Investor Presentaiton

brand name distributors to this massive potential market; iii) it offers an opportunity of arbitrage in the higher volume and higher seasonal market, São Paulo. In fact, thanks to the more recent measures now in place, a trend to improvement can be observed in this sector, since the distributors' ethanol margins ceased to be negative (see the same chart above). The potencial increase supply of 'private label' gas stations could also represent a negotial advantage for the established distributors, since this would probably lessen the capital expenditure incurred on purchases (up front payments, discounts, etc.), thereby increasing the return per liter sold. The tax evasion fight and the trend towards a gain of market share of the established brand names should result in a significant reduction in the number of distributors in the market. At the other side, the move to concentrating pro- duction among the ethanol mills has been quite slower. As a result, the distributors' bargaining power over the ethanol producers will increase. It is no coincidence that Cosan, Brazil's biggest sugar cane producer acquired Esso and also now acts as a distributor. The move is a material signal for ethanol producers that the other side of the table holds a stronger competitive edge to make profits from the arbitrage opportunities in this market. With this pressure on illegality, the dynamic of the retail fuel sector competition should finally fall on the underlying features of this business, i.e., scale (distribution logistics), brand (retail service), and management. Here, Ipiranga is unique. Ipiranga is Brazil's second largest fuel distributor, second only to BR Distribuidora, a wholly owned Petrobras distributor. The greatest concentration of its gas stations is in the South and Southeast regions of the country, where volumes are greater. With the acquisition of Texaco, Ipiranga now has approximately five thousand service stations, thereby increas- ing its exposure in the Center West, North, and Northeast of Brazil. The geographic range of its resale and the quality of its logistic assets afford the company an unprecedented poten- tial for obtaining scale gains in the purchase of new stations (operating leverage), thus reinforcing its competitive edge in a growth environment. The Ipiranga brand name was built over many years from a perspective to approach the business as a retail service provider and not as a wholesale commodity producer. The attention to brand management of the former Ipiranga control- lers, allied to the Ultra Group's experience in acquisitions, has produced very positive results. Operating margins improve from quarter to quarter, a reflection of management's ability to obtain scale gains in their business. Since the acquisition of Ipiranga in 2T2007, the company's EBITDA per liter increased by close to 40%. The recent acquisition of Texaco, whose gas stations are being converted faster and at costs below those projected, appears to assure additional gains thanks to the wider range of the network, dilution of the SGA expenses, and maximization of the logistics base. In a context such as this, it is not difficult to perceive the huge opportunity for Ipiranga if the measures that threaten tax evasion succeed in forcing non branded service stations into legality. It is as though the leading player of ethanol distribu- tion is up for sale. Drogasil Retail medications represent another sector where Brazil's complex tax system and tax evasion cause huge distor- tions. In 2006, according to IMS Health, there were close to 55.6 thousand drugstores, a volume close to that of the USA (58 thousand). However, while in the US, U$291 billion in medications was sold in 2008, in Brazil, the corresponding volume of sales was only U$17 billion. The fact that, here, we have approximately the same number of pharmacies in a market seventeen times smaller makes little sense to us. Furthermore, in the US market, the major pharmaceutical retailers are re- sponsible for almost 40% of the sector's total revenues, while independent operators (those not associated with any retail chain) hold 30% of the sales units. In Brazil, 93% of the total volume of pharmacies is independent. Over the last ten years, we assisted a trend to concentra- tion of the retail pharmaceutical market in many countries. A movement that makes a lot of economic sense. Let us explain. Unlike other commercial activities, in the drugstore retail busi- ness, there are few major barriers to the entry of new competi- Dynamo Cougar x IBX x Ibovespa Performance up to March/2009 (in R$) Period Dynamo Cougar IBX Ibovespa average average 60 months 141.13% 129.66% -86.29% 36 months 18.09% 13.99% 8.71% 24 months -6.07% -6.55% -9.69% 12 months -23.04% -30.41% -32.10% 3 months 7.07% 10.68% 9.60% NAV/Share on March 31 sd = R$ 145.209094096 5

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