2012 Annual Sustainability Report

2012 was a very challenging year for Brazilian companies. In the macroeconomic arena, the lingering crisis in Europe, the slowdown in China and the sluggish recovery in the U.S. all contributed to a drop in exports and, consequently, in the inflow of U.S. dollars in Brazil. In addition, the Government, Corporations and Consumers spent more conservatively in the first half of the year. In Brazil, it is worth noting the cost pressure from talent maintenance and retention, mainly in the service industry. Nevertheless, the Algar companies, always guided by the beliefs inherited from the Group's founder, Mr. Alexandrino Garcia, remained optimistic, determined and certain that they were prepared to achieve their goals.

Based on a corporate governance policy improved year after year, the Company won market share in all the industries in which it is–IT/telecom, agribusiness, services and tourism–in 2012. In addition, its consolidated net revenues shot up significantly by 21.9% year-over-year to R$3,719.9 million.

In IT/telecom, we overcame each and every operational challenge that we faced during the year, increased our market share and strengthened our brand in all nineteen cities and towns in Minas Gerais State within the Band H area, an area of expansion which we entered in late 2011 and provides good opportunities for growth in coming years. In the authorization area, our subscriber base increased both in the retail and in the corporate sector. Revenues from voice and data solutions for small and medium-sized businesses increased by 7.7% last year. We also opened our new headquarters in São Paulo in 2012, a natural move due to our strategy of expanding geographically and consolidating Algar as a top brand in the telecom industry beyond the borders of the Company's original concession area.

Other great news in the financial front is the success of Algar Telecom's second issue of debentures. (The first occurred in 2007.) Demand was higher than expected, and we raised a total of R$294 million and had a very diverse group of investors. This success means recognition for our vision of the future and allowed Algar Telecom to close the year with higher liquidity, thus achieving the growth targets in its strategic plan.

In agribusiness, a crop failure led to an all-time high in soy prices, and we had to focus even more heavily on financial management since agribusiness is highly susceptible to macroeconomic developments. As a result, Algar Agro recorded gross revenues of R$1,634 million.

The start-up of Algar Agro's second refining plant, located in the Porto Franco Unit, in Maranhão State, in June also contributed to the company's results. In 2012, the plant's oil production came to 1.5 million boxes out of a total of 7.5 million. As a result, ABC de Minas soybean oil–the market leader in the Triângulo Mineiro area–achieved an initial market share of 4% in the North and Northeast Regions. Concerning soybean origination, we recorded 1,340 thousand tonnes, and our exports produced US$367 million in revenue.

In the services segment, Algar Aviation acquired the concession of a hangar at Pampulha airport, in Belo Horizonte, that will be enlarged and refurbished. This new asset reinforces our infrastructure for aircraft maintenance, the company's core business.

At Rio Quente Resorts, we opened the doors of a new 196-room hotel exclusively for the 17,000 guests in our timeshare program, the Rio Quente Vacation Club. This achievement, as well as all others described above, was only possible because the Company is recognized for its top-quality products and services.

We from all the nine companies making up Grupo Algar bring all our knowledge to the service of society every day and spare no effort to do more and do better. This is how we grow in a sustainable manner. This premise, reflected in our Vision – "People Serving People" – in a simple, clear manner, is in keeping with Grupo Algar's diversification strategy.

At the close of 2012, Grupo Algar had 20,714 associates in all five Brazilian regions, and we firmly believe that each one is essential for the Group to fulfill its mission. Therefore, we invest constantly in our people, providing education and well-being for our team. In 2012, about R$11.0 million was invested in over 68,000 class/ hours, offered or coordinated by UniAlgar, our corporate university.

In 2012, we also strengthened our innovation culture, which has been in the Company's DNA since its inception and has had a well-structured policy for over ten years. Confident that innovation will help us forge Grupo Algar's future paths, we made further strides in terms innovation by creating Incubadora Algar (Algar Business Incubator), which funds and provides technical support for associates' projects, and Escola de Negócios (Business School), intended to contribute to Brazil's great entrepreneurial potential by offering educational multimedia contents for new entrepreneurs free of charge.

These initiatives show that Grupo Algar cherishes sustainability in all its aspects. The Company's commitment to the future led it to adopt corporate governance practices establishing very clear roles for the family shareholders and for the senior executives. These practices became a benchmark in Brazil and other countries.

Concerning the different aspects of sustainability, we are proud to highlight the efforts of all the Algar companies and Instituto Algar, which celebrated its 10th anniversary in 2012, to manage greenhouse gas emissions in their processes more and more efficiently and engage their associates, who have been helping fight global warming since 2010, more and more. In addition to conducting the Algar Sustentável (Sustainable Algar) program, Instituto Algar manages the Company's social programs, which focus on developing educators and public school children in the communities in which we are present. Last year, the companies invested about R$4.8 million in social programs, benefiting 16 cities and towns in six states. They involved about 350 educators and 6,700 students, as well as 570 volunteers.

In addition to bringing a great sense of fulfillment, Grupo Algar's achievements clearly show that 2012 was a good year and make us confident that 2013 can be even better. We believe that Brazil has many more opportunities to offer and our companies are prepared to seize them in a sustainable manner, always honoring the Algar brand. We express our deep gratitude to our shareholders, clients, suppliers, communities, governments and mainly each of our associates committed to the Vision "People Serving People" for their trust and cooperation.

Luiz Alberto Garcia
Chairman of the Board of Directors

Luiz Alexandre Garcia
CEO of Algar Group