1
AGENDA A COMPANY OF BRANDS BUSINESS ENVIRONMENT HAVAIANAS 50 years old and with a with new home FINANCIAL PERFORMANCE WHY ALPARGATAS? 2
A COMPANY OF BRANDS 3
We are a company with relevant brands... The Brazilian brand with the highest global visibility The market leader in rubber sandals in the Northeast Brazil: the soccer footware market leader Argentina: the leader in the sporting goods sector The most traditional sporting goods brand in Brazil The leader in the running performance segment The global premium outdoor brand The leading brand in professional rubber boots 44
... which are recognized... Havaianasis top of mind in Brazil in its category Most frequent use 74% Bought in the last 12 months 83% Owns/has already owned 100% Knows the brand 100% Source: Brand Tracking Brasil 2012 (Millward Brown) 5
... and desired by consumers worldwide. HAVAIANAS M I Z U N O Daniella Cicarelli Ashley Tisdale Jennifer Aniston Reynaldo Gianecchini T O P P E R Guillermo Vilas 6
Our success in brand management arises from our expertise in: 1. Innovation in products that exceed consumers expectations 2. World-class quality and technology Mondo Club Prorunner 1 Creation 1 Creation 10 Prophecy 3. Distribution: channel selection, scope and reach 4. Intellectual and financial capital 7 Havaianas is present in 87 countries
Our sucess in brand management arises from our expertise in: 5. Domain of the virtual and physical retail channels Alpargatas Stores Own Third parties Total Brazil 32 267 299 Overseas 42 107 149 Total 74 374 448 Points of sale worldwide: ~200 thousand 8
Brand management has been important to boost our performance Net Revenue (R$ million) TURNAROUND RESTRUCTURING GLOBALIZATION STRATEGY... CAGR 96-99 5.1% CAGR 00-04 11.1% CAGR 05-11 15.4% 1,927 2,232 2,575 1,700 1,570 425 443 446 494 580 610 673 767 884 1,260 1,090 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9
BUSINESS ENVIRONMENT Market 10
Social development contributes to increase footwear consumption per capita in Brazil In 2011, 76% of Brazilians belonged to the A, B and C classes, versus 49% in 2005 A+B 28 million C 63 million D+E 95 million A+B 42 million C 103 million 7 6 5 4 3 2 1 D+E 45 million 0 Footwear consumption in Brazil is still lower than that of countries with higher GDP per capita Consumption per capita (pairs/year) Brazil India and Indonesia China Great Britain France Japan Germany USA - 10.000 20.000 30.000 40.000 50.000 2005 2011 GDP per capita (US$) Source: Cetelem BGN Survey - Ipsos 11
Brazilian sandal and athletic shoe markets continue to expand Sandals (millions of pairs) CAGR 12-14 = 6.7% Athletic shoes (millions of pairs) CAGR 12-14 = 4.1% 431 470 491 121 125 131 CAGR 12-14 Running Soccer 41 45 47 8 10 13 7% 27% Casual 39 43 44 6% Other Sports 33 28 26-11% 2012E 2013E 2014E 2012E 2013E 2014E Source: Kantar WorldPanel, GfK and Alpargatas estimate 12
Alpargatas adressable markets in Brazil Sandals (millions of pairs) Athletic shoes (millions of pairs) 431 43,1 10% unbranded 121 73,8 61% unbranded 387,9 90%: Alpargatas adressable market 47,2 39%: Alpargatas adressable market 2012E 2012E Source: Alpargatas estimate 13
BUSINESS ENVIRONMENT Competition 14
Characteristics Sources: 10-K Form and Annual Reports 15
Characteristics Receitapor região ALPARGATAS GRENDENE VULCABRAS AREZZO Brasil: 68% Brasil: 80% Brasil: 80% Brasil: 96% Argentina: 18% Exterior: 20% Argentina: 16% Exterior: 4% Outros: 14%: Outros: 4%: Marcas principais Havaianas,Dupé, Topper, Rainha, Mizuno, Timberland, Sete Léguas e Meggashop Melissa, Rider, Grendha, Ipanema, Ilhabela, Zaxy, Cartago Azaleia, Dijean, Olympikus, Reebok, Opanka Arezzo, Schutz, Anacapri e Alexandre Birman Receitapor categoria ou marca Calçados: 92% Têxtil: 5% Vestuário: 3% ND Calçados esport.: 71% Calçados femininos, chinelos e botas: 20% Vestuário esport.: 9% Arezzo: 63% Schutz: 32% Outras: 5% Flagship stores 448 lojas 200 mil PDVsno mundo 42 franquias ND 368lojas Empregados 17,6 mil 24,4 mil 36,2 mil Não informado Sources: Reference form and most recent earnings release 16
Indicators ALPARGATAS NIKE ADIDAS ASICS MIZUNO VF Co. Latest balance sheet 12/31/2012 5/31/2011 12/31/2012 3/31/2011 3/31/2011 12/31/2012 Net Revenue (US$ billion) Net Revenue CAGR ( 5 years) EBITDA (US$ billion) EBITDA CAGR (5 years) 1.5 24.1 19.6 3.1 2.0 10.9 16% 6.7% 8.3% 2.3% -2.9% 9.2% 0.2 3.4 1.9 0.3 0.1 1.7 14% 5.8% 2.7% -0.7% -7.1% 11.3% EBITDA Margin 14% 14% 9.8% 10.2% 5.1% 15.3% NetCash (Debt) (US$ billion) 0.2 3.4 0.36 (0.2) (0.1) (1.3) ROE 21.4% 22% 13.5% 10% 4.1% 22.5% Source: Bloomberg 17
Indicators ALPARGATAS GRENDENE VULCABRAS AREZZO Latestpublishedannual report Net Revenue (R$ billion) CAGR Net Revenue (last 5 years, except Arezzo: 3 years) EBITDA (R$ billion) CAGR EBITDA (last 5 years, except Arezzo: 3 years) 12/31/2011 12/31/2011 12/31/2011 12/31/2011 2.6 1.5 1.5 0.7 12.4% 5.4% 10.8% 28.4% 0.4 0.2 (0.1) 0.1 17.1% -8.3% Na 40.4% 18 EBITDA Margin 15.7% 14.6% -8.6% 17.2% Net Cash (R$ billion) 0.4 0.8 (0.1) 0.1 ROE 22.1% 17.6% -148% 34.6% EV/ EBITDA (on 11/1) 13.6x 17.7x Na 26.9x Sources: Alpargatas: Financial department Other companies: Economática and Reuters
HAVAIANAS 50 years old and with a new home 19
1962 Havaianas is born 1962 1964 INSPIRATION Japanese Zōri Sandals PRODUCTION 1 model 4 colors S. José dos Campos SP (1962) Jaboatão Pernambuco (1965) São José dos Campos-SP 20 PATENT REGISTRATION Jaboatão-PE
1985 to 1994 Production relocation 1985 1989 1994 Acquisition of the Campina Grande plant and relocation of production from São José dos Campos Campina Grande - PB Expansion of the Campina Grande built area 280,000 pairs/day HAVAIANAS TOP launch 21
1996 to 2004 Expansion of production capacity 1996 2001 340,000 pairs/day 450,000 pairs/day with expansion of production area 22 2004 Inauguration of Distribution Center More SKUs: 1994 = 44 2012 = 9,000
2006 to 2012 Expansion of the manufacturing area, acquisition of Dupé and production capacity increase 2006 2007 2012 Construction of factory 2 acquisition 760 800,000 pairs/day 600,000 pairs/day Carpina -PE 23
2012 Havaianas 50 th anniversary... 47 trips around the Earth 94% of Brazilians own/have already owned a pair Soldin 87 countries 3.5 billion pairs sold 800 thousand pairs produced each day 30 thousand pairs produced per hour 8 pairs produced per second 24
2012... and the construction of its new home begins MONTES CLAROS R$250 million investment 25
Project milestones 1 COUNTRY 3 CITY 5 ARCHITECTURE 7 SOCIAL- ENVIRONMEN TAL 2 REGION 4 TECHNOLOGY 6 VOCATION 26
1 COUNTRY Why Made in Brazil? COMPETITIVE ADVANTAGES Made in... label Lead time Cost of raw material Cost of labor Production scale Best evaluation 27
2 REGION Main comparison factors Factors Region PB MG MG North South RJ BA PE Dilution of production risk Negotiation with states Federal/State/Local Taxation Labor costs Shipping 28 Best evaluation
3 CITY Montes Claros Criteria: City in the southeast of Brazil with more than 200,000 inhabitants Skilled workforce Infrastructure Presence of major multinational companies Land donated by the State Gov Partnership with Cemig (138 kv high-tension substation) 29
3 CITY Montes Claros Land: Total area: 357,000 m² Built area: 50,000 m² Production area: 44,000 m² 30
4 TECHNOLOGY Coperion Feeding and dosage Automation of banburys feeding system and chemical/ pigment dosing Advantage: 99.8% guarantee of formula integrity 31
4 TECHNOLOGY Semi-final rubber: continuous system Continuous production system: fast and even cutting Advantage: Loss reduction 32
4 TECHNOLOGY Final rubber: automatic cutting Change in the rubber sheet coloring process Automated system for waste incorporation Automation of pre-mold cutting 33 Advantage: Standardization, swiftness and loss reduction
4 TECHNOLOGY Presses: magazine-fed 34 Semi-automatic presses Use of single energy matrix: electrical Advantage: 2-minute reduction in rubber vulcanization cycle
4 TECHNOLOGY High productivity Ramp-up Installed capacity Baseline 100 Productivity (pairs/mod/day) Baseline 100 180 160 170 170 250 200 167 192 140 120 155 150 100 148 100 50 80 2013 2014 2015 0 2013 2014 2015 2016 Early Production 35
5 ARCHITECTURE SOLID WASTE WATER TOWER AND LOWER RESERVOIR EMPLOYEES PARKING LOT SUBSTATION AND UTILITIES ADM/ HR / TRAINING / AMB. INDUSTRIAL BUILDING HIGH-VOLTAGE SUBSTATION ETS BUS/TRUCK PARKING LOT BALANÇA FRONT GATE AREA FOR EXPANSION MUSEUM AND MEGGASHOP CD VISITORS PARKING LOT RECREATION CAFETERIA LOCKER ROOMS 36 FLAMMABLE MATERIAL WAREHOUSE
5 ARCHITECTURE LOCKER ROOMS FLAMMABLE MATERIAL WAREHOUSE INDUSTRIAL BUILDING AREA FOR EXPANSION ADM/HR/ TRAINING CAFETERIA RECREATION SUBSTATION AND UTILITIES SOLID WASTE ETS WATER TOWER AND LOWER RESERVOIR MUSEUM AND MEGGASHOP 37 FRONT GATE
5 ARCHITECTURE Main driveway 38
5 ARCHITECTURE External view WAREHOUSE RAW MATERIALS 2nd LEVEL: 22 m HEIGHT 1st LEVEL: 12 m HEIGHT NATURAL VENTILATION DC FINISHED PRODUCTS PRODUCTION FLOW 39
6 VOCATION The sandals with highest added value 40
7 SOCIAL- ENVIRONMENTAL ENVIRONMENTAL PROJECTS Natural lighting and ventilation Collection and use of rainwater Water reuse Use of solar energy for lighting Waste incorporation Walkway for factory visitation SOCIAL PROJECTS Actions taken by the Alpargatas Institute Alpargatas Museum Partnerships with SESI, SENAI, FIEMG 41
Why a new plant? To support the main strategic actions in the Sandal segment 2010 Apimec 42
FINANCIAL PERFORMANCE 43
3Q12 x 2Q12 Revenue growth with improved margins 44
3Q12 x 2Q12 National Business Revenue Net revenue in Brazil was 25.1% higher than in 2Q12 NEGÓCIOS NACIONAIS Receita Líquida (R$ milhões) Increase in sales volume: 10.5% (56.7 million units) 465,3 + 25,1% 582,3 Increase in prices of sandals and athletic shoes in 3Q12: from 2.5% to 10% 2T12 3T12 45
3Q12 x 2Q12 National Business Gross Margin Gross margin grows by 1.8 p.p. NEGÓCIOS NACIONAIS Margem Bruta (% darl) + 1,8 p.p. 42,3% 44,1% Rubber cost reduction in Reais in 3Q GPE was 4% lower, even with a 10.5% increase in the volume of sandals and athletic shoes Lean Manufacturing project: reduction of lead time and manufacturing costs, and increased quality 2T12 3T12 46
3Q12 x 2Q12 National Business EBITDA Margin EBITDA margin increases by 7.8 p.p. NEGÓCIOS NACIONAIS MargemEBITDA (% darl) Increase in revenue from all brands Gross margin improvement Better SG&A performance: + 7,8 p.p. 8,7% 16,5% 3Q12 = 28.9% of net revenue 2Q12 = 31.7% of net revenue 2T12 3T12 47
9M12 x 9M11 48
9M12 x 9M11 Consolidated Net Revenue Net revenue rose by 16% NATIONAL BUSINESSES:+14.2% Receita Líquida Consolidada (R$ milhões) Larger volume, price adjustment and a better mix INTERNATIONAL BUSINESSES:+20.4% + 16% 1.871,0 2.170,4 Increases in foreign currency revenues: 9M11 9M12 USA: +31.9% in dollars Europe: +11.4% in euros Argentina: +4.8% in pesos Exports: +20.8% in dollars 49
9M12 x 9M11 Consolidated Gross Margin Increase in commodity and imported finished product prices had a big impact on 9M12, with recovery in 3Q12 Margem Bruta Consolidada (% darl) -3,4 p.p. 45,9% 42,5% 9M12: Higher raw material (rubber) and imported finished product costs Smaller fixed cost dilution in Argentina 9M11 9M12 3Q12: trend reversal 50
9M12 x 9M11 Consolidated EBITDA 15% EBITDA margin, before impact created by FX variations and high commodity prices Variação do EBITDA Consolidado (R$ milhões) 50,6 316,9 (42,3) 325,2 (41,0) 284,2 EBITDA 9M11 Volume/ Preço/Mix Despesas operacionais e gastos estratégicos Subtotal Variação cambial e commodities EBITDA 9M12 Margens 16,9% 15% 13,1% 51
9M12 x 9M11 Consolidated Net Income Impacted by decrease in EBITDA and financial result Variação do Lucro Líquido Consolidado 300 (R$ milhões) 250 12,7 200 (32,7) (12,1) (8,6) 5,8 150 248,6 213,7 100 50 Lucro Líquido 9M11 Lucro Líquido 9M11 EBITDA Resultado financeiro Equivalência patrimonial TAVEX Venda de marca na Argentina IR e outros Lucro Líquido 9M12 Lucro Líquido 9M12 Margens 13,3% 9,8% 52 52
9M12 x 9M11 Cash Operating cash generation of R$135.1 million Variação do Caixa Consolidado (R$ milhões) 371,8 (83,3) 47,9 (153,4) (29,2) (22,1)(12,8) (61,0) (81,3) 683,7 Geraçãooper. de caixa de R$ 135,1 milhões 818,8 741,6 660,3 Saldo de EBITDA Invest. caixa em capital 30/09/2011 de giro CAPEX Sub-total oper. Resultado financeiro Refis IR/CSLL Aumento particip. Argentina Amortiz. dívidas Sub-total Remuner. Saldo de acionistas caixa em 30/09/2012 53
9M12 x 9M11 Net Cash Net cash of R$ 361 million Reinforces Alpargatas financial strength 54
9M12 Evolution of Stock Prices ALPA4 appreciated by 30% and ALPA3 increased by 37% in 9M12. The Ibovespa appreciated by 2% Índice 100 em 02/01/2012 Evolução das Ações nos 9M12 Volume (R$ milhões) 35 30 137 25 130 20 15 100 102 10 5 Jan Fev Mar Abr Mai Jun Jul Ago Set - Volume ALPA4 ALPA4 IBOVESPA ALPA3 55
9M12 Shareholder Compensation Compensation to shareholders has already come to R$ 85 million in 2012 R$ million 85.0 21.0 R$ 21.6 million paid on 4/18 R$ 21.8 million paid on 7/4 R$ 20.6 million paid on 9/3 R$ 21.0 million to be paid on 12/12 64.0 9M12 39.8% payout 56
WHY ALPARGATAS? 57
Why Alpargatas? Business model resilience Operational efficiency, free cash flow, multi-currency revenue and human capital management Brand awareness We have market-leading brands both in Brazil and abroadthat strengthen our results and increase Company value The regional leader in sandals and sportswear Havaianasis the market leader in Brazil and Topper is the leaderin Argentina Flexible sourcing We have the advantage of being able to manufacture in Brazil and/or abroad Retail presence We operate directly in retail: 448 stores in 2012, and expanding Cash generation Business model oriented towards cash generation Solid balance sheets High financial leverage capacity 58