2012 Annual Sustainability Report

Geographical and business diversification has always been a distinguishing feature of Grupo Algar, now present throughout Brazil. Based on its Vision PEOPLE SERVING PEOPLE, the Company continuously seeks to put to the service of the community all the knowledge acquired by its different segments in over eight decades, thus ensuring the sustainability of its business.

Diversification is, therefore, a strategic move. The Group is always alert to opportunities and areas with growth potential, to which it believes it can contribute significantly due to its expertise. For example, that is why Algar Agro launched operations in Maranhão State, which is Brazil's main agricultural frontier and offers the country's best shipping port (the Itaqui Port). In addition, it has an excellent growth potential. Likewise, in the telecom segment, the Group is mainly investing to expand its share in the corporate market, especially in the Southeast Region, where 70% of Brazil's telecommunication traffic is concentrated. At present, most investments are allocated to these two drivers of growth: telecom/IT and agribusiness. As for the other companies, Algar is focusing on consolidating their current positions, as well as expanding their operations on a regional level.

Talking About Culture

To strengthen its identity, Grupo Algar has a calendar of meetings with associates, Mr. Luiz Alberto Garcia (the Chairman of the Board of Directors) and Mr. Luiz Alexandre Garcia, the Group's CEO. The program consists of two initiatives: visits to regional offices and conventions, held every other year at the companies' offices.

In both situations, the executives strengthen the organization's beliefs and management model by disseminating their culture, listen to suggestions and take questions from associates, regardless of their positions in the corporation. This closeness fosters a sense of belonging and contributes positively to the working environment.

In 2012, Grupo Algar's chairman and CEO attended nine conventions in places like Uberlândia, São Paulo and Porto Franco (Maranhão State).

Algar 2100

This annual event has been held for 18 years and is an opportunity to put into practice strategic thinking by analyzing scenarios and trends. Coordinated by the Corporate Strategy Officer and organized by UniAlgar, the event brings together senior management from the holding company and the companies, as well as special guests. The goal is to broaden the Company's vision of the future by creating an environment in which professionals can identify new opportunities and get a better understanding of their role at the organization.

Network Company

Grupo Algar believes that achievements result from each associate's effort and ability to innovate. This belief led to the challenge of introducing participative business management at all levels. As a result, the Group developed its own management model, called Network Company, which Algar Telecom has adopted since 1990.

This model has clear processes announced widely and involving all associates, regardless of their positions. It also has tools to foster commitment and autonomy with responsibility, thus allowing each professional to follow and play an active role in the decisions that guide the company.

In practice, each group company is considered a Results Center and has its own budget and goals. The holding company's Board of Executive Officers manages all of them strategically by aligning them with the goals set jointly with the Board of Directors. However, subsidiaries are free to execute their plans after budgets are approved, which allows them to make decisions more quickly. Each company adopts the same policy internally. Their different divisions are also Results Centers that have to meet their own budgets and goals in an independent and responsible manner.

Applied for over two decades, this management model has proven efficient in motivating associates since it fosters a culture in which all are ready to make suggestions, listen to criticisms and, above all, learn. This participative process strengthens associates' sense of belonging and commitment, and makes them proud of the results achieved by their teams. 

Principles of the Network Company Model

• Autonomy with responsibility
• Participation in the decision-making process
• Transparent actions
• Commitment to results
• Associate rather than employee
• Continuous innovation
• Educational and entrepreneurial leadership

Business Culture

Grupo Algar's companies operate in different business segments, but they all share the same unique way of dealing with clients. The Company cherishes close ethical relationships based on principles like respect, appreciation and a real interest in the needs of all its individual and corporate clients.

Grupo Algar's way of doing business, totally in keeping with the Vision "PEOPLE SERVING PEOPLE," gives the Group a competitive advantage and is one of the reasons for its sustainability. To improve it continuously, the Company adopts a unique Commercial Culture, based on seven pillars and intended to encourage sharing and synergy among the sales reps working in the segments of IT/telecom, agribusiness, services and tourism.

Grupo Algar's Business Culture comprises Academia de Vendas (Sales Academy), whose goal is to manage knowledge in the sales department and develop the sales force; Clube de Vendas (Sales Club), which focuses on tapping synergies among the companies; and Comunidade de Negócios (Business Community), a social network for sales people.

In 2012, the Company introduced one more unified sales tool, Clube Corporativo Prime (Prime Corporate Club), to build closer relationships with clients from the B2B market. Under the program, Algar Telecom, Algar Tecnologia, Algar Segurança and Engeset joined forces to get a better understanding of their clients, assess needs and propose the best solutions.

Initially, eighteen clients became part of Clube Corporativo Prime. They either are major group clients or may hire one more service. This client group, which accounts for 10% of Grupo Algar's gross revenue, is served by the Key Account Manager (KAM) consultants, sales professionals who have received special training–developed by UniAlgar–from Academia de Vendas. In 2012, Clube Corporativo Prime helped increase revenues from this client group by about 60%.

The Pillars of our Business Culture

• Appreciation of and respect for clients
• Associates as sales people
• Ethical relationships with the market
• Marketing tools
• Effective client service processes
• Boldness with profitability
• Celebration of achievements

Innovation

Grupo Algar considers innovation a tool to promote sustainable business growth and the development of Brazil, and this can be seen in its subsidiaries' history. For example, CTBC (currently Algar Telecom) installed Brazil's first optical communication system in Uberlândia in 1984. In 1992, the same company launched mobile phone services even before they were available in several Brazilian state capitals. Six years later, it was the first company in Brazil to offer pre-paid phone services, currently predominant in Brazil's mobile phone system. The other Algar companies also have a history of (major and minor) innovative initiatives, always able to create value. As a result, it is just natural that innovation is currently an integral part of the Company's strategic thinking, and has its own budget and a specific program.

Under the Algar Inovação (Algar Innovation) Program, each company has its own Innovation Committee, responsible for assessing and coordinating the introduction of projects that may lead to improvements, savings or new revenues, and disseminate the culture that encourages associates' commitment to generating ideas. These committees are connected with the holding company's Innovation Advisory Committee, which responds to the CFO and has access to the other officers to discuss and set goals and objectives.

PGP (Programa de Gestão de Processos, or Process Management Program) and PGI (Programa de Gestão de Ideias, or Idea Management Program), geared to improvement projects in all departments, have been promoting innovation for over a decade. Once approved, associates' ideas are developed, and contributors are rewarded financially. In addition, the best initiatives are presented in the Algar Innovation Exhibition.

The 12th edition of the event–the first not held in Uberlândia–took place at Algar Tecnologia's headquarters, in Campinas, in July 2012 and was attended by over 1,500 associates, clients, suppliers and guests. During the event, Grupo Algar presented twelve innovation projects, and clients were also able to display their innovative products and services. There were informative talks by innovation experts and debates with Company executives as well.

The belief that innovation is a growth strategy for Grupo Algar's business led to several advances in 2012. Jointly with UniAlgar, the Innovation Advisory Committee trained about seventy associates in the Innovatrix™ methodology, a practical method for corporate innovation that focuses on creating new revenue sources and building innovation knowledge through the execution of prototypes. In parallel, it opened a business incubator and a business school.

In keeping with the policy of valuing internal talents, the Algar business incubator offers financial and technical support for innovative ideas given by the Company's associates. These ideas, which must be in the prototype stage and be able to generate new business, are proposed through a portal and submitted first to the Innovation Committee of the company to which the associate belongs.

Once approved, the idea is submitted for consideration to the holding company's Innovation Corporate Committee, where it will be fine-tuned and the submitted to the CEO. The whole selection process is based on the Business Model Generation–Canvas (BMG), a practical method designed to assess the feasibility of the proposals, based on their potentials, risks, financial and qualitative results and technical and managerial capacities. These criteria allow the Algar business incubator to choose the best projects and the most capable entrepreneurs. After being approved at all stages, projects are incorporated into the Company's portfolio. They may also give rise to a new company, of which Algar becomes a partner.

In 2012, Grupo Algar's companies developed 56 innovative projects and 95 ideas, which produced R$19.7 million in revenue. A total of R$4.5 million was invested in these projects. Financial gains since 2001, when innovation started being measured, amount to R$291.6 million vs. a total investment of R$51.1 million in 810 projects and 558 ideas.

At Algar Segurança, the Gestão Online (Online Management) project automated all the processes related to punch-in times, security rounds and reports by using smartphones. This will lead to cost reduction and a productivity gain, thus making it easier for Human Talents to manage associates working in security. At Algar Telecom, the Recarga Web (Online Top-up Service) solution, developed and customized according to each plan offered by the company, allows clients to buy credits on the company's internet portal.

The promotion of Open Innovation jointly with Brazilian and international organizations is also part of Grupo Algar's innovation policy. Since 2010, the Company has had a Technical Cooperation Agreement with Fapemig (Fundação de Amparo à Pesquisa do Estado de Minas Gerais, or Foundation for Research Support of the State of Minas Gerais), in the total amount of R$15.0 million under which 50% of the investments in eligible projects are subsidized. There are also formal agreements with UFU (Universidade Federal de Uberlândia, Uberlândia Federal University), Unipac (Faculdade Presidente Antônio Carlos, or President Antônio Carlos College) and Georgetown University (USA).

Algar is also a member of ANPEI (Associação Nacional de Pesquisa e Desenvolvimento das Empresas Inovadoras, Brazilian National Association for Research and Development of Innovative Companies) and of Fundação Dom Cabral's (Dom Cabral Foundation) Reference Center for National Innovation. In addition, it has an agreement with AIESEC, an organization recognized by Unesco that brings together college students for the whole world, to offer exchange programs to students and recent graduates dedicated to innovation.

Concerning innovation, the Group's challenges in coming years will be strengthening the business incubator, expanding Open Innovation with Brazilian and international organizations, using tax incentives more efficiently to promote innovation through Law 11196 and establishing partnerships with clients and suppliers for joint innovation projects. In 2013, Grupo Algar will invest (CAPEX and OPEX) over R$20 million in innovation.