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
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
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.
• Income classes upgrading
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
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 & scale
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
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
Leader Overview (2007)
Stores Location
Selling Area
(Dec.07)
Total Selling Area: 56.7 thousand m2
AP
RR
Average Selling Area: 1.5 thousand m2 per store
AM
PA
CE
MA
PI
AC
TO
RO
MT
BA
DF
RN
PB
PE
AL
SE
GO
MS
ES
SP
RJ
PR
Gross Sales Growth: +20.8%
Same Store Sales (Gross Sales): +7.2%
Store Productivity
03 Minas Gerais
MG
38 stores
01 distribution center
01 Pernambuco
01 Alagoas
01 Sergipe
02 Espírito Santo
Net Sales per m2: R$ 10.7 thousand
30 Rio de Janeiro
Net Sales per Store: R$ 15.7 million
SC
Net Sales per Employee: R$ 154.6 thousand
RS
Operating Margins
Gross Margin: 38.7%
Product Mix
Operating Expenses per Net Sales: 35.2%
(Dec.07)
EBITDA Margin: 8.7%
Apparel,
Shoes and
Accessories
69%
Working Capital
Toys 8%
Accounts Receivable: 60 days
Home Utilities 8%
Accounts Payable: 91days
Inventories: 53 days
Bed & Bath 10%
Returns
Complements 5%
4
ROIC: 25.7%
(NOPAT/ Invested Operating Capital)
ROE: 26.8%
(Net Income/ Shareholders’ Equity)
Leader (Card) Adm. de Cartões de Crédito Overview (2007)
Leader Card & Average Ticket
Financial Services Offered (JV with Bradesco)
• Interest-bearing sales
Number of Cards Issued: 3.6 million units
• Personal Loans
Active Customers: 40%
• Co-branded Card (Visa)
Average Ticket: R$ 100.00
• Revolving Credit
Card Penetration over Total Sales: 66%
• Insurances
• Dental Care Plans
• Capitalization Bonds (Annuities)
Payment Options
Financial Services Profitability
Other Credit Cards
16%
Cash
18%
Financial Services Result
R$ MM
2006
Revenues from Financial Services
67.5
110.4
Credit Losses, Net of Recoveries
(24.7)
(36.8)
Operating Expenses (SG&A)
(31.0)
(40.6)
11.8
33.0
Financial Services EBITDA
Leader Card
(interest-free) 36%
% of EBITDA
(1)
(2)
Credit Portfolio
Leader Card
(revolving) 2%
Shareholders' Equity
Losses as a Percentage of Credit Portfolio
Leader Card
(interest-bearing) 28%
Oper. Result as a Percentage of Credit Portfolio
(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
nd
2007
37.4%
199.1
313.5
13.1
29.2
12.4%
11.7%
5.9%
10.5%
Leader – Financials
União de Lojas Leader S.A. (100%) + Leader S.A. Adm. de Cartões de Crédito (50%)
Results and Main Indicators
2007 (1)
Balance Sheet
R$ MM
R$ MM
Gorss Sales
Taxes on Sales
Net Sales
2007 (2)
Cash & Cash Equivalent
697.0
Accounts Receivable
(192.7)
504.3
41.2
120.6
Inventories
50.2
Cost of Goods Sold
(308.9)
Other Assets
28.5
Operating Expenses (SG&A)
(177.4)
Investments (Leader Card)
14.6
Fixed and Difered Assets
89.0
Other Operating Revenues
9.6
Financial Services Results
(50% EBITDA Leader Adm. de Cartões)
16.5
EBITDA
44.1
Gross Sales Growth - Total
Gross Sales Growth - Comparable Stores
20.8%
7.2%
Gross Margin
38.7%
SG&A/ Net Sales
35.2%
EBITDA Margin
Financial Services as a % of EBITDA
TotaldoAssets
Total
Ativo
344.1
Supplyers
119.4
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
8.7%
Net Cash
37.4%
344.1
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
Leader Timeline
1966
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.
1970
In 1970, União de Lojas Leader Ltda. was constituted under the trade name of Leader Magazine.
1980
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.
1990
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
1995
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.
2002
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.
2003
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.
2005
In 2005, Leader’s shareholders signed a joint venture with Banco Bradesco for operating the company’s financial services
business
2006
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.
2008
Process of acquisition by Lojas Renner.
7
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 2005. 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 2007. 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 2007. 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 (1986-1990), Mangotex (1990-1997), Duur Brasil (1997-1998), Editora O Dia (1998-2003), Gerdau S.A. (2003-2005)
and Intelig (2005-2007). 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
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 2006. 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 2006. 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 2003. 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
Strategic Market Positioning
Market Positioning of the Main Apparel Retailers
110%
Zara
100%
90%
80%
RENNER
Price
70%
Riachuelo
60%
C&A
50%
LEADER
40%
Marisa
30%
Supermarkets
20%
10%
Informal Market
0%
0%
20%
40%
60%
Fashion
Source: Credit Suisse and Lojas Renner estimates
10
80%
100%
120%
Complementary Operations
Social Classes Distribution in Brazil (2006 to 2008)
(% of total urban population)
5%
5%
From 7.7 to 7.2 million people
Renner Target
From 37.0 to 44.3 million people
24% 28%
Leader Target
From 60.6 to 71.3 million people
39%
46%
From 48.7 to 33.2 million people
32%
2006
A class
21%
22% of consumption
Income > R$8,930
45% of consumption
Income R$2,470 to R$8,930
27% of consumption
Income R$912 to R$2,470
6% of consumption
Income under R$ 912
2008
B class
C class
D and E classes
Source: Target
Note: Percentage calculated over a total urban population of 154.0 million people in 2006 and 156.0 million in 2008. Income is considered on a monthly basis for households.
11
Price & Multiples Comparison
Acquisition Value
Equity Value:
R$ 670 million
Net Debt(1):
R$ 74 million
Firm Value:
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
(1)
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
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
Sources to Add Value
Sources to Add Value (NPV)
Store Openings
Gross Margin Improvements
Reduction of Expenses (synergies)
Leader Card Earn Out
Sources of Value R$ 486 - 598 million
Value Added (NPV)
Equity Value(1)
(+) Sources of Value
R$ 607 - 710 million
R$ 486 - 598 million
(=) Potential Business Value
( -) Acquisition Value
R$ 1,093 – 1,308 million
R$ 670 - 670 million
(=) Added Value
(=) Added Value per Share
R$
R$
Goodwill Tax Benefit(2)
(1)
(2)
423 - 638 million
3.48 - 5.25
R$ 100 - 104 million
Value estimated as per Lehman Brothers’ valuation report
This amount was not considered as a value source
13
New Growth Platform (Leader)
Number of Stores Evolution
151
91
79
67
55
30
2006
38
2007
44
2008e
2009e
2010e
2011e
2012e
2017e
Selling Area Evolution
(Thousand m2)
227
137
119
101
42
2006
57
2007
66
2008e
83
2009e
2010e
2008 to 2017 figures are merely Company’s estimates
Selling area growth based on the current average store size
14
2011e
2012e
2017e
Expected Operating Improvements (Leader)
Gross Profit & Gross Margin
Net Sales
(R$ MM)
(R$ MM)
1,675
698
504
195
38.7%
2007
2012e
2007
Operating Expenses
EBITDA & EBITDA1 Margin
(R$ MM and SG&A as a % of Net Sales)
(R$ MM)
177
34.6%
2007
2012e
2012e
216
580
35.2%
41.6%
44
8.7%
12.9%
2007
2012e
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
Combined Operation (Renner + Leader)
Gross Revenues from Merchandise Sales
(R$ billion in 2007)
R$ 3.1 billion
3.8
2.4
2.3
1.7
0.7
C&A
Renner
Riachuelo
Marisa
Leader
Private Label Cardholders
(Millions in 2007)
R$ 15.6 million
16.0
13.1
12.0
9.7
3.6
C&A
Riachuelo
Renner
Source: Companies websites and Lojas Renner estimates
16
Marisa
Leader
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 31st, 2007
2007 INCOME STATEMENT
R$ MM
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Renner
Leader
1,751.7
100%
(941.5)
504.3
Combined
100%
(308.9)
2,256.0
(1,250.4)
810.2
46.2%
195.4
38.7%
(593.7)
-33.9%
(177.4)
-35.2%
1,005.6
(771.1)
Financial Services Result
49.9
16.5
66.4
Other Operating Results
19.6
9.6
29.2
EBITDA
286.0
Gross Sales Growth
21.9%
20.8%
21.7%
8.5%
7.2%
8.2%
17.5%
37.4%
20.1%
Same Store Sales Growth (Gross Sales)
Financial Services as a % of EBITDA
17
16.3%
44.1
100%
8.7%
330.1
44.6%
-34.2%
14.6%
Renner Financial Leverage
Financial Result, Net - December, 2007
(R$ MM)
Before
After
18.8
18.8
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
296.4
296.4
Total Loans and Financing
(121.5)
(791.5)
Short Term Loans and Financing
(121.5)
(121.5)
Long Term Loans and Financing
-
(670.0)
174.9
(495.1)
Financial Income
Total
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
3.4
1.8
7.0
Net Debt / EBITDA
1.6
1.5
3.3
10.3%
8.0%
21.4%
Net Debt / EV
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
Initial Corporate Structure
Lojas Renner S.A.
LREN3
100%
Dromegon
Participações Ltda.
100%
100%
Renner Adm. de
Cartões de Crédito
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
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, 2008
20