2Q06 Results
 August, 2006
Company Overview




                   2
Company´s Overview

Grendene is one of the world´s largest producer of synthetic footwear, with
approximately 18 thousand ...
Competitive differentials and strategy
                                       Strong and recognized brands, benchmark in s...
2Q06 & revised outlook

 Adjusted quartely net income, and 12-month net income: year-on-year changes

 450%
              ...
2Q06: proportionately lower fall in sales, and higher recovery in margins

            Gross revenue, adjusted Ebitda and ...
2Q06 earnings – adjusted net income 363% up YoY ...

                          Main Financial and Economic Indicators
(R$ ...
Raw material costs: low correlation of our input cost per pair with
                                              petroche...
Average price Vs. volume: adding value due to product mix, smaller
number of launches and focus on greater volume potentia...
Selling expenses lower, from 27.3% to 25.3% of net sales, due to
advertising expenses reduction in 2Q06 ...
              ...
Adjusted EBITDA: margin increased from 8.4% to 19.3% ...

      Adjusted Ebitda (R$ mn) and adjusted Ebitda margin, %

   ...
Seasonality... each quarter over total year



                                                                       Seas...
Debt


       Net cash R$ 473.8 million on Jun. 30, 2006

                                          26.3          27.1
   ...
Outlook ...
                                     Recovery specially in the domestic market in 1H06
                       ...
Grendene´s IR Team
•   Grendene IR team

    – Alexandre Grendene Bartelle
      CFO & IRD
      dri@grendene.com.br

    ...
Warning



This presentation contains statements that might represent projections of
future events and results. These stat...
Upcoming SlideShare
Loading in …5
×

Grendene - 2nd Qquarter 2006 Earnings

635 views

Published on

2nd Qquarter 2006 Earnings

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
635
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Grendene - 2nd Qquarter 2006 Earnings

  1. 1. 2Q06 Results August, 2006
  2. 2. Company Overview 2
  3. 3. Company´s Overview Grendene is one of the world´s largest producer of synthetic footwear, with approximately 18 thousand employees, gross revenues of R$535 mn and 55.7 million pairs sold in 1H06. Operates in 4 segments: men, women, kids and mass market. Market and brands Strong brands. Leadership in Kids. Synthetic and injected footwear on PVC and EVA Products Strong marketing culture and product differentiation 22,3 million pairs sold (2Q06) Market share 19% of Brazil´s production 15% of the Brazilian footwear exports Installed capacity of 176 million pairs/year Production In-house technology for plastic injection and production of moulds. capacity Strategic location of plants in State of Ceará creates important tax and labor cost advantages Domestic market via sales representatives External markets via direct exports and also through international subsidiaries Sales channels and special sales division (Melissa line with selective distribution) Around 17,300 sales point in Brazil and 19.500 averseas. 3
  4. 4. Competitive differentials and strategy Strong and recognized brands, benchmark in synthetic footwear industry Capacity of creating and launching fashion trends at global level in the Strong brands segments it operates. Strategy of recognizing and identification in the products More selective focus in some products Greater volume leverage potential Higher added value products Marketing and More concentrated media, fewer campaigns but with greater impact, innovation capacity to prolong the cycle of the product Analyzing niche markets to launch new brands, licenses and products Verticalized production and development of proprietary injection technology Distinct production allow efficient, versatile and fast production on large scale, generating superior process with scale quality products at competitive prices, even when considering less value-added products. Ability to rapidly increase its installed capacity at low-cost Highest corporate governance standards: listed at Novo Mercado High corporate Dividend policy: up to 100% of the distributable net income governance level 100% tag along rights and only voting shares Independent members on the Board of Directors Gross revenues of R$249.7 mn in 2Q06 (R$261.2 mn in 2Q05) Adjusted EBITDA of R$38 mn in 2Q06 (R$17.1 mn in 2Q05) Solid financial structure Adjusted net income of R$41.8 mn in 2Q06 (R$9 mn in 2Q05) and profitability Net cash of R$473.8 mn in June 30, 2006 R$ 189 mn cash provided by operating activities in June 30, 2006. 4
  5. 5. 2Q06 & revised outlook Adjusted quartely net income, and 12-month net income: year-on-year changes 450% 363% 350% 250% 150% 47% 50% 20% 11% -41% -64% -50% 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 -35% -36% -24% -3% 14% 45% -150% 12-month result: change year-on-year Adjusted net income for the year, year-on-year change CAGR: 29%p.a in adjusted net income acumulated in 12M up to 2Q06 Guidance for 2006 are: 2006 gross revenue in line with 2005 - with the possibility of a slight increase; and 2006 sales volume in line with 2005 - with the possibility of a slight decrease. 5
  6. 6. 2Q06: proportionately lower fall in sales, and higher recovery in margins Gross revenue, adjusted Ebitda and adjusted net income - year-on-year changes, % 400% 300% 200% 100% 0% 1Q04/1Q03 2Q04/2Q03 3Q04/3Q03 4Q04/4Q03 1Q05/1Q04 2Q05/2Q04 3Q05/3Q04 4Q05/4Q04 1Q06/1Q05 2Q06/2Q05 -100% Gross sales revenue Adjusted Ebitda Adjusted Net Income ▲ Trend to profitability being maintained: margins improvement due to continuous control of industrial costs and expenses but not a turnaround in sales yet; ▼ 2Q06 gross revenues low 4.4% YoY and sales volume 10.8% with average prices higher 7.2% due to higher added value product mix; ▲ Adjusted Ebitda up 123%, R$ 38 mn and margin of 19.3%, due to gross profit improvement and SG&A expenses reduction; ▲ Net income: R$ 42 mn, margin 21.2% of net sales (vs. R$9 mn and 4.4%); ▲ Non-recurring income of R$10mn (net of taxes and legal fees) in PIS/COFINS tax credits. 6
  7. 7. 2Q06 earnings – adjusted net income 363% up YoY ... Main Financial and Economic Indicators (R$ mn) 2Q05 2Q06 Var.% 1H05 1H06 Var.% Gross Revenues 261.2 249.7 (4%) 575 535 (7%) Domestic 226.0 217.3 (4%) 484 446 (8%) Exports 35.2 32.4 (8%) 92 89 (3%) Net Sales 203.2 197.1 (3%) 452 425 (6%) Gross Profit 62.3 30.7% 72.9 37.0% 17% 155 34.3% 159 37.3% 2% Adjusted EBITDA 17.1 8.4% 38.0 19.3% 123% 67 14.8% 89 21.0% 33% Net Financial Result (2.7) 14.8 n.s. (3) 22 n.s. Adjusted Net Income 9.0 4.4% 41.8 21.2% 363% 46 10.2% 83 19.6% 80% EPS (R$ per share) 0.09 0.42 364% 0 1 80% Sales Volume (million pairs) 25.1 22.3 (11%) 56 56 (1%) Average Price (R$) 10.42 11.17 7% 10.20 9.62 (6%) ▲ Gross profit: gross margin recovered from 31% to 37% of net sales due to 12% decrease in COGS (higher added value products – higher average price – costing less – stable COGs per pair) ▲ Financial management helped the net income: changing from net expenses of R$2.6 mn to net income of R$14.8mn due to FX exposure elimination; ▲ Interim dividends: payment on 30/Aug/06, R$39mn (R$0.39 per common share), approximately 100% of distributable first half 2006 profit. To shareholders of record on 14/Aug/06. Ex-dividend on 15/Aug/06. 7
  8. 8. Raw material costs: low correlation of our input cost per pair with petrochemicals price 4,000 4.00 3,000 3.00 2,000 2.00 1,000 1.00 - - Jan-04 Apr-04 Jul-04 Oct-04 Feb-05 May-05 Aug-05 Dec-05 Mar-06 Jun-06 Plastifying oils (R$'000) PVC resin (R$'000) Our COGS in raw materials - (R$) Fonte: ICIS-LOR / Grendene Including all raw material, we produced and sold products with average price increase (higher added value) costing less (lower raw material consumption); Lower cost production (lower quantity and utilization of PVC) and higher price of final product = margin gain Influence factors: PVC resin price and plastifying oils; FX rate; design (variety of models and plastic content)... all contributing to a stable cost per pair in 2Q06. 8
  9. 9. Average price Vs. volume: adding value due to product mix, smaller number of launches and focus on greater volume potential products 60% R$ 12.00 40% R$ 8.00 Higher average price ... due to greater added value products launchings... 20% R$ 4.00 0% R$ - 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Gross margin, % Average price (R$) 60% 60 ... with a greater potential in 40% 40 terms of leverage in volume, without affects the gross margin. 20% 20 0% - 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Gross margin, % Sales volume (million pairs) 9
  10. 10. Selling expenses lower, from 27.3% to 25.3% of net sales, due to advertising expenses reduction in 2Q06 ... Advertising expenses (R$ mn) - net sales, year-on-year change, %; and domestic net sales, year-on-year change, % 10.7% 10.8% 9.5% 9.6% 7.8% 8.2% 8.1% 7.6% 6.4% Smaller number of 4.3% 43 launches and 26 campaigns... 24 22 25 24 20 15 16 12 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Advertising expenses (R$ mn) Net sales, % Advertising expenses as % of net sales: year-on-year change, basis points 530 ...and greater selectiveness in 350 products for which 290 220 we use TV ads. 130 40 1Q04/1Q03 2Q04/2Q03 3Q04/3Q03 4Q04/4Q03 1Q05/1Q04 2Q05/2Q04 3Q05/3Q04 4Q05/4Q04 1Q06/1Q05 2Q06/2Q05 (190) (270) (310) (320) 10
  11. 11. Adjusted EBITDA: margin increased from 8.4% to 19.3% ... Adjusted Ebitda (R$ mn) and adjusted Ebitda margin, % 19.3% ... due to gross 8.4% 38 profit improvement... 17 2Q05 2Q06 Adjusted Ebitda Adjusted Ebitda margin, % Change in Ebitda margin, y/y, as a % of net sales, in basis points 1,090 ... and due to SG&A expenses 490 350 240 decrease. 1Q05/1Q04 2Q05/2Q04 3Q05/3Q04 4Q05/4Q04 1Q06/1Q05 2Q06/2Q05 (690) (1,000) 11
  12. 12. Seasonality... each quarter over total year Seasonality 60% 39% 50% 38% 30% 32% 40% 22% 33% 28% 24% 29% 26% 27% 23% 30% 19% 19% 21% 19% 21% 19% 19% 17% 18% 20% 15% 10% 0% 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06* 2Q06* Quarter Gross sales revenues (*) Adjusted EBITDA Adjusted Net Income (*) Calculated based on the gross revenue guidance equal to 2005. 12
  13. 13. Debt Net cash R$ 473.8 million on Jun. 30, 2006 26.3 27.1 27.2 152.8 153.1 23.2 31.3 150.9 131.1 141.0 654.0 Cost of debt at Jun. 30, 2006 638.2 449.0 476.5 510.8 32% 30% 30/Jun/05 30/Sep/05 31/Dec/05 31/Mar/06 30/Jun/06 Cash and cash equivalents Long Term debt Short term debt 38% IGP-M Fixed rate (7.5% to 10.5%p.a.) TJLP 13
  14. 14. Outlook ... Recovery specially in the domestic market in 1H06 2006-2207 spring-summer collection was very well accepted by the principal Recovery of growth clients, store owners and retailers in sales Higher focus in the R&D and marketing strategies Spring-summer launches confirmation by consumers Total wages higher than GDP Lower inflation rate Macroeconomic Interest rate decreasing scenario Higher available credit Longer payment terms in economics Hiring of the Management Development Institute in July 2006 to develop the Specialized consultants project “Improving the Sales Management” in sales area Focused in sales increase INDG diagnosis will contribute for future strategic movements Gross revenue = 2005 or slightly > easy to calculate 2S06 Sales volume = 2005 or slightly < easy to calculate 2S06 Guidance Average price up due to higher value added products Important historical data since the IPO will help the market projections Significant changes will be reported High net cash allows future strategic movements Three Interim dividends in 2006 Sound financial situation High general profitability Strong cash flow High leverage potential in the case of growth sales recovery 14
  15. 15. Grendene´s IR Team • Grendene IR team – Alexandre Grendene Bartelle CFO & IRD dri@grendene.com.br – Doris Wilhelm IRO doris@grendene.com.br (5554) 2109.9036 & (5554) 9166.0407 – Alexandre Vizzotto Analyst avizzotto@grendene.com.br (5554) 2109.9011 – Lenir Baretta Analyst lbaretta@grendene.com.br (5554) 2109.9026 15
  16. 16. Warning This presentation contains statements that might represent projections of future events and results. These statements are based upon certain assumptions and analyses performed by the company according to its experience, economic environment, market conditions, and expected future developments that might be out of the company’s control. Important facts that may lead to significant differences between expected and actual results, including the company’s business strategy, local and international economic condition, technology, financial strategy, developments in the shoes industry, equity market conditions, uncertainties concerning future results, plans, expectations and intentions, and other facts. As a consequence of these facts, the actual results may significantly differ from the ones indicated and/or implied in the statements of projections concerning future events and results. 16

×