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Institutional presentation 3 q13 Institutional presentation 3 q13 Presentation Transcript

  • | Apresentação do Roadshow As of September, 2013 October, 2013 1
  • Disclaimer Statements regarding the Company’s future business perspectives and projections of operational and financial results are merely estimates and projections, and as such they are subject to different risks and uncertainties, including, but not limited to, market conditions, domestic and foreign performance in general and in the Company’s line of business. These risks and uncertainties cannot be controlled or sufficiently predicted by the Company management and may significantly affect its perspectives, estimates, and projections. Statements on future perspectives, estimates, and projections do not represent and should not be construed as a guarantee of performance. The operational information contained herein, as well as information not directly derived from the financial statements, have not been subject to a special review by the Company’s independent auditors and may involve premises and estimates adopted by the management. 2
  • | Company overview
  • 1 .1 Platform of brands of reference Arezzo&Co is the leading Company in the footwear and accessories sector through its platform of Top of Mind brands 4
  • 1 .2 Company overview Arezzo&Co is the reference in the Brazilian retail sector and has a unique positioning combining growth with high cash generation Leading company in the footwear and accessories sector with presence in all Brazilian states Controlling shareholders are the reference in the sector 9.9 million pairs of shoes (1) 641 thousand handbags (1) More than 40 years of experience in the sector Development of collections with efficient supply chain ~11,500 models created per year Lead time of 40 days 2,881 points of sale Wide recognition 7 to 9 launches per year Asset light: high operational efficiency 92% outsourced production ROIC of 29.6% in 3Q13 Strong cash generation and high growth Net revenues CAGR: 32.0% (2007- 3Q13¹) Net Profit CAGR: 37.7% (2007- 3Q13¹) 2,007 employees 11% market share (2) Increased operating leverage Notes: 1. LTM as of 3Q13. 2. Refers to the Brazilian women footwear market (source: Euromonitor, IBGE and Company estimates) . Estimated for 2011. 5
  • 1 .3 Successful track record of entrepreneurship The right changes at the right time accelerated the Company's development Foundation and structuring Industrial Era Retail Era Corporate Era Industry Reference 70’s 80’s 90’s 00’s 2012 and 2013  Founded in 1972  Focused on brand and product  Consolidation of industrial business model located in Minas Gerais  1.5 mm pairs per year and 2,000 employees  Focus on retail  R&D and production outsourcing on Vale dos Sinos - RS  Franchises expansion  Specific brands for each segment  Expansion of distribution channels  Efficient supply chain Launch of new brands Opening of the first shoe factory Consolidate leadership position Opening of the flagship store at Oscar Freire + Merger First store Schutz launch Launch of the first design with national success Strategic Partnership (November 2007) Commercial operations centralized in São Paulo Fast Fashion concept Initial Public Offering (February 2011) 6
  • 1 .4 Shareholder structure 1 Post-offering Float Management ² 0.9% 46.8% Birman family 52.3% Others 47.7% Notes: 1. Arezzo&Co capital stock is composed of 88,637,034 common shares, all nominative, book-entry shares with no par value. 2. Including Stock Option Plan – Arezzo&Co’s executives Shareholder structure as of October, 2013. 7
  • 1 .5 Culture & Management Principles of success at Arezzo&Co: 01 That which is not transparent should not be done. 02 Always be true, so that at some point you are not false in your job. Always be authentic. 03 Clearly negotiate your goals and responsibilities, and consider compliance as a requirement for continuity. 04 Do not uncover problems only. Blaming others will never be the solution. Take risks, propose solutions. If you disagree with something, act! 05 Formalize everything, even in an informal way. 06 Always be flexible. Always be willing and ready for changes. 07 Goals met are, at least, the basis for the next goal. 08 Unite we stand! Divergences are constructive, conflicts are destructive. 09 A humble stance: the key to our success. 10 Enjoy. Like. Get involved. And always be happy! 2154 8
  • 1 .6 Strong platform of brands Strong platform of brands, aimed at specific target markets, enables the Company to capture growth from different income segments 1972 1995 2008 2009 Brands profile Trendy New Easy to wear Eclectic Fashion Up to date Bold Provocative Pop Flat shoes Affordable Colorful Design Exclusivity Identity Seduction Female target market 16 - 60 years old 18 - 40 years old 12 - 60 years old 20 - 45 years old Distribution channel 1 Foundation O F MB EX O F MB EX O F MB EX O MB EX 16 336 987 16 28 35 1,478 146 10 2 890 5 2 9 52 12% 72% 15% 1% 36% 7% 49% 8% 46% 0% 53% 1% 49% 9% 42% POS 1 % gross rev.2 Retail price point R$ 189.00/pair R$ 305.00/pair R$ 110.00/pair R$ 960.00/pair Sales Volume 3 R$ 720.7 milhões R$ 429.5milhões R$ 37.4 milhões R$ 6.0 milhões % Gross Revenues 4 61.6 % 36.7% 3.2% 0.5% Notes: 1. Points of sales (3Q13); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports 2. % of each brand gross revenues (FY 2012) 3. 3Q13 (LTM) gross revenues, include internal market : does not include other revenues (not generated by the 4 brands) 4. % total (3Q13 LTM) gross revenues 9
  • 1 .7 Multiple distribution channels Flexible platform through three distribution channels with differentiated strategies, maximizing the Company's profitability Gross Revenues per Channel 373 franchises in more than 160 cities Reach about 1,184 cities and 2,452 multi-brands 56 owned stores being 7 Flagship stores Broad distribution in every Brazilian state Gross Revenue Breakdown – (R$ mm)¹ 46% 25% 23% 6% 100% 66 2 288 303 1,228 571 Franchises Multi-brands Notes: 1. 3Q13 (LTM) gross revenues 2. Also includes other revenues in the domestic market Owned stores Exports ² Total 10
  • | Business model
  • 2 Unique business model in Brazil Customer focus: we are at the forefront of Brazilian women fashion and design 1 2 ABILITY TO INNOVATE R&D 3 4 5 SOLID MARKETING AND COMMUNICATION PROGRAM EFFICIENT SUPPLY CHAIN NATIONWIDE DISTRIBUTION STRATEGY SEASONED MANAGEMENT TEAM WITH PERFORMANCE BASED INCENTIVES Communication & Marketing Sourcing & Logistics Multi-channel Management BRANDS OF REFERENCE 12
  • 2 .1 Ability to Innovate We produce 7 to 9 collections per year I. Research II. Development III. Sourcing IV. Delivery Creation: 11,500 SKUs / year Available for selection: 63% of SKUs created / year Stores: 52% of SKUs created / year Activities JAN FEV MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Creation Launch Orders Production Delivery Normal sale Discount sale Winter I Winter II Winter III Summer I Summer II Summer III Summer IV Arezzo&Co fulfills the various aspirations of women, delivering on average 5 new models per day, allowing for consistent desire-driven purchases 13
  • 2 .2 Broad media plan The brand has an integrated and expressive communication strategy, from the creation of campaigns to the point of sales Presence in electronic media and television +750 exhibition on TV e 150 exhibition in cinema in 2012 + 80 million impact Digital communication Strong presence in printed media 85 inserts in printed media in 170 pages in 2012 (32 million readers) Over 300 exhibition in fashion editorials in 1S13 Celebrity Endorsement Marketing Events 830k accesses to site/month Over 3 mm followers/ fans: Facebook, Demi Moore Gisele Bündchen Blake Lively CRM – VIP sales (120k monthly access to Schutz’s Blog) Instagram and Twitter (all 4 Brands) Seasonal showroom in Los Angeles near In-store events – PA Average navigation time: 8 minutes Arezzo is leader in interactions* the Red Carpet Season Stylists Fashion Advisors * Source: Indexsocial/ Agência Espalhe, 2013 14
  • 2 .2 Communication & marketing program reflected in every aspect of the stores Stores constantly modified to incorporate the concept of each new collection, creating desire-driven purchases POS materials (catalogs, packaging, among others) Store layout & visual merchandising Flagship stores All visual communication at stores is monitored and updated simultaneously throughout Brazil 15 for each new collection
  • 2 .2 Atmosphere of stores: differentiated concepts for each brand Niches and lighting Wall display Each theme is disposed in different niches Verão – Flagship Oscar Freire Chameleon project: constant modification to incorporate the new collection’s concept Closet Essentials Distinguished storefront Combos Inverno – Flagship Oscar Freire Visual merchandising:  Updates at low cost investment  Brings relevant information from each collection to stores’ level  3 main updates per year Vídeo Wall     Jackets and accessories Campaigns and marketing actions Preeminence for products Differentiated products Accessories Storage  Exposure of a large variety of products  Selling area inventory: lower necessity of area for storage Sophisticated lighting  Atmosphere of a jewelry store  Private shop experience  Focus on exclusivity, design and highly selected materials 16
  • 2 .3 Flexible production process… Production speed, flexibility and scalability to ensure Arezzo&Co’s expected growth based on asset light model Sourcing Model Gains of scale Owned factory with capacity to produce 1.1 million pairs annually and strong relationship with Vale dos Sinos production cluster as the main outsourcing region Arezzo’s scale and structure gives flexibility to source a large number of SKU’s from various factories on a short time frame at competitive prices Certification and auditing of suppliers Joint purchases In-house certification and auditing ensure quality and punctuality (ISO 9001 certification in 2008) Coordination of material purchase jointly with shoe, handbag and accessories’ suppliers New Distribution Center Sourcing model – 90% of production outsourced 8,2% AREZZO&CO OWNED FACTORY OTHERS 91,8% Consolidation and improvement of distribution in national scale 1 2 3 4 Reception: 100,000 units/ day Storage: 100,000 units/ day Picking: 150,000 units/ day Distribution: 200,000 units/ day 17
  • 2 .4 Large capillarity and scale of store chain Mono-brand store chain with high capillarity, reaching more than 160 cities and well-positioned among the retail companies Points of sale (3Q13) Size and average sales per mono-brand stores - 2012 Average size (m2) 5 Net Revenue/ m2 (R$ 000s) Total Stores 1,2 67 324 399 111 Brand 214 638 1,650 10 6 368 234 13 (i) 4 discount outlet GDP³: 18% A&C¹: 17% 214 1,030 336 franchises + 16 owned stores(i) + 987 multi-brand clients GDP³: 5% A&C¹: 4% 206 35 franchises + 28 owned stores(ii) + 1,478 multi-brand clients Points of sale – average size: new stores are increasing network average size (ii)1 discount outlet GDP³: 9% A&C¹: 7% 57 sq m 2010 85 sq m 2011 new stores 80 sq m 80 sq m 2012 new stores 2013 new stores Source: IBGE, Companies’ Reports; number of stores according to latest data provided by the Companies Notes: 1. Considers only mono-brand 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 market GDP³: 55% A&C¹: 57% GDP³: 17% A&C¹: 15% 2 franchises 10 owned stores 890 multi-brand clients 2 owned store + 9 multi-brand clients TOTAL 373 franchises6 + 56 owned stores6 + 2,452 multi-brand clients =2,881 points of sales 18
  • 2 .4 ...through owned stores… Capturing value from the chain while developing retail know how and brands’ visibility Greater brand awareness coupled with operational efficiencies Flagship Stores  Clustering higher productivity stores in main areas (mainly SP and RJ) improving operational efficiency and profitability: Franchise Owned Annual Average Sales per Store 2012 R$ 3,289M R$ 5,119M  Direct costumers interaction develops retail competences which are also reflected at franchised stores  Flagship stores ensure greater visibility and reinforce brand image Arezzo – Iguatemi / SP Total sales area and # of owned stores (sq. m) Schutz – Oscar Freire/ SP 57 56 5897 5825 22% 21% 45 29 Schutz – Morumbi/ SP 21 6 10 20% 2967 2067 1044 12% 88% Anacapri – Eldorado/ SP Arezzo – Oscar Freire/ SP 4686 1369 9% 91% 2007 2008 2009 23% 19% 81% Flagship 80% 78% 79% # owned Stores 77% 2010 2011 Standard store 2012 3Q13 19
  • 2 .4 … based on a retail oriented structure... Structure applied to retail in order to achieve better sales and margin results as well as integrating and connecting all monobrand stores’ back office Strong focus on Franchise & Owned Store performance • All sales team (4000+) get connected through national internet broadcast for 3 Sales Conferences per year, creating an aligned sales pitch and great sense of motivation before each season • Large service program to assist franchisees on sales and profitability goals • Recurring training programs in products, fashion trends, sales techniques, store management, IT, among others • Strong visual merchandising, trade marketing and ambiance investments and training 20
  • 2 .4 …with efficient management of the franchise network... Model allows rapid expansion with little invested capital by Arezzo&Co and high profitability to franchisees Successful Partnership: “Win – Win”  Intense retail training  Franchise Concentration per Operator (# of Franchisees by # of Franchises) Ongoing support: average of 6 stores/ consultant and average of 22 visits per store/ year  Strong relationship with and ongoing support to franchisee  IT integration with our franchises amount 100%  4 or more franchises As mono-brand stores, franchises reinforce the branding in each city they are located 10% 3 franchises 15% Best Franchise in Brazil (2005 and 2012) and in the sector for 7 years since 2004 49% 1 franchise 27% 2 franchises Excellency in Franchising Award in the last 8 years (ABF) Notes: 1H13 data 96% satisfaction of franchises1 1. 96% of the current franchisees indicated they would be interested in opening a franchise if they did not already have one 100% of on-time payments 2. Annual sales of R$ 3,3 million + average initial investment of R$ 900 thousand + working capital of R$ 600 thousand 5-year contract and average payback of 40 months2 21
  • 2 .4 ...and of the multi-brand stores Multi-brand stores widen the distribution capillarity and the brands’ visibility, resulting in a strong retail footprint Multi-brand stores’ Gross Revenue¹ LTM 2,452 300.000 2450 290.000 280.000 2500 2,329 2400 2350 270.000 2300 260.000 Improved distribution and brand visibility      2250 303.3 250.000 240.000 230.000 220.000 210.000 Gross Revenue (R$ mn) 2200 # Stores 2150 2100 269.9 Multi-brand stores 3Q12 LTM Multi-brand stores Notes: 1. Domestic market only LTM 2050 2000 3Q13 LTM   Greater brand capillarity Presence in over 1,184 cities Rapid expansion at low investment and risk Main Focus: share of wallet Owner’s loyalty  Schutz Club – Relationship program that gives advantages to the 50 Top Multi-brand stores, such as better products display, training and awards to the best sales teams. Important sales channel for smaller cities Sales team optimization: internal team and commissioned sales representatives 22
  • 2 .5 Seasoned and professional management team Alexandre Birman Internal Auditing Independent business units Marco Coelho Arezzo Schutz Claudia Narciso David Python Alexandre Birman Anacapri Yumi Chibusa Commercial Milena Penteado Maicon Americo Supply Chain/ Sourcing CTO CFO HR Cisso Klaus Kurt Richter Thiago Borges Raquel Carneiro Highly qualified management team Years of experience Years at Arezzo 18 18 Claudia Narciso Arezzo 24 14 Name Title Thiago Borges CFO and Investor Relations Officer Maicon Americo Director – Commercial David Python Schutz 10 2 10 5 15 5 Name Title Alexandre Birman CEO Yumi Chibusa Anacapri Milena Penteado Alexandre Birman Years of experience Years at Arezzo 13 5 20 1 Cisso Klaus Director – Supply Chain/ Sourcing 47 9 Kurt Ritchter Director – CTO 32 11 41 30 13 3 Marco Coelho Director – Internal Auditing Raquel Carneiro Director – HR  Stock option plan for key executives  Performance based compensation package for all employees  Independent business units leveraged on a single shared service structure: Industrial, Logistics, Financial and HR 23
  • 2 .6 Corporate governance The new Board is comprised of 10 members, of which 4 are independent, and has a very large engagement on the strategic planning of Arezzo&Co Board of Directors Name Title Anderson Birman Chairman of the Board José Bolonha Vice Chairman of the Board Welerson Cavalieri Member Juliana Rozenbaum Member José Murilo Carvalho Member Experience Founder and Chairman of the Board, with over 40 years of experience in the industry Founder and CEO of “Ethos Desenvolvimento Humano e Organizacional“; Board member of the Inter-American Economic and Social Council (UN, WHO Name Title Fabio Hering Independent member Rodrigo C. Galindo Independent member Partner at INDG/FALCONI Consultores de Resultados, where he works for more than 19 years. Previously, was an executive in big mining companies. Carolina Faria Over 13 years of experience as sell side equity research analyst, focused mainly in retail and consumer companies. Claudia Soares President of the Attorney’s Association of Minas Gerais, Board Member of the Brazilian Bar Association Guilherme A. Ferreira Member Independent Member Independent Member Experience CEO and board member of Cia. Hering, where he has been working for over 28 years. CEO of Kroton Educacional S/A, one of the biggest education companies in the world, with over 500 thousand students in colleges. Marketing consultant at True Brand & Business – Soul Brand Services from 2010 to 2012. Previously, worked as an executive at Ambev. Former CFO and IR Officer at Via Varejo S.A. and Executive Vice-President of Market Strategy at Companhia Brasileira de Distribuição – GPA. CEO of Bahema Participações, board member of Pão de Açúcar, Banco Signatura Lazard, Eternit, Tavex and Rio Bravo Investimentos Committees Risk, Audit and Finance Committee Strategy Committee Welerson Cavalieri (Coordinator) Juliana Rozenbaum (Coordinator) Members: Guilherme A. Ferreira and Thiago Borges (CFO) People Committee José Bolonha (Coordinator) Members: Members: Fabio Hering, Carolina Faria and Arthur N. Grynbaum¹ Claudia Soares and Raquel Carneiro (HR Director) 1- CEO of Grupo Boticário (largest franchise company in Brazil) and Vice-President at Abihpec (Brazilian Association Personal Hygiene, Perfumes & cosmetics Industries) 24
  • | Market Overview and | Sourcing and Industry Characteristics
  • 3 .1 Social upward mobility driving internal consumption Income growth and job creation lead to rapid social upward mobility and increasing internal consumption Brazil experiences an accelerated process of social upward migration... (Millions of people) Class A/B 13 (8%) 22 (11%) 27 (14%) +14 mi (2003-14E) Class C 66 (38%) +49 mi 100 (52%) (2003-14E) 115 (59%) Class D/E 96 (55%) 70 (36%) 2003 54 (27%) 2011 2014E Classes A/B: monthly income above R$6,977 | Class C: monthly income between R$1,618 and R$6,977 | Class D: monthly income between R$1,013 and R$1,618 | Class E: monthly income below R$1,013 ...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) Out-of Home Food 1.0x Furniture 1.0x 4.2x Class 3.2x D/E 7.0x Class 5.6x C 9.4x Class 7.9x B Class A Apparel and Footwear 1.0x 3.7x 6.6x 9.2x Prescription/OTC drugs 1.0x 3.4x 5.3x 7.3x Hygiene and Personal Care 1.0x 3.4x 5.6x Footwear and apparel have the largest growth potential 7.6x Classes 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$768 Source: IBGE, FGV, LCA, Bain & Co., BCG, Roland Berger, IPC Maps 26
  • 3 .2 Brazilian footwear market overview Arezzo&Co has a significant stake of the women footwear market and has consistently increased its market share Footwear Consumption 2013 Arezzo&Co’s market share1 Men 15% 9% 30% Sports Kids 11% 8% 7% 15% 10% 4% 40% Women Footwear 2007 Income Class Class D/E Class C 42% 2009 10% CAGR (03-13E): + 40% 2010 2011 2012 Total footwear market (R$ bn) Class A 8% 2008 Class B 2013E Women footwear Total footwear 9.2% 15.9 40.3 Source: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGE Note: 1. Based on Euromonitor research and IBOPE Inteligência (Pyxis). Estimated Arezzo&Co market share considering women footwear market 27
  • 3 .3 Brazilian handbags market overview Arezzo&Co also has a relevant position within the fast growing handbag market in Brazil Total handbags market (R$ bn) Arezzo&Co current sell out breakdown 2Q13 LTM (R$ mn) Breakdown based on owned stores CAGR (03-13E): + Women handbags 10.7% 11% 4.0 2013E 5.1 Total handbags 303.6 Total addressable market (R$ bn) Footwear Handbags 86% 20% Note: 3% accessories Footwear 19.9 80% Handbags  Consolidated (including handbags and shoes) market share: 9,3%  Opportunity to consolidate handbag leading position Source: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGE 28
  • 3 .4 Footwear Industry - Global Overview and competitive advantages Brazil is the third biggest footwear producer, with production mostly destined to supply the domestic market. Competitive costs, flexibility on minimum production and short lead time are the pillars to serve the fast fashion market Pairs (millions) Production World share China 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% Pairs (millions) Consumption World share China 2,700 15.2% USA 2,335 13.4% India 2,034 11.7% Brazil 780 4,5% Japan 693 4.0% Indonesia 627 ITALY Lead time: 70 days Minimum/model: 800 pairs Minimum/construction: 4,000 pairs Production cap. (pairs): 202 million Cost (FOB): USD 35/pair Cost (DDP): USD 49/pair CHINA (different clusters) Lead time: 120 to 150 days Minimum/model: 5,000 pairs Minimum/construction: 20,000 pairs Production cap. (pairs): 12,000 million Cost (FOB): USD 16-18/pair Cost (DDP): USD 42-45/pair VIETNAM Lead time: 120 to 150 days Minimum/model: 2,000 pairs Minimum/construction: 8,000 pairs Production cap. (pairs): 760million Cost (FOB): USD 18/pair Cost (DDP): USD 26/pair 3.6% Source: Abicalçados, Footwear News, Company estimates BRAZIL Lead time: 40 days Minimum/model: 800 pairs Minimum/construction: 4,000 pairs Production cap. (pairs) 894 million Cost (w/o tax): USD 21/pair Cost (w/tax): USD 27/pair INDIA Lead time: 160 days Minimum/model: 5,000 pairs Minimum/construction: 20,000 pairs Production cap. (pairs): 2,060 million Cost (FOB): USD 15/pair Cost (DDP): USD 23/pair 29
  • 3 .5 Footwear Industry - Global footwear offering Brazil is recognized by the quality and high specialization within different and complex categories of shoes. The industry has been qualitatively developed in order to add value to products and thus increase its competitive advantages over Asian suppliers Industry segmentation vs. value creation: Global Footwear Offering: the higher and more centralized the country is in the pyramid, the more focused it is in fashion, creation, design, luxury market , marketing and distribution management, with smaller production scale Global Brands B Manufacturer with own design and global brand C Manufacturer with own design and mostly local brand D Manufacturing operation E Equipment assembly Usually don’t produce; Creation + own brand management Design and product specification Mostly internationally outsourced Supply chain management Totally decide over marketing and commercialization  Receive product and process specifications, as well as components and raw material  Assembly activities only Source: BNDES, Company estimates + France Italy Spain Taiwan China Thailand Brazil Mexico Indonesia Vietnam India Value added A       Other global suppliers 30
  • 3 .6 Arezzo&Co sourcing: Brazilian competitive advantages Vale dos Sinos region offer strong competitive advantages, a combination of production capacity, production flexibility, skilled labor and strong structure to support incentives for innovation and strengthening of industry’s competitiveness  Brazil is the world’s third largest footwear producer Vale dos Sinos: 26% of Brazilian footwear production  The world’s largest cattle: 13% of the market BRAZIL  RS: 1 third (R$ 1 billion) of Brazilian revenue in leather industry  Vale dos Sinos: one of the world’s largest footwear manufacturing hubs Production (million pairs) 819 Jobs (thousands) 338 SOUTHERN REGION Production (million pairs) 270 138  Abundant skilled and specialized labor Jobs (thousands)  Production flexibility: VALE DOS SINOS volume X variety X speed  1,700 companies and entities: components, footwear, machinery, tanneries, trade entities, research and teaching institutions Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL. Production (million pairs) 216 Jobs (thousands) 110 31
  • 3 .8 Arezzo&Co Sourcing Process and supply chain management Sourcing process and supply chain management focused on ensuring flexibility, speed and cost control in the creation of new products Arezzo&Co sourcing process: 1 2 3 4 5 6 7 Trends and style Design Technical Design Engineering Samples Showroom Logistics and distribution Raw material price negotiations Store Scheduling + Manufacturer negotiation Coordinated management of production chain associated with Investments in product engineering: specific know how Cost control Chemicals and textile Cost management efficiency Finished products Arezzo&Co Quality standard guarantee Raw materials Efficient lead time Flexibility Components Reuse from collection to collection: 10% MODEL Engineering folder SKU 35% CONSTRUCTION 70% 32
  • | Value Drivers Update
  • .1 Solid growth fundamentals 4 The Company has ongoing initiatives to unlock value to shareholders 1 28.2%  Store openings guidance for 2013 reaffirmed 860.3 Net revenues CAGR 2007-2012  Strong Schutz’s sales encourages launch of webcommerce channel for other brands 678.9 26.7% 571.5  Multibrand strategy brings capillarity 2 18.8% 367.1 DISTRIBUTION NETWORK AND SALES AREA EXPANSION STORE PRODUCTIVITY  GTM Arezzo project enhancing sell-out performance 412.1 38.7%  New store layout for Arezzo and Anacapri increased sales per m²  Repositioning of handbags in Schutz presented very positive results 12.3% 193.8 3 89.4% PROFITABILITY  Continuous focus on diluting operating expenses 2007 2008 2009 2010 2011 2012 4 PROCESS EFFICIENCY  Constant analysis towards improvements in logistics and distribution 34
  • 4 .1 2013 Expansion Plan Since IPO, for 2 consecutive years, store opening guidance was achieved; 2013 expansion is committed to 59 new stores with 14% growth in sales area 12 # Owned Stores # Franchises 449 # Conversion 420 29 58 -12 507 43 openings, the company is committed to expand existing 55 -1 390 31 stores by a total of 1,000 sqm +13% 55  In addition to the store in 2013 and 2014 464 56 +7% +8% 394 signed 365  30 stores opened in 9M13 334 2012 1) Includes international store operation  90% of the contracts already 3T13 2013 2014 35
  • 4 .1 Web commerce: Entry into the channel Client profile and adhering to online media boosted Schutz entry into the online channel Attractiveness of online commerce, especially in the fashion segment Brand adhesion and profile of Schutz client  Schutz clients are connected and use social media to obtain information, to express themselves and to consume  Strong growth in online sales  Highest growth in footwear and clothing segments  Biggest fashion brand on Instagram  Forecast is maintenance of strong growth  Brand enjoys high online audience and engagement  Since 2009, Schutz has a strong relationship with fashion bloggers 2008 Source: Euromonitor 17.6% 15.0% 20,893 95 10,387 CAGR 12-17E 19.1% 312 CAGR 08-12 97.4% 1,444 14,641 2010 Other Online Retail 2012 Clothing and Footwear 36
  • 4 .1 Web commerce: Entry into the channel Brand strength in the online world and alignment with client profile Attractiveness of online commerce, especially in the fashion segment Brand adhesion and Schutz client profile Engagement Audience exame.com award Recognized as the most active brand on Instragram • Likes: 8461 • Comments: 115 • Date: 11.15 – Aug 8, 2013 August 2013 average • • • • Data: September/2013 Pictures: in the month 133 / 4.2 pictures per day Likes – TOTAL: 565 thousand/ Per pictures: 4,252 Comments – TOTAL: ~10 thousand/ Per picture: 75 Engagement: 56.6 37
  • 4 .1 Web commerce: Channel evolution Structuring of online channel and initial results confirm channel attractiveness and alignment  R$1 million sales  Thesis test  R$10 million sales  Estimated sales of R$23 million  Internal strengthening to better serve our clients  Preparation to expand channel potential  Dedicated management  Evolution of technological platform worldwide  Dedicated logistic operator  Improvement of online marketing actions FACEBOOK/INSTAGRAM 2013 CRM Action Online Schutzlovers WEBCOMMERCE BEGINNING 38
  • 4 .2 GTM Arezzo Under GTM Arezzo the Company expects to increase the product accuracy with new collection calendar a shorter lead time Supply model Life cycle Showroom Collection Fashion complement Fast fashion  More fashion content; largest collections presented to the franchisees  Fashion complement using information from the sell out  Capturing quick trends, not only from Arezzo’s stores, but also from market research Continuables Continuables  Products automatically replaced in the stores with some season colors  Open size run replacement  Products also automatically replaced in Classic Classic the stores; only two colors. Full mark-up sell-through 39
  • 4 .3 Store productivity increase Arezzo’s new architectural design highlights our products even more Window relate to the pattern used on our products’ soles, forming the brand’s “ZZ” symbol Next to the cashier, a dedicated shelf for appliances allows us to add units to the sale With new shelves and niches, we were able to increase in 50% the number of models exposed in the stores Products highlighted in the center of stores Suspended shelves around the entire store with lights that highlight the products A better distribution of the furniture offers more comfort for clients in the stores 40
  • 4 .3 Evolution of architectural design and store model New architectural design means proper showcasing of the products and a superior purchasing experience for a low outlay Tower: on one side, individual flat shoes are displayed; on the other side, mirrors; and inside, an inventory with a pair in each size Enchanted Island: at the front of the store with the leading new launches intended to attract customers Combo: at the back of the store, special offers in order to increase UPT and provide women with practical and quick service Central Islands: to display the classical “must-have” Anacapri products 41
  • 4 .4 Schutz Handbags Changes in strategy for Schutz brand handbags resulted in a strong growth in the product segment Handbags % of Schutz Revenue 9.4% 1 Segmentation by product and channel to meet final client’s needs 2 Development of products, increasing their perceived value 3 5.1% Reduction in the number of models, favoring supply chain and creating identity for in-store product 3T12 3T13 Note: handbags as percentage of owned stores revenues 42
  • 4 .4 Schutz Handbags Product line segmentation enables reaching different audiences in different channels, with the proper branding strategy and meeting clients’ desires Main channel MB O/F Difference between lines Product technical standard SCHUTZ PREMIUM SAMPLES ✔ R$790 - R$1,100* Sourcing base Used materials Level of exposure of brand/logo SCHUTZ V.M. in store and showroom R$490 - R$790* ✔ ✔ Depth of purchases in the grids Training of commercial teams Marketing and communication actions POP & FUN SCHUTZ ✔ R$350 - R$490* Note: POS values O = Owned Stores; F = Domestic Franchises; MB = Multibrand store (domestic market) 43
  • 4 .4 Schutz Handbags Focus on product development increased perceived quality and desire for the product  Detailed product development  Desire and spontaneous reaction of opinion makers  Over 2,100 pieces sold 44
  • 4 Key takeaways 1 Undisputable category leader 2 Significant growth potential 3 Reference brands 4 Efficient and market oriented supply chain 5 Scalable platform with operating leverage 6 High return on invested capital 45
  • 05 | Financial Highlights
  • 5 .1 Operational and financial highlights Gross Revenue by channel – Domestic Market (R$ million) 13.7% 751.8 10.7 855.0 6.0 8.2% 230.4 19.1% 199.6 212.9 6.0% 319.6 -0.4% 0.8 82.8 68.4 301.4 4.2 83.2 63.0 151.1 8.6% 10.9% 3Q12 SSS Sell-in (franchises) 16.2% 360.5 419.0 167.6 3Q13 Franchise SSS Sell-out (owned stores + franchise ) 167.7 Owned Stores 9M12 Multi-brand 9M13 Others² n/a -5.1% n/a 0.5% 14.2% 0,6% 11.9% 4.3% In the quarter, the monobrand channel presented 10.2% growth, leveraged by an increase of 10.9% in the franchise channel, with 49 stores openings and expansion of other 10 in the last twelve months 1) Other: Decreasing of 81.2% in 3Q13 and 44.0% nos 9M13. 47
  • 5 .2 Operational and financial highlights Key highlights 3Q13 Net Revenue increased by 16.1% year-over-year 3Q13 ended with 429 store chain and Sales area expansion of 18.2% year-over-year Strong Gross Revenue growth, especially in the Schutz brand that increased by 21.2% in 3Q13 compared to 3Q12 Number of Stores (R$ mn) and Total Area (sq m - ‘000) Net Revenues (R$ mn) Area CAGR 07- 13 (3Q13LTM): 17.1% CAGR 07-13 (3Q13 LTM): 32.0% 24.3% 18.2% 24.5 15.0% 678.9 571.5 18.8% 412.1 367.1 19.1% 237.6 199.5 193.8 89.4% 2Q12 2007 2Q13 17.2 26.7% +31 287 318 377 +57 +52 56 53 36 27 38.7% 12.3% 2008 429 19.7 860,3 29.0 260 2009 2010 2011 2012 282 3Q10 3Q11 Franchises 324 3Q12 Owned Stores 373 3Q13 Area 48
  • 5 .3 Operational and financial highlights Gross Profit (R$ million) EBITDA (R$ million) 44.2% 43.5% 17.9% 311,6 17.3% 264,2 8.4% 3Q12 115,9 100,0 8,0 9.6% 116,1 3Q13 16.4% 15.9% 17.5% 43.5% 43.4% 107,0 16.5% 42,7 9M12 9M13 3Q12 46,8 92,0 3Q13 9M12 9M13 Net Income (R$ million) 11.6% 70,5 11.0% 77,8 10.4% 5,3 11.6% 11.0% 19.3% 28,6 3Q12 2.8% 29,4 65,2 3Q13 9M12 9M13 49
  • 5 .4 Operational and financial highlights Capex (R$ million) Cash Conversion Cycle (R$ thousand) Cash Conversion Cycle Inventory¹ Accounts Receivable² (-) Accounts Payable¹ 3Q12 3Q13 #days (R$'000) #days 105 65 91 51 218,631 , 82,543 , 201,253 65,165 115 68 92 45 Change (R$'000) (in days) 275,180 , 99,819 , 241,476 66,115 10 3 1 -6 Summary of investments Total capex 3Q12 16,479 Stores - expansion and refurbishing Corporate Other ¹ Days of COGS ² Days of Net Revenues Operational Indicators 3Q13 Growth% 10,486 -36.4% 31,299 10,162 -67.5% 5,399 6,197 14.8% 15,727 18,203 15.7% 774 666 -14.0% 1,252 2,290 82.9% Cash Flows From Operating Activities (R$ thousand) Growth or spread% # of pairs sold ('000) 6,270 7,212 15.0% Incom e before incom e tax and social contribution 364 452 24.2% Depreciation and am ortization 0.6% 2,105 2,007 -4.7% Other 377 429 52 53 56 3 324 373 49 87.0% 90.7% 3.7 p.p 11.9% 4.3% -7.6 p.p. n/a 0.5% n/a Owned Stores Franchises Outsorcing (as % os total production) 2 SSS Sell-in (franchises) 2 SSS Sell-out (ow ned stores + franchises) -36.5% -64.8% 9M13 # of stores * 30,655 3,623 9M12 # of em ployees 48,278 9M13 Growth% 10,306 Operating Indicators # of handbags sold ('000) 9M12 Operating Cash Flow Decrease (increase) in current assets / liabilities 9M12 9M13 Growth% 91,620 112,480 22.8% 5,209 7,777 49.3% 53 n/a (6,679) (11,931) (39,160) 228.2% Trade accounts receivables (21,771) (32,153) 47.7% Inventories (26,028) (23,785) -8.6% 27,879 30,608 9.8% 7,989 (13,830) n/a (21,818) (23,505) 7.7% 56,401 57,645 2.2% Suppliers Change in other noncurrent and current assets and liabilities Paym ent of incom e tax and social contribution Net cash flow generated by operational activities 50
  • 5 .5 Operational and financial highlights Indebtedness (R$ thousand) Indebtedness totaled R$ 109.8 million in 3Q13 versus R$ 55.2 million in 3Q12 Cash position and Indebtedness Cash Total debt Short term Long-term debt relevance stood at 38.6% in 3Q13 versus 44.5% in 3Q12 % total debt Long-term % total debt 3Q12 2Q13 3Q13 175,605 214,411 199,780 55,199 107,862 109,042 30,626 60,763 66,930 55.5% 24,573 44.5% 56.3% 47,099 43.7% 61.4% 42,112 38.6% Net debt Indebtedness policy remained conservative, with low weighted-average cost of Company's total debt (120,406) (106,549) EBITDA LTM 125,128 155,575 159,675 -1.0x -0.7x -0.6x Net Debt /EBITDA LTM (90,738) 51
  • Appendix 52
  • A .4 Key financial indicators Key financial indicators 3Q12 3Q13 Net revenues 246,655 266,671 (139,606) 107,049 Growth or spread% Growth or spread% 9M12 9M13 8.1% 607,484 705,349 16.1% (150,592) 7.9% (343,327) (393,779) 14.7% 116,079 8.4% 264,157 311,570 17.9% 43.4% 43.5% 0.1 p.p. 43.5% 44.2% 0.7 p.p. (66,436) (72,130) 8.6% (177,408) (203,477) 14.7% 26.9% 27.0% 0.1 p.p 29.2% 28.8% -0.4 p.p Selling expenses (48,631) (51,706) 6.3% (123,783) (144,151) 16.5% - 3,074.52 Ow ned stores (20,092) (21,001) 4.5% (54,134) (65,358) 20.7% - Selling, logistics and supply (28,539) (30,705) 7.6% (69,649) (78,793) 13.1% - 2,165.52 (15,303) (16,980) 11.0% (41,111) (52,200) 27.0% - 1,677.00 (459) (637) 38.8% (7,305) 651 n/a - 178.00 (2,043) (2,807) 37.4% (5,209) (7,777) 49.3% - 764.00 42,656 46,756 9.6% 91,958 115,870 26.0% 17.3% 17.5% 0.2 p.p. 15.1% 16.4% 1.3 p.p. 28,586 29,387 2.8% 65,201 77,810 19.3% COGS Gross profit Gross margin SG&A % of Revenues General and adm inistrative expenses Other operating revenues (expenses) Depreciation and am ortization Ebitda Ebitda margin Net incom e 1 11.6% 11.0% -0.6 p.p. 10.7% 11.0% 24.3% 27.3% 3.0 p.p 24.3% 27.3% 32.8% 36.9% 4.1 p.p. 32.8% 36.9% 909.00 3.0 p.p 3 - 5,693.52 0.3 p.p. 2 - 4.1 p.p. Net margin Working capital - as % of revenues Invested capital - as % of revenues Total debt 4 Net debt Net debt/EBITDA LTM 55,199 109,042 (120,406) (90,738) -1.0x -0.6x 97.5% n/a n/a 55,199 109,042 (120,406) (90,738) -1.0x -0.6x 97.5% n/a n/a 1 - Includes non-recurring expense in 1Q12 in Other Operating Revenues and Expenses: Arezzo&Co terminated its contract with Star Export Assessoria e Exportação Ltda. (“Star”), which had been providing technical support and advice services for procurement and inspection of independent factories and workshops contracted to make products. As part of the termination, a payment of R$ 8 million was 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 costs while maintaining the same quality of services. 2 - Working Capital: current assets minus cash, cash equivalents and marketable securities less current liabilities minus loans and financing and dividends payable. 3 - Invested capital: working capital plus fixed assets and other long-term assets less income tax and deferred social contribution. 53 4 - Net debt is equal to total interest-bearing debt position at the end of a period less cash and cash equivalents and short-term financial investments.
  • A .5 History – Franchises and Owned Stores History of Stores 3Q12 4Q12 1Q13 2Q13 3Q13 Sales area 1,3 - Total (m ²) 24,531 26,543 26,659 27,996 28,999 19,125 20,646 20,731 22,154 23,174 5,406 5,897 5,928 5,842 5,825 368 390 391 408 420 316 334 335 353 365 Arezzo 300 311 312 324 328 Schutz 16 23 23 29 35 0 0 0 0 2 52 56 56 55 55 Arezzo 19 19 19 17 16 Schutz 24 27 27 27 27 Alexandre Birman 2 2 2 2 2 Anacapri 7 8 8 9 10 Total num ber of international stores 9 9 9 9 9 # of franchises 8 8 8 8 8 # of ow ned stores 1 1 1 1 1 Sales area - franchises (m²) Sales area - Ow ned stores 2 (m²) Total num ber of dom estic stores # of franchises Anacapri # of ow ned stores 1 Includes areas in square meters of 9 international stores . 2. Includes 5 outlet-type stores with a total area of 1 ,227 m 2 3. Includes areas in square meters of stores expansion 54
  • A .6 Balance Sheet - IFRS Assets 3Q12 2Q13 3Q13 Liabilities 3Q12 2Q13 3Q13 475,879 537,059 574,288 Current liabilities 134,590 148,087 179,422 8,373 7,515 10,748 Loans and financing 30,626 60,763 66,930 Financial Investments 167,232 206,896 189,032 Suppliers 65,165 43,557 66,115 Trade accounts receivables 201,253 200,229 241,476 Dividends and interest on equity capital payable 0 9,346 0 82,543 89,821 99,819 38,799 34,421 46,377 3,971 18,460 17,469 Non-current liabilities 29,025 54,386 49,111 12,507 14,138 15,744 Loans and financing 24,573 47,099 42,112 Non-current assets 120,042 137,303 144,964 Related parties 979 978 801 Long-term receivables 17,437 15,530 16,029 Other liabilities 3,473 6,309 6,198 98 21 22 360 377 0 432,306 471,889 490,719 Deferred income and social contribution 9,392 6,898 7,600 Capital 106,857 156,000 157,186 Other credits 7,587 8,234 8,407 Capital reserve 173,149 125,190 126,781 Property, plant and equipment 56,788 65,014 67,683 Income reserves 98,421 153,162 153,162 Intangible assets 45,817 56,759 61,252 Profit 53,879 37,537 53,590 595,921 674,362 719,252 595,921 674,362 719,252 Current assets Cash and cash equivalents Inventory Taxes recoverable Other credits Financial Investments Taxes recoverable Total Assets Other liabilities Equity Total liabilities and shareholders' equity 55
  • A .7 Income Statement - IFRS Income statement - IFRS 3Q12 3Q13 Net operating revenue 246,655 266,671 9M12 9M13 8.1% 607,484 705,349 16.1% (139,606) (150,592) 7.9% (343,327) (393,779) 14.7% 107,049 116,079 8.4% 264,157 311,570 17.9% (66,436) (72,130) 8.6% (177,408) (203,477) 14.7% Selling (49,714) (53,203) 7.0% (126,532) (148,211) 17.1% Administrative and general expenses (16,263) (18,290) 12.5% (43,571) (55,917) 28.3% (459) (637) 38.8% (7,305) Cost of goods sold Gross profit Operating incom e (expenses): Other operating income net Incom e before financial result Financial income Incom e before incom e taxes Income tax and social contribution Current Deferred Net incom e for period Grow th% 651 Grow th% 148211 55917 n/a 40,613 43,949 8.2% 86,749 108,093 24.6% 1,676 1,681 0.3% 4,871 4,387 -9.9% 42,289 45,630 7.9% 91,620 112,480 22.8% (13,703) (16,243) 18.5% (26,419) (34,670) 31.2% (14,390) (16,945) 17.8% (25,799) (36,006) 39.6% (620) 1,336 n/a 77,810 19.3% 687 702 2.2% 28,586 29,387 2.8% 65,201 56
  • A .8 Cash Flow Statement - IFRS Statem ent of cash flow 3Q12 3Q13 9M12 9M13 Operating activities Income before income tax and social contribution Adjustm ents to reconcile net incom e w ith cash from operational activities Depreciation and amortization Income from financial investments Interest and exchange rate 42,289 45,630 91,620 1,011 (1,075) (1,470) 112,480 66850 7,831 8906 4970 -6165 5067 5034 2,043 2,807 5,209 7,777 (2,927) (3,728) (9,531) (9,893) (310) (1,840) 504 3,227 2,205 1,686 2,348 6,720 Customer receivables (50,566) (41,250) (21,771) (32,153) Inventory (17,341) (9,595) (26,028) (23,785) Other Decrease (increase) in assets Recoverable taxes 1,367 6,217 (2,812) Variation other current assets 3,421 (974) (1,657) (1,039) (4,880) Judicial deposits (388) (121) (1,029) 424 9097 -14190 -4179 -3223 545 Decrease (increase) in liabilities Suppliers Labor liabilities Fiscal and social liabilities Variation in other liabilities 21,837 4,656 545 22,559 27,879 30,608 3,598 5,925 3,417 (4,394) (3,802) (13,165) 1,988 1,618 1,717 3,186 (10,166) (5,907) (21,818) (23,505) Net cash flow from operating activities (3,688) 10,773 56,401 57,646 Net cash used in investing activities 20,235 11,106 (47,972) (19,161) 4,392 3,019 16,036 8049 -181 -8771 1568 -17598 46873 11,731 Paym ent of incom e tax and social contribution Net cash used in financing activities - third parties Net cash used in financing activities (17,365) (21,665) (31,620) (50,986) Increase (decrease) in cash and cash equivalents 3,574 3,233 (7,155) (770) Increase (decrease) in cash and cash equivalents 3,574 3,233 (7,155) (770) 57
  • IR Contacts CFO and IR Officer  Thiago Borges IR Manager  Leonardo Pontes dos Reis, CFA Phone: +55 11 2132-4300 ri@arezzoco.com.br www.arezzoco.com.br