Summary of the Transaction Acquisition of 100% of União de Lojas Leader S.A. and 50% of Leader S.A. Administradora de Cartões de Crédito

Transcription

1 Summary of the Transaction Acquisition of 100% of União de Lojas Leader S.A. and 50% of Leader S.A. Administradora de Cartões de Crédito Certain statements in this presentation constitute forecasts involving risks, uncertainties and other factors which can imply material differences with future levels of activity, results and performance. This presentation and the information contained herein includes the outlook for economic performance as well as market factors, sector demand and other aspects which may not become a reality. 1

2 Highlights of the Investment (Renner + Leader) Position of leadership Combined sales of R$ 3.1 billion in 2007, ranking the two groups together as the second largest apparel retailer in Brazil. The two chains together currently have 141 stores in operation throughout Brazil. Complementary nature Low degree of customer overlap (approximately 30%). In some cases, Renner and Leader may operate in the same malls, with Renner focusing on the A- / B / C+ social groups and Leader on the C / D classes. New markets Income classes upgrading Using the Leader format, Lojas Renner will have greater growth opportunities through the penetration of those malls focusing on lower income customers and stand-alone street stores. Leader is focused on the low income market which has been reporting strong growth in potential customers, who, with economic stability, have seen notable improvements in income and access to credit. Larger card base The two retailers together will have more than 15.6 million users of proprietary store cards, representing one of the largest private label card base in Brazil (as at Dec. 2007). Accretive transaction Leader will add value to Renner despite diluting margins and EPS in the initial years of operation. Joint-venture Synergies & scale Through the Leader transaction, Renner will be able to better evaluate the operation of a financial services business run as a joint venture with a financial institution. Synergies will be captured as a result of merging the corporate areas as well as combining administrative and commercial activities. Economies of scale will result of merged operations. Best practices Opportunity for an exchange of expertise across the broadest spectrum of the operation. Strong support Lojas Renner will add value and agility to Leader s operations through the support and expertise it can provide to the retail operation, information technology, store expansion and the inauguration of new units. 2

3 Strengths of the Acquired Operation (Leader) Growth Leader will serve as a new growth platform for Lojas Renner, with the potential of becoming a nationwide store chain, similar to Renner. Strong brand name The Leader brand name is widely recognized and well accepted in the markets where the company operates today. Competition Highly dispersed market with regional competitors without Leader s bargaining power in their purchasing activities and in their capacity to provide credit. New markets Leader has the potential to expand through malls focused on middle and lower income customers based in downtown city areas and in small towns. Store profile Leader operates with smaller layouts and in stand-alone street stores, an experience which Renner can leverage to its advantage. Operational improvements Profitable operations but with opportunities for improvement. Management Professional management with quality of execution and expertise, both recognized in the apparel and financial segments. Managerial workforce With expertise in the development and production of goods for lower income groups. Financial services In the consumer finance business, Leader offers more financial products than Renner does and has excellent acceptance among lower income groups. 3

4 Leader Overview (2007) Stores Location (Dec.07) AC AM 38 stores 01 distribution center RO RR AP PA TO MT DF GO MS SP PR SC RS CE MA PI BA MG ES RJ RN PB PE AL SE 01 Pernambuco 01 Alagoas 01 Sergipe 03 Minas Gerais 02 Espírito Santo 30 Rio de Janeiro Selling Area Total Selling Area: 56.7 thousand m 2 Average Selling Area: 1.5 thousand m 2 per store Gross Sales Growth: +20.8% Same Store Sales (Gross Sales): +7.2% Store Productivity Net Sales per m 2 : R$ 10.7 thousand Net Sales per Store: R$ 15.7 million Net Sales per Employee: R$ thousand Operating Margins Product Mix (Dec.07) Apparel, Shoes and Accessories 69% Toys 8% Home Utilities 8% Bed & Bath 10% Complements 5% Gross Margin: 38.7% Operating Expenses per Net Sales: 35.2% EBITDA Margin: 8.7% Working Capital Accounts Receivable: 60 days Accounts Payable: 91days Inventories: 53 days Returns ROIC: 25.7% (NOPAT/ Invested Operating Capital) ROE: 26.8% (Net Income/ Shareholders Equity) 4

5 Leader (Card) Adm. de Cartões de Crédito Overview (2007) Financial Services Offered (JV with Bradesco) Interest-bearing sales Personal Loans Co-branded Card (Visa) Revolving Credit Insurances Dental Care Plans Capitalization Bonds (Annuities) Leader Card & Average Ticket Number of Cards Issued: 3.6 million units Active Customers: 40% Average Ticket: R$ Card Penetration over Total Sales: 66% Payment Options Other Credit Cards 16% Financial Services Profitability Financial Services Result R$ MM Revenues from Financial Services Cash 18% Leader Card (interest-free) 36% Credit Losses, Net of Recoveries (24.7) (36.8) Operating Expenses (SG&A) (31.0) (40.6) Financial Services EBITDA (1) % of EBITDA (2) nd 37.4% Leader Card (revolving) 2% Leader Card (interest-bearing) 28% Credit Portfolio Shareholders' Equity Losses as a Percentage of Credit Portfolio 12.4% 11.7% Oper. Result as a Percentage of Credit Portfolio 5.9% 10.5% (1) Operating Results before revenues generated from cash investments and depreciations (2) Data regarding 100% of the credit business and % of EBITDA considering only the 50% stake 5

6 Leader Financials União de Lojas Leader S.A. (100%) + Leader S.A. Adm. de Cartões de Crédito (50%) Results and Main Indicators 2007 (1) R$ MM Gorss Sales Taxes on Sales (192.7) Net Sales Cost of Goods Sold (308.9) Operating Expenses (SG&A) (177.4) Other Operating Revenues 9.6 Financial Services Results (50% EBITDA Leader Adm. de Cartões) 16.5 EBITDA 44.1 Gross Sales Growth - Total 20.8% Gross Sales Growth - Comparable Stores 7.2% Gross Margin 38.7% SG&A/ Net Sales 35.2% EBITDA Margin 8.7% Financial Services as a % of EBITDA 37.4% Balance Sheet 2007 (2) R$ MM Cash & Cash Equivalent 41.2 Accounts Receivable Inventories 50.2 Other Assets 28.5 Investments (Leader Card) 14.6 Fixed and Difered Assets 89.0 Total Total do Assets Ativo Supplyers Long Term Loans and Financing 26.5 Taxes & Contributions Payable 53.4 Other Accounts Payable 36.5 Provision for Contingencies 20.9 Shareholders' Equity 87.4 Total Liabilities Net Cash 14.7 (1) Reclassified data as per Renner s accounting standards; non-recurring expenses were excluded; adjustments based on audited figures (2) Data contemplates pro-forma adjustments regarding the spin-off of Leader Imóveis (real state) and Leader Fabril (manufacturing) and the Advancement for Future Capital Increase 6

7 Leader Timeline In 1966, with three stores already operating in the interior of the state of Rio de Janeiro, Leader established a foothold in downtown Niterói with stand-alone stores in Rua Aurelino Leal (recently closed) and Rua Visconde de Uruguai. In 1970, União de Lojas Leader Ltda. was constituted under the trade name of Leader Magazine. With each passing decade, Leader proceeded to increase its penetration as a chain store. The partners saw that to adapt to changing circumstances, there was a need to invest and grow taking advantage of their own capacity to overcome challenges. As a result, in the late eighties and early nineties, the company began to modernize the department store network, passing on to the customers the advantages obtained from suppliers, operating with large volumes, rapid turnover, low operational costs and self-service. And Leader began to reinvent itself on a daily basis. In 1991, it initiated an expansion in the city of Rio de Janeiro In 1995, the company engaged the services of the consultant, Renato Benrhoeff, a professional specialized in consultancy for family-owned companies seeking to establish goals and procedures for their future development. Again in 1995, Leader unveiled the São Gonçalo Administrative and the Merchandise Distribution centers, both built at a 17,000 m² site already owned by the company. In order to improve logistics, the Distribution Center was moved to Avenida Presidente Dutra, an area within easy access to all the stores in the network. During the year, the Leader Card operation was launched. In early 2003, Leader innovated by adding a new department to its business, the home appliance department, first installed at the Vila Velha unit, its first store outside the state of Rio de Janeiro, in the state of Espírito Santo In 2005, Leader s shareholders signed a joint venture with Banco Bradesco for operating the company s financial services business At the beginning of the year of 2006 Alvarez & Marsal advisors were hired to lead the operational turnaround and the management profissionalization processes. Leader began to expand to other Brazilian states with the unveiling of stores in the states of Espirito Santo, Minas Gerais, Pernambuco, Bahia and Sergipe. Process of acquisition by Lojas Renner. 7

8 Leader (retail) Management Rogério Gabriel de Macedo Executive Chairman, 37 He has been Executive Chairman of União de Lojas Leader S.A. since 2005 and is a member of the Board of Directors of Leader Adm. de Cartões de Crédito. Mr. Macedo s area of expertise is in the retail and financial institution segments, with substantial experience in the management of family businesses, implementation of corporate governance practices and accountability, expansion, changes in controlling shareholders, financial restructuring and mergers & acquisitions. In addition, he also has a solid knowledge and experience in the financial, accounting and budgetary areas acquired as a result of holding many positions until becoming Financial Superintendent of the Fininvest Group until 1999, as well as Director-General of Leader Card between 2001 and Mr. Macedo graduated in Accounting and Auditing from the Fluminense Federal University. He has a MBA from the COPPEAD Institute of the Federal University of Rio de Janeiro. Fernando César Borges Operations Officer, 42 He has been Operations Officer of Leader S.A. since 2007, having held the position of Organizational Development Officer in the same company between 2006 and Mr. Borges has a proven track record in the areas of Commercial Operations, Human Resources, Information Technology and Quality. He has worked in environments characterized by major changes provoked by processes of mergers and acquisitions, changes in senior management, the closing down of operations and the professionalization of management. Mr. Borges worked at Cervejarias Kaiser S.A. between 1998 and 2005 in various positions until his appointment as Leader s Organizational Development Officer. Mr. Borges graduated as a Technician in Executive Formation from FMA, Jacareí. He has an Executive MBA in Business Management from the Getúlio Vargas Foundation - EPGE. Josué Cruz Organizational Development Officer, 40 He has been Organizational Development Officer (Human Resources, HR, Inhouse Communication & Social Responsibility, Information Technology and Processes) since Mr. Cruz has more than 20 years experience in the definition and implementation of HR policies, systems and processes, leadership training, compensation policies and development of the organizational culture. Mr. Cruz has held posts in leading companies such as Brasilit ( ), Mangotex ( ), Duur Brasil ( ), Editora O Dia ( ), Gerdau S.A. ( ) and Intelig ( ). He graduated in Psychology and has an Executive MBA from the COPPEAD Institute of the Federal University of Rio de Janeiro and a postgraduate degree in Social and Work Psychology Methods. 8

9 Leader (card) Adm. de Cartões de Crédito Management Paulo Alessandro Dias Monteiro Valente General Officer, 41 He has been General Officer of Leader Adm. de Cartões de Crédito since Mr. Valente has solid experience in the management and development of commercial relationships and a strong capability in marketing analysis directed at identifying external and internal opportunities for generating revenue and increasing results, as well as nine years experience in the the personal credit market with a focus on the commercial and risk areas. Mr. Valente held the posts of Regional Sales Manager at Fininvest between 1994 and 2000, Corporate Market Manager at Telemar between 2000 and 2002 and General Manager for Sales at TLX Contax S.A. between 2002 and He graduated in Business Management from the Faculdade Cândido Mendes. He has a postgraduate degree in Services from the COPPEAD Institute of the Federal University of Rio de Janeiro and in Business Management from IBMEC. Gisele Antunes de Araújo Risk and Administrative Officer, 44 Was hired by Leader in 2004 to be in charge of the managerial and administrative roles in the companies that integrate Leader s Group. In 2005 she assumed as a statutory officer. Mrs. Araújo started as Junior Financial Analyst at Fininvest (1986) and worked in the Financial Planning, Budget, Cost Control, Projects and in the Risk & Procedures departments between 1986 and Mrs. Araújo also worked as an advisor in the retail industry in 2003 and 2004 at Partners Consultores. She has a degree in Economics from Cândido Mendes University (1986) and has a post degree in Finance from Fundação Getúlio Vargas - FGV (1988) and in Retail Strategic Management from PROVAR (2004/2005). 9

10 Strategic Market Positioning Market Positioning of the Main Apparel Retailers 110% 100% Zara 90% Price 80% 70% 60% 50% 40% 30% 20% 10% Riachuelo LEADER Supermarkets Informal Market C&A Marisa RENNER 0% 0% 20% 40% 60% 80% 100% 120% Fashion Source: Credit Suisse and Lojas Renner estimates 10

11 Complementary Operations Social Classes Distribution in Brazil (2006 to 2008) (% of total urban population) Renner Target 5% 5% From 7.7 to 7.2 million people 22% of consumption Income > R$8,930 24% 28% From 37.0 to 44.3 million people 45% of consumption Income R$2,470 to R$8,930 Leader Target 39% 46% From 60.6 to 71.3 million people 27% of consumption Income R$912 to R$2,470 32% 21% From 48.7 to 33.2 million people 6% of consumption Income under R$ A class B class C class D and E classes Source: Target Note: Percentage calculated over a total urban population of million people in 2006 and million in Income is considered on a monthly basis for households. 11

12 Price & Multiples Comparison Acquisition Value Equity Value: Net Debt (1) : Firm Value: R$ 670 million R$ 74 million R$ 744 million Retained Value: R$ 230 million R$ 144 million adjusted by LREN performance (or the minimum of CDI) R$ 86 million adjusted by CDI Multiples - Last 12 Months Base June, 2008 EV/EBITDA P/E EV/Sales Lojas Renner 11.7x 21.8x 1.8x Peers Brazil 9.7x 27.9x 1.5x Peers LATAM 10.7x 19.8x 1.3x Global Peers 10.0x 16.3x 2.4x Leader 15.6x 28.8x 1.4x (1) Net Debt was calculated based on June, 2008 balance sheet Multiples comparison from Lehman Brothers as of August, 2008 and Leader data based on manegerial information presented by company management Peers Brazil include Renner, Americanas, Marisa and Guararapes Peers LATAM include Grupo Famsa, Falabella, La Polar, Ripley, Cencosud and Liverpool Global Peers include Inditex and Hennes & Mauritz 12

13 Sources to Add Value Sources to Add Value (NPV) Value Added (NPV) Store Openings Gross Margin Improvements Reduction of Expenses (synergies) Leader Card Earn Out Sources of Value R$ million Equity Value (1) R$ million (+) Sources of Value R$ million (=) Potential Business Value R$ 1,093 1,308 million ( -) Acquisition Value R$ million (=) Added Value R$ million (=) Added Value per Share R$ Goodwill Tax Benefit (2) R$ million (1) Value estimated as per Lehman Brothers valuation report (2) This amount was not considered as a value source 13

14 New Growth Platform (Leader) Number of Stores Evolution Selling Area Evolution (Thousand m 2 ) e 2009e 2010e 2011e 2012e 2017e to 2017 figures are merely Company s estimates Selling area growth based on the current average store size e 2009e 2010e 2011e 2012e 2017e 14

15 Expected Operating Improvements (Leader) Net Sales (R$ MM) 1,675 Gross Profit & Gross Margin (R$ MM) % 41.6% e e Operating Expenses (R$ MM and SG&A as a % of Net Sales) 580 EBITDA & EBITDA 1 Margin (R$ MM) % 34.6% % 12.9% e e 2007 data is audited while 2012 is merely based on the Company s estimates Information presented here is based on Renner and Lehman Brothers estimates and can be changed when the new operation business plan is executed 1 Retailing operation EBITDA (Leader retail) plus 50% stake on financial services business (Leader Adm. de Cartões de Crédito) 15

16 Combined Operation (Renner + Leader) Gross Revenues from Merchandise Sales (R$ billion in 2007) 3.8 R$ 3.1 billion C&A Renner Riachuelo Marisa Leader Private Label Cardholders (Millions in 2007) 16.0 R$ 15.6 million C&A Riachuelo Renner Marisa Leader Source: Companies websites and Lojas Renner estimates 16

17 Combined Operation (Renner + Leader) Lojas Renner S.A. (100%) + União de Lojas Leader S.A. (100%) + Leader S.A. Adm. de Cartões de Crédito (50%) December 31 st, INCOME STATEMENT R$ MM Renner Leader Combined Net Sales 1, % % 2, % Cost of Goods Sold (941.5) (308.9) (1,250.4) Gross Profit % % 1, % Operating Expenses (593.7) -33.9% (177.4) -35.2% (771.1) -34.2% Financial Services Result Other Operating Results EBITDA % % % Gross Sales Growth 21.9% 20.8% 21.7% Same Store Sales Growth (Gross Sales) 8.5% 7.2% 8.2% Financial Services as a % of EBITDA 17.5% 37.4% 20.1% 17

18 Renner Financial Leverage Financial Result, Net - December, 2007 (R$ MM) Before After Financial Income Financial Expenses (18.3) (115.1) Cost of Financing Delinquent Custmers, Net (14.5) (14.5) Total (14.0) (110.8) Indebtedness - December, 2007 (R$ MM) Before After Cash & Cash Equivalents Total Loans and Financing (121.5) (791.5) Short Term Loans and Financing (121.5) (121.5) Long Term Loans and Financing - (670.0) Total (495.1) Financial result calculated based on a Debentures issuance estimated on current costs (CDI+2%) Financial Leverage December, 2007 Lojas Renner Peers Brazil Peers LATAM EBITDA / Interest Expenses Net Debt / EBITDA Net Debt / EV 10.3% 8.0% 21.4% Source: Lehman Brothers data based on the median of diverse peer companies. Renner data is calculated on combined EBITDA (Renner+Leader). Brazil peers include Guararapes, Marisa, Americanas, Globex, CBD and B2W. LATAM peers include Ripley, Falabella, La Polar, Cencosud, D&S, Grupo Famsa and El Puerto de Liverpool. 18

19 Initial Corporate Structure Lojas Renner S.A. LREN3 100% Dromegon Participações Ltda. 100% Renner Adm. de Cartões de Crédito 100% Renner Empreendimentos 100% LR Investimentos 100% 100% União de Lojas Leader S.A. Leader Participações S.A. 50% (JV with Banco Bradesco) Leader S.A. Adm. de Cartões de Crédito 100% Cia Leader de Prom. de Vendas 19

20 Lojas Renner S.A. s Management Evaluation Acquisition Rationale New growth platform Major potential for operational improvements Expertise in working with low income groups Operational synergies between the two businesses Increased economies of scale High potential to add value for shareholders Strategic Argument Leader has a small customer overlap with Renner and for this reason Management understands that the acquisition should create additional value for Renner s shareholders through the development of business in the low-income market, which has been reporting steady growth in potential customers, who, since the economic stability, have seen notable improvements in income and access to credit. Leader is a well-positioned regional chain store with a strong brand name, which may, over the medium to long-term, become a department store chain with a nationwide footprint. Management believes that within a few years the combined business models (Renner and Leader) could result in the merged companies becoming the largest apparel retailing network on the Brazilian market, assuming a position of leadership. Sep.4,