09 23-2010 - 2009 annual report

Annual Report 2009

VISANET IS Now CIELo!

Annual Report 2009 1

Cielo’s exclusivity with the Visa brand ended on July 1st, 2010, and the Company now

captures and processes transactions with all the main brands in the card payment

market. We have been preparing to operate in this new market scenario for some time,

with the intention of making the most of the potential and maintaining our market

leadership. We made changes to the Company’s structural organization, revised

our strategic planning, trained and qualified new professionals in our work force,

consolidated our organizational culture and work environment, modified our mission

and reinforced practices of corporate governance.

As a result of these developments, we plan to maximize our business knowledge to

ensure our continued growth, offering clients the tried and tested reliability of our

network, innovative products that add value to their businesses, and be ever-present in

their day-to-day operations. We believe that all these factors will help us to consolidate

our relationship with our clients and ensure their loyalty.

With the change in our company name, we launched an institutional marketing

campaign, using all the available means of communication, highlighting our presence

and ability to deliver the services we offer with efficiency and quality.

We are now prepared to face the challenges of continuing to grow in a sustainable

manner in the new scenario and, at the same time, maintaining our market leadership,

generating increasing returns for shareholders, as well as powering business and

boosting the economy, thus producing more wealth for society as a whole.

2

Operational Indicators 2006 2007 2008 2009 � 09/08

Total Financial Volume (R$ million) 110,749 136,500 175,552 213,958 +21.9%

Total Volume of Transactions (million) 1,978 2,389 2,952 3,427 +16.1%

Nº of Affiliated Merchants (‘000) 997 1,180 1,408 1,706 +21.1%

Economic-financial indicators

(values in R$ million)

BR GAAP (4) IFRS (5)

2006 2007 2008 2008 2009 Δ 09/08

Net Operating Revenue (NOR) * 1,945 2,402 2,875 2,893 3,628 +25%

Gross Income (GI) 1,255 1,631 2,024 2,041 2,692 +32%

Gross Margin (GI/NOR) 64.5% 67.9% 70.4% 70.6% 74.2% +3.6 pp

Operating Income before Financial Result (OIBFR) 903 1,277 2,019 1,958 2,286 +17%

Operating margin before Financial Result (OIBFR/NOR) 46.4% 53.2% 70.2% 67.7% 63.0% -4.7 pp

Net Income (NI) 658 884 1,394 1,342 1,534 +14%

Net Margin (NI/NOR) 33.8% 36.8% 48.5% 46.4% 42.3% -4.4 pp

Dividends (D) 593 670 1,369 1,369 1,205 -12%

Pay-out (D/NI) 90% 76% 98% 102% 79% -23 pp

Adjusted EBITDA (E) (1) 1,039 1,410 1,764 1,764 2,451 +39%

Adjusted EBITDA margin (E/NOR) 53% 59% 61% 61% 68% +7 pp

Free Cash Flow (FCF) (2) (6)602 695 786 718 716 -9%

Net Shareholders’ Equity (SE) 103 611 159 702 860 +23%

Net Debt (ND) (3) 58 -471 -581 -581 -305 -48%

Return on Total Capital [FCF/(SE+ND)] 438% 496% (7) – 593% 129% –

Social Indicators 2006 2007 2008 2009 Δ 09/08

Number of direct employees 785 935 1,117 1,089 -2.5%

Value invested in training (R$ ‘000) 4,339 5,467 5,302 3,591 -32%

Turnover of workforce 7.1% 15.6% 23.1% 16.7% -6.4pp

Lowest salary paid/minimum national wage 3.27 3.13 2.85 2.39 -16%

Environmental indicators 2006 2007 2008 2009 Δ 09/08

Generation of non-hazardous waste (t) 142,55 123,67 124,95 120,13 -4%

% of non-hazardous waste destined for recycling, % non-hazardous waste destined for sanitary landfills

16:84 11:89 11:89 10:89 0%

Consumption of electricity (MWh) 2,126 2,635 2,351 2,195 -7%

Consumption of fuel oil (liters) 15,540 32,496 63,524 35,851 -44%

Consumption of water (m3) 8,408 9,519 8,246 6,957 -16%

Main financial indicators

(1) EBITDA = Earnings before Interest, Taxes + Depreciation and Amortization. Adjusted EBITDA = EBITDA + Revenue from the prepayment of revenue (considered as operational and not as

financial). (2) Free cash flow = net cash flow generated by operating activities – Cash applied in investment activities (3) Net debt = Gross debt – Cash and cash equivalents (when negative,

the Cash is higher than Gross debt) (4) BR GAAP = Brazilian Accounting Standards (5) IFRS = International (6) Reclassified in 2007 (previous = 705) (7) Non-current; total capital is negative as

cash was higher than the sum of net Shareholders’ Equity and Gross debt. * includes net revenue from pre-payment of receivables.


133% EBITDA

86%Operating Revenue

113%Stockholders’ Equity

111%Total Assets

105%Domestic Market

2005–2007 = BR GAAP and 2008–2009 = IFRS.1 EEBITDA = Earnings before Interest, Taxes + Depreciation and Amortization.

Adjusted EBITDA = EBITDA + Revenue from the prepayment of revenue

(considered as operational and not as financial revenue). 2 Adjusted EBITDA margin = adjusted EBITDA/Net operating margin.

2005–2007 = BR GAAP and 2008–2009 = IFRS.

* Net Margin = Net Income/Net operating revenue.

Adjusted EBITDA1 and Adjusted EBITDA margin2

R$ million and %

2006

2007

2008

2009

Net revenue, Net income and Net margin* R$ million and %

2006

2007

2008

2009

Net Revenue

Net I.ncome

Net Margin

Adjusted EBITDA

Adjusted EBITDA Margin

Volume of transactionsMillion

2006

2007

2008

2009

Debit cards

Credit cards

Total

Financial transaction volume R$ billion

2006

2007

2008

2009

40

49

65

79

1,232

1,424

986

836

71

88

111

135

1,720

2,003

1,402

1,142

111

137

176

214

2,952

3,427

2,389

1,978

Debit cards

Credit cards

Total

53%

59%

61%

68%

1,945

658

2,402

884

2,893

1,342

3,628

1,534

1,039

1,410

1,764

2,451

33.8%

36.8%

46.4%

42.3%

4

Highlights in the Period

• The financial transaction volume rose 22% to R$214 billion in 2009. This significant increase was

even ahead of the market, as the financial transaction volume in the sector as a whole increased by

18% in the same period.

• Net revenue including pre-payment of receivables increased 25% to R$3.6 billion, while adjusted

EBITDA was 39% higher at R$2.4 billion. The annual net income of R$1.5 billion was 14% up on

2008 (IFRS standard).

• Shares in Cielo, initially as Visanet, were first traded on the BM&Fbovespa’s Novo Mercado after the

largest IPO in the stock exchange’s history.

• We have prepared ourselves to maintain our successful track record in a more competitive

environment, by modifying our organizational structure, changing the Company’s name and

creating a new brand. We invested in both people and state-of-the-art technology.

• We received the Data Security Standard (DDS) certificate from the Payment Card Industry Council

(PCI Council), the most important in the global card payment industry.

• For the nineth consecutive year, we maintained our ranking among the “150 Best Companies to

Work For” awarded by Exame magazine.

Subsequent Events• In the first quarter of 2010, the volume of financial transactions rose 23% compared with the same

period in the previous year, reaching R$58 billion. Net operating revenue was 25% higher, totaling

R$1.0 billion, while adjusted EBITDA came in at R$713 million, up 33%. Net income was R$440

million, 32% higher than in the same period in 2009.

• We launched our program of Level I American Depositary Receipts (ADR) to trade shares on the

United States over-the-counter (OTC) market under the symbol CIOXY and, up to March 31, a total

of 3.6 million ADRs had been issued (1 ADR = 1 ordinary share).

• Our shareholders linked to the financial institutions Bradesco and Banco do Brasil presented a

proposal to acquire the stake in the Company held by the Santander Group, and each now hold

26.65% of total capital in Cielo after the transaction was finalized.

• Cielo had been ready since the end of March to process MasterCard transactions, as of July 1st,

2010, the date that marked the beginning of multi-brand operations.

• Launched at the end of March, the Company’s new institutional marketing campaign is running

with the slogan “Cielo, Nothing Beats Our Machine”.

Cielo’s IPO The largest initial public offering in

the history of the BM&FBovespa.


Message from Management 06Vision, Values and Corporative Governance 09Profile 10

ExpertiseAwards 14Corporate Governance 15Strategy 20

Confidence Risk Management 24Operating Performance 28Economic-Financial Performance 34

Coverage Capital Markets 40Intangibles 43Social-Environmental Performance 44

InvolvementGlossary 114Corporate Information 117

6

The main event for Cielo in 2009 was its listing and

start of trading of shares on the BM&FBovespa’s Novo

Mercado segment, after the largest initial public offering

in the stock exchange’s history. The transfer of R$ 8.4

billion in shares to the market guaranteed a free float

(the number of shares in market circulation) of 42.4%,

in a giant step in the democratization of the Company’s

voting share capital.

A Message from Management


Even before our shares were traded, we began work in earnest to

strengthen our relationship with analysts and investors, in order

to make our business as transparent as possible for the market.

And, with the start of trading, we built on our relationships

with these agents, as part of our strategy to underscore the

characteristics of leadership, innovation, high performance

standards and strong corporate governance that are an integral

part of Cielo, at meetings sponsored by the Association of

Analysts and Investment Professionals in the Capital Markets

(Apimec), road shows with investors, meetings at the Company,

as well as other events designed to underscore the Company’s

characteristics of leadership, innovation, high performance and

adherence to the best practices of corporate governance.

Another milestone in 2009 was the adoption of International

Financial Reporting Standards (IFRS), an international standard

that seeks to create a set of uniform criteria; and ensure that

corporate accounting follows market rules.

Our performance in 2009 surpassed expectations, in a year that

began under the dissipating storm clouds of one of the worst

global financial crisis ever, with resultant declines in economic

activity throughout the world, but after which we saw a gradual

recovery stimulated by government measures to bolster domestic

consumption. At the end of the year, while Brazil’s GDP was a

negative 0.2%, the financial volume of transactions captured by Cielo

rose by 22%, totaling R$214 billion, equivalent to 7% of national GDP.

Our growth outstripped the sector as a whole, which expanded by

18%, which reflects the gains we posted in terms of market share.

Our net operating revenue, including net revenue from the

prepayment of receivables, totaled R$3,628 million, 25% higher than

in 2008. Adjusted EBITDA reached R$2,451 million (+39%) and net

income R$1,534 million (+14%), based on which R$1,201 million

(-12%) of dividends to shareholders were distributed or provisioned.

This robust result was only possible thanks to Cielo’s market

penetration and distribution capacity, the reliability of its network,

the excellent relationship its commercial sector has with affiliated

merchants, through to the continued offer of new and innovative

products and the expansion of its network of active merchants.

It is worthy of note that, during the crucial Christmas peak retail

sales period, our network was available 100% of the time, and

we set a new record, with more than 35 million transactions

processed on December 23 and 24, 18% higher than in the same

period in 2008. Although the impact of the two days in terms

of annual revenue was not that significant, the 100% network

availability reinforces Cielo’s image of providing the biggest and

best system of electronic payment means in Brazil, working with

redundancy and mobilizing its teams to guarantee the most

reliable services for its affiliated merchants.

The year was also noteworthy due to the change in the

Company’s name form Companhia Brasileira de Meios de

Pagamentos to Cielo S.A., as part of the strategic plan to prepare

the Company to operate in a multi-brand market from July 1st,

2010. With its new name and brand, Cielo also acquired a new

visual identity and no longer incurred the cost of the royalties it

paid for the use of its former corporate name: VisaNet.

The regulations in the sector of electronic payment means in

Brazil were discussed by the pertinent authorities in 2009, which,

in October, released a note through the Central Bank with five

recommendations: 1) opening up the activity of affiliation;

2) interoperability of networks and POS machines (the terminals

that capture transactions); 3) neutrality in activities related

to settlement and liquidation; 4) strengthening the national

system for debit cards; and 5) transparency in the definition of

interchange fees.

We prepared ourselves during the year for the new and more

competitive scenario set to begin in July 2010, reinforcing our

commitment to our network reliability, consolidating our position as

the leading distributer, investing in innovation and the development

of a differentiated relationship to ensure the loyalty of our clients.

Network reliability — We work with redundancy in our

network systems and extremely high business monitoring

criteria, resulting in a 99.995% systems’ availability rate, which

is equivalent to just 26 minutes of system downtime during

the year. We received the international PCI DSS certification,

which, together with Lynx, our neural system for detecting

and monitoring intrusion and/or fraud, provided an extremely

high level of security for our affiliated merchants, banks and

credit card holders. Furthermore, we offered the most modern

POS system of electronic terminals in Brazil, with an average

equipment age of just 2.3 years.

8

Leadership in distribution — We worked closely with our bank

network to affiliate 380,000 new merchants in 2009, which

guaranteed us the largest base of affiliated merchants in Brazil.

Innovation — We continue to innovate by launching

differentiated products, which, as well as bolstering client

revenue, are tailored to their commercial needs and guarantee

card payment traffic at their merchants, as well as the loyalty

of purchasers. Some projects of particular note are the

correspondent banks, contactless smart card payment means

(also known as “touch and go” or “wave and pay”), payment via

mobile phone, as well as our promotional platform of offers.

Differentiated relationship — Our sales team present was more

than ever in the day-to-day operations of affiliated merchants,

offering a broad portfolio of innovational products, including the

pre-payment of receivables, the segment that has been making a

growing contribution to the Company’s result.

Certain important events took place after the close of the 2009

financial year, including the following two of particular note.

The launch of our “level I” American Depositary Receipts (ADR)

Program — This initiative, which did not represent an increase in

share capital (rights offering) or involve the issue of new shares,

placed Cielo in a select group of Brazilian companies with

ADRs traded in the United States, as only 67 of the 420 national

companies listed on the BM&FBovespa used such instruments at

the end of 2009. This initiative created yet another alternative for

investors in the U.S. market and increased Cielo’s visibility outside

Brazil. As of March 31, 2010, 3.6 million ADRs had been issued.

Changes in the breakdown of share capital ownership —

Our shareholders; Bradesco and Banco do Brasil, presented

a proposal to acquire the share capital stake owned by the

Santander Group, with each having a 28.65% shareholding after

the operation is finalized.

Aware of our social responsibility, we continued to invest in social

projects and develop environmental preservation projects in 2009.

We made investments with our own resources and through fiscal

incentives in cultural, social and sports projects, looking for programs

focused on education, child health and training youngsters for the

labor market, prioritizing social and economic inclusion. During

the year, we invested in family health assistance (Hospital Pequeno

Príncipe), culture (Instituto Brasil Leitor), social networking through

sport (Fundação Gol de Letra and Instituto Esporte e Educação), the

training of youngsters for the labor market (Instituto Criar de TV e

Cinema) and education (Instituto Ayrton Senna).

Our actions on this front in 2009 were recognized by several

institutions in different areas, as we were awarded the “Valor

Carreira” prize for excellence in people management (a survey

by Hewitt indicated Cielo as having the fifth best organizational

working environment among the companies with between

1001 and 2000 employees), the “150 Best Companies to Work

For” award, received from Exame magazine for the ninth

consecutive year, the “Biggest and Best” Award, also from Exame,

the “Best Specialized Services Company in Brazil” awarded by

the daily newspaper Valor Econômico, and the “200 Largest

IT Companies” awarded by InfoExame magazine. We would

like to thank all our employees, clients, partners, suppliers and

shareholders, and our new ones in particular, who showed their

support at the Company’s successful IPO.

Rômulo de Mello DiasCEO

Arnaldo VieiraChairman of the Board of Directors


Mission

Be an international benchmark for solutions for electronic payment

means and network services.

Values

• Employees with the right attitude, team

spirit and dedication to their jobs

• Satisfied Clients

• The attitude and approach of an owner

• Ethics in all our relationships and dealings

• Excellence in execution

• Innovation with results

• Corporate sustainability and responsibility

Mission and Values

10

Profile

Cielo S.A. (formerly Companhia Brasileira de Meios de Pagamento,

known as Visanet), is a leading acquirer of credit cards and

related payment services in the Brazilian market. With operations

throughout national territory, Cielo has more than 1.7 million

affiliated merchants and covers 97.6% of Brazilian municipalities.

Until June 30, 2010, the Company was the sole acquirer of

the Visa brand in Brazil, the leader among credit card payment

companies in the country, according to the Nilson Report (2008).

With the end of this exclusivity with Visa, the Company will

operate as an acquirer of other card brands.

Its activities include the affiliation of merchants and the

management of a network to accept card payments, as well as

the capture, transmission, processing and financial settlement of

the transactions made with credit and debit cards. The Company

also rents, installs and maintains Point of Sales (POS) equipment

for its affiliated merchants.

As well as the products and services traditionally offered in the

market of electronic payment means, Cielo constantly seeks to

develop innovative solutions in segments with synergies related

to its activities, and has been a pioneer in terms of the offer of

network infrastructure for use by correspondent banks, recharging

mobile phones, electronic vouchers and cash withdrawals, as well

as in capturing and processing electronic transactions that do not

involve financial payments, such as connectivity and authorization

of transactions in the healthcare segment.

The diversity of the Company’s portfolio of products and services

is the result of continued efforts to identify other business areas in

which it could maximize the use of its network and assets. In the

last two years, the Company has signed partnership agreements

with card issuers and companies to capture and process

transactions with Private Label hybrid cards with the Visa brand,

and currently has approximately 89 partners. As from September

of 2008, the Company has offered the pre-payment of receivables

for its network of affiliated merchants.

Cielo is a publicly-traded company listed in the Novo Mercado

segment of the BMF&Bovespa, which demands the highest

levels of corporate governance. Cielo stock is traded under

the ticker symbol CIEL3 and is also included in the Special

Corporate Governance Stock Index (IGC) and the Special Tag-

Along Stock Index (ITAG), the Ibovespa Financial Index (IFN),

the IBrX-50 and IBrX-100 (portfolio valid for the four months

between May/2010 – August/10). Of Cielo’s total voting stock,

42.4% is accounted for by the free float. As well as the shares

traded on the Brazilian stock market, the Company also has

Level I American Depositary Receipts (ADRs) traded on the

over-the-counter (OTC) market under the symbol CIOXY, with

Deutsche Bank Trust Company Americas as its Depository Bank.

Each ADR is equivalent to one ordinary share.

Among the main shareholders in the Company are institutions

with ties to two of the three largest banks in Brazil: Banco do Brasil

and Bradesco, which are also among the biggest card issuers

in the country. The presence of these institutions as majority

shareholders gives the Company a privileged status in terms of the

acceptance of its services, and has contributed to making it the

market leader in the card payment sector.

With a net revenue of approximately R$3.7 billion and a net

income of R$1.5 billion in 2009, Cielo has shown a consistently

positive development in terms of its results, registering a

compound average annual growth rate (CAGR) of 27.6% in net

revenue and 44.0% in net income between 2006 and 2009.


Stockholdings in other companies

Servinet (99.99%) — Servinet Serviços Ltda. provides

maintenance and contact services with affiliated merchants and

service providers to accept credit and debit cards and other

payment means, as well as the installation and maintenance of

POS electronic terminals.

Servrede (99.99%) — When Servrede Serviços S.A. starts up its

operations, it will provide network technology management

services, including the transmission of data and information,

corporate solutions, private communications’ systems and

the electronic processing of payments, as well as applications

services and those associated with its data center.

CBGS (40.95%) — Companhia Brasileira de Gestão de Serviços

provides consultancy and processing services of information for

companies in the area of medicine in general, the management

of support services for healthcare operators, interconnection

of electronic networks between healthcare operators and

medical-hospital service providers, the digitalizing and

automation of processes, the issue of cards, call center services,

card-reading information and the routing of non-financial

transactions, the leasing and sale of card readers, equipment

and IT systems used in providing its services and technical

assistance for the same.

Note: for more information about the subsidiaries and affiliates, see the Explanatory Notes number 1 and 11 in the Financial Statements.

CIELO

SERVNET99,99%

SERVREDE99,99%

CBGS40,95%

12

Peris doloria voloreque

Develop technology to provide solutions that speed

up and stimulate transactions and relationships,

dominate complex questions and offer reliable but

simple answers.

Using our expertise


14

Awards

The quality, efficiency and reliability of Cielo’s services have been

widely recognized by the market, with more than 50 awards to

its name, Cielo is one of the recognized companies in this sector

in Brazil. Over the past nine years, it has consistently included

among the “150 Best Companies to Work For”, in the ranking

published by Exame magazine, and in 2009 Cielo was also

awarded the following prizes:

• Award: “The Best in People Management”

Awarded by: Hewitt and the newspaper Valor Econômico.

• Award: “150 Best Companies to Work For”

Awarded by: Exame magazine.

• Award: “Biggest and Best”

Awarded by: Exame magazine.

• Award: “Valor 1000”

Awarded by: The newspaper Valor Econômico.

• Award: “The 200 Best IT Companies”

Awarded by: InfoExame.

• Award: “Valor Carreira”

Awarded by: the newspaper Valor Econômico.


Corporate Governance

Note: both the Novo Mercado/BM&FBovespa and IBGC rules concerning corporate governance can be accessed through the sites of these institutions, at the following addresses: www.bmfbovespa.com.br and www.ibgc.org.br.

Note: for more information, please refer to the chapter on the Capital Markets.

General principles Cielo adopts the best practices of corporate governance

recommended by the Brazilian Institute for Corporate

Governance (IBGC) and that include accountability, transparency,

fairness, and corporate responsibility, as the essential values for

the sustainability of its business. On going public, Cielo opted

to trade its shares on the BM&FBovespa Novo Mercado, which

demands the highest level of corporate governance, as this is

the way to consolidate its principles and guarantee the new

shareholders more security in terms of their investment.

The model of governance adopted is based on the requirements

of the Novo Mercado and Brazil’s Securities and Exchange

Commission (CVM), and is aligned with the IBGC’s rules, in an

already well accepted framework that seeks to guarantee the

effective adoption and monitoring of the principles of governance

in a company’s relationships between Shareholders, the Board

of Directors, the Executive Board, Independent Auditors, Fiscal

Council, Investors in the market and all other stakeholders.

Position as of Position after

Main shareholders 31/12/2009 27/04/2010 �Controlling shareholders 57.30% 57.30% 0%

Columbus Holdings S.A. (Bradesco) 26.56% 28.65% +2.09%

BB Banco de Investimentos S.A. (Banco do Brasil) 23.54% 28.65% +5.11%

Santusa Holdings S L (Banco Santander Spain) 7.20% 0% -7.20%

Market – free float 42.40% 42.40% 0%

Treasury 0.3% 0.3% 0%

Total 100.00% 100.00% 0%

Breakdown of share capital Paid-in Capital: 1,364,783,800 ordinary shares Nominal Capital: 6,000,000,000 ordinary shares

ShareholdersThe Company’s main shareholders are shown in the following

table, which depicts two distinct situations: at the end of 2009

and the end of April 2010, when Banco do Brasil and Banco

Bradesco finalized a deal to acquire, through subsidiaries, the

remaining stake of shares held by Banco Santander in the

Company. At the same time, these two institutions signed a

memorandum of understanding to set up a holding company

for the joint management of their business in the card payment

market, including a study of the possibility of transferring Cielo S.A.

stockholdings to the new holding.

Minority stockholders in Cielo have the same rights as the majority

shareholders, including the same value for their shares in the case

of sale of control (100% tag-along rights).

16

Shareholders’ Agreement

The shareholders that are part of the controlling group have

signed a shareholders’ agreement, which establishes the rules

related to their relationship in terms of joint interests in and

with the Company. This agreement was signed by Columbus

Holdings S.A. (Bradesco), BB Banco de Investimentos S.A. (Banco

do Brasil), Banco Santander (Brasil) S.A., Santander Investimentos

e Participações S.A. (Banco Santander) and Cielo S.A.

The shareholders’ agreement stipulates the regulations about the

calling and holding of meetings of the Board and shareholders. The

previously called meetings that decide on the following subjects will

only be included on the agenda in the presence of all the signatory

shareholders: (1) acquisition of shares issued by the Company

to hold in treasury or cancelled; (2) determining the agendas

of shareholders’ meetings; (3) proposal to alter the Company’s

Bylaws; (4) granting stock options for managers and employees;

and (5) drawing up the list of three candidate companies to carry

out the valuation for cancellation of the Company’s registration

as a publicly-held corporate entity. The points discussed at any

called meeting will be decided upon by a majority vote of the

shareholders present, with provisions made concerning the need

to formally register the meeting. The decisions will be binding for all

the signatory shareholders, including those absent.

Regarding the composition of the Company’s Board of Directors,

the shareholders’ agreement defines:

• Santander will have the right to nominate one member of

the Board while it holds a direct or indirect shareholding that

represents at least 7.20% of total share capital;

• Based on a Board with nine members, a minimum of six will be

nominated by Bradesco, and two by BB; and one by Santander;

• Based on a Board with ten members (as is the case at the

moment), a minimum of two will be nominated by Bradesco,

two by BB, one by Santander; and by common agreement

between Bradesco and BB;

• If there is a reduction in the stock holding of any shareholder in

the controlling block that implies a reduction in the number of

board members that it can nominate or loss of rights, the same

party should provide notification of the dismissal of the board

member(s) representing them within a period of five days;

• The election of independent members should be appreciated

and voted on in a previously called meeting; and

• The election of the statutory members of the Board should be

appreciated and voted on in a previously called meeting.

The shareholders’ agreement also determines that: (1) there is

a lock-out period of two-years, from the day the initial public

offering was announced (June 9, 2009), during which no

shareholder can sell any surplus shares on the stock exchange,

over-the-counter (OTC) market or in private operations (the

agreement states that the shareholders in the controlling block

should hold 50.1% of shares for a period of two years after the

IPO); (2) any transfer or sale of stock held by the signatories of

the agreement, except for the transfer to controllers or under

joint control, should be preceded by notification to the other

shareholders in the controlling block, who have the preemptive

right to purchase the shares on offer, disclosing the potential

purchase, price per share and payment conditions. The

preemptive purchase right should be exercised within a period

of 30 days, and (3) after the two-year lock-up period, and the

shareholders can request the Company makes a follow-on offer,

with Santander having the right to subscribing to this offer or sale

of its shares in an auction on the BM&FBovespa.

If one of the signatory shareholders of the aforementioned

agreement, during the validity of the said document, acquire (directly

or indirectly) a significant position in terms of the share capital in the

Company that provides registration services for corporate entities

acquiring payment transactions of the same brand(s) as processed by

the Company, and that have a direct influence on the management

of the competitor, should take all the necessary measures to abstain

from exercising the rights of the agreement or selling any shares

issued by the competitor for a period of 90 days.

The shareholders’ agreement will initially be valid for 10 years,

from the day the initial public offering was announced and can be

extended for additional and successive periods of five years, with

the possibility of prior withdrawal only with six months of advance

warning before the end of any of these terms.

To resolve any controversies arising from the interpretation of the terms

in the document, violation of its possessory terms or execution of

obligations established in it, the agreement stipulates that the center for

any arbitration will be the American Chamber of Commerce.


The Board of DirectorsThe Board of Directors is comprised of at least seven and a

maximum of 10 members, all shareholders, elected at a General

Shareholders’ Meeting, with a unified mandate of two years, with

reelection permitted. The members of the Board of Directors can

be dismissed and substituted at any time if such a decision is taken

at a General Shareholders’ Meeting. Two members are chosen by

the collegiate to serve as the President and Vice-President of the

Board. A minimum of 20% of the members of the Board should be

independent members.

Executive OfficersThe duties and powers of the executive directors are defined by

the Board of Directors, and among which of particular note are

the following:

• The CEO is responsible, among other duties, for establishing the

management model and ensuring it is complied with, directing the

businesses and determining the general guidelines of the agreement

with advice from the Board of Directors, ensure the Board’s decisions

are complied with, as well as the Company’s Bylaws, and approve

the Internal Regulations for the Executive Board.

• The Director of Investor Relations, among other duties, is

responsible for providing information to the investor public, the CVM

and stock exchanges and organized OTC markets on which the

Company is registered.

• The other Directors will carry out the duties determined by the

Board of Directors as and when elected.

The Executive Board is comprised of at least two and a

maximum of eight members, one being the CEO, on the

Director of Investor Relations and with up to six directors without

any specific designation, as elected by the Board. The directors

can hold several different positions.

The Board of Directors

Director Title Elected on Mandate to

Rômulo de Mello Dias CEO 05/20/2009 May/2012

Marcos Grodetzky CFO and Director of IR 03/20/2010 May/2012

Eduardo Campozana Gouveia* Director 05/20/2009 May/2012

Eduardo Chedid Simões Director 05/20/2009 May/2012

Paulo Guzzo Neto Director 05/20/2009 May/2012

Roberto Menezes Dumani Director 12/02/2009 May/2012

Executive Officers

Name Title Elected on Mandate to

Arnaldo Alves Vieira Chairman 04/30/2010 04/30/2012

Jair Delgado Scalco Member 04/30/2010 04/30/2012

Raul Francisco Moreira Member 04/30/2010 04/30/2012

José Maurício Pereira Coelho Member 04/30/2010 04/30/2012

Denilson Gonçalves Molina Member 04/30/2010 04/30/2012

Paulo Rogério Caffarelli Member 04/30/2010 04/30/2012

Milton Almicar Silva Vargas Member 04/30/2010 04/30/2012

Norberto Pinto Barbedo Member 04/30/2010 04/30/2012

Francisco Augusto da Costa e Silva Independent Member 04/30/2010 04/30/2012

Gilberto Mifano Independent Member 04/30/2010 04/30/2012

Note: the curriculums of the Board Members are available on the Company’s site, at: www.cielo.com.br/ri.

Note: the curriculums of the Executive Officers are available on the Company’s site, at: www.cielo.com.br/ri.* He was substituted by Dilson Ribeiro as from May/2010.

18

Fiscal CouncilThe Company’s Fiscal Council sits on a non-permanent basis

as and when elected at a general shareholders’ meeting at

the request of shareholders for the fiscal year in question as

determined by law, and its duties and powers are established in

Brazilian corporate law.

Management Advisory CommitteesThe internal committees are set up with technical and consulting

responsibilities to advise management on specific subjects, thus

making the Company more efficient, and maximizing the return

to shareholders while respecting the best practices of corporate

governance.

The creation of the committees, the establishment of their

responsibilities and the appointment of their members is all

carried out by decision of our Board of Directors. Our bylaws

establish a full-time audit committee. Our Board of Directors set

up the following committees:

• Finance committee;

• Issuer risk committee;

• Compensation and Benefits committees;

• Corporate governance committee; and

• Compensation and benefits.

As and when installed, the Fiscal Council is comprised of at least

three and a maximum of five members, with an equal number of

alternates, elected at a general shareholders’ meeting.

The Fiscal Council works in accordance with the Internal

Regulations approved at the general shareholders’ meeting at

which it was set up.

Management Compensation The statutory directors and members of the Board of Directors

receive a global remuneration determined for each financial period,

of an amount approved at the Annual General Shareholders’

Meeting (AGM).

At the AGM held on April 13, 2009, this value was R$14.5 million. The

total approved was divided into fixed and variable remuneration, profit

sharing and the granting of stock options, as described in detail in

Explanatory Notes numbers 28 and 29 of the Financial Statements.

At the AGM held on April 30, 2010, the value of compensation

approved was up to R$19.0 million.

.

Fiscal Council

Nome Title Elected on Mandate to

Kléber do Espírito Santo Effective Member 04/30/2010 Aug/2011

Marcio Hamilton Ferreira Effective Member 04/30/2010 Aug/2011

Haroldo Reginaldo Levy Neto Effective Member 04/30/2010 Aug/2011

Marcelo Santos Dall’occo Alternate Member 04/30/2010 Aug/2011

André Luis Dantas Furtado Alternate Member 04/30/2010 Aug/2011

Note: The position of the third alternate is currently temporarily vacant.


Code of Ethics Cielo’s Code of Conduct was revised in 2009 and is now known

as its Code of Ethics. All employees were called to take part in

the meetings to work on the new text, the aim of which is to

reflect the Company’s main values.

It is a benchmark document, not just for Cielo and its employees,

but also other public groups with which the Company

interacts with. It is these different public groups involved in the

business that, by making their day-to-day decisions and acting

accordingly, ratify the code of conduct expected by Cielo,

capable of maintaining relationships that are stable, sustainable

and compatible with the interests and most pertinent aspirations

of those involved and society as a whole.

The Code of Ethics defines the basic principles that should guide

the conduct of all the parties it involves, as well as the actual

management of the code, in three main areas of interest:

Mission and Corporate Values — are responsible for defining

the Company’s identity, and the way it acts. By expressing these

actions in day-to-day initiatives and relationships, the employees

are contributing to adding value to these relationships.

Primordial aspects of conduct — these aspects are fundamental

to the business and should be observed by all Cielo’s employees.

Aspects relevant to the behavior with public groups — we

consider the Company’s basic characteristics in its relationships

with each public group with which it interacts, and the following

groups in particular:

• Unions;

• Banks;

• Clients;

• Employees;

• The community and society;

• Competitors;

• Suppliers;

• The government;

• The press;

• Investors;

• Users of the Company’s electronic means of payment system.

The Ethics CommitteeThe Ethics Committee is made up of members of the Executive

Board of Directors and three senior professionals. Its role is to

receive and analyze allegations of infractions of the Code of

Ethics and apply the appropriate penalties.

For these allegations to reach the Committee, an Ethics Channel was

created run by an external company, and which can be accessed by

Internet 24 hours a day, seven days a week, or by telephone from

Monday to Friday between 09 a.m. and 08:00 p.m. The person

making the allegation can choose to remain anonymous.

Arbitration chamber and other legal channelsCielo is committed to arbitration through the Market Arbitration

Chamber, as defined in its company Bylaws.

While the Company is a member of the Novo Mercado, it cannot

issue preference shares or other participation certificatesand, to cancel

its registration with the Novo Mercado, it should make a public offer.

Note: the Code of Ethics is available on the Company’s Investor Relations Site, at: www.cielo.com.br/ri.

20

Strategy

The long-term strategic planning is based on important market

variables, given the current and projected circumstances and, is

thus designed to maintain the Company’s leading position in the

Brazilian merchant acquiring and payment processing industry.

To attain this objective, we adopted a primary approach based

on the diversification of services rendered, together with the

increased use of our transaction capturing network and the

constant implementation of new technologies for means

of payment. These actions have effects in several different

strategic ways, which are discussed below.

Universalization of the Use and

Acceptance of Multi-brand Cards at Merchants

We plan to continuously increase the number of merchants

that accept products multi-brand cards starting from July 1st,

2010, when our exclusivity with the VISA brand expires. To this

end, we rely on our own sales structure and provide constant

support for affiliating new merchants. We also rely on support

from the branch networks of those financial institutions that have

partnership agreements with us.

As a general rule, we seek to maintain a close relationship

with, and provide constant support to, merchants by offering

solutions, differentiated products and quality services, as well as

by stimulating merchant sales through a significant number of

point-of-sale promotions.

In addition, we plan on continuing to invest in solutions to

expand acceptance in new service segments, such as taxis,

soccer stadiums, street markets and fairs, and delivery services,

among others.

Expansion of Issuer Base

We plan to improve our results by increasing the issuance of

credit and debit cards and, consequently, transaction volumes.

To achieve this, we plan on strengthening our relationships

with financial institutions that issue credit and debit cards and

with merchant co-branded private label card issuers. We have

also developed a solution for the capture and processing of

transactions using co-branded private label cards that has shown

a high growth potential among the lower-income population.

We already have approximately 89 partnership agreements for

the capture and processing of transactions with co-branded

hybrid private label cards with retailers; home appliances

stores; supermarkets; bookstores; gas stations and insurance

companies; among others.

Broaden and Maximize the

Use of Electronic Capture Equipment

Cielo intends to increase the number of transactions conducted

through its acceptance network and develop new capture

solutions and services in segments that create value for our

affiliated merchants. We therefore plan on using electronic

capture equipment as a platform to increase the supply of new

services, such as correspondent banking services, prepaid mobile

phone top-ups, and cash-back in debit card transactions.

The diversification of the portfolio of services offered using this

equipment should increase the usage level of our acceptance

network, strengthen the business base and our relationship with

affiliated merchants, thus increasing the turnover and consolidate

our Company’s position as the leader in this market.


Enter Lines of Business that have

Synergies with the Core Business

We constantly develop projects and conduct market surveys

to identify lines of business that have synergies with our main

activity. One of the opportunities we have identified is the

development of a network to authorize transactions made by

healthcare service providers.

Our objective is to develop various methods of facilitating

interaction between agents in the healthcare industry, such as

connecting and authorizing services and providing call centers

for the healthcare industry.

The Company’s entry in the electronic capture of transactions

in healthcare and other business lines, through network and

technological platform optimization, will enable the Company

to develop new lines of services and other revenue-generating

opportunities.

Offer New Services to Affiliated Merchants

We plan on continuing to offer new services to add value to

our affiliated merchants and encourage customer loyalty. In

response to merchant demand, we began offering prepayment of

receivables to certain affiliated merchants on September 1st, 2008.

In addition, we have developed test projects, one of which uses

cell phones and the Internet to electronically capture home

delivery transactions, and another one which comprises a new

technology platform that makes it possible to offer promotions

to cardholders so that merchants can strengthen their

relationships with these clients.

Enhance Operating Efficiency

Our business model focuses on results, combining revenue

growth with operating efficiency. Together with the initiatives

designed to increase the number of transactions and financial

volume, we intend increase our productivity gains by reducing

the average cost per transaction captured, using initiatives based

on increasing our operating efficiency.

Impact of our strategy on results Out targets for results were all met in 2009 and the first quarter

of 2010. During this period, the strategic management of

performance in the short-to-medium-term was directed at

obtaining returns by means of the development and exploration

of the strategic lines chosen by the Company. On the other

hand, our medium-to-long-term outlook was based on preparing

the Company for the changes set to take place in the electronic

payment means market from the second semester of 2010,

and we are confident that we are well prepared to face this

challenge successfully, which even included changing our name

and mission, and even listing the Company in the biggest IPO in

history, thus undergoing some important restructuring in terms

of the Company’s management and commercial areas.

22

Maintain the trust of all those with whom we interact

over time. Implement and maintain the most demanding

security protocols to guarantee the integrity of

transactions. Always persevere in terms of the increased

efficiency and infallibility of the processes used.

Rigorously preserve the confidentiality of information,

but remain transparent and open in our relationships

with public groups and management approach.

Trust is deserved


24

Risk Management

Regulatory riskLaws and regulations that may be enacted to regulate the

merchant acquiring and card payment processing industry in

Brazil may have an adverse effect on the Company.

There are several bills currently on their way through National

Congress designed to regulate the card payment sector, the

main initiatives of which concern the following issues:

(i) Limiting the management fees charged by merchants and

payment terms, notably in the texts of the following bills:

(a) 4,818/98, dated November 4, 1998, and which has been

at Committee stage since March 25, 2009 with the

Committee on the Constitution, Justice and Citizenship;

(b) 4,804/01, dated June 5, 2001, which since April 29, 2009

has been at Committee stage with the Committee on

Finance and Taxes; and

(c) 3,499/08, dated June 3, 2008, the request for this text

to be included in Law No. 4,818/98 was granted on

November 4, 2008;

(ii) The sharing of collection and processing infrastructure for

information in the credit and debit card market, notably bill

No. 677/07, dated November 28, 2007, and which has been at

Committee stage since March 5, 2009, is now being analyzed

by the Committee on Science, Technology, Innovation,

Communication and Information Technology;

(iii) The banning of exclusivity clauses between brands and

acquirers in the credit and debit card market, notably Bill

No. 680/07, of November 28, 2007, which has been at

Committee stage since March 5, 2009, is now being analyzed

by the Committee on Science, Technology, Innovation,

Communication and Information Technology; and

(iv) Bringing companies in the card payment sector in line with

the conditions of financial institutions, notably bill No. 678/07,

dated November 28, 2007, which has been at Committee

stage since May 29, 2009, and is now being analyzed by the

Committee on the Constitution, Justice and Citizenship,

which, in the event this is sanctioned into law would mean

the Company would be subject to additional norms and,

potentially, fall under Central Bank supervision.

In March 2009, the Central Bank, the Secretariat of Economic Law

of the Ministry of Justice (SDE) and the Secretariat for Economic

Monitoring (SEAE) associated with the Ministry of Finance,

produced a Report about the Card Payment Industry, that analyzes

the sector of electronic means of payment with cards in Brazil,

highlighted the same concerns that led to the drawing up of the

aforementioned bills, and that is based on key discussions about:

(i) the competitive scenario and entry barriers in the sector; (ii) the

mechanism of charging fees adopted by the acquirers; and (iii)

how this charging mechanism could affect the final consumer of

goods and services, as well as making suggestions for regulatory

measures in the card payment sector. Although this standalone

study has no power to actually implement new sector regulations,

as these regulations depend on the approval of bills by the

Legislative Power, its conclusions could accelerate the passage


of the previously mentioned bills, as well as stimulate discussion

about other legislative initiatives aimed at regulating this sector

and the Company’s activities. The final version of this report was

published in May 2010 and, although the content related to the

concerns was not altered, the government study group focused

on five recommendations for the sector, which will be addressed

in the short term, and that are as follows: (i) the opening up

(deregulation) of acquirers’ affiliation activity; (ii) the interoperability

of networks and POS (Point of Sales) terminals (the equipment that

captures transactions); (iii) neutrality in settlement and liquidation

activities; (iv) the strengthening of national debit card systems; and

(v) transparency in terms of defining interchange fees.

If the bill related to limiting the management fees charged by

merchants and payment terms is approved, the Company’s

revenue and, consequently, its operating result, could be adversely

affected. As far as the bill related to the sharing of infrastructure

is concerned, if this is approved, the revenue from the rental of

equipment used to capture card transactions could be negatively

affected, with a potentially adverse impact on the Company’s

results. In turn, the possible approval of the bill prohibiting

exclusivity clauses between brands and acquirers in the credit and

debit card market could provide additional motivation for the entry

of new players into this market, with a potentially adverse impact

on the Company’s market share.

Finally, if the bill is passed that determines that companies in

the electronic card payment sector have to comply with similar

regulations to financial institutions, the Company could be

adversely and significantly affected, depending on the extent

of the restrictions and conditions imposed by the Central Bank,

which would become the entity responsible for regulating the

companies in the electronic card payment sector, including Cielo.

It is important to bear these uncertainties regarding the regulatory

framework faced by the Company in mind, as it is impossible to

predict whether the bills on their way through National Congress

will be approved or not, or even if others of a similar nature will be

proposed, or what the final version of the legislative texts of the

same will be.

As a result, it is impossible to predict whether the activities of

capturing and acquiring card transactions, the affiliation of

merchants and pre-payment of receivables to these merchants

will be regulated or not. If they are, it is impossible to predict in

what form, and even less as to how the Company would not be

adversely and significantly affected by the introduction of new

laws and regulations.

Market risk Although we believe that the Brazilian market for credit and debit

cards should continue to register significant growth, any possible

sector regulation or the simple ending of exclusivity may well lead

to changes, including the possibility of new competitors entering

the market. On the other hand, the new rules are designed to

strengthen the sector and aggregate more brands, issuers, card

holders and merchants, which could contribute to accelerating the

growth in terms of the number of transactions and the financial

transaction volume, which would favor activities by acquirers.

To deal with this kind of risk at the same time as maintaining our

market leadership, Cielo has been preparing itself for some time

now to offer the best in terms of the reliability of its network

systems, easy-to-use services, innovational products, distribution

capacity and differentiated relationships with merchants. At the

same time, to guarantee delivery, it has undergone an internal

restructuring, by developing teams that are both qualified and

capable of consolidating an organizational culture appropriate to

this potential reality.

26

Credit risk*

Cielo has an instrument it uses to mitigate the credit risk of banks

issuing Visa cards, for the purpose of protecting it against any

possible default risk at these institutions. These instruments are

based on the obligation assumed by the Visa brand, as established

in international regulations, to guarantee the transfer to the

merchants affiliated with the Company all the sales made using

Visa cards on their respective payment dates, even in the event of

default by any given issuer.

Technological risk The information technology and telecommunications systems

used by the Company in its business activities could fail due to

factors beyond its control. To mitigate this risk, Cielo has adopted

redundancy systems and uses cutting edge technology, both for

the traffic and storage of information.

Another important question concerns the security of information

systems, as the unauthorized disclosure of data in our systems

could have an extremely adverse effect on the Company and its

image in the market. In this case, Cielo uses the most advanced

encryption devices and IT access barriers to avoid unwanted

intrusion and fraud by hackers.

The Company has the most important industry security certification

in the global card payment market: the Data Security Standard (DSS)

from the Payment Card Industry Council (PCI Council).

The risk of fraud**

Risks associated with the Economic ScenarioThe trends in national GDP, interest and foreign exchange rates

are all duly monitored, although they are much less relevant for

Cielo than certain other companies and sectors.

GDP Growth

As far as GDP is concerned, the sectors in which we operate, due

to the characteristics of the Brazilian market, have registered high

growth rates and shown to be less susceptible to variations in GDP

than the average in other sectors. In the last three years, GDP has

grown at a compounded average rate of 3.6% per year, but our

financial transactions volume has risen by an average of 24.6% per

year. GDP in 2009 fell by 0.2%, but our financial volume rose by

21.9%. The comparison of card usage with the means of payment

in Brazil and other emerging and developed countries shows that

our market still has the potential to continue expanding at rates of

higher than national GDP for many years to come.

Interest Rates

In terms of interest rates, the main influence is on financial

investment, as, in our case, these outweigh financial liabilities.

The resources are invested with top-tier financial institutions and

the Company does not get involved with speculative operations.

It is also worth remembering that two of the largest and most

solid banks in the country are among the Company’s indirect

majority shareholders.

Foreign Exchange Rate

Spending by foreigners in Brazil using Visa cards are credited

to the Company by Visa International on the day following the

transaction, and converted from U.S. dollars at the Central Bank’s

purchase rate (PTAX) on the same day. As protection against any

currency oscillations, Cielo takes out forward contracts for its

dollar receivables, converted at the same exchange rate. Outside

these expenses, there are no other significant operations that

could cause any relevant variations in the Company’s results.

.** Note: See Explanatory Note No. 26 c in the Financial Statements.

Note: For information about other risk factors, please see Explanatory Note No. 26 in the Financial Statements in this report.

* Note: For further information on how this risk is mitigated, please see Explanatory Note No. 26b in the Financial Statements..


28

Operating Performance

In this way, the players in the card payment sector in the Brazilian

market can be categorized as shown below:

Brands

The brands establish and administer the general rules used to

organize and operate the card payment system and are the final

guarantors for the financial settlement of the transactions with

the merchants. The brands charge an administration fee for the

provision of services, which is linked to the transactions made at

the affiliated merchants and the acquirers representing its brand.

Characteristics of the activityThe model adopted by the companies operating in the card

payment sector in Brazil is based on association, as the brands,

the acquirers and issuers, each play a specific role, and act in an

integrated manner under the rules established by the brands. In

this model, acquirers, such as Cielo, have a license to use the

brands and are responsible for affiliating merchants, as well as

the capture, transmission, processing and financial settlement of

these card transactions.

BRANDS

BRANDS

CIELO

ACQUIRING BANKS

AFFILIATED MERCHANTS

AFFILIATED MERCHANTS

CARD HOLDERS

CARD HOLDERS

ISSUING BANKS

ISSUING BANKS

IN 1995

FROM 1996


Acquirers

The acquirers, such as Cielo, are responsible for affiliating the

merchants for the capture, transmission, processing and financial

settlement of transactions; and guarantee the settlement if the

issuer falls under Central Bank management/intervention. As a

rule, the acquirers charge an administration fee to the affiliated

merchants for providing the services of capturing, transmitting,

processing and settling the transactions made with credit

and debit cards. In most cases, the administration fee, and/or

merchant discount rate for prepaid receivables, is calculated

based on a percentage negotiated with the merchants based

on the total value of transactions it handles.

The acquirers own the equipment, such as fixed line and mobile

POS terminals. In most cases, the acquirers rent the equipment

to the affiliated merchants, charging a fixed rent based on the

technology of each type of equipment, the business activity

and location of the merchants. Some merchants, such as large

retail stores and supermarkets, have their own equipment for

capturing card transactions.

The acquirers also offer the service of prepayment of receivables

to its affiliated merchants. In these operations, the affiliated

merchants request advance receipt of the transaction value

from the acquirer corresponding to the value made with card

payments prior to the period negotiated and contracted with

each. The affiliated merchants that contract this service pay a

discount rate calculated on the prepaid amount.

The acquirers can also offer affiliated merchants additional

services related to the capture of card transactions, such as,

for example, services linked to Private Label cards made in the

merchant card issuer stores. To use these services, the general

rule is that the merchants pay the acquirers stipulated fees

according to the service provided.

Merchants

Affiliated merchants are the suppliers of goods and services

affiliated with the acquirer to accept credit and debit cards as

means of payment.

Card Holders

The holders of cards issued by the issuers, and the users and/or

consumers of products and services.

Issuers

The issuers concede credit to card holders to use their credit

cards in Brazil and/or abroad and charge for the values spent

by the same. The issuers also assume the credit risk of the

card holders with the acquirers and guarantee payment of the

same. As such, the issuers charge acquirers an interchange

fee that consists of a portion of the merchant discount rate

received from the merchants that is paid to the card issuers as

compensation for the approval of the transactions using cards

of their brand. The interchange fee is generally determined by

the brands according to the type of card used in the transaction

and the business segment the merchant operates in which the

transaction was carried out.

The economic scenarioThe situation at the beginning of 2009 was one in which the

world was still immersed in one of the worst financial crises

since the Great Depression in 1929. Given the enormous loss

of both financial and non-financial wealth in the private sector,

particularly in the more developed countries, the efforts made

by monetary authorities around the globe largely to inject

liquidity into the credit markets were insufficient to reduce

the generalized uncertainty about any return to normality.

This negative scenario affected expectations and led to a

deterioration in the labor markets, reduced investment levels and

a drop in consumption in most economies.

Despite the Country’s solid economic fundamentals before the

crisis, Brazil did not escape the effects of the abrupt reduction

in international credit and the swift declines seen in its export

consumer markets. Data released by the Brazilian Institute of

Geography and Statistics (IBGE) show that GDP in 2009 declined

0.2%, compared with 6.6% annual growth seen in the pre-crisis

period (September of 2008).

30

To contain the domestic impact of the global crisis, the

economic authorities in Brazil opted to ease the decline in

consumption by means of increasing consumer and real estate

lending through the state-controlled banks, reducing taxes on

consumer goods and the base interest rate, largely because

inflation was showing signs of falling as a result of the crisis,

which made room for these stimulus packages.

The credit operations in the financial system rose by

approximately 19% in terms of GDP, and the public financial

institutions contributed with more than 60% of this figure,

according to Central Bank data. In absolute terms, personal

credit in the private sector rose by 16.2% in the same period and

credit from the public sector to housing, 27.5%. At the same time,

government-backed credit to the industrial sector practically

stagnated in the period (+ 0.3%, according to the Central Bank)

and investment, which had been rising at an annual rate of 16.9%

in the third quarter of 2008, ended 2009 down 10.2% (annualized

rate), according to the IBGE.

Within the scope of fiscal incentives, the government reduced or

temporarily eliminated the IPI (Tax on Industrialized Products) on

consumer products — in the case of this tax on the basic models

produced by car manufacturers, for example, the rate of 7%

was reduced temporarily to zero –, as was the Tax on Financial

Operations related to personal loans and the table for Individual

Income Tax was altered to favor taxpayers with rebates/offsetting

estimated at R$ 4.9 billion during 2009.

The Selic rate was lowered from 13.66% per year at the end

of 2008 to 8.65% per year at the end of 2009, while inflation,

as measured by the Broad (Extended) Consumer Price Index

(IPC-A), accumulated 3.9% in 2009, compared with 5.9% in 2008,

according to Central Bank and IBGE data.

As the epicenter of the crisis was in the U.S. economy, the

U.S. dollar depreciated against most other currencies in the

world, including the Brazilian real, losing a quarter of its value

(the U.S. dollar was quoted at R$2,333 in December 2008

compared with R$1,743 in December 2009, having shed 25.3%

of its value). For Brazilian exports, already lower as a result

of the recession in global markets (except China and India,

which merely expanded less), this created additional difficulties

and there was a 22% drop in the value exported, according

to Central Bank data. This reduction in foreign sales even

compromised the trade balance in 2009, as, as a result of the

internalization of the crisis, imports fell by 25% in the year, using

the same criteria, and the trade balance remained at the same

level as in the previous year (US$26.5 billion).

However, the fact that Brazil shrugged off the effects of the

global crisis faster than expected, began to concern the

economic authorities, which foreseeing a recovery in imports

before exports gained any real strength, decided to bolster the

drawback regime, with the exemption of import taxes on raw

materials for export products.

For the sectors with direct ties to consumption, even though

exports performed poorly, domestic sales remained strong.

The auto industry, for example, saw foreign sales fall 40.5%, but

registered a record of 3.14 million vehicles sold in the domestic

market in 2009, 11% higher than in 2008, according to the

National Association of Vehicle Manufacturers (Anfavea).

The Indicator of Economic Activity (INA), measured by the

Federation of Industries in the State of São Paulo (FIESP), and

that shows the level of economic activity in the region, indicated

that, despite the depth of the crisis (the monthly index declined

32.4% between October 2008 and February 2009), the recovery

was swift, and by December 2009 the index was only 4.6%

below the figure reported in December 2008. Nevertheless, in

accumulated annual terms, the drop in economic activity was

11.6% compared with 2008. The INA is largely made up of the

utilization of installed capacity, the average number of hours

worked per employee and real sales in the reference months and

on the margin.

A survey carried out at the end of the year by the Getulio Vargas

Foundation (FGV) on investment plans showed that, after a year

of a significant drop in investment in industry, various important

sectors intend to invest heavily in 2010, which could even

stimulate a faster economic recovery.


Monthly trend in total card numbers – 2009 (million)

J F M A M J J A S O N D

Nº of monthly card transactions – 2009 (million)


Monthly card billing – 2009 (million)

Total cards

Credit cards

Total cards

Credit cards


570

560

550

540

530

520

510

500

700

600

500

400

300

200

100

0

Debit cards

Hybrid (private label) store cards

Debit cards

Hybrid (private label) store cards

Sector scenarioDespite the slightly negative GDP growth, linked more directly to the

drop in industrial production in the export sector, consumption and

retail spending, even with the troubles experienced at the beginning of

the year, ended 2009 expanding sufficiently for the financial credit and

debit card transactions volume to increase by 18% in the period.

According to ABECS, the total number of credit and debit cards

increased by 10% compared with 2008, and the number of card

transactions rose by 15%.

There are various reasons, some structural that justify this

growth. The relatively good performance in the retail sector,

bolstered by the government’s incentive measures for

consumption, is just one example.

Income in the socio-economic classes C and D has been rising

for some time now, which resulted simultaneously in higher

consumption in this category, as well as an increased use of cards as a

means of payment by this segment of the population.

There is also the presence of a secular trend to substitute checks and

cash with credit and debit cards, which is a safer means of payment

and widely accepted throughout the country. This trend is global

in nature, but Brazil still lags behind in terms of electronic payment

methods, and not just the more developed countries, but also the

emerging nations. There is also a more aggressive marketing policy by

participants in the sector that has contributed to increasing the use of

both credit and debit cards.

The charts highlight the monthly growth in the number of card

transactions and financial transaction volume during 2009, and they

show the marked increases seen in the last two months of the year.

In terms of transactions, there was more growth in credit cards

(16%), followed by debit cards (15%) and hybrid and store cards

(14%). In terms of financial transaction volume, the highest

growth was seen in debit cards (20%), followed by credit cards

(19%) and private label cards (12%).

The following table shows the average ticket and spending by

card type, looking at the 2009 average and December alone,

which shows that both variables registered increases in 2009,

and that the growth in these figures was more accentuated at

the end of the year. Only private label cards registered a drop in

average spending per card. In terms of this variable, credit and

debit cards registered significant growth, bearing in mind the

macroeconomic scenario.

50

40

30

20

10

0

Source: ABECS

Source: ABECS

Source: ABECS

32

The brazilian card market – 2009

Sector Data (ABECS)

2009 December 2009

R$ % growth R$ % growth*

Average Ticket:

Total 73 3% 78 5%

Credit 100 3% 112 5%

Debit 53 3% 58 4%

Hybrid and Store 52 0% 53 3%

Average spending per card:

Total 820 6% 92 9%

Credit 1.952 4% 212 12%

Debit 573 12% 69 11%

Private Label 320 -3% 36 -1%

* in relation to December 2008.

+9% Average spending per card in 2009

Cielo’s Operations More than 298,000 merchants were affiliated in 2009, which

represents an increase of 21% over 2008. The number of active

merchants rose by 14%, in both 180 and 60 days. And the

number of POS terminals in use rose by 20%.

The total number of card transactions was 16.1% higher year-

on-year and the financial transaction volume 21.9%. This solid

operating performance is linked to the healthy results in the

card and retail industries, as well as the result of the Company’s

efforts to increase its presence in the market with the launch of

products suited to specific segments.

The following table shows the development of Cielo’s main

operating indicators. Looking at the financial transaction

volume, the highest growth was seen in operations with debit

cards (22.4%) than credit cards (21.5%), although the difference

is small, and debit cards represent 37% of the total volume

compared with 63% for credit cards.

Information Technology To make affiliations and, particularly the operations to capture,

transmit, process and financially settle transactions, the

Company needs to guarantee that its information technology

equipment and systems, networks and datacenters maintain

the continuity of these operations without any interruptions.

Cielo uses cutting edge technology, for booksellers at trade

fairs, shoe shiners and microbusinesses, as well as for the

biggest retail chains. Its operations cover almost 100% of

national territory and, even with the accelerated growth in the

card market during peak shopping times such as Christmas

2009; our network was 100% available, processing almost

2 million transactions in a single hour, an impressive record.

Our POS terminals are increasingly “intelligent service centers”

and are already set up to operate in a multi-brand system.


At the beginning of 2010, Cielo was awarded its Data Security

Standard or DSS certificate by the Payment Card Industry

Council (PCI Council), the most important in the global card

industry. This is a security standard defined by the biggest

international brands, the aim of which is to avoid fraud by

raising the levels of security in the electronic payment methods

industry. In practice, being awarded the PCI DSS signifies more

protection for card holders, affiliated merchants and the issuing

banks; which makes the entire industry even more reliable and

less susceptible to data leaks. To obtain this certification, Cielo

2008 2009 Δ 09/08

Total affiliated merchants (AMs) 1,408 1,706 21%

Active AMs in 180 days 1,055 1,207 14%

Active AMs in 60 days 996 1,133 14%

Total number of POS terminals 1,362 1,630 20%

+21% Base of affiliated merchants

had to fulfill a series of requirements, modify seven sites where

our systems are located and update 11,000 internal processes.

This work took a year and a half to complete and involved

investing in equipment, updating its POS machines available to

merchants (now the most modern in the country), in high-tech

systems and the training of more than three thousand people.

Cielo’s certification was the highest awarded in Latin America

by the PCI Council.

2008 2009 Δ 09/08

Credit and debit cards

Financial transaction volume (R$ million) 175,552 213,958 21.9%

Number of transactions (million) 2,952 3,427 16.1%

Merchant discount rate (bps) 124 124 0

Credit cards



Merchant discount rate (bps) 150 149 -1

Debit cards



Merchant discount rate (bps) 80 81 1

+22% Financial transaction volume

Operating indicators – I(‘000)

Operating indicators – II

34

Economic-Financial Performance

Breakdown of RevenueThe combined revenue from credit card transactions and

equipment rental account for 75% of the Company’s total

revenue. There was an increase in the share of revenue from the

prepayment of receivables, which in 2009 accounted for 5% of

total revenue.

Results

Gross revenue and net operating revenue both rose 25%, in line

with the increase in the financial transactions volume. With the

increase in revenue there was a dilution of fixed costs and the

gross margin rose 3.6 percentage points, from 70.6% to 74.2%.

Of particular note in terms of the reduction in general and

administrative expenses and marketing costs, and included

in operating expenses item was the 28% increase in payroll,

resulting in the structural changes made in the Company, to

prepare it to operate in new market conditions. Also of note is

the development of other operating expenses and revenues,

the positive value of which (revenue) turned into an expense,

affecting the Company’s results with a difference of R$316

million between 2008 and 2009.

.

Credit Cards

Debit Cards

POS Rental

Prepayment of Receivables

Others

2009

50%

16%

26%

5%

3%

Credit Cards

Debit Cards

POS Rental

Others

2008

52%

16%

28%

4%

Results (consolidated – values in R$ million)

Selected items from financial statements 2008 2009 � 09/08

Gross Revenue 3,233 4,036 25%

Net Operating Revenue 2,893 3,628 25%

Gross Income 2,042 2,692 +32%

Operating Expenses: (84) (406) 384%

Payroll/Personnel (96) (122) 28%

General and administrative (162) (147) -9%

Compensation paid to management and executives (10) (8) -16%

Marketing (78) (73) -6%

Other operating revenue (expenses) 262 (55) -

Operating income before financial result 1,958 2,286 17%

Financial Result (Interest earned) 94 45 -52%

Pre-Tax Profit (Income Tax and Social Contribution) 2,052 2,331 14%

Net Income 1,342 1,534 14%

+25% Gross Revenue


On the other hand, the financial result excluding the prepayment

of receivables fell 52% due to the reduction in financial revenue

from cash investments.

As a result, net income rose 14% in 2009 to R$1.5 billion,

producing a basic net earnings per share of R$1.1242 (R$0.9841

in 2008) and a diluted figure of R$1.1237 (R$ 0.9841 in 2008).

Based on this result, dividends totaling R$1.2 billion were paid or

proposed, representing a pay-out (the ratio between dividends

and net profit) of 80%.

The profit reported in 2009 also represents 178% of final

stockholders’ equity (191% in 2008).

Capital StructureThe debt to equity financial ratio between gross debt and

shareholders’ equity is 20%:80% (41%:59% in 2008), although

when considering the ratio between net debt and shareholders’

equity this figure falls to -55%:155% (-480%:580% in 2008).

Maintaining a capital structure with negative indebtedness

is a result of the accumulation of cash during the year to

pay dividends to shareholders in a proportion that has varied

between 47% and 102% (with an average of 79%) of profit in the

last five years (the minimum statutory dividend is 50% of adjusted

net profit).

Financial positionThe liquidity indices remained practically stable in 2009, and

reflect a situation of liquidity and adequate solvency considering

the Company’s activities and objectives. Almost all the current

liabilities are “spontaneous liabilities”, that is to say, non-onerous

obligations arising from operating the business, such as accounts

payable, salaries and dividends.

Capital Structure (as of 12/31/09, consolidated – values in R$ million)

Financial position (as of 12/31/09, consolidated)

Total capital invested (TC) 2008 2009 � 09/08

Shareholders’ equity (SE) 702 860 23%

Gross debt 491 209 -57%

(-) Cash and cash equivalents 1,072 514 -52%

Net debt (ND) (581) (305) -48%

Total capital invested (TC = SE+ND) 121 555 475%

Financial indices 2008 2009 � 09/08

Current Liquidity Ratio 1.26 1.21 -3%

General Liquidity 1.22 1.24 2%

Fixed Assets (Permanent Assets/Equity) 43% 42% -1 pp

InvestmentsA total of R$256 million was invested in 2009, 45% more than in

2008, largely in POS equipment and updating technology.

36

Cash flow Net income has been the main cash generator for the Company.

The Company has used cash to finance its operating activities

and invest in fixed capital, essential in maintaining business

growth, and also to pay dividends and interest on equity. Even

with the net reduction in cash during the period, the Company

ended the year with a cash balance of R$514 million, higher than

that of most companies of its size.

Items selected from cash flow statement 2008 2009 � 09/08

Income before income tax and social contribution 2,052 2,331 14%

Income tax and social contribution paid (732) (715) -2%

Income after income tax and social contribution 1,321 1,616 22%

Depreciation and amortization 150 160 7%

Provision for contingencies 120 141 18%

Gains from sale of investments (503) - -

Other non-cash expenses (revenue) 52 75 43%

Cash Flow from Operating Activity 1,140 1,993 75%

Investment in working capital (244) (1,020) 317%

Investment in fixed capital (177) (256) 45%

Free cash flow * 718 716 0%

Sale of investments 503 - -

Financing lease transactions (1) (0) -37%

Capital increase through share subscription and capital contribution 225 - -

Acquisition of shares to be held in treasury - (69) -

Dividends paid (1,369) (1,205) -12%

Increase (reduction) of cash in the period 77 (558) -

Opening balance 995 1,072 8%

End balance 1,072 514 -52%

Cash flow (consolidated – values in R$ million)

Economic value added during the financial periodThe economic added value represents the wealth generated

by the production and sale of goods and services. It is the

difference between the Company’s gross revenue and the

value paid for the goods and services acquired from third

parties, discounting retentions (depreciation, amortization and

exhaustion/depletion) and added to the added value eventually

received in transfer, such as financial income.

In this context, the value added generated by the Company

increased 10% in 2009, mainly due to the higher contribution

from financial income, which, in principle, represents added

value received in transfer. This amount increased 66% in 2009,

mainly because this item does not include the net revenue

from prepayment of receivables, an activity that became part

of Cielo’s operations and that, for the purposes of comparison

with other industry players should be included as part of “value

added” from the production and sale of services.

* calculated.


2008 2009R$ million % R$ million % � 09/08

Itemization of added value

Revenue sources: 3,221 135% 3,430 131% 6%

Rendering of services, net 2,876 121% 3,445 131% 20%

Loss from the rental of equipment (10) 0% (15) -1% 50%

Other operating revenues 356 15% 399 15% 12%

Inputs purchased from third parties: (872) -37% (942) -36% 8%

Expenditure on services provided (650) -27% (695) -27% 7%

Materials, electric power and outsourced services (202) -8% (198) -8% -2%

Other operating expenses - - 65 2% -

Gains (losses) on realization of assets (21) -1% 15 1% -171%

Gross Value Added 2,349 98% 2,488 95% 6%

Retentions: (135) -6% (151) -6% 12%

Depreciation and amortization (135) -6% (151) -6% 12%

Net added value created 2,214 93% 2,337 89% 6%

Added value received in transfer: 172 7% 285 11% 66%

Financial income (including FX variations) 172 7% 285 11% 66%

Value added to be distributed 2,386 100% 2,622 100% 10%

Distribution of added value

Employees: (153) -6% (193) -7% 26%

Personnel (134) -6% (164) -6% 22%

Profit sharing (19) -1% (29) -1% 53%

Government: (769) -32% (827) -32% 8%

Taxes and contributions (769) -32% (827) -32% 8%

Third parties: (70) -3% (68) -3% -3%

Accrued interest and rent (70) -3% (68) -3% -3%

Shareholders: (1,563) -66% (1,534) -59% -2%

Legal reserve (169) -7% - - -

Dividends paid (851) -36% (662) -25% -22%

Proposed dividends (543) -23% (105) -4% -81%

Retained earnings - - (767) -29% -

Value Added distributed (2,386) -100% (2,622) -100% 10%

Shareholders

Government

Employees

Third Parties

58

32

7

3

Distribution of value added in 2009Value Added = R$2.6 billion (consolidated)

The value added to be distributed totaled R$2.6 billion in 2009, and

shareholders in the Company were the main beneficiaries of this

distribution, in the form of dividends, interest on equity and retained

earnings, totaling 58%, followed by the government (federal, state

and municipal), in the form of taxes collected, with 32%, employees,

in the form of salaries, payroll charges and profit sharing, with 7%,

and third parties, in the form of interest and rent, with 3%.

The importance of the Company for economic activities and

the society as a whole can be evaluated by the relative amount

of wealth generated, of more than three times the value of

stockholder equity and more than 88% of total assets.

.

Value added statement (consolidated)

38

Operate on a large scale in a multiplicity of territories,

meeting the demands of businesses of all sizes, in

any economic sector or location. Having 360-degree

vision to capture movements and identify trends. Fully

live and understand the market diversity and, with this

information, build a singular range of products and

services that back up the delivery of appropriate services

and solutions.

Provide Full Coverage


40

The Capital Markets

Initial Public Offering (IPO)On June 29, 2009, Cielo (the then VisaNet) made its initial public

share offering (IPO) in a secondary placement in which the

selling shareholders were the institutions: Columbus Holdings

S.A. (Bradesco), BB Banco de Investimento S.A. (Banco do Brasil),

Banco Santander S.A., Santander Investimentos em Participações

S.A., Visa International Service Association, bankrupt estate of

Banco Santos S.A., HSBC Bank Brasil S.A. – Banco Múltiplo,

Panamericano Administradora de Cartões de Crédito Ltda., Banco

Fininvest S.A., Bemge Administradora de Cartões de Crédito

Ltda., Banestado Administradora de Cartões de Crédito Ltda.,

Banco Itaubank S.A., Unicard Banco Múltiplo S.A., Cartão BRB S.A.,

Financeira Alfa S.A. Crédito, Financiamento e Investimento and

Banco Rural S.A..

Cielo’s shares started trading at R$15.00, on the BM&Fbovespa’s

Novo Mercado, initially under ticker VNET3 and, as from

December 18, 2009, under ticker CIEL3. The Company’s shares

are included in the notional portfolio for the Special Corporate

Governance Stock Index (IGC), the Special Tag Along Stock Index

(ITAG), the Financial Index (IFNC), the Bovespa Index (Ibovespa),

the Brazil Index 50 (IBrx-50) and the Brazil Index (IBrx) (portfolio

valid for the four months between May/10–August/10). Of the total

1,364.8 million shares making up its capital stock, 578.4 million are

in free float, representing approximately 42%.

Share Price PerformanceIn the five months since the first day of trading to December 30,

2009, shares in Cielo were traded in 100% of the floor trading

sessions, and the traded volume in the period between July to

December 2009 reached 1.1 billion CIEL3 shares, in 841,800

trades, with an average daily trading volume of R$ 147.7 million

(1.7% of free float capitalization). Taking a base as the IPO issue

price of R$15.00, shares appreciated 2.3% in the little more

than five months of trading in 2009 (+3.8% including dividend

payments), compared with the Bovespa Index gain of 31.5%.

On December 30, 2009, the Company’s market value was

R$20.9 billion, with a market value of outstanding shares of R$8.8

billion. Other indicators are shown in the following table.

70

80

90

100

110

120

130

140

29

/06

06

/07

13/0

7

20

/07

27/

07

03/

08

10/0

8

17/0

8

27/

08

31/0

8

07/

09

14/0

9

21/

09

28

/09

05

/10

12/1

0

19/1

0

26

/10

02

/11

09

/11

16/1

1

23/

11

30/1

1

07/

12

14/1

2

21/

12

28

/12

CIEL3 x IbovespaIndex: base 100 = 06/29/09

(share prices adjusted for dividend payments)

3,8%

31,5%

CIEL3 The Bovespa Index (Ibovespa)


Share Repurchase (Buyback)With the aim of fulfilling the demand for the options exercised

as granted in the Stock Option Plan offered to its managers

and executives, a Share Buyback Program was approved at a

Board meeting on November 23, 2009, of shares issued by

the Company. The Program, lasting 180 days, allowed for the

acquisition of a maximum of six million ordinary shares. The

brokers authorized to act as intermediaries in the share buyback

were Bradesco S.A. CTVM and Votorantim CTVM Ltda.

The Program closed on May 21, 2010 and a total of 4,720,300

ordinary shares were purchased at an average price of R$15.55/share.

Investor Relations Cielo adopts “Policies for Information Disclosure and Trading of

Securities” and follows a “Code of Ethics” that establishes norms of

conduct in relationships with all interested parties, which includes

shareholders and investors.

To form closer relationships with the same, we created an area

of Investor Relations (IR), with the objective of total transparency

and preserving the fairness in disclosure of information to the

capital markets. The IR area has a site on the Internet at:

www.cielo.com.br/ri, with constantly updated information, and

its team can be accessed by means of the electronic email

address: [email protected] to answer questions and provide

information to analysts, investors and all interested parties.

Cielo’s Investor Relations area holds meetings with market analysts

and investors, as well as taking part in national and international

teleconferences releasing results. The IR department periodically

holds public meetings with the Association of Capital Markets

Analysts and Investment Professionals in São Paulo (APIMEC-SP),

the last of which was held in November 2009. Cielo is currently

covered by 19 local and international brokers.

Price on 30/12/2009 (R$) 15.34

Net income in 2009 (R$ million) 1,534

Total number of share capital on 30/12/2009 (million) 1,365

Earnings per share in 2009 (R$) 1.12

Historic Price/Earnings (P/E) on 30/12/2009 13.7

Market Value on 30/12/2009 (R$ million) 20,939

(+) Value of net debt on 30/12/2009 (305)

Net Value of the company on 30/12/2009 20,634

Adjusted EBITDA earned during 2009 (R$ million) 2,451

Historic enterprise value/EBITDA (EV/EBITDA) on 30/12/2009 8.4

Capital Markets

42

Dividends and Interest on Equity (IOE)

Period Type Date of payment. Value per share (R$) Total value (R$ ‘000)

2006 Dividends 04/28/2006 19.5811 263,921

Dividends 08/30/2006 24.3736 328,851

2007 Dividends 04/18/2007 23.9750 323,473

Dividends 08/31/2007 0.5576 376,181

2008 Dividends 05/05/2008 0.7400 508,670

Dividends 05/05/2008 0.4800 331,909

Dividends 08/29/2008 0.7600 528,061

2009 Dividends 02/27/2009 0.3978 542,984

Dividends 06/22/2009 0.2441 333,199

Dividends 08/31/2009 0.2406 328,332

2010 Dividends 03/31/2010 0.5213 709,142

IOE 03/31/2010 0.0072 9,741

Dividend Distribution PolicyThe Company’s Bylaws stipulate a minimum dividend

distribution of 50% of adjusted net income. However, the

Company has historically adopted a policy to distribute

dividends and interest on equity equivalent to 80%-90% of net

income (unadjusted), whenever there is the cash available and

the financial balance is preserved.

From 2010, the dividends and/or interest on equity will be paid

every six months in March and September, based on the results

reported in the second half of the previous year and the first half

of the current year, respectively.

ADR ProgramAt a meeting of the Board of Directors held on December

22, 2009, the launching of a Level I American Depositary

Receipts (ADR) program was approved for trading on the

U.S. Over the Counter (OTC) market, as was the hiring of

Deutsche Bank Trust Company Americas as our depository

bank. Each ADR is equivalent to one ordinary share and is

traded under ticker CIOXY.

The program did not represent an increase in share capital or

the issuance of any new shares and was designed to provide the

potential advantages of increased share liquidity, the increased

external visibility of the Company, with the possibilities associated

with an appreciation in share prices.

At the beginning of 2010, Cielo received approval to trade its

ADRs from Brazil’s Securities and Exchange Commission (CVM)

and the U.S. Securities and Exchange Commission (SEC) and

more than 3.1 million ADRs were issued in the first quarter of

2010 for trading on the OTC market in the U.S.


Intangibles

Cielo booked a total for intangible assets of US$41 million (as of

December 2009), most related to the licenses to use software

it owns. However, the truly relevant intangible assets are not

booked, although they should undoubtedly be included in the

Company’s value in any evaluation.

A value that is evident to all is Cielo’s market penetration, which

has guaranteed its position as the leading acquirer in the credit

and debit card sector in Brazil, with a geographical coverage of

97.6% in Brazilian national territory and penetration in almost all

the segments of economic activity that sell products or services.

To earn this market leadership, Cielo has developed vast

knowledge and expertise in its activities as an acquirer, which is

recognized, not just in Brazil, but also internationally, as it was

chosen by Visa International as a model in several projects.

To acquire this knowledge and expertise, it was necessary to train

and qualify professionals and create and stimulate a favorable

culture and organizational environment to development, a culture

that “gives life” to the corporate values and, at the same time

depends on teams, independent of individuals skills and talents.

To maintain its leading market position, Cielo needs to offer

reliability in its network system and availability close to 100%,

which has already been proved in practice, with the record set

in transactions processed at Christmas 2009.

To reach this position, a great deal of creative work and innovation

was required to model the construction of a technological

platform with state-of-the-art systems. Innovation is also the key to

developing products that add value for the Company’s clients and

increase their revenue sources.

To prepare for the future and the biggest IPO on the Brazilian

stock market, Cielo built on its already strong model of corporate

governance and streamlined its ethical values, which provide more

security for shareholders and management. It is now a publicly-held

company, with shares listed and traded on the BM&FBovespa’s

Novo Mercado.

And, finally, when looking ahead to the future, Cielo still sees a

market with huge growth potential, which positively combines

different favorable factors and causes, even when the general

economic outlook is bleak, as was the case at the beginning

of 2009, a year in which national GDP declined 0.2% but the

number of cards in use rose by 10%, the financial transaction

volume in the market went up 18%, and the Company’s figure for

financial transactions increased 22%.

.

44

Social-Environmental Performance

With the creation of its Sustainability Management team,

years ago, we opened the now permanent dialogue with our

diverse public groups, and which has become fundamental in

formulating our business strategy. We believe that it is through

this dialogue that we define the quality of the relationships

established by the Company.

By constantly recognizing the different interests of the public

groups it interacts with was the way in which Cielo has dealt with

the aspects of sustainability related to its business.

This exercise, together with the Company’s strategic positioning,

enables the adequate management of social-environmental

impacts of its operations. As these are complex, we understand

the need to find solutions together with our various stakeholders.

In addition, we recognize the importance that the questions

related to sustainability, which are complex and systemic in nature,

and how they permeate throughout the day-to-day running of

the business, and are integrated in a dynamic and continuously

changing scenario – as new questions are always raised.

This understanding has allowed the Company to commit to a way

of operating that is based on taking advantage of new business

opportunities that can contribute to the generation of wealth and,

at the same time, contribute to key social transformations.

By believing in the diversity and plurality of Brazil, Cielo has a

presence in almost all national territory; and has been increasing

the number of transactions processed and merchants affiliated

to its network every year, thus constantly contributing to the

country’s economic development, with a combination of cutting-

edge technology, credibility and security offered to its clients.

In partnerships with governmental and non-governmental

organizations, the Company invests in social initiatives as it

believes that it is possible to contribute to an effective change in

the country’s social structure through education and culture.

Relationships with Clients and ConsumersAt the end of 2009, Cielo had a portfolio of 1,133,000 active clients,

up 14% over 2008.

We have always sought to act transparently with our clients and

consumers. One of our main concerns is being able to answer

any questions about the products and services we offer, and

for this reason we are continuously improving the channels of

communication with these public groups.

Using surveys to determine the levels of satisfaction, we

identified that the affiliated merchants expect the use of Visa

cards by consumers to contribute to increasing their sales and

revenue volumes, reduce the delinquency level and allow them

to receive their payments quickly and safely. We also identified

that these merchants, by considering the use of cards by end

consumers an attractive proposition in the market, also believe

that it is important that Cielo invests even more in its relationship

and marketing initiatives.

Communication about Products and Services

None of the products or services sold by the Company is banned

in any market. However, there are affiliated merchants that question

the fees charged for the service and that demand POS equipment

that can be capture all the different card brands.

Number of active clients – Cielo

2006

2007

2008

2009

672

824

996

1.133


Internally, there is a defined line of communication with the

aim of identifying the characteristics of diversity and coverage

in the business. Externally, the Company communicates with

the media through its press relations office, and releases any

necessary announcements related to commerce or specific

topics, generally in widely read newspapers, but also in media

vehicles directed to specific public groups.

We have been involved in discussions with various different

stakeholders, taking part in debates and meetings through ABECS,

the industry association, at which we are represented by our CEO,

who also holds a position as a director of this entity.

Communication Channels with Clients and Consumers

To best serve the needs and different demands of our clients,

we maintain and monitor three communication channels: the

Authorization Center, the Service Center and the Help Desk Center.

The Authorization Center is responsible for authorizing non-

electronic sales, either in a single payment or in installments. The

Service Center is responsible for answering questions, providing

information, suggestions and dealing with complaints. The Help

Desk deals with requests related to technical maintenance and

questions about operating the terminals.

There is also the Ombudsman service, designed to intermediate

in dialogues with Cielo’s clients and thus guarantee a closer and

more transparent relationship with them. This service has been

of particular use in cases in which the client, for one reason or

another, failed to get an answer or solution to the problem they

were faced with. The channel works with the entire network

of affiliated merchants and is also one of the areas responsible

for making suggestions to improve the Company’s internal

processes, thus contributing to ensuring the excellence of the

products and/or services offered to our clients.

Among the practices related to client satisfaction, we have

carried out an annual survey with affiliated merchants since 1999.

This survey is carried out by those responsible for the affiliated

merchants that operate using products and services offered by the

Company, and selected randomly in a draw. The main objectives

of the survey are:

• Evaluate the services provided by Cielo;

• Evaluate Cielo’s image compared with its main competitors;

• Evaluate the satisfaction of the affiliated merchants related to

Cielo’s services and the competition (benchmarking);

• Measure the correlation between the attributes with

general satisfaction;

• Draw up maps as to how these attributes are perceived;

• Make comparative evaluations;

• Identify the Company’s strong and weak points (formerly

VisaNet and Cielo) as well as those of its competitors; and

• Identify threats and opportunities.

Based on the survey results, the areas involved prepare a plan of

action for the following year.

Relationship with EmployeesWe try to satisfy the needs of our employees by creating internal

opportunities for their professional development, offering

training, continued education, opportunities to advance their

careers based on merit and achievements in a healthy and safe

work environment. The benefits that the Company provides

its employees are in line with the best and most advanced

companies in the market, which has contributed to maintaining

it for nine years in a the ranking of the “150 Best Companies to

Work for”, as published by Exame magazine.

Most of the effort made in 2009, with the aim of preparing the

Company for the new and more competitive scenario after July

1st, 2010, was concentrated in the preparation and strengthening

of our team and elements of our organizational culture.

46


The main issues dealt with in the following topics describe the

Company’s ongoing relationship with its employees.

Compensation and Benefits Policy

The compensation policy used at Cielo was drawn up based on

Hay’s methodology. There are defined rules for the minimum

and maximum values for salaries paid for specified jobs, thus

avoiding there being any distinction in terms of color, race,

gender etc.

With the aim of increasing productivity and increasing

efficiency, the Company has a variable compensation policy

that includes a bonus and profit sharing as well as campaigns

offering sales incentives to employees in the Commercial and

Marketing departments.

The Company and its employees signed a profit-sharing

agreement (PLR), based on its target plan. The payment is made

on an annual basis and the amount paid out in the form of

profit sharing in results during 2009 was equivalent to 9.7% of

payroll in 2008.

Benefits

The following benefits are offered to all the Company’s

employees: a health plan, dental plan, meal voucher, private

pension plan, life insurance, and collective transport in a

chartered bus, subsidy for parking and personal loans. Beside

these benefits, there is a range of others offered to each

category according to the job position, such as assistance with

toll fees and fuel or a company car.

Pension Plan

Cielo offers all its employees a defined contribution private

pension plan (PGBL), or the value paid on retirement depends on

the contribution made during the period the individual works for

the Company, which makes the total balance. The employee’s

participation is voluntary and 13 contributions are made every year

(and the contribution in December is doubled).

According to the rules of the plan, the employee’s contribution

is 2% of their salary, limited to 15 UPVs; and a percentage of up

to 7.8% on any additional value, depending on the employee’s

choice. The employee can also contribute to a voluntary account

to a maximum percentage of 12% of their base salary, which

is added to the contributions made to their plan, although this

contribution does not have to be matched by the Company.

The Company’s contribution varies according to the employee’s

age: up to 40 the contribution is equal to the employee’s;

between 41 and 50, one and half times, and twice the value of the

contribution for employees over 50.

Retirement is normally taken at 60, with a minimum of 10 years

working for the Company and five making contributions; early

retirement is at 55, with a minimum of 10 years working for the

Company and five making contributions; and cases of death

and inability to work for most reasons are covered for a year by

the Company.

Furthermore, employees over 40 and with 10 years at the Company

have the option of Vesting, a proportional deferred benefit, which

allows employees that leave the Company after making at least

there years of contributions to the plan, can remain in the plan as

a Linked Participant, until they have the right to retire, with all rights

related to redemption and portability ensured.

The obligations for pension payments related to the retirement

plan are covered by resources in a fund reserved and maintained

separate from any other of the Organization’s resources. The

entities that have assumed the risks for paying benefits are

Bradesco Previdência, RealPrev and BrasilPrev.

Unions, Freedom of Association

and Collective Negotiations

Cielo guarantees its employees the right to freely associate

with the trade unions that represent them, and has adopted all

the pertinent collective labor conventions negotiated between

the Employers’ and Employees’ Unions. In the negotiations

related to the Collective Agreement for Profit Sharing, a group

of employees is indicated to establish the criteria and salary

multiples with Cielo, before final approval by the Union.

48

Due to the fact that the Company’s operations are dispersed

throughout Brazil, its employees are represented by 28 unions,

and all are union members. Cielo believes in a productive and

harmonious relationship with these entities, and this has proven

to be successful as a result of the absence, throughout its

history, of strikes, work stoppages, protests or any other form of

interruption to the work done by its employees.

Stock Option Plan

We have had a stock option plan for management and

employees with exceptional track records since September

2008. The plan is valid for 10 years from the first day it was

granted and can be cancelled at any time in a decision taken by

the Board of Directors at an AGM. The plan is managed by the

Board, which accepts recommendations from the Committee

for Remuneration (Compensation) and Benefits.

The Board of Directors can establish stock option programs for

shares issued by the Company up to a limit of 2% of total share

capital, and 0.3% of the same per year, adding to this calculation

all the options granted under the terms of the Plan, exercised or

not, except those that are now extinct and no longer exercisable.

The options granted are personal and not transferable. It is

up to the Board of Directors to approve the exercise price for

the options, respecting a minimum price equivalent to the

Company’s average share price during a number of floor trading

sessions on the BM&FBOVESPA as established by the Board of

Directors, and ratified at the subsequent AGM. Exceptionally, the

first shares have been granted under this plan at an exercise price

equivalent to 75% of the current share price.

In the case of exercising the option to purchase shares, the

Board of Directors should approve the issue of new stock,

within the limit of authorized nominal capital or authorize the

sale of shares held in treasury. If the share purchase option is

exercised through the issuance of new capital stock, there will

be an increase in the Company’s share capital, and shareholders

will not have any preemptive rights to subscribe to these shares,

as determined in Brazilian Corporate Law and the Company’s

Bylaws, and thus their respective shareholdings will be diluted.

Training and Development

We seek to encourage the professional and personal growth of

our employees, motivating and supporting them to improve their

skills and offering opportunities and mobility that represent real

career development chances.

In the annual forums held for this purpose, we discuss in a

group with our employees, the main development actions to

be taken in this area and career possibilities or relocation in the

short-to-medium term. This process favors career planning and

succession as well as the adequate management of resources

earmarked for training and professional development.

The following table shows the investment made in training and

professional development in 2009 and the projected figures for 2010.

The following training programs offered

in 2009 are of particular note:

• Program for Leadership Development;

• Program for Applied Finance in the Commercial Area;

• Program for Team Building; and

• Program for Formal Education.

A total of R$900,000 was also invested in educational subsidies

involving 220 employees.

Health and Safety

There is an Internal Committee for the Prevention of Accidents

(CIPA), set up to help monitor and advice employees’

occupational health and safety programs. A percentage of 1.61%

of the work force is represented in this Committee, with this

figure referring to the Company’s headquarters.

The Company does not have any other formal committees for

health and safety as jointly represented by management and

employees, but the formal organizational structure includes a

specialist in safety at work, and who manages the occupational

health and safety programs, together with the Company’s

medical services (Doctor and nurse at work).


Survey of the work environment – Cielo% of adhesion

84

94

97

88

95

Survey of the work environment – Cielo % favorable

2005

2006

2007

2008

2009

79

81

80

76

78

Type Nº of participants

Graduate courses 31

Languages 43

MBA 23

Post-graduate studies and specialization courses 123

Total 220

R$900,000 Was invested in educational subsidies for 220 employees.

Educational subsidies

Investment in 2009 R$ 3,500,000

Specific technical training R$ 819,000

Corporate training and programs R$ 1,100,000

Continued education R$ 900,000

Infrastructure R$ 714,000

Projected investment in 2010 R$ 5,400,000

Investment in training and professional development R$5,400,000

Projected investment in 2010

The area of Occupational Health and Safety maintains

programs designed to inform, remove and mitigate the risks

of accidents, promoting health, well-being and a better quality

of life for employees. Among these is the Internal Week for

the Prevention of Accidents at Work (SIPAT), the Program for

the Prevention of Environmental Risks (PPRA), the Program

for Medical Control of Occupational Health, the Anti-Smoking

Program, and the Mobile Medical Health Center programs that

provide nutritional, psychological and occupational medical

advice, among others. In addition, Cielo maintains programs

related to education, training, prevention and control related to

the risk of serious diseases. During the year, one-off activities

were also developed linked to health, safety and leisure, such as

events, lectures and campaigns.

The Company also conducts a survey related to the work

environment every year, and which has been well received and

accepted, showing rising percentages in favor, as shown in the

following charts, which also show the increase in both in 2009.

2005

2006

2007

2008

2009

50

Workforce

We ended 2009 with a total of 1,089 employees, 28 fewer than

at the end of 2008. At the end of the first quarter in 2010, this

number was 1,047. The average age of our employees is 36 and

41% of the workforce is female.

Cielo is an executive member of the Permanent Forum of

Companies Working for the Economic Inclusion of Individuals

with Impairments together with Editora Abril, PwC, Vivo, HP,

Serasa and Schering. The technical coordination of this Forum

is carried out by the Paradigma Institute, and the executive

coordination by the Federation of Industries in São Paulo State

(FIESP). The objective of this Forum is to contribute to the

inclusion of persons with any kind of impairment in the labor

market, by means of holding seminars and publishing the best

practices related to this issue.

Relationships with Suppliers and Partners The traditional criteria of cost, quality and delivery terms/

schedules are used to select and evaluate our suppliers. However,

we prioritize the supply of products from national companies

and, moreover, we believe that having a solid basis for building

conditions to face questions related to sustainability associated

with the respective business, and the interests of the Company’s

diverse interest groups, is only possible by building successful

partnerships. As such, we have made every effort to establish

a complete operating agenda together with our suppliers that

expands the potential for these companies to contribute to the

development of a business environment that incorporates the

main principles of sustainability.

Relationship with Society

Human Rights

To guarantee the integration of commercial interests with the

broader interests of society, we first implemented our corporate

Code of Conduct in 2004, which became known as the Code of

Ethics when it was updated in 2009.

The Code of Ethics establishes the Company’s position against

the use of forced and child labor and its commitment to

monitoring and reporting situations that potentially involve:

• Coercion, punishments under any pretext, degrading

disciplinary measures or punishment for exercising any

fundamental right;

• Irregular work by adolescents of younger than 16, except as

apprentices, who can be trained from the age of 14;

• Inadequate work conditions and the training of adolescents

between 16 to 18;

• Any form of discrimination or attempt to threaten or remove

the fundamental rights of children and adolescents; and

• Other issues related to human rights and human relationships

at work.

ETHICS in all relationships


Private Social Investment

Although we do not formally evaluate the impacts of the

Company’s operations on the local communities where it has a

presence, we seek to invest in social and cultural projects that

contribute effectively to the social transformation of the country.

These investments are mainly made using the fiscal incentive

laws, such as Lei Rouanet and the Fundo da Infância e do

Adolescente (FIA) in cultural projects of an educational nature,

and the resources through FIA got to councils set up to defend

the rights of children and adolescents in the cities surrounding

the headquarters and to children’s hospitals. The criteria for

selecting projects are based on:

• The benefit obtained versus the investment made;

• Regionalization;

• Social Inclusion; and

• Diversification of race, culture and gender.

The social investment in 2009 was made under the VisaNet

brand, given that the change in the Company’s name was only

officially made in December 2009. Of particular note among

these investments were:

Circulating Libraries on the Metro – The implementation

and maintenance of circulating libraries at subway stops with

significant volumes of passengers; where books can be taken

out by anyone and read for free (www.brasilleitor.org.br).

Projeto Muda Mundo (Change the World Project) –

Comprises publishing a four children‘s books series, directed at

students from the 1st to 4th grades, presenting concepts and

fundamental values in developing critical citizens committed to

the social transformation. An additional book is also published

designed as a work guide for teachers using these four books in

the classroom (www.mudamundo.com.br).

Ateliê de Gravura (Engraving Atelier Project) – Engraving

courses for NGO educators, arts teachers from the public

education network, and introductory courses for training young

engraving technicians, in partnership with Instituto Tomie Ohtake

(Tomie Ohtake Institute) (www.institutotomieohtake.org.br).

Unicirco – Is an investment in the form of jointly sponsored

project designed to qualify a new generation of technicians and

circus artists, discovering new talent, future stars, thus socially

contributing to the professional, educational, artistic and cultural

development in the community surrounding the Hopi Hari

theme park located in the municipality of Vinhedo, in São Paulo

state. Led by the actor, Marcos Frota, the Project encourages

the socio-cultural training of youngsters from low-income

families from the cities in the region. UniCirco provides classes

for children and adolescents to help them develop their skills

through having fun learning about art and education in a way

that shows them their potential and allows them to hone their

skills, giving them a better chance to lead a more productive life

(www.unicirco.com.br).

Dorina Nowill – Investment in the publishing of books for the

blind through the Dorina Nowill Foundation. Books are published

in Braille, as well as in Spoken and Digital form for distribution by

the Dorina Foundation to libraries registered with the Institution.

(www.fundacaodorina.org.br).

Ler é uma Viagem (Reading is a Trip Project) – Consisting

in reading and distribution of children‘s texts written by Hans

Christian Andersen in 10 schools in six cities in São Paulo state

accompanied by musicians who present a soundtrack for every

story. Besides the books distributed to the children, books for

teachers were also distributed, with pedagogical proposals for

the texts application (www.lereumaviagem.com.br).

The International Literary Festival in Paraty (FLIP) — FLIP is

an annual literary festival that is attended by world renowned

authors. Casa Azul, a civil society organization for public interests

(OSCIP) that works in the Paraty region, Rio de Janeiro state, is

responsible for FLIP as well as the Educational Program ‘Cirandas

de Paraty’, that operates throughout the year together with local

schools and pedagogical institutions, encouraging qualification

through teaching by means of setting up reading groups,

qualifying teachers and reading mediators, setting up libraries,

organizing literary and artistic workshops, among other activities.

The work done by children during the year is condensed and

exhibited to the general public during Flipinha, the children’s

program at FLIP (www.flip.org.br).

in all relationships

52

Projeto Arrebol (Afterglow Project) – In partnership with

Colégio Santo Américo (Santo Américo College) São Paulo

(SP) teaching music to young low-income residents in

neighborhoods located around the school, such as Paraisópolis,

Jardim Colombo, and Vila Morse.

The Museum of Football — Cielo is one of the sponsors of the

Museum of Football, located in Pacaembu stadium in São Paulo.

The Museum was originally conceived and designed by the Roberto

Marinho Foundation and the Municipal Council in São Paulo.

Some sponsorship investments were made in the following

projects or events:

• The Rio de Janeiro Book Fair – Bienal do Rio de Janeiro;

• The Ribeirão Preto Book Fair – Feira do Livro de Ribeirão Preto;

• The Children’s Library at the Pequeno Príncipe Hospital in

Curitiba;

• “We all have our problems – Cada um com seus Problemas” –

theater play;

• Grupo Corpo – Breu – presentation by a dance group.

Cielo also invests in Funds for children and Adolescents as established

in the Statute for Children and Adolescents (Law nº 8,069/1990),

which makes funds available for various institutions, including:

• Hospital Pequeno Príncipe (Curitiba – PR);

• Hospital Boldrini (Campinas – SP);

• CMDCA (Municipal Council for the Defense of Children and

Adolescents) (Carapicuíba – SP);

• CMDCA (Barueri – SP);

• CMDCA (Pirapora do Bom Jesus – SP);

• Community Action (São Paulo – SP).

The Ayrton Senna Institute is also supported by Cielo, with cash

donations with no related fiscal benefits.

Environmental Impacts and Mitigating Measures Although the Company does not actually operate directly in

activities that have a significant environmental impact, the

companies in the sector are part of a complex business chain.

A fragmented vision of the activities of each of its components

does not provide an adequate base to understand the economic

activities and their effects on the environment, particularly when

seeking to make this relationship more harmonious.

Our vision of corporate sustainability and responsibility is based

on building shared solutions. As such, we have made every

effort to develop actions, together with other agents in our

business chain, designed to adequately monitor and manage the

environmental impacts arising from our operations.

The Use of Materials and the Generation

and Disposal of Waste

Several measures have been taken over the years related to the

use and reuse of materials, and notably the utilization of almost

100% recycled paper for the printing of documents.

The total volume of waste generated has fallen over the past few

years, according to the monitoring made using cargo manifests

issued by the outsourced service provider in this area (American

Trash), and which is responsible for the collection of the same.

In terms of the destination, between 11% and 18% of total non-

hazardous waste is sent for recycling and the remainder to

sanitary landfills. Included in the hazardous category is medical

waste, although no monitoring of the weight or volume of

disposal made is available for this category.


Electricity Consumption

From 2006, when the latest in efficient electricity generators were

used at peak business hours (from 17h25 to 20h35) to reduce

the costs of energy consumption, there has been an increase in

the use of fuel oil. From that time, with the implementation of

measures to reduce the overall consumption of electricity, we

have lowered the per capita consumption of this type of energy

and stabilized the total consumption of fuel oil.

Water Consumption

The consumption of water at the Alphaville unit increased to

2008 as a result of the rising number of employees at Cielo, a

reflex of the Company’s expansion, but this fell in 2009, as, since

then, Cielo has been adopting all possible means to reduce the

consumption of basic inputs such as water, paper and plastics.

Environmental Impacts of

Transporting Products and Materials

The operating activity in the logistics area at Cielo is fully

outsourced. The Company’s logistics partners carry out several

activities that involve the transport of goods, such as: the installation,

exchange and removal of POS terminals, altering and modifying

technology, the delivery of supplies and taking part in trade fairs and

events. Furthermore, the POS terminals are transported from the

Distribution Centers in Barueri and Atibaia to the laboratories, the

forward bases and various other locations in Brazil. Approximately

200,000 service orders are handled every month.

The two biggest impacts seen in these processes are the emission

of greenhouse gases and the impact on traffic due to the additional

volume of vehicles on the streets in the Company’s service.

With the aim of reducing the number of vehicle trips, a call system

was implemented involving making a service call to schedule the

removal of POS equipment from the merchant.

The Environmental Impacts of Transporting Employees

Cielo offers collective transport for its employees on a chartered

coach. This service mainly consumes diesel, and the mileage

involved totals approximately 452,000 kilometers/year to transport

approximately 500 employees/day. Besides the ongoing dialogue

with the coach companies, there are no initiatives in place to

reduce the environmental impact caused by offering this service,

or in relation to reducing the consumption of fossil fuels.

Initiatives to Mitigate Environmental Impacts

Certain initiatives have been taken over the last five years with

the aim of mitigating the environmental impacts provoked by the

Company’s operating processes. One of these initiatives was to

talk to its logistics service providers, in an attempt to minimize

the social-environmental impacts generated by Cielo’s demands.

Among the environmental issues of note discussed were:

• Minimizing the emissions resulting from logistics activities;

• The management of waste produced by the use of materials

and packaging in logistic activities; and

• The management and adequate disposal of waste produced in

the activities of equipment maintenance.

In addition, the acoustic soundproofing in the generator houses

was redone, which lowered the noise levels generated by the

use of this equipment. In relation to other impacts, such as

the use of materials, water, emissions, effluents and waste, no

specific initiatives have been taken.

54

taking on commitments that have a positive impact on

its surroundings and carrying out initiatives that promote

sustainable social development. Contributing to and

celebrating business success. Offering the right amount

of support. Understanding the needs and being ready to

provide doable, aligned and creative responses.

Getting Involved

Cielo56

ASSETS Note 2009 2008 01.01.08

CURRENT ASSETS

Cash and cash equivalents 6 514,280 1,072,157 995,224

Trade accounts receivable 7 1,178,784 162,943 14,703

Receivables from subsidiary – 177 –

Prepaid and recoverable taxes 2,503 1,219 877

Other receivables 18,448 4,941 6,674

Receivables – securitization abroad 8 163,850 207,979 149,119

Prepaid interest – securitization abroad 8 2,914 6,341 6,544

Prepaid expenses 5,896 4,488 1,950

Total current assets 1,886,675 1,460,245 1,175,091

NONCURRENT ASSETS

Long-term assets:

Receivables – securitization abroad 8 42,445 277,000 367,516

Deferred income tax and social contribution 9 222,000 169,398 156,763

Escrow deposits 18 455,292 323,073 221,687

Other receivables 1,597 1,703 249

Property, plant and equipment 10 296,121 213,295 210,483

Intangible assets 12 41,284 69,841 43,813

Goodwill 11 22,198 17,795 41,157

Other investments 214 174 288

Total noncurrent assets 1,081,151 1,072,279 1,041,956

TOTAL ASSETS 2,967,826 2,532,524 2,217,047

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)

Financial Statements 2009 57

LIABILITIES AND SHAREHOLDERS’ EQUITY Note 2009 2008 01.01.08

CURRENT LIABILITIES

Financing – lease transactions - 401 1,034

Payables to merchants 14 667,522 487,628 437,487

Trade accounts payable 15 116,443 96,604 85,595

Taxes payable 16 416,945 275,066 227,803

Payables to joint ventures - 20,766 -

Reserve for contingencies - - 2,520

Payables – securitization abroad 19 163,911 207,943 148,941

Interest received in advance – securitization abroad 19 2,914 6,341 6,544

Dividends payable 20 105,365 – –

Other payables 17 80,041 66,526 98,632

Total current liabilities 1,553,141 1,161,275 1,008,556

NONCURRENT LIABILITIES

Payables – securitization abroad 19 42,445 277,000 367,516

Reserve for contingencies 18 511,578 391,463 282,46

Other payables 17 233 740 868

Total noncurrent liabilities 554,256 669,203 650,844

Reserve for contingencies 18 511,578 391,463 282,460

Other payables 17 233 740 868


SHAREHOLDERS' EQUITY

Capital 20 75,379 75,379 74,534

Capital reserve 20 72,305 68,606 3,627

Earnings reserve – legal 20 15,076 15,076 14,907

Retained earnings 766,897 542,985 464,579

Treasury shares 20 (69,228) – –

Total shareholders’ equity 860,429 702,046 557,647

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,967,826 2,532,524 2,217,047


Cielo58

CONSOLIDATED STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$, except for earnings per share)

Note 2009 2008

GROSS REVENUE

Revenue from commissions 2,649,860 2,184,840

Rental income 1,067,136 903,061

Other revenues 135,456 127,652

Taxes on services (407,531) (340,087)

NET OPERATING INCOME 3,444,921 2,875,466

COST OF SERVICES (936,312) (851,119)

GROSS PROFIT 2,508,609 2,024,347

OPERATING (EXPENSES) INCOME

Personnel (122,239) (95,613)

General and administrative (147,145) (162,484)

Management and officer compensation (7,970) (9,520)

Marketing (72,960) (77,948)

Other operating (expenses) income, net (55,216) 261,757

OPERATING INCOME BEFORE 2,103,079 1,940,539

FINANCIAL INCOME (EXPENSES)

Financial income 30 99,751 153,405

Financial expenses 30 (56,519) (59,875)

Prepayment of receivables 30 218,150 17,388

Adjustment to present value 30 (35,266) –

Exchange rate variation, net 30 1,903 947

228,019 111,865

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 2,331,098 2,052,404

INCOME TAX AND SOCIAL CONTRIBUTION

Current 25 (853,151) (774,180)

Deferred 25 55,847 63,848

NET INCOME 1,533,794 1,342,072

EARNINGS PER SHARE (IN R$) -BASIC 21 1.1242 0.9841

EARNINGS PER SHARE (IN R$) -DILUTED 21 1.1237 0.9841



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)

Note 2009 2008

NET INCOME 1,533,794 1,342,072

Other comprehensive income (loss):

Available-for-sale financial assets - (344,827)

Reclassification of available-for-sale financial assets to net income - 344,827

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,533,794 1,342,072


Cielo60

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (COMPANY)FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)

Note Capital Capital

reserve

Earnings

reserve –

legal

Retained

earnings

Treasury

sharesTotal

BALANCES AS OF DECEMBER 31, 2007 74,534 3,627 14,907 464,579 - 557,647

Dividends from retained earnings

(R$0.75 per share)

- - - (508,671) - (508,671)

Capital increase through share subscription 846 64,979 - - - 65,825

Capital contribution 20 - 592,202 - - - 592,202

Payment of dividends through transfer

of financial assets, net of taxes

20 - - - (487,058) - (487,058)

Transfer of reserves for payment of dividends 20 - (592,202) - 592,202 - -

Capital reduction (1) - - - - (1)

Total comprehensive income for the year - - - 1,342,072 - 1,342,072

Recognition of legal reserve 20 - - 169 (169) - -

Dividends paid (R$1.26 per share) 20 - - - (859,970) - (859,970)

BALANCES AS OF DECEMBER 31, 2008 75,379 68,606 15,076 542,985 - 702,046

Dividends from retained earnings

(R$0.40 per share)

- - - (542,985) - (542,985)

Total comprehensive income for the year - - - 1,533,794 - 1,533,794

Dividends paid (R$0.24 per share) 20 - - - (661,532) - (661,532)

Minimum dividends (R$0.07 per share) 20 - - - (105,365) - (105,365)

Share options granted 34 - 3,699 - - - 3,699

Treasury shares 20 - - - - (69,228) (69,228)

BALANCES AS OF DECEMBER 31, 2009 75,379 72,305 15,076 766,897 (69,228) 860,429



CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)

Note 2009 2008

CASH FLOW FROM OPERATING ACTIVITIES Income before income tax and social contribution 2,331,098 2,052,404

Adjustments to reconcile income before income tax and social contribution tonet cash provided by operating activities:

Depreciation and amortization 160,271 150,002 Net book value of property, plant and equipment and intangible assets written off or sold 7,274 20,518 Allowance for losses on intangible assets 11,197 35,445 Capital loss in exchange of interest in joint venture 4,431 -Write-off of goodwill in joint venture - 1,956 Reversal of the allowance for losses on property, plant and equipment and intangible assets, net (1,810) (2,455)Share options granted 34 3,699 -Gains on disposal of investments, net - (502,893)Loss from equipment rental 14,753 9,721 Reserve for contingencies 18 141,116 119,521 Adjustment to present value of receivables 30 35,266 -Capital gain in the transfer of investments - (12,848)

(Increase) decrease in operating assets: Trade accounts receivable (1,051,107) (148,240)Receivables from subsidiary 177 (177)Prepaid and recoverable taxes (1,284) (342)Other receivables (current and noncurrent) 268,707 32,138 Escrow deposits (132,219) (101,386)Prepaid expenses (1,408) (2,538)

Increase (decrease) in operating liabilities: –

Payables to merchants 165,141 40,420 Trade accounts payable 19,839 11,009 Taxes payable 2,114 1,927 Other payables (current and noncurrent) (268,959) (64,188)Reserve for contingencies (current and noncurrent) (21,001) (13,038)Cash provided by operations 1,687,295 1,626,956 Interest received 22,208 28,804 Interest paid (22,208) (28,804)Income tax and social contribution paid (714,609) (731,793)Net cash provided by operating activities 972,686 895,163

CASH FLOW FROM INVESTING ACTIVITIES Acquisition of interest in joint venture 1 (20,813) (18,961)Acquisition of subsidiaries by the joint venture, net of acquired cash (4,403) -Funds from the sale of investments - 502,894 Additions to property, plant and equipment and intangible assets (231,201) (158,023)Net cash (used in) provided by investing activities (256,417) 325,910

CASH FLOW FROM FINANCING ACTIVITIES Financing – lease transactions (401) (633)Capital increase through share subscription 20 - 65,825 Capital contribution 20 - 159,310 Capital reduction 20 - (1)Dividends paid 20 (1,204,517) (1,368,641)Treasury shares (69,228) -Net cash used in financing activities (1,274,146) (1,144,140)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (557,877) 76,933

CASH AND CASH EQUIVALENTS Closing balance 514,280 1,072,157 Opening balance 1,072,157 995,224

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (557,877) 76,933


Cielo62

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(Amounts in thousands of Brazilian reais – R$, unless otherwise stated)

1. OPERATIONSCompanhia Brasileira de Meios de Pagamento, whose name was changed to Cielo S.A. (the “Company”), as approved at the

Extraordinary Shareholders’ Meeting held on December 14, 2009, was established on November 23, 1995 in Brazil, and is primarily

engaged in providing services related to credit and debit cards and other payment methods, as well as providing related services,

such as signing up of merchants and service providers, rental, installation and maintenance of Point of Sales – POS equipment, and

data capture and processing of electronic and manual transactions.

On January 23, 2003, the Company opened a branch in Grand Cayman, Cayman Islands, British West Indies (Note 23), for the specific

purpose of conducting abroad a receivables securitization transaction denominated in foreign currency (Notes 8, 19 and 26).

The operations of the direct, indirect and jointly-owned subsidiaries are as follows:

Subsidiaries:

• Servinet Serviços Ltda. (“Servinet”) – engaged in the provision of maintenance and contacts with merchants and

service providers for acceptance of credit and debit cards and other payment methods; installation and maintenance

of POS equipment for data capture and processing of transactions with credit and debit cards and other payment

methods; development of related activities in the service segment that are of interest to Servinet; and holding investments in

other companies.

• Servrede Serviços S.A. (“Servrede”) – engaged in the provision of network technology management services, including data and

information transmission, corporate solutions, private communication systems and electronic payment systems, in addition

to application and data center services, development of other related activities in the service segment that are of interest to

Servrede, and holding investments in other companies. Servrede remains dormant as of December 31, 2009.

• CBGS – Gestão e Processamento de Informações de Saúde Ltda. (“CBGS Ltda.”) – engaged in the provision of electronic

network interconnection services between health operators and medical and hospital service providers and any other health

system agents, based on a single technological platform; services of scanning and automation of processes, issuance of cards,

call center services and other solutions; card reading and nonfinancial transactions routing services; lease or sale of card

readers, other computer-based equipment used for providing its services and technical assistance; and holding investments in

other companies.

In November 2009, CBGS Ltda. was merged by CBGS, its jointly-owned subsidiary at the time, at book value and on the base-

date October 31, 2009.


Indirect subsidiaries:

•CompanhiaBrasileiradeGestãodeServiços(“CBGS”) – was engaged in the provision of electronic network interconnection

services and other related services between health operators and medical and hospital service providers (such as hospitals,

clinics and laboratories), any other private health system agents, pharmaceutical industries, laboratories, distributors,

wholesalers, similar companies, policyholders, corporate members of health plans, drugstores, etc, and insurers based on a

technology platform; and holding investments in other local or foreign companies.

In December 2009, CBGS was merged by Orizon, its wholly-owned subsidiary at the time, at book value and on the base-date

November 30, 2009.

• Orizon Brasil Processamento de Informações de Saúde Ltda. (“Orizon”) currently Companhia Brasileira de Gestão de Serviços

– engaged in the provision of consulting and data processing services to medical companies in general; management of

back office services for health operators in general; electronic network interconnection services between health operators

and medical and hospital service providers (such as hospitals, clinics and laboratories), and other health system agents and

drugstores, based on a single technology platform; scanning and process automation services, cards issuance, call center

services and other solutions; card reading and nonfinancial transactions routing services; lease or sale of card readers, other

computer-based equipment and systems used for providing its services and equipment technical assistance; and holding

investments in local or foreign companies.

• Dativa Conectividade em Saúde Ltda. (“Dativa”) – was engaged in the provision of electronic network interconnection services

for the exchange of information between private health care plans and health, medical and hospital service providers, and

any other private health system agents; software development and licensing, including its distribution; and provision of any

type of research and development services. Dativa was merged at book value by Orizon pursuant to the merger agreement of

May 29, 2008. The purpose of the merger is the administrative, commercial and financial integration of these companies, with

reduction of their operating, administrative and financial costs.

• Prevsaúde Comercial de Produtos e de Benefícios de Farmácia Ltda. (“Prevsaúde”) – engaged in the provision of

pharmaceutical benefit services to corporate clients, healthcare plans, public clients and large laboratories. Prevsaúde manages

the relationship of its clients’ employees with drugstores, doctors and the contracting company itself.

• Precisa Comercialização de Medicamentos Ltda. (“Precisa”) – engaged in the sale of medicines in general, focused on

health prevention and maintenance, with a scheduled delivery system. Precisa is a “drugstore” focused on the distribution of

medicines to Prevsaúde’s clients, especially chronic patients. It is responsible for delivering medicines regularly administered

to Prevsaúde’s clients with chronicle diseases, such as diabetes, cancer and heart and blood pressure conditions. It allows to

monitor the delivery and use of medicines, increasing the treatment’s effectiveness.

Cielo64

Restructuring of subsidiaries – Health Project

On August 28, 2006, the Company established CBGS Ltda. to operate in the health segment.

On November 8, 2006, the Company, through its subsidiary CBGS Ltda., Bradesco Saúde S.A. (“Bradesco Saúde”) and Caixa de

Assistência dos Funcionários do Banco do Brasil (“Cassi”), entered into an agreement to operate together in the electronic network

interconnection services and other segments between health operators and health service providers. Under this agreement,

Bradesco Saúde and Cassi established CBGS and granted this company access to their customer master file to provide these

services on an exclusivity basis. The subsidiary CBGS Ltda. committed to acquire a 40.95% interest in CBGS for R$139,045, through

new capital contributions with the assignment of assets.

On November 23, 2006 and July 26, 2007, the subsidiary CBGS Ltda. acquired all the shares of Polimed and Dativa.

On December 28, 2006, Bradesco Saúde (70.87%) and Cassi (29.13%) established CBGS, with capital of R$1,000, fully subscribed

and paid up in cash. The capital of CBGS is represented by 1,000,000 registered common shares without par value.

On January 2, 2008, CBGS subscribed, in favor of subsidiary CBGS Ltda., 693,480 new common shares, without par value,

for R$139,045.

Said amount was paid in through the transfer of ownership interest and in cash and entitles subsidiary CBGS Ltda. to a 40.95%

interest in that company. Accordingly, as the formation of a joint venture is specifically excluded from the scope of IFRS 3 –

Business Combination, the transfer of ownership interest to CBGS (joint venture) was accounted for at the same carrying amounts

recognized at CBGS Ltda. (venturer) and the capital gain was accounted for in the Company’s consolidated under IAS 31 – Interests

in Joint Ventures and SIC 13 Jointly-controlled Entities – Nonmonetary Contributions by the Venturer. These standards require,

therefore, the recognition of a gain or a loss reflecting the substance of the transaction, i.e., when the assets are retained by a

joint venture and the venturer has transferred significantly all the risk and rewards incidental to ownership to the joint venture, the

venturer recognizes the portion of gain or loss attributed to the interest of the other venturers.

Said amount was paid in by CBGS Ltda. as follows:

• R$60,773 through the immediate delivery of 46,661,888 Polimed shares, currently Orizon, the net book value of which was

R$39,339 as of December 31, 2007, with a capital gain in the amount of R$21,434. This capital gain was eliminated from the

consolidated financial statements proportionally to CBGS Ltda.’s interest in subsidiary CBGS.

• R$10,918 through the immediate delivery of 1,709,999 Dativa shares, the net book value of which was R$11,005 as of

December 31, 2007, with a capital loss of R$87.

• R$67,354 to be paid up within two years, through the delivery of assets that can be valued in cash and/or in local currency,

which will be adjusted based on the fluctuation of the extended consumer price index (IPCA) plus 11.85% per year, on a “pro

rata” basis, from the delivery date to the date when it is paid up, and recorded by CBGS Ltda. under “Payables to joint venture”

and “Accounts receivable” of CBGS. As of December 31, 2009, this balance is fully paid in.


After the share subscription, the shareholding structure of the joint venture CBGS is as follows:

%

CBGS Ltda. 40.95

Bradesco Saúde 41.85

Cassi 17.20

Pursuant to the Shareholders’ Agreement, corporate resolutions and new investments require the approval of the majority

of the shareholders; accordingly, CBGS was classified as a jointly-controlled entity (joint venture) and its financial statements

were accounted for by the Company under the proportionate consolidation method, as recommended by IAS 31 -Interests

in Joint Ventures.

On March 16, 2009, jointly-controlled entity CBGS acquired all the shares of Prevsaúde and Precisa, as shown below:

Prevsaúde Precisa

Net assets acquired 1,628 (2,381)

Total acquisition price considered 9,000 1,000

Goodwill 7,372 3,381

Prevsaúde provides pharmaceutical benefit services to corporate clients, healthcare plans, public clients and large laboratories.

Prevsaúde manages the relationship of its clients’ employees with drugstores, doctors and the contracting company itself.

Precisa is a “drugstore” focused on the distribution of medicines to Prevsaúde’s clients, especially chronic patients. It is responsible

for delivering medicines regularly administered to Prevsaúde’s clients with chronicle diseases, such as diabetes, cancer and heart

and blood pressure conditions. It allows monitoring the delivery and use of medicines, increasing the treatment’s effectiveness.

These acquisitions are in line with the Company’s strategy of expanding its business in the health segment.

In November 2009, direct subsidiary CBGS Ltda. was merged by indirect subsidiary CBGS and on December 1st, 2009 CBGS was

merged by Orizon. As a result of the mergers, all the operations of the merged companies were transferred to the acquirers, which

will succeed the merged companies in all their assets, rights and obligations, for all legal purposes and with no interruptions, with

the consequent termination of the merged companies.

Cielo66

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

2.1. Presentation of financial statements

The Company’s consolidated financial statements have been prepared in conformity with the International Financial

Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB, and the interpretation of the

International Financial Reporting Interpretations Committee – IFRIC.

The consolidated financial statements for the years ended December 31, 2009 and 2008 are the first IFRS financial

statements and January 1st, 2008 is the first-time adoption date (opening balance sheet), and in conformity with IFRS 1 –

First-time Adoption of IFRS.

The Company’s consolidated financial statements are prepared and presented in conformity with Brazilian accounting

practices (“BR GAAP”), based on the provisions set out in Brazilian Corporate Law and standards issued by the Brazilian

Securities and Exchange Commission (CVM) until December 31, 2009; which differ in some aspects from the IFRS. When

preparing the consolidated financial statements for 2009, the Company adjusted certain accounting, valuation and

presentation methods under BR GAAP in order to conform with IFRS. The 2008 comparative data were restated to reflect

such adjustments, except for those described in the release from optional and mandatory accounting practices in Notes

3.1.2. and 3.1.3. These consolidated financial statements have been prepared in conformity with IFRS, pursuant to CVM

Instruction 457, of July 13, 2007.

The reconciliation and description of the effects of transition from Brazilian accounting practices to IFRS, relating to

shareholders’ equity, net income and cash flows, are stated in Note 3.

2.2. Functional and reporting currency

The Company’s consolidated financial statements are presented in Brazilian reais (R$), which is the functional and

reporting currency.

2.3. Cash and cash equivalents

Include cash, bank accounts and highly-liquid short-term investments with low risk of variation in the fair value stated at

cost plus interest earned.

2.4. Receivables from card-issuing banks and payables to merchants

Refer to transactions carried out by the holders of credit cards issued by financial institutions licensed by Visa International

Service Association, consisting of receivables from card-issuing banks less interchange fees and payables to merchants less

processing fees (discount rate), both with maturities of less than one year (see Note 14).


2.5. Property, plant and equipment

Stated at historical cost, less depreciation. Depreciation is calculated under the straight-line method, based upon the

estimated useful lives of the assets.

Subsequent costs are added to the residual value of property, plant and equipment or recognized as a specific item, as

appropriate, only if the economic benefits associated to these items are probable and the amounts can be reliably

measured. The residual balance of the replaced item is written off. Other repairs and maintenance are recognized directly in

income for the year when incurred.

The residual value and useful lives of the assets are reviewed and adjusted, if necessary, at year end.

The residual value of property, plant and equipment is written off immediately at their recoverable value when the residual

balance exceeds the recoverable value.

2.6. Intangible assets

Stated at acquisition cost, less amortization calculated under the straight-line method at the rates mentioned in Note

12. Intangible assets are amortized taking into consideration their effective use or a method that reflects their expected

economic benefits, considering that they have finite useful lives, or on a monthly basis. The residual value of intangible

assets is written off immediately at their recoverable value when the residual balance exceeds the recoverable value.

2.7. Allowance for impairment of long-lived assets

Management reviews the carrying amount of long-lived assets, especially property, plant and equipment and intangible

assets, to be held and used in the Company’s operations, to determine and assess possible impairment on a periodic basis or

whenever events or changes in circumstances indicate that the book value of an asset or group of assets might not

be recovered.

Analyses are performed in order to identify circumstances that could require testing long-lived assets for impairment and

measure potential impairment losses. Assets are grouped and tested for impairment based on expected future discounted

cash flows over the estimated remaining useful lives of the assets. In this case, an impairment loss would be recognized

based on the amount by which the carrying amount exceeds the probable recoverable value of a long-lived asset. The

probable recoverable value of an asset is determined as the higher of: (a) fair value of assets less estimated costs to sell,

and (b) its value in use, which is equal to the present value of discounted cash flows derived from the asset or cash

generating unit.

2.8. Investments in joint ventures (jointly-controlled entities)

Joint ventures are those jointly controls by the Company and with one or more partners. Investments in joint ventures are

recognized under the proportionate consolidation method, since the date the jointly control is acquired. Under this method,

the components of the joint ventures’ assets and liabilities, and income and expenses are added to the consolidated

accounting positions proportionally to the venturer’s interest in its capital.

Cielo68

2.9. Current and deferred income tax and social contribution

Income tax was calculated at the rate of 15%, plus a 10% surtax on annual taxable income exceeding R$240. Social

contribution was calculated at the rate of 9% on adjusted net income.

Deferred income tax and social contribution are recognized according to IAS 12 on the differences between assets and

liabilities recognized for tax purposes and related amounts recognized in the consolidated financial statements. However,

deferred income tax and social contribution are not recognized if generated in the initial record of assets and liabilities in

operations that do not affect the tax bases, except in business combination operations. Deferred income tax and social

contribution are determined based on the tax rates (and laws) in effect at the date of the financial statements and applicable

when the respective income tax and social contribution are paid.

Deferred income tax and social contribution assets are recognized only to the extent that it is probable that there will be a

positive tax base for which temporary differences can be used and tax losses can be offset.

2.10. Employee benefits

The Company and its subsidiaries are co-sponsors of a defined contribution pension plan. Contributions are made based on

a percentage of the employees’ compensation. This benefit is accounted for pursuant to IAS 19.

2.11. Financial assets and liabilities

a) Financial assets

Financial assets are classified in the following categories: at fair value through profit or loss, held to maturity, available for

sale and loans and receivables. Classification is made according to the nature and purpose of the financial assets and is

determined upon initial recognition.

Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when assets are held for trading or designated at fair value

through profit or loss when acquired. A financial asset is classified as held for trading if it is:

• Purchased principally for the purpose of selling it in the near term.

• Part of a portfolio of identified financial instruments that are jointly managed and for which there is evidence of a recent

actual pattern of short-term profit-taking.

• A derivative that is not a designated and effective hedging instrument in hedge accounting.

A financial asset that is not held for trading can be designated at fair value through profit or loss upon initial recognition when:

• This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition.

• The financial asset is part of a managed group of financial assets or liabilities, or both, and its performance is evaluated

based on fair value according to the risk management or investment strategy documented by the Company, and when

information on the Company is internally provided on the same basis.


• It is part of a contract containing one or more embedded derivatives, and IAS 39 – Financial Instruments: Recognition and

Measurement permits that the combined contract as a whole (assets or liabilities) is designated at fair value through profit

or loss.

Financial assets at fair value through profit or loss are measured at fair value, together with gains and losses recognized in

income for the year. Net gains or losses recognized in income include dividends or interest income by the financial asset.

Held-to-maturity securities

Financial assets with fixed or determinable payments and fixed maturities, for which the Company has the intent and

ability to hold to maturity, are classified as held to maturity. Held-to-maturity financial assets are measured at amortized

cost using the effective interest method, less the allowance for impairment losses. Revenue is recognized using the effective

interest method.

Loans and receivables

Loans and receivables are financial assets and financial liabilities with fixed or determinable payments, not quoted in

an active market. Loans and receivables are measured at amortized cost using the effective interest method, less the

allowance for impairment losses. Interest income is recognized by applying the effective rate method, except for short-term

receivables, when the recognition of interest would be immaterial.

Available-for-sale securities

Available-for-sale financial assets are nonderivative financial assets designated as available for sale and not classified in any

of the categories above.

Available-for-sale financial assets are measured at fair value. Interest, inflation adjustment and foreign exchange variation,

when applicable, are recognized in income or loss when incurred. Changes arising from measurement at fair value are

recognized in a specific line item of shareholders’ equity when incurred, and are charged to income when realized or

considered unrecoverable.

Effective interest method

The effective interest method is a method for calculating the amortized cost of a financial asset or a financial liability and

allocating interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments or receipts (including all fees paid or received that are an integral part of the

effective interest rate, transaction costs, and other premiums or discounts) through the expected financial asset life, or,

when appropriate, for a shorter period.

Cielo70

b) Financial liabilities

Financial liabilities are classified at fair value through profit or loss or as other financial liabilities.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified at fair value through profit or loss when liabilities are held for trading or designated at fair

value through profit or loss.

A financial liability is classified as held for trading if it is:

• Incurred principally for the purpose of repurchasing it in the near term.

• Part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent

actual pattern of short-term profit-taking.

• A derivative that is not designated as an effective hedging instrument.

Financial liabilities that are not held for trading can be designated at fair value through profit or loss upon initial

recognition when:

• This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition.

• The financial liability is part of a managed group of financial assets or financial liabilities, or both, whose performance is

valued based on its fair value, in accordance with the Company’s documented risk management or investment strategy,

and whose related information is provided internally on the same basis.

• It is part of a contract containing one or more embedded derivatives, and IAS 39 – Financial Instruments: Recognition and

Measurement permits that the combined contract as a whole (assets or liabilities) is designated at fair value through profit

or loss.

Financial liabilities at fair value through profit or loss are measured at fair value, together with gains and losses recognized in

profit or loss. Net gains or losses recognized in profit or loss comprise any interest paid on financial liabilities.

Other financial liabilities

Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are

subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an

effective yield basis. The effective interest method is a method for calculating the amortized cost of a financial liability and

allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash payments through the expected life of the financial liability or, when appropriate, a shorter period.


2.12. Revenue and expense recognition

Revenues and expenses are recognized on the accrual basis. Revenues from credit and debit card transactions are

recognized when transactions are processed. Revenues from services to associates and merchants are recognized when the

service is provided.

2.13. Provisions

Recognized when there is a present obligation, legal or constructive, as a result of a past event, with probable outflow of

resources, and the amount of the obligation can be reliably estimated.

The amount recognized as a provision is the best estimate of the settlement amount at the end of the reporting period,

considering the risks and uncertainties related to the obligation. When the economic benefit required to settle a provision is

expected to be received from third parties, this amount receivable is recorded as an asset, when reimbursement is virtually

certain and the amount can be reliably estimated.

Provisions recognized by the Company refer substantially to lawsuits arising in the normal course of business, filed by third

parties or former employees. These contingencies are assessed by the Company’s and its subsidiaries’ Management and its

legal counsel, using criteria that allow their proper measurement, despite the uncertainty concerning their period and amount.

Reserves for tax lawsuits are recorded based on the total taxes under legal dispute, plus inflation adjustment and late

payment interest incurred through the balance sheet dates.

2.14. Foreign currency

Monetary assets and monetary liabilities denominated in foreign currencies were translated into Brazilian reais at the

exchange rate in effect at the balance sheet dates, and currency translation differences were recorded in the statement

of income.

2.15. Use of estimates

The preparation of financial statements requires the Management of the Company and its subsidiaries to make estimates

and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and

liabilities at the reporting dates, and the reported amounts of revenues and expenses during the reporting periods.

Significant assets and liabilities subject to these estimates and assumptions include the net book value of property, plant and

equipment and intangible assets, allowance for doubtful accounts (lease of POS equipment), deferred income tax and social

contribution assets, and reserve for contingencies. Since Management’s judgment involves making estimates concerning

the likelihood of future events, actual amounts could differ from those estimates. The Company and its subsidiaries review

estimates and assumptions annually.

2.16. Share-based compensation

The Company offers a stock option plan to its officers and executives, and to the officers and executives of its subsidiary

Servinet. Options are priced at fair value on the grant date of the plans and are recognized on a straight-line basis as a

contra entry to shareholders’ equity. At the balance sheet dates, the Company reviews its estimates of the number of

vested options based on the plan’s terms and conditions and recognizes the impact of the revision of initial estimates, if any,

in the statement of income, as a contra entry to shareholders’ equity, according to the criteria set out in IFRS 2 –

Share-based Payment.

Cielo72

2.17. New IFRSs and IFRIC Interpretations

The following new and revised standards and interpretations went into effect and were adopted in 2009 and/or 2008, and

impacted the amounts disclosed in these financial statements:

• IAS 1 (revised) – Presentation of Financial Statements: introduces certain changes in the presentation of financial

statements, including changes in the titles of each financial statement. The statement of changes in shareholders’ equity

shall only include the changes in shareholders’ equity arising from transactions with shareholders acting as such. As for

changes arising from transactions with non-shareholders (for example, transactions with third parties or income and

expenses recognized directly in shareholders’ equity), entities no longer can separately present other comprehensive

income items in the statements of changes in shareholders’ equity. These changes with non-shareholders must be

presented in a statement of comprehensive income and its total carried to the statement of changes in shareholders’

equity. All income and expense items (including those not recognized in profit or loss) must be presented in a single

statement of comprehensive income with subtotals, or in two separate statements (a statement of income and a

statement of comprehensive income). IAS 1 also introduces new statement requirements when an entity

retrospectively adopts a change in accounting policies, including remaking a statement or reclassifying items of previously

issued statements.

• IFRS 8 – Operating Segments: this standard replaces IAS 14 and requires that the amount stated for each segment

corresponds to internally used measure and reported to the chief operating decision maker for purposes of allocation of

funds to a segment and the assessment of its performance.

• IFRS 2 (amended) – Share-based Payment: the objective of the amendment is basically to clarify the definition of the

purchase terms and the accounting treatment of cancelation by the counterpart in a share-based arrangement. The

following new and revised standards and interpretations went into effect in 2009 and/or 2008. Their adoption should

not have a significant impact in these financial statements, but can impact the accounting of future transactions

and agreements:

• IAS 16 (amended) – Property, Plant and Equipment.

• IAS 19 (amended) – Employee Benefits.

• IAS 32 (amended) – Financial Instruments: Presentation.

• IAS 38 (amended) – Intangible Assets.

• IAS 39 (amended) – Financial Instruments: Recognition and Measurement.

• IFRS 1 (amended) -First-time Adoption of International Financial Reporting Standards.

• IAS 23 (amended) – Borrowing Costs.

• IFRS 5 – Noncurrent Assets Held for Sale and Discontinued Operations.

• IFRS 7 – Financial Instruments: Disclosure.


The following new pronouncements, amendments and interpretations were issued but are not effective for the year ended

December 31, 2009 and have not been early adopted by the Company:

• IFRS 1 (amended) – First-time Adoption: effective for annual reporting periods starting on January 1st, 2011.

• IFRS 2 (amended) – Share-based Payments: effective for annual reporting periods starting on or after July 1st, 2009 and

January 1st, 2010.

• IFRS 7 (amended) – Financial Instruments: Disclosure: effective for annual reporting periods starting on January 1st, 2011.

• IAS 1 (amended) – Presentation of Financial Statements: effective for annual reporting periods starting on January 1st, 2010

and 2011.

• IAS 7 (amended) – Statement of Cash Flows: effective for annual reporting periods starting on January 1st, 2010.

• IAS 17 (amended) – Leases: effective for annual reporting periods starting on January 1st, 2010.

• IAS 36 (amended) – Impairment of Assets: effective for annual reporting periods starting on January 1st, 2010.

• IAS 34 (amended) – Interim Financial Reporting: effective for annual reporting periods starting on January 1st, 2011.

• IAS 39 (amended) – Financial Instruments: Recognition and Measurement: effective for annual reporting periods starting

on January 1st, 2010.

• IAS 40 (amended) – Investment Property: effective for annual reporting periods starting on January 1st, 2011.

• IFRS 3 (amended) – Business Combinations and consequent amendments to IAS 27 – Consolidated and Separate

Financial Statements, IAS 28 – Investments in Associates and IAS 31 – Interest in Joint Ventures, effective for business

combinations whose acquisition date occurred on or after the beginning of the first annual reporting period starting

on or after July 1st, 2009, July 1st, 2010 and January 1st, 2011. The Company’s Management is analyzing the impact of these

new requirements.

Cielo74

3. TRANSITION TO IFRS

3.1. IFRS transition basis

3.1.1. Application of IFRS 1

The consolidated financial statements for the year ended December 31, 2009 are the first to be presented in conformity with

IFRS, as described in Note 2.1.

The Company prepared its opening balance sheet assuming a transition date of January 1st, 2008, pursuant to IFRS 1; the

Company, therefore, applied the mandatory exemptions and certain optional exemptions to the full retrospective application

of IFRS.

3.1.2. Exemptions to the full retrospective application elected by the Company

The Company adopted the utilization of the following optional exemptions to the full retrospective application of IFRS:

a) Exemption for business combination: the Company elected not to remeasure business acquisitions carried out prior

to the transition date to IFRS, in conformity with IFRS 3; therefore, goodwill arising on acquisitions prior to this date was

maintained at the balances net of amortization, determined on the IFRS transition date, in conformity with Brazilian

accounting practices (BR GAAP).

b) Exemption for presenting the fair value of fixed assets as cost of purchase: the Company opted not to remeasure its

property, plant and equipment on the transition date at fair value and elected to maintain the cost of purchase adopted

under BR GAAP as amount of property, plant and equipment.

c) Exemption related to compound financial instruments measurement: the Company does not have compound financial

instruments on the IFRS transition date.

d) Exemption related to the recognition of interests in subsidiaries, joint ventures (jointly-controlled entities) and associates:

the Company’s subsidiaries, jointly-controlled subsidiaries and associates did not present IFRS financial statements as of the

transition date; accordingly, the Company elected to adopt the same IFRS transition date for all its subsidiaries, joint ventures

and associates.

e) Exemption related to the classification of financial instruments: the Company elected to designate financial assets and

financial liabilities on the IFRS transition date.

3.1.3. Mandatory full retrospective application exemptions followed by the Company

No impacts were identified on the Company’s consolidated financial statements arising on the application of mandatory

exemptions set out in IFRS 1.


3.2. Reconciliation between IFRS and BR GAAP

Description of the main differences between IFRS and BR GAAP that affect the Company’s financial statements:

a) Intangible assets: under the IFRS, preoperating costs do not fall into the definition of intangible assets and should be

recorded as expenses. Usually costs incurred on an internally generated intangible asset are not capitalized.

Under BR GAAP, up to 2008, preoperating costs and expenses on projects were recorded in assets at cost. Amortization was

calculated under the straight-line method on cost, at rates determined based on the projection of the implemented projects

in relation to their installed capacities. In 2008, BR GAAP was amended by CPC 04 – Intangible Assets to converge with the

IFRS accounting treatment adopted, which was prospectively adopted and accounted for by the Company in 2008.

b) Formation of joint ventures: under the IFRS, nonmonetary assets contributed to form a joint venture in exchange for an

interest are accounted for by the joint venture at fair value or book value plus the venturer’s premium. CBGS (joint venture)

accounted for the funds contributed by CBGS Ltda. (venturer) at the same carrying amounts recorded at CBGS Ltda.

(venturer) as interests, plus premium. Additionally, CBGS accounted for as capital contribution, at fair value, the intangible

assets contributed by the other venturers, Bradesco and Cassi, and the related subsequent amortization of such intangible

assets over the useful lives defined by the joint venture’s Management.

Under BR GAAP, the intangible assets contributed by the other venturers, Bradesco and Cassi, were not accounted for

as assets forming the capital of the joint venture. Accordingly, all the monetary and nonmonetary assets contributed by

CBGS Ltda. to the joint venture are considered as increases in investment prorated by 40.95%, and the remaining interest

as goodwill arising on capital payments, as the other venturers did not contribute any accountable asset to hold a

59.05% interest.

c) Capital contribution of Visa Inc. shares: under IFRS, the capital contribution of Visa Inc. shares was accounted for at fair

value on the date the shares were received, recorded in line items “Investments – available-for-sale financial assets” and

“Capital reserves”, less deferred tax. Additionally, the changes in fair value of the shares since receiving date to the sale date,

and afterward to the date of the transfer to shareholders, as explained in Note 20, were accounted for in the statement of

comprehensive income and then reversed to income for the year, in line item “Other operating (expenses) income, net.”

Under the BR GAAP, the receipt of these Visa Inc. shares was accounted for as a donation at cost of R$2, directly in income

for the year. Subsequently, on the date of the sale of part of the shares, the Company accounted for a capital gain of

R$502,893, recorded in income for the year.

d) Deferred income tax and social contribution: accounted for on differences between BR GAAP and IFRS, when applicable.

Cielo76

e) Segment reporting: under IFRS, publicly-traded companies are required to present information per business segment.

IFRS 8 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the

Company’s chief operating decision maker in order to allocate resources to the segment and assess its performance.

A business or geographical segment is required to be disclosed if most of the revenue recorded arises from sales to external

customers and represents 10% or more of total internal and external sales of all segments, or 10% or more of the combined

revenue of all segments, or 10% or more of total assets of all segments. Information shall be provided on additional

segments if the total external revenues attributable to the segments on which information has been provided account for

less than 75% of total consolidated or company’s revenues. The Company’s internal reporting is regularly reviewed by the

acquirer segment, which represents basically the consolidated operations, and the Health Project segment, which results

from the CBGS joint venture, and represents less than 10% of the amounts above. The Health Project is accounted for

under the proportionate consolidation method and disclosed on a condensed basis in Note 4.2. Accordingly, in terms of

materiality, the Company understands that segment reporting will not add any information to these financial statements.

The main service revenues are disclosed as presented in the statements of income for the years ended December 31, 2009

and 2008 and are fully earned in Brazil.

Under BR GAAP, specific standards regulating segment reporting were issued in 2009 and are applicable to annual reporting

periods ended on or after December 2010.

f) Earnings per share: under IFRS, publicly-traded entities shall disclose basic and diluted earnings per share (see Note 21).

Basic earnings per share shall be calculated by dividing the net income for the period attributable to shareholders by the

weighted average of outstanding shares during the period, including the issue of rights and subscription warrants.

An entity shall calculate diluted earnings per share taking into account the net income attributable to shareholders and the

weighted average of outstanding shares, plus effects of all potential shares. All instruments and contracts that can result in

the issue of shares are considered to be potential shares.

Comparative figures shall be adjusted to reflect capitalizations, issue of subscription warrants or stock splits. If these

alterations occur after the balance sheet date but before the authorization for the issuance of financial statements, then the

calculation per share of these or any financial statements for prior periods shall be based on the new number of shares.

Under the BR GAAP, earnings per share are calculated by dividing the net income for the year by the number of outstanding

shares at yearend. The concept of diluted earnings per share does not exist. The prior periods’ figures must not be adjusted

for stock splits or reverse stock splits or similar transactions.


g) Reclassification under IFRS: the main reclassifications made in the financial statements consolidated under IFRS are

as follows:

•UnderIFRS,escrowdepositsarepresentedingrossamountsinnoncurrentassets.UnderBRGAAP,escrowdepositswere

presented net of contingent amounts in noncurrent liabilities.

•UnderIFRS,deferredincometaxandsocialcontributionhavebeenfullyreclassifiedtononcurrent.UnderBRGAAP,

deferred income tax and social contribution balances have been presented in current and noncurrent, according to their

estimate of realization.

•UnderIFRS,thebalanceofretainedearningsabovemandatoryminimumdividendremainsinshareholders’equity.Under

BR GAAP, the balance of retained earnings has been fully accrued in current liabilities as dividends payable.

h) Accrual for dividends payable: under the Company’s bylaws, shareholders are entitled to a minimum dividend of

50% of adjusted net income for each year. For IFRS purposes, dividends are recognized as liabilities when approved at

a shareholders’ meeting. Therefore, at year end, the Company recognizes as liabilities the amount corresponding to

minimum dividends not paid during the year up to the limit of the mandatory minimum dividend described above. Dividends

exceeding the amount set forth in the bylaws that do not qualify for recording under IFRS are reversed and credited

to shareholders’ equity, less retained earnings only when approved by the shareholders’ meeting. Under BR GAAP, the

Company records dividends proposed by Management as liabilities, which after yearend are submitted to the approval

of shareholders.

Cielo78

3.2.1. Reconciliation of the Company’s consolidated balance sheet on the IFRS

transition date – January 1st, 2008

BALANCE SHEETEffects of

transition Note

ASSETS BR GAAP to IFRS 3.2. IFRS

CURRENT ASSETS

Cash and cash equivalents 995,224 - 995,224

Trade accounts receivable 14,703 - 14,703

Prepaid and recoverable taxes 877 - 877

Deferred income tax and social contribution 35,118 (35,118) g -

Other receivables 6,674 - 6,674

Receivables – securitization abroad 149,119 - 149,119

Interest receivable – securitization abroad 6,544 - 6,544

Prepaid expenses 1,950 - 1,950

Total current assets 1,210,209 (35,118) 1,175,091

NONCURRENT ASSETS

Long-term assets:

Receivables – securitization abroad 367,516 367,516

Deferred income tax and social contribution 94,150 62,613 a, g 156,763

Escrow deposits - 221,687 g 221,687

Other receivables 249 - 249

Investments:

Other investments 288 - 288

Property, plant and equipment 210,483 - 210,483

Intangible assets:

Goodwill on acquisition of investments 41,157 - 41,157

Other intangible assets 124,681 (80,868) a 43,813

Total noncurrent assets 838,524 203,432 1,041,956

TOTAL ASSETS 2,048,733 168,314 2,217,047


BALANCE SHEETEffects of

transition Note

LIABILITIES AND SHAREHOLDERS’ EQUITY BR GAAP to IFRS 3.2. IFRS

CURRENT LIABILITIES

Financing – lease transactions 1,034 - 1,034

Payables to merchants 437,487 - 437,487

Trade accounts payable 85,595 - 85,595

Taxes payable 227,803 - 227,803

Reserve for contingencies 2,520 - 2,520

Payables – securitization abroad 148,941 - 148,941

Interest payable – securitization abroad 6,544 - 6,544

Dividends payable - - -

Other payables 98,632 - 98,632

Total current liabilities 1,008,556 - 1,008,556


Payables – securitization abroad 367,516 367,516

Reserve for contingencies 60,773 221,687 g 282,460

Other payables 868 - 868


SHAREHOLDERS’ EQUITY -

Capital 74,534 74,534

Capital reserve 3,627 3,627

Earnings reserve – legal 14,907 14,907

Retained earnings 517,952 (53,373) a, d 464,579

Treasury shares - - -

Total shareholders’ equity 611,020 (53,373) 557,647

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,048,733 168,314 2,217,047

Reconciliation of shareholders’ equity – BR GAAP versus IFRS on the IFRS transition date – January 1st, 2008.

Note

3.2.

BR GAAP shareholders’ equity 611,020

IFRS adjustments:

Reversal of effects of write-off of IFRS deferrals on 2008 net income a (80,868)

Deferred income tax and social contribution d 27,495

IFRS shareholders’ equity 557,647

Cielo80

3.2.2. Reconciliation of the BR GAAP consolidated financial statements for

the last year presented – december 31, 2008

BALANCE SHEET

Effects of

transition Note

ASSETS BR GAAP to IFRS 3.2. IFRS

CURRENT ASSETS

Cash and cash equivalents 1,072,157 - 1,072,157

Trade accounts receivable 162,943 - 162,943

Receivables from subsidiary 177 - 177

Prepaid and recoverable taxes 1,219 - 1,219

Deferred income tax and social contribution 37,054 (37,054) g -



Interest receivable – securitization abroad 6,341 - 6,341

Prepaid expenses 4,488 - 4,488

Total current assets 1,497,299 (37,054) 1,460,245

NONCURRENT ASSETS

Long-term assets:


Deferred income tax and social contribution 132,344 37,054 g 169,398

Escrow deposits - 323,073 g 323,073


Investments:

Other investments 174 - 174

Property, plant and equipment 213,295 - 213,295

Intangible assets:

Goodwill on acquisition of investments 17,795 - 17,795

Other intangible assets 49,075 20,766 b 69,841

Total noncurrent assets 691,386 380,893 1,072,279

TOTAL ASSETS 2,188,685 343,839 2,532,524


BALANCE SHEET

Effects of

transition Note

LIABILITIES AND SHAREHOLDERS’ EQUITY BR GAAP to IFRS 3.2. IFRS

CURRENT LIABILITIES

Financing – lease transactions 401 - 401

Payables to merchants 487,628 - 487,628

Trade accounts payable 96,604 - 96,604

Taxes payable 275,066 - 275,066

Dividends payable 542,985 (542,985) h -

Payables to joint venture - 20,766 b 20,766


Interest payable – securitization abroad 6,341 - 6,341

Other payables 66,526 - 66,526

Total current liabilities 1,683,494 (522,219) - 1,161,275



Reserve for contingencies 68,390 323,073 g 391,463

Other payables 740 - 740


SHAREHOLDERS’ EQUITY

Capital 75,379 - 75,379

Capital reserve 68,606 - 68,606

Earnings reserve – legal 15,076 - 15,076

Retained earnings - 542,985 h 542,985

Total shareholders’ equity 159,061 542,985 h 702,046

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,188,685 343,839 2,532,524

Cielo82

STATEMENT OF INCOME

2008

BR GAAP

Effects of

transition

to IFRS

Note

3.2. IFRS

GROSS REVENUE

Revenue from commissions 2,184,840 2,184,840

Rental income 903,061 903,061

Revenue from services 127,652 - 127,652

Revenue from commissions, rentals and services 3,215,553 - 3,215,553

Taxes on services (340,087) - (340,087)

NET OPERATING INCOME 2,875,466 - 2,875,466

COST OF SERVICES (851,119) - (851,119)

GROSS PROFIT 2,024,347 - 2,024,347

OPERATING (EXPENSES) INCOME

Personnel (95,613) - (95,613)

General and administrative (147,386) (15,098) a, b (162,484)

Management and officer compensation (9,520) - (9,520)

Marketing (77,948) - (77,948)

Other operating income, net 325,101 (63,344) a, b, c 261,757

OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) 2,018,981 (78,442) 1,940,539

FINANCIAL INCOME (EXPENSES)

Financial income 153,405 - 153,405

Financial expenses (59,875) - (59,875)

Prepayment of receivables 17,388 - 17,388

Exchange rate variation, net 947 - 947

111,865 - 111,865

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 2,130,846 (78,442) 2,052,404

INCOME TAX AND SOCIAL CONTRIBUTION

Current (774,180) - (774,180)

Deferred 37,177 26,671 a, d 63,848

NET INCOME 1,393,843 (51,771) 1,342,072

Reconciliation of shareholders’ equity – BR GAAP versus IFRS as of December 31, 2008.


Note

3.2.

BR GAAP shareholders’ equity 159,061

IFRS adjustments:

Reclassification of dividends above mandatory minimum

dividends to shareholders’ equityh 542,985

IFRS shareholders’ equity 702,046

CASH FLOWS

Year ended December 31, 2008

BR GAAP

Effects of

transition

to IFRS

Note

3.2. IFRS

Net cash provided by operating activities 1,067,557 (172,394) c 895,163

Net cash provided by investing activities 312,826 13,084 325,910

Net cash used in financing activities (1,303,450) 159,310 c (1,144,140)

INCREASE IN CASH AND CASH EQUIVALENTS 76,933 - 76,933

CASH AND CASH EQUIVALENTS

Closing balance 1,072,157 - 1,072,157

Opening balance 995,224 - 995,224

INCREASE IN CASH AND CASH EQUIVALENTS 76,933 - 76,933

Cielo84

4. CONSOLIDATED FINANCIAL STATEMENTSThe consolidated financial statements include the account balances of the Company (parent company), its subsidiaries Servinet,

Servrede and CBGS Ltda. (until October 31, 2009) and joint ventures CBGS (until November 30, 2009), Orizon, former Polimed,

Dativa (until May 29, 2008), Prevsaúde and Precisa (starting February 28, 2009). In the preparation of these consolidated financial

statements, intercompany balances and transactions have been eliminated.

The assets, liabilities, income and expenses of joint ventures CBGS (merged on November 30, 2009) Orizon, Dativa (merged on May

29, 2008), Prevsaúde and Precisa have been included proportionally to the Company’s interest in their capital.

The translation into Brazilian reais of the financial statements of the Grand Cayman branch, originally prepared in U.S. dollars, was

based on the exchange rates prevailing at the balance sheet dates.

4.1. Direct subsidiaries (individual control)

The interests held in the consolidated subsidiaries are as follows:

Ownership interest – %

Total capital Voting capital

2009 2008 2009 2008

Direct subsidiaries:

Servinet 99.99 99.99 99.99 99.99

Servrede 99.99 99.99 99.99 99.99

CBGS Ltda. - 99.99 - 99.99

4.2. Joint ventures (jointly-controlled entities)

Interests in joint ventures include the interests in CBGS, Orizon, formerly Polimed, Dativa (up to May 29, 2008), Prevsaúde and

Precisa (starting February 28, 2009), as follows:

Ownership interest – %

Total capital Voting capital

2009 2008 2009 2008

Joint ventures:

CBGS 40.95 40.95 40.95 40.95

Orizon 40.95 40.95 40.95 40.95

Prevsaúde 40.95 40.95 40.95 40.95

Precisa 40.95 40.95 40.95 40.95


The condensed financial information of the joint ventures was consolidated under the proportionate consolidation method. All the

balances of these subsidiaries’ assets and liabilities are as follows:

CBGS

2009 2008

Assets:

Current assets 39,795 20,667

Noncurrent assets 51,395 73,794

Total assets 91,190 94,461

Liabilities:

Current liabilities 12,221 6,404

Noncurrent liabilities 3,585 5,414

Shareholders’ equity 75,384 82,643

Total liabilities and shareholders’ equity 91,190 94,461

Gross revenue 65,841 30,955

Gross profit 12,098 2,179

Operating expenses (32,474) (20,468)

Loss before taxes (32,474) (20,468)

Loss (34,403) (22,157)

5. TRANSACTIONS NOT AFFECTING CASHIn the year ended December 31, 2008, the Company made the following investments with no effects on cash, which are not

reflected in the statements of cash flows:

• As described in Note 1, the subsidiary CBGS Ltda. acquired a 40.95% interest in CBGS, and as of December 31, 2008

the balance of principal, totaling R$35,166, recognized in consolidated accounts payable after the elimination against

receivables proportionally to the Company’s interest, had not been paid in; in the year ended December 31, 2009,

R$35,166 was paid in.

• As described in Note 20.(a), the Company received 11,990,744 Visa Inc. shares as capital contribution at current fair

value, totaling R$897,276, recorded in line items “Investments” and “Capital reserves”, less deferred income tax and

social contribution.

Additionally, as described in Note 20.(a) and (b), the Company transferred 5,253,684 Visa Inc. shares to the Company’s

shareholders as payment of dividends with transfer of financial assets, totaling R$487,058.

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6. CASH AND CASH EQUIVALENTS

2009 2008 01.01.2008

Cash and banks:

Local currency 1,945 8,184 22,811

Foreign currency 12,456 6,513 6,196

Short-term investments:

Debentures subject to repurchase agreements (a) 58,085 616,653 416,843

Bank certificates of deposit (CDBs) (a) 439,479 436,381 544,017

Money Market Deposit Account – MMDA (b) 2,315 4,426 5,357

Total 514,280 1,072,157 995,224

Cash and banks consist of an imprest cash fund and cash available in bank accounts in Brazil and abroad, derived primarily from

deposits made by card-issuing banks. Such amounts are used to settle transactions with merchants.

Short-term investments have the following characteristics:

(a) The yield of debentures and CDBs for the years ended December 31, 2009 and 2008 was, on average, 102.4% and 103.1% of

the interbank deposit rate (CDI), respectively.

(b) The funds invested abroad (New York – USA) in MMDA earn yield at a fixed rate of 0.1% per year.

These short-term investments are highly liquid and their fair values do not differ materially from their carrying amounts.

7. TRADE ACCOUNTS RECEIVABLE

2009 2008 01.01.2008

Prepayment of receivables (a) 1,164,376 146,643 -

Bank account blocking (b) 2,333 6,051 2,275

Provision of electronic network interconnection services between health operators (c) 4,534 3,943 4,883

Companhia Brasileira de Soluções e Serviços – CBSS (d) 3,351 3,353 4,994

Other receivables 4,190 2,953 2,551

Total 1,178,784 162,943 14,703

(a) On September 1st, 2008 and January 5, 2009, the Company started to provide prepayment services of receivables in cash and in installments, respectively, to

affiliated merchants. As of December 31, 2009, the balance corresponds to prepayment of receivables transactions receivable from the card-issuing banks

within up to 360 days after the date receivables are prepaid to merchants. As of December 31, 2009, this amount is net of the discount to present value of

related charges in the amount of R$35,266, charged to financial income (expenses) (see Note 30).

The ten largest merchants that prepaid receivables accounted for 27.5% of the total revenue of prepayment receivables for the year ended December 31, 2009.

(b) The Company offers card-issuing banks, bank account blocking services, upon prior approval from merchants to block any transfer of receivables from

such merchants to another bank. For these services, the Company receives a commission, which is paid in the month subsequent to the request of the bank

account blocking by the card-issuing banks.

(c) Receivables from the jointly-owned subsidiary Orizon arising from the provision of electronic network interconnection services, based on a single

technology platform, for exchange of information between health operators and medical and hospital service providers, and any other health system agents

and drugstores.

(d) Receivables from CBSS (jointly-controlled entity) arising on the provision of transportation and meal tickets card capture and processing services.


The aging of “Trade accounts receivable” is as follows:

2009 2008 01.01.2008

Current 1,175,302 160,997 12,641

Past-due up to 45 days 3,482 1,946 2,062

1,178,784 162,943 14,703

The balance recorded in “Trade accounts receivable” is net of the allowance for doubtful accounts, which totals R$1,457 as of

December 31, 2009 (R$2,164 as of December 31, 2008).

8. RECEIVABLES – SECURITIZATION ABROAD Refer to receivables from Banco Bradesco S.A. and Banco do Brasil S.A., contracted in July 2003, in the amount of US$500 million,

divided into US$100 million and US$400 million, respectively, with interest rates of 4.777% and 5.911% per year, for quarterly

payments over a period of eight years and a grace period of two years.

As of December 31, 2009, the principal receivable from Banco Bradesco S.A. and Banco do Brasil S.A. is R$206,295 (R$484,979 as of

December 31, 2008).

The balances receivable were segregated into current and noncurrent according to the flow of receipts, i.e., R$163,850 (R$207,979

as of December 31, 2008) and R$42,445 (R$277,000 as of December 31, 2008), respectively.

Interest is received and paid in advance, on a quarterly basis, and recorded under “Interest receivable – securitization abroad” and

“Interest payable – securitization abroad”, in the amount of R$2,914 (R$6,341 as of December 31, 2008).

These receivables were contracted at the same rates and terms as the Company’s obligation to Brazilian Merchant Voucher

Receivables Limited, a special purpose entity established in Grand Cayman (Note 19).

The long-term portion, as of December 31, 2009, will be fully settled in 2011.

Cielo88

9. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTIONDeferred income tax and social contribution arise from temporary differences mainly due to temporarily nondeductible provisions,

and are recorded in current and noncurrent assets according to their expected realization.

Deferred income tax and social contribution reflect the tax effects attributable to temporary differences between the tax base of

assets and liabilities and their reported amounts in the financial statements. Reported amounts are monthly reviewed.

Deferred income tax and social contribution as of December 31, 2009 and 2008, are as follows:

Income tax Social contribution

2009 2008 01.01.2008 2009 2008 01.01.2008

Temporary differences:

Reserve for contingencies 124,338 97,311 69,228 44,762 35,032 24,922

Accrual for sundry expenses 27,949 24,445 19,010 10,065 8,800 6,843

Write-off of deferred charges - - 20,217 - - 7,278

Adjustment to present value of

prepayment of receivables8,816 - - 3,174 - -

Accrual for maintenance of POS equipment - - 1,296 - - 466

Allowance for losses on POS equipment 713 1,133 772 257 408 278

Allowance for losses on deferred expenses 1,416 1,668 4,744 510 601 1,709

Total 163,232 124,557 115,267 58,768 44,841 41,496

Management believes that the deferred assets arising from temporary differences will be realized in proportion to the final resolution of

lawsuits and related events. The expected realization of deferred income tax and social contribution is as follows:

2010 58,299

2014 163,701

Total 222,000


10. PROPERTY, PLANT AND EQUIPMENT

Consolidated

2009

Annual depreciation

rate – % Cost

Accumulated

Depreciation Net

POS equipment (*) 33 693,860 (422,466) 271,394

Data processing equipment 20 27,214 (18,043) 9,171

Machinery and equipment 10 68,612 (64,814) 3,798

Facilities 10 17,080 (9,893) 7,187

Furniture and fixtures 10 6,584 (2,999) 3,585

Vehicles 20 1,198 (212) 986

Total 814,548 (518,427) 296,121

(*) As of December 31, 2009 and 2008, obsolescence reserve for POS equipment was recorded in the amounts of R$2,851 and R$520, respectively, as a

reduction of the account.

Consolidated

2008

Annual depreciation

rate – % Cost

Accumulated

Depreciation Net

POS equipment 33 550,237 (363,592) 186,645

Data processing equipment 20 23,824 (15,742) 8,082

Machinery and equipment 10 70,168 (62,991) 7,177

Facilities 10 16,244 (8,920) 7,324

Furniture and fixtures 10 6,233 (2,595) 3,638

Vehicles 20 478 (49) 429

Total 667,184 (453,889) 213,295

Changes in property, plant and equipment for the year ended December 31, 2009, are as follows:

2008Additions/

transfers

Write-offs/

reversalsDepreciation 2009

POS equipment 186,645 215,722 (6,162) (124,811) 271,394

Data processing equipment 8,082 4,739 (100) (3,550) 9,171

Machinery and equipment 7,177 2,861 (47) (6,193) 3,798

Facilities 7,324 1,531 (454) (1,214) 7,187

Furniture and fixtures 3,638 898 (287) (664) 3,585

Vehicles 429 915 (147) (211) 986

Total 213,295 226,666 (7,197) (136,643) 296,121

As of December 31, 2009 and 2008, property, plant and equipment arising from finance lease transactions are represented

only by assets classified as data processing equipment in the net amounts of R$2,215 and R$6,203, respectively. Average term

of depreciation for this equipment is approximately three years. The depreciation of IT equipment purchased through lease

transactions for the years ended December 31, 2009 and 2008, recorded under “General and administrative expenses”, amounts to

R$3,988 and R$4,112, respectively. As of December 31, 2009 and 2008, the Company does not have finance leases payable.

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11. GOODWILLAs mentioned in Note 1, on January 2, 2008, CBGS Ltda. subscribed 693,480 new common shares without par value of

jointly-controlled entity CBGS, for R$139,045, which represented its fair value as of that date.

As part of payment, CBGS Ltda. delivered all the shares of Orizon and Dativa, totaling R$71,691, consisting of total net assets

of R$9,188, transferring goodwill arising on the acquisition of these subsidiaries from third parties, and generating payables of

R$67,266 to be paid in within up to two years, as detailed in Note 1.

The balance of goodwill in consolidated is net of the reversal of the unrealized gain in consolidated from the transfer of the shares

of Orizon and Dativa totaling R$5,880, also less of the allowance for impairment of goodwill recognized in 2008, which totals

R$1,956, consolidated.

At the end of 2008, the Company tested the goodwill for impairment and determined that the balance of goodwill related to its

contribution to the joint venture was impaired by R$1,956. The recoverable amount was calculated based on its value in use. The

main factor for the impairment of goodwill was Management’s reassessment of the profitability prospects of the Health Project.

The impaired goodwill amount was recognized in “Other operating (expenses) income, net”, in the 2008 statement of income.

The breakdown of goodwill as of December 31, 2009, is as follows:

Goodwill Ownership interest – % Net

CBGS 25,631 100.00 25,631

Prevsaúde 7,372 40.95 3,019

Precisa 3,381 40.95 1,384

Unrealized income (5,880)

Allowance for losses (1,956) (1,956)

Total 22,198

As described in Note 1, on March 16, 2009, indirect subsidiary CBGS acquired all the shares of Prevsaúde and Precisa. The

investment recorded by CBGS includes a share premium in the amount of R$10,753, recorded as goodwill. This goodwill is

based on expected future earnings of those Companies, based on the increase in operations expected for the coming years.

Changes in goodwill for the year ended December 31, 2009, are as follows:

2008Additions/

transfers

Write-offs/

reversals2009

CBGS 25,631 - - 25,631

Prevsaúde - 3,019 - 3,019

Precisa - 1,384 - 1,384

Allowance for losses (1,956) - - (1,956)

Unrealized income (5,880) - - (5,880)

Total 17,795 4,403 - 22,198


12. INTANGIBLE ASSETS2009 2008 01.01.2008

Annual

amortization

rate – %

CostAccumulated

amortization Net Net Net

Software (a) 20 83,124 (55,319) 27,805 35,928 43,685

Project development (b) 20 28,543 (15,064) 13,479 19,820 19,109

Allowance for losses on projects (c) - - - - (6,673) (18,981)

Customer relationship (d) 32 35,464 (35,464) - 20,766 -

147,131 (105,847) 41,284 69,841 43,813

(a) Refers to items purchased from third parties and used to provide data and business transactions processing services to customers. There is no individually

material software as of December 31, 2009.

(b) Refers to costs on development of new products and services for purposes of increasing sales and revenue of the Company and its subsidiaries.

(c) Refers to the provision for losses related to costs on development of projects and software of jointly-owned subsidiary Orizon.

(d) Refers to the proportionate consolidation of 40.95% of intangible assets contributed to the joint venture CBGS by the other venturers, Bradesco and Cassi,

and the related subsequent amortization of these intangibles over their finite useful lives of 38 months. Additionally, the Company’s Management recognized

for consolidation purposes an allowance for losses on these intangibles, totaling R$46,641, consolidated, as of December 31, 2009, (R$35,444 as of

December 31, 2008), and cost presented in the table above is net of this allowance.

For consolidation purposes, at the end of 2008, the Company tested these intangibles in the joint venture for impairment and

determined that they were impaired by R$35,444, and recognized an allowance for losses in the same amount. The Company

tested again these intangibles for impairment at the end of 2009 and increased the allowance for losses by R$46,641.

The recoverable amount was calculated based on its value in use. The main factor for the impairment of goodwill was

Management’s reassessment of the profitability prospects of the Health Project.

The contra entry to the allowance for losses is line account “Other operating (expenses) income, net” in the statement of income,

which as of December 31, 2009, totals R$11,197 (R$35,444 as of December 31, 2008).

Amortization expenses of intangible assets were included in “General and administrative expenses” in the statement of income.

Changes in intangible assets for the year ended December 31, 2009, are as follows:

2008Additions/

transfers

Write-offs/

reversalsAmortization 2009

Software 35,928 4,457 (74) (12,506) 27,805

Project development 19,820 1,888 (6,676) (1,553) 13,479

Allowance for losses on projects (6,673) - 6,673 - -

Customer relationship 20,766 - (11,197) (9,569) -

Total 69,841 6,345 (11,274) (23,628) 41,284

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13. TRANSACTIONS PENDING TRANSFERThe amounts due by credit cardholders through the card-issuing banks and the amounts to be transferred to merchants are

recorded in memorandum accounts. As of December 31, 2009, the balances are R$25,963,741 (R$20,767,459 as of December 31,

2008) and R$26,631,263 (R$21,255,087 as of December 31, 2008), respectively.

In addition to the provision of services consisting of the transfer of credit card transaction amounts between the card-issuing banks

and the merchants, the Company also guarantees accredited merchants that they will receive the amounts paid with credit cards.

The Company has an instrument to mitigate the credit risk of banks that issue VISA cards, used as a hedge against the risk of default

by such banks and that requires the provision of guarantees (collaterals or bank guarantees) considering the credit risk of the card-

issuing bank, sales volume with VISA cards, and residual risk of default by cardholders. The provision of guarantees is mandatory for

all card-issuing banks with credit risk and amounts are reviewed periodically by the VISA logo and the Company. If the card-issuing

bank does not provide the requested guarantees, it is not accepted as a system member or is disqualified as such. The objective of

the business guarantee system is to ensure merchants that they will receive the amounts of the transactions carried out with VISA

cards. The card-issuing banks provide the Company with guarantees against possible default by cardholders and the Company

provides guarantees to merchants against possible default by the card-issuing banks in the event of an intervention by the Central

Bank of Brazil (BACEN). Visa International manages the system of guarantees required from card-issuing banks and is the final

guarantor of the system, including of the Company.

Based on the immaterial historical amount of Company losses due to default from card-issuing banks and the current credit risks

of these financial institutions, the Company estimates that the fair value of the guarantees provided to merchants is immaterial and,

therefore, is not recognized as a liability.

14. PAYABLES TO MERCHANTSThe balance of R$667,522 as of December 31, 2009, (R$487,628 as of December 31, 2008) corresponds to the difference between

the amounts received from VISA cardholders through the card-issuing banks and the amounts to be transferred to merchants. In

general, the period of collection from card-issuing banks is 27 days and the average period for payment to merchants is 30 days

from the date of transaction. Therefore, the balance payable as of December 31, 2009, refers to a float of approximately three days.

15. TRADE ACCOUNTS PAYABLE

2009 2008 01.01.2008

Trade accounts payable 66,156 22,877 63,065

Accrued payments to suppliers 50,287 73,727 22,530

Total 116,443 96,604 85,595


16. TAXES PAYABLE

2009 2008 01.01.2008

Income tax and social contribution, net of prepayments 388,289 248,525 203,189

Service tax (ISS) 6,098 5,477 4,466

Withholding income tax (IRRF) 5,016 5,661 4,487

Tax on revenue (COFINS) 13,928 12,430 11,163

Tax on revenue (PIS) 3,051 2,798 2,110

Other taxes payable 563 175 2,388

Total 416,945 275,066 227,803

17. OTHER PAYABLES

2009 2008 01.01.2008

Current liabilities:

Accrual for sundry expenses 21,861 19,864 25,492

Accrued vacation and 13th salary and related taxes 19,503 17,374 13,532

Employee and officer profit sharing 36,619 20,743 17,409

Other payables 2,058 8,545 42,199

Total 80,041 66,526 98,632

Noncurrent liabilities:

Amounts payable 233 740 868

18. RESERVE FOR CONTINGENCIES AND ESCROW DEPOSITS

a) Reserve for contingencies

The Management of the Company and its subsidiaries, based on the opinions of their legal counsel, recognized a reserve for

contingencies to cover losses on ongoing tax, labor and civil lawsuits, whose likelihood of an unfavorable outcome was assessed

as probable.

The changes in the reserve for contingencies in the year ended December 31, 2009, were as follows:

2008 Additions (a) Write-offs/

reversals (b)

Inflation

adjustment Payments (c) 2009

Tax 369,430 154,047 (21,400) 2,870 (20,501) 484,446

Civil 11,196 2,771 (2,102) - (497) 11,368

Labor 10,837 7,376 (2,446) - (3) 15,764

Total 391,463 164,194 (25,948) 2,870 (21,001) 511,578

(a) Correspond basically to the increase in the reserve for contingencies in the year ended December 31, 2009, related to suspended taxes, recorded as a

contra entry to “General and administrative expenses” and “Other operating (expenses) income” in the statement of income.

(b) Basically represented by a reserve for tax contingencies, in which the Company withdrew the lawsuits and included them in the federal tax

installment program.

(c) Correspond basically to the full settlement at sight of the lawsuits included in the federal tax installment program.

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Labor and social security contingencies – consider the current stage of lawsuits in case of probable losses.

Civil contingencies – refer to frauds in credit card operating processes.

Tax contingencies – refer to differences in interpretation by tax authorities, especially regarding:

• PIS – increase in tax rate – since January 2003, the Company and its subsidiary Servinet are challenging in court the increase

in PIS rate to 1.65%. As a result, the difference in the PIS rate under the cumulative and noncumulative calculation method is

being recorded as reserve for contingencies since then. Escrow deposits are made for unpaid PIS amounts. As of December

31, 2009, the accrued balance is R$87,458 and the balance of escrow deposits is R$92,244. The lawsuit was filed by the

Company with the 2nd Federal Court of São Bernardo do Campo. A final and unappealable decision was issued and the

Company awaits the sentence execution. The lawsuit was filed by the subsidiary with the 7th Federal Court of São Paulo and is

awaiting judgment of the appeal filed.

•COFINS – noncumulativeness – in February 2004, the Company and its subsidiary Servinet filed an injunction to avoid

payment of COFINS according to Law No. 10833/03 that requires the noncumulative calculation at the rate of 7.60%, and

began to make escrow deposits for amounts determined monthly. As a result, the difference in the COFINS rate under the

cumulative and noncumulative calculation method is being recorded as reserve for contingencies since then. Escrow deposits

are made for unpaid COFINS amounts. As of December 31, 2009, the accrued balance is R$361,833 and the balance of

escrow deposits is R$362,474. The lawsuit is awaiting judgment of the Federal Supreme Court.

•State VAT (ICMS) on imports – in 2003, through an injunction and defense against tax notifications regarding the customs

clearance of POS equipment purchased abroad for its property, plant and equipment, the Company is seeking nonpayment of

ICMS. As of December 31, 2009, the accrued balance is R$5,881 and the balance of escrow deposits is R$3,040. The lawsuits

filed by the Company with the 1st, 3rd, 6th , 7th, 10th, 13th and 14th São Paulo State Finance Courts and the court records are

awaiting judgment.

•Amazon Investment Fund (FINAM) – in 2007, the Company received a tax notification for calendar year 2002, fiscal year 2003.

The Federal Revenue Service alleges that the Request for Review of Tax Incentive Issue Order (PERC) was not filed within

the required deadline and, therefore, they do not recognize the portion of business income tax (IRPJ) related to FINAM. The

Company awaits the distribution of the Voluntary Appeal to the Panel of the Board of Tax Appeals. As of December 31, 2009,

the accrued balance is R$11,080.

•IRRF – incentive cards – in 2008, the Company received a tax notification related to calendar year 2005. The Federal Revenue

Service is claiming the credits arising from incentive marketing campaigns. The lawsuit is at the stage of administrative

defense. As of December 31, 2009, the accrued balance is R$390.

• Tax deficiency notices on unidentified credits – on December 23, 2009, the Company received tax deficiency notices related

to calendar years 2004 through 2007 regarding IRRF, PIS, COFINS and CSLL tax payments. The Federal Revenue Service is

claiming credits that were not identified in accessory obligations. This lawsuit is at the administrative defense stage, but, based

on the legal counsel’s opinion, the Company recognized a reserve for contingencies of R$16,953.


The Company and its subsidiaries are challenging other interpretations of the law by tax authorities and, therefore, as of

December 31, 2009, recognized a reserve for contingencies in the amount of R$851.

The Management of the Company and its subsidiaries, based on the opinion of their legal counsel, believes that the actual

disbursement of the reserves for contingencies will not occur before 2014.

Additionally, as of December 31, 2009, the Company and its subsidiaries are parties to tax, civil and labor lawsuits assessed by

their legal counsel as possible losses, for which no reserve was recorded, as follows:

Tax 117,816

Civil 124,041

Labor 16,269

Total 258,126

Civil contingencies refer basically to collection of transactions made through the Company’s system that were not transferred to

merchants in view of noncompliance with clauses of the affiliation contract, and compensation for losses caused by transactions

not transferred at that time.

Labor lawsuits, when started, are considered possible loss. Only after the court decision is issued, the lawsuits are reclassified

to probable or remote loss, depending on the decision and based on the history of losses on similar labor lawsuits. In general,

considering the history of losses, labor lawsuits are related to salary equalization, overtime, annual bonus, rights guaranteed

by agreements between the employer and the labor union, recognition of employment relationship, tenure after occupational

disease, and pain and suffering.

b) Escrow deposits – noncurrent assets

The Company has escrow deposits linked to the reserve for tax, labor and civil contingent liabilities, broken down as follows:

2009

Tax 452,273

Civil 1,325

Labor 1,694

Total 455,292

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19. Payables – Securitization AbroadRefer to the securitization transaction described in Notes 1 and 8, representing the Company’s obligation to deliver receivables

denominated in foreign currency that were generated or will be generated by the Company against Visa International Service

Association, arising mainly from purchases of goods/services with VISA credit and debit cards at Brazilian merchant outlets by

individuals residing and domiciled abroad, which were the subject matter of an agreement for assignment of future flow of

receivables to Brazilian Merchant Voucher Receivables Limited, a special purpose company established in Grand Cayman, which

issued securities in the international market, backed by receivables assigned by the Company.

Pursuant to the indenture, Brazilian Merchant Voucher Receivables Limited will pay total obligations in connection with the

securitization transaction with the flow of receivables in foreign currency from Visa International Service Association.

The banks participating in this transaction (Banco Bradesco S.A. and Banco do Brasil S.A.) entered into a cross guarantee agreement

whereby, in the event of default by one of the parties, the other party guarantees the transaction and has the right to exercise the

stock option for all or a part of the interest held by the default bank in the Company.

The amortization period of the amount recorded in noncurrent liabilities as of December 31, 2009, is until 2011 and the payment

schedule of the long-term portion is the same as shown in Note 8.

20. shareholders’ equity

a) Capital and capital reserve

Capital as of December 31, 2009, is represented by 1,364,783,800 common shares, fully subscribed and paid in. As mentioned

in item (d) below, with the repurchase of 4,532,300 shares in 2009, the number of shares totaled 1,360,251,500 as of December

31, 2009.

On January 31, 2008, Caixa Econômica Federal exercised its share subscription right, by subscribing 7,690,493 shares for R$65,825,

of which R$846 was recorded as capital increase and R$64,979 was recorded as capital reserve – share subscription premium.

On May 18, 2008, Visa Inc. concluded its corporate restructuring process. The result of this restructuring, intended to adjust the

ownership interest of the member companies according to the financial results generated for each of the five operational regions

of Visa Inc., was the assignment of the shares held to the member companies of the Visa System.

As a result of this process, on that date the Company received 11,990,744 shares with US$0.0001 of book value. It was accounted

as capital contribution at current fair value, totaling R$897,276, recorded in line items “Investments” and “Capital reserves”, less

deferred income tax and social contribution.

On March 28, 2008, 6,737,060 Visa Inc. shares were sold at the market price on the date of Visa Inc.’s IPO, totaling R$502,893, less

the corresponding commissions.

The Extraordinary Shareholders’ Meeting held on June 2, 2008, approved the reduction of the Company’s capital by R$1. In

exchange for this capital reduction, the 5,253,684 class “C” (Series I) common shares of Visa Inc. held by the Company were

transferred. The shares of Visa Inc. were delivered to shareholders proportionally to their interests in the Company’s capital.

The change in the fair value of these shares since the date they were received to this date, accounted for in the statement of

comprehensive income, was transferred to net income for the year.


On June 25, 2008, the Company’s Board of Directors’ meeting approved the issuance of 96,757 Class “B” common shares,

through the use of part of the authorized capital, which were subscribed by Caixa Econômica Federal, without any additional capital

contribution.

The Extraordinary Shareholders’ Meeting held on August 25, 2008, approved the conversion of all the 332,391,900 class “B”

common shares into class “A” common shares, in the same proportion; accordingly, the Company’s capital started to be

represented by a single class of common shares without par value.

The Extraordinary Shareholders’ Meeting held on September 22, 2008, approved a 2-for-1 stock split of the Company’s common

shares. As a result, the Company’s capital started to be represented by 1,364,783,800 registered common shares without par value.

b) Dividends

Recognized as liabilities when dividends are approved by the Company’s shareholders. Shareholders are entitled to a minimum

dividend of 50% of income after the recognition of the legal reserve of 5% of the net income for the year until the reserve equals

20% of the capital. The allocation of any remaining balance of net income will be resolved at the Shareholders’ Meeting. At

yearend, the Company accrues the minimum dividends not paid during the year up to the limit of the previously mentioned

mandatory minimum dividend. As of December 31, 2009, the amount was R$105,365, less the payment of interim and

intermediary dividends made, totaling R$661,532.

The Board of Directors’ Meeting held on January 28, 2009, approved the distribution of the balance of retained earnings, based

on the balance sheet as of December 31, 2008, in the amount of R$542,985. This amount was paid to shareholders as dividends

on February 27, 2009.

According to the minutes of the Board of Directors’ meeting held on April 22, 2009, the distribution of profits earned in the

quarter ended March 31, in the form of interim advanced amounting to R$333,199, was approved.

According to the minutes of the Board of Directors’ meeting held on August 4, 2009, the distribution of profits earned in the

quarter ended June 30, 2009, amounting to R$328,333, was approved.

On June 2, 2008, the 5,253,684 class “C” (Series I) shares of Visa Inc. held by the Company were transferred to the shareholders

proportionally to their interests in the Company’s capital as payment of dividends with the transfer of financial assets.

c) Earnings reserve – legal

Recognized with amounts corresponding to 5% of annual net income, pursuant to article 193 of Law No. 6404/76, up to the limit

of 20% of capital. The balance as of December 31, 2009, is R$15,076.

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d) Treasury shares

On November 23, 2009, the Company’s Board of Directors, in compliance with article 17 of its bylaws, approved the buyback of

up to 6,000,000 common shares without par value, to be canceled, sold or held in treasury and, primarily, to meet the exercise

of the options granted under the Company’s Stock Option Plan, with no capital reduction, within 180 days of that date, expiring,

therefore, on May 21, 2010.

The Company’s Management should define the number of shares that will be bought back, within the authorized limits, and the

buyback timing.

During the year ended December 31, 2009, share buybacks were as follows:

MONTH Number Amount

Average

cost – R$

per share(*)

November 513,100 8,212 16.00

December 4,019,200 61,016 15.18

Total 4,532,300 69,228

(*) The highest and the lowest price paid in these buybacks were R$16.46 and R$13.83, respectively.

21. EARNINGS PER SHARE

a) Change in the number of common shares:

SHARES ISSUED Common

Shares as of December 31, 2007 1,349,209,300(*)

New shares issued on January 23, 2008 15,380,986(*)

New shares issued on June 25, 2008 193,514(*)

Shares as of December 31, 2008 1,364,783,800

Buyback shares to be held in treasury – November 26 and 27, 2009 (513,100)

Buyback shares to be held in treasury – December 1st and 15, 2009 (4,013,200)

Shares as of December 31, 2009 1,360,257,500

(*) Considering the 2-for-1 stock split undertaken on September 22, 2008.


b) Earnings per share

In compliance with IAS 33 – Earnings per Share, the following tables reconcile the net earnings and weighted average of

outstanding shares with the amounts used to calculate the basic and diluted earnings per share.

BASIC 2009 2008

Net income available to common shares 1,533,794 1,342,072

Weighted average of outstanding shares (in thousands) 1,364,364 1,363,763

Earnings per share (in R$) – basic 1.1242 0.9841

DILUTED 2009 2008

Net income available to common shares 1,533,794 1,342,072

Diluted denominator:

Weighted average of outstanding shares (in thousands) 1,364,364 1,363,763

Potential increase in common shares as a result of the stock option plan 576 -

Total (in thousands) 1,364,940 1,363,763

Earnings per share (in R$) – diluted 1.1237 0.9841

22. EXPENSES BY NATUREThe Company elected to report the consolidated income and expenses by nature. As required by IFRS, the consolidated statement

of income detailed by nature is presented as follows:

2009 2008

Personnel expenses (221,722) (180,197)

Depreciation and amortization (160,271) (148,635)

Professional services (652,697) (654,630)

Capital gain on sale of ownership interest - 12,848

Capital gain on sale of shares - 343,583

Other expenses (307,152) (307,896)

Total (1,341,842) (934,927)

Classified as:

Cost of services (936,312) (851,119)

Personnel expenses (123,380) (95,613)

General and administrative expenses (147,145) (162,484)

Management and officer compensation (6,829) (9,520)

Marketing (72,960) (77,948)

Other operating expenses (55,216) 261,757

Total (1,341,842) (934,927)

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23. FOREIGN BRANCHThe Company conducts operations (Note 1) through its branch in Grand Cayman, Cayman Islands. As of December 31, 2009, the

balance sheet and the statement of income accounts of this branch, consolidated with the Company’s accounts (parent company),

after eliminations, are as follows: current and noncurrent assets of R$215,800 (R$499,213 as of December 31, 2008), current and

noncurrent liabilities of R$209,270 (R$491,453 as of December 31, 2008) and shareholders’ equity of R$7,760 (R$6,529

as of December 31, 2008). The net income for the year ended December 31, 2009 was R$1,230 (R$2,248 for the year ended

December 31, 2008).

In the year ended December 31, 2009, the effect of changes in exchange rates on the translation of the financial statements

of the Grand Cayman branch, totaling R$1,824 (R$1,587 in the year ended December 31, 2008), was recorded under “Financial

income (expenses).”

24. RELATED – PARTY TRANSACTIONS In the normal course of activities the Company conducts transactions with related parties at arm’s length, such as receivables

from card-issuing banks, which are the financial groups in which the controlling shareholders hold interests, and expenses on and

income from services provided by Servinet and Orizon.

When conducting its business and engaging services, the Company makes market quotations and surveys intended to find the best

technical and pricing terms, and the decision on whether or not a transaction should be conducted is made by the chief decision

maker of the function purchasing the product or service, regardless of whether such transaction is conducted with related or

unrelated parties.

Also, the type of business conducted by the Company requires it to enter into agreements with several card-issuing entities that are

its direct or indirect shareholders. The Company believes that all the agreements entered into with related parties are carried out on

an arms-length basis.

The tables below include the amount of transactions with the Company’s related parties, broken down by type of agreement,

shareholder and subsidiaries, for the years ended December 31, 2009 and 2008:

2009 2008

Shareholders Subsidiaries

Banco

Bradesco S.A.

Banco do

Brasil S.A.

Banco

Santander S.A.Other Servinet Orizon Total Total

Assets (liabilities):

Short-term investments (a) 58,885 281,694 111,238 47,812 - - 499,629 1,030,395

Trade accounts receivable:

Fraud prevention services 144 154 137 54 - - 489 1,007

Bank account blocking services 592 90 330 458 - - 1,470 6,051

Receivables – securitization abroad (b) 115,863 93,346 - - - - 209,209 491,320

Receivables from subsidiary - - - - 5 2,554 2,559 206

Payables to subsidiary - - - - (6,324) - (6,324) (10,398)

Other payables – affiliation commission

and other payables(393) (396) (136) (190) - - (1,115) (2,165)


2009 2008

Shareholders Subsidiaries

Banco

Bradesco S.A.

Banco do

Brasil S.A.

Banco

Santander S.A.Other Servinet Orizon Total Total

Income:

Income from short-term investments (a) 15,323 14,468 18,117 2,287 - - 50,195 116,127

Revenue from fraud prevention services 1,752 2,108 1,322 2,889 - - 8,071 6,684

Revenue from bank account

blocking services5,137 902 4,548 16,503 - - 27,090 37,887

Income from services and lease of

POS equipment- - - - - 4,029 4,029 1,569

Expenses:

Other operating expenses – affiliation

commission(5,957) (6,137) (2,035) (2,822) - - (16,951) (19,274)

Service agreement with Servinet (c) - - - - (83,991) - (83,991) (82,349)

Investment agreement with CBGS - - - - - - - (32,245)

Agreement for the payment of incentive

funds (d) (2,470) - (2,018) (5,180) - - (9,668) (18,386)

Collective corporate dental care and

healthcare plan(9,453) - - - - - (9,453) (8,340)

Private pension contract (e) (1,209) (1,309) (953) - - - (3,471) (5,069)

Collective corporate life insurance contract - - (817) (817) (659)

(a) The terms, charges and interest rates of short-term investments were agreed under conditions similar to those applicable to unrelated parties.

(b) See Note 8.

(c) The Company engaged Servinet to provide POS equipment installation and maintenance services to merchants. The payment for the services provided is

determined based on the costs incurred by Servinet when the service is provided, plus taxes and contributions and a payment margin.

(d) Payment of incentive to issuers according to the targets agreed related to the issue of Visa cards.

(e) See Note 35.

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25. INCOME TAX AND SOCIAL CONTRIBUTION The actual income tax and social contribution rate for the years ended December 31, 2009 and 2008, is as follows:

2009 2008

Income before income tax and social contribution 2,331,098 2,052,404

Income tax and social contribution at the rate of 34% (792,573) (697,817)

Permanent differences, net (*) (4,731) (12,515)

Income tax and social contribution (797,304) (710,332)

Current (853,151) (774,180)

Deferred 55,847 63,848

(*) Represented substantially by reserves for contingencies permanently nondeductible from the calculation of taxable income tax and social contribution basis.

26. FINANCIAL INSTRUMENTS The estimated fair values of financial instruments have been determined using available market information and appropriate

valuation methodologies. However, considerable judgment was required to interpret market data and then develop the most

appropriate fair value estimates. Accordingly, estimates presented herein are not necessarily indicative of the amounts that could be

realized in the market. The use of different market methodologies may have a material effect on the estimated fair values.

These instruments are managed through operating strategies, aimed at liquidity, profitability and security. The control policy

consists of permanent monitoring of contracted rates compared to market rates. The Company does not have transactions for

speculative purposes, derivatives or any other risk assets.

(a) Financial assets and financial liabilities

The Company’s financial assets and financial liabilities refer to cash and cash equivalents, trade accounts receivable, receivables

and payables from securitization abroad, payables to merchants and trade accounts payable. The estimated fair values of

financial instruments as of December 31, 2009, are as follows

2009

Carrying Amount Fair value

Cash and cash equivalents 514,280 514,280

Trade accounts receivable 1,178,784 1,178,784

Receivables – securitization abroad 209,209 215,110

Payables – securitization abroad 209,270 215,110

Trade accounts payable 116,443 116,443

Payables to merchants 667,522 667,522

The fair value of financial assets and short- and long-term financing was determined, when applicable, by using current interest

rates available for transactions conducted under similar conditions and with similar maturity dates.


b) Credit risk

The Company has a tool to mitigate the credit risk of VISA card-issuing banks, in order to hedge against the risk of default by

such banks.

This hedging tool consists in the commitment assumed by the VISA logo, pursuant to the international regulation, to guarantee

the transfer to the Company’s merchants of all sales made with VISA cards on the respective due dates in the event of default by

an issuer.

The guarantee model implemented by the VISA logo, jointly with the Company, contemplates the provision of guarantees

(collateral or bank guarantees) considering the credit risk of the issuer, sales volume with VISA cards and residual risk of default

by cardholders. The provision of guarantees is mandatory for all issuers with credit risk and amounts are reviewed periodically by

the VISA logo and the Company. If the issuer does not provide the requested guarantees, it is not accepted as a system member

or is disqualified as such.

The Company leases POS equipment to all affiliated merchants that do not have their own systems to capture transactions. The

rent is deducted, on the due date, from the amount of transactions paid to merchants. However, the rent may not be received

on the due date whenever there are no amounts payable to merchants. In these cases, the Company collects the rent through

debit to future sales, bank account or outside collection agencies, and material losses on rent may be incurred.

Also, VISA cardholders can contest transactions made with credit cards within certain timeframes from the date of the

transaction. For this purpose, the Company enters into an affiliate agreement with authorized merchants establishing all rules

for acceptance of VISA cards at the point of sale. If transactions are contested by cardholders and the business establishment

is no longer a VISA-affiliated merchant at the date of the contestation or has no amounts receivable from the Company, then

collection will be made through debit to bank account or outside collection agencies and there may be losses to the Company.

c) Risk of fraud

The Company uses a sophisticated antifraud system to monitor transactions with credit and debit cards, which detects and

identifies suspected fraud at the time of the authorization and sends an alert message to the card-issuing bank for it to contact

the cardholder.

Cielo104

d) Foreign exchange rate risk

Expenses incurred by foreigners in Brazil with VISA card are credited by Visa International Service Association to the Company on

the next day, converted into U.S. dollars at the “buy PTAX” (average exchange rate for the U.S. dollar calculated at the end of each

day) established by the Central Bank of Brazil (BACEN) on the date expenses were incurred.

The Company enters into forward exchange transactions for U.S. dollars to hedge against fluctuations in exchange rates, which

reduce significantly eventual risks of exposure to fluctuation in exchange rates.

There are no other material transactions in foreign currency that might cause a significant impact on the income or loss of the

Company because of the effects of the volatility of the exchange rate on other assets and liabilities denominated in foreign

currencies, principally the U.S. dollar.

As of December 31, 2009, the net exposure to foreign exchange rate risk, in thousands of U.S. dollars, is as follows:

ASSETS:

Cash and banks 7,148

Short-term investments 1,330

Receivables – securitization abroad 118,568

127,046

LIABILITIES:

Payables to merchants (4,470)

Payables – securitization abroad (118,568)

(123,038)

Long position in U.S. dollars 4,008

e) Interest rate risk

The Company’s results of operations are subject to significant fluctuations resulting from short-term investments with floating

interest rates.

Pursuant to its financial policies, the Company has maintained its short-term investments at prime banks and has not entered

into transactions with financial instruments for speculative purposes.

f) Interest rate sensitivity analysis – short-term investments

The funds from the Company’s short-term investments are impacted by changes in interest rates, such as the interbank deposit

rate (CDI). As of December 31, 2009, assuming an increase or reduction of 25% and 50% in the interest rates, there would be

an increase or decrease of approximately R$12,245 and R$24,490 in financial income, respectively. This amount was calculated

considering the impact of hypothetical increases or decreases in interest rates on the average balance of short-term investments

in 2009.


g) Derivatives

As of December 31, 2009, the Company had no derivative transactions.

h) Financial instruments per category

December 31, 2009

ASSETS:Loans and

receivables

Cash and cash equivalents 514,280

Trade accounts receivable 1,178,784


Total 1,902,273

LIABILITIES:Other financial

liabilities

Payables to merchants 667,522

Trade accounts payable 116,443

Payables – securitization abroad 209,270

Total 993,235

December 31, 2008

ASSETS:Loans and

receivables

Cash and cash equivalents 1,072,157

Trade accounts receivable 162,943


Total 1,726,420

LIABILITIES:

Other financial

liabilities

Payables to merchants 487,628

Trade accounts payable 96,604

Payables – securitization abroad 491,284

Total 1,075,516

Cielo106

27. COMMITMENTSThe Company is engaged in the capture, transmission, processing and settlement of transactions with VISA credit and debit cards.

To conduct said activities, the Company entered into the following agreement:

a) Lease agreements

As of December 31, 2009, future annual payments under lease agreements in effect are estimated as follows:

YEAR

2010 6,239

2011 6,551

Total 12,790

Most contracts specify a termination fine equivalent to a three-month rent, and a partial return can be negotiated for each case.

b) Telecommunications, technology (transactions processing) and logistics services

As of December 31, 2009, future payments under telecommunications, technology and logistics service agreements in effect are

estimated as follows:

YEAR

2010 391,472

2011 407,475

Total 798,947

Transactions capture and processing agreements stipulate termination fines in the amount of R$100,000. Telecommunications

service agreements vary according to the operating demand and it is not possible to determine an average term, and are subject

to an average termination fine of R$9,300. Logistics service agreements are in effect since June 2007, with a minimum period of

12 months and a termination fine of R$9,068.

c) Bank guarantees

As of December 31, 2009, based on agreements in effect, bank guarantees are composed of:

TYPE

Guarantee for card transactions 35

Guarantees for lease agreements (*) 504

Total 539

(*) Guarantee provided by financial institutions to secure the payment of property lease agreements.


d) Other commitments

As discussed in Note 1, the Company and its subsidiary CBGS Ltda. entered into an agreement for future capital increase,

whereby the Company commits to contribute funds by January 2, 2010, in the amount of R$67,354. As of December 31, 2009,

the balance was fully paid in and the adjustment of R$4,363 made in the year was recorded under “Financial expenses.”

28. EMPLOYEE AND MANAGEMENT PROFIT SHARINGThe Company and its subsidiaries pay profit sharing to their employees and officers, subject to the achievement of operational

goals and specific objectives, established and approved at the beginning of each year.

Employees and management profit sharing amounts for the years ended December 31, 2009 and 2008, were recorded under

“Personnel expenses” in the statement of income, as follows:2009 2008

Employees 30,369 19,168

Management members 6,251 1,574

Total 36,620 20,742

29. MANAGEMENT AND OFFICER COMPENSATION The Company’s Extraordinary Shareholders’ Meeting of April 13, 2009, set Management’s annual overall compensation at R$14,515.

2009

Compensation Vested stock options

Fixed Variable TotalStock options

balance(a)

Exercise

price (b)

Officers 4,114 3,338 7,452 1,611,700 12,80

Board of Directors 518 - 518 - -

Total 4,632 3,338 7,970 1,611,700 12,80

(a) Refers to the number of vested options not exercised by December 31, 2009.

(b) Refers to the weighted average exercise price of the options at the time they were granted.

Cielo108

30. FINANCIAL INCOME (EXPENSES)

2009 2008

Financial income:

Income from short-term investments 50,218 116,127

Interest on postponed receivables 3,742 7,663

Interest – securitization abroad 22,208 28,804

Reversal of contingencies’ fine and interest 4,490 -

Reversal of fine and interest on the federal tax installment program (a) 17,712 -

Other financial income 1,381 811

99,751 153,405

Financial expenses:

Interest – securitization abroad (22,208) (28,804)

Late payment interest and fines (12,206) (8,129)

Contingencies’ fine and interest (2,830) -

Fine and interest on the federal tax installment program (a) (11,103) -

Interest payable (2,995) (21,105)

Other financial expenses (5,177) (1,837)

(56,519) (59,875)

Income from prepayment of receivables:

Prepayment of receivables 218,150 17,388

Adjustment to present value expenses:

Adjustment to present value of receivables (b) (35,266) -

Exchange rate variation, net (c) 1,903 947

Total 228,019 111,865

(a) See Note 32.

(b) As described in Note 7.(a), the adjustment to present value recorded in the financial statements was calculated on receivables prepayments. The assumptions

adopted for the calculation are as follows:

•Interestratesusedarethosecontractedforthetransactionsofupto4.2%permonth.

•Calculationswerecarriedoutseparately,discountingcashflowsforeachrecordedreceivable.

The Company’s Management recognized the adjustment to present value of accounts receivable balance in view of the materiality of values adjusted, of interest

rates and transaction terms.

Management reviews the assumptions mentioned on a monthly basis and changes are recorded in the statement of income.

(c) Arises basically from the receivables securitization abroad transaction and gains and losses originally denominated in foreign currency, represented by

income in the amount of R$126,625 (R$391,812 as of December 31, 2008) and expenses in the amount of R$124,722 (R$390,865 as of December 31, 2008).


31. OTHER OPERATING INCOME (EXPENSES), NET Represented by:

2009 2008

Gain on fair value of Visa Inc. shares (a) - 343,583

Capital gain on sale of ownership interest (b) - 12,848

Fine on termination of agreement with service provider (c) (30,992) -

Write-off of uncollectible credits (15,461) (12,967)

Write-off due to impairment of intangibles (11,197) (35,445)

Reserve for contingencies (15,496) (6,217)

Federal tax installment program (2,088) -

Loss on merger of CBGS Ltda. (4,431) -

Allowance for losses on inactive POS equipment (2,331) (520)

Other operating income (expenses) (d) 26,780 (39,525)

Total (55,216) 261,757

(a) Corresponds to the gain on the change in fair value of Visa Inc. shares accounted for as available-for-sale financial assets, as described in Note 20.

(b) Refers to the capital gain earned by the subsidiary CBGS Ltda. on the sale of all its ownership interest in Orizon, as described in Note 1.

(c) Refers to the fine imposed on the termination of agreement with a service provider.

(d) As of December 31, 2009, refer basically to the refund to shareholder banks of expenses incurred on the Company’s IPO.

32. FEDERAL TAX INSTALLMENT PROGRAMLaw No. 11941, enacted on May 28, 2009, after the conversion of Provisional Act No. 449/08, created, among other provisions, a

new federal tax installment program.

Based on this Law, on November 25, 2009, the Company’s Management decided to pay certain tax debts at sight, as follows:

PROCEEDINGS Carrying amount PaymentEarnings

Company Consolidated

PIS Repique (levied on income tax paid) 17,939 (10,026) 7,913 7,913

IRRF – incentive cards 4,073 (629) 3,444 3,444

COFINS – offset against IPI 3,731 (2,556) 1,175 1,175

1999 IRPJ, CSLL, PIS and COFINS - (9,610) (9,610) (9,610)

PIS – cumulativeness (*) 7,952 (6,657) - 1,295

COFINS – tax rate increase (*) 310 (6) - 304

Total 34,005 (29,484) 2,922 4,521

(*) Refers to the effects of tax installments in the subsidiary Servinet.

The earnings from discounts in interest and fines, recorded in Company and consolidated, totaling R$5,038 and R$6,609, respectively, are recorded under “Financial income (expenses).” These earnings were partially settled by additional provisions, totaling R$2,116 and R$2,088, Company and consolidated, respectively, recorded under “Other operating revenue (expenses), net”, on the date of the tax installment program.

Cielo110

33. INSURANCEAs of December 31, 2009, insurance is as follows:

TYPE Insured amount

Civil liability and D&O 103,785

Fire 20,000

Windstorm and smoke 1,500

Electrical damages 1,500

Electronic equipment 1,500

Theft 500

Flood 1,500

Loss of profits 8,500

Vehicles 1,096

Other 1,400

34. STOCK OPTION PLANThe Extraordinary Shareholders’ Meeting held on September 22, 2008, approved the Company’s common stock option plan. This

plan was confirmed by the Extraordinary Shareholders’ Meeting held on June 1st, 2009, and is effective for ten years from the date

the first benefits were granted.

Stock options may be granted provided that capital dilution does not exceed, at any time during the effectiveness of the plan, 0.3%

per year. Options granted to beneficiaries will be subject to a five-year vesting period from the grant date approved by the Board

of Directors. The Board of Directors will define the beneficiaries eligible for the stock option plan annually or at the frequency

considered appropriate.

At meetings held on July 1st and September 23, 2009, the Board of Directors approved the first and second grants of options for the

purchase of common shares, respectively, as shown in the chart below, without any option for the settlement of options in cash.

Under the Stock Option Plan, the first portion of the stock options granted, equivalent to 1/3 of the total, will vest after one year.

Exercise

price R$

Vesting

period

Fair value of

options – R$

per shareGrant date

Number

Granted Cancelled Balance

07/01/09 2,848,700 (242,900) 2,605,800 11.25 (a) 5 years 3.86

09/23/09 551,200 - 551,200 16.84 (b) 5 years 4.55

Total 3,399,900 (242,900) 3,157,000

(a) Equivalent to 75% of the share price for the Company’s IPO.

(b) Equivalent to the weighted average of trading sessions between August 7 and September 18, 2009.


The fair value of options was measured using the Black & Scholes pricing model, based on the following economic assumptions:

July

2009 grant

September

2009 grant

Dividend yield 6.66% 6.66%

Share price volatility 36.67% 36.67%

Vesting period 4 years 4 years

The fair value is allocated to net income with a contra entry in the capital reserve on a straight-line basis over a term of up

to 36 months. An expense of R$3,699 was recognized for the year ended December 31, 2009, in “Other operating (expenses)

revenue, net.”

35. OTHER INFORMATIONa) The Company contributes monthly to a defined contribution pension plan (“PGBL”) for its employees, and contributions made

during the year ended December 31, 2009, amounted to R$3,471 (R$1,151 as of December 31, 2008), which were recorded under

“Cost of services” and “Personnel expenses.”

b) Tax on financial transactions (IOF) expenses for the year ended December 31, 2009, in the amount of R$368 (R$4,091 as of

December 31, 2008) were recorded under “General and administrative expenses.”

36. REGULATORY ISSUES

On October 1st, 2009, the Central Bank of Brazil (BACEN) concluded an analysis of the payment card industry in Brazil, and the

technical teams of BACEN, the Department of Economic Rights (SDE) of the Ministry of Justice and the Economic Monitoring

Department (SEAE) of the Ministry of Finance will submit to the three Ministers a set of measures to be adopted to meet the

recommendations of the study on the following points:

•Openingofaccreditationactivities.

•NetworksandPOS(transactioncaptureterminal)interoperability.

•Neutralityofclearingandsettlementactivities.

•Strengtheningofdomesticcreditcardsystems.

•Transparencyindefiningtheexchangefee.

These measures’ implementation schedule will be defined by authorities. Concurrently, regulators are discussing other measures

that, after being submitted to the Ministers, will be sent to different agencies, depending on their scope.

Cielo112

37. APPROVAL OF THE FINANCIAL STATEMENTSThe financial statements were approved by the Board of Directors of the Company and authorized for issuance on

January 27, 2010.

38.SUPPLEMENTARY INFORMATION – RECONCILIATION OF SHAREHOLDERS’ EQUITY AND NET INCOME OF THE PARENT COMPANY (NOT REQUIRED BY IFRS)Under CVM Instruction No. 457, of July 13, 2007, we present below the reconciliation of BR GAAP and IFRS shareholders’ equity and

net income attributed to the parent company for the periods below:

Note 3.2.2. 2009 2008

BR GAAP shareholders’ equity attributed to the parent company 860,429 159,061

IFRS adjustments, net of taxes:

Reclassification of dividends above mandatory

minimum dividends to shareholders’ equityh - 542,985

- -

IFRS shareholders’ equity attributed to the parent company 860,429 702,046

BR GAAP net income attributed to the parent company 1,533,794 1,393,843

IFRS adjustments, net of taxes: - -

Gain on fair value of Visa Inc. shares c - (105,145)

Reversal of effects of write-off of IFRS deferrals on 2008 net income a - 53,373

IFRS net income attributed to the parent company 1,533,794 1,342,071


TO THE SHAREHOLDERS OF CIELO S.A. Barueri – SP

1. We have audited the accompanying consolidated balance sheets of Cielo S.A. (formerly Companhia Brasileira de Meios de

Pagamento) (the “Company”) and subsidiaries as of December 31, 2009 and 2008 and January 1st, 2008, and the related

consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years ended

December 31, 2009 and 2008, prepared under the responsibility of the Company’s Management in conformity with international

accounting standards issued by the International Accounting Standards Board – IASB. Our responsibility is to express an opinion

on these consolidated financial statements.

2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into

consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the

Company and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the amounts and accounting

information disclosed; and (c) evaluating the significant accounting practices and estimates adopted by the Management of the

Company and its subsidiaries, as well as the presentation of the consolidated financial statements taken as a whole.

3. In our opinion, the consolidated financial statements referred to in paragraph 1 present fairly, in all material respects, the

consolidated financial positions of Cielo S.A. and subsidiaries as of December 31, 2009 and 2008 and January 1, 2008, and the

consolidated results of their operations, their comprehensive income, the changes in shareholders’ equity and their consolidated

cash flows for the years ended December 31, 2009 and 2008, in conformity with international accounting standards issued by

the International Accounting Standards Board – IASB.

4. Brazilian accounting practices differ, in certain material respects, from international accounting standards issued by the

International Accounting Standards Board – IASB. Information related to the nature and effect to these differences is presented in

note 3 to the consolidated financial statements.

5. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, January 27, 2010.

DELOITTE TOUCHE TOHMATSU Walter Dalsasso

Auditores Independentes Engagement Partner

CRC nº 2 SP 011609/O-8 CRC nº 1 SP 077516/O-9

(Convenience Translation into English from the Original Previously Issued in Portuguese)

114

GLOSSARY

ABECS: Brazilian Association of Credit Card and Services

Companies.

Acquirer: Companies responsible for capturing, processing,

transmitting and settling transactions, affiliating merchants and

implementing and managing an acceptance network.

Active Merchants: Merchants that have conducted at least one

credit or debit card transaction within the preceding 180 days.

Arbitration Panel: Market Arbitration Panel, introduced by

BM&FBOVESPA.

BMVRL: Brazilian Merchant Voucher Receivables Limited,

a special purpose company established for issuing in the

international market securities backed by receivables. Cielo

does not have direct or indirect ownership interest in BMVRL.

Brand: Company which owns the property rights and franchises

its brands and logos for acquiring companies and card issuers.

BRGAAP: Generally accepted accounting principles adopted

in Brazil, according to the Brazilian Corporate Law and its

amendments, rules and regulations by the CVM and by the

Brazilian Institute of Independent Auditors (IBRACON) and

resolutions by the Federal Accounting Council.

CAGR: Compound annual growth rate.

Card: Means of identification and payments, issued and

granted by issuers, for personal and non-transferable use of

cardholders, with or without multiple functions, of debit, credit

and installment credit for consumers (CDC), among others.

Co-Branded Private Label Card: Credit card issued by a large

retailer that carries the retailer’s brand and is associated with a

card brand, with the aim of increasing customer loyalty.

Electronic Capture Equipment: POS and PIN pads.

Free Float: Shares issued by the Company and readily available

in the market, except for those held by the controlling

shareholders, by their related persons, by Company’s

management and treasury shares.

IFRS: International Financial Reporting Standards.

Interchange Fee: Fee paid by the acquirer to the card issuer.

Lock-in Bank Domicile Services: Service provides to card

issuers, upon previous authorization of the merchant, of

depositing all funds from the merchant’s receivables that are

transferred through credit or debit card transactions into the

bank that is the merchant’s domicile bank. Merchants that

are subject to a lock-in bank domicile cannot transfer their

receivables without the consent of the card issuer.

Merchant Discount Rate: The fee acquirers charge merchants

for the services of capturing, processing, transmitting and

settling transactions.

Net Merchant Discount Rate: The merchant discount rate net

of the interchange fee. It is the revenue from commissions

obtained by the acquirer.

Novo Mercado Listing Rules: Rules that apply to publicly-held

companies for the trading of their securities on Novo Mercado

that establish differentiated corporate governance practices.

PDV: The point of sale equipment owned by the merchant.

POS: Electronic point of sale capture equipment.

115

Private Label Card: Credit card issued by a large retailer that

carries only the retailer’s brand, with the aim of increasing

customer loyalty.

Transaction: All and any acquisition of goods and services

using branded credit or debit cards. When a payment is

made in installments, each installment is considered as a new

transaction.

Transaction Volume: Financial volume of transactions captured,

processed, transmitted, and settled by acquirers or any other

entity responsible for the settlement of transactions.

Troco Fácil: Cash back. This product allows Visa Electron

cardholders to withdraw cash at the time of purchase at

affiliated merchants that are licensed by the Company to accept

this product.

USGAAP: Generally accepted accounting principles in the

United States.

Visa Brand: The Visa International brand.

Visa do Brasil: Visa do Brasil Empreendimentos Ltda.

Visa International: Visa International Service Association.

Visa Vale: A Visa-branded benefit card for meals and groceries.

Cielo116

This material was printed with soybean-based ink.

The CompanyCielo S.A.

CNPJ: 01.027.058/0001-91

Código CVM: 02173-3

NIRI: 35.300.144.112

Headquarters

Alameda Grajaú, 219 – Alphaville

Barueri/SP – CEP: 06454-050

Telefone: (11) 2184-7600

Office in São Paulo

R. Cardoso de Mello, 1184, 7º andar

São Paulo/SP – CEP: 06454-050

Investor Relations (IR)Director of IR

Marcos Grodetzky

IR Team

Roberta Noronha

Daniela Ueda

André Cazotto

e-mail: [email protected]

IR website: www.cielo.com.br/ri

Newspapers used to publish material facts inValor Econômico

Diário Oficial

Corporate Information

Information about ADRsDeutsche Bank Trust Company Americas

c/o American Stock Transfer & Trust Company

Peck Slip Station

P.O. Box 2050

New York, NY 10272-2050

e-mail: [email protected]

Service for Shareholder Assistance

Telefone: (866) 249-2593 (toll free)

Telefone: (718) 921-8137 (internacional)

Ticker: CIOXY

Cusip Code: 171778103

ISIN Code: US171778103

Independent AuditorsDeloitte Touche Tomatsu

Valter Dalsasso

Calendar of events in 2010 – IR

• J.P. Morgan Brazil Opportunities Conference

(Sofitel Jequitimar Hotel in Guarujá) – 14.04

• Cielo Day (Alphaville) – 05.05

• Bradesco Open Day (Cidade de Deus) 06.05

• Conferência Goldman Sachs BRIC’s (Hotel Landmark –

Londres) – 12/13.05

• Santander Latin American Real Estate, Infrastructure and

Financials Conference (Londres) – 17.05

• 38th Annual J.P. Morgan Global Technology, Media and

telecom Conference (Westin Boston Waterfront hotel in

Boston, Massachusetts) – 17/18/19.05

• 12º Encontro Nacional de RI (Sheraton WTC Hotel – SP) –

14/15.06

• Deutsche Bank Global Emerging Markets One on One

• Conference (The Waldorf Astoria) – 15/16/17.09

• Conferência Barclays – Fiel Trip (SP) – 16.11

• Conferência UBS LAT/EMEA One on One Conference

2010 (NY) – 30.11, 01/02.12

ww

w.cielo.com

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09 23-2010 - 2009 annual report

Business

net operating revenue

financial revenue

net cash flow

net incomenet

net margin2

net margin ninor

net debt nd

adjusted ebitda margin