost to import* ( USD per container) 1,612 1,080 615 2,275

Time to resolves insolvency (years) 3.1 1.7 1.7 4.0

Source: World Bank

18

Dilma approval from 38% to 41% 1st cenario Dilma would win in the first round 2nd cenario there would have second round

Source: Data – Folha

Adapted from multiple sources 19

MAIN DUE DILLIGENCE ISSUES NORMALLY IDENTIFIED

Material tax, environmental and labor risks and contingencies

Informality in the operations e.g. unrecorded transactions

Owner: “the company is 95% clean” Owners personal interests included in the

company’s interests (and vice-versa)

“Outsourced” or unregistered employees

Inadequate accounting practices controls and reconciliations = triggering significant accounting adjustments and tax risks

Inadequate cash management

MANY SOLUTIONS AVAILABLE TO ELIMINATE OR

MITIGATE RISK

Escrow

Alternative Transaction Structures

Asset Deals

DON’T UNDERESTIMATE THE

NEED TO DEEP DIVE INTO THESE ISSUES

20

Business Development Stepping in Entry Planning

Market Screening Entry Strategy

Planning

Acquisition Joint Venture

Strategic Partnership Transaction Advisory

Post-Merger Integration (PMO)

Investment Monitoring

Greenfield Project Planning and

Execution Advisory

Partnership Business

Development Advisory

21

1. Diversity and Opportunity: Brazil is very complex!

2. Elections can bring new information and surprise the market. Dilma is ahead.

3. Economy is still growing

Growth 2014 (2.1%) Inflation 2014 (5.94%)

22

5. Brazil will win the World Cup in 2014!

4. Many ways to plan your market entry strategy: Understand market dynamics very carefully: - Middle-class consumption - Informality - Bureaucracy - Import taxes

Rafael Mastrocola Partner

+5511 96037-1324 www.belotti.com.br

rafael@belotti.com.br