annu 2 al report 012

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1 annual report 2012

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3 4 THE ALPARGATAS MANIFESTO 5 VISION, MISSION AND VALUES 6 MESSAGE FROM MANAGEMENT 10 ALPARGATAS OVERVIEW 12 FINANCIAL PERFORMANCE 18 FASHION FOOTWEAR 20 havaianas 26 dupé 28 ATHLETIC FOOTWEAR 30 topper 34 rainha 36 mizuno 40 timberland 42 osklen 44 RETAIL 48 NEW SANDALS PLANT 50 SOCIAL AND ENVIRONMENTAL RESPONSIBILIT Y

4 annual report 2012 THE ALPARGATAS MANIFESTO At Alpargatas, we begin every day as if it were the most important and promising ever, with energy to face whatever comes our way and to pursue what we believe in. We are a team of passionate and enterprising people who create footwear, apparel and accessories. We want to anticipate your dreams! Our inspiration is to look outside and discover the best that life has to offer. We stitch fashion and sports together, embroidering irreverence with professionalism. Hence adding color to people s routine with unique style brands. We deliver quality and results without forsaking the lighter side of things. We have the courage and determination of a Company that welcomes challenges worldwide, speaks many languages and connects different people around the same ideal: to constantly delight and surprise. Because, wherever we may be on the planet, our joy and fortitude transcend a specific point in time they are our true state of mind. Alpargatas. Optimism is an attitude from toe to head. 4 5

5 VISION To be a global company of desired brands in the footwear, apparel and accessory segments. MISSION To win over consumers with special brands and products of high perceived value creating value for shareholders, employees, suppliers and clients and acting with social and environmental responsibility. VALUES ETHICS Behavior based on the principles of honesty, integrity and respect for the law in conducting business and in relationships. RESPECT FOR PEOPLE The building of a merit-based environment, providing good working conditions and opportunities for development, encouraging satisfaction and pride of belonging. COMMITMENT Responsibility and commitment with their individual role in achieving goals and the Company s final results, whether they be financial or related to products and services, always prioritizing teamwork. ENTREPRENEURSHIP Focus on growth and creation of value, driven by initiative, innovation and transformation of ideas into business opportunities. CUSTOMER SATISFACTION Winning over the loyalty of customers through the clear perception of the superior value of our brands. 5

6 annual report 2012 MESSAGE FROM MANAGEMENT Start each day as if it were the most important and promising. It is with this spirit that Alpargatas has advanced in its growth strategy in 2012, consolidating itself in the Brazilian market and expanding globally. In a period of low growth in the footwear industry, the Company sold million units of footwear, apparel and accessories. A record that shows our mission makes us move in the right direction: brands that continue to be desired by an increasing number of consumers. There were many other achievements in 2012: consolidated net revenue grew 16.8% to 3 billion reais. Another highlight was our solid balance sheet and profitability, in line with the results of other multinational companies in the same sector, and the 34% appreciation of Alpargatas preferred shares. Havaianas international trajectory remains solid and strong, with the expansion of sales outside Brazil. India and China high population and high consumption power countries are two of the more than 80 countries that buy our sandals. Moreover, the extension of the Disney and Warner licenses boosted sales of the children s line, and the partnership with Missoni contributed to increase the brand s awareness in the international luxury fashion universe. Havaianas recognition in Brazil and abroad has been growing. In the last three years, spontaneous brand awareness increased and Havaianas is currently known to 99% of Brazilians and 55% of Europeans, according to a survey conducted by Millward Brown. The brand is also recognized by one-third of Americans and 91% of Australians. Havaianas completed 50 years full of modernity and super connected to Brazilians. The celebration included the launch of an exclusive model inspired by the historic turnaround in the 1990s, whose income was donated to Unicef. 6 7

7 It is a true classic that has been working its way to the prestigious position of Brazil s most recognized product abroad. The year of 2012 was a time of increasing visibility for sporting market. After all, the goal is to increase sales by supplying footwear to various sports modalities, especially during the 2014 World Cup and the 2016 Olympics. In 2012, Topper was the leading brand in soccer goods and launched its second Instinct collection of soccer boots and apparel. The bet on developing items for rugby, a growing sport in Brazil that will be in the Olympics in 2016, was not the only innovation: now Topper has a line of footwear specially designed for running. Mizuno, the leading brand in high performance running, also innovated and launched its first volleyball products, a relevant sport modality in the global scenario. The brand also strengthened its soccer line with the launch of boots for this sport. Rainha was successful in carrying on with the brand repositioning plan developed in 2011 and launched collections in the running and casual categories. Timberland made adjustments to its footwear lines to better adapt to Brazilians preference, consolidating its presence in the outdoor sports segment. Focusing on the retail market is crucial to become the brand of choice of consumers. During the year, we continued with our strategy to consolidate our brands, allowing better product exposure and greater interaction with consumers. These are important details that are translated into expanding profit margins. In Brazil, the year was marked by the opening of 70 Havaianas and Timberland franchises. In the international market, we began operating units in important fashion centers, such as Paris, London, Rome and Milan. The Company had 518 exclusive stores worldwide, including the Havaianas, Topper, Timberland, and Osklen brands, as well as Meggashop and Alpargatas outlets. Connected to new trends and consumers habits, Alpargatas brands were a success in the virtual universe. They are a great success especially in social networks. 7

8 8 9 To be the largest Brazilian platform of global brands is one of Alpargatas strategies, so nothing better than a partnership with one of the most influential and inspiring names in the luxury lifestyle segment: Osklen, a brand that represents the contemporary and cosmopolitan style in apparel, footwear and accessories. Alpargatas initially acquired 30% of Osklen s capital stock and has the option to purchase an additional 30% within a year. This deal expands our portfolio as Osklen has the same characteristics of our brands: innovation, modernity and interaction with consumers. The partnership brings knowledge and development of competences in the luxury goods segment and strengthens the Company s presence in the retail market. The construction of the sandals plant in Montes Claros, state of Minas Gerais advances as planned. The new facility is being built with a capacity to produce 105 million pairs of sandals per year and is a very important investment as it will support Havaianas consumption growth in Brazil and will allow the Company to be more aggressive in foreign markets, mainly in Asia. The plant, with operational start-up scheduled for the second quarter of 2013, was created to be a cutting-edge model both in terms of sustainability and production, with state-of-the-art equipment. Acting with social responsibility is part of our mission. For this reason, the Alpargatas Institute will also be present in Montes Claros, implementing social programs and bringing the local community closer. The Alpargatas Institute continued with its sports educational programs and has been benefitting thousands of public school students and teachers for more than a year. The programs benefitted nine cities in Paraíba and one in Pernambuco, states where we maintain our production operations. In nine years of existence, the Institute, in partnership with public and private entities and with the Camargo Corrêa Institute, has contributed to improving the Basic Education Development Index (IDEB). We are extremely proud of this performance, because we believe that education is the most important driver for a country s development. One of Alpargatas values is to respect people, that is, to build an environment with good working conditions and development opportunities. With this in mind, we continue to invest in evaluation systems, compensation and training programs. Betting on our professionals is very important for our strategy to become a global company. We are an agile and active Company that is always seeking for opportunities that will leverage our businesses. The Company s purpose is to grow without losing sight of its essence: innovation, admiration, respect. We are a Company with inspiring projects, which cares about the quality of life of people, respects the environment and follows sustainability principles. The goal now is to continue on this path with optimism and transform Alpargatas into a large multinational company, a winner, full of determination and that inspires confidence and joy.

9 Márcio Utsch CEO Adalberto Fernandes Granjo Legal Ana Marcia Lopes Human Resources Carla Schmitzberger Sandals Edson Rubião Gonzales Operations Fabio Leite de Souza Corporate Strategy and New Businesses Fernando Beer Sporting Goods Javier Goñi Alpargatas Argentina José Roberto Lettiere CFO and Investor Relations Marcelo Turri Supply Chain Roberto Cesar Guindalini Auditing Rogério Bastos Shimizu Retail 9

10 annual report 2012 ALPARGATAS OVERVIEW Alpargatas is the largest footwear manufacturing company in Latin America and its growth strategy is focused on the management of brands that are competitive and strategic assets. By associating its brands to innovative and quality products, developed based on the talent to indentify the customers needs and desire, Alpargatas excels in the segments where it operates. Together, Havaianas and Dupé lead the domestic sandal market. After completing 50 years of existence in 2012, Havaianas is the most recognized Brazilian consumer goods brand internationally. Topper is the leader of the Brazilian soccer market and the first athletic footwear brand in Argentina. Mizuno is the leading brand in high performance running, and Timberland, in premium outdoor footwear. The portfolio is completed by Rainha, Brazil s most traditional brand of sporting goods and Sete Léguas working boots. The investment in Osklen is a relevant step to introduce Alpargatas to the lifestyle and luxury goods segment. In order to add more value to its businesses, Alpargatas maintains its retail operations with 518 exclusives stores in various countries including the Havaianas, Timberland, Topper, and Osklen brands as well as the Meggashop and the Alpargatas Outlet. The footwear are produced in four industrial units in Brazil and five in Argentina. The Alpargatas Group has 18,400 employees, whose entrepreneurship contributed to the Group s net sales of R$3 billion in 2012, 16.8% up on Alpargatas has been listed on the São Paulo Stock Exchange (BM&FBovespa) for the past 100 years and is part of the group of companies listed in the Level 1 of Bovepa s Corporate Governance. It is controlled by Camargo Corrêa S.A. ( and has 6,500 shareholders. Alpargatas preferred shares appreciated 34%, above the Bovespa index, which increased by 7.4% in Alpargatas is the parent company of Alpargatas Argentina, Alpargatas USA and Alpargatas Europe, companies that play an important role in the process of internationalization of its operations, and Companhia Brasileira de Sandálias, which produces the Dupé sandals. The Alpargatas Institute runs the social responsibility projects, with the goal of contributing to improve the quality of education of children and adolescents through the practice of sports in all communities with which the Company interacts

11 EUROPE Columbus, OH 1 distribuition center USA New York, NY office London office Paris office Marseille 1 distribuition center Madrid office Lisbon office Bologne office BRAZIL 4 plants 9 satelitte plants: João Pessoa, Nova Cruz, Santo Antônio, Mogeiro, Serra Redonda, Ingá, Araruna, Guarabira and Alagoa Nova. 3 distribuition centers 2 innovation centers Santa Rita - PB footwear Carpina - PE sandals Campina Grande - PB sandals Montes Claros - MG (under construction) sandals Chaco textiles Corrientes textiles Catamarca 2 plants footwear and textiles São Paulo - SP headquarters Tucumán footwear La Pampa footwear San Luis footwear Buenos Aires footwear and textiles ARGENTINA 8 plants 1 distribuition center 0 11

12 12 13 annual report 2012 FINANCIAL PERFORMANCE In 2012, Alpargatas made important advances towards its goal to becoming a global company with desired brands. It continued to invest in strategic structuring projects that are fundamental to the Company s expansion in the footwear, apparel and accessory markets, in Brazil and abroad. Alpargatas posted growth in sales volumes, net revenue and operating result. SALES VOLUME AND NET REVENUE Consolidated sales volume totaled million units, 6.3% more than in 2011, due to the increase in sandal sales in Brazil and abroad by 7.8% and 8.7% respectively, and the 11.8% upturn in the number of athletic footwear sold in Brazil. Consolidated net revenue reached R$3 billion in 2012, 16.8% up on Brand management, product innovation, creative communication and wide distribution are skills that have been crucial to boost Alpargatas revenue. Alpargatas 2012 financial statements are available at

13 CONSOLIDATED SALES VOLUME million units CONSOLIDATED NET REVENUE R$ million CAGR: 4.7% CAGR: 16% 220,5 218,9 244,0 249,6 265, , , , , , Net Sales by Business Units Net Sales by Operations 31% 53% Sandals Sporting Goods retail Textiles Argentina domestic international 2 13

14 14 15 CONSOLIDATED GROSS PROFIT R$ million CAGR: 15% GROSS PROFIT Consolidated gross profit amounted to R$1.3 billion, 10.3% up on 2011, accompanied by a gross margin of 42.3%. Alpargatas commercial policy, which prioritized the sale of higher value added products; the focus on manufacturing process management, which resulted in higher productivity, and the strict cost control contributed to increase gross profit in ,8 831, , , ,8 Margins % 43.1% 45.6% 44.8% % EBITDA EBITDA R$ million EBITDA (earnings before interest, taxes, depreciation and amortization) totaled R$413.7 million, 2.3% more than in 2011, while the EBITDA margin accounted for 13.8% of net revenue. The higher volume and price of sandals and athletic footwear, together with the improved sales mix, contributed to offset the increase in strategic operating expenses, such as brands marketing in Brazil and abroad, and the expansion of the commercial and administrative structure in Brazil and in Europe, necessary to support business growth. 245,2 289,5 CAGR: 14% 400,3 404,5 413, Margins 14.8% 15% 18% 15.7% 13.8%

15 NET INCOME R$ million NET INCOME Alpargatas consolidated net income totaled R$280 million in 2012, 8.9% less than in 2011, with margin of 9.3%. Excluding the negative effect of equity income, 2012 net income reached R$317.2 million, 3.2% up on 2011, with net margin of 10.5%. The higher EBITDA and the sale of assets in Argentina had a R$23.2 million positive impact on net income in In addition to Tavex s equity income, which has no cash effect, another factor contributing to reduce 2012 net income was the lower financial result, due to lower returns on cash investments. CAGR: 12.8% 173,2 122,6 303,1 307, , Margins 10.4% 6.4% 13.6% 12% 9.3% NET INCOME VARIATION R$ million 2011 Net Income 307,4 EBITDA 9,2 Financial Result (20,9) Sale of Assets/Restructuring 14,0 in Argentina Depreciation (6,2) Income Tax 12,5 Other 1,2 Sub-total 317,2 Equity in TAVEX (37,2) 2012 Net Icome 280,0 4 15

16 CASH On December 31, 2012, Alpargatas cash balance was R$616.9 million, versus R$671 million on December 31, Most of the cash generated in 2012 was due to consolidated EBITDA, which amounted to R$413.7 million. The most significant disbursements were: (i) R$197.5 million in working capital to support business growth; (ii) R$205.5 million in Capex, which includes the investments in the new plant in Montes Claros; and (iii) R$83.9 million in compensation to shareholders. The Company s consolidated debt totaled R$298.7 million at the close of Excluding this amount of debt, the Company s net cash was positive by R$318.2 million on December 31, 2012, strengthening Alpargatas financial structure. net financial position R$ million 177,0 306,6 654,7 358,7 671,0 435,1 616,9 318,2 110,4 (369,3) (192,3) (196,2) (296,0) (235,9) (298,7) cash debt cash net of debt 16 17

17 SHARE APPRECIATION AND COMPENSATION TO SHAREHOLDERS Alpargatas preferred shares (ALPA4) closed 2012 at R$15.10, 34% higher than on December 31, 2011, while common shares (ALPA3) stood at R$14.70, appreciating by 32% in the same period. In 2012, the Bovespa index appreciated by 7.4%. The more active communication with the capital market and the greater proximity with investors contributed to the good performance of Alpargatas shares in a year of strong volatility in the global stock market. On December 31, 2012, Alpargatas market cap amounted to R$5.7 billion, versus R$4.3 billion on the same date a year earlier. Daily traded volume averaged R$5.5 million, 48.6% higher than in Alpargatas compensation to shareholders increased, with record payment of interest on equity (IOE) and dividends, despite the impact from Tavex s equity income on the Company s net income. The Company paid R$85 million in IOE in 2012 and R$25.3 million in dividends totaling R$110.3 million for fiscal year This amount corresponds to 39.4% of 2012 net income. APPRECIATION OF SHARES 15% 18% 34% 32% 7,4% PREFERRED SHARESs COMMON SHARES Ibovespa % COMMON SHARES shares PREFERRED SHARES shares TOTAL shares shares 8% 20% 33% 25% 67% 57% 3% 20% 1% 22% 44% camargo corrêa silvio tini GROUP SHARES IN TREASURY FREE FLOAT 6 17

18 18 19 annual report 2012 FASHION FOOTWEAR Estilosas o bastante para estar na moda. Básicas o suficiente para nunca sair. Havaianas Slim. Novas estampas e cores. havaianas.com.br

19 Innovation either in terms of creative marketing, product portfolio, the various distribution channels, or any other means of communicating with consumers was the baseline used to create the prestige and sales growth strategy of the Havaianas and Dupé fashion footwear brands. As the leading brand in the Brazilian market of sandals, Havaianas turned 50 years in 2012, with a legacy of approximately 4 billion pairs sold since the it was launched. No other Brazilian brand achieved similar recognition globally. Havaianas products are sold in more than 80 countries in addition to Brazil and it is considered the ambassador of the Brazilian culture. Dupé joined Alpargatas in 2007 to expand and complement the sandals portfolio. Similarly to Havaianas, the brand is well recognized internationally and its most important Brazilian market is the Northeast region. In 2012, the two brands sold million pairs/items, approximately 8% more than in 2011, 210 million of which in Brazil and 30.3 million abroad, respectively 7.8% and 8.6% up on the previous year. 19

20 In order to celebrate half a century of existence, Havaianas launched a limited edition of 50,000 pairs, whose income was donated to the Selo Unicef project, an initiative that is aimed at improving the quality of life of children and adolescents in Brazil. The special model was inspired in the brands turnaround in the mid 1990s, when Havaianas realized that consumers were seeking for a new product by flipping the sole to match the strap. The brand innovated and created the one color sandal, which gave origin to Havaianas Top. In addition to the commemorative edition, the 50 th anniversary was celebrated with a party for clients, employees and partners, revamping of stores and franchises, special packages and an online campaign. The Company also edited and distributed a book including Havaianas 50 best printed media campaigns and 50 unpublished campaigns illustrating the sandal s history

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22 22 23 In 2012, Alpargatas launched 110 models of sandals in all categories. The highlights in women s sandals were Slim Tropical and Slim Fresh, with tropical themes, and Top Elegance, with innovative materials, such as leather. The men s category highlights were Havaianas Pacman and the always successful Havaianas IPÊ and Havaianas International Conservation. The Disney license was extended, allowing the use of the characters, previously restricted to Brazil, in Havaianas sandals sold in all countries. Havaianas and Missoni maintained its partnership for the special collections for the second consecutive year. The stylist Adriana Degreas signed the Havaianas Copa special collection, inspired in the balls at the Copacabana Palace Hotel in Rio de Janeiro in the 1920s. The Soul Collection, Havaianas line of closed footwear, was renovated. The novelties included the Essentia sneaker, made with colored nylon, and Alpargatas Origine, created using new materials such as lace, leather and jute. Another innovation that was very popular in Europe were the rubber boots. Similarly to the Soul Collection, fashion rubber boots contribute to offset the effect of sales seasonality in winter in the Northern hemisphere. Havaianas complementary product line was expanded to include ipad, iphone and flash drive covers. To ensure that Havaianas sandals are consumed worldwide on the same scale as they are in Brazil has been a challenging strategic project, in which Alpargatas has made progress every year. In Europe and the United States, important consumer markets that define international fashion trends, the brand s performance has evolved as planned. New markets in emerging economies with a large number of consumers joined the more than 80 countries to which Havaianas are exported: India, Pakistan and Indonesia are some examples. Havaianas has grown internationally as consumers are becoming increasingly aware of the brand, thanks to the marketing initiatives such as advertising campaigns in points of sale and fashion magazines, events such as the MYOH Make your own Havaianas and the digital media.

23 According to the Brand Tracking survey conducted by Millward Brown in the end of 2012, Havaianas were brought to mind by 55% of the people interviewed in Europe, versus 35% in One third of the people interviewed in North America mentioned the brand (versus 22% in 2009). Three years ago in Australia, a total of 57% of the people interviewed mentioned Havaianas, versus the current 91%. Havaianas gained international recognition in innovation when it received the Red Dot Award with its Origine Sneaker model, an award granted to the best design worldwide. More than 1,800 projects from 58 countries entered the competition. In Berlin, Germany, the brand displayed its products in an important stand in the Bread & Butter fair, similar to the Couromoda fair held annually in São Paulo. In Brazil, the marketing campaigns continued to focus in humor with the highlight of the year being the Bolota television commercial, stared by the actor Cauã Reymond and a friendly dog. It was elected one of the three best commercials among the 70 ads already created for Havaianas. The actions in points of sale were also part of Alpargatas marketing strategy abroad. The Company chose important spaces in Macy s stores in New York, Chicago and San Francisco to exhibit Rio de Janeiro s images made with Havaianas. At the New York Bloomingdale s customers could customize their sandals from the sidewalk, by using a terminal displayed at the store s window, and then pick them up inside. Alpargatas environmental responsibility was strengthened with the continued partnership with the Institute for Ecological Research (IPÊ) and Conservation International (CI), which fight for the conservation of the fauna, flora and the oceans. More than 8.5 million Havaianas IPÊ and 1.7 million Havaianas CI were sold since these partnerships were established in 2004 and 2010 respectively. Both partnerships allocate 7% of net sales to help finance IPÊ and CI s research and activities. 2 23

24 24 25 HAVAIANAS RETAIL The Havaianas retail project was designed to ensure a positive buying experience by offering customers greater interaction, contact and purchasing options. In the end of 2012, a total of 382 Havaianas exclusive stores sold the brand s complete portfolio, 101 of which abroad. In Brazil, Alpargatas closed 2012 with 281 stores, fueled by the expansion of franchises in all country regions, with the opening of 68 units. Various exclusive collections, including the one celebrating Havaianas 50 th anniversary, were sold in the brand s stores. These collections have revealed to be a successful strategy and contribute to boost sales revenue. The Havaianas stores also sold new accessories, such as ipad and iphone covers and new towel models. Havaianas franchise model was recognized by the second consecutive year by the Brazilian Franchise Association (ABF) with the seal of excellence in the criteria profitability, customer service, client satisfaction and transfer of know how.

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26 Part of Alpargatas portfolio since 2007, Dupé developed a differentiated strategy to offer mid-priced sandals with advanced technology, such as the HXP Gel, which provides cushioning and comfort. This positioning was strengthened with investments in marketing and specific actions in points of sale of important self-service networks. The Company launched regional campaigns and expanded advertising campaigns to different media TV, internet, radio and printed material. Certain changes to the visual concept reinforced the joviality of the brand and also increased the visibility of Dupé sandals. The women s line was extended to around 70 models, an action that contributed to expand sales in Brazil and abroad, mainly in Asian countries. The Company also posted increase in sales of children s sandals with Turma da Mônica and Ice Age characters, in addition to the classics Woodpecker and Penelope PitStop. Dupé expanded its international presence with a solid expansion in foreign markets. Various actions contributed to this good performance, among which are the participation in fairs such as IFF Tokyo and Fashion Access, in Hong Kong, which increased sales in Asia. In countries such as Australia, Israel and the United Arab Emirates, Dupé also recorded significant sales growth

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28 28 29 annual report 2012 ATHLETIC FOOTWEAR Alpargatas portfolio of athletic footwear includes Topper, Rainha, Mizuno and Timberland. Topper is the leading brand in the Brazilian soccer market, a position established through the incorporation of technologies that improve players performance. In Brazil, the brand s expansion strategy includes creating products for other sports, such as rugby and, as of 2012, running. In Argentina, Topper is the leader in the sporting goods market. Rainha, the first Brazilian sportswear brand, has a strong presence in the category of running and casual. Mizuno leads the Brazilian market of running performance footwear. The brand takes part in the soccer market with the boot Morelia, recognized as one of the best in the market by professional players. In 2012, Mizuno launched its first volleyball model. Timberland is a global leader in the market of premium outdoor footwear. In Brazil, the four brands sales volume grew 11.8% in comparison with 2011, which corresponds to 9.5 million pairs. This expansion was driven by the higher investments in advertising and sponsorship to clubs and athletes, the strong presence on social networks and the innovations in footwear launches. In 2012, Alpargatas sold 6.7 million pairs of athletic footwear in Argentina.

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30 30 31 Topper s domestic sales increased in 2012, fueled by innovations in soccer products and the entry in the market of running shoes. The brand renewed the Instinct soccer line with a collection that included 30 footwear models as well as apparel items and accessories of the Fuerza, Velocity and Classic lines. One of the main innovations was the improvements in the Fuerza soccer boots, with Shootcontrol system, which increases contact with the ball, boosting potency and accuracy. Fuerza is used by Vasco s midfielder Diego Souza, who, together with Alex, from Corinthians, and other important players, were Topper s ambassadors in In addition to its sponsorship to São Paulo State Football Federation (FPF), the brand began sponsoring the Rio de Janeiro State Football Federation. The sponsorship includes, in addition to judges uniforms, advertising boards in stadiums and a special ball used in championship finals.

31 The launch of the uniforms of Grêmio and Atlético Mineiro, brand-sponsored teams, also marked the year. The new Grêmio uniform was presented in an event with wide media coverage, which included the participation of clients, former players and celebrities. Topper s success in running shoes in South American countries led Alpargatas to launch them in Brazil. In 2012, new models of running footwear were launched, of which the highlights were Lightrun, Ice and Foster, with ultra light soles that minimize impact and prevent injuries. The products marketing strategy was supported by the advertising campaign Yes, I Run directed to the printed and online media and points of sale, including the distribution of products to opinion makers and athletes. 0 31

32 For the past three years, Topper has sponsored the Brazilian Rugby Confederation as it believes that the sport has been attracting more and more people in Brazil. The sports modality will be in the 2016 Olympics in Rio de Janeiro, which guarantees the participation of the Brazilian national team. In addition to the Brazilian Rugby Confederation, Topper sponsors two athletes, Fernando Portugal and Lucas Duque, the Tank, and participates in the social initiatives promoted by the Instituto Rugby para Todos (Institute Rugby for All), created in 2004 by veteran players. The importance that Topper gives to social responsibility is confirmed by the projects developed by the Alpargatas Institute. To strengthen its leadership in the soccer segment, Topper created two commercials for its Instinct line, which were showed during the intervals of the games broadcasted by TV Globo. Social media activities complemented marketing initiatives. Topper s Facebook page ended 2012 with 690,000 followers. On YouTube, a video with the goal keeper Marcos had a high number of views and shares. Topper is the leader in the sporting goods market in Argentina, thanks to constant launches: 105 new models in The television, printed media and outdoor campaign Do Sports had the participation of athletes sponsored by the brand: David Nalbandian (tennis), David Trezeguet (soccer) and Lucas Amorosino (rugby). Sports marketing was also important as a communication strategy and helped to boost sales. Topper sponsors the rugby teams Hindu, C.A.S.I. and U.R.B.A. and the soccer teams Vélez Sarsfield, Newell s Old Boys and Club Atlético Tucumán. It also sponsors the Davis Cup. Like in 2011, Topper maintained the strategic partnership with the Argentinean designer Martin Churba, which enabled the launch of special footwear and apparel collections, strengthening the brand s image. Another equally successful launch was the children s Simpsons line. In addition to the distribution channels specialized in sporting goods, Topper s products are sold in 12 exclusive stores in Argentina. In 2012, Topper inaugurated a store in the Vélez Sarsfield stadium

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34 34 35 In 2012, Brazil s most traditional brand of sporting goods began a new phase of its development. After reviewing its strategy and business model, the Company created a new positioning for Rainha. The logo was redesigned to better represent the new concepts of lightness, comfort and balance in the practice of sports. The brand s visual image gained softness and innovation. Its visual communication emphasized the brand s essence: Lightness with posture. Due to its decision to focus on running, Rainha launched 26 models of running footwear in The collection s highlights were the Foxy II and Liquid models, best selling products among youngsters, and Spectro, with FluidSystem technology, a technological platform created by Alpargatas innovation area with the most modern cushioning materials. This technology ensures fluid movements and light contact with the ground, as well as offering greater comfort, balance and protection when practicing sports. These launches mark Rainha s return to the sports style, with great technological upgrade. The classical Iate and Mont Car icons gained different colors and formats and became a sales success in Similarly to footwear, the apparel line was redesigned. The new collections gained more colors and models, allowing harmonious compositions. According to the latest world trends, apparel design was inspired in the premium footwear lines. Complementing the brand s new look, Rainha s website was updated, presenting its visitors with the advantages of the FluidSystem technology and showing products from the new collections.

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36 36 37 Mizuno, the leader in high performance running footwear, posted substantial sales growth compared to 2011, due to the innovations in running and soccer products, the launch of the first volleyball items, the beginning of sales in Argentina and investments in advertising through sports marketing, race sponsoring, and the printed and social media. In addition to these factors, the greater popularity of running in Brazil also contributed to this performance. Advertising campaigns in printed media, on the internet and in various points of sale marked running footwear launches in The launches included 20 models, among which were Wave Creation 13 and Wave Prorunner 15, produced with the new SmoothRide technology, which guarantees the perfect balance between cushioning and lightness. Other highlights were the models of the Golden Runners series named after gold medal athletes every four years Wave 2 and Wave Prophecy Puzzle 2. Two new soccer boots models joined Morelia: Supersonic Wave and Wave Ignitus, both developed with kangaroo leather. Similarly to Morelia, which sponsors the player Hulk, the new soccer boots featured famous players of the Brazilian national football team, such as the defender Dedé, who wears Wave Ignitus, and Jonas, user of the Supersonic Wave.

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38 38 39 Mizuno has a strong presence in volleyball worldwide and sponsors the American, Japanese and Russian national teams. Taking advantage of its know-how in this modality, Mizuno launched in Brazil the Wave Tornado 7, Wave Lightning RX and Bolt trainers with Wave technology, the only system featuring cushioning and stability in the same platform. Alpargatas Argentina began selling Mizuno products with the strategy of making the brand a reference in the Latin American market of athletic footwear. The brand was rated top, with good results in its first year of sales in the new market. As important as the advertising campaigns were the sporting events in which the brand was present. Mizuno organized the 10 Miles Series race, held in São Paulo, Rio de Janeiro, Brasilia and Porto Alegre, with more than 16,000 participants. It also sponsored the WRun race, exclusively for women, and the Athens Circuit, a threephase race with progressive distances held in four Brazilian cities.

39 Continuing the webseries Running with Mizuno in Amsterdam, which won the Media Grand Prix Abril Advertising Award, in 2012 the brand held the Mizuno Challenge, a reality show in partnership with the Runner s World magazine. Approximately 1,500 participants were competing for six places to run in the Amsterdam marathon in the Netherlands. The campaign in social networks also contributed to increase visibility and promote the exchange of experiences among running enthusiasts. The brand s website was revamped and, in December 2012, Mizuno s Facebook page already had more than 100,000 followers. 8 39

40 Alpargatas has been licensed by Timberland to develop and operate the brand in Brazil since Its portfolio consists of footwear, apparel and accessories, sold in its 18 flagship stores, which have key role in the positioning and formation of the brand s image, and in more than 1,500 multibrand points of sale throughout the country. Among the several products launched during the year, the highlights were Hookset, in the casual footwear line, and Pathrock, for outdoor use. The Hookset line shoes are produced with organic cotton, natural rubber and certified leather. They comply with the Earthkeepers standard, Timberland s main pillar worldwide. This concept represents all the sustainability values of the brand, encompassing many dimensions - innovation, products, communication, points of sale, logistics and community actions. Timberland s products are made with environmentally friendly raw materials, using green production processes and recyclable packaging, thus reducing their environmental impact. An example of the brand meeting the Earthkeepers criteria in its apparel lines is the use of S-Café technology, composed of fibers produced with recycled coffee grounds, with properties that quickly absorb sweat and provide UV protection. The S-Café and other technologies, such as Windproof and Waterproof, were tested by consumers who visited Timberland s eco-friendly interactive stand at the Adventure Sports Fair, in São Paulo. As its main product marketing initiative and in order to promote its values, Timberland began an integrated strategy in different social media platforms, in addition to maintaining its own website. With a strong presence on Facebook, Twitter, Foursquare, Instagram, YouTube and Pinterest, the brand maintains a blog and strengthens its relationship and interaction with clients offering travelling plans, information on product and technology launches, promotions and cultural contests. Being more present in social networks helped boost online sales and increase visibility. Timberland s Facebook page ended 2012 with 200,000 followers

41 41 0 As it does every year, Timberland once again promoted social and environmental responsibility events. On Earth Day, Alpargatas employees and their friends and family had the opportunity to participate in various environmental activities, including the planting of seedlings of Juçara palm trees to strengthen the ecosystem of Parque Villa-Lobos, in São Paulo. Serv-a-palooza, the brand s social initiative, was conducted in partnership with the NGO A Roof for My Country. Through this initiative, Alpargatas volunteers dedicated time to build homes in the community of Pirituba, São Paulo.

42 annual report 2012 The acquisition of Osklen is a significant step towards the creation of Brazil s leading company in the lifestyle and luxury goods segment, which will be a global reference. Both companies will greatly benefit from this partnership. Alpargatas portfolio will gain a brand with the same characteristics as its own brands: innovation, modernity and interaction with customers. The partnership strengthens the Company s presence in the retail market and brings knowledge and development of competences in the luxury goods segment, whose margins are higher. Among other many advantages, the acquisition will accelerate Osklen s internationalization through Alpargatas experience in globalization. It will also enable the entry in multibrand distribution channels used by Alpargatas and bring further synergies due to the adoption of financial, human resources and supply chain practices and processes considered a benchmark in the footwear and apparel sectors. As one of the most inspiring and influents brands in the fashion business, Osklen represents the contemporaneous and cosmopolitan dressing style. Its new luxury style is present in clothes, shoes and accessories sold in Osklen s 64 stores chain in Brazil (own stores and franchises), with area varying from 90 to 130 square meters. Osklen also has another six stores in the United States, Japan, Argentina and Uruguay. Alpargatas acquired a 30% interest in Osklen and has the option to acquire an additional 30% interest in the first half of This acquisition will help Alpargatas move forward with its strategy of becoming a high-growth company that manages globally renowned brands with world-class performance

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44 annual report 2012 RETAIL Alpargatas stores are important channels of interaction with consumers and make it possible to identify trends, needs and aspirations that translate into innovative and quality products. At the end of 2012, Alpargatas had 382 Havaianas stores, 18 Timberland stores and 12 Topper stores in operation. The brands discontinued products were sold in 36 Meggashop and Alpargatas outlets. Added to Osklen s 70 stores, Alpargatas retail operations totaled 518 units. Brand Brazil Abroad Total Havaianas Timberland Topper Osklen Meggashop Outlet Alpargatas Total São Paulo 44 45

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46 MEGGASHOP As the largest outlet network in Brazil, with 19 units in several states, Meggashop consolidated itself as a business model that offers strategic support to Alpargatas brands. The stores operate managing products life cycle, selling discontinued items and maintaining the brands value. For customers, the outlet represents the opportunity to buy great products at good prices. The Meggashop network received a large number of customers, which can be measured by its almost one million purchasing tickets. The outlet launched specific promotions to attract more clients, such as the Back to School and the Mega Discount, in addition to the promotions in commemorative dates, such as Father s Day. OUTLET alpargatas Outlet Alpargatas operates in Argentina under the same concept as Meggashop. The stores were revamped and facilities renovated. Thanks to promotional actions, sales increased and contributed to the good performance of the country s retail operations. In 2012, the Company renovated the units in São José dos Campos (SP), Campina Grande (PB), Natal (RN) and the network s largest unit in Mooca, a neighborhood of São Paulo, with area of 700 square meters. São Paulo 46 47

47 São Paulo E-COMMERCE Fully aware of growing demand from consumers interested in online purchases, Alpargatas brands offer a wide variety of products in its online stores. In 2012, Havaianas online store had 3.3 million visitors. Timberland s online store also recorded excellent performance in 2012, with the highest revenue among the stores in the brand s network. Topper launched its online store in February 2011 which sells the brand s complete product line. The store recorded 350,000 visitors in Buenos Aires Buenos Aires

48 48 49 annual report 2012 NEW SANDALS PLANT In 2012, Alpargatas advanced with the works of the sandals plant in Montes Claros, state of Minas Gerais, with investments estimated at R$250 million. At the close of 2012, 50% of the construction had already been finalized. At the same time, the plant had already begun to assemble its equipment and hire personnel. The plant, with a construction area of 50,000 sqm, is installed in a 357,000 sqm lot, guaranteeing enough space to expand its facilities in the future. The unit will start-up in 2Q13 and when completed will have an annual installed capacity to produce 105 million pairs of rubber sandals. The plant will be highly automatized with the most modern technology, reducing unit production costs by 10% to 15%. In addition to significant productivity gains, the operation will allow more agile and uniform production, reducing losses and improving quality. In terms of sustainability, the plant will be a model of energy efficiency, using for example natural lighting and ventilation, as well as renewable energy. The new technologies employed in Montes Claros will be introduced in other Alpargatas units. The plant will have a suspended walkay that will allow guests to observe the sandals production flow and a museum dedicated to showcasing Alpargatas history. In addition to the construction of the plant, Alpargatas launched a series of strategic projects in other production units. A new deposit began to be built at the plant in Campina Grande (PB), which in December posted an all-time record with the shipment of 200 million sandals. The plant will also receive a mini-production unit, enabling the innovation team to test new products. Part of molded sandals production, which is currently outsourced, will be taken over by the unit. The plant in Santa Rita (PB), which produces athletic footwear and Timberland products, received investments for quality improvement and production capacity increase, especially of the Havaianas Soul Collection.

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50 50 51 annual report 2012 SOCIAL AND ENVIRONMENTAL RESPONSIBILIT Y Alpargatas continuously invests in the harmonization of the three dimensions of its businesses economic, social and environmental by understanding that this is the most efficient way to grow sustainably and contributing to social inclusion and quality of life of future generations. The Company respects the guidelines of renowned social bodies in conducting the relationship with its employees and the communities with which it interacts, as well as focuses on initiatives to reduce the environmental impacts of its activities and raise awareness on environmental preservation. Alpargatas transparency is guided by its values: Ethics, Respect for People, Accountability, Entrepreneurship and Costumer Satisfaction. In 2012, investments in training, development and education contributed to further improve the performance of Alpargatas 18,400 employees. The Company offered a total of 33,300 hours of training, 19% more than in the previous year. Alpargatas values the work of its employees through effective people management, organizational climate, quality of life, market-compatible salaries, profit sharing and education subsidy.

51 0 51 Lerinaldo dos Santos Ferreira Mogeiro Factory - PB

52 The Company s Profit Sharing Program, aligned with its strategic and operational plan, enabled the distribution of R$35.6 million among all employees, as short-term bonus. The Stock Option Program, which grants preferred stock options to executive officers in order to retain and encourage them to contribute to the Company s results and goals, has been extended to other positions. Alpargatas training incentive policy, which consists in granting subsidy to professionals enrolled in technical, undergraduate, graduate and languages courses, benefited approximately 300 people. Alpargatas pension fund for employees, with assets of R$207.6 million, recorded net returns of 15% in 2012, exceeding the actuarial target. Luciana de Lima Silva Campina Grande Factory - PB Alpargatas maintains a policy of hiring people with special needs. In 2012, the Company made efforts to continue mapping the positions that can be occupied by professionals in those conditions. At the end of 2012, the Company s workforce had 421 employees with that profile. Alpargatas promotes a series of initiatives to encourage healthy habits and contribute to improving the quality of life of its employees. Employees of all units have access to labor gymnastics given by specialized professionals and participate in integration actions, such as parties in commemorative dates and internal soccer championships. Paula Fernandez Buenos Aires - Argentina Jôze Benicio ALves Lisboa Santa Rita Factory - PB 52 53

53 Alpargatas focuses on the prevention of environmental and health damage, striving to continuously improve its production processes to enhance the quality of life of employees, communities and future generations. To this end, the Company invested R$12.3 million in the adoption, continuity and expansion of initiatives in the areas of occupational safety, occupational health and environment, 55% more than in Among the various initiatives carried out during the year are the continued improvements in machinery and equipment safety; training in occupational safety and environmental education; training for emergency and first aid brigades; assessment of environmental and ergonomic agents in workplaces; control of waste generation and disposal; monitoring of industrial effluents and sewage and industrial maintenance. In 2012, Alpargatas footwear production increased by 2.3% over Electricity and water consumption per pair produced rose 2% and 1% over 2011, in line with the production increase. Natural gas consumption per pair produced fell 5% over Only waste generation grew more than production (9%). The Company continued to fully or partially reuse waste generated. For example, all the PVC used to produce Havaianas thongs is recycled within the process itself, 48% to 52% of rubber shavings are reused to produce sandals and all rubber and PVC waste from the production of Sete Léguas boots is reused in the production process. The number of lost-time accidents has been reduced from 13, in 2011, to 9, in Daniel Pereira de Andrade Campina Grande Factory - PB