| Apresentação do Roadshow1As of March 31, 2012April, 2013
DisclaimerStatements regarding the Company’s future business perspectives and projections of operational andfinancial results are merely estimates and projections, and as such they are subject to different risks anduncertainties, including, but not limited to, market conditions, domestic and foreign performance in generaland in the Company’s line of business.These risks and uncertainties cannot be controlled or sufficiently predicted by the Company managementand may significantly affect its perspectives, estimates, and projections. Statements on futureperspectives, estimates, and projections do not represent and should not be construed as a guarantee ofperformance. The operational information contained herein, as well as information not directly derived fromthe financial statements, have not been subject to a special review by the Company’s independentauditors and may involve premises and estimates adopted by the management.2
.1 Platform of brands of referenceArezzo&Co is the leading Company in the footwear andaccessories sector through its platform of Top of Mind brands14
.2 Company overviewArezzo&Co is the reference in the Brazilian retail sector and hasa unique positioning combining growth with high cashgeneration1Leading company inthe footwear andaccessories sectorwith presence in allBrazilian statesControllingshareholders are thereference in the sectorDevelopment ofcollections withefficient supply chainAsset light: highoperational efficiencyStrong cashgeneration and highgrowth9.4 million pairs of shoes(1)588 thousand handbags(1)2,841 points of sale12% market share(2)More than 40 years ofexperience in the sectorWide recognition~11,500 models createdper yearLead time of 40 days7 to 9 launches per year90% outsourced productionROIC of 33.1% in 1Q132,105 employeesNet revenues CAGR:34.0% (2007- 1Q13¹)Net Profit CAGR: 41.0%(2007- 1Q13¹)Increased operatingleverageNotes:1. LTM as of March, 2013.2. Refers to the Brazilian women footwear market (source: Euromonitor, IBGE and Company estimates) . Estimated for 2011.5
Founded in 1972 Focused on brand andproduct Consolidation ofindustrial business modellocated in Minas Gerais 1.5 mm pairs per yearand 2,000 employees Focus on retail R&D and productionoutsourcing on Vale dos Sinos -RS Franchises expansion Specific brands for eachsegment Expansion of distributionchannels Efficient supply chainFirst storeFast FashionconceptLaunch of the firstdesign withnational success+Schutz launchLaunch of newbrandsMergerCommercial operationscentralized in São PauloStrategic Partnership(November 2007)Industry ReferenceFoundation and structuring Industrial Era Corporate EraRetail Era2012 and 201370’s 80’s 90’s 00’sOpening of the firstshoe factoryOpening of the flagshipstore at Oscar Freire.3 Successful track record ofentrepreneurshipThe right changes at the right time accelerated the Companysdevelopment1ConsolidateleadershippositionInitial Public Offering(February 2011)
.4 Shareholder structure1Notes:1. Arezzo&Co capital stock is composed of 88,587,469 common shares, all nominative, book-entry shares with no par value.2. Including Stock Option Plan – Arezzo&Co’s executivesShareholder structure as of March, 2013.7Post-offering52.4% 47.4%Birman family Others1Management²0.2%Float47.1%
8.5 Culture & Management:Arezzo towards 2154Code of Ethics “Our behavior is a positive example for all activities and internal or external interactions; and we treat everyone with respect, equality and cooperation” “We properly protect the confidentiality of our information, documents, trademarks, intellectual property and cherish the proper use of our assets” “The Arezzo Group’s interests prevail over personal or third party interests and guide any decision-making in the company” “We act with fairness in our relationships with suppliers, franchisees and customers, eliminating any situation that may generate expectations of bias inthe context of receipt of gifts and invitations” “Our suppliers are evaluated and contracted based on clear criteria and in line with our ethical standards and conduct” “We are committed to ensure a responsible environmental stewardship by ensuring and establishing high standards for the purposes of protecting theenvironment and conserving its resources” “We have a socially responsible conduct and do not use any resources for unethical or illegal purposes, or that violates local or international laws” “It is our duty to report any breach of the Code of Ethics irrespective of the public involved”20102154Meritocratic culture based on best practices makes Arezzo acompany prepared to reach 21541
Notes:1. Points of sales (1Q13); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports – # multibrand stores2. % of each brand gross revenues (2012 LTM)3. 1Q13 gross revenues, does not include other revenues (not generated by the 4 brands)4. % total (1Q13) gross revenues.6 Strong platform of brandsStrong platform of brands, aimed at specific target markets, enables theCompany to capture growth from different income segments1TrendyNewEasy to wearEclecticFashionUp to dateBoldProvocative16 - 60 years old 18 - 40 years oldR$ 285.00/pairR$ 689.9 million R$ 394.4 millionPopFlat shoesAffordableColorful12 - 60 years oldR$ 99.00/pairR$ 36. 3 millionDesignExclusivityIdentitySeductionR$ 960.00/pairR$ 4.2 million20 - 45 years old61.3% 35.1% 3.2% 0.4%BrandsprofileFemaletargetmarketSalesVolume3% GrossRevenues4Retail pricepointFoundation 1972 1995 2008 2009MB7O2O19F320MB9639R$ 180.00/pairO28F23MB1,546Distributionchannel1POS 1%grossrev.272% 15%12% 7% 49%36%EX171%EX1308%EX4849% 9% 42%MB865O8EX546% 53% 1%
.7 Multiple distribution channels11053229027362²1,157Flexible platform through three distribution channels withdifferentiated strategies, maximizing the Companys profitabilityGross Revenue Breakdown – (R$ mn)¹Gross Revenues per Channel57 owned storesbeing 7 FlagshipstoresReach about 1,152cities and 2,441multi-brands343 franchises inmore than 160citiesBroad distributionin every BrazilianstateFranchises Multi-brands Owned stores Others TotalNotes:1. 1Q13 gross revenues2. Considers external market and other revenues in the domestic market46% 25% 24% 5% 100%
ManagementBRANDS OF REFERENCECustomer focus: we are at the forefront ofBrazilian women fashion and designMulti-channelSourcing & LogisticsCommunication &MarketingSEASONEDMANAGEMENTTEAM WITHPERFORMANCEBASED INCENTIVESNATIONWIDEDISTRIBUTIONSTRATEGYEFFICIENTSUPPLY CHAINSOLID MARKETINGANDCOMMUNICATIONPROGRAMABILITY TOINNOVATER&D1 2 3 4 512Unique business model in Brazil2
.1 Ability to InnovateWe produce 7 to 9 collections per year2I. ResearchCreation:11,500 SKUs / yearII. Development III. Sourcing IV. DeliveryArezzo&Co fulfills the various aspirations of women, delivering on average 5 newmodels per day, allowing for consistent desire-driven purchasesAvailable for selection:63% of SKUs created /year13Stores:52% of SKUs created / yearCreationLaunchOrdersProductionDeliveryNormal saleDiscount saleWinter I Winter II Winter III Summer I Summer II Summer III Summer IVActivities JAN FEV MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
.2 Broad media plan214The brand has an integrated and expressive communication strategy, from thecreation of campaigns to the point of salesStrong presence in printed media85 inserts in printed media in 170 pages in 2012 (32 million readers)78 exhibition in fashion editorials in 1Q12Digital communicationPresence in eletronic media and television+750 exhibition on TV e 150 exhibition in cinema in 2012+ 80 million impactDemi MooreSeasonal showroom in Los Angeles near theRed CarpetSeasonCRM – VIP salesIn-store events – PAStylists Fashion AdvisorsCelebrity Endorsement Marketing Events1 mn Facebook fans: leader ininteractions30 k monthly access to Schutz’s Blog606k accesses to site/monthAverage navigation time: 8 minutes66 k Twitter followers : category leaderGisele Bündchen Blake Lively
.2 Communication & marketing programreflected in every aspect of the storesStores constantly modified to incorporate the concept of each newcollection, creating desire-driven purchases2All visual communication at stores is monitored and updated simultaneously throughout Brazilfor each new collectionFlagship storesStore layout & visual merchandising15POS materials (catalogs, packaging, among others)
.2 Atmosphere of stores: differentiatedconcepts for each brand216Summer – Flagship Oscar FreireWinter – Flagship Oscar Freire Video WallCloset EssentialNiches and lighting Jaquets and accessories Campaigns and marketing actions Preeminence for products Differentiated productsVisual merchandising: Updates at low cost investment Brings relevant information fromeach collection to stores’ level 3 main updates per yearChameleon project: constantmodification to incorporate the newcollection’s concept Exposure of a large variety ofproducts Selling area inventory: lowernecessity of area for storage Atmosphere of a jewelry store Private shop experience Focus on exclusivity, design andhighly selected materialsWall displayCombosStorageEach theme is disposed in different nichesAcessoriesSophisticated lightingDistinguished storefront Special collections
.3 Flexible production process…217Arezzo’s size allows for large scale purchases from eachsupplierProduction speed, flexibility and scalability to ensure Arezzo&Co’sexpected growth based on asset light modelGains of scaleJoint purchasesCertification and auditing of suppliersIn-house certification and auditing ensure quality andpunctuality (ISO 9001 certification in 2008) Negotiation of raw material jointly with local suppliersConsolidation and improvement of distribution in nationalscaleReception: 100,000 units / dayStorage: 100,000 units / dayPicking: 150,000 units / dayReplacement of milky run strategy12345Distribution: 200,000 units / day4Sourcing ModelOwned factory with capacity to produce 1.1 million pairsannually and strong relationship with Vale dos Sinosproduction cluster as the outsourcing represents 89% of totalproductionNew Distribution Center
.3 …leveraged by a multichanneldistribution strategy…Arezzo&Co follows a detailed process in defining the opportunity pipeline. Thismultichannel distribution strategy has been consolidated throughout the Company’shistory:181972 1975 1987 2000 2008 201020112012Inauguration of thenew Anacapri storeformatFounding of theArezzo brand1st Store1st ArezzoFranchiseArezzo reaches200 franchisesGTM Schutz: focus onmono-brand storesFlagship storestrategy for Schutz1st Arezzo Flagshipstore2
.3 ...through owned stores…Capturing value from the chain while developing retail know how andbrands’ visibility2Greater brand awareness coupled with operational efficienciesFlagship Stores19 Clustering higher productivity stores in main areas (mainly SP and RJ) improvingoperational efficiency and profitability: Direct costumers interaction develops retail competences which are also reflectedat franchised stores Flagship stores ensure greater visibility and reinforce brand imageArezzo – Ipanema / RJSchutz – Iguatemi / SPArezzo – Cid. Jardim / SPR$ 3,289MR$ 5,119 MOwnedFranchiseAnnual AverageSales per Store2012Total sales area and # of owned stores (sq m)Schutz – Oscar Freire / SP88% 91% 81%77%80%78% 78%12%9%19%23%20%22% 22%2007 2008 2009 2010 2011 4Q12 1Q13FlagshipStandard store610212945505257 571,0441,3692,0672,9674,6865,897 5,928# owned Stores
Intense retail training Ongoing support: average of 6 stores/ consultant andaverage of 22 visits per store/ year Strong relationship with and ongoing support to franchisee IT integration with our franchises amount to more than 80% As mono-brand stores, franchises reinforce the branding ineach city they are located24 or morefranchises1 franchise2 franchises3 franchises49%10%27%15%20.3 …with efficient management of thefranchise network...Model allows rapid expansion with little invested capital byArezzo&Co and high profitability to franchiseesSuccessful Partnership: “Win – Win” Franchise Concentration per OperatorAverage payback of 39 months2100% of on-time payments96% satisfaction of franchises1Excellency in Franchising Award in the last 8 years (ABF)Best Franchise in Brazil (2005) and in the sector for 7years since 2004(# of Franchisees by # of Franchises)Notes: FY2012 data1. 96% of the current franchisees indicated they would be interested in opening afranchise if they did not already have one2. Annual sales of R$ 2,330 thousand + average initial investment of R$ 600 thousand+ working capital of R$ 414 thousand
To get to knowthe profile ofconsumersTo manageperformanceindicators ofboth the storeand the teamTo optimizesupply andstockmanagement…to sell more, have no overstock … andachieve goals!1 2 3The use of technology to support themanagement process....3 … information technology, peoplemanagement...Information technology and people management applied to retail in order tosupport improvements on the whole managing process21A holistic approach for sales trainingteams in the various fronts of the retailoperationTraining Tools• Product• Fashion and trends• Sales technique• Store operations• Visual merchandising• Sales systems• Integration New operators• Management Training• Sales Conventions• Sales Incentives (motivational) Over R$1M invested in training in the first half of2012 20% retail turnover in Company Owned Storesduring the first half of 20122
.3 ...and of the multi-brand stores2Multi-brand stores22Multi-brand stores’ Gross Revenue¹ (R$ mn) Improved distribution and brand visibility Greater brand capillarity Presence in over 1,452 cities Rapid expansion at low investment and risk Main Focus: share of wallet Owner’s loyalty Important sales channel for smaller cities Sales team optimization: internal team and commissionedsales representativesMulti-brand stores widen the distribution capillarity and the brands’visibility, resulting in a strong retail footprintNotes:1. Domestic market only# Store2,1772,4412862012601Q13Gross Revenue1(R$ mn)2342011 1Q1256
.4 Large capillarity and scale of storechainMono-brand store chain with high capillarity, reaching more than 160cities and well-positioned among the retail companies223Size and average sales per mono-brand stores - 2012BrandAverage size(m2)Net Revenue/ m2(R$ 000s)TotalStores 1,267 104 399111 64 6381,650 3 2141,030 2 368234 4 2065320 franchises +19 owned stores(i) +963 multi-brand clients(i) 4 outlets23 franchises +28 owned stores(ii) +1,546 multi-brand clients(ii)1 outletPoints of sale (1Q13)TOTAL8 owned stores865 multi-brand clients2 owned store +7 multi-brand clients343 franchises6 +57 owned stores6 +2,441 multi-brand clients=2,841 points of salesSource: IBGE, Companies’ Reports; number of stores according to latest data provided by the CompaniesNotes:1. Considers only monobrand stores of Arezzo and Schutz;2. For Hering, considers only Hering Store chain stores;3. 2008 data;4. Net Revenue (assuming that sales taxes and deduction = 30% of gross revenues);5. Considers Arezzo + Schutz, except for outlets, handbags’ stores and Schutz franchise;6. Including export marketGDP³: 18%A&C¹: 17%GDP³: 55%A&C¹: 57%GDP³: 15%A&C¹: 15%GDP³: 7%A&C¹: 7%GDP³: 5%A&C¹: 4%57sq m85sq m80sq mPoints of sale – average size : new stores are increasingnetwork average size2010 2011 new stores 2012 new stores
SchutzDavid PythonIndustrialCisso KlausSupply ChainMarcio JungFinancialThiago BorgesStrategy and ITKurt RichterHRRaquel CarneiroMarco CoelhoInternal AuditingArezzoClaudia Narciso.5 Seasoned and professionalmanagement team2 Alexandre BirmanYearsat Arezzo17142141189303Years ofexperience172410243228474113NameTitleAlexandre BirmanCEOClaudia NarcisoArezzoDavid PythonSchutzClaudia NarcisoDirector – R&DKurt RitchterDirector – Strategy and ITMarcio JungDirector – Supply ChainCisso KlausDirector – IndustrialMarco CoelhoDirector – Internal AuditingRaquel CarneiroDirector – HRHighly qualified management team Stock option plan for key executives Performance based compensation package for allemployees Independent business units for each brand but unifiedofficers (Industrial, Logistics, Financial and HR) for thewhole companyAnacapriYumi ChibusaAlexandre BirmanErica Navarro510Yumi ChibusaAnacapri09Erica NavarroAlexandre Birman313Thiago BorgesCFO and Investor Relations Office
.6 Corporate governanceBoard is composed by 8 members being 4 appointed by controlling shareholders2Name Experience Name ExperienceTitle TitleAnderson BirmanChairman of the BoardArezzo’s founder and Chairman, with over 40 years ofexperience in the industryAlexandre BirmanVice-Chairman of the BoardArezzo’s CEO and founder of Schutz, with 17 years ofexperience in the industryPedro FariaBoard MemberTarpon’s partner since 2003, member of the Board of Directors ofDirecional Engenharia, Omega Energia Renovável, Cremer andComgásEduardo MufarejBoard MemberTarpon’s partner since 2004, member of the Board of Directors ofTarpon, Omega Energia Renovável and CoteminasJosé Murilo CarvalhoBoard MemberPresident of the Attorney’s Association of Minas Gerais,Board Member of the Brazilian Bar AssociationJosé BolonhaBoard MemberFounder and CEO of “Ethos Desenvolvimento Humano eOrganizacional“; Board member of the Inter-American Economicand Social Council (UN, WHO)Guilherme A. FerreiraIndependent Board MemberCEO of Bahema Participações, board member of Pão deAçúcar, Banco Signatura Lazard, Eternit, Tavex and RioBravo Investimentos25Artur N. GrynbaumIndependent Board MemberCEO of Grupo Boticário (largest franchise company in Brazil) andVice-President at Abihpec (Brazilian Association of Industries in thefield of Personal Hygiene, Perfumes, and Cosmetics )Ana Luiza Franco* (Coordinator)Audit CommitteePedro Faria (Coordinator) José Bolonha (Coordinator)CommitteesStrategy Committee People CommitteeBoard of directorsMembers:Jose Murilo and Guilherme A. FerreiraMembers:Anderson Birman, Alexandre Birman, Guilherme A.Ferreira and Arthur N. GrynbaumMembers:Pedro Faria and Alexandre Birman*Mrs Franco is former partner at Machado Meyer Law firm in Braziland currently acts as member for corporate risk and auditcommittees in various relevant companies in the country.
| Market Overview and| Sourcing and Industry Characteristics
.1 Social upward mobility driving internalconsumptionIncome growth and job creation lead to rapid social upward mobility andincreasing internal consumption327200344 (24%)29 (15%)40 (20%)16 (8%)47 (27%)49 (28%)+18 mi(2003-14E)+47 mi(2003-14E)2014E200931 (16%)20 (11%)13 (8%)66 (37%)95(50%)113 (56%)...Resulting in a significant rise of consumer goods consumption, including Footwear and Apparel(Consumption growth as a result of the upward mobility in social classes; indexed 100 = class D/E)Source: IBGE, FGV, LCA, Bain & Co., BCG, Roland Berger, IPC MapsClasses A/B: monthly income above R$4,808 | Class C: monthly income between R$1,115 and R$4,408 | Class D: monthly income between R$768 and R$1,115 | Class E: monthly income below R$768ClassD/EClassCClassBClassAFood, Drinks andCigarettesElectronicsand FurnitureFootwear andApparelPrescription/OTC drugsHygiene andPersonal Care5.4x10.1x12.6x9.3x11.2xFootwear and apparelhave the largestgrowth potential3.3x4.4x5.4x4.3x5.3x1.7x1.9x2.3x1.9x2.3x1.0x1.0x1.0x1.0x1.0xClass CClass A/BClass DClass EBrazil experiences an accelerated process of social upward migration...(Millions of people)Footwear and apparelconsumptionpotential index: 4,8%
5%8% 9%11% 12%2007 2008 2009 2010 201128.2 Brazilian footwear market overview3Total footwear market (R$ bn)Arezzo&Co has a significant stake of the women footwear market and hasconsistently increased its market shareArezzo&Co’s market share1Source: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGENote: 1.Based on Euromonitor research and IBOPE Inteligência (Pyxis). Estimated Arezzo&Co market share, including Company’s handbags and considering only total footwear market37%29%17%13%4%OthersSportsMenKidsWomenfootwearIncome Class17%44%33%6%Class BClass AClass D/EClass CFootwear consumption (2009)Women footwearTotal footwear2011CAGR (03-11): + 7.7%11.630.4
29.3 Brazilian handbags market overview3Arezzo&Co also has a relevant position within the fast growing handbag market inBrazilSource: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGETotal handbags market (R$ bn)Women handbagsTotal handbags2011CAGR (03-11): + 10.7%3.34.2Total addressable market (R$ bn)78%22%FootwearHandbags14.9Arezzo&Co current sell out breakdown (R$ mn)Breakdown based on Schutz and Arezzo owned stores Consolidated (including handbags and shoes)market share: 10% Opportunity to consolidate handbag leading position90%10%CalçadosBolsas195.9
Pairs (millions) Production World shareChina 12,597 62.4%Índia 2,060 10.2%Brazil 894 4.4%Vietnam 760 3,8%Indonesia 658 3.3%Pakistan 292 1.4%Brazil is the third biggest footwear producer, with production mostly destined tosupply the domestic market. Competitive costs, minimum production and lead time tobetter serve the Brazilian fast fashion demand.4 Footwear Industry - Global Overviewand competitive advantages30Pairs (millions) Consumption World shareChina 2,700 15.2%USA 2,335 13.4%India 2,034 11.7%Brazil 780 4,5%Japan 693 4.0%Indonesia 627 3.6%BRAZILLead time: 40 daysMinimum/model: 800 pairsMinimum/construction: 4,000 pairsProduction cap. (pairs) 894 millionCost (w/o tax): USD 21/pairCost (w/tax): USD 27/pairCHINA (different clusters)Lead time: 120 to 150 daysMinimum/model: 5,000 pairsMinimum/construction: 20,000 pairsProduction cap. (pairs): 12,000 millionCost (FOB): USD 16-18/pairCost (DDP): USD 42-45/pairINDIALead time: 160 daysMinimum/model: 5,000 pairsMinimum/construction: 20,000 pairsProduction cap. (pairs): 2,060 millionCost (FOB): USD 15/pairCost (DDP): USD 23/pairITALYLead time: 70 daysMinimum/model: 800 pairsMinimum/construction: 4,000 pairsProduction cap. (pairs): 202 millionCost (FOB): USD 35/pairCost (DDP): USD 49/pairVIETNAMLead time: 120 to 150 daysMinimum/model: 2,000 pairsMinimum/construction: 8,000 pairsProduction cap. (pairs): 760millionCost (FOB): USD 18/pairCost (DDP): USD 26/pair3
Brazil is recognized by the quality and high specialization within different and complexcategories of shoes. The industry has been qualitatively developed in order to addvalue to products and thus increase its competitive advantages over Asian suppliers.5 Footwear Industry - Global footwearoffering31Global Footwear Offering: the higher and more centralized the country isin the pyramid, the more focused it is in fashion, creation, design, luxury market ,marketing and distribution management, with smaller production scaleEquipment assemblyManufacturing operationManufacturer withown design and mostly local brandManufacturer withown design and global brandGlobal Brands Receive product and process specifications, as wellas components and raw material Assembly activities only Usually don’t produce; Creation + own brand management Design and product specification Mostly internationally outsourced Supply chain management Totally decide over marketing and commercializationValueadded+-FranceItalySpainTaiwanBrazilMexicoChina IndiaThailand Vietnam Other globalsuppliersMinimum volumes(production)++IndonesiaBACDEIndustry segmentation vs. value creation:3
.6 Arezzo&Co sourcing: Braziliancompetitive advantagesVale dos Sinos region offer strong competitive advantages, a combination ofproduction capacity, production flexibility, skilled labor and strong structure tosupport incentives for innovation and strengthening of industry’s competitivenessSource: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL. Brazil is the world’s third largestfootwear producer The world’s largest cattle: 13% ofthe market RS: 1 third (R$ 1 billion) ofBrazilian revenue in leather industry Vale dos Sinos: one of the world’slargest footwear manufacturing hubs 1,700 companies and entities: components,footwear, machinery, tanneries, trade entities,research and teaching institutions Abundant skilled and specialized labor Production flexibility:volume X variety X speed32Production (million pairs)Jobs (thousands)819338Production (million pairs)Jobs (thousands)270138Production (million pairs)Jobs (thousands)216110BRAZILSOUTHERN REGIONVALE DOS SINOSVale dos Sinos: 26% of Brazilianfootwear production3
South.7 Arezzo&Co Sourcing: CompetitiveAdvantagesArezzo&Co is a leader in the Brazilian leather fashion footwear sector, with greatgrowth potential through domestic sourcingSource: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL./ Arezzo&CoWomen’s leather footwear production:(million of pairs)33Vale dos Sinos’ component manufacturing: 31% of Brazilian companies in the category# ofcompanies271974615283OutsolecomplementsUpper complementsPackagingTools, dies/mouldsChemicalsSegment# ofcompanies78334737134Upper materialsInsolesFootwear productionchemicalsLeather productionchemicalsHeels, outsoles andhigh heelsSegmentComponents:- Micro: 38%- Small: 40%- Medium: 44%- Large: 60%Tanneries: 34%Distribution of components and tanneries per region:Components:- Micro: 4%- Small: 4%- Medium: 5%- Large: 7%Tanneries: 12%Components:- Micro: 1%- Small: 3%- Medium: 3%Tanneries: 10%Components:- Micro: 3%- Small: 2%- Medium: 4%Tanneries: 4%Components:- Micro: 54%- Small: 51%- Medium: 41%- Large: 33%Tanneries: 41%Southeast Northeast Midlewest NorthWomen’s leatherfootwearLeather footwearBrazilian footwear160237819Brazilian footwearLeather footwearWomen’s leatherfootwear Nearly 70% of Brazil’s leather footwearproduction3
Trends andstyleDesignTechnicalDesignEngineering Samples ShowroomLogistics anddistribution StoreRaw material price negotiations Scheduling + Manufacturer negotiation1 2 3 4 5 6 7.8 Arezzo&Co Sourcing Process andsupply chain managementSourcing process and supply chain management focused on ensuring flexibility,speed and cost control in the creation of new products34Arezzo&Co sourcing process:Coordinated management of production chain associated with Investments in product engineering: specific know howArezzo&CoRawmaterialsFinishedproductsCost controlEngineering folderCost management efficiencyQuality standard guaranteeEfficient lead timeFlexibilityChemichals and textileComponents3
.9 Understanding shoesSpike rivet (2 parts)Buckle (2 parts)Anklet (8 parts)Toecap (2 parts)Half sole (3 parts)Upper (11 parts)Assembly insole(11 parts)High Heel (7 parts)Heel (2 parts)Outsole (3 parts)SKUMODELCONSTRUCTION10%35%70%Reuse from collection to collection:Packaging (10 parts)A non-complex shoe has 61 raw materials managed by the industrial unit. R&Doptimization ensures greater management of costs and deadlines.353
.1 Solid growth fundamentals4Key drivers of growth37Store productivity increaseand additional upsidesExpand distribution footprint Store openings in 2012 – 58 out of 58 (47 franchises and 11 owned stores) Same store expansion in 2011 and 2012 – 1,000 out of 1,000 sq m already expanded Store remodeling: Schutz new store format significantly improving sales productivity Same store sales in 2012 of 6.3% (sell out - owned stores) and 12.2% (sell in – franchises). IT integration between our franchises: about 100% of our stores network in the same platform Gross margin expansion: 220bps in 2012 EBITDA Growth: 15.3% in 2012 Net income CAGR reached 41% (2007-2012) and net margin rose by 5p.p. in the same periodIncrease operationalefficiencies and marginsSchutz – LeblonDate of expansion: Nov/1144m²109m²148%+198%Sales Increase post-expansion 1Before After44m²110m²Schutz – Iguatemi SPDate of renovation: Apr/1234m²70m²106% 150%Schutz – HigienópolisDate of renovation: Aug/11+107%Sales Increase1+115%Sales Increase1Before After Before After¹Period studied: end of the renovation until jun/12 compared to the same period the previous year
.2 What’s new for 2013GTM ArezzoExpanding FootprintKey drivers of growth Opening of 53 stores in 2013:• 6 owned stores• 47 franchises Web commerce: Schutz and Anacapri started marketing a wide range of models to Brazil Expansion of 15% in total sales area38 Brand assessment:• Reevaluation of Arezzo’s current distribution and supply model in Brazil• Solid planning of brand growth for the next years Consistent sales growth since 2010 Focus on new store format Widening distribution platform for franchisesAnacapriConsolidationSchutz Handbags Subdivision of use categories Product mix by channel Focus on product development201121.6 34.02012Anacapri GrossRevenue(R$ million)4
.3 2013 Expansion Plan2013 pipeline expansion is committed to the opening of 53 new stores with15% growth in total sales area3945734263389# Owned Store# Franchises+13%6472012 2013399¹4521) Include 9 international stores.
.1 Operational and financial highlights5Gross Revenues per Channel (R$ mn) – Domestic Market41Sales increased in all channels, particularly Owned Stores, with 38.1% in 1Q13. Franchises opened43 stores in the last twelve months and SSS sell in increased 8.3% in the quarter.n/a6.5%6.7%8.3%97.6 116.944.561.455.760.03.53.31Q12 1Q1319.8%7.6%20.0%38.1%201.3241.5Franchise Multi-brand Owned Stores Others¹SSS Sell-out (owned stores + franchise )SSS Sell-in (franchises)1) Other: decreasing of 7.9% in 1Q13.
542.2 Operational and financial highlightsKey highlightsStrong Gross Revenue growth, especially in the Schutz brand that increased by 25.2% in 1Q13 compared to 1Q121Q13 ended with 400 store chain and Sales area expansion of 20.7% year-over-year1Q13 Net Revenue increased by 24.6% year-over-yearNumber of Stores (R$ mn) and Total Area (sq m - ‘000)CAGR 07-13 (1Q13 LTM): 34,0%Net Revenues (R$ mn)Area CAGR 07- 13 (1Q13LTM): 17.0%161.4201.0 193.8367.1412.1571.5678.9860,31Q12 1Q13 2007 2008 2009 2010 2011 201224.6%89.4%12.3%38.7%26.7%18.8%252 274 2993432229465715.818.022.126.71Q10 1Q11 1Q12 1Q13Franquias Lojas Próprias Total m²+55345400274303 +42+2920.7%14.2%22.6%
5Gross Profit (R$ mn) and Gross Margin (%)43.3 Operational and financial highlightsNet Income (R$ mn) and Net Margin (%)EBITDA (R$ mn) and EBITDA Margin (%)67.289.41Q12 1Q1333.1%44.5%41.6%Gross Profit Gross Margin14.728.614.0%1Q12 1Q138.022.714.2%26.3%9.6%5.310.91Q12 1Q1320.0%19.416.110.0%Net Income Net Margin‘
# of pairs sold (000) 1.713 2.110 23,2%# of handbags sold (000) 105 141 34,3%# of employees 1.952 2.105 7,8%# of stores 345 400 15,9%Owned Stores 46 57 23,9%Franchises 299 343 14,7%Outsorcing (as % os total production) 86,0% 90,0% 4,0 p.pSSS Sell-in (franchises) 6,5% 8,3% 1,8 p.p.SSS Sell-out (owned stores + franchises) n/a 6,7% n/aOperational Indicators 1Q12 1Q13Growth ouspread (%)445.4 Operational and financial highlightsCash Conversion Cycle (R$ thousand)Cash Flows From Operating Activities (R$ thousand)Capex (R$ million)¹ Days of COGS² Days of Net RevenuesTotal capex 17.337 11.227 -35,2%Stores - expansion and refurbishing 13.578 2.388 -82,4%Corporate 3.553 8.032 126,1%Other 206 807 291,7%Summary of investments 1Q12 1Q13 Var. (%)#days (R$000) #days (R$000)99 183.568 187 347.109 87Inventory¹ 59 66.099 154 211.251 95Accounts Receivable² 90 173.595 83 204.879 -7(-) Accounts Payable¹ 50 56.126 50 69.021 0Cash Conversion Cycle1Q12 1Q13 Change(in days)Income before income tax and social contribution 15.636 28.091 79,7%Depreciation and amortization 1.417 2.585 82,4%Other (4.129) (818) -80,2%Decrease (increase) in current assets / liabilities 9.975 7.899 -20,8%Trade accounts receivables 5.994 (2.374) n/aInventories (8.579) (11.474) 33,7%Suppliers 18.840 33.513 77,9%Change in other current assets and liabilities (6.280) (11.766) 87,4%Change in other noncurrent assets and liabilities (700) 338 n/aPayment of income tax and social contribution - (3.663) n/aNet cash flow generated by operational activities 22.199 34.432 55,1%Operating Cash Flow 1Q12 1Q13 Var. (%)Operational Indicators
455.4 Operational and financial highlightsIndebtedness (R$ thousand)Indebtedness totaled R$ 87.9 million in 1Q13 versusR$ 94.1 million in 4Q12Long-term debt relevance stood at 53.1% in 1Q13 versus54.5% in 4Q12Indebtedness policy remained conservative, with lowweighted-average cost of Companys total debtCash and cash equivalents and financial investments166.741 202.154 213.306Total debt 30.844 94.084 87.880Short term 14.059 42.843 41.226% total debt 45,6% 45,5% 46,9%Long-term 16.785 51.241 46.654% total debt 54,4% 54,5% 53,1%Net debt (135.897) (108.070) (125.426)Cash position and Indebtedness 1Q12 4Q12 1Q13
47.1 Key financial indicatorsANet revenues 161.361 201.039 24,6%COGS (94.188) (111.606) 18,5%Gross profit 67.173 89.433 33,1%Gross margin 41,6% 44,5% 2,9 p.p.SG&A (53.922) (63.382) 17,5%% of Revenues -33,4% -31,5% 1,9 p.pSelling expenses (34.257) (43.863) 28,0%Ow ned stores (15.499) (22.337) 44,1%Selling, logistics and supply (18.758) (21.526) 14,8%General and administrative expenses (11.599) (17.329) 49,4%Other operating revenues (expenses)1(6.649) 395 n/aDepreciation and amortization (1.417) (2.585) 82,4%Ebitda 14.668 28.636 95,2%Ebitda margin 9,1% 14,2% 5,1 p.p.Net income 10.852 19.366 78,5%Net margin 6,7% 9,6% 2,9 p.p.Working capital2- as % of revenues 25,2% 24,6% -0,6 p.pInvested capital3- as % of revenues 32,9% 33,7% 0,8 p.p.Total debt 30.844 87.880 184,9%Net debt4(135.897) (125.426) n/aNet debt/EBITDA LTM -1,2 X -0,8 X n/aKey financial indicators 1Q12 1Q13Growth orspread%1 - Includes non-recurring expense in 1Q12 in Other Operating Revenues andExpenses: Arezzo&Co terminated its contract with Star Export Assessoria eExportação Ltda. (“Star”), which had been providing technical support and adviceservices for procurement and inspection of independent factories and workshopscontracted to make products. As part of the termination, a payment of R$ 8 millionwas made and Star signed a five-year non-compete agreement. On the same date,a contract was signed with another company that has the same technical capability,providing the same type of services on special commercial terms to reduce costswhile maintaining the same quality of services.2 - Working Capital: current assets minus cash, cash equivalents and marketablesecurities less current liabilities minus loans and financing and dividends payable.3 - Invested capital: working capital plus fixed assets and other long-term assetsless income tax and deferred social contribution.4 - Net debt is equal to total interest-bearing debt position at the end of a periodless cash and cash equivalents and short-term financial investments.
48.2 History – Franchises and Owned StoresA1. Includes areas in square meters of 9 international stores2. Includes 5 outlet-type stores with a total area of 1,227 m23. Includes areas in square meters of stores expansionSales area1,3- Total (m²) 22,085 23,112 24,531 26,543 26,659Sales area - franchises (m²) 17,331 18,005 19,125 20,646 20,731Sales area - Owned stores2(m²) 4,754 5,107 5,406 5,897 5.928Total number of domestic stores 338 351 368 390 391# of franchises 292 301 316 334 335Arezzo 290 295 300 311 312Schutz 2 6 16 23 23# of owned stores 46 50 52 56 56Arezzo 18 19 19 19 19Schutz 19 22 24 27 27Alexandre Birman 1 1 2 2 2Anacapri 8 8 7 8 8Total number of international stores 7 8 9 9 9# of franchises 7 8 8 8 8# of owned stores 0 0 1 1 1History - Franchises and Owned Stores 11Q12 2Q12 3Q12 4Q12 1Q13
50.4 Income Statement - IFRSA Income statement - IFRS 1Q12 1Q13 Var.%Net operating revenue 161.361 201.039 24,6%Cost of goods sold (94.188) (111.606) 18,5%Gross profit 67.173 89.433 33,1%Operating income (expenses): (53.922) (63.382) 17,5%Selling (35.007) (45.299) 29,4%Administrative and general expenses (12.266) (18.478) 50,6%Other operating income net (6.649) 395 n/aIncome before financial result 13.251 26.051 96,6%Financial income 2.385 2.040 -14,5%Income before income taxes 15.636 28.091 79,7%Income tax and social contribution (4.784) (8.725) 82,4%Current (5.245) (10.468) 99,6%Deferred 461 1.743 278,1%Net income for period 10.852 19.366 78,5%
51.5 Cash Flow Statement - IFRSA Cash flow Statement 1Q12 1Q13Operating activitiesIncome before income tax and social contribution 15.636 28.091Adjustments to reconcile net income with cash from operational activities (2.712) 1.767Depreciation and amortization 1.417 2.585Income from financial investments (3.861) (3.269)Interest and exchange rate (522) 10Other 254 2.441Decrease (increase) in assetsCustomer receivables 5.994 (2.374)Inventory (8.579) (11.474)Recoverable taxes 465 (1.516)Variation other current assets 1.313 171Judicial deposits (518) 904Decrease (increase) in liabilitiesSuppliers 18.840 33.513Labor liabilities (2.831) (4.519)Fiscal and social liabilities (5.615) (6.304)Variation in other liabilities 206 (164)Payment of income tax and social contribution - (3.663)Net cash flow from operating activities 22.199 34.432Net cash used in investing activities (15.986) (22.360)Net cash used in financing activities - third parties (7.293) (6.214)Net cash used in financing activities (8.235) (8.949)Increase (decrease) in cash and cash equivalents (9.315) (3.091)Increase (decrease) in cash and cash equivalents (9.315) (3.091)
52IR Contacts Thiago Borges Leonardo Pontes dos Reis, CFAPhone: +55 11 email@example.comCFO and IR OfficerIR Manager
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