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1 9M10 Results November 2010
1
9M10 Results
November 2010
2
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.
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Agenda
History
Highlights
Corporate structure
Plants
Production
Sustainability
Footwear sector
Strategy
Products
Results
Guidance
4
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...
5
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
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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
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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.
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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
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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
S.A.
100%95%
Grendene Argentina S.A. Grendene USA Corporation
100%
Saddle Corp. S.A MHL Calçados Ltda.
99.99%
Shareholder structure
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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
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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
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Plants
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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
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Industrial plants
Farroupilha / RS Carlos Barbosa / RS Fortaleza / CE
Sobral / CE Crato / CE
Installed capacity: 200,000,000 pairs / year
Teixeira de Freitas/BA
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Productive process
VERTICALIZATION = AGILITY
PVC Formulation
Design
Moulds
R&D
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Sustainability
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Social responsability
18
Social responsability
Providing employment and income
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Social responsability
Healthy food
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Social responsability
Training
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Social responsability
Over theyears
Grendene hashelped to puton the shoes
of people.
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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.
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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.
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Footwear sector
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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.
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9,806
2,012
816 676 563
3014
-
2.000
4.000
6.000
8.000
10.000
12.000
China India Brazil Vietnam Indonésia Others
Mill
ion
of
pai
rs
2008
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
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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
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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
1000
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
*
mill
ion
pai
rs /
ye
ar
Grendene
CAGR (2009/2001): 7.4%
94
116 121
145130 132
146 146
166
0
20
40
60
80
100
120
140
160
180
20
01
20
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20
09
mill
ion
pai
rs /
ye
ar
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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%
15 16
27 29 2832
40
48 48
32
41
0
10
20
30
40
50
60
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01
20
02
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03
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20
07
20
08
20
09
9M
09
9M
10
Milh
õe
s d
e p
are
s /a
no
Brazilian export
CAGR (2001-09): (3.7%)
Var. (1S10/1S09): 16.4%
171164
189212
190180177166
126
94109
0
50
100
150
200
250
20
01
20
02
20
03
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04
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05
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9M
09
9M
10
mill
ion
pai
rs/
year
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Strategy: Break paradigms
Less labor-intensive
More capital-intensive
Higher entry barriers
Highly marketing-intensive
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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.
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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
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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
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Melissa Arara
Melissa Amazonas
Melissa Lua
Vivienne Westwood Anglomania
+ Melissa Ultragirl.
36Rider R1 Colors ADRider R1 Ink ADRider R2 AD
Rider RS2 AD
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Conceived by
Oscar Metsavaht,
and with a strong
aesthetic appeal
is a premium
product.
Ipanema RJ AD
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Zaxy Doll Eclipse Saga Crepusculo Ad
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Homem Aranha 3D
Bakugan DragonoidMoranguinho Pula-Bolha
Xuxa Borbolê
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Disney Carros Soft Baby
Disney Royal Baby
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Main Licenses
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Celebrities
Carolina Dieckmann
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Celebrities
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International sales channels
Urban Outfitters - Londres Jean Pierre Buá - Barcelona
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International sales channels
Fred Segal - Los Angeles El Corte Inglês - Espanha
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Brazilian sales channels
Retail
Di Santini – Rio Janeiro/RJ
Retail
Centauro – Belo Horizonte/MG
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Brazilian sales channels
Magazine
Lojas Renner –
Florianópolis/SC
Self service
Carrefour – São Bernardo do
Campo/SP
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Galeria Melissa – Concept Store
827, Oscar Freire street, São Paulo, SP
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Results (in IFRS)
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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$2,583,184,800.00
Main financial and economic indicators
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1.076,1
1.218,7
1.394,0
9M08 9M09 9M10
Gross sales revenue Gross sales revenue
domestic market
867,5
973,3
1.125,2
9M08 9M09 9M10
208,7
245,4
268,8
9M08 9M09 9M10
Gross sales revenue
exports
Gross sales revenue (IFRS)
(R$ million)
53
Market (%)
79,9%
20,1%
Domestic Market Exports
80,6%
19,4%
Domestic Market Exports
80,7%
19,3%
Domestic Market Exports
Gross sales revenue
9M08 9M09 9M10
33,3%
66,7%
Domestic Market Exports
Domestic marketd
66,2%
33,8%
Domestic Market Exports
70,8%
29,2%
Domestic Market Exports
9M08 9M09 9M10
Sales volume
54
335,6
375,3
420,8
9M08 9M09 9M10
Gross profit EBIT
94,2 97,2
114,2
9M08 9M09 9M10
746,3
878,3
1.004,8
9M08 9M09 9M10
Costs of sales +
Operating expenses
Results (IFRS)
(R$ millions)
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Financial result
67,7
104,1
86,1
9M08 9M09 9M10
112,8 116,7
135,2
9M08 9M09 9M10
EBITDA
156,7
187,2 189,7
9M08 9M09 9M10
Net income
Results (IFRS)
(R$ millions)
56
Margins
(%)
13,4%
12,0% 12,1%
9M08 9M09 9M10
Ebitda margin
11,2%
10,0% 10,2%
9M08 9M09 9M10
Ebit margin
39,8%38,5% 37,7%
9M08 9M09 9M10
Gross margin
18,6% 19,2%
17,0%
9M08 9M09 9M10
Net margin
57
Average price
(R$)
10,35
11,28 11,59
9M08 9M09 9M10
Average price Total
6,04
7,77
6,62
9M08 9M09 9M10
Average price
Exports
3,583,73 3,72
9M08 9M09 9M10
Average price
Exports (In US$)
12,50 12,73
14,13
9M08 9M09 9M10
Average price
Domestic market
58
34,6
31,6
40,6
9M08 9M09 9M10
Sales volume Exports
103,9108,1
120,2
9M08 9M09 9M10
Sales volume Total Sales volume
Domestic market
69,4
76,579,7
9M08 9M09 9M10
Sales Volume
(Million pairs)
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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)
60
Net cash, dividends & Capex
61
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
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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
0,0%
12,5%
25,0%
37,5%
50,0%
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.
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Low need for CAPEX
15.4 13.7
35.4
24.2
19.9
0
5
10
15
20
25
30
35
40
2007 2008 2009 9M09 9M10
R$
mill
ion
s
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Outlook
• Galeria Melissa: In the next two years Grendenewill open Galerias Melissa in New York, Paris and Tokyo.
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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.
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Thank You!
Further Information
Internet: http://ri.grendene.com.br
Email: [email protected]
(Press Release, Annual Report, Fact-Sheet, Financial Statements)
Grendene s IR TeamFrancisco Schmitt
Investor Relations [email protected]
(5554) 2109.9022
SecretaryCatia Gastmann
(5554) 2109.9011
AnalystsAlexandre Vizzotto Lenir Baretta(5554) 2109.9036 (5554) 2109.9026
