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Risk Factors

Before taking any investment decision, the potential investors should carefully consider all the information, financial or not, available in the website of the Brazilian securities commission (Comissão de Valores Imobiliários), or CVM, and in this website, especially the following factors. Lupatech’ business, financial condition, results of operations may be materially adversely affected by any of these risks, and as a result, the securities issued by the Company may also be negatively affected. The risks described below are those known by Lupatech, and are just examples. The company believes that in the case one any of them happens eventually, they may affect the Company relevantly. Additional risks, not known today by Lupatech or irrelevant risks may also affect its business.

Risk factors which could influence investment decisions

a. Related to the Company

- Our revenues greatly depends on investment and operating expenditure from exploration & production (E&P) companies, with the greatest part of these types of investments and expenditure concentrated on Petrobras, who are responsible for a significant portion of our income. Payments and orders from E&P companies could be delayed, reduced or cancelled which would have a significant adverse effect on our business.

We are a company that supplies equipment and services mainly to the oil and gas sector, and we have direct exposure to development and production stages. Development is the stage during which the infrastructure is constructed and which, once concluded, will allow the production of oil and gas. Production is the stage during which oil and gas is extracted, and for which we provide infrastructure maintenance services as well as sales of replacement equipment. A significant part of our sales are tied to projects for a single main client, Petrobras, either directly or through companies which provide services to them.  These investments could be concentrated on business to which we do not have any exposure, for example services and equipment used for well drilling during the exploration stage, which could adversely affect us. In the event that the E&P companies, particularly Petrobras, reduce their expenditure and investments or cancel, reduce or delay our orders, our earning capacity will be compromised, resulting in significant adverse effects on our business.

- We produce extremely customized equipment of a high technological standard. We are therefore subject to operational risks related to the use of our equipment with critical applications carrying high operating risks, as well as risks of serious accidents or accidental loss, and to the limits of our insurance coverage, which could adversely affect our results.

By their very nature, some equipment and services offered by us carry inherent and significant risks of liability for damages to third parties. For example, our valves are used in oil production platforms and production lines of other companies. Any failure in the functioning of these valves could result in significant damages, such as serious accidents or accidental losses, and the resulting obligation to indemnify for damage caused.  A significant incident associated with the failure of any of our equipment could adversely affect us. 

Additionally, we may not be able to obtain insurance that covers all the risks involved in our operations due the lack of cover available in the market or due to the high cost of such cover.

We have insurance agreements in different areas, whether required by law or not, such as policies for liability and damage caused by fire, explosions or lightning.  Therefore, the occurrence of losses or any further responsibilities which are not covered by such policies or which exceed policy limits could incur considerable additional unforeseen costs, and could adversely affect us. 

- Our growth strategy foresees capital investments which will require financial resources to which we may not have access, which could adversely affect us.

The oil and gas industry requires large capital investments and our strategy for growth could require significant capital expenditure in our business and operations. In the event that we cannot obtain sufficient revenues from our operations and require financing, we could have limited capacity for obtaining the necessary capital to support our future operations.

It is not possible to ensure that resources will be available in acceptable, or indeed any, terms for us in the future and when required. In the event that access to lines of credit is restricted or the cost of financing increases, our operations could be adversely affected.

Future financing, if available, could result in an increase in expenses with interest and amortization, higher levels of leverage and a reduction in available resources for financing our growth. In the event that we are unable to generate or obtain additional capital in future, we could be forced to reduce or delay our capital expenditure, sell our assets or restructure our debts, and any of these could adversely affect our business and financial situation.

- Our level of general debt is significant due to financing obtained for the execution of our growth strategy.

We have a significant level of debt resulting from financing contracted over the last four years to finance our growth strategy, either through acquisitions or expansion of industrial capacity. The level of debt and other obligations could have significant adverse effects upon us, including:

− our future capacity to obtain financing for working capital, capital investments, acquisitions, amortization, interest and other debt charges, or for other goals could be limited;
− we could become more vulnerable to adverse economic and market conditions, including increases in interest rates and indexes which are applied upon payment of interest and principals of debt;
− competitors with comparatively low leverage levels could have a competitive advantage over us due to reduced demands for amortization of principal, interest and other debt payments; and
− we may be less apt than our competitors in gaining the advantage with additional business opportunities and reacting to changes in market conditions or in sectors in which we operate.

- We depend on our ability to stay up-to-date and develop technological advances to successfully meet the needs of the segments in which we operate.

The segments in which we operate are subject to fast-paced and constant technological advances. Our positive results depend on our capacity to continue improving our processes and products, and offering innovative solutions which respond to the rapid changes in technological standards and the expectations of the market in general. In the event that we are unable to develop technological improvements and new technological standards or we are not successful in the acquisition of new technologies, either through inability to obtain resources, form partnerships or retain and hire trained personnel, within an appropriate time frame and with accessible costs, we could lose our participation in the market and would be adversely affected.

- We may not be able to maintain or hire a sufficient number of qualified employees for the development of our business, which may adversely affect our results. In addition to this, we are highly dependent on certain members of our Board.

Given the high level of technology linked to our equipment and services, and the importance of commercial relationships with our main clients, our ability to be productive and profitable will significantly depend on our ability to attract, train and retain qualified executives and collaborators for the development of our business. In addition, our investors trust in the ability, experience and decisions of our Board. Our performance and success greatly depends on members of our Board, and their respective loss could adversely affect our business.

The demand for qualified employees is high and the offerings are extremely limited in Brazil, particularly during busy periods of activity in the oil and gas sector. An increase in salaries paid by our competitors could reduce our work force or increase labor costs to be paid by us, or both. In addition to this, the lack of qualified employees could adversely affect the development of our activities, including in technological improvements and new technological standards. The dismissal or loss of strategic personnel and the inability to attract, train and retain a sufficient number of qualified employees could have a significant adverse impact on our business.

 We may pursue currency hedging policies, which could limit our gains and increase our exposure to losses.
The nature of our operations exposes us to fluctuations in a number of currencies and, as a consequence, we make use of financial instruments and physical delivery contracts to protect ourselves from exposure to such risks, and may also do so in the future. By using hedge operations we are exposed to credit risks in the event of non-fulfillment of financial instruments by counterparties. On the other hand, in the event that we do not carry out hedge operations, we could be even more susceptible to the volatility of currencies and commodity prices than our competitors who do carry out hedge operations.

For contracting hedge operations, the execution and maintenance of margin deposits is generally required, which could result in relevant losses.  Such risks could bring about an adverse effect on our operational results and our financial situation. If we are unable to pass these increases or unforeseen operational costs on to our clients, this could materially and adversely affect our operational results and financial situation.

- We have long term contracts in progress which may not be renewed, which could adversely affect us.

The supply of some of our equipment and services is governed by long term contracts of approximately 2 to 5 years’ duration. The renewal of these contracts or our ability to obtain new contracts with similar or better terms will depend on market conditions. It is possible that we may not be able to renew our expired contracts or obtain new contracts, and the conditions of new contracts may be worse that those currently in force. This could adversely reduce our future revenues and profitability and, consequently, our financial situation.

- We are currently, and could be in the future, part of legal, administrative and arbitral proceedings which, depending on the results, could adversely affect us.

We are currently, and could be in future, parties in a number of legal and administrative proceedings, including civil, labor, tax, environmental and/or penal actions, as well as arbitration proceedings.   We cannot guarantee that the outcome of these will be favorable or that there will be either partial or total allocation, in relation to all liabilities resulting from these trials. Decisions against us of substantial values or which prevent us carrying out our business could adversely affect us.

- We could lack sufficient resources to pay guaranteed Perpetual Bonds in cases of early maturity, which could adversely affect us.

We have issued two Perpetual Bonds totaling US$275 million. Our obligations, included in the deeds of issue of Perpetual Bonds, are subject to the possibility of early maturity, as well as enactment or filing for bankruptcy, voluntary bankruptcy, filing or beginning the process of judicial or extrajudicial recuperation or any procedure of the same nature, and non-fulfillment of obligations laid out in the deeds of issue by us and/or our guarantors. There are no guarantees that we will have sufficient resources to pay out for Perpetual Bonds in the event of early expiry of our obligations, which could have a damaging effect on our business and income, inclosing the possibility of declaring early maturity of our other debts.

b. Related to our controlling company, either directly or indirectly, or controlling group

Not applicable. We have control given that we do not have a controlling shareholder or controlling group.

c. Related to our shareholders

- We could not pay dividends or interest on equity to our shareholders.

According to our Bylaws, we should pay our shareholders 25% of the annual adjusted net income, calculated and adjusted pursuant to the terms of Law 6.404/76, as amended (“Companies’ Act”), in the form of dividend or interest on own equity. For further information, see section 3.4 of this Reference Form. The net profit can be capitalized, used for compensating damages if existing, or otherwise retained, in accordance with the Companies’ Act, and can be made unavailable for the payment of dividends or interest on own equity.

Under the terms of the Companies’ Act, the dividends could remain unpaid to shareholders in any financial year if our Board of Directors decides that such a payment would not be advisable considering our financial situation. In the event of this scenario, the titleholders of our shares may not receive dividends or interest on equity.

- The relative volatility and limited liquidity of the Brazilian securities market could substantially limit the capacity of investors to negotiate with shares issued by us.

Investment in securities negotiated in emerging markets, such as Brazil, frequently involves higher risk in comparison with other global markets, with such investments generally considered to be more speculative.  The Brazilian securities market is substantially smaller, less liquid and more concentrated. It can be more volatile than the main global securities markets, including those in the United States and Europe. 
These market characteristics can substantially restrict the ability of investors to negotiate with shares issued by us at the price and on the occasion that they wish, and consequently, this could adversely affect us.

- We may require resources in the future which may not be available. Obtaining additional resources, as well the conversion of Convertible Debentures into shares already issued by us, could dilute the participation of the investor in our capital stock.

We may need additional capital in the future, which might not be available in favorable terms or under any condition. We may need to source additional resources through public or private shares or security operations that are convertible or permutable for shares.  Any sourcing of resources through public distribution of shares or securities convertible to shares can take place with the exclusion of the right of first refusal of our shareholders, which could result in the dilution of our equity.

Furthermore, on April 15, 2009, we privately issued debentures convertible into shares issued by us totaling R$320 million, with a maturity date of April 15, 2018, and with a possibility of conversion at the exclusive criteria of the debenture holders, from the second year counted from the date of issue. In the event that the bondholders request the conversion of the debentures into shares issued by us, the equity of our shareholders will be diluted.

- The interests of our board members could become excessively linked to the value of our shares, once they are granted options to purchase or subscription of shares issued by us.

We have stock option programs for acquisition of shares issued by us, with which we seek to stimulate improvements in our management and also to retain members of our Board, through gains linked to long term results and short term performance. The fact that Board members can receive options to purchase or subscription of shares issued by us at a strike price lower than the market price of our shares, could lead members to link their interests excessively to the value of our shares which could have a negative impact on our business.

d. Related to our subsidiaries and affiliates

- Some of our operations depend on joint ventures and partnerships, and our business could be damaged if our partners do not honor our obligations or if we cannot maintain good relationships with the other members of the shareholding structure of our joint ventures.

We operate part of our business through joint ventures and partnerships with other companies and legal entities, and plan to create new joint ventures and partnerships in the future. The forecasts and plans for these joint ventures and partnerships are based on the assumption that our partners will fulfill our obligations for contributing capital, acquiring products and, in some cases, provide management personnel or financing. If any of our partners fails to honor our obligations, the joint venture or partnership may not be able to operate in accordance with our business plan, or it is possible that we may have to increase the level of investment to implement these plans. Any of the scenarios could adversely affect us.

Furthermore, maintaining good relations with current and future members of the shareholding structure of our joint ventures is essential for the success of the partnerships. We have no way of ensuring that we will be able to maintain good relationships with any of the members of the shareholding structure Problems in maintaining our joint ventures and partnerships, as well as difficulties in adequately meeting the needs of our clients as a result of these problems, may adversely affect us.

e. Related to our suppliers

- We may depend on suppliers to obtain fundamental parts, equipment and raw materials for our business. Any problem relating to the supply of these items could adversely affect our business.

We depend on suppliers to obtain fundamental parts, equipment and raw materials for our business units and that, in majority, are certified by competent bodies or by our own end clients. These suppliers could run into difficulties in the supply of these materials due to a variety of factors, such as unforeseen demand from other clients, equipment malfunction and problems with quality or output, which would delay or obstruct meeting the demand. Additionally, the price of raw materials used by our suppliers could increase, making it necessary for us to increase the price of our products also. If we are not able to pass on the increase in price, our business could be adversely affected.

Our business could be significantly and adversely affected if one or more suppliers suffer significant interruptions in our operations, affecting quality, availability or opportune delivery of parts and equipment. As we are dependent on certain suppliers, we may not be able to obtain the necessary parts or equipment in sufficient quantity, of satisfactory quality and under reasonable conditions. Difficulties with suppliers could also cause a loss of revenue, extra manufacturing costs and delays, which would affect our business in a significant and adverse way.

f. Related to our clients

- The cancellation or reduction of orders by our largest client, as well our inability to offer equipment and services to clients, could adversely affect us.

The largest portion of our income comes from a single client, Petrobras, and the cancellation or reduction of orders from this client could and a significant adverse effect on our business. For further information, see section 4.1.a of this Reference Form.

Additionally, the majority of our business depends on long term relationships with clients and continued participation in the development of new equipment and services. Important characteristics of our equipment and services are the extensive periods of specification and development, of investment maturity and operational cycles. The competitiveness to which we are subject is based on our capacity to offer equipment and services at a cost, quality and within a timeframe that is compatible with the demands of the client. For this reason, if any competitor manages to offer products under more competitive conditions or of a superior quality to our equipment and services, we could have difficulty in finding new markets in a short enough time frame to avoid any adverse effects.

g. Related to sectors of economic activity

- The sectors in which we operate, mainly oil and gas, general industry and automotive, both internationally and in Brazil, could face periods of contraction, which could adversely affect our business. 

The sectors in which we are active, mainly oil and gas, general industry and automotive, both internationally and in Brazil, have historically been characterized by periods of contraction of available supply, price increases and high margins alternating with period of excess capacity, prices in decline and low margins. Historically, these industries have faced periods of contraction, which generally brings about a reduction in planned investment and postponement of expansion plans.

The oil and gas sector depends on investment which is linked to the financial capacity of oil and gas producers, who takes in to account economic, political and environmental conditions, as well as other variables such as the price per barrel of oil.

Industry in general depends on national and global economic conditions, which allows for investment in expansion of capacity and maintenance of industrial bases, which is a benefit to us.

The automotive sector also depends on national and global economic conditions, particularly on demands for automotive vehicles. With the economic crisis that began in 2008, the automotive sector was one of the worst affected globally. 

Contraction in international or Brazilian economies, particularly in the oil and gas, general industry and automotive sectors, could negatively affect demand and sales of our equipment and services, causing a decrease in our production and in development of new equipment and services, which could adversely affect us. 

- Amendments to environmental, security, and sanitary laws and regulations could adversely affect us.

Our activities are subject to rigorous environmental legislation at federal, state and municipal levels relating to, amongst others, elimination of solid residues and disposal of liquid, industrial and sanitary effluents, and require authorization and licenses from governmental agencies. In the event of violation or non-adherence to these laws, regulations, licenses and authorizations, we could suffer administrative sanctions such as fines, revocation of authorization and licenses, temporary or permanent injunctions. We could also be subject to criminal sanctions (including our managers), which like administrative sanctions, could be exacerbated upon re-offending, independently of obligations to rectify or indemnify, in the civil sphere, damages caused to the environment and third parties. We could also be obliged to shoulder substantial corrective environmental costs. According to Brazilian legislation currently in force, there is no limit to the amount of indemnity due in relation to environmental responsibility.

In accordance with environmental legislation we are liable in the event of any environmental degradation. We may be liable, independently of willful misconduct or deceit, for any damages caused to the environment through our activities - even if third parties are directly responsible for carrying out the activity - or previously - in the event that environmental liability exists in relation to the location where the activities take place.

Also, governmental agencies or other authorities could create new, more rigorous rules or seek more restrictive interpretations of existing laws and regulations, which could oblige us to use additional resources to meet these environmental requirements. Any move to this effect by governmental agencies could adversely affect us.  

- Our business depends on development and production in the oil and gas sector in Brazil, which is significantly affected by volatility in oil and gas prices, amongst other factors. A drop in these prices could reduce demand for our equipment and services and adversely affect our business.

Our business significantly depends on the activity level of the oil and gas sector, mainly in Brazil, particularly of the investments of oil and gas companies in onshore and offshore operations of exploration, development and production. The level of investment generally depends on the future prices of oil and gas, which are influenced by a variety of factors affecting supply and demand for oil and gas, including among others:

− global economic conditions;
− demand for oil and gas;
− availability of credit and prices;
− actions taken by the Organization of the Petroleum Exporting Countries – OPEC;
− production levels of countries which are not part of OPEC;
− availability and discovery of new oil and natural gas reserves in marine areas, mainly in Brazil;
− cost of offshore exploration and development, production and transport of oil and natural gas;
− ability of oil and gas companies to generate resources or obtain external capital another way for exploration, development and production;
− duration of concessions of exploration blocks in Brazil and in other countries;
− technological advances which affect exploration, production, transport and consumption of energy;
− climatic conditions;
− environmental or governmental regulations;
− auditing policies;
− policies adopted by various governments in relation to exploration and development of oil and gas reserves; and
− global military, economic and political environment uncertainties or instabilities resulting from increasing or additional hostilities or other crises in oil and natural gas producing regions or other acts of terrorism in the United States or in other countries.

Lower oil and natural gas prices, or speculation on price reduction, could lead to oil and natural gas exploration and producing companies cancelling or reducing our drilling programs or even reducing levels of investment for exploration and production (E&P). There are also a number of other factors which could affect investment decisions, including unsuccessful exploration activities. As the oil and natural gas prices reduce, the exploration and production of E&P companies and the demand for equipment and services which we offer could reduce, causing a corresponding adverse effect on our activities.

- Deterioration of the favorable market environment, including changes in local policies and incentives adopted by the Brazilian Federal Government, could lead to a reduction in capital allocated by our clients for Brazilian equipment and services, which could adversely affect our future operational results.

Local content policy, adopted by Law 9478, dated August 6, 1997, as amended, and National Energy Policy Council (CNPE) regulations, stipulate that part of the investment in E&P company capital goods should be contracted with local service providers and producers (“Local Content”). It was initially a voluntary factor for bids, but Local Content became a qualifying requirement for the evaluation of bids for exploration blocks in National Petroleum Agency – ANP – bidding rounds. 

Currently the minimum Local Content requirement for construction of offshore platforms creates favorable conditions for Brazilian companies similar to Lupatech in relation to international competition. In the event the that the Local Content requirement is eliminated, strong competitors in the sector established in markets such as Singapore, China and South Korea could increase our sales efforts in Brazil without the development of a local production platform and our business could be adversely affected by participation in the market and/or reduced margins.

Brazilian laws and regulations currently in force have been established to encourage the expansion of the oil and natural gas sector, including REPETRO, the special customs regimen which allows the import of goods for prospecting and exploration of oil and natural gas with suspended federal taxes.

Recent discoveries of oil and natural gas in pre-salt areas have provoked debates amongst public authorities, investors, press and Brazilian society in relation to the need for changes in oil and natural gas sector regulation in Brazil, and have caused the Brazilian Federal Government to propose bills for the creation of a new regulatory framework for exploration and production of oil and gas. Amongst the proposals being discussed are production sharing contracts for future areas to be auctioned, through which Petrobras would be guaranteed to be the only operator with a minimum of 30% of the projects, and would also able to participate in future bids with the aim of increasing our participation in these areas. A second proposal, which has already been written into Law 12.276, dated 30 June, 2010, concedes to Petrobras the direct transfer of rights to exploration and production of oil and gas of a volume of up to five billion barrels of oil in pre-salt areas not yet under concession, after having signed an agreement to this effect between the Brazilian Federal Government and Petrobras on September 1, 2010. Two other proposals complete the new regulatory framework. One is for the creation of a social fund using resources obtained from the results of the sharing contracts, the signature bonus and pre-salt royalties. The other is for the creation of a 100% state-owned company to complement the roles of the ANP and CNPE, particularly in relation to managing production sharing contract costs. It is still not possible to determine how such changes will affect the current system of exploration concessions conceded by ANP and, consequently, the development and production of oil and gas.

In the event that the incentives and protection measures adopted by the Brazilian Federal Government are amended or cancelled, our ability for generating revenues could be compromised, resulting in adverse effects.

- The oil and gas reserves in the pre-salt area could be smaller than estimated or extraction could not be technologically or economically viable.

The real volume of oil and gas to be extracted from pre-salt areas can not currently be determined. There is great uncertainty surrounding the size of the reserves, the curve of production and the API (American Petroleum Institute) standard. Also, there are doubts surrounding the capacity of technologies currently in existence for exploration and production of oil and natural gas in the pre-salt area at reasonable costs. One of the crucial points is well stability due to the porosity of the pre-salt area. Uncertainty regarding potential resources, allied with difficulty in extracting oil and gas from the pre-salt area due to potential non-viability of technology or high costs could result in lower than expected levels of future production, which could reduce demand for our equipment and operation and maintenance (O&M) services. Lower than expected demand for ships and services could have a significant adverse effect on our results.

- Strong competition in the sectors in which we operate could reduce our future profitability and weaken our financial position.

We believe that new competitors will enter the market as a result of the recent discoveries in pre-salt areas and due to government incentives for development of the sector. Thus, we expect that we will be operating in a highly competitive market in the future. We believe that we can compete in terms of price, quality of services provided and availability of equipment and services. Significant changes to incentives for concentration of investment in exploration, development and production of oil and gas in Brazil, as determined by the ANP in the promotion of the local content policy, could increase future competition before we are able to achieve global levels of productivity. This competition could force a reduction in prices of our equipment and services, which could negatively impact on our income and profitability. In the event that we are unable to face such competition our profitability will be reduced, which will have an adverse effect on our business.

h. Related to regulation in sectors where we operate

The market in which we operate is not linked to a regulated sector but we do supply equipment and services to clients who operate in sectors which are regulated by the ANP.

Changes in the regulation of sectors in which we operate could negatively affect our business. If there is a change in regulation of the oil and gas sector by ANP, for example in relation to the minimum Local Content demands required for equipment and services supplied to the industry in question, this could affect our business that is exposed to this sector.

i. Related to foreign countries where we operate

We run industrial and/or commercial operations in other countries, such as Argentina, Mexico, Colombia and the United States, amongst others. Changes to tax regulations, sector regulation, exchange rates, import and/or export regulations, laws relating to repatriation of capital, and competition conditions, amongst others, could affect our business in these countries and also us as a whole.

Also, uncertainty relating to the implementation of changes in policy or standards mentioned above could create economic insecurity and, as a consequence, could adversely affect us.

If one or more of the risks described above does occur, we could suffer loss of goods, rights or contracts in the affected country, which could also adversely affect us.

Risk Factors related to Argentina

- Current growth and stability in Argentina may not remain at current levels, which would adversely affect our business in the country.

During 2001 and 2001, Argentina experienced a period of serious political, economic and social crisis. Uncertainty regarding the medium-term sustainability of current growth and relative stability still persists. A lack of investment in a variety of areas of the economy has led to doubts regarding the sustainability of current economic growth levels. These, when added to other macroeconomic factors, highlight a certain fragility in the Argentine economy and consequently, these factors could result in an adverse material effect on our operational income and financial condition.

- If the Argentine Peso significantly devalues once again against the US Dollar, it could adversely affect the Argentine economy and the operating income of our subsidiaries in this country, and consequently, our operating income.

The real devaluation of the peso generally had an important negative impact on the Argentine economy. In 2002 the exchange rate between the Argentine Peso and the US Dollar varied significantly from 1.0011 Argentine Pesos to one US Dollar on December 31, 2001, to 3.3768 Argentine Pesos to one US Dollar on December 31, 2002. The Argentine Central Bank intervened on several occasions. We cannot foresee if any policies or measures adopted by the Argentine government to control devaluation of the peso will be effective. The possibility of the Argentine Peso suffering a new devaluation and the uncertainty surrounding its future value in relation to the US Dollar and other currencies could adversely affect the Argentine economy, our financial condition and our operating income.

- Inflation could increase once again, provoking adverse effects on the Argentine economy in general and as a consequence, the operating income and financial conditions of our subsidiaries in the country.

The depreciation of the peso in January 2002 put pressure on internal prices, generating high rates of inflation after a number of years of stability in prices. In the past, inflation substantially damaged the Argentine economy and the capacity of the Argentine government to create conditions which allowed economic growth. The return to an inflation environment would be highly damaging to Argentina's competitiveness to the outside and would dilute the real effects of the devaluation of the peso, with the same negative effects on the level of economic and financial effects.

Taking in to account the history of inflation in Argentina, we cannot be confident that the Argentine government is capable of maintaining strong monetary and fiscal policies to control inflation. Any future measures taken by the Argentine government to control inflation, including adjustments in interest rates, interventions in the foreign export market and other measures to adjust or fix the value of the peso, could adversely affect the Argentine economy, business, financial condition and operating income of our Argentine subsidiaries and, consequently, our business, financial condition and operating income.

- The Argentine government exercised, and continues to exercise, influence over the Argentine economy, which could negatively impact on the business of our subsidiaries in the country.

The Argentine government has historically exercised a strong influence on the economy, frequently altering monetary and credit policies. Since December 2001 the Argentine government promulgated a variety of wide-ranging laws and regulations affecting the economy in general. 

Efforts by the Argentine government to control inflation have involved, amongst other measures, control of prices, variations in interest rates, freezing of bank accounts in 2002 and the establishment of meat export quotas in May 2007.

The measures taken by the Argentine government in relation to the economy could adversely affect Argentine business, including our subsidiaries in the country and, consequently, could adversely affect our financial position and our operational results.

Last Update: February 8, 2012


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