Grendene - 3Q10 and 9M10 Results

transcript

9M10 Results

November 2010

Disclaimer

This presentation contains statements that can represent expectations aboutfuture events or results. These statements are based on certain suppositionsand analyses made by the company in accordance with its experience, withthe economic environment and market conditions, and expected futuredevelopments, many of which are beyond the company’s control. Importantfactors could lead to significant differences between real results and thestatements on expectations about future events or results, including thecompany’s business strategy, Brazilian and international economic conditions,technology, financial strategy, developments in the footwear industry,conditions of the financial market, and uncertainty on the company’s futureresults from operations, plans, objectives, expectations and intentions -among other factors. In view of these aspects, the company’s results coulddiffer significantly from those indicated or implicit in any statements ofexpectations about future events or results.

Agenda

History

Highlights

Corporate structure

Plants

Production

Sustainability

Footwear sector

Strategy

Products

Results

Guidance

Timeline

The 70’s

Grendene was founded in Farroupilha, Rio Grande do Sul. Its first product line was plasticpackaging for wine flasks.

Start of production of plasticparts for farm machinery andequipment, and subsequentlyshoes components such as soles and heels.

Launch of sandals under thebrand name Melissa.

Beginning of the Grendene´s exports.

The beginning...

Timeline

The 80’s

The mold-making operation wasstarted in Carlos Barbosa, Rio Grande do Sul.

The succesful collaborationbetween Melissa and greatestdesigners like: Jean-Paul Gaultier, Thierry Mugler, Jacqueline Jacobson andElisabeth De Seneville.

Launch of the Rider sandals line, target for the masculine public.

Melissa Aranha

Timeline

Anos 90

The 90´s

In Ceará, the plant at Fortaleza, Sobral and Crato, wasinaugurated.

Launch of the Grendha productline, targeting the femininepublic.

Grendene creates a divisiondedicated only to the Melissa brand name.

Homem Aranha 3D Infant

Timeline

The 2000’s

Launch of the Ipanema line andpartnership with top modelGisele Bündchen.

Grendene started havingcommon shares (“GRND3”) negotiated at the Novo Mercado of BM&F Bovespa.

Openning of Galeria Melissa inSão Paulo.

In the State of Bahia, the plant atTeixeira de Freitas, wasinaugurated.

Dividend policy – Grendene willdistribute dividends quarterlyfrom 2009 on.

After thirty years making historyas a fashion accessory, Melissa makes a surprise move andreleases the brand´s perfurme to celebrate the occasion.

Launch of the Ilhabela, Zaxy, Ipanema RJ and Cartago brands.

Relaunch of the Rider Brand.

Highlights

Grendene is one of the world´s largest producers of footwear

Production capacity: 200 million pairs/year

Average production: 500,000 pairs/day

Employees: 30,000

New products in 2009: 632

World presence: more than 90 countries

Brands with strong personality

Innovation in product, distribution and media

Listed on São Paulo´s Novo Mercado; free float 25,1%

Solid capital structure, strong cash flow

55.2% 44.8%

0.3% 20.1% 24%30% 0.5% 25.1%

AlexandreG. Bartelle Part. S.A.

Pedro G. Bartelle

(Individual)Free Float

AlexandreG. Bartelle(Individual)

Verona Negócios e Part. S.A.

Grendene Negócios

100%95%

Grendene Argentina S.A. Grendene USA Corporation

Saddle Corp. S.A MHL Calçados Ltda.

99.99%

Shareholder structure

Board of Directors

Alexandre G. Bartelle

Chairman

Pedro G. Bartelle

Vice-Chairman

Renato Ochman Director

Maílson F. da Nóbrega Director

Walter Janssen Neto Independent

Director

Oswaldo de Assis Filho

Director

Executive board of directors

Alexandre G. BartelleChief executive officer

Pedro G. BartelleVice-chief executive

officer

Rudimar Dall OnderIndustrial and

Commercial Officer

Gelson Luis RostirollaChief financial officer& administrative and

controlling officer

Francisco SchmittInvestor relations officer

Plants

Location of industrial plants

Brazil

PlantsFarroupilha / RS – 2 unitsFortaleza / CE – 2 unitsSobral / CE – 7 unitsCrato / CE – 1 unitTeixeira de Freitas / BA – 1 unit

FarroupilhaDirectors / R&D / MKT / Sales / Exports / Finance / Supplies / Plants

Carlos BarbosaMolds

Industrial plants

Farroupilha / RS Carlos Barbosa / RS Fortaleza / CE

Sobral / CE Crato / CE

Installed capacity: 200,000,000 pairs / year

Teixeira de Freitas/BA

Productive process

VERTICALIZATION = AGILITY

PVC Formulation

Design

Moulds

Sustainability

Social responsability

Providing employment and income

Healthy food

Training

Over theyears

Grendene hashelped to puton the shoes

of people.

Social and EnvironmentalResponsability

PVC that is unused or damaged in theprocess, plus leftovers and scraps are

fully reused.

Unused paints are removed from thewater for reuse of the paint and the

water.

Social and EnvironmentalResponsability

The water is treated in a decantation lakeand reused for conserving thevegetation.

The water used for watering the plantscomes from reusing factory water.

Footwear sector

Footwear Sector

Profile

8,094 producers in 2009

325,000 direct employees

Production: 814 million pairs in 2009* (816 million pairs in 2008)

World´s 3rd largest producer

Apparent Consumption, Brazilian domestic market: 717 million pairs, and 3.75 pairs per capita/ year in 2009 (689 million pairs and 3.64 pairs per capita/year in 2008).

Exports: 126,6 million pairs, to more than 140 countries in 2009 (23.7% less than in 2008).Sources: IEMI, RAIS, Abicalçados, Secex, (*) 2010:Estimated production by IEMI (Industrial Studies and Marketing Institute).

The industry itself is not much more than 150 years old in Brazil –companies are typically small and labor-intensive, with no entry barriers.

816 676 563

10.000

12.000

China India Brazil Vietnam Indonésia Others

Footwear sector

The 5 principal countries produce: 13,873 million

pairs = 82% of total world production of16,887 million pairs

Source: IEMI / World Shoe Review 2009 / ABICALÇADOS

The footwear sector in BrazilMillion pairs 2005 2006 2007 2008 2009

Production 877 830 808 816 814

Imports 17 19 29 39 30

Exports 190 180 177 166 127

Apparent consumption 704 669 660 689 717

Per capita consumption 3.84 3.61 3.52 3.64 3.75

Consuption – 2007 Total Per capita

USA 2,393 7.94

United Kingdom 451 7.42

Italy 387 6.65

France 417 6.55

Japan 707 5.55

* Production estimated by IEMI – April/2010 Source: IEMI / SECEX / ABICALÇADOS

Source: Satra 2008 / Abicalçados / U,S, CensusBureau

Grendene vs, Brazilian footwear sector

Grendene has grown faster than the Brazilianfootwear industry.

Source: IEMI / Abicalçados

*Production estimated by IEMI – April/2010

Brazilian production

CAGR (2009/2001): 3.7%

610 642

897 916 877830 808 804

0100200

300400500600700

800900

Grendene

CAGR (2009/2001): 7.4%

116 121

145130 132

146 146

Exports: Grendene vs, Brazil

Grendene´s exports were 40.0% of total Brazilianfootwear exports in the 1S10 (36.3% in the 1S09)

Source: DECEX / MDIC / ABICALÇADOS

Grendene

CAGR (2001-09): 15.7%

VAR. (1S10/1S09): 28.5%

27 29 2832

Brazilian export

CAGR (2001-09): (3.7%)

Var. (1S10/1S09): 16.4%

171164

189212

190180177166

Strategy: Break paradigms

Less labor-intensive

More capital-intensive

Higher entry barriers

Highly marketing-intensive

Our expertise of more than 30 years,producing innovative footwear and

generating desired brands, shows thesuccess of our vision of the market, our

strategy and our business model – and ourcapacity to create value for stockholders.

Value proposition

Brands

Products Marketing Management

Constant creationof products

Innovative design

ManufacturingTechnology

Few products inlarge scale

Aggresive marketing Licenses withcelebrities Segmentation Investment in media/ events Strong relationshipwith trade

Scale gains, scopegains Profitability Continuousimprovement Financial solidity Sustainablegrowth

Value for stakeholders

Products

Products meet

essential, basic needs

at low cost.

Products for all the

income levels: A, B, C,

D and E – with very

good cost / benefit

Melissa Arara

Melissa Amazonas

Melissa Lua

Vivienne Westwood Anglomania

+ Melissa Ultragirl.

36Rider R1 Colors ADRider R1 Ink ADRider R2 AD

Rider RS2 AD

Conceived by

Oscar Metsavaht,

and with a strong

aesthetic appeal

is a premium

product.

Ipanema RJ AD

Zaxy Doll Eclipse Saga Crepusculo Ad

Homem Aranha 3D

Bakugan DragonoidMoranguinho Pula-Bolha

Xuxa Borbolê

Disney Carros Soft Baby

Disney Royal Baby

Main Licenses

Celebrities

Carolina Dieckmann

Celebrities

International sales channels

Urban Outfitters - Londres Jean Pierre Buá - Barcelona

International sales channels

Fred Segal - Los Angeles El Corte Inglês - Espanha

Brazilian sales channels

Retail

Di Santini – Rio Janeiro/RJ

Retail

Centauro – Belo Horizonte/MG

Brazilian sales channels

Magazine

Lojas Renner –

Florianópolis/SC

Self service

Carrefour – São Bernardo do

Campo/SP

Galeria Melissa – Concept Store

827, Oscar Freire street, São Paulo, SP

Results (in IFRS)

R$ million 9M09 9M10 Change % 9M10-9M09

Net sales revenue 975.4 1,116.4 14.5%

Net income 187.2 189.7 1.4%

Margins % 9M09 9M10 Change p.p.

Gross 38.5% 37.7% (0.8 )

EBIT 10.0% 10.2% 0.2

EBITDA 12.0% 12.1% 0.1

Net 19.2% 17.0% (2.2)

Share 9M09 9M10

Profit per share R$0.62 R$.,63

Share price (Sep. 30) R$8.35 R$8.59

Book value per share R$4.66 R$5.28

Market cap R$2,511,012,000.00 R$2,583,184,800.00

Main financial and economic indicators

1.076,1

1.218,7

1.394,0

9M08 9M09 9M10

Gross sales revenue Gross sales revenue

domestic market

1.125,2

9M08 9M09 9M10

Gross sales revenue

exports

Gross sales revenue (IFRS)

(R$ million)

Market (%)

Domestic Market Exports

Gross sales revenue

9M08 9M09 9M10

Domestic marketd

9M08 9M09 9M10

Sales volume

9M08 9M09 9M10

Gross profit EBIT

94,2 97,2

9M08 9M09 9M10

1.004,8

9M08 9M09 9M10

Costs of sales +

Operating expenses

Results (IFRS)

(R$ millions)

Financial result

9M08 9M09 9M10

112,8 116,7

9M08 9M09 9M10

EBITDA

187,2 189,7

9M08 9M09 9M10

Net income

Results (IFRS)

(R$ millions)

Margins

12,0% 12,1%

9M08 9M09 9M10

Ebitda margin

10,0% 10,2%

9M08 9M09 9M10

Ebit margin

39,8%38,5% 37,7%

9M08 9M09 9M10

Gross margin

18,6% 19,2%

9M08 9M09 9M10

Net margin

Average price

11,28 11,59

9M08 9M09 9M10

Average price Total

9M08 9M09 9M10

Average price

Exports

3,583,73 3,72

9M08 9M09 9M10

Average price

Exports (In US$)

12,50 12,73

9M08 9M09 9M10

Average price

Domestic market

9M08 9M09 9M10

Sales volume Exports

103,9108,1

9M08 9M09 9M10

Sales volume Total Sales volume

Domestic market

76,579,7

9M08 9M09 9M10

Sales Volume

(Million pairs)

9M09 % V 9M10 %V %H Marginal %V

Domestic Market 973,327 99.8% 1,125,162 100.8% 15.6% 151,835 107.7%

Exports 245,400 25.2% 268,840 24.1% 9.6% 23,440 16.6%

Gross sales revenue 1,218,727 124.9% 1,394,002 124.9% 14.4% 175,275 124.3%

Sales deduction (243,304) (24.9%) (277,623) (24.9%) 14.1% (34,319) (24.3%)

Net Sales revenue 975,423 100.0% 1,116,379 100.0% 14.5% 140,956 100.0%

Cost of sales (600,161) (61.5%) (695,609) (62.3%) 15.9% (95,448) (67.7%)

Gross profit 375,262 38.5% 420,770 37.7% 12.1% 45,508 32.3%

Operating income (expenses)

Selling expenses (238,482) (24.4%) (262,355) (23.5%) 10.0% (23,873) (16.9%)

General and administrative

expenses(38,778) (4.0%) (42,216) (3.8%) 8.9% (3,438) (2.4%)

Directors´ remuneration (842) (0.1%) (1,978) (0.2%) 134.9% (1,136) (0.8%)

EBIT 97,160 10.0% 114,221 10.2% 17.6% 17,061 12.1%

Other operating income 2,222 0.2% 2,639 0.2% 18.8% 417 0.3%

Other operating expenses (2,278) (0.2%) (5,311) (0.5%) 133.1% (3,033) (2.2%)

Operating result before financial

revenue (expenses)97,104 10.0% 111,549 10.0% 14.9% 14,445 10.2%

Operational result (IFRS)

(R$ ‘000)

Net cash, dividends & Capex

Cash, Net cash and Total debit

Strong cash flow

R$ 938.7 R$ 996.2

R$ 927.3 R$ 794.4

R$ 860.1 R$ 845.3

R$ 859,4

R$ (205.8) R$ (238.1) R$ (194.1)R$ (130.6) R$ (104.3) R$ (52.3)

R$ (44,8)

R$ 732.9 R$ 758.2 R$ 733.2 R$ 663.8

R$ 755.9 R$ 793.1 R$ 814,6

03/31/09 06/30/09 09/30/09 12/31/09 03/31/10 06/30/10 09/30/10

Cash Indebtedness Net Cash

Dividends

R$ 0,3991 R$ 0,3633 R$ 0,3667

R$ 0,2548

R$ 0,63

R$ 0,91R$ 0,80

R$ 0,87

46,0% 45,5%40,4% 40,3%

5,8%4,1%

4,9% 6,7%

R$ 0,00

R$ 0,25

R$ 0,50

R$ 0,75

R$ 1,00

2007 2008 2009 2010

Dividend per share (R$) Profit per share (R$)

Dividend yield (%) Payout (%)

Dividend yield: Profit per share divided by average value of the share in the year.

Low need for CAPEX

15.4 13.7

2007 2008 2009 9M09 9M10

Outlook

• Galeria Melissa: In the next two years Grendenewill open Galerias Melissa in New York, Paris and Tokyo.

Guidance

Targets for 2009 - 2013

Gross revenue – CAGR: 8% and 12%.

Net profit – CAGR: 12% and 15% over thenext 5 years.

Advertising expenses: average: 8% - 10%of net revenue .

To reach these targets, we will seek to grow more intensely in the external market,

Expecting that the Real/US$ exchange rate will vary approximately in line with the

difference of inflation between the two countries (Brazil and the US), taking as a

Reference point the average R$/US$ exchange rate in the first quarter of 2009. We

emphasize that this expectation for the change in the exchange rate is for the long term

(a period between five and 10 years), and not for the coming quarter.

Thank You!

Further Information

Internet: http://ri.grendene.com.br

Email: dri@grendene.com.br

(Press Release, Annual Report, Fact-Sheet, Financial Statements)

Grendene s IR TeamFrancisco Schmitt

Investor Relations Officerschmitt@grendene.com.br

(5554) 2109.9022

SecretaryCatia Gastmann

(5554) 2109.9011

AnalystsAlexandre Vizzotto Lenir Baretta(5554) 2109.9036 (5554) 2109.9026

Grendene - 3Q10 and 9M10 Results

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