Cia. Hering Investor's Day 2015_inglês

1. 2015

2. Cia. Hering Day 2015 - Agenda
8:30 OPENING
9:00 CHANNELS
9:50 COFFEE BREAK
10:20 PRODUCT AND BRANDS
11:10 PHSAP² PROJECT
11:40 Q&A
11:25 FINANCIAL MANAGEMENT

3. OPENING
Fabio Hering

4. How did we get here?
Diagnostic 2013
Organizational model
evolution focused in
brands
Cia. Hering
Day 2013
Focus on Product
Collection
Basics relaunching
Collection improvement
New fronts
Launch of Hering for you
DZARM. relaunch
Cia. Hering
Day 2015
Multi-channel
New e-commerce
platform
Supply
Improved selling process
Focus on VM
2

5. Structure
Fabio Hering
CEO
Edson Amaro
Brand Officer
Ronaldo Loos
Commercial Officer
Moacyr Matheussi
Supply Officer
Brands Commercial Supply Backoffice
Edgar Filho
Industrial Officer
Frederico Oldani
CFO and IRO
Alessandra Morrison
People and Org. Officer
Marciel Costa
Administrative Officer
Andrea
Hering manag.
Rodrigo
DZARM. manag.
Rachel
H. for you manag.
TBD
Children manag.
3

6. Strategic vision
Organizational processes and efforts should be linked to vectors
VECTORS
Style and product development as a competitive
advantage
Consumer at the business’ core
Multichannel distribution strategy
Strong brands in casual lifestyle
Channel -
Related Initiatives
Product -
Related Initiatives
Purpose
4

7. CHANNELS

8. Multichannel organization
Multichannel distribution model with high capillarity
82 OWNED 12.4% of sales
725FRANCHISE 37.5% of sales
05
WEBSTORES
STORE NETWORK
18,263
MULTIBRAND
48.2%
of sales
1.9%
of sales
807 stores
642 stores 88 stores 73 stores 03 stores 01 store
Source: Number of stores related to 3Q15. Sales participation over the past 12 months. 6

9. STORE NETWORK

10. Store
Refurbishments
Supply
VM
Service Level
Store Network | POS management
SSS improvement from 4 POS management fronts
POS
Management
8

11. POS management| Store Refurbishments
2007 Project
2015 Project
New refurbishment model (retrofit):
 Cost reduction – approx. 60% of the current
 Refurbishment period reduced from 40 to 20 days
Refurbishment incentivized plan in 2016:
 Subsidy and funding
Project prior 2007
New refurbishment plan considers significant number of stores in 2016
9

12. POS management| Supply Front
Improved Supply and VM through assortment recommendation based on new
stores’ clustering model
 Supply recommendation implemented to Hering Store chain
from 2015 High Summer collection on
 Focus on network adherencee and model evolution for 2016
Supply
Performance
Purchase volume
Assortment
Variety / Depth
#ItemColor
Point of sale i.e. HS store
Region Southeast
Sq. meters 275
Turnover 1.2
Total Performance R$ 1,710,572
Fashion Performance R$ 1,199,649
Basic Performance R$ 510,923
VM – fashion wall 6
#ItemColor fashion 442
#ItemColor Female -Top 139
#ItemColor Female -Bottom 54
#ItemColor Female - Complete 37
#ItemColor Male -Bottom 59
#ItemColor Male -Top 110
#ItemColor Others 43
# ItemColor basic 282
Cluster
10

13. POS management| Visual Merchandising
Cleaner VM and better shopping experience aligned to the new Supply Model
Product Availability,
cleaner VM
Product variety
Stock-outs, leftovers
Current VM
Fashion Wall - 4 or 6 units
per ItemColor
12 - 15 ItemColor per
fixture
Previous VM
 Fashion wall - 3 units per ItemColor
 21 ItemColor per fixture
11

14. POS management| Service Level
S&OP Project - improved service level to the channels with reduced inventories
in the company
Channels Impact:
Improvement in delivering/supply => coordinated delivery by fixtures and cycles
considering different supply sources
Cia. Hering Impact:
Leftovers Reduction => integrated planning between Sales, Demand and PPC
(Production Planning and Control)
12

15. Store Network | Priorities in 2016
Improve profitability of store operations - Network sustainability
Sales SSS growth
Margin Increase inventory turnover and reduce markdowns –
supply front
Expenses Occupancy costs renegotiation
Efficiency in store service / processes
ManagementTools
NewBI-stores
13

16. Store Network | Satisfaction survey
High level of satisfaction of Cia. Hering franchisees network
Overall Satisfaction
Would you open another store? Would you recommend the franchise?
Source: Instituto da Qualidade- Oct / 2015
Research conducted with franchisees of Hering Store, Hering Kids and PUC networks.
Definitely yes
Probably yes
Definitely yes
Probably yes
Maybe yes, maybe no
Definitely no
Probably no
Maybe yes, maybe no
Definitely no
Probably no
Very satisfied
Satisfied
Neither satisfied, nor
insatisfied
Insatisfied
Very insatisfied
14

17. MULTIBRAND

18. Channel
Management
Qualified
Multibrand
North/Northeast
Plan
Multibrand | Channel Management
Distribution management based on three fronts
Management
Distribution
16

19. Multibrand | Management Model
Management Model Evolution in order to improve effectiveness of distribution
network coverage
 Service model of sales representatives
 Information Management
 Coverage revision (redistribution, smaller areas per representative)
 Showroom efficiency (model standardization)
17

20. Multibrand | Qualified Multibrand
Intensify migration of traditional multibrand to Qualified
Current phase – qualified multibrands base shielding
Next movement – increase base of qualified multibrands
Traditional Multibrand
 # Clients: 95%
 Average purchase/year: R$ 50
thousand
 Sales: 84% of the channel
Qualified Multibrand
 # Clients: 5%
 Average purchase/year: R$ 230
thousand
 Sales: 16% of the channel
18

21. Multibrand | Qualified Multibrand
Main pillars of Qualified Multibrand
POS Material
Training
Priority in Serving
Differentiated
Commercial Policy
Brand Application
RelationshipPOS
19

22. Multibrand |North/Northeast Plan
Clear opportunities to gain market share in North/Northeast regions
Entry opportunity.
Regions have opportunities in
areas not covered.
Market Share.
Market Share opportunities
through representatives and mix
of products suitable for the
region.
Sales team Number of sales representatives (from 23 to 44)
Management
Team Reformulation
Increase number of showrooms (from 12 to 20)
per collection
Logistics Change of logistics operators (regions N/NE)
Productivity Service model review by geographic area
20

23. E-COMMERCE

24. E-commerce
Growth plan enabled by new platform
Implementation of SAP/Hybris plataform
concluded in 3Q15 for 5 webstores
Robuster platform
More stable
Unified checkout
Greater transactions capacity
Including peaks, as Black Friday
Brand Experience
Stores with individualized experiences by brand
New Features
Search for a specific size, purchase of complete look, etc.
Increase browsing time
www.hering.com.br
www.heringkids.com.br
www.puc.com.br
www.heringforyou.com.br
www.dzarm.com.br 22

25. Traffic acquisition
Strong investment in online environment
Conversion rate improvement
Improving browsing experience
Inclusion of dressed pictures and videos
Activation of virtual change room
Assortment
Use the channel for product pilots
Leverage information for product development
Omnichannel
Other channels integration
E-commerce | Growth
Opportunity
5% of sales in the
coming years
23

26. Channels | Key messages
Improve SSS through POS efficient management
Refurbishments plan advances quickly in 2016
WEBSTORES
STORE
NETWORK
MULTIBRAND
Management Model evolutes
N/NE Plan and Qualification
Growth based on the new platform
Boost Growth
24

27. PRODUCT AND BRANDS

28. Brand management
Structures dedicated to each brand management
Edson Amaro
Brand Officer
Merchandising
Collection planning Style
Visual
Merchandising
Communication
and Marketing
Brand Management
Pillars
Andrea
Hering manag.
Rodrigo
DZARM. Manag.
Rachel
H. for you manag.
TBD
Children manag.
Áureo
Plan. and demand manag.
$$$
26

29. Product
Extended Product Approach
Product
Store
Brand
+
+
27

30. Product
Products as a competitive
differential
What consumers takes home
is the ‘value for money’
Evolutionary leap
28

31. Value
for money
Design
Product | Value for money
Product evolution through new product development model –
Product Lifecycle Management (PLM)
PLM
29

32. 2013: opportunity to
increase woven fabric
We grew in woven fabric, but fell in knit
Greater differentiation
Boost technological capacity
and R&D
Key to ensure brands
accessibility
Exercise leadership
and protagonism
Product | Knit 3.0
Opportunity in resume growth in knit without giving up the gains
obtained in woven fabric
2016: knit leverage
Companysales(R$)
30

33. HERING

34. Source: Quanti, Bain & Co Research, 2015
Note: 2015 numbers are slightly different from Hering Day 2013 numbers due to broader scope of this research.
Visited
Etimulated
Recall
Top of mind
% of respondents
Purchased
Purchased more
frequently
Favourite
brand
55%
55%
68%
61%
27%
39%
Hering | Brand strength
Brand indicators remains strong, opportunities in increasing
conversion rate remains
32

35. Hering | Opportunities
Product, product, product
Good value in all price ranges
Better experience in stores
Combination of Initiatives in
Product and Store – P&S
33

36. Children Fashion
PUC E HERING KIDS

37. Children I Where are we?
Different actions taken to ensure product differentiation (extended
view) for each brand – branding, style guide and new communications
strategy.
Good results obtained in 2015
SSS growth in all 2015 quarters
Transition team made in 2015 – positive effects expected
from Autumn/16 collection on
Building competitive advantage from focus on product
35

38. Children I Opportunities
 SSS growth from product
developments
 Adjustments in distribution network,
with possible stores closing
 Sustain growth based on the propper
value proposition
 Opportunities in network expansion
in several geographies
 Market share gain through combined strategy between brands and new segmentation
model
Store Network
Multibrand
36

39. HERING FOR YOU

40. Hering for you I Brand proposition
Line for sports
and casual
sport fashion
for the daily
routine
FITNESS
• Essential clothing for
contemporary woman
who needs to be
beautiful and well
dressed without giving
up comfort
• A versatile and timeless
closet, which goes from
Saturday afternoon walk
to a working meeting
Panties and
bras with
comfortable
modeling
LINGERIE
Pajamas,
sweatshirts
and
accessories to
sleep and
relax
PAJAMA
Everything for
the beach and
swimming
pools: bikinis,
swimsuits and
accessories
BEACH
Dresses contemporary women daily lives who want to be beautiful and well
dressed without giving up comfort
38

41. Three owned stores pilot in
relevant malls in SP
Present in multibrand, at 4,000
sales point. Exclusive
representatives network for the
brand
Good feedback among opinion-
makers and consumers
Hering for you I Where are we?
Brand launched in 2014 and still maturing
Female brand. Values the woman and her times.
Communication and positioning slightly above Hering’s
target
39

42. ‘For you’ line with sales performing better than expected, with opportunities to increase line’s
offering and greater supply of differentiated products (premium)
Opportunity in distribution for specialized multibrands not fully explored yet
Pilot stores still maturing: adjustments in assortment, VM and store operations in 2016 aiming
future network expansion
Hering for you
Differentiated value proposition, expansion model under construction
40

43. DZARM.

44. DZARM. | Business plan
Synergy among pillars ensures consistency,
focus and differentiation
Exclusive structure dedicated to the brand to
support 2020 business plan
Structured processes for operational efficiency
gains
New Business Plan structured in four pillars: brand, product, communication and
channels
BRAND
PRODUCT
MKT/COMMUNICATION
CHANNELS
PEOPLE
PROCESSES
42

45. “
DZARM. | Brand
- Tradition and Quality - more than 20 years on the market.
- Strong awareness in Brazil’s countryside (3,500 multibrands).
DZARM. believes that every woman is powerful
by nature and want to be noticed wherever she
goes. DZARM. wants to help women expressing
all their power in a natural way.
- Attributes: POWER + SENSUALITY + NATURALLY
- Target: young women, Class A/B from 18 to 35 years.
New Value Proposition strengthens
distinctive brand positioning
”
43

46. Curatorship: portfolio organized by occasions of
usage: DAY, WORK and PARTY.
Total Look: complete solution.
Product differential: modeling, printing, jeans,
dresses, tailor items and knit.
Price – good value for money
DZARM. | Product
(average price of R$ 140.00)
Complete portfolio for all occasions
of usage with great value for money
70: 20 : 10
COMMERCIAL COMMERCIAL WITH
INNOVATION
CONCEPTUAL
Products’ innovation model
44

47. 4x investment increase in communication
Focus on AWARENESS + DIFFERENTIATION
 Alessandra Ambrósio –2015/16 ambassador
 Curatorship: D’ GIRLS – bloggers / Glamurama
 Special actions: opinion-makers, fashion magazines, special events
DZARM. | Marketing and Communication
4 MEDIA PILLARS
DIGITAL MAGAZINES OOH / CINEMA TRADE (POS)
Strong 360º integrated communication plan
45

48. Sophisticated and Contemporary store design
Translates Sensuality and Power in finishing details,
lighting, equipment, etc.
Curatorship: organized by use occasions: Day,
Work and Party.
Stores
 Pátio Higienópolis – Sep/15
 Shopping Eldorado – Dec/15*
DZARM. | Channels
Flagship Stores
Increase presence and brand experience in
the main capitals
* Estimated 46

49. 1st Wave – Light Franchise
 Focus on cities with less than 500,000
inhabitants
"Light“ Business Model with lower set up cost
Stores with smaller surfaces (approx. 50 sq.
meters)
2nd Wave – Flagship Stores Franchise
Model under final adjustments
Focus on capitals
DZARM. | Channels
Franchise
Expansion via franchise model from 2016 on to
strengthen brand presence
47

50. Premium Boutiques
Special corners to strengthen brand presence
Multibrand Clustering
Increasing investment in POS materials in a segmented way
DZARM. | Channels
Number of clients
Sales(R$)
Channel multibrand segmentation in order to deliver better brand experience and strengthen POS
presence
3,500
Multibrands
48

51. PHSAP² PROJECT

52. SAP Implementation
System, already used by the Company for other processes, will be extended to
other areas in 1Q16
Ecosystem
E-commerce
Order
Entry Textile
Operation
Factions
Control
Production
Stores
Product
Develop.
Payroll
Accounting
FinancialPurchases
Fiscal
Logistics
Invocing
Ordering
process
Receiving
Products
50

53. SAP Implementation
Critical factors in the implementation: Technology, People, Processes and Transition Plan
PEOPLE AND PROCESSESTECHNOLOGY
Pré ‘Go-Live’
 Supply Plan;
 Showcases delivery - Winter/16;
 Involved teams mobilization;
Post ‘Go-Live’
 Resumption of goods movement;
 Billing resumption;
 Billing evolution as planned (ramp-
up)
TRANSITION PLAN
Technological solution
Ready and stabilized since mar/15
Successfully tests conducted:
 Adversity scenarios
 Non core scenarios
 Score above recommended
Trainings
Empowering people in the new
technology and processes
250 Groups
800 People
90 Courses
14,800 training hours
3 ‘Go-Live’ Simulations
Relation Multiplier/user
51

54. SAP Implementation
Assessment of SAP Company on the Project's readiness for 'GO-LIVE'
Quality Gate SAP – 05 (Realization) sheduled for Dec. 10th
Go-Live readiness comparison with SAP customer base
Updated on Nov. 20th
Worst
Readiness
Best
Readiness
Tests
Trainings
Simulations
Change management
Business Readiness
Scope management
52

55. SAP Implementation
Implementation schedule foresees project closure in
March/16
‘Go-Live’ with assisted operation during the month
Operation normalization, but still monitored by the
project team
Project closure, with operations conducted by the
company normally
Jan
Mar
Feb
53

56. FINANCIAL MANAGEMENT

57. 81.7 78.6
190.0 208.7
123.7
166.8
46.3 82.0
58.5 43.5
131.1
76.6
31.2
69.6
47.5 63.5 72.2 96.6
159.3
230.3
295.9
315.7 327.0 339.9
2009 2010 2011 2012 2013 2014
CaPEX
Working Capital
FCF
FCO - Ex Res
Financeiro
Financial Management| Cash Flow
Strong cash flow despite increasing investments needs (CapEx and
Working Capital) over the last years
CapEx Reduction and Inventories Normalization tends
to benefit cash generation in 2016
In R$ million
CFO – Ex Fin. Result
55

58. Financial Management| Capital Structure
Conservative capital structure appropriate to the current macroeconomic
scenario
24.4
61.0
164.9 168.8
116.3
158.6
2009 2010 2011 2012 2013 2014
Net Cash
In R$ million
56

59. Financial Management| Shareholder’s Return
Cash generation converted into shareholder’s return (interest on capital,
dividends and share buyback)
81.7 78.6
190.0
208.7
123.7
166.8
19.7
82.4
171.6
261.9
138.5 157.7
24%
105%
90%
125%
112%
95%
2009 2010 2011 2012 2013 2014
FCF
Dividends + Share
Buyback
Ratio
In R$ million
57
Share Buyback

60. Financial Management| Priorities in 2016
Focus on results normalization and cash generation
 Result
 Resume revenue growth through P&S strategy- Product and Store
 Margins recovery - leftovers reduction and Product Fronts
 Strict expenses control
 Cash Generation
 CapEx Reduction
 Inventories normalization post SAP ‘go-live’
 Financial Management Conservatism
58