| ApresentaçInstitutionalão do Roadshow Presentation 2Q19
1 Disclaimer
Statements regarding the Company’s future business perspectives and projections of operational and financial results are merely estimates and projections, and as such they are subject to different risks and uncertainties, including, but not limited to, market conditions, domestic and foreign performance in general and in the Company’s line of business. These risks and uncertainties cannot be controlled or sufficiently predicted by the Company management and may significantly affect its perspectives, estimates, and projections. Statements on future perspectives, estimates, and projections do not represent and should not be construed as a guarantee of performance. The operational information contained herein, as well as information not directly derived from the financial statements, have not been subject to a special review by the Company’s independent auditors and may involve premises and estimates adopted by the management.
2 | COMPANY OVERVIEW 1 Platform of brands of reference Arezzo&Co is the leading Company in the footwear, handbags and accessories industry through its platform of Top of Mind brands
4 Company overview
1Arezzo&Co is the reference in the Brazilian retail sector and has a unique positioning combining growth with high cash generation
Leading company in the footwear Development of Asset light: high Strong cash and accessories Controlling collections with operational generation and industry with shareholders are efficient supply efficiency high growth presence in all reference in the chain Brazilian states sector
(1) 13.5 million pairs of shoes More than 47 years of ~11,500 models created 90,3% outsourced Net revenues CAGR: experience in the sector per year production 9.7% (2014 - 2018) 1.5 million handbags (1) Wide recognition Average lead time of 40 ROIC of 27.7% in 2Q19 (3) Net Profit CAGR: 6.1% More than 3,000 points of days (2014 - 2018 ) sale 2,515 employees 15 to 18 launches per year Increased operating ~12% total market share and leverage ~28% market share on AB classes
1. As of 2018 2. Refers to the Brazilian women footwear market (source: Company estimates). 3. Results excluding the adoption of IFRS 16 / CPC 06 (R2) 5 Successful track record of entrepreneurship 1The right changes at the right time accelerated the Company's development
FOUNDATION AND INDUSTRIAL ERA RETAIL ERA CORPORATE ERA INDUSTRY REFERENCE STRUCTURING
70’s 80’s 90’s 00’s 2011 - 2019 Founded in 1972 Consolidation of industrial Focus on retail Specific brands for each Focused on brand and product business model located in R&D and production segment Minas Gerais CONSOLIDATE outsourcing on Vale dos Sinos Expansion of distribution LEADERSHIP POSITION 1.5 mm pairs per year - RS channels and 2,000 employees Franchises expansion Efficient supply chain
Launch of new brands International expansion Opening of the first 9 owned stores in us shoe factory
First store Opening of the flagship store at Oscar Freire Merger Launch of the first design with national success +
Strategic Partnership (November 2007) Launch of new brands Schutz launch
Commercial operations centralized in São Paulo Initial Public Offering (IPO) Fast Fashion concept February 2011
6 1 Shareholder Structure
Others Aberdeen Management³
44.6% 4.6% 0.0%
Birman Family Float
50.8% 49.2%
1. Arezzo&Co capital stock is composed of 90.954.280 common shares, all nominative, book-entry shares with no par value 2. Shareholder structure as of August 05th, 2019 3. Includes LTI plan 7 Strong platform of brands
1Strong platform of brands, aimed at specific target markets, enables the Company to capture growth from different income segments
1972 1995 2008
TRENDY FASHION POP NEW UP TO DATE FLAT SHOES EASY TO USE BOLD AFFORDABLE ECLETIC PROVOCATIVE COLORFUL
16 – 60 YEARS 18 – 40 YEARS 12 – 60 YEARS
CHANNELS AND % REVENUE CHANNELS AND % REVENUE CHANNELS AND % REVENUE O F MB EX O F MB EX O F MB EX 14 406 1,219 127 17 73 1,094 138 3 157 1,569 124 12% 65% 13% 2% 20% 18% 26% 25% 5% 50% 37% 1%
WEB GROSS REVENUE WEB GROSS REVENUE WEB GROSS REVENUE R$ 85.8 MM (8%) R$ 68.9 MM (11%) R$ 15.6 MM (7%)
RETAIL PRICE POINT RETAIL PRICE POINT RETAIL PRICE POINT R$ 240.00 / PAIR R$ 380.00 / PAIR R$ 140.00 / PAIR
GROSS REVENUE GROSS REVENUE GROSS REVENUE R$ 977.1 MM (50.1%) R$ 604.1 MM (30.9%) R$ 239.3 MM (12.2%) Notes: 1. Points of sales (LTM); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports (including US and ROW wholesalers). 2. % of each brand gross revenues (LTM) does not include other revenues (not generated by any of the 6 brands). 3. Gross revenues LTM, including external market; does not include other revenues (not generated by any of the 6 brands). 8 4. % of Company’s total gross revenues of LTM. Strong platform of brands
1Strong platform of brands, aimed at specific target markets, enables the Company to capture growth from different income segments
2009 2015 2018
DESIGN CASUAL COMFORT EXCLUSIVITY YOUNG WELLNESS IDENTITY URBAN BEAUTY SEDUCTION MODERN SELF CARE
20 – 45 YEARS 15 – 30 YEARS 30 – 60 YEARS
CHANNELS AND % REVENUE CHANNELS AND % REVENUE CHANNELS AND % REVENUE P MM EX P MM EX P MM EX 4 26 47 5 427 23 2 292 95 29% 5% 62% 40% 48% 0% 30% 55% 1%
WEB GROSS REVENUE WEB GROSS REVENUE WEB GROSS REVENUE R$ 3.6 MM (4%) R$ 3.7 MM (12%) R$ 1.9 MM (14%)
RETAIL PRICE POINT RETAIL PRICE POINT RETAIL PRICE POINT R$ 1,500.00 / PAIR R$ 320.00 / PAIR R$ 230.00 / PAIR
GROSS REVENUE GROSS REVENUE GROSS REVENUE R$ 90.7 MM (4.6%) R$ 30.3 MM (1.5%) R$ 13.4 MM (0.7%) Notes: 1. Points of sales (LTM); O = Owned Stores; F = Franchised Stores; MB = Multi-brand Stores; EX = Exports (including US and ROW wholesalers). 2. % of each brand gross revenues (LTM) does not include other revenues (not generated by any of the 6 brands). 3. Gross revenues LTM, including external market; does not include other revenues (not generated by any of the 6 brands). 9 4. % of Company’s total gross revenues of LTM. 1 Multiple distribution channels Flexible platform through different distribution channels with specific strategies, maximizing the Company's profitability
NUMBER OF STORES – DOMESTIC MARKET 2Q19 2,621 Broad 636 franchises 45 owned multibrand¹ distribution FRANCHISE______406 in more than OWNED STORE______14 stores in clients in network 250 cities in Brazil more than throughout MULTIBRAND______1.219 Brazil 1,361 cities Brazil FRANCHISE______73 OWNED STORE______17
MULTIBRAND______1.094 Gross Revenue Breakdown by Channel2 – (R$ mm) 44,0% 20,4% 14,7% 9,2% 0,1% 11,7% 100,0% FRANCHISE______157 OWNED STORE______3
1.921 MULTIBRAND______1.569
OWNED STORE______4
MULTIBRAND______26
OWNED STORE______5
MULTIBRAND______427
Notas: OWNED STORE______2 1. Without store overlap between brands 2. LTM MULTIBRAND______292 3. Domestic Market – multibrand without overlap. 10 | BUSINESS MODEL 2 Unique business model in Brazil Customer focus: we are at the forefront of Brazilian women fashion and design 1 2 3 4 5
NATIONWIDE SEASONED ABILITY TO SOLID MARKETING EFFICIENT DISTRIBUTION MANAGEMENT INNOVATE AND SUPPLY CHAIN STRATEGY TEAM WITH COMMUNICATION PERFORMANCE PROGRAM BASED INCENTIVES
Communication & R&D Sourcing & Logistics Multi-channel Management Marketing
BRANDS OF REFERENCE
12 Ability to Innovate
2We develop 15 to 18 collections per year
I. Research II. Development III. Sourcing IV. Store Delivery
Creation: 11,500 SKUs / year
Available for selection: 63% of SKUs created / year
Stores: 52% of SKUs created / year
Activities JAN FEV MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Creation Launch Orders Production Delivery Normal sale Discount sale
Winter I Winter II Winter III Summer I Summer II Summer III Summer IV Arezzo&Co delivers on average 5 new models at the stores per day, allowing for consistent desire- driven purchases 13 2 Broad Media Plan Each brand has an integrated and expressive communication strategy, from the creation of campaigns to the point of sale
STRONG PRESENCE IN SOCIAL, DIGITAL AND PRINT MEDIA LIVE MARKETING AND EXPERIENCE AT POINT OF SALE
OVER 12 MILLION FOLLOWERS CUSTOMER ACTIVATION THROUGH FASHION AND OVER 4 MILLION MONTHLY WEBSITE ACCESS LIFESTYLE EVENTS
DIGITAL COMMUNICATION PUBLIC RELATIONS
INTERNATIONAL CELEBRITIES ENDORSEMENT AND CUSTOMIZED CONTENT FOR DIFFERENT CLIENTS STRONG PRESENCE IN THE PRESS
14 Communication & Marketing Program reflected in every aspect of the stores 2Stores are constantly changed to incorporate the concept of each new collection, resulting in a higher level of desire-driven purchases
POS materials (catalogs, packaging, and others)
Store layout & visual merchandising Flagship stores
All visual communication at stores is monitored and updated simultaneously throughout Brazil for each new collection 15 Store atmosphere: differentiated concepts 2 for each brand
Shelves, Niches and Suspended shelves New Store Concept Wall display . Increased number of displayed items . New store concept being tested in flagship stores . Products highlighted in the center of the stores . Display of a large variety of products . New digital experience: mobile check-out, RFID mirror . Favorable lighting project . Inventory at the sales area: lower necessity of and touch-screen TV . Distribution of the furniture provides more comfort to the additional space for storage . Expected roll out for 2018/19 customers
Each theme is disposed in different niches Experimental and creative Wellness and style
. Atmosphere of a jewelry store . Experimental and creative space . Focus on wellness (comfort and style) . Private shop experience . Interaction with the customer . Timeless concept . Focus on exclusivity, design and high quality . Collaborative experience materials 16 Flexible Production Process
2Production speed, flexibility and scalability to ensure Arezzo&Co’s expected growth based on asset light model
Sourcing Model Gains of scale Arezzo’s scale and structure gives flexibility to source a large number Owned factory with capacity to produce 1,1mm pairs annually and a strong relationship with Vale dos Sinos production cluster as the of SKU’s from various factories on a short time frame at competitive main outsourcing region prices
Certification and auditing of suppliers Joint purchases In-house certification and auditing ensure quality and punctuality Coordination of material purchase jointly with shoe, handbag and (ISO 9001 certification in 2008) accessories’ suppliers New Distribution Center – Espirito Santo State Sourcing model – 90% of production outsourced¹ 10%
Arezzo&Co Owned Factories
90% Others
Consolidation and improvement of distribution in national scale 1 Reception: 100,000 units/day 2 Storage: 100,000 units/day 3 Picking: 150,000 units/day Distribution: 200,000 units/day 4 17 Operation composed by flagship stores in key Brazilian locations 2Owned stores are key to develop retail know-how and increase brands’ visibility Flagship Stores Greater brand awareness coupled with operational efficiencies
. Owned stores are larger and more productive than average and are located in key cities of Brazil (mainly SP and RJ)
. The direct customer interaction enables the development of retail capabilities, which are also reflected at franchised stores
Arezzo – Iguatemi / SP
Anacapri – Oscar Freire/ SP Average Annual Sales per Store LTM (R$ MM)
Fiever – Oscar Freire/ SP Franchises 1,3
Owned Stores 6,6
Schutz – Iguatemi/ SP Alme – Oscar Freire/ SP 18 Strong focus on performance in both owned and franchised stores 2Structure applied to retail in order to achieve better sales and margin results as well as to integrate and connect all monobrand stores’ back office
Strong focus on franchise and owned store performance
• All sales team (4,000+ people) get connected through national internet broadcast for three sales conventions per year, creating an aligned sales pitch and a great sense of motivation before each season
• Large service program to assist franchisees on sales and profitability goals
• Recurring training programs in products, fashion trends, sales techniques, store management, IT, among others
• Strong visual merchandising, trade marketing and ambiance investments and training
19 Efficient management of the franchise network 2Model allows fast expansion with low invested capital
Successful Partnership: “Win – Win” Franchise Concentration per Operator . Intense retail training (# of franchises by # of franchisees) . Ongoing support: average of 6 stores/ consultant and average of 4 or more 22 visits per store/ year franchises . Strong relationship with and ongoing support to franchisee 10% . IT integration with our franchises amounts to 100% 3 franchises . As mono-brand stores, franchises reinforce branding in each city 10% they are located 1 franchise 56% 24% Seal of Excellence from ABF (Brazilian Association of 2 franchises Franchising)
Notes: 96% satisfaction of franchisees1 1. 96% of the current franchisees indicated they would be interested in opening a franchise if they did not already have one 2. For a regular Arezzo brand store, with expected annual sales of R$ 2,2 million, the 5-year contract and average payback of 36-48 months2 average investment is approximately R$ 670 thousand, including store capex, franchise fee, WC and initial inventory)
20 Multibrand stores as tool for increased capilarity 2Multibrand stores widen the distribution network and the brands’ visibility, resulting in a stronger retail footprint Multibrand stores’ gross revenue¹ Improved distribution and brand visibility
140,0 11.9% . Greater brand distribution network 2.621 2.700 . Presence in over 1,361 cities
130,0 2.342 2.500 . Fast expansion at low investment and risk 120,0 . Main focus: increase share of wallet, through the sale of more 3.2% Multibrand2.300 stores - Gross Revenue (R$ brands at the same POS and also handbags as part of the mix 110,0 107,4 104,1 MM)2.100 . Important sales channel for smaller cities and the Brazilian
100,0 #1.900 Multibrand stores countryside . Sales team optimization: internal team and commissioned sales
90,0 1.700 representatives
80,0 1.500 2Q18 2Q19 Multi-brand stores
Notes: 1. Domestic market only 21 2 New Organizational Structure Created in 2017, the structure represented the reduction in the number of CEO reports, besides more agility in decision making, with more focus on people and sustainability.
Risk, Audit and Board of Directors Finance Committee
People Committee Internal Auditing
Strategy, Innovation CEO/CCO and Brands Committee Alexandre Birman
Operations Digital Administrative and Brands People, Culture and International Transformation Finance and Industrial Business Develop. Business
Cassiano Lemos/ Silvia Machado Cisso Klaus Maurício Bastos Rafael Sachete Marco Aurélio Vidal
BU Arezzo Planning IT Finance/Legal/Fiscal People Schutz USA BU Schutz Engineering Squads DT Controller Business develop. UN AB BU Anacapri Sourcing Innovation Investor Relations Sustainability Exports BU Fiever Quality Valorizza/CRM Risk Management Governance BU Alme Industry WEB (BR/USA) Strategic Non productive LAB Logistics Planning/PMO purchase Management (Method, goals and indicators)
22 Corporate governance
2The Board is comprised of 7 members, of which 5 are independent, and has a very large engagement on the strategic planning of Arezzo&Co
Board of Directors
Natura’s CEO for over a decade and former Board Current CEO of Arezzo&Co and part of the controlling group. Alessandro Carlucci Alexandre Birman Member of Lojas Renner, Redecard, Alcoa Latam and Founder of Schutz brand, with over 18 year of experience on Chairman of the Board Itau-Unibanco Member the footwear industry. Founder and CEO of “Ethos Desenvolvimento Humano e José Bolonha Juliana Rozenbaum Over 13 years of experience as sell side equity research Organizacional“; Board member of the Inter-American Vice Chairman of the Board analyst, focused on retail and consumer sector Economic and Social Council (UN, WHO) Independent Member 28 years of experience in Management and Leadership. Luiza Trajano Chairman of the Board of Magazine Luiza and LuizaCred Luiz Fernando Giorgi Current member of people committees for Santander, Sul Independent member and former member of Sadia S.A. Board. Independent Member América and Grupo Martins
Guilherme A. Ferreira CEO of Bahema Participações, current board member of Independent Member Petrobras, Valid, Sul América, Gafisa and T4F
Committees Risk, Audit and Finance Committee Strategy, Innovation and Brands Committee People Committee Guilherme A. Ferreira (Coordinator) Juliana Rozenbaum (Coordinator) José Bolonha (Coordinator)
Members: Members: Members: Alessandro Carlucci, Guilherme A. Ferreira and Alexandre Birman, Luiza Trajano and Juliana Luiz Fernando Giorgi, José Bolonha and Cláudia Edward Ruiz Rozenbaum Falcão
23 2 Multibrand and multichannel strategy Organic growth leveraged by multi-brand, multichannel strategy in footwear and handbags
RECEITA BRUTA LTM1,2
FOCUS ON SSS NEW CATEGORIES NATIONAL ROLL-OUT FRACHISES MODEL 44,0% FOCUS ON BAGS LAUNCH OF START THE FOCUS ON SSS ON-GOING INVEST. EM READY TO START IN SERVICES FRANCHISES FRANCHISES R$ 860.0 LIFE STYLE MKT 2019 FRANCHISES SEGMENTATION MM
INCREASE IN SHARE RECENT RECOGNITION OF WALLET OF THE BRAND IN THE SOLD AT SELECTED 20,4% CROSS-SELL OF BAGS EXPANSION IN NEW EXPANSION IN NEW CUSTOMERS CHANNEL POINTS AND IN LINE ACTIVATION POS MKT POINTS OF SALE POINTS OF SALE R$ 398.3 ATTRACTION CROSS- INCREASE WITH THE BRANDING MULTIBRAND SELL OF BAGS PENETRATION MM
FINALIZE TRANSFER OF GROWTH WITH FOCUS 14,7% PILOT STORES OPENING OF FLAGSHIP OPENING OF FLAGSHIP FOCUS ON SSS ON SSS FOCUS ON SSS RETAINING A MAXIMUM STORES STORES R$ 287.9 REFRESH FLAGSHIP OWNED STORES OF 2 FLAGSHIPS MM
BOOST DIGITAL CHANNEL BOOST, EX.: FASHION INFO SHOP LAUNCH IN 2017 IN TOOL FOR ENHANCING TOOL FOR ENHANCING 9,2% PRESENCE INCREASE APP BRAZIL AND 2018 USA BRAND AWARENESS BRAND AWARENESS TRAFFIC AND R$ 179.5 PILOT STORE SHIPPING NEW APP AND EUROPE AND PENETRATION AND PENETRATION WEB COMMERCE CONVERSION MM
US OPERATION AND 11,7% FOCUS ON KEY USA PROJECT NOT A CURRENT NOT A CURRENT NOT A CURRENT SHOWROOM IN ACCOUNTS MULTIBRAND STORES FOCUS FOCUS FOCUS R$ 227.9 EUROPE FOREIGN MM
SHARE OF EACH 50,0% 30,9% 12,2% 4,6% 1,5% 0,8% 100% BRAND (LTM) 2 R$ 977.2 MM R$ 604.2 MM R$ 239.3 MM R$ 90.7 MM R$ 30.3 MM R$ 13.4 MM R$ 1.9 BI
Notes: 1. % of each brand gross revenues (LTM) does not include other revenues (not generated by any of the 6 brands). 2. Gross revenues LTM from the 6 brands; includes foreign market; does not include other (not generated by any of the 6 brands) LTM Base 24 2 Strategy Business model allows multiple growth options Brands
Other brands Alme Channels Fiever Categories Alexandre Birman Kiosks Other categories Dept Stores Anacapri Outlets Clothing Online Schutz Other accessories Exports Arezzo Owned stores Leather accessories Multi-brand Handbags Core Franchises Footwear Adjacencies
Female White soles Brazil Wellness North America Class A1 Male Latin America Teenager Class A2 Full plastic Europe Class B1 Children Middle East Class B2
Geography Class C1 Segment Class C2 Positioning
25 2 Key messages Arezzo&Co keeps developing its business model in a sustainable way
Consolidated business model with multiple growth opportunities • Sustainable growth and improvement in the profitability of existing brands. 1 • Launch of a new brand Alme and encouraging results in Fiever brand
Staff management an ongoing development • Shareholders value creation sustained by leadership and training of talents 2 • Strengthening of Company’s culture
Ownership of the value chain, greater competitive advantage • More agile and collaborative model 3 • Sell-out oriented to boost results in the value chain
Company’s resilient financial growth • Consistent dividend payout combined with a strong cash flow 4 • Expenses optimization in line with growing revenues
Multi-channel management know-how, excellent platform to lift brands • Digital transformation and Omni channel growth as key priorities 5 • Strong knowledge in franchises’ management coupled with efficiency opportunities • Multibrand channel boosting the growth of new brands
26 03 | FINANCIAL HIGHLIGHTS 3 Operational and financial highlights Gross 2.500,0 Revenue Breakdown by Brand – Domestic Market (R$ million) 2.000,0
1.500,0
CAGR: 7.0%
2.000,0 1.000,0
1.679
500,0 1.524 65 1.402 42 1.500,0 1.282 1.307 - 21 220 9 157 9 119 72 93 -500,0 443 451 4.6%
1.000,0 458 -1.000,0 434 467
-1.500,0 405 424
500,0 21 -2.000,0 874 951 15 767 738 804 48 57
114 117 -2.500,0 227 228
- -3.000,0 2014 2015 2016 2017 2018 2Q18 2Q19 Arezzo Schutz Anacapri Others
Other: includes A. Birman, Fiever and Alme brands only on the domestic market and other non-brand specific receipts. 28 3 Operational and financial highlights Gross Revenue Breakdown by Channel – Domestic and External Market (R$ million)
2.500,0 2.000 CAGR: 8.3% 1.866
1.679 1.800 1.554 2.000,0 1.600 1.435 2 1.358 5 163 1.400 3 129
1.500,0 3 299 1.200 5 108 69 299 44 301 1.000 272 292 384 344 7.7% 1.000,0 304 800 300 305
600 455 489 831 0 1 500,0 686 748 400 638 41 50 661 75 69 107 104 200 185 197 128 152 154 187 – 76 50 66 – 2014 2015 2016 2017 2018 2Q18 2Q19 Foreign Market Franchise Multibrands Owned Stores Web commerce Others Total
Other: includes A. Birman, Fiever and Alme brands only on the domestic market and other non-brand specific receipts. 29 3 Operational and financial highlights Key highlights
Sales area increased 5.4% in the last twelve months.
Net Revenues (R$ mln) Number of Stores (R$ mln) and Total Area (m2- ‘000) CAGR 2007-2018: 20.6% Area CAGR 2014-2018: 7.3%
12,2% 1.527 9,8% 10,6% 1.360 6,4% 1.239 9,3% 1.121 11,9% 1.053 963 26,7% 860 18,8% 38,7% 679 12,3% 572 412 89,4% 367
194
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
30 3 Operational and financial highlights Gross Profit Evolution (R$ MM) and Gross Margin (%) Net Profit Evolution (R$ MM) and Net Margin (%)
-100 bps
1.000 47,8% 50,0% 46,8% 45,8% 46,6% 44,3% 900 43,3% 42,5% 45,0%
800 40,0% 250,0 11,4% 11,4% 12,0% 711 10,7% 10,8%
700 35,0% +190 bps
624 9,4% 9,3% 10,0% 200,0 8,9% 600 549 30,0%
8,0%
500 25,0% 154 456 476 150,0 143
400 20,0% 120 120 116 6,0% 3.1% 100,0 300 15,0%
4,0% 184 27.9% 200 179 10,0%
50,0 42
33 2,0% 100 5,0%
– –
- 0,0% 2014 2015 2016 2017 2018 2Q18 2Q19 2014 2015 2016 2017 2018 2Q18 2Q19 Gross Profit Gross Margin Net Profit Net Margin
Results excluding the adoption of IFRS 16 / CPC 06 (R2) 31 3 Operational and financial highlights Gross Revenue (R$ MM) EBITDA Evolution (R$ MM) and EBITDA Margin (%)
CAGR: 8.3%
2.000,0 1.866 2.000
1.800,0 1.679 1.800 1.554 1.600,0 1.600 1.435 1.358
1.400,0 1.400 350,0 -20 bps 18,0% 15,3% 15,2% 15,2% 15,1% 16,0% 1.200,0 1.200 14,8% 14,9% 300,0 14,3%
14,0%
1.000,0 1.679 1.000 250,0 232 1.524 12,0% 1.402 7.7% 206 800,0 800
200,0 1.307 177 10,0% 1.282 161 165
600,0 600 8,0% 455 489 150,0 4.0% 6,0%
400,0 400
100,0
405 424 57 59 4,0% 200,0 200
50,0
2,0% 128 152 154 187 – 76 50 66 –
0,0 0,0% 2014 2015 2016 2017 2018 2Q18 2Q19 2014 2015 2016 2017 2018 2Q18 2Q19 Foreign Market Domestic Market EBITDA EBITDA Margin
Results excluding the adoption of IFRS 16 / CPC 06 (R2) 32 3 Operational and financial highlights Arezzo&Co has a solid balance sheet with a healthy net cash position, coupled with a strong ability to generate operating cash flow and dividend payments
Arezzo&Co generated R$155,6 MM in operating cash Operating cash flow yield¹ 3.6% flow in the last twelve months, translating into cash flow yield of 3.2%.
Consistent dividend payments, with a payout of more Dividend Payout (YTD) 92.7% than 92.7% of net profit available LTM.²
Working Capital Decrease in working capital needs by 110 bps from (% of Net Revenue) 25.2% 2Q19 to 2Q18.
Change in the capex level from 2015, in line or below Capex / Depreciation LTM -0.9x annual depreciation.
The Company has a strong balance sheet and a Net Cash / EBITDA 0.3x Net Cash/EBITDA ratio of 0.3x in June/19.
1) Operating cash flow yield = LTM Operating cash flow / Firm value. Considered Firm Value of R$ 4.352,6 MM (as the average from 06/29/2018 to 06/28/2019). 2) Available Net Income = Net income (-) Constitution of legal reserve (-) Constitution of fiscal incentive reserve 33 3 Operational and financial highlights Cash Conversion Cycle (R$ thousand) Capex (R$ thousand)
Cash Conversion 2Q19 2Q18 Change Δ 19 x 18 Summary of Investments 2Q19 2Q18 Cycle #days (R$'000) #days (R$'000) (in days) (%) 107 408.558 101 340.401 7 Total CAPEX 17.486 15.014 16,5% Inventory¹ 70 162.613 66 128.153 4 Stores - expansion and refurbishing 2.209 3.705 (40,4%) Accounts Receivable² 85 394.770 85 345.085 0 Corporate 4.280 7.377 (42,0%) (-) Accounts Payable¹ 48 148.825 51 132.837 -3 Other 10.997 3.932 179,7% ¹ Days of COGS ² Days of Net Revenues
Operational Indicators Cash Flow From Operating Activities (R$ thousand)
Δ (%) Operating Indicators 2Q19 2Q18 Operating Cash Flow 2Q19 2Q18 19 x 18 # of pairs sold ('000) 3.185 3.075 3,6% Profits before income tax and social contribution 44.718 34.883 # of handbags sold ('000) 436 308 41,9% Depreciation and amortization 19.868 8.788 # of employees 2.515 2.468 1,9% Others 665 13.541 # of stores* 696 636 60 Decrease (increase) in assets / liabilities (9.758) (28.098) Owned Stores 54 52 2 Trade accounts receivables 23.388 9.804 Franchises 642 584 58 Inventories (1.064) (14.689) Outsourcing (as % of total production) 90,3% 91,8% -1,5 p.p Suppliers (36.638) (25.485) SSS² Sell-in (franchises) 1,3% 7,3% -6,0 p.p Change in other noncurrent and current assets and liabilities 4.556 2.272 SSS² Sell-out (owned stores + franchises + web) 4,1% 3,9% 0,2 p.p Payment of income tax and social contribution (14.309) (2.751) Net cash flow generated by operational activities 41.184 26.363
* Include international stores 34 3 Operational and financial highlights Indebtedness (R$ thousand)
Total indebtedness of R$ 175.9 million in 2Q19 against R$ 175.5 million in 2Q18.
Net cash of 0.3x versus 0.5x EBITDA in 2Q18.
Cash position and Indebtedness 2Q19 1Q19 2Q18
Cash 257.135 299.755 283.172 Total debt 175.957 174.253 175.501 Short-term 153.533 81.827 162.002 % total debt 87,3% 47,0% 92,3% Long-term 22.424 92.426 13.499 % total debt 12,7% 53,0% 7,7% Net debt (81.178) (125.502) (107.671)
35 Appendix
36 Key financial indicators
A Δ (%) 2Q19 Δ (%) Key financial indicators 2Q19 2Q18 19 x 18 Pro forma4 19 x 18 Gross Revenues 489.482 454.679 7,7% 489.482 7,7% Net Revenues 393.546 373.859 5,3% 393.546 5,3% COGS (209.215) (195.108) 7,2% (209.234) 7,2% Depreciation and amortization (cost) (743) (329) n/a (469) n/a Gross Profit 184.331 178.751 3,1% 184.312 3,1% Gross margin 46,8% 47,8% (1,0 p.p) 46,8% (1,0 p.p) SG&A (135.210) (130.987) 3,2% (134.894) 3,0% % of net revenues (34,4%) (35,0%) 0,6 p.p (34,3%) 0,7 p.p Selling expenses (84.011) (88.314) (4,9%) (91.976) 4,1% Ow ned stores and w eb commerce (29.009) (31.059) (6,6%) (32.546) 4,8% Selling, logistics and supply (55.002) (57.255) (3,9%) (59.430) 3,8% General and administrative expenses (43.488) (32.126) 35,4% (45.384) 41,3% Other operating revenues (expenses) 5 11.414 (2.088) n/a 11.398 n/a Depreciation and amortization (expenses) (19.125) (8.459) 126,1% (8.932) 5,6% EBITDA 68.989 56.552 22,0% 58.818 4,0% EBITDA Margin 17,5% 15,1% 2,4 p.p 14,9% (0,2 p.p) Net Income 40.568 33.123 22,5% 42.356 27,9%
Net Margin 10,3% 8,9% 1,4 p.p 10,8% 1,9 p.p Working capital¹ - as % of revenues 24,4% 26,3% (1,9 p.p) 25,2% (1,1 p.p) Invested capital² - as % of revenues 42,7% 36,9% 5,8 p.p 37,4% 0,5 p.p Net cash/EBITDA LTM 0,3x 0,5x - 0,3x - Cash 257.135 283.172 (9,2%) 257.135 (9,2%) Total debt 175.957 175.501 0,3% 175.957 0,3% Net cash³ 81.178 107.671 (24,6%) 81.178 (24,6%)
(1) Working Capital: current assets minus cash, cash equivalents and financial investments less from current liabilities minus loans and financing and dividends payable. (2) Invested Capital: working capital plus fixed assets and other long term assets less income tax and deferred social contributions. (3) Net debt is equal to total interest bearing debt position at the end of a period less cash, cash equivalents and short-term financial investments. (4) Excluding the impacts of IFRS 16 / CPC 06 (R2) (5) Net non-recurring effect of R$ 8.4 million due to the recovery of extemporaneous tax credits arising from the exclusion of income tax and social contribution on the ICMS tax benefit in 2016. 37 A Store History
Store Information 2Q18 3Q18 4Q18 1Q19 2Q19
Sales area¹,³ - Total (m²) 42.044 42.504 43.965 44.086 44.322 Sales area - franchises (m²) 35.567 36.075 37.691 37.704 37.768 Sales area - ow ned stores² (m²) 6.477 6.429 6.274 6.382 6.553 Total number of domestic stores 627 640 673 677 681 # of franchises 579 590 628 632 636 Arezzo 388 393 405 405 406 Schutz 67 68 73 74 73 Anacapri 124 129 150 153 157 # of owned stores 48 50 45 45 45 Arezzo 14 14 14 14 14 Schutz 22 22 17 17 17 Alexandre Birman 4 4 4 4 4 Anacapri 3 3 3 3 3 Fiever 4 5 5 5 5 Alme 1 2 2 2 2 Total number of international stores 9 9 12 13 15 # of franchises 5 5 6 6 6 # of ow ned stores4 4 4 6 7 9
(1) Includes areas in square meters of the stores overseas (2) Includes seven outlet type stores with a total area of 2,217 m² (3) Includes areas in square meters of expanded stores (4) Includes Alexandre Birman and Schutz stores, 3 in New York, 2 in Miami, 1 in Los Angeles, 1 in Las Vegas, 1 in New Jersey, and 1 in San Francisco. 38 A Balance Sheet - IFRS
Assets 2Q19 1Q19 2Q18 Liabilities 2Q19 1Q19 2Q18
Current assets 877.448 928.010 842.426 Current liabilities 420.301 428.398 360.659 Cash and Banks 7.842 5.691 17.464 Loans and financing 153.533 81.827 162.002 Financial Investments 249.293 294.064 265.708 Lease 36.390 34.272 0 Trade accounts receivables 370.837 394.770 333.982 Suppliers 111.810 148.825 107.352 Inventory 163.368 162.613 140.861 Other liabilities 118.568 163.474 91.305 Taxes recoverable 57.554 42.903 48.899 Non-current liabilities 204.966 260.079 24.089 Other credits 28.554 27.969 35.512 Loans and financing 22.424 92.426 13.499
Non-current assets 426.667 404.581 213.878 Related parties 1.428 1.452 1.436 Long-term receivables 60.003 60.400 59.363 Other liabilities 9.715 9.130 9.154 Aplicações financeiras 0 0 0 Lease 171.399 157.071 0 Trade accounts receivables 10.948 11.070 10.569 Shareholder's Equity 678.848 644.114 671.556 Deferred income and social contribution 20.811 20.410 25.207 Capital 352.715 341.073 341.073 Other credits 28.244 28.920 23.587 Capital reserve 49.035 47.909 45.925 Investments property 3.314 3.324 3.325 Profit reserves 90.033 90.033 178.748 Property, plant and equipment 299.640 275.874 77.831 Tax incentive reserve 136.443 136.443 64.658 Intangible assets 63.710 64.983 73.359 Other comprehensive income 7.257 5.515 1.916
Total assets 1.304.115 1.332.591 1.056.304 Accumulated Profit 43.365 23.141 39.236 Total liabilities and shareholders' equity 1.304.115 1.332.591 1.056.304
39 A Income Statement - IFRS
2Q19 Income Statement - IFRS 2Q19 2Q18 Var.% Var.% Pro forma
Net operating revenue 393.546 373.859 5,3% 393.546 5,3% Cost of goods sold (209.215) (195.108) 7,2% (209.234) 7,2%
Gross profit 184.331 178.751 3,1% 184.312 3,1% Operating income (expenses): (135.210) (130.987) 3,2% (134.894) 3,0% Selling (97.908) (94.581) 3,5% (98.111) 3,7% Administrative and general expenses (48.717) (34.319) 42,0% (48.182) 40,4% Other operating income, net 11.415 (2.087) -647,0% 11.399 -646,2%
Income before financial result 49.121 47.764 2,8% 49.418 3,5% Financial income (4.403) (12.881) -65,8% (2.914) -77,4%
Income before income taxes 44.718 34.883 28,2% 46.504 33,3% Income tax and social contribution (4.150) (1.760) 135,8% (4.148) 135,7% Current (5.381) (9.001) -40,2% (5.381) -40,2%
Deferred 1.231 7.241 -83,0% 1.233 -83,0%
Net income for period 40.568 33.123 22,5% 42.356 27,9%
40 A Cash Flow Statement - IFRS
Cash Flow 2Q19 2Q18
Operating activities Income before income tax and social contribution 44.718 34.883 Adjustments to reconcile net income w ith cash from 20.533 22.329 operational activities Depreciation and amortization 19.868 8.788 Income from financial investments (3.478) (4.605) Payments of Interest on loans (190) (1.685) Interest and exchange rate 207 12.858 Other 4.126 6.973 Decrease (increase) in assets Trade accounts receivables 23.388 9.804 Inventory (1.064) (14.689) Recoverable taxes (14.305) (9.036) Change in other current assets 1.689 (1.005) Judicial deposits 466 (857) (Decrease) increase in liabilities Suppliers (36.638) (25.485) Labor liabilities 6.528 10.545 Fiscal and social liabilities 3.396 (781) Variation in other liabilities 6.782 3.406 Payment of income tax and social contribution (14.309) (2.751) Lease - -
41 A Cash Flow Statement - IFRS Cash Flow 2Q19 2Q18
Net cash flow from operating activities 41.184 26.363 Investing activities Sale of fixed and intangible assets 987 (2) Acquisition of fixed and intangible assets (17.486) (15.014) Financial Investments (243.012) (182.058) Redemption of financial investments 290.187 244.619
Net cash used in investing activities 30.676 47.545 Financing activities w ith third parties Increase in loans 6.358 45.770 Payments of loans (2.227) (60.872) Créditos (débitos) com partes relacionadas, exceto sócios Instalment Lease (10.410) - Net cash used in financing activities w ith third parties (6.279) (15.102) Financing activities w ith shareholders Interest on equity (20.847) - Profit distribution (54.153) (48.796) Receivables (payables) w ith shareholders (24) 198 Issuing of shares 11.642 - Repurchase of shares - (1.814)
Net cash used in financing activities (63.382) (50.412) Increase (decrease) in cash and cash equivalents 2.199 8.394 Cash and cash equivalents Foreign exchange effect on cash and cash equivalents (48) 778 Cash and cash equivalents - Initial balance 5.691 8.292 Cash and cash equivalents - Closing balance 7.842 17.464 Increase (decrease) in cash and cash equivalents 2.199 8.394 42 Contacts
CFO
Rafael Sachete
IR Officer
Aline Penna
IR Coordinator
Victoria Machado
IR Analyst
Marcos Benetti
Telephone: +55 11 2132-4303 [email protected] www.arezzoco.com.br