May 2012 - institutional presentation - may, 2012
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    May 2012 - institutional presentation - may, 2012 May 2012 - institutional presentation - may, 2012 Presentation Transcript

    • | Apresentação do Roadshow As of March 31, 2012 May, 2012 1
    • 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
    • | 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 Controlling Development of Asset light: high Strong cash the footwear and shareholders are the collections with operational efficiency generation and high accessories sector reference in the sector efficient supply chain growth with presence in all Brazilian states 7.8 million pairs of shoes(1) Net revenues CAGR: ~11,500 models created 29.3% (2007- 1Q12) 86% outsourced production 39 years of experience in per year 499 thousand handbags(1) the sector ROIC of 32.5% in 1Q12 Net income CAGR: 38.2% Lead time of 40 days (2007- 1Q12) c.2,515 points of sale Wide recognition 1,952 employees 7 to 9 launches per year Increased operating 11.1% market share(2) leverage Notes: 1. LTM as of March, 2012. 2. Refers to the Brazilian women footwear market (source: Euromonitor, IBGE and Company estimates) . Estimated for 2010. 5
    • 1 .3 Successful track record of entrepreneurship The right changes at the right time accelerated the Companys developmentFoundation and structuring Industrial Era Retail Era Corporate Era Industry Reference 70’s 80’s 90’s 00’s 2012  Founded in 1972  Consolidation of  Focus on retail  Specific brands for each  Focused on brand and industrial business model  R&D and production segment product located in Minas Gerais outsourcing on Vale dos Sinos -  Expansion of distribution  1.5 mm pairs per year RS channels and 2,000 employees  Franchises expansion  Efficient supply chain Launch of new brands ConsolidateOpening of the first Opening of the flagship leadershipshoe factory store at Oscar Freire position + Merger First store Schutz launch Strategic Partnership (November 2007) Launch of the first Commercial operations design with centralized in São Paulo national success Fast Fashion concept Initial Public Offering (February 2011)
    • .4 Shareholder structure11 Post-offering Birman family Management Others 52.6% 0.2% 47.1%Notes:1. Arezzo&Co capital stock is composed of 88,542,410 common shares, all nominative, book-entry shares with no par value.Shareholder structure as of March, 2012. 7
    • 1 .5 Culture & Management: Arezzo towards 2154 Meritocratic culture based on best practices makes Arezzo a company prepared to reach 2154 Code 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 in the 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 the environment 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” 2010 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 segmentsFoundation 1972 1995 2008 2009 Trendy Fashion Pop Design Brands New Up to date Flat shoes Exclusivity profile Easy to wear Bold Affordable Identity Eclectic Provocative Colorful Seduction Female target 16 - 60 years old 18 - 40 years old 12 - 60 years old 20 - 45 years old market O F MB EX O F MB EX O MB O MB EXDistribution POS 1 channel1 18 290 877 - 19 2 1,509 - 8 783 1 18 - % gross 14% 73% 12% 1% 26% 1% 65% 8% 41% 59% 14% 7% 79% rev.2 Retail price R$ 180.00/pair R$ 285.00/pair R$ 99.00/pair R$ 960.00/pair point Sales R$ 23.9 million R$ 589.1 million R$ 249.8 million R$ 8.3 million Volume3 % Gross 2.7% 65,7% 27.8% 0.9% Revenues4Notes:1. Points of sales (1Q12 LTM); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports2. % of each brand gross revenues (2011 LTM)3. (1Q12 LTM) gross revenues, does not include other revenues (not generated by the 4 brands)4. % total (1Q12 LTM) gross revenues 9
    • 1 .7 Multiple distribution channels Flexible platform through three distribution channels with differentiated strategies, maximizing the Companys profitability Gross Revenues per Channel Reach about 292 franchises in 46 owned stores Broad distribution 1.200 cities and more than 160 being 5 Flagship in every Brazilian 2,500 multi- cities stores state brands Gross Revenue Breakdown – (R$ mn)¹ 48% 27% 19% 6% 100% 56² 170 242 897 429 Franchises Multi-brands Owned stores Others Total Notes: 1. (1Q12 LTM) gross revenues 2. Considers external market and other revenues in the domestic market 10
    • | Business model
    • 2 Unique business model in Brazil Customer focus: we are at the forefront of Brazilian women fashion and design1ABILITY TO 2 SOLID MARKETING 3 EFFICIENT 4 NATIONWIDE 5 SEASONED DISTRIBUTION MANAGEMENTINNOVATE AND SUPPLY CHAIN TEAM WITH STRATEGY COMMUNICATION PERFORMANCE PROGRAM BASED INCENTIVES Communication & R&D Sourcing & Logistics Multi-channel Management Marketing BRANDS OF REFERENCE 12
    • 2 .1 Ability to Innovate We produce 7 to 9 collections per yearI. 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 IVArezzo&Co fulfills the various aspirations of women, delivering on average 5 newmodels 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 eletronic media and television Strong presence in printed media+1000 exhibition on TV e 620 exhibition in cinema in 2011 150 inserts in printed media in 300 pages in 2011 (45 million readers)+ 40 million impact 78 exhibition in fashion editorials in 1Q12Digital communication Celebrity Endorsement Marketing Events549k accesses to site/month 115 k Facebook fans: leader in Demi Moore Gisele Bündchen Blake Lively CRM – VIP salesAverage navigation time: 8 minutes interactions Seasonal showroom in Los Angeles near the In-store events – PA51 k Twitter followers : category leader 30 k monthly access to Schutz‟s Blog Red Carpet Stylists Fashion Advisors Season 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 purchasesPOS materials (catalogs, packaging, among others)Store layout & visual merchandising Flagship stores All visual communication at stores is monitored and updated simultaneously throughout Brazil for each new collection 15
    • 2 .2 Atmosphere of stores: differentiated concepts for each brand Niches and lighting Summer – Flagship Oscar Freire Wall display Each theme is disposed in different nichesChameleon project: constantmodification to incorporate the newcollection’s concept Closet Essential Sophisticated lighting Combos Winter – Flagship Oscar Freire Video Wall Acessories Storage Distinguished storefront Special collectionsVisual merchandising: Updates at low cost investment  Jaquets and accessories  Exposure of a large variety of  Atmosphere of a jewelry store Brings relevant information from  Campaigns and marketing actions products  Private shop experience each collection to stores’ level  Preeminence for products  Selling area inventory: lower  Focus on exclusivity, design and 3 main updates per year  Differentiated products necessity of area for storage highly selected materials 16
    • .3 Flexible production process…2 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 1.2 million pairs annually and strong relationship with Vale dos Sinos Arezzo’s size allows for large scale purchases from each production cluster as the outsourcing represents 86% of total supplier production Certification and auditing of suppliers Joint purchases In-house certification and auditing ensure quality and Negotiation of raw material jointly with local suppliers punctuality (ISO 9001 certification in 2008) New Distribution Center Consolidation and improvement of distribution in national scale 1 Reception: 100,000 units / day 2 Storage: 100,000 units / day 3 Picking: 150,000 units / day 4 Distribution: 200,000 units / day 5 Replacement of milky run strategy 17
    • .4 ...leveraged by owned stores…2 Capturing value from the chain while developing retail know how and brands‟ visibilityFlagship Stores Greater brand awareness coupled with operational efficiencies  Clustering higher productivity stores in main areas (mainly SP and RJ) improving operational efficiency and profitability: Franchise Owned R$ 3,292 M Annual Average Sales per Store 2011 R$ 5,249 M  Direct costumers interaction develops retail competences which are also reflected Arezzo – Ipanema / RJ at franchised stores Arezzo – Cid. Jardim / SP  Flagship stores ensure greater visibility and reinforce brand image Total sales area and # of stores (sq m) 45 46 4,686 4,754 29 21 20% 20% Flagship Standard Store 2,967 10 # stores 6 2,067 23% 1,369 19% 80% 80% 1,044 9% 12% 77% 81% Schutz – Iguatemi / SP 88% 91% Schutz – Oscar Freire / SP 2007 2008 2009 2010 2011 1Q12 18
    • .4 …with efficient management of the2 franchise network... Model allows rapid expansion with little invested capital by Arezzo&Co and high profitability to franchisees Successful Partnership: “Win – Win” Franchise Concentration per Operator  Intense retail training (# of Franchisees by # of Franchises)  Ongoing support: average of 6 stores/ consultant and average of 22 visits per store/ year 4 or more franchises  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 in 10% 3 franchises each city they are located 16% 1 franchise 46% Best Franchise in Brazil (2005) and in the sector for 7 28% years since 2004 Excellency in Franchising Award in the last 8 years (ABF) 2 franchises 96% satisfaction of franchises1 Notes: FY2011 data 100% of on-time payments 1. 96% of the current franchisees indicated they would be interested in opening a franchise if they did not already have one Average payback of 39 months2 2. Annual sales of R$ 2,330 thousand + average initial investment of R$ 600 thousand + working capital of R$ 414 thousand 19
    • 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 (R$ mn) Improved distribution and brand visibility 2,177  Greater brand capillarity 1,782  Presence in over 1,200 cities # Store  Rapid expansion at low investment and risk Gross Revenue1 (R$ mn)  Main Focus: share of wallet 188 234  Owner’s loyalty 56  Important sales channel for smaller cities 47  Sales team optimization: internal team and commissioned 2010 2011 1Q11 1Q12 sales representatives Multi-brand storesNotes:1. Domestic market only 20
    • 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 (1Q12)Size and average sales per mono-brand stores - 2011 290 franchises + Brand Average size Net Revenue/ m2 Total GDP³: 5% 18 owned stores + (m2) (R$ 000s) Stores 1,2 A&C¹: 4% 4 outlets + 5 61 354 328 877 multi-brand clients 133 244 432 GDP³: 18% A&C¹: 17% 1,904 9 167 2 franchises + 1,031 7 336 19 owned stores + 2.513 8 145 1 outlet + 263 17 104 1,509 multi-brand clientsPoints of sale – average size : new stores are increasing GDP³: 7% 8 owned storesnetwork average size A&C¹: 7% GDP³: 55% A&C¹: 57% 783 multi-brand clients 85 80 GDP³: 15% 1 owned store + 57 sq m sq m A&C¹: 15% 18 multi-brand clients sq m TOTAL 2010 2011 new stores 2012 new stores 292 franchises +Source: IBGE, Companies’ Reports; number of stores according to latest data provided by the Companies 40 owned stores +Notes:1. Considers only monobrand stores of Arezzo and Schutz; 5 outlets +2. For Hering, considers only Hering Store chain stores;3. 2008 data; 2.177 multi-brand clients4. Net Revenue (assuming that sales taxes and deduction = 30% of gross revenues);5. Considers Arezzo + Schutz, except for outlets, handbags’ stores and Schutz franchise; = 2,515 points of sales 21
    • 2 .5 Seasoned and professional management team Anderson Birman Internal Auditing Marco Coelho Schutz and AlexandreArezzo and Ana Capri Industrial Supply Chain Strategy and IT Financial HR Birman Anderson Birman Alexandre Birman Cisso Klaus Marcio Jung Kurt Richter Thiago Borges Raquel Carneiro Claudia NarcisoHighly qualified management teamName Years of YearsTitle experience at ArezzoAnderson Birman 39 39  Stock option plan for key executivesCEOAlexandre BirmanCOO 16 16  Performance based compensation package for allThiago Borges employees 12 4CFO and Investor Relations OfficerCisso Klaus 46 8  Independent business units for each brand but unifiedDirector – Industrial officers (Industrial, Logistics, Financial and HR) for theClaudia Narciso 23 13 whole companyDirector – R&DKurt Ritchter 31 10Director – Strategy and ITMarcio Jung 27 7Director – Supply ChainMarco Coelho 40 29Director – Internal AuditingRaquel Carneiro 12 2Director – HR 22
    • 2 .6 Corporate governance Board is composed by 8 members being 4 appointed by controlling shareholders Board of directorsName Experience Name ExperienceTitle Title Tarpon’s partner since 2003, member of the Board of Directors ofAnderson Birman Arezzo’s CEO since its foundation, with over 39 years of Pedro Faria Direcional Engenharia, Omega Energia Renovável, Cremer andChairman of the Board experience in the industry Board Member ComgásAlexandre Birman Arezzo’s COO and founder of Schutz, with 16 years of Eduardo Mufarej Tarpon’s partner since 2004, member of the Board of Directors ofVice-Chairman of the Board experience in the industry Board Member Tarpon, Omega Energia Renovável and Coteminas Founder and CEO of “Ethos Desenvolvimento Humano eJosé Murilo Carvalho President of the Attorney’s Association of Minas Gerais, José Bolonha Organizacional“; Board member of the Inter-American EconomicBoard Member Board Member of the Brazilian Bar Association Board Member and Social Council (UN, WHO) CEO of Bahema Participações, board member of Pão de CEO of Grupo Boticário (largest franchise company in Brazil) andGuilherme A. Ferreira Açúcar, Banco Signatura Lazard, Eternit, Tavex and Rio Artur N. Grynbaum Vice-President at Abihpec (Brazilian Association of Industries in theIndependent Board Member Bravo Investimentos Independent Board Member field of Personal Hygiene, Perfumes, and Cosmetics ) CommitteesAudit Committee Strategy Committee People CommitteeAna Luiza Franco* (Coordinator) Pedro Faria (Coordinator) José Bolonha (Coordinator) Members: Members:Members: Anderson Birman, Alexandre Birman, Guilherme A. Pedro Faria and Alexandre BirmanJose Murilo and Guilherme A. Ferreira Ferreira and Arthur N. Grynbaum*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. 23
    • | Market Overview
    • 3 .1 Social upward mobility driving internal consumption Income growth and job creation lead to rapid social upward mobility and increasing internal consumptionBrazil experiences an accelerated process of social upward migration...(Millions of people) Class A/B 13 (8%) 20 (11%) 31 (16%) +18 mi (2003-14E) Class C 66 (37%) 95(50%) +47 mi 113 (56%) (2003-14E) Class D 47 (27%) 44 (24%) 40 (20%) Class E 49 (28%) 29 (15%) 16 (8%) 2003 2009 2014E 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$768...Resulting in a significant rise of consumer goods consumption, including Footwear and Apparel(Consumption growth as a result of the upward mobility in social classes; indexed 100 = class D/E) Food, Drinks and 1.0x 1.7x 3.3x 5.4x Cigarettes Electronics 1.0x Class 1.9x Class 4.4x Class 10.1x Class and Furniture Footwear and D/E C B A apparel have Footwear and 1.0x 2.3x 5.4x 12.6x the largest Apparel growth Prescription/OTC drugs 1.0x 1.9x 4.3x 9.3x potential Hygiene and 1.0x 2.3x 5.3x 11.2x Personal Care 25Source: IBGE, FGV, LCA, Bain & Co., BCG, Roland Berger
    • 3 .2 Brazilian footwear market overview Arezzo&Co has a significant stake of the the women footwear market and has consistently increased its market share Footwear consumption (2009) Arezzo&Co‟s market share1 Others 11.1% Kids 4% 13% 8.6% 8.1% 37% Sports Men 17% 4.7% 2007 2008 2009 2010 Women 29% Footwear market (R$ bn) footwear +8% +4% +6% Income Class Class A Class D/E 17% 6% 35.4 32.9 29.7 31.0 33% 44% 9.0 9.5 10.3 8.6 Class B Class C 2007 2008 2009 2010 Total footwear Women footwearSource: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGENote: 1. Based on Euromonitor research and IBOPE Inteligência (Pyxis). Estimated market share, which includes both Arezzo and Schutz 26
    • 3 .3 Global IndustryBrazil is a major shoe producer with a competitive cost of women leathershoes for the domestic market CHINA Lead time: 120 to 150 days Production (pairs): 10.000 mi ITALY Cost (FOB): US$ 16/pair Lead time: 70 days Cost (DDP): US$ 40/pair Production (pairs): 202 mi Cost (FOB): US$ 26/pair Cost (DDP): US$ 38/pair INDIA Lead time: 160 days Production (pairs): 2.000 mi Cost (FOB): US$ 15/pair Cost (DDP): US$ 23/pair VIETNA Lead time: 120 to 150 days Production (pairs): 682 mi Cost (FOB): US$ 15/pair Cost (DDP): US$ 23/pair BRAZIL Lead time: 40 days Production (pairs): 894 mi Cost (without taxes ): US$ 19/pair Cost (w/ taxes ): US$ 29/pair Note: DDP: delivered duty paidSource: Abilcalçados, Assintecal, Arezzo&Co FOB: free on board 27
    • 3 .4 Brazilian footwear industry OverviewArezzo&Co mainly sources its products in the South of Brazil, the world‟slargest footwear manufacturer cluster, specialized in women leather shoes Brazilian Shoes Production (2010) Vale dos South 894 South Region Region Sinos (RS) million Production - # pairs (million) 302 ~187 pairs Export - # pairs (million) 32 ~20 Export - (million USD) 733 ~455 Jobs (thousand) 130 ~81 Other Main producer Companies 3.400 ~2.000 66 States 7% Sports  Expertise in the production of women leather shoes 88 10% Other producer regions: Rubber 487 Southeast Northeast Southeast Region Northeast Region 55% Region Region Leather 253 Production - # pairs (million) 189 Production - # pairs (million) 399 28% Export - # pairs (million) 9 Export - # pairs (million) 102 Export - (million USD) 152 Export - (million USD) 595 Jobs (thousand) 90 Jobs (thousand) 126 Companies 4.000 Companies 627Source: Abilcalçados, Assintecal, Arezzo&Co  Expertise in the production of men leather shoes  Expertise in the production of sports shoes 28
    • | Value Drivers Update
    • .1 Solid growth fundamentals4Key drivers of growth  Store openings in 2011 – 38 out of 38Expand distribution footprint  Store openings in 2012E – increase from 40 to 58  Same store expansion in 2011 and 2012 – 615 out of 1000 sq m already expanded  Store remodeling: Schutz new store format significantly improving sales productivityStore productivity increase  Same store sales of 11.4% (sell out - owned stores) and 11.3% (sell in – franchises)and additional upsides  IT integration between our franchises: about 80% of our stores network in the same platform  Gross margin expansion: 100bps in 2011Increase operational  Ebitda margin expansion: 60bps in 2011efficiencies and margins  Net income CAGR reached 47% (2005-2011) and net margin rose by 7p.p. in the same period Revenue growth post-expansion SG&A as % of Net Revenue and Gross Margin 40.5% 40.5% 41.5% 99%¹ AFTER 37.7% BEFORE 27.0% 70m2 26.2% 24.3% 24.7% 34m2 Store area ¹ Comparison between the sales of Schutz store at Morumbi Shopping: 2008 2009 2010 2011 Results from August/10 to March/11 and August/11 to March/12 Gross margin SG&A (% of net revenue) 30
    • .2 What‟s new for 20124Key drivers of growth  Opening of 58 stores in 2012: • 11 owned storesExpanding Footprint • 47 franchises  Webcommerce: Schutz and Anacapri started marketing a wide range of models to Brazil  Brand assessment:GTM Arezzo • Reevaluation of Arezzo’s current distribution and supply model in Brazil • Solid planning of brand growth for the next years Anacapri Gross  Consistent sales growth since 2010 RevenueAnacapri (R$ million)  Focus on new store format 21,6Consolidation 4,1  Widening distribution platform for franchises 2,6 1,9 2010 2011 1Q11 1Q12Alexandre Birman  Concentration on brand’s strengtheningInternationalization  Structuring brand’s internationalization out of NY 31
    • 05 | 1Q12 Financial Highlights
    • 5 .1 Operational and financial highlightsGross Revenues per Channel (R$ mn) – Domestic Market 815.2 23.1% 9.0 662.5 152.2 5.4 110.0 38.4% 22.3% 201.3 234.0 164.6 188.4 24.2% 65.5% 17.5% 17.1% 3.5 420.0 1.8 44.5 358.7 26.9 47.4 10.2% 55.7 88.5 97.6 1Q11 1Q12 2010 2011 SSS Sell-out (Owned Stores) 11.0% 12.1% SSS Sell-in (Franchises) 9.0% 6.5%Notes:1. Others: increase of 97.0 % in 1Q12 and of 65.4% in 2011. 33
    • 5 .2 Operational and financial highlights Key highlights 1Q12 Net Revenue increased by 16.4% year-over-year 1Q12 ended with 338 store chain and Sales area expansion of 23% year-over-year Strong Gross Revenue growth, especially in the Schutz brand that increased by 36.7% in 1Q12 comparing to 1Q11Net Revenues (R$ mn) Number of Stores (R$ mn) and Total Area (sq m - „000)CAGR 07-12 (1Q12 LTM) : 29.3% Area CAGR 07- 12 (1T12): 16.6% 678.9 23.2% 21.9% 21,6 571.5 17.7% 21.4 17.6 12.5% 17.6 412.1 13.2% 367.1 18.8% 13.3 14.9 38.7% 338 11.7 334 296 296 +42 263 +38 46 237 +33 29 45 193.8 12.3% 29 214 +26 21 16.4% 6 +23 10 89.4% 267 292 242 267 289 138.6 161.4 208 227 1Q11 1Q12 2007 2008 2009 2010 2011 1Q11 1Q12 2007 2008 2009 2010 2011 Owned Stores Franchises Total Area 34
    • 5 .3 Operational and financial highlightsGross Profit (R$ mn) and Gross Margin (%) Adjusted¹ EBITDA (R$ mn) and EBITDA Margin (%)40.7% 41.6% 40.5% 40.5% 41.5% 17.3% 16.7% 281.4 15.0% 14.0% 14.7% 117.7 231.6 95.5 166.8 60.556.4 67.2 22.7 20.7 8.0 14.71Q11 1Q12 2009 2010 2011 1Q11 1Q12 2009 2010 2011 Adjusted¹ Net Income (R$ mn) and Net Margin (%) 16.1 13.5% 11.8% 11.3% 91.610.6% 10.0% 64.5 48.7 16.1 14.7 5.3 10.9 Notes:1Q11 1Q12 2009 2010 2011 1. Adjusted by R$ 8.0 million non-recurring expense related to the termination of the commercial agreement entered into with the former supply agent 35
    • 5 .4 Operational and financial highlights Cash Conversion Cycle (R$ thousand) Capex (R$ million) 1Q11 1Q12 Change Growth or Growth orCash Conversion Cycle Sumary of investments 1Q11 1Q12 2010 2011 #days (R$000) #days (R$000) (in days) spread (%) spread (%) 106 164,520 99 183,568 -7 Total Capex 3,738 17,337 363.8% 15,513 30,239 94.9%Inventory¹ 66 64,585 59 66,099 -7 Stores - expansion and reforming 2,206 13,578 515.5% 8,018 23,352 191.2%Accounts Receivable² 92 150,836 90 173,595 -2 Corporate 1,313 3,553 170.6% 5,772 6,082 5.4% Others 219 206 -5.9% 1,723 805 -53.3%(-) Accounts Payable¹ 52 50,901 50 56,126 -2 ¹ Days of COGs ² Days of Net Revenues Cash Flows From Operating Activities (R$ thousand) Growth or Growth or Cash flows from operating activies 1Q11 1Q12 2010 2011 spread spread Income before income taxes 21,321 15,636 (5,685) 89,289 125,452 36,163 Depreciation and amortization 879 1,417 538 2,670 4,058 1,388 Others (1,868) (4,129) (2,261) 1,735 (10,475) (12,210) Decrease (increase) in current assets / liabilities (12,068) 9,975 22,043 (48,404) (47,302) 1,102 - Trade accounts reveivable (18,366) 5,994 24,360 (29,170) (47,118) (17,948) Inventories (15,723) (8,579) 7,144 (27,657) (8,518) 19,139 Suppliers 22,157 18,840 (3,317) (330) 8,542 8,872 Change in other current assets and liabilities (136) (6,280) (6,144) 8,753 (208) (8,961) Change in other non current assets and liabilities (263) (700) (437) (291) (147) 144 Tax and contributions (2,366) - 2,366 (24,542) (28,548) (4,006) Net cash generated by operating activities 5,635 22,199 16,564 20,457 43,038 22,581 36
    • 5 .4 Operational and financial highlightsIndebtedness (R$ thousand) Indebtedness 1Q11 4Q11 1Q12Indebtedness totaled R$30.8 million in 1Q12 versusR$38.7 million in 4Q11 Cash 187,293 173,550 166,741 Total indebtedness 33,586 38,659 30,844 Short term 12,813 20,885 14,059Long-term debt relevance stood at 54.4% in 1Q12 versus As % of total debt 38.1% 54.0% 45.6%46.0% in 4Q11 Long term 20,773 17,774 16,785 As % of total debt 61.9% 46.0% 54.4% Net debt (153,707) (134,891) (135,897)Indebtedness policy remained conservative, with lowweighted-average cost of Companys total debt EBITDA LTM 98,930 117,729 111,662 Net debt /EBITDA LTM -1.6x -1.1x -1.2x 37
    • Appendix 38
    • A .1 Key performance indicators Growth or Growth orMain financial Indicators 1Q11 1Q12 2010 2011 spread (%) spread (%)Net revenue 138,595 161,361 16.4% 571,525 678,907 18.8%(-) COGS (82,150) (94,188) 14.7% (339,884) (397,483) 16.9%Gross profit 56,445 67,173 19.0% 231,641 281,424 21.5% Gross margin 40.7% 41.6% 0.9 p.p. 40.5% 41.5% 1.0 p.p.(-) SG&A (36,589) (53,922) 47.4% (138,821) (167,754) 20.8% % of Revenues 26.4% 33.4% 7.0 p.p. 24.3% 24.7% 0.4 p.p. (-) Selling expenses (25,164) (34,257) 36.1% (95,437) (119,469) 25.2% (-) Owned stores (9,483) (15,499) 63.4% (35,551) (46,573) 31.0% (-) Sales, logistics and supply (15,681) (18,758) 19.6% (59,886) (72,896) 21.7% (-) General and administrative expenses (10,904) (11,599) 6.4% (44,169) (45,895) 3.9% (-) Other (expenses) and revenues¹ 358 (6,649) -1959.7% 3,455 1,668 -51.7% (-) Depreciation and amortization (879) (1,417) 61.2% (2,670) (4,058) 52.0%EBITDA 20,735 14,668 -29.3% 95,490 117,729 23.3% EBITDA margin 15.0% 9.1% -5.9 p.p. 16.7% 17.3% 0.6 p.p.Net income 14,728 10,852 -26.3% 64,534 91,613 42.0% Net margin 10.6% 6.7% -3.9 p.p. 11.3% 13.5% 2.2 p.p.Working capital² - % of revenues 25.8% 25.2% -0.6 p.p. 24.8% 28.2% 3.4 p.p.Invested capital³ - % of revenues 28.5% 32.9% 4.4 p.p. 28.0% 29.6% 1.6 p.p.Total debt 33,586 30,844 -8.2% 46,769 38,659 -17.3%Net debt (153,707) (135,897) -11.6% 33,765 (134,891) n/aNet debt/EBITDA LTM -1.6 X -1.2 X n/a 0.4 X -1.1 X n/a 39
    • A .2 Balance Sheet - IFRSAssets 1Q11 4Q11 1Q12 Liabilities 1Q11 4Q11 1Q12Current assets 419,920 432,376 426,413 Current liabilities 103,256 102,318 103,212 Cash and cash equivalents 6,809 15,528 6,213 Loans and financing 12,813 20,885 14,059 Short-term investments 180,484 158,022 160,528 Trade accounts payable 50,901 37,286 56,126 Trade accounts receivables 150,836 179,589 173,595 Dividends and interest on equity capital payable 11,964 14,327 6,117 Inventories 64,585 57,384 66,099 Other liabilities 27,578 29,820 26,910 Taxes recoverable 8,889 10,191 9,734 Other receivables 8,317 11,662 10,244 Non-current liabilities 30,069 24,263 23,138 Loans and financing 20,773 17,774 16,785Non current assets 60,977 78,252 94,836 Related parties 2,079 905 879 Long-term assets 22,025 16,818 17,896 Other liabilities 7,217 5,584 5,474 Financial investments 96 79 88 Taxes recoverable 3,774 358 350 Equity 347,572 384,047 394,899 Deferred income and social contribution taxes 14,440 10,012 10,473 Capital 40,917 40,917 105,917 Other receivables 3,715 6,369 6,985 Capital reserve 238,086 237,723 172,723Investments - - - Income reserves 37,779 105,407 105,407Property, plant and equipment 22,134 30,293 37,627 Proposed additional dividends 16,062 - -Intangible assets 16,818 31,141 39,313 Retained Earnings 14,728 - 10,852Total assets 480,897 510,628 521,249 Total liabilities and shareholders‟ equity 480,897 510,628 521,249 40
    • A .3 Income Statement - IFRS Growth or Growth orIncome statement - IFRS 1Q11 1Q12 spread (%) 2010 2011 spread (% )Net operating revenue 138,595 161,361 16.4% 571,525 678,907 18.8%Cost of sales and services (82,150) (94,188) 14.7% (339,884) (397,483) 16.9%Gross profit 56,445 67,173 19.0% 231,641 281,424 21.5%Operating income (expenses): (36,589) (53,922) 47.4% (138,821) (167,753) 20.8% Selling (25,524) (35,007) 37.2% (96,597) (121,224) 25.5% Administrative and general (11,423) (12,266) 7.4% (45,679) (48,197) 5.5% Other operating income, net 358 (6,649) -1957.3% 3,455 1,668 -51.7%Income before financial results 19,856 13,251 -33.3% 92,820 113,671 22.5%Financial income (expenses) 1,465 2,385 62.8% (3,531) 11,781 -433.6%Income before income taxes 21,321 15,636 -26.7% 89,289 125,452 40.5%Income and social contribution taxes (6,593) (4,784) -27.4% (24,755) (33,839) 36.7% Current (1,967) (5,245) 166.6% (19,507) (24,598) 26.1% Deferred (4,626) 461 -110.0% (5,248) (9,241) 76.1%Net income for the year 14,728 10,852 -26.3% 64,534 91,613 42.0%Income per share 0.17375 0.12256 -29.5% 0.8247 1.0453 26.7% 41
    • A .4 Cash Flow Statement - IFRSCash Flow Statement - IFRS 1Q11 1Q12 2010 2011Cash flows from operating activities Income before income and social contribution taxes 21,321 15,636 89,289 125,452Adjustments to reconcile to net cash generated by operating activities (989) (2,712) 4,405 (6,417) Depreciation and amortization 879 1,417 2,670 4,058 Financial Investments (3,091) (3,861) - (14,948) Interest and FX variation 589 (522) 2,031 4,002 Other 634 254 (296) 471Decrease (increase) in assets (36,649) (1,325) (57,730) (62,093) Trade accounts receivable (18,366) 5,994 (29,170) (47,118) Inventories (15,723) (8,579) (27,657) (8,518) Taxes recoverable (871) 465 (4,063) 1,244 Variation in other current assets (1,359) 1,313 3,113 (5,200) Judicial deposits (330) (518) 47 (2,501)(Decrease) increase in liabilities 24,318 10,600 9,035 14,644 Trade accounts payable 22,157 18,840 (330) 8,542 Labor liabilities 1,057 (2,831) 2,843 (1,602) Tax and social liabilities 205 (5,615) 7,719 7,665 Change in other liabilities 899 206 (1,197) 39Paid incomes and social contribution taxes (2,366) - (24,542) (28,548)Net cash generated by operating activities 5,635 22,199 20,457 43,038Net cash used in investing activities (176,131) (15,986) (12,891) (168,294)Net cash used in financing activities with third parties (13,772) (7,293) 5,399 (12,112)Net cash used in financing activities with shareholders 183,073 (8,235) (43,952) 144,892Increase (decrease) in cash and cash equivalents (1,195) (9,315) (30,987) 7,524Increase (decrease) in cash and cash equivalents (1,195) (9,315) (30,987) 7,524 42
    • IR ContactsCFO and IR Officer Thiago Borges IR Manager Daniel Maia Phone: +55 11 2132-4300 ri@arezzoco.com.br www.arezzoco.com.br 43