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| Apresentação do Roadshow
1
As of September 30, 2012Oct, 2012
Disclaimer
Statements 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.
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| Company overview
.1 Platform of brands of reference
Arezzo&Co is the leading Company in the footwear an d accessories sector through its platform of Top of M ind brands
1
4
.2 Company overview
Arezzo&Co is the reference in the Brazilian retail sector and has a unique positioning combining growth with high cas h generation
1Leading company in the footwear and accessories sector with presence in all Brazilian states
Controlling shareholders are the reference in the sector
Development of collections with efficient supply chain
Asset light: high operational efficiency
Strong cash generation and high growth
8.6 million pairs of shoes(1)
525 thousand handbags(1)
2,697 points of sale
12% market share(2)
40 years of experience in the sector
Wide recognition
~11,500 models created per year
Lead time of 40 days
7 to 9 launches per year
89% outsourced production
ROIC of 31.9% in 3Q12
2,105 employees
Net revenues CAGR:
26.8% (2007- 3Q12)
Net Profit CAGR: 32.0% (2007- 2Q12)
Increased operating leverage
Notes:1. LTM as of September, 2012.2. Refers to the Brazilian women footwear market (source: Euromonitor, IBGE and Company estimates) . Estimated for 2011.
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� Founded in 1972
� Focused on brand and product
� Consolidation of industrial business model located in Minas Gerais
� 1.5 mm pairs per yearand 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
First store
Fast Fashion concept
Launch of the first design with
national success
+
Schutz launch
Launch of new brands
Merger
Commercial operations centralized in São Paulo
Strategic Partnership(November 2007)
Industry Reference Foundation and structuring Industrial Era Corporate EraRetail Era
201270’s 80’s 90’s 00’s
Opening of the first shoe factoryOpening of the first shoe factory
Opening of the flagship store at Oscar FreireOpening of the flagship store at Oscar Freire
.3 Successful track record of entrepreneurshipThe right changes at the right time accelerated the Company's development
1
Consolidate leadership
position
Initial Public Offering (February 2011)
.4 Shareholder structure 1
Notes:1. Arezzo&Co capital stock is composed of 88,587,469 common shares, all nominative, book-entry shares with no par value.2. Including Stock Option Plan – Arezzo&Co’s executivesShareholder structure as of August, 2012. 7
Post-offering
52.6% 47.4%
Birman family Others
1Management²
0.3%
Float
47.1%
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.5 Culture & Management: Arezzo towards 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
Meritocratic culture based on best practices makes Arezzo a company prepared to reach 2154
1
.6 Strong platform of brands
Strong platform of brands, aimed at specific target markets, enables the Company to capture growth from different income seg ments
1TrendyNewEasy to wearEclectic
FashionUp to dateBoldProvocative
16 - 60 years old 18 - 40 years old
R$ 285.00/pair
R$ 650.9 million R$ 317.2 million
PopFlat shoesAffordableColorful
12 - 60 years old
R$ 99.00/pair
R$ 31.3 million
DesignExclusivityIdentitySeduction
R$ 960.00/pair
R$ 4.4 million
20 - 45 years old
62.7% 30.6% 3.0% 0.4%
Brands profile
Female target market
Sales Volume 3
% Gross Revenues 4
Retail price point
Foundation 1972 1995 2008 2009
O
7
MB
13
O
2
O
19
F
300
MB
911
Notes:1. Points of sales (3Q12 LTM); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports – # multibrand stores2. % of each brand gross revenues (2011 LTM)3. (3Q12 LTM) gross revenues, does not include other revenues (not generated by the 4 brands)4. % total (3Q12 LTM) gross revenues
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R$ 180.00/pair
MB
768
O
24
F
16
MB
1,601
Dis
trib
utio
n ch
anne
l1 POS 1
% gross rev.2
73% 12%14% 1% 65%26% 41%
EX
30
1%
EX
119
8%
EX
70
14% 7% 79%59%
.7 Multiple distribution channels1
10
480
270
22761²
1,038
Flexible platform through three distribution channe ls with differentiated strategies, maximizing the Company's profitability
Gross Revenue Breakdown – (R$ mn)¹
Gross Revenues per Channel
52 owned stores being 7 Flagship stores
Reach about 1,200 cities and 2,329 multi-brands
316 franchises in more than 160 cities
Broad distribution in every Brazilian
state
Franchises Multi-brands Owned stores Others Total
Notes:1. (3Q12 LTM) gross revenues2. Considers external market and other revenues in the domestic market
46% 26% 22% 6% 100%
| Business model
Management
BRANDS OF REFERENCE
Customer focus: we are at the forefront of Brazilian women fashion and design
Multi-channelSourcing & LogisticsCommunication &
Marketing
SEASONED MANAGEMENT TEAM WITH PERFORMANCE BASED INCENTIVES
NATIONWIDE DISTRIBUTION STRATEGY
EFFICIENTSUPPLY CHAIN
SOLID MARKETING AND COMMUNICATION PROGRAM
ABILITY TO INNOVATE
R&D
1 2 3 4 5
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Unique business model in Brazil 2
.1 Ability to Innovate
We produce 7 to 9 collections per year2I. Research
Creation: 11,500 SKUs / year
II. Development III. Sourcing IV. Delivery
Arezzo&Co fulfills the various aspirations of women , delivering on average 5 new models per day, allowing for consistent desire-driv en purchases
Available for selection: 63% of SKUs created /
year
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Stores:52% of SKUs created / year
Creation
Launch Orders
Production
Delivery
Normal sale
Discount sale
Winter I Winter II Winter III Summer I Summer II Summer III Summer IV
Activities JAN FEV MAR APR MAY JUN JUL AUG SEP O CT NOV DEC
.2 Broad media plan2
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The brand has an integrated and expressive communic ation strategy, from the creation of campaigns to the point of sales
Strong presence in printed media
150 inserts in printed media in 300 pages in 2011 ( 45 million readers)78 exhibition in fashion editorials in 1Q12
Digital communication
Presence in eletronic media and television
+1000 exhibition on TV e 620 exhibition in cinema i n 2011+ 40 million impact
Demi Moore
Seasonal showroom in Los Angeles near the
Red Carpet
Season
CRM – VIP sales
In-store events – PA
Stylists Fashion Advisors
Celebrity Endorsement Marketing Events
115 k Facebook fans: leader in
interactions
30 k monthly access to Schutz’s Blog
549k accesses to site/month
Average navigation time: 8 minutes
51 k Twitter followers : category leader
Gisele Bündchen Blake Lively
.2 Communication & marketing program reflected in every aspect of the storesStores constantly modified to incorporate the conce pt of each new collection, creating desire-driven purchases
2
All visual communication at stores is monitored and updated simultaneously throughout Brazil for each new collection
Flagship storesStore layout & visual merchandising
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POS materials (catalogs, packaging, among others)
.2 Atmosphere of stores: differentiated concepts for each brand2
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Summer – Flagship Oscar FreireSummer – Flagship Oscar Freire
Winter – Flagship Oscar FreireWinter – Flagship Oscar Freire Video WallVideo Wall
ClosetCloset EssentialEssential
Niches and lighting Niches and lighting
� Jaquets and accessories� Campaigns and marketing actions� Preeminence for products� Differentiated products
Visual merchandising:� Updates at low cost investment� Brings relevant information from
each collection to stores’ level� 3 main updates per year
Chameleon project: constant modification to incorporate the new collection’s concept
� Exposure of a large variety of products
� Selling area inventory: lower necessity of area for storage
� Atmosphere of a jewelry store� Private shop experience� Focus on exclusivity, design and
highly selected materials
Wall displayWall display
CombosCombos
StorageStorage
Each theme is disposed in different nichesEach theme is disposed in different niches
AcessoriesAcessories
Sophisticated lightingSophisticated lighting
Distinguished storefrontDistinguished storefront Special collectionsSpecial collections
.3 Flexible production process…2
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Arezzo’s size allows for large scale purchases from each supplier
Production speed, flexibility and scalability to en sure Arezzo&Co’sexpected growth based on asset light model
Gains of scale
Joint purchasesCertification and auditing of suppliers
In-house certification and auditing ensure quality and punctuality (ISO 9001 certification in 2008)
Negotiation of raw material jointly with local suppliers
Consolidation and improvement of distribution in na tional scale
Reception: 100,000 units / day
Storage: 100,000 units / day
Picking: 150,000 units / day
Replacement of milky run strategy
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5
Distribution: 200,000 units / day4
Sourcing Model
Owned factory with capacity to produce 1.2 million pairsannually and strong relationship with Vale dos Sinosproduction cluster as the outsourcing represents 85% of total production
New Distribution Center
.3 …leveraged by a multichannel distribution strategy…
Arezzo&Co follows a detailed process in defining the o pportunity pipeline. This multichannel distribution strategy has been consoli dated throughout the Company’s history:
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1972 1975 1987 2000 2008 2010 2011
Inauguration of the
new Anacapri store
format
Founding of the
Arezzo brand
1st Store
1st Arezzo
Franchise
Arezzo reaches
200 franchises
GTM Schutz: focus on
mono-brand storesFlagship store
strategy for Schutz
1st Arezzo Flagship
store
2
.4 ...through owned stores…
Capturing value from the chain while developing ret ail know how and brands’ visibility
2Greater brand awareness coupled with operational ef ficienciesFlagship Stores
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� Clustering higher productivity stores in main areas (mainly SP and RJ) improving operational efficiency and profitability:
� Direct costumers interaction develops retail competences which are also reflected at franchised stores
� Flagship stores ensure greater visibility and reinforce brand imageArezzo – Ipanema / RJArezzo – Ipanema / RJ
Schutz – Iguatemi / SPSchutz – Iguatemi / SP
Arezzo – Cid. Jardim / SPArezzo – Cid. Jardim / SP
R$ 3,292 MR$ 3,292 M
R$ 5,249 MR$ 5,249 MO
wned
FranchiseAnnual Average
Sales per Store 2011
Total sales area and # of stores (sq m)
Schutz – Oscar Freire / SPSchutz – Oscar Freire / SP
88% 91% 81%77%
80% 75% 75%
12%9%
19%
23%
20%25% 25%
2007 2008 2009 2010 2011 2Q12 3Q12
Flagship
Standard store
610
21
29
4550
52
# stores
1,044
1,3692,067
2,967
4,6864,754 4,754
� Intense retail training
� 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 to more than 80%
� As mono-brand stores, franchises reinforce the branding in each city they are located
24 or more franchises
1 franchise
2 franchises
3 franchises
43%
11%
31%
15%
20
.4 …with efficient management of the franchise network...
Model allows rapid expansion with little invested c apital by Arezzo&Co and high profitability to franchisees
Successful Partnership: “Win – Win” Franchise Concentration per Operator
Average payback of 39 months2
100% of on-time payments
96% satisfaction of franchises1
Excellency in Franchising Award in the last 8 years (ABF)
Best Franchise in Brazil (2005) and in the sector for 7 years since 2004
(# of Franchisees by # of Franchises)
Notes: FY2011 data
1. 96% of the current franchisees indicated they would be interested in opening a
franchise if they did not already have one
2. Annual sales of R$ 2,330 thousand + average initial investment of R$ 600 thousand
+ working capital of R$ 414 thousand
To get to know the profile of consumers
To manage performance indicators of
both the store and the team
To optimize supply and
stock management
…to sell more, have no overstock … and achieve goals!
1 2 3
The use of technology to support the management process...
.4 … information technology, people management...
Information technology and people management applie d to retail in order to support improvements on the whole managing process
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A holistic approach for sales training teams in the various fronts of the retail operation
Training Tools
• Product• Fashion and trends• Sales technique• Store operations• Visual merchandising• Sales systems• Integration New operators• Management Training• Sales Conventions• Sales Incentives (motivational)
� Over BRL 1M invested in training in the first half of 2012
� 20% Retail turnover in Company Owned Stores during the first half of 2012
� Over BRL 1M invested in training in the first half of 2012
� 20% Retail turnover in Company Owned Stores during the first half of 2012
2
.4 ...and of the multi-brand stores2
Multi-brand stores
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Multi-brand stores’ Gross Revenue¹ (R$ mn) Improved distribution and brand visibility
� Greater brand capillarity� Presence in over 1,200 cities� Rapid expansion at low investment and risk� Main Focus: share of wallet� Owner’s loyalty� Important sales channel for smaller cities� Sales team optimization: internal team and commissioned
sales representatives
Multi-brand stores widen the distribution capillari ty and the brands’ visibility, resulting in a strong retail footprint
Notes:1. Domestic market only
# Store1,783
2,329
234
2011
83
3Q12
Gross Revenue1
(R$ mn)188
2010 3Q11
69
.4 Large capillarity and scale of store chainMono-brand store chain with high capillarity, reach ing more than 160 cities and well-positioned among the retail compani es
2
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Size and average sales per mono-brand stores - 2011
BrandAverage size
(m2)Net Revenue/ m2
(R$ 000s)Total
Stores 1,2
61 354 328
133 244 432
1,904 9 167
1,031 7 336
2.513 8 145
263 17 104
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300 franchises + 19 owned stores (i) + 911 multi-brand clients
(i) 4 outlets
16 franchises + 24 owned stores (ii) +1,601 multi-brand clients
(ii)1 outlet
Points of sale (3Q12)
TOTAL
7 owned stores768 multi-brand clients
2 owned store +13 multi-brand clients
316 franchises + 52 owned stores + 2.329 multi-brand clients= 2,697 points of sales
Source: IBGE, Companies’ Reports; number of stores according to latest data provided by the CompaniesNotes:1. Considers only monobrand stores of Arezzo and Schutz;2. For Hering, considers only Hering Store chain stores;3. 2008 data;4. Net Revenue (assuming that sales taxes and deduction = 30% of gross revenues);5. Considers Arezzo + Schutz, except for outlets, handbags’ stores and Schutz franchise;
GDP³: 18%A&C¹: 17%
GDP³: 55%A&C¹: 57%
GDP³: 15%A&C¹: 15%
GDP³: 7%A&C¹: 7%
GDP³: 5%A&C¹: 4%
57
sq m
85
sq m80
sq m
Points of sale – average size : new stores are increasing
network average size
2010 2011 new stores 2012 new stores
Arezzo and Ana CapriSchutz and Alexandre
BirmanIndustrial Supply Chain Strategy and IT Financial
Alexandre Birman Cisso Klaus Marcio Jung Thiago BorgesKurt Richter
HR
Raquel Carneiro
Marco Coelho
Internal Auditing
Anderson Birman
Claudia Narciso
.5 Seasoned and professional management team2
Anderson Birman
Years at Arezzo
40
17
5
14
11
8
9
30
3
Years of experience
40
17
13
24
32
28
47
41
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NameTitle
Anderson BirmanCEO
Alexandre BirmanCOO
Thiago Borges CFO and Investor Relations Officer
Claudia NarcisoDirector – R&D
Kurt RitchterDirector – Strategy and IT
Marcio Jung Director – Supply Chain
Cisso KlausDirector – Industrial
Marco CoelhoDirector – Internal Auditing
Raquel CarneiroDirector – HR
Highly qualified management team
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� Stock option plan for key executives
� Performance based compensation package for all employees
� Independent business units for each brand but unified officers (Industrial, Logistics, Financial and HR) for the whole company
.6 Corporate governance
Board is composed by 8 members being 4 appointed by controlling shareholders2
Name Experience Name Experi ence
Title Title
Anderson BirmanChairman of the Board
Arezzo’s CEO since its foundation, with over 40 years ofexperience in the industry
Alexandre BirmanVice-Chairman of the Board
Arezzo’s COO and founder of Schutz, with 17 years ofexperience in the industry
Pedro FariaBoard Member
Tarpon’s partner since 2003, member of the Board of Directors ofDirecional Engenharia, Omega Energia Renovável, Cremer andComgás
Eduardo MufarejBoard Member
Tarpon’s partner since 2004, member of the Board of Directors ofTarpon, Omega Energia Renovável and Coteminas
José Murilo CarvalhoBoard Member
President of the Attorney’s Association of Minas Gerais,Board Member of the Brazilian Bar Association
José BolonhaBoard Member
Founder and CEO of “Ethos Desenvolvimento Humano eOrganizacional“; Board member of the Inter-American Economicand Social Council (UN, WHO)
Guilherme A. FerreiraIndependent Board Member
CEO of Bahema Participações, board member of Pão deAçúcar, Banco Signatura Lazard, Eternit, Tavex and RioBravo Investimentos
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Artur N. GrynbaumIndependent Board Member
CEO of Grupo Boticário (largest franchise company in Brazil) and Vice-President at Abihpec (Brazilian Association of Industries in the field of Personal Hygiene, Perfumes, and Cosmetics )
Ana Luiza Franco* (Coordinator)
Audit Committee
Pedro Faria (Coordinator) José Bolonha (Coordinator)
Committees
Strategy Committee People Committee
Board of directors
Members:
Jose Murilo and Guilherme A. Ferreira
Members:
Anderson Birman, Alexandre Birman, Guilherme A.Ferreira and Arthur N. Grynbaum
Members:
Pedro Faria and Alexandre Birman
*Mrs Franco is former partner at Machado Meyer Law firm in Brazil and currently acts as member for corporate risk and audit committees in various relevant companies in the country.
| Market Overview and| Sourcing and Industry Characteristics
.1 Social upward mobility driving internal consumptionIncome growth and job creation lead to rapid social upward mobility and increasing internal consumption
3
27
2003
44 (24%)
29 (15%)
40 (20%)
16 (8%)
47 (27%)
49 (28%)
+18 mi(2003-14E)
+47 mi(2003-14E)
2014E2009
31 (16%)20 (11%)13 (8%)
66 (37%)95(50%)
113 (56%)
...Resulting in a significant rise of consumer good s consumption, including Footwear and Apparel(Consumption growth as a result of the upward mobility in social classes; indexed 100 = class D/E)
Source: IBGE, FGV, LCA, Bain & Co., BCG, Roland Berger, IPC Maps
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$768
Class
D/EClass
CClass
BClass
A
Food, Drinks and Cigarettes
Electronicsand Furniture
Footwear and Apparel
Prescription/OTC drugs
Hygiene and Personal Care
5.4x
10.1x
12.6x
9.3x
11.2x
Footwear and apparel have the largest growth potential
3.3x
4.4x
5.4x
4.3x
5.3x
1.7x
1.9x
2.3x
1.9x
2.3x
1.0x
1.0x
1.0x
1.0x
1.0x
Class C
Class A/B
Class D
Class E
Brazil experiences an accelerated process of social upward migration... (Millions of people)
Footwear and apparel consumption potential index: 4,8%
5%
8% 9%
11% 12%
2007 2008 2009 2010 2011
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.2 Brazilian footwear market overview 3
Total footwear market (R$ bn)
Arezzo&Co has a significant stake of the women footwe ar market and has consistently increased its market share
Arezzo&Co’s market share 1
Source: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGENote: 1.Based on Euromonitor research and IBOPE Inteligência (Pyxis). Estimated Arezzo&Co market share, including Company’s handbags and considering only total footwear market
Women footwear
Total footwear
2011
CAGR (03-11): + 7.7%
11.6
30.4
29
.3 Brazilian handbags market overview 3Arezzo&Co also has a relevant position within the fas t growing handbag market in Brazil
Source: IBOPE Inteligência (Pyxis), Satra, World Bank, ABICALÇADOS, IEMI, MTE, MDIC, / SECEX, IBGE
Total handbags market (R$ bn)
Women handbags
Total handbags
2011
CAGR (03-11): + 10.7%
3.3
4.2
Total addressable market (R$ bn)
78%
22%
Footwear
Handbags14.9
Arezzo&Co current sell out breakdown (R$ mn)Breakdown based on Schutz and Arezzo owned stores
� Consolidated (including handbags and shoes)
market share: 10%
� Opportunity to consolidate handbag leading position
90%
10%
Calçados
Bolsas195.9
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%
Brazil is the third biggest footwear producer, with production mostly destined to supply the domestic market. Competitive costs, mini mum production and lead time to better serve the Brazilian fast fashion demand
.4 Footwear Industry - Global Overview and competitive advantages
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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 3.6%
BRAZILLead time: 40 daysMinimum/model: 800 pairsMinimum/construction: 4,000 pairsProduction cap. (pairs) 894 millionCost (w/o tax): USD 21/pairCost (w/tax): USD 27/pair
CHINA (different clusters)Lead time: 120 to 150 daysMinimum/model: 5,000 pairsMinimum/construction: 20,000 pairsProduction cap. (pairs): 12,000 millionCost (FOB): USD 16-18/pairCost (DDP): USD 42-45/pair
INDIALead time: 160 daysMinimum/model: 5,000 pairsMinimum/construction: 20,000 pairsProduction cap. (pairs): 2,060 millionCost (FOB): USD 15/pairCost (DDP): USD 23/pair
ITALYLead time: 70 daysMinimum/model: 800 pairsMinimum/construction: 4,000 pairsProduction cap. (pairs): 202 millionCost (FOB): USD 35/pairCost (DDP): USD 49/pair
VIETNAMLead time: 120 to 150 daysMinimum/model: 2,000 pairsMinimum/construction: 8,000 pairsProduction cap. (pairs): 760millionCost (FOB): USD 18/pairCost (DDP): USD 26/pair
3
Brazil is recognized by the quality and high speciali zation within different and complex categories of shoes. The industry has been qualitat ively developed in order to add value to products and thus increase its competitive advantages over Asian suppliers
.5 Footwear Industry - Global footwear offering
31
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
Equipment assembly
Manufacturing operation
Manufacturer with
own design and mostly local brand
Manufacturer with
own design and global brand
Global Brands
� Receive product and process specifications, as well as components and raw material
� Assembly activities only
� Usually don’t produce;� Creation + own brand management� Design and product specification� Mostly internationally outsourced� Supply chain management� Totally decide over marketing and commercialization
Val
ue a
dded
+
-
France
ItalySpain
TaiwanBrazil
Mexico
China India
Thailand Vietnam Other global suppliers
Minimum volumes(production)
++
Indonesia
B
A
C
D
E
Industry segmentation vs. value creation:
3
.6 Arezzo&Co sourcing: Brazilian competitive advantages
Vale dos Sinos region offer strong competitive advan tages, a combination of production capacity, production flexibility, skille d labor and strong structure to support incentives for innovation and strengthening of industry’s competitiveness
Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL.
� Brazil is the world ’s third largestfootwear producer
� The world ’s largest cattle: 13% ofthe market
� RS: 1 third (BRL 1 billion) of
Brazilian revenue in leather industry
� Vale dos Sinos: one of the world ’s
largest footwear manufacturing hubs
� 1,700 companies and entities: components,footwear, machinery, tanneries, trade entities,research and teaching institutions
� Abundant skilled and specialized labor
� Production flexibility:
volume X variety X speed
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Production (million pairs)
Jobs (thousands)
819
338
Production (million pairs)
Jobs (thousands)
270
138
Production (million pairs)
Jobs (thousands)
216
110
BRAZIL
SOUTHERN REGION
VALE DOS SINOS
Vale dos Sinos: 26% of Brazilian footwear production
3
South
.7 Arezzo&Co Sourcing: CompetitiveAdvantages
Arezzo&Co is a leader in the Brazilian leather fashion footwear sector, with great growth potential through domestic sourcing
Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL./ Arezzo&Co
Women’s leather footwear production:
(million of pairs)
33
Vale dos Sinos’ component manufacturing:
� 31% of Brazilian companies in the category
# ofcompanies
27
197
46
152
83
Outsole complements
Upper complements
Packaging
Tools, dies/moulds
Chemicals
Segment # ofcompanies
78
33
47
37
134
Upper materials
Insoles
Footwear production chemicals
Leather production chemicals
Heels, outsoles and high heels
Segment
Components: - Micro: 38%- Small: 40%- Medium: 44%- Large: 60%
Tanneries: 34%
Distribution of components and tanneries per region :
Components: - Micro: 4%- Small: 4%- Medium: 5%- Large: 7%
Tanneries: 12%
Components: - Micro: 1%- Small: 3%- Medium: 3%
Tanneries: 10%
Components: - Micro: 3%- Small: 2%- Medium: 4%
Tanneries: 4%
Components: - Micro: 54%- Small: 51%- Medium: 41%- Large: 33%
Tanneries: 41%
Southeast Northeast Midlewest North
Women’s leather footwear
Leather footwear
Brazilian footwear
160
237
819
Brazilian footwear
Leather footwear
Women’s leather footwear
� Nearly 70% of Brazil’s leather footwear production
3
Trends and style
DesignTechnical
DesignEngineering Samples Showroom
Logistics and distribution Store
Raw material price negotiations Scheduling + Manufacturer negotiation
1 2 3 4 5 6 7
.8 Arezzo&Co Sourcing Process and supply chain management
Sourcing process and supply chain management focuse d on ensuring flexibility, speed and cost control in the creation of new produ cts
34
Arezzo&Co sourcing process:
Coordinated management of production chain associat ed with Investments in product engineering: specifi c know how
Arezzo&CoRaw
materialsFinished products
Cost control
Engineering folder
�Cost management efficiency
�Quality standard guarantee
�Efficient lead time
�Flexibility
Chemichals and textile
Components
3
.9 Understanding shoes
Spike rivet (2 parts)
Buckle (2 parts)Anklet (8 parts)
Toecap (2 parts)
Half sole (3 parts)
Upper (11 parts)
Assembly insole (11 parts)
High Heel (7 parts)
Heel (2 parts)
Outsole (3 parts)
SKU
MODEL
CONSTRUCTION
10%
35%
70%
Reuse from collection to collection:
Packaging (10 parts)
A non-complex shoe has 61 raw materials managed by the industrial unit. R&D optimization ensures greater management of costs and deadlines.
35
3
| Value Drivers Update
.1 Solid growth fundamentals4Key drivers of growth
37
Store productivity increaseand additional upsides
Expand distribution footprint� Store openings in 2011 – 38 out of 38
� Store openings in 2012E – increase from 40 to 58
� Same store expansion in 2011 and 2012 – 922 out of 1,000 sq m already expanded
� Store remodeling: Schutz new store format significantly improving sales productivity
� Same store sales of 6.8% (sell out - owned stores) and 14.2% (sell in – franchises)
� IT integration between our franchises: about 80% of our stores network in the same platform
� Gross margin expansion: 100bps in 2011
� EBITDA margin expansion: 60bps in 2011
� Net income CAGR reached 47% (2005-2011) and net margin rose by 7p.p. in the same period
Increase operationalefficiencies and margins
Schutz – LeblonDate of expansion: Nov/11
44m²109m²
148%
+198%
Sales Increase post-expansion 1
Before After
44m²110m²
Schutz – Iguatemi SPDate of renovation: Apr/12
34m²70m²
106% 150%
Schutz – HigienópolisDate of renovation: Aug/11
+107%
Sales Increase1
+115%
Sales Increase1
Before After Before After¹Period studied: end of the renovation until jun/12 compared to the same period the previous year
.2 What’s new for 2012
GTM Arezzo
Expanding Footprint
Key drivers of growth
� Opening of 58 stores in 2012:• 11 owned stores• 47 franchises
� Webcommerce: Schutz and Anacapri started marketing a wide range of models to Brazil
38
� Brand assessment:
• Reevaluation of Arezzo’s current distribution and supply model in Brazil
• Solid planning of brand growth for the next years
� Consistent sales growth since 2010
� Focus on new store format
� Widening distribution platform for franchises
AnacapriConsolidation
Alexandre BirmanInternationalization
� Concentration on brand’s strengthening
� Structuring brand’s internationalization out of NY
2010
2.6
21.6
5.8 9.2
2011 3Q11 3Q12
Anacapri Gross Revenue(R$ million)
4
.3 2013 Expansion Plan
2013 pipeline expansion is committed to the opening of 53 new stores with 15% growth in total sales area
54
338
2012
60
385
2013
392
445
# Owned stores
# Franchises
+13%
647
39
4
| 3Q12 Financial Highlights
.1 Operational and financial highlights5Gross Revenues per Channel (R$ mn) – Domestic Market
41
Notes:1. Other: Growth of 103.4% in 3Q12 and of 122.6% in 9M12.
SSS Sell -out (owned stores ) 0.4%
11.6%SSS Sell -in (franchises )
6.8%
14.2%
9.6%
15.6%
9.9%
11.9%
121.0 151.1
300.4 360.5 69.2
83.2
177.1
212.9
34.6 63.0
93.3
167.7
2.0 4.2
4.8
10.7
3Q11 3Q12 9M11 9M12
Franchise Multi -brand Owned Stores Others¹
24.9%
81.8%
575.5
32.8%
751. 8
20.1%
20.0%
79.6%
30.6%
20.3%226.9
301.4
5
42
.2 Operational and financial highlights
Key highlights
Strong Gross Revenue growth, especially in the Schutz brand that increased by 67.5% in 3Q12 comparing to 3Q11
3Q12 ended with 368 store chain and Sales area expansion of 24% year-over-year
3Q12 Net Revenue increased by 30.6% year-over-year
Number of Stores (R$ mn) and Total Area (sq m - ‘000)CAGR 07-12 (3Q12 LTM) : 26.8%Net Revenues (R$ mn)
Area CAGR 07- 12 (3Q12): 12.7%
188.9246.7 193.8
367.1412.1
571.5678.9
3Q11 3Q12 2007 2008 2009 2010 2011
30.6%
89.4%
12.3%
38.7%
275 316208 227 242 267 289
3652
6 10 21 29 45
19.3
11.7 13.3 14.9
17.6
21.4
3Q11 3Q12 2007 2008 2009 2010 2011
Owned Stores Franchises Total Area
311+42
24.2%
+38
13.2%12.5%
17.7%
368
263
+23214
237296
+26+33
23.9
334
21.9%
18.8%
35.5 42.7
84.6 92.0
18.8%17.3% 17.6%
15.1%
3Q11 3Q12 9M11 9M12
20.0%8.8%
5Gross Profit (R$ mn) and Gross Margin (%)
43
.3 Operational and financial highlights
Net Income (R$ mn) and Net Margin (%)
EBITDA (R$ mn) and EBITDA Margin (%)
25.9 28.6
64.7 65.2
13.7%
11.6%
13.5%
10.7%
3Q11 3Q12 9M11 9M12
Net Income Net Margin
10.2% 0.8%
78.9
107.0
201.1
41.8%43.4% 41.9%
43.5%
3Q11 3Q12 9M11 9M12
35.6%
31.4%
264.2
44
5 .4 Operational and financial highlights
Cash Conversion Cycle (R$ thousand)
Cash Flows From Operating Activities (R$ thousand)
Capex (R$ million)
¹ Days of COGs
² Days of Net Revenues
Sumary of investments 3Q11 3Q12 Growth or spread (%)
9M11 9M12 Growth or spread (%)
Total Capex 9,611 16,479 71.5% 16,927 48,278 185.2%
Stores - expansion and reforming 7,879 10,306 30.8% 12,218 31,299 156.2%
Corporate 1,455 5,399 271.1% 3,981 15,727 295.1%
Others 277 774 179.4% 728 1,252 72.0%
Cash flows from operating activies 3Q11 3Q12Growth or
spread9M11 9M12
Growth or spread
Income before income taxes 38,854 42,289 3,435 90,520 91,620 1,100 Depreciation and amortization 1,050 2,043 993 2,890 5,209 2,319 Others (1,680) (1,032) 648 (7,943) (6,679) 1,264
Decrease (increase) in current assets / liabilities (38,949) (36,065) 2,884 (28,200) (9,546) 18,654
Trade accounts receivable (51,314) (50,566) 748 (27,418) (21,771) 5,647 Inventories (3,983) (17,341) (13,358) (22,820) (26,028) (3,208) Suppliers 12,778 21,837 9,059 21,306 27,879 6,573 Change in other current assets and liabilities 3,570 10,005 6,435 732 10,374 9,642
Change in other non current assets and liabilities (946) (757) 189 (2,119) (2,385) (266)
Tax and contributions (6,363) (10,166) (3,803) (14,703) (21,818) (7,115)
Net cash generated by operating activities (8,034) (3,688) 4,346 40,445 56,401 15,956
#days (R$'000) #days (R$'000)
110 181.780 105 218.631 -5
Inventory¹ 68 71.941 65 82.543 -3
Accounts Receivable² 89 159.889 91 201.253 2
(-) Accounts Payable¹ 47 50.050 51 65.165 4
Cash Conversion Cycle3Q11 3Q12 Change
(in days)
45
5 .4 Operational and financial highlights
Indebtedness (R$ thousand)
Indebtedness totaled R$55.2 million in 3Q12 versus R$51.1 million in 2Q12
Long-term debt relevance stood at 44.5% in 3Q12 ver sus50.0% in 2Q12
Indebtedness policy remained conservative, with low weighted-average cost of Company's total debt
Indebtedness 3Q11 2Q12 3Q12
Cash 178,999 205,819 175,605
Total indebtedness 35,065 51,117 55,199
Short term 16,270 25,548 30,626
As % of total debt 46.4% 50.0% 55.5%
Long term 18,795 25,569 24,573
As % of total debt 53.6% 50.0% 44.5%
Net debt (143,934) (154,702) (120,406)
EBITDA LTM 115,562 118,007 125,128
Net debt /EBITDA LTM -1.2x -1.3x -1.0x
46
Appendix
47
.1 Key performance indicatorsAMain financial Indicators 3Q11 3Q12
Growth or spread (%)
9M11 9M12 Growth or spread (%)
Net revenue 188,901 246,655 30.6% 479,736 607,484 26.6%
(-) COGS (109,976) (139,606) 26.9% (278,658) (343,327) 23.2%
Gross profit 78,925 107,049 35.6% 201,078 264,157 31.4%Gross margin 41.8% 43.4% 1.6 p.p. 41.9% 43.5% 1.6 p.p.
(-) SG&A (44,440) (66,436) 49.5% (119,409) (177,408) 48.6%
% of Revenues 23.5% 26.9% 3.4 p.p. 24.9% 29.2% 4.3 p.p.(-) Selling expenses (31,756) (48,631) 53.1% (83,006) (123,783) 49.1%
(-) Owned stores (10,898) (20,092) 84.4% (30,544) (54,134) 77.2%(-) Sales, logistics and supply (20,858) (28,539) 36.8% (52,462) (69,649) 32.8%
(-) General and administrative expenses (11,871) (15,303) 28.9% (34,171) (41,111) 20.3%(-) Other operating revenues (expenses)¹ 237 (459) n/a 658 (7,305) n/a(-) Depreciation and amortization (1,050) (2,043) 94.6% (2,890) (5,209) 80.2%
EBITDA 35,535 42,656 20.0% 84,559 91,958 8.8%Ebitda Margin 18.8% 17.3% -1.5 p.p. 17.6% 15.1% -2.5 p.p.
Net income 25,945 28,586 10.2% 64,712 65,201 0.8%Net margin 13.7% 11.6% -2.1 p.p. 13.5% 10.7% -2.8 p.p.
Working capital² - % of revenues 25.0% 24.3% -0.7 p.p. 25.0% 24.3% -0.7 p.p.Invested capital³ - % of revenues 27.9% 32.8% 4.9 p.p. 27.9% 32.8% 4.9 p.p.
Total debt 35,065 55,199 57.4% 35,065 55,199 n/aNet debt (143,934) (120,406) -16.3% (143,934) (120,406) n/a
Net debt/EBITDA LTM -1.2 X -1.0 X n/a -1.2 X -1.0 X n/a
4
48
.2 Balance Sheet - IFRSAAssets 3Q11 2Q12 3Q12
Current assets 423,739 441,382 475,879 Cash and cash equivalents 6,229 4,799 8,373
Short-term investments 172,770 201,020 167,232
Trade accounts receivables 159,889 150,687 201,253
Inventories 71,941 65,718 82,543
Taxes recoverable 3,647 7,393 3,971
Other receivables 9,263 11,765 12,507
Non current assets 72,282 105,507 120,042 Long-term assets 22,816 16,135 17,437
Financial investments 78 98 98
Taxes recoverable 3,170 360 360
Deferred income and social contribution taxes 13,646 8,705 9,392
Other receivables 5,922 6,972 7,587
Property, plant and equipment 24,901 47,693 56,788
Intangible assets 24,565 41,679 45,817
Total assets 496,021 546,889 595,921
Liabilities 3Q11 2Q12 3Q12
Current liabilities 97,635 107,458 134,590 Loans and financing 16,270 25,548 30,626 Trade accounts payable 50,050 43,328 65,165 Dividends and interest on equity capital payable - 9,701 - Other liabilities 31,315 28,881 38,799
Non-current liabilities 25,697 29,984 29,025 Loans and financing 18,795 25,569 24,573 Related parties 894 975 979 Other liabilities 6,008 3,440 3,473
Equity 372,689 409,447 432,306 Capital 40,917 105,917 106,857 Capital reserve 237,723 172,830 173,149 Income reserves 37,779 105,407 98,421 Retained Earnings 56,270 25,293 53,879
Total liabilities and shareholders’ equity 496,021 546,889 595,921
49
.3 Income Statement - IFRSAIncome statement - IFRS 3Q11 3Q12
Growth or spread (%)
9M11 9M12 Growth or spread (%)
Net operating revenue 188,901 246,655 30.6% 479,736 607,484 26.6%Cost of sales and services (109,976) (139,606) 26.9% (278,658) (343,327) 23.2%
Gross profit 78,925 107,049 35.6% 201,078 264,157 31.4%
Operating income (expenses): (44,440) (66,436) 49.5% (119,409) (177,408) 48.6% Selling (32,203) (49,714) 54.4% (84,203) (126,532) 50.3% Administrative and general (12,474) (16,263) 30.4% (35,864) (43,571) 21.5% Other operating income, net 237 (459) n/a 658 (7,305) n/a
Income before financial results 34,485 40,613 17.8% 81,669 86,749 6.2%
Financial income (expenses) 4,369 1,676 -61.6% 8,851 4,871 -45.0%
Income before income taxes 38,854 42,289 8.8% 90,520 91,620 1.2%
Income and social contribution taxes (12,909) (13,703) 6.2% (25,808) (26,419) 2.4%Current (12,936) (14,390) 11.2% (20,201) (25,799) 27.7%Deferred 27 687 2444.4% (5,607) (620) -88.9%
Net income for the year 25,945 28,586 10.2% 64,712 65,201 0.8%
50
.4 Cash Flow Statement - IFRSACash Flow Statement - IFRS 3Q11 3Q12 9M11 9M12
Cash flows from operating activities
Income before income and social contribution taxes 38,854 42,289 90,520 91,620 Adjustments to reconcile to net cash generated by operating activities (630) 1,011 (5,053) (1,470)
Depreciation and amortization 1,050 2,043 2,890 5,209 Financial Investments (4,921) (2,927) (11,806) (9,531) Interest and FX variation 2,806 (310) 3,793 504 Other 435 2,205 70 2,348
Decrease (increase) in assets (55,214) (65,848) (50,119) (43,650) Trade accounts receivable (51,314) (50,566) (27,418) (21,771) Inventories (3,983) (17,341) (22,820) (26,028) Taxes recoverable 2,549 3,421 4,975 6,217 Variation in other current assets (1,952) (974) (2,610) (1,039) Judicial deposits (514) (388) (2,246) (1,029)
(Decrease) increase in liabilities 15,319 29,026 19,800 31,719 Trade accounts payable 12,778 21,837 21,306 27,879 Labor liabilities 3,766 4,656 1,153 5,925 Tax and social liabilities (1,106) 545 (3,066) (3,802) Change in other liabilities (119) 1,988 407 1,717
Paid incomes and social contribution taxes (6,363) (10,166) (14,703) (21,818)
Net cash generated by operating activities (8,034) (3,688) 40,445 56,401
Net cash used in investing activities 18,606 20,235 (172,871) (47,972)
Net cash used in financing activities with third pa rties (17) 4,392 (15,496) 16,036
Net cash used in financing activities with sharehol ders (7,587) (17,365) 146,147 (31,620)
Increase (decrease) in cash and cash equivalents 2,968 3,574 (1,775) (7,155)
Increase (decrease) in cash and cash equivalents 2,968 3,574 (1,775) (7,155)
51
IR Contacts
� Thiago Borges
� Daniel Maia
Phone: +55 11 [email protected]
CFO and IR Officer
IR Manager