Eternit manages the risks of its businesses as a way of obtaining competitive advantages, always monitoring its processes to mitigate such risks. A multi-disciplinary group consisting of specialist professionals from various areas, on a daily basis monitor the operational, labor, environmental, community and investor relations sectors in order to recognize risks and deal with them in accordance with the characteristics of each area. The Company is currently working on the introduction of software to systemize and facilitate the monitoring of risks.

The Committee for Auditing, Financial Control and Treasury controls and manages this work, as well as recommending directives according to the economic situation, evaluating the need for investment and the raising of funds, submitting these proposals to the Board of Directors for their consideration, if necessary.

Market Risks

Eternit’s businesses may suffer from unexpected changes in the Brazilian economy, resulting in a reduction in employment, low salaries, lack of credit availability, destabilization of incomes and interest rates, and lack of consumer confidence. To manage the possible impacts of this risk, Eternit is continuing with the implementation of its Plan for Expansion and Diversification, with the objective of producing products from floor-to-ceiling, strengthening its brand name with its customers, consumers and the market in general.

Operational Risks

Operational risks are those that can jeopardize the health and safety of its employees. To minimise these, the Company insists on the use of Individual Protection Equipment (EPIs) in the production plants, at the mining company and at workstations where collective use of protection equipment does not apply. The plants have Safety Committees and Fire Brigades, which are formed of employees from all hierarchical levels.

PERCENTAGE OF EMPLOYEES REPRESENTED ON FORMAL HEALTH AND SAFETY COMMITTEES

For those who deal with chrysotile asbestos, in addition to the use of individual protection equipment, Eternit adopts safety measures such as conducting its processes under damp conditions, to prevent the generation of particles and their inhalation, and the use of industrial automation in its machinery, to avoid direct contact between employees with this raw material.

SAFETY MEASURES, SUCH AS THE CONDUCTING OF PROCESSES UNDER DAMP CONDITIONS AND AUTOMATION OF PRODUCTION PROCESSES, IMPEDING EMPLOYEE CONTACT WITH RAW MATERIALS

The Tripartite Agreement (see more clicking here), filed with the Ministry of Labour and Employment, guarantees the individual right of any employee to halt production activities, without risk to their employment status, together with the plant’s inspection commission, if there is a risk to health and safety. All the fiber-cement manufacturing plants and the mining company SAMA have an Inspection Commission, which complies with the Agreement, as well as the legal requirements of the Internal Commission for the Prevention of Accidents.

In 2012, the rate of accidents involving time off work was 8.14, compared to 13.00 in 2011, and 7.93 in 2010. While the degree of seriousness was 497.41, compared to 185.51 the previous year and 98.64 in 2010, as a result of the increase in the number of accidents involving time off work at the companies of Eternit, Precon and Tegula. The Company concentrated its efforts during the year to carry out awareness campaigns, with the aim of avoiding accidents and reducing these accident rates. There were no deaths as a result of either lesions or work-related diseases. The registration of Eternit’s accident report follows the rules of the International Labor Organisation.

Environmental Risks

In order to prevent risks to the environment, Eternit continuously monitors its plants and the mining company. Every six months, for example, all the units undergo external auditing for the measuring of particle levels in the air, and the emission of gases, as well as the verification of the results of residue disposal, water reuse, revegetation of the tailing piles at the mining company, among other aspects. The process of identifying and mitigation of these risks is done through audits, which are conducted based on the directives and requirements of the ISO 14001 standard.

SAMA books provisions for potential environmental liabilities based on the best estimates for cleaning and repair costs, using a team of environmental specialists to manage all the phases of its environmental programs, using external specialists when necessary, following its Program for the Revitalisation of Degraded Areas, (PRAD), assessing costs on the basis of quotations in the market.

Financial Risks

Eternit seeks to honour its financial commitments and to be proactive in avoiding any type of risk of this nature. For this reason, the Company does not use leveraged derivative operations for speculative positions and keeps its level of indebtedness low.

Its credit risk is also low, because Eternit and its subsidiaries serve their more than using a rigorous credit granting process. This process was reinforced in 2010, with the automation of credit analysis using the Credit Manager tool, developed by Serasa Experian, which facilitates sales and marketing campaigns for the winning of the new customers and makes the Company’s portfolio of financial products profitable, standardising and facilitating the decision-making process. At the end of 2012, no one individual client represented more than 1.3% of the accounts receivable. Whenever necessary, the Company employs Advances on Export Contracts (ACE) and Advances on Foreign Exchange Contracts (ACC) to protect its portfolio of customers abroad.

Expenses related to any provision, booked when the group has a present obligation (legal or not formalized) as a consequence of a past event, are shown in the income statement, net of any reimbursement.

Operational risk of the banning of chrysotile asbestos

The Brazilian production chain uses chrysotile asbestos in a safe manner. Therefore, before touching on the risk of its banning, it is necessary to understand the issue of safe usage.

Safe Use of Chrysotile Asbestos

SO5

The mineral extracted in Brazil, known as chrysotile fiber, or “white asbestos”, is hydrated magnesium silicate belonging to the “serpentine” group. Its makeup does not pose significant risks to human health at levels of exposure of less than 2 fibers/cm³, in addition to the fact that its fibers have a low level of bio-persistency. To guarantee the health of its employees, Eternit works with concentrations of up to 0.1 fibers/cm³, 20 times lower than the legal tolerance limit. It is very difficult for chrysotile mineral fibers to become separated in a fiber cement product, because the mineral consists of only 10% of the material, and its bonding with the cement mix is very strong, having an affinity with cement which is also a type of silicate.

Even so, the Company constantly measures the concentration of fibers in suspension at its mine and at the plants. In addition to opening its doors for a half-yearly inspection of its working environment carried by an specialist consultancy accredited by the National Institute for Metrology, Quality and Technology (INMETRO), as required by law and audited by international bodies, Eternit has its own self-assessment mechanisms. At SAMA, for example, monthly measurements are carried out which have always recorded a fiber suspension rate of less than 0.1 fiber/cm³ at the mining installations, and 0.0005 fiber/cm³ in the town of Minaçu.

Similar concentration levels have been verified at Eternit’s plants. Among the various safety measures taken to ensure that these numbers are achieved, processes are carried out in a dampened atmosphere to avoid the creation of dust, while the manufacturing and processing areas are completely enclosed, with the adoption of collective protection systems. such as local fan extractors. For this reason, and guaranteed by the Tripartite Agreement signed between the companies, unions and filed with the Ministry of Labor, in contrast to that which occurred in Europe at the time of asbestos prohibition, employees support the continuance of their activities, as they understand that it does not put their health at risk.

LA9

Various entities and associations also support the use of the fiber, such as the National Association of Construction Material Merchants (ANAMACO), the Brazilian Association of Construction Material Industries (ABRAMAT), and the São Paulo State Industry Federation (FIESP), the Industry Federation in the State of Goiás(FIEG) and the National Industry Confederation (CNI), as well as unions and other sector bodies, such as the Brazilian Mining Institute (IBRAM) and the Brazilian Chrysotile Institute (IBC). This last organisation is also a source of studies and research on the subject, the results of which are available on the website www.crisotilabrasil.org.br.

NO CASE OF DISEASE RELATED TO THE USE OF CHRYSOTILE ASBESTOS HAS BEEN RECORDED AMONG EMPLOYEES JOINING THE GROUP FROM THE BEGINNING OF THE 1980

Proof of the safe use of chrysotile mineral under controlled conditions is the absence of any record of workers in the production chain with respiratory dysfunction problems related to this mineral among those employees joining the Company since the 1980s, as well as there being no record in scientific medical literature, not even with the World Health Organisation (WHO), of any Brazilian having contracted any disease whatsoever as a result of using roofing panels and water tanks made from asbestos.

In this regard, unprecedented research was carried out in Brazil in a project approved by the National Council for Scientific and Technological Development (CNPq) and carried out by doctors connected to well-known Brazilian and foreign universities, the aim of which was to establish if there were any risks or health effects for the population that use fiber cement tiles, and for workers in the mine.

The results of this research, which was published on November 25, 2010, prove that the concentrations observed in the study are within the range found in major Western urban centres and within limits considered to be acceptable by the World Health Organisation and the international agencies for exposure control. This implies that there is no risk inherent in the use of fiber-cement tiles containing chrysotile mineral as a roofing material. With respect to the evaluation of the sample of inhabitants studied, no alterations were found in terms of clinical, respiratory function, or high resolution scans, that could be attributed to the environmental inhalation of mineral fibers (chrysotile).

In an occupational evaluation, no alterations were identified, nor progression in pleural or intersticial aspects among employees or former employees exposed after the beginning of the 1980s, who underwent high resolution computerised scans carried out in two studies. This entire research is result is available on www.sectec.go.gov.br.

Motivated by the absence of health cases and the advantages of fiber-cement, following the example in the United States, the European Commission has already expressed interest in re-evaluating the use of chrysotile asbestos. If the fiber is approved again, it would permit European Union countries to extend the use of chrysotile mineral to the manufacture of industrial parts for the automotive sector. In light of this scenario, the Company’s emphasizes its belief that its products are safe for the population and that sustainable production management does not put the health of its employees at risk, or the health of those in the surrounding communities. All clarification and significant information on this subject is widely publicised by Eternit through all its communication channels.

Risk of Banning Chrysotile Fiber

Eternit uses chrysotile fiber in a safe manner and believes that its banning would make no sense. A study by the Industrial Federation of the State of São Paulo (FIESP) conducted by the Getulio Vargas Foundation (FGV) in 2008 showed that the sudden banning of chrysotile fiber would create a supply shortage in Brazil’s roofing market, significantly increasing prices making access to the product difficult for low-income families.

In parallel, the adverse effect on supply would have an impact on incomes, jobs and taxes, without any prospect for recovery over the relatively short term. According to the study, fiber-cement industries account for sales of R$2.6 billion a year, and generate more than 170,000 jobs throughout Brazil. For the complete research on this subject, please refer to www.fiesp.com.br/deconcic/default.aspx.

The mineral was banned by the countries of the European Union once its reserves of this mineral had been exhausted, and as a consequence of its incorrect use, principally of the amphibole type used in spray applications for thermal insulation, at a time when demand for fiber-cement products was relatively insignificant , with the workers in the production chain demanding the banning of the practice due to lack of safe use.

The fibers of chrysotile asbestos and amphibole asbestos are different. The former is malleable, and has magnesium in its composition, while the latter is hard, straight and pointed, composed in large part of iron. These characteristics result in different levels of bio-persistence (period that the inhaled fiber remains in the lung).

Chrysotile mineral fiber remains in the organism for two to three days at most, while the amphibole variety remains for more than a year. In order to be carcinogenic, a substance must remain in the lungs for at least 10 days.

These differences strengthen Eternit’s belief that the banning of chrysotile asbestos in Brazil is not justified. The prohibition of asbestos by a number of states is also not justified, but this is generating additional demand, and Eternit believes it necessary to create the conditions to meet this. According to a study by the FGV, the sector is likely to encounter difficulties in carrying out investment and dominating technology for the production of alternative fibers.

The chrysotile mineral question in Brazil

The extraction, industrialisation, use, sale and transport of chrysotile asbestos in Brazil are all regulated by the Federal Law No. 9,055/95, by Decree No. 2,350/97 and by Ordinance No. 3,214/78 – NR15 – Annex 12, available on website www.brasil.gov.br. This legislation exclusively regulates the safe use of chrysotile asbestos and prohibits the use of other asbestos types.

In 2001, the first two laws against asbestos were introduced in Brazil, Law No. 10,813 in the state of São Paulo and Law No. 2,210 in the state of Mato Grosso do Sul. Both were ruled upon by the Federal Supreme Court (STF), following allegations of unconstitutionality (ADI) No. 2,656 and No. 2,396, and declared unconstitutional due to the fact that they encroached on the powers of the Union

There are currently four sanctioned state laws (Pernambuco, Rio de Janeiro, Rio Grande do Sul and São Paulo) against the industrialization and sale of chrysotile asbestos, that are being argued againsts with ADIs through the Supreme Court, as well as the questioning of Article 2^nd of Federal Law No. 9,055 of 1995. The ADIs proposed against the state laws are awaiting judgement on merit, with the Supreme Court expected to make a ruling on the jurisdiction of the states to legislate on this matter, in view of the existence of a federal law which regulates this activity. It is worth mentioning that the state of Mato Grosso has approved law against asbestos, but this law has yet to be sanctioned.

The related ADIs are as follows:

ADI with respect to Article 2^nd of Federal Law No. 9,055 of 1995

The National Association of Magistrates of the Labour Tribunal (ANAMATRA) and the National Association of Labour Court Attorneys (ANPT) have questioned through an ADI (direct allegation of unconstitutionality) No. 4,066, the constitutionality of Article 2^nd, citing the argument that it is directly against the articles contained in the Federal Constitution which refer to human dignity, the right to health and the protection of the environment.

Eternit is of the opinion that these entities do not have the legitimacy to propose this action, because their representation is limited to the interests of their associates.

In order to accompany or consult this ADI, the reader should access the following website link: access here.

ADI referring to the state laws of Rio de Janeiro

In this state there are two laws: No. 3,579 of 2001, which envisages the progressive substitution of the production and sale of products that contain chrysotile mineral, and law No. 4,341 of 2004, which is related to health issues. Despite the fact that a ruling is being awaited from the Supreme Court, since 2003, Law No. 3,579 has been suspended by a court injunction, following the filing of a writ of security issued by the STJ (Superior Justice Tribunal).

To accompany the progress of both these lawsuits, please access ADI 3.406 e ADI 3.355. In parallel with these lawsuits, there is also a public consumer civil action brought against the Company by the Rio de Janeiro state public ministry, aimed at prohibiting the sale and industrialisation of chrysotile ore and its products in Rio de Janeiro. This decision was suspended by a court injunction following the filing of a writ of security by the Public Ministry against the decision in the first instance.

ADI referring to the state law of Pernambuco

In this state, Law No. 12,589, of 2004 is in force, which prohibits the manufacture, sale and use of materials which contain asbestos. This law has also had its constitutionality contested through ADI No. 3,356, which was declared unconstitutional in a decision by the Plenary Session on October 26, 2005. Also a formal declaration of unconstitutionality of the Pernambucan law has been made by the General Attorney’s Office of the Union and the Office of the Attorney General of the Republic. There has been no final decision in view of the request to see the case records, by reporting Minister Joaquim Barbosa.

Despite the arguments on this subject, the Pernabuco State Public Ministry for Labor has filed a Public Civil Action against Eternit and the distributor Meridional, alleging non-compliance with the law, and demanding a halt to the sale and supply of products which contain chrysotile mineral.

The judge of the court of Court of Garanhuns (PE) declined to rule on this issue and returned the court records to the District Court of Recife, where they are awaiting a ruling. The progress of this case can be accompanied on the following website link www.trt6.jus.br/consultaProcessual – typing in the case number: 0000918-79.2010.5.06.0351.

ETERNIT HAS PUBLISHED A MATERIAL EVENT NOTICE IN NEWSPAPERS IN ALL THE BRAZILIAN STATE CAPITALS AND IN THE MAIN MAGAZINES, CITING ITS POSITION ON THE USE OF CHRYSOTILE ASBESTOS.

Public Hearing

On August 24 and 31, 2012 at the request of the National Confederation of Industry Workers (CNTI) the Supreme Court held a public hearing to debate the use of chrysotile ore given its importance to Brazil. The aim of the CNTI is to involve society in the debate, seeing that it supports its controlled use and questions its banning. Participating at the public hearing were government bodies, doctors and scientists from various nationalities, technicians and workers in the sector. The public hearing had the purpose of assessing the medical-scientific point of view with respect to the use of chrysotile asbestos, given its importance to Brazil.

The Company is convinced that its products are safe for the population and that the sustainable management of its units does not put the health of its employees at risk, this being upheld by research carried out by doctors connected to major well-known universities both in Brazil and abroad, the objective of which, in a project coordinated by the National Council for Scientific and Technological Development (CNPq), was to respond as to the condition of the health of the population that uses fiber-cement roofing panels and that of the mine workers.

Start of ruling by the Supreme Court

On October 31, 2012, the Supreme Court began its ruling on the merit of the Direct Allegation of Unconstitutionality (ADI) No. 3,357 against the laws in the state of Rio Grande do Sul and São Paulo. Minister Ayres Britto began the ruling, voting in favor of the constitutionality of the state laws, while Minister Marco Aurélio Mello voted for the unconstitutionality of the state laws. Following the vote by Minister Marco Aurélio Mello, the court president suspended proceedings. Therefore, the Supreme Court is likely to set a new date for the conclusion of the ruling on the merit of these ADIs, as with the others. More information is available on the following website link:www.stf.jus.br.

Eternit’s Position

Having been in business for 72 years in Brazil, Eternit guarantees the quality and safety of its products, and in view of this scenario, emphasises its belief in Brazilian Justice and hopes that the technical and scientific evidence will be considered in the judgment on the merit of the actions and laws, being not susceptible to pressure from groups in favour of banning chrysotile mineral, based solely on the unsuccessful European experience.

It should be pointed out that, of the four states with laws against the use of chrysotile mineral, three have plants belonging to the Company’s main competitor, which is evidence of a commercial war that is without precedent, a fact already observed by Minister Ellen Grace in the court records for ADI No. 3,579.

Below is the full text of the statement published in all more of a Material Event Notice, in the main communication channels, newspapers and magazines in Brazil, on February 17, 18, 23, 24 and 25, 2012.

The Brazilian Eternit Group, in view of the news on the ruling by the courts of Turin in Italy, by which two former directors of Eternit Italiana were held responsible for the deaths attributed to the use of asbestos in their plants, wishes to clarify the following:

• Eternit S.A. is a national Brazilian listed public company, with its shares listed on the Novo Mercado, the section of the BM&FBovespa with the highest level of corporate governance, and has no relationship with Eternit companies in other countries, including Italy. The ownership and use of the brand name is carried out entirely separately by different companies in various countries.
• In Brazil, Eternit sheet uses chrysotile asbestos as a reinforcing fiber for the production of fiber-cement roofing panels, using modern production techniques. Italy used various types of asbestos, principally of the amphibole type, for various applications, without protection for its workers.
• The activity in Brazil is regulated by Federal Law No. 9,055/95, Decree No. 2,350/97 and the Regulatory Standards of the Ministry of Labor and Employment, which governs the extraction, industrialization, use, sale and transport of chrysotile asbestos and products that contain it, providing the Brazilian population with durable products of excellent quality and value for money, significantly contributing to reducing the housing shortage in Brazil.
• The market dispute in the fiber-cement segment between Eternit S.A. and a French group that also operates in Brazil manufacturing and using synthetic fibers, has led some Brazilian states, principally where the plants of this group are located, to approve laws against asbestos. It should be pointed out that the validity of these laws is awaiting judgement on merit by the Supreme Court.
• The extraction and processing of chrysotile asbestos by its subsidiary SAMA, as well as the use of this mineral in Eternit’s plants, follow rigid safety standards which exceed the minimum legal requirements. With the improvement in production techniques and the perfection of protection mechanisms for workers, there has been no case of any disease related to the use of chrysotile asbestos recorded among employees joining the group since the beginning of the 1980s. The Tripartite Agreement, signed since 1989, between companies in the production chain, employees and and entities representing this employee category, and filed with the Ministry for Labor and Employment, has been decisive in consolidating this achievement.
• The use of fiber-cement products, water tanks and roofing tiles with chrysotile asbestos, does not constitute any risk to the health of the population. There has been no case in Brazil of any president that has developed a disease as a result of residing in one of the more than 25 million homes covered with finer-cement roofing panels containing asbestos. This fact has been proven by national research, carried out by a renowned medical team connected to Brazil’s main universities, the project and final report for which were approved by CNPq and are available for consultation on the following website link www.sectec.go.gov.br.

Eternit is available for any clarifications on this matter, and invites the Brazilian population to learn about its industrial and mining processes in its units, through its Open Doors Program (www.eternit.com.br/portasabertas).