2012 Annual Sustainability Report

Business Segments

The Algar companies are structured in four distinct business segments: IT/telecom, agribusiness, services and tourism. In 2012, nearly 2 million clients, among individuals and corporations from all over Brazil, used the products or services provided by the Group's nine subsidiaries.

IT/Telecom Segment

Algar Telecom

This publicly-held corporation went into business in 1954 and currently has about 896,000 clients. It distinguishes itself for its efficient services and use of innovative technologies. Its challenge for coming years is to grow in a sustainable manner, safeguarding its values and service quality, both in the corporate and in the retail market.

In the concession area, Algar Telecom is present in 87 cities and towns in the states of Minas Gerais, São Paulo, Goiás and Mato Grosso do Sul. Its service portfolio in these cities and towns comprises fixed-line and mobile phone services, broadband internet access (3G and ADSL), data communication, pay TV (DTH and cable) and code 12 operator for long-distance and international calls for the residential and corporate markets.

The effort to expand the network also covers the 19 cities and towns in Minas Gerais State (area codes 34, 35 and 37) that make up the Band H area, a frequency range for 3G telecom services that the company acquired at an auction two years ago.

Algar Telecom also has an authorization to provide voice, data and TV services throughout Brazil. In this segment, the company is expanding geographically to areas with the greatest sales potential around the company's backbone and is mainly targeting the corporate market, mainly medium-sized and large companies. The main goal, however, is to grow in the corporate market by providing voice and data services in an area that includes some of the main cities in Brazil's Southeast, Center-West and South Regions, such as São Paulo, Campinas, Ribeirão Preto, Goiânia, Belo Horizonte, Juiz de Fora, Rio de Janeiro and Curitiba. In this regard, it opened headquarters in São Paulo and Belo Horizonte in 2012 and developed marketing initiatives to strengthen brand exposure in mainstream media.

To pursue its strategy, Algar Telecom invests heavily in education and training programs and infrastructure. In 2012, 32 VoIP locations were opened, including a company-owned network in all state capitals in the Northeast Region. This shows the company's commitment to Brazil's growth and effort to serve clients throughout the country.

Algar Telecom's excellent results in 2012 show the assertiveness of its strategies, but there are two other achievements that give it an edge: the excellent response to last year's issue of debentures, with a demand 63% higher than expected, and its constantly evolving sustainable practices, which allowed the company to improve its Annual Sustainability Report to Application Level B (GRI 3.0) in 2012.

Algar Tecnologia

Algar Tecnologia has provided the corporate market with technology solutions for business processes through Business Process Outsourcing (BPO) since 1998. At the close of 2012, it had over 9,000 associates and a diversified client based with over 200 companies from the health care, financial, education, manufacturing, utilities, media and entertainment industries, in addition to the government. Algar Telecom, its partner and also its main client, accounted for about 30% of the total client base.

Algar Tecnologia's service portfolio is divided into four specialty areas:

Information technology (IT) infrastructure
Services designed to increase productivity and offer the most cost-effective IT solutions considering clients' business performance. To that end, the company has three data centers strategically located–two in Uberlândia (Minas Gerais State) and one in Campinas (São Paulo State)– and connected through an optical fiber network. They provide services in Brazil and other countries.

Services Management
The Company provides support for and manages IT and telecom services. Experienced professionals specializing in the main technologies and practices in the market make clients' operations more secure and ensure that IT functions are available for all users in the organization.

Business application
With know-how and a team of professionals certified by the main market players, Algar Tecnologia offers business applications with comprehensive solutions. Services are based on company-owned software factories or strategic partnerships with major software manufacturers in the market and include the development and support of solutions adapted to clients' business profile. The company's methodology is based on the best software engineering, project management and maturity model practices.

Client relations
Algar Tecnologia offers quality solutions that allow companies to take care of some of their main assets: their clients. Its team uses advanced support technologies and the best market practices to improve client relations by means of contact centers and the internet. The company currently has about 9,000 associates in client service operations, credit risk management, telemarketing sales, business back office and client experience management.

At the close of 2012, Algar Tecnologia had Brazil's first contact center with 100% of the client relations management level formed in the 1st Six Sigma level in Yellow Belt. This means that all service supervisors are prepared to apply the DMAIC (Define Measure Analyze Improve Control) method and the basic Lean Six Sigma tools, thus allowing full support for ongoing improvement projects, which produces results quickly and makes clients' operations more profitable.

Relationships are also an important growth factor, and Algar Tecnologia has a close relationship with its clients to get a better understanding of their needs and be able to develop customized solutions jointly to make critical processes more efficient and effective, thus creating value for their clients. The current growth strategy focuses on strengthening brand image by participating more actively in the industry's events and publications, building relationships with media outlets, using new social media tools and improving its relationship with its client base.

Internal service quality programs were developed to support growth. A good example is Top Performance, designed to increase productivity and improve service quality at the contact center. The results of this program reshaped Algar Tecnologia's management, and the program was replicated for the other products and all support divisions.

Engeset

Engeset has expertise in comprehensive IT and telecom infrastructure solutions, which comprise consulting services, project development and network development and maintenance. The company has installed over 20,000 km of optical fiber networks and is currently in charge of maintenance on 23,000 km since it was founded in 1991.

Although it plays a strategic role in Algar Telecom's development, Engeset has an expanding addressable market. Currently, its diverse client base is served by highly-skill professionals in 23 business units throughout Brazil, including the cities of São Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Campinas, Recife, Fortaleza, Brasília, Macaé, Goiânia, Curitiba, Porto Alegre, Uberlândia, Uberaba and Franca.

Algar Mídia

In the market for over four decades, Algar Mídia is a transmedia company that offers solutions for interaction between its clients–mainly small and medium-sized companies–and the public by means of different information platforms in three segments:

Update media
Includes Correio de Uberlândia, a newspaper founded in 1938 with average distribution of 12,000 copies and a measured readership of about 50,000 people/ day and its derivatives: an online version with an average of 30,000 unique visits a day, and the magazines accompanying the copies throughout the year.

Consultation media
The company's core business, this segment comprises the phone directory Sabe, with an annual distribution of 1,250 million, the guides Sei, Viver and Netsabe (a search engine with the contents of the directory and guides). The products reach about 250 cities and towns located in the states of Minas Gerais, São Paulo and Goiás.

Exposure media
This is the company's most recent business. It started up in 2011 to meet new demands for digital solutions and has great has a great growth potential in coming years. Available in the same cities of the consultation media segment, digital out-ofhome consists of offline tools (voice) and online tools (information screens) installed in busy areas, such as supermarkets, bus terminals, gyms, clinics and hospitals. At the close of 2012, Rede Alooh had 640 digital screens and, including offline services, reached about 4.5 million people/day.

In a difficult year, mainly for print media, Algar Mídia introduced significant changes, focusing on the growth of digital media. In addition to technological upgrades, such as launching new versions of the search engine Netsabe and of the Correio de Uberlândia website, the company invested in changes in its sales force, which was unified. As a result, a single service, provided for 95% of the clients by Algar Mídia consultants skilled in print and digital media, was implemented. In 2013, the company's challenge is to continue to serve as a major connection between small and medium-sized companies and their target audience, thus contributing to business growth.

Agribusiness

Algar Agro

This company has been in the soybean market since 1978. It produces, processes and markets soybeans in the domestic and in the international market. Its cash cow is the ABC soybean oil, which it produces itself and is the market leader in Minas Gerais State, and RaçaFort soybean meal. The food product mix for the retail market also includes olive oil, blended oil, tomato paste and tomato sauce, all under the brand ABC de Minas. In a smaller scale, it is also present in crop farming (soybeans and corn) and livestock farming (meat and dairy) through ABC Agricultura e Pecuária S.A.

In 2012, Algar Agro's main achievement was opening the company's second refining plant, in Porto Franco, Maranhão State. Just like that in Uberlândia, the new refining plant is one of Brazil's most advanced industrial facilities for crushing soybeans and refining and bottling soybean oil. Both plants put together produced 7.5 million boxes of ABC de Minas soybean oil. In the Triângulo Mineiro area, the product was the market leader once more in 2012, with a 26% share. In the North and Northeast Regions, the company achieved an initial market share of 4%.

As for soybean origination, the crop failure led to higher soybean prices and required an even greater effort in financial management. Nevertheless, the company was able to maintain the excellent volume recorded in the last few years: 1.3 million tonnes of soy originated in the three areas in which it is present: the states of Minas Gerais, Mato Grosso and Goiás and MAPITOPA, an area that covers the states of Maranhão, Piauí, Tocantins and Pará. International operations, very sensitive to the macroeconomic developments, recorded total revenues of US$367 million from soybeans and soybean meal.

Services Segment

Algar Aviation

In the executive aviation market since 1976, the company sells aircraft (it is the exclusive representative in Brazil of the single-engine airplane TBM 850, manufactured by French Daher-Socatae, and of the two-engined airplane P180 Avanti II, manufactured by Italian Piaggio Aero), maintenance and freight (passenger and light cargo transportation, like valuables and laboratory supplies), in addition to airport and hangar services.

The good market prospects for Brazil's executive aviation market, with the entry of new aircraft in the last few years and the large number of runways that are not yet served by commercial routes–led the company to undergo restructuring process in 2012, to strengthen its position in the aircraft maintenance market even more. In this regard, Algar Aviation acquired a new hangar at Pampulha airport, in Belo Horizonte, which will be enlarged and refurbished, and invested R$500,000 in training its professionals.

The aircraft maintenance segment, the company's core business, grew by 14% in 2012 year-over-year, with net revenues of R$27 million. The contract to refurbish the Brazilian Air Force's Bandeirante aircraft greatly contributed to this result. In addition to the Bandeirante, Algar Aviation is able to service the main executive aircraft models (turbo props and jets), such as King Air, Xingu, TBM, Citation and Learjet, and is an Embraer Authorized Service Center to perform maintenance services on the Phenom 100 and Phenom 300 aircraft.

Another achievement of Algar Aviation in 2012, which is in line with its efforts to contribute to Brazil's development by bridging the gap between people and businesses, was the sale of three aircraft: two TBM 850 and one Piaggio P180 Avanti.

The strategy for the coming years is to expand the businesses, open a service base in the Northeast, the fastest-growing Brazilian region, and seek approval to service larger aircraft in view of the active executive aviation market in Brazil.

Comtec

Comtec (Companhia de Administração de Terminais Urbanos e Centros Comerciais, Urban Terminal and Commercial Center Administration Company), which belongs to Grupo Algar and Andrade Gutierrez, administers the terminals that make up Uberlândia's Integrated Urban Public Transportation System. In 2012, the concession contract for the terminals administered by Comtec was extended by the city for another 15 years, to 2017.

The five bus terminals administered by Comtec (Central, Industrial, Planalto, Santa Luzia and Umuarama) are used by almost 5 million passengers per month. The terminals allow transferring from one line to another and provide a comfort safe environment for shopping at Pratic Shopping. In addition, they have post office, drugstores, ATMs and lottery outlets.

The increasing purchasing power of working and lower-middle classes contributed to a 15% growth in business in 2012.

Algar Segurança

Algar Segurança has been in business for 14 years. It combines cutting-edge technology and skilled professionals to offer customized security solutions to companies from different industries, as well as residences, in an innovative and sustainable manner. Its service portfolio includes property security, electronic security and document management.

The company's operating area is growing continuously. In 2012, the company was present in six states: Minas Gerais, Goiás, São Paulo, Paraná, Mato Grosso and Mato Grosso do Sul. Strategically located, Algar Segurança's operational bases serve a diversified client base that comprises agribusiness companies, logistics companies, educational institutions, manufacturing plants, condominiums and shopping malls.

In 2012, the company invested about R$4 million in expansion projects.

Tourism

Rio Quente Resorts

The largest hot spring resort in South America belongs to Grupo Algar and Grupo Gebepar, from Goiânia. It is located in the heart of the Cerrado region and was opened in 1964. The enterprise operates in four leisure segments: hotel services, entertainment, tourism and vacation ownership. Its infrastructure comprises the water park and seven hotels. The Rio Quente Vacation Club, with 196 rooms, started up in 2012 and is for the exclusive use of over 17,000 guests in the Group's timeshare program. The others are mixed-use hotels that offer more services to boost results.

In 2012, the Rio Quente Resorts group hosted about 1.3 million guests and visitors and provided over 660 direct jobs. The hotels' day-to-day activities all follow the concepts of sustainability embraced by Grupo Algar. Rio Quente Resorts also has in place programs for the rational use of natural resources, water quality monitoring, solid waste management, wildfire prevention and environmental awareness-raising initiatives involving associates, visitors, clients, suppliers and the community. As a result of its ongoing concern about the preservation of the Cerrado ecosystems, the resort received the international environmental responsibility certification ISO 14,001 for the 11th year.

Also in 2012, it started building a modern 5,000-sq meter Food Production and Distribution Center, divided into pre-preparation, kitchen, baking and packing facilities among others. It will employ about 100 associates who will be preparing up to 15,000 meals a day. The center's distinct features will be its new techniques for cooling, cooking and storing food. They will allow planning the preparation of meals seven days in advance while maintaining their quality and flavor. The construction is scheduled to be finished in June 2013 and has investments of R$15.0 million.