2015

ENG

Cia. Hering Day 2015 - Agenda

8:30 OPENING

9:00 CHANNELS

9:50 COFFEE BREAK

10:20 PRODUCT AND BRANDS

11:10 PHSAP² PROJECT

11:40 Q&A

11:25 FINANCIAL MANAGEMENT

OPENING Fabio Hering

How did we get here?

Diagnostic 2013

Organizational model evolution focused in brands

Cia. Hering Day 2013

Focus on Product

Collection

Basics relaunching

Collection improvement

New fronts

Launch of Hering for you

DZARM. relaunch

Cia. Hering Day 2015

Multi-channel

New e-commerce platform

Supply

Improved selling process

Focus on VM

2

Structure

Fabio Hering CEO

Edson Amaro Brand Officer

Ronaldo Loos Commercial Officer

Moacyr Matheussi Supply Officer

Brands Commercial Supply Backoffice

Edgar Filho Industrial Officer

Frederico Oldani CFO and IRO

Alessandra Morrison People and Org. Officer

Marciel Costa Administrative Officer

Andrea Hering manag.

Rodrigo DZARM. manag.

Rachel H. for you manag.

TBD Children manag.

3

Strategic vision

Organizational processes and efforts should be linked to vectors

VEC

TOR

S

Style and product development as a competitive advantage

Consumer at the business’ core

Multichannel distribution strategy

Strong brands in casual lifestyle

Channel -

Related Initiatives

Product - Related Initiatives

Purpose

4

CHANNELS

Multichannel organization

Multichannel distribution model with high capillarity

82 OWNED 12.4% of sales

725 FRANCHISE 37.5% of sales

05 WEBSTORES

STORE NETWORK

18,263 MULTIBRAND

48.2% of sales

1.9% of sales

807 stores

642 stores 88 stores 73 stores 03 stores 01 store

Source: Number of stores related to 3Q15. Sales participation over the past 12 months. 6

STORE NETWORK

Store Refurbishments

Supply

VM

Service Level

Store Network | POS management

SSS improvement from 4 POS management fronts

POS Management

8

POS management| Store Refurbishments

2007 Project 2015 Project

New refurbishment model (retrofit):

Cost reduction – approx. 60% of the current Refurbishment period reduced from 40 to 20 days

Refurbishment incentivized plan in 2016:

Subsidy and funding

Project prior 2007

New refurbishment plan considers significant number of stores in 2016

9

POS management| Supply Front Improved Supply and VM through assortment recommendation based on new stores’ clustering model

Supply recommendation implemented to Hering Store chain from 2015 High Summer collection on

Focus on network adherencee and model evolution for 2016

S

up

ply

Performance Purchase volume

Assortment Variety / Depth

#ItemColor

Point of sale i.e. HS store

Region Southeast

Sq. meters 275

Turnover 1.2

Total Performance R$ 1,710,572

Fashion Performance R$ 1,199,649

Basic Performance R$ 510,923

VM – fashion wall 6

#ItemColor fashion 442

#ItemColor Female -Top 139

#ItemColor Female -Bottom 54

#ItemColor Female - Complete 37

#ItemColor Male -Bottom 59

#ItemColor Male -Top 110

#ItemColor Others 43

# ItemColor basic 282

Clu

ster

10

POS management| Visual Merchandising Cleaner VM and better shopping experience aligned to the new Supply Model

Product Availability, cleaner VM

Product variety

Stock-outs, leftovers

Current VM Fashion Wall - 4 or 6 units

per ItemColor

12 - 15 ItemColor per fixture

Previous VM Fashion wall - 3 units per ItemColor 21 ItemColor per fixture

11

POS management| Service Level S&OP Project - improved service level to the channels with reduced inventories in the company

Channels Impact:

Improvement in delivering/supply => coordinated delivery by fixtures and cycles considering different supply sources

Cia. Hering Impact:

Leftovers Reduction => integrated planning between Sales, Demand and PPC (Production Planning and Control)

12

Store Network | Priorities in 2016

Improve profitability of store operations - Network sustainability

Sales SSS growth

Margin Increase inventory turnover and reduce markdowns – supply front

Expenses Occupancy costs renegotiation Efficiency in store service / processes

Man

age

me

nt

Too

ls

Ne

w B

I - s

tore

s

13

Store Network | Satisfaction survey

High level of satisfaction of Cia. Hering franchisees network

Overall Satisfaction

Would you open another store? Would you recommend the franchise?

Source: Instituto da Qualidade- Oct / 2015 Research conducted with franchisees of Hering Store, Hering Kids and PUC networks.

Definitely yes

Probably yes

Definitely yes

Probably yes

Maybe yes, maybe no

Definitely no

Probably no

Maybe yes, maybe no

Definitely no

Probably no

Very satisfied

Satisfied

Neither satisfied, nor insatisfied

Insatisfied

Very insatisfied

14

MULTIBRAND

Channel Management

Qualified Multibrand

North/Northeast

Plan

Multibrand | Channel Management

Distribution management based on three fronts

ManagementDistribution

16

Multibrand | Management Model Management Model Evolution in order to improve effectiveness of distribution network coverage

Service model of sales representatives

Information Management

Coverage revision (redistribution, smaller areas per representative)

Showroom efficiency (model standardization)

17

Multibrand | Qualified Multibrand

Intensify migration of traditional multibrand to Qualified

Current phase – qualified multibrands base shielding

Next movement – increase base of qualified multibrands

Traditional Multibrand

# Clients: 95%

Average purchase/year: R$ 50 thousand

Sales: 84% of the channel

Qualified Multibrand

# Clients: 5%

Average purchase/year: R$ 230 thousand

Sales: 16% of the channel

18

Multibrand | Qualified Multibrand Main pillars of Qualified Multibrand

POS Material

Training

Priority in Serving

Differentiated Commercial Policy

Brand Application

Re

lati

on

ship

P

OS

19

Multibrand |North/Northeast Plan

Clear opportunities to gain market share in North/Northeast regions

Entry opportunity. Regions have opportunities in areas not covered.

Market Share. Market Share opportunities through representatives and mix of products suitable for the region.

Sales team Number of sales representatives (from 23 to 44)

Management

Team Reformulation

Increase number of showrooms (from 12 to 20) per collection

Logistics Change of logistics operators (regions N/NE)

Productivity Service model review by geographic area

20

E-COMMERCE

E-commerce Growth plan enabled by new platform

Implementation of SAP/Hybris plataform concluded in 3Q15 for 5 webstores Robuster platform More stable Unified checkout

Greater transactions capacity Including peaks, as Black Friday

Brand Experience Stores with individualized experiences by brand

New Features Search for a specific size, purchase of complete look, etc. Increase browsing time

www.hering.com.br

www.heringkids.com.br

www.puc.com.br

www.heringforyou.com.br

www.dzarm.com.br 22

Traffic acquisition

Strong investment in online environment

Conversion rate improvement Improving browsing experience Inclusion of dressed pictures and videos Activation of virtual change room

Assortment

Use the channel for product pilots Leverage information for product development

Omnichannel Other channels integration

E-commerce | Growth

Opportunity

5% of sales in the

coming years

23

Channels | Key messages

Improve SSS through POS efficient management

Refurbishments plan advances quickly in 2016

WEBSTORES

STORE NETWORK

MULTIBRAND Management Model evolutes

N/NE Plan and Qualification

Growth based on the new platform

Boost Growth

24

PRODUCT AND BRANDS

Brand management

Structures dedicated to each brand management

Edson Amaro Brand Officer

Merchandising Collection planning Style

Visual Merchandising

Communication and Marketing

Brand Management Pillars

Andrea Hering manag.

Rodrigo DZARM. Manag.

Rachel H. for you manag.

TBD Children manag.

Áureo Plan. and demand manag.

$$$

26

Product

Extended Product Approach

Product

Store

Brand

+

+

27

Product

Products as a competitive differential

What consumers takes home is the ‘value for money’

Evolutionary leap

28

Value

for money

De

sign

Product | Value for money

Product evolution through new product development model – Product Lifecycle Management (PLM)

PLM

29

2013: opportunity to increase woven fabric

We grew in woven fabric, but fell in knit

Greater differentiation

Boost technological capacity and R&D

Key to ensure brands accessibility

Exercise leadership and protagonism

Product | Knit 3.0

Opportunity in resume growth in knit without giving up the gains obtained in woven fabric

2016: knit leverage

Co

mp

any

sale

s (R

$)

30

HERING

Source: Quanti, Bain & Co Research, 2015 Note: 2015 numbers are slightly different from Hering Day 2013 numbers due to broader scope of this research.

Visited Etimulated

Recall Top of mind

% of respondents

Purchased Purchased more

frequently Favourite

brand

55%

55%

68%

61%

27%

39%

Hering | Brand strength

Brand indicators remains strong, opportunities in increasing conversion rate remains

32

Hering | Opportunities

Product, product, product Good value in all price ranges Better experience in stores

Combination of Initiatives in Product and Store – P&S

33

Children Fashion

PUC E HERING KIDS

Children I Where are we?

Different actions taken to ensure product differentiation (extended view) for each brand – branding, style guide and new communications strategy.

Good results obtained in 2015 SSS growth in all 2015 quarters

Transition team made in 2015 – positive effects expected from Autumn/16 collection on

Building competitive advantage from focus on product

35

Children I Opportunities

SSS growth from product developments

Adjustments in distribution network,

with possible stores closing

Sustain growth based on the propper value proposition

Opportunities in network expansion

in several geographies

Market share gain through combined strategy between brands and new segmentation model

Store Network

Multibrand

36

HERING FOR YOU

Hering for you I Brand proposition

Line for sports and casual sport fashion for the daily routine

FITNESS • Essential clothing for contemporary woman who needs to be beautiful and well dressed without giving up comfort

• A versatile and timeless closet, which goes from Saturday afternoon walk to a working meeting

Panties and bras with comfortable modeling

LINGERIE

Pajamas, sweatshirts and accessories to sleep and relax

PAJAMA

Everything for the beach and swimming pools: bikinis, swimsuits and accessories

BEACH

Dresses contemporary women daily lives who want to be beautiful and well dressed without giving up comfort

38

Three owned stores pilot in relevant malls in SP

Present in multibrand, at 4,000 sales point. Exclusive representatives network for the brand

Good feedback among opinion-makers and consumers

Hering for you I Where are we?

Brand launched in 2014 and still maturing

Female brand. Values the woman and her times.

Communication and positioning slightly above Hering’s target

39

‘For you’ line with sales performing better than expected, with opportunities to increase line’s offering and greater supply of differentiated products (premium)

Opportunity in distribution for specialized multibrands not fully explored yet

Pilot stores still maturing: adjustments in assortment, VM and store operations in 2016 aiming future network expansion

Hering for you

Differentiated value proposition, expansion model under construction

40

DZARM.

DZARM. | Business plan

Synergy among pillars ensures consistency, focus and differentiation

Exclusive structure dedicated to the brand to support 2020 business plan Structured processes for operational efficiency gains

New Business Plan structured in four pillars: brand, product, communication and channels

BR

AN

D

PR

OD

UC

T

MK

T/C

OM

MU

NIC

ATI

ON

CH

AN

NEL

S

PEOPLE

PROCESSES

42

“

DZARM. | Brand

- Tradition and Quality - more than 20 years on the market.

- Strong awareness in Brazil’s countryside (3,500 multibrands).

DZARM. believes that every woman is powerful by nature and want to be noticed wherever she goes. DZARM. wants to help women expressing

all their power in a natural way.

- Attributes: POWER + SENSUALITY + NATURALLY

- Target: young women, Class A/B from 18 to 35 years.

New Value Proposition strengthens distinctive brand positioning

”

43

Curatorship: portfolio organized by occasions of usage: DAY, WORK and PARTY.

Total Look: complete solution.

Product differential: modeling, printing, jeans, dresses, tailor items and knit.

Price – good value for money

DZARM. | Product

(average price of R$ 140.00)

Complete portfolio for all occasions of usage with great value for money

70 : 20 : 10 COMMERCIAL COMMERCIAL WITH

INNOVATION

CONCEPTUAL

Products’ innovation model

44

4x investment increase in communication

Focus on AWARENESS + DIFFERENTIATION

Alessandra Ambrósio –2015/16 ambassador

Curatorship: D’ GIRLS – bloggers / Glamurama

Special actions: opinion-makers, fashion magazines, special events

DZARM. | Marketing and Communication

4 MEDIA PILLARS

DIGITAL MAGAZINES OOH / CINEMA TRADE (POS)

Strong 360º integrated communication plan

45

Sophisticated and Contemporary store design

Translates Sensuality and Power in finishing details,

lighting, equipment, etc.

Curatorship: organized by use occasions: Day,

Work and Party.

Stores

Pátio Higienópolis – Sep/15

Shopping Eldorado – Dec/15*

DZARM. | Channels

Flagship Stores Increase presence and brand experience in the main capitals

* Estimated 46

1st Wave – Light Franchise

Focus on cities with less than 500,000

inhabitants

"Light“ Business Model with lower set up cost

Stores with smaller surfaces (approx. 50 sq.

meters)

2nd Wave – Flagship Stores Franchise

Model under final adjustments

Focus on capitals

DZARM. | Channels

Franchise Expansion via franchise model from 2016 on to strengthen brand presence

47

Premium Boutiques

Special corners to strengthen brand presence

Multibrand Clustering

Increasing investment in POS materials in a segmented way

DZARM. | Channels

Number of clients

Sale

s (R

$)

Channel multibrand segmentation in order to deliver better brand experience and strengthen POS presence

3,500

Multibrands

48

PHSAP² PROJECT

SAP Implementation System, already used by the Company for other processes, will be extended to other areas in 1Q16

Ecosystem E-commerce

Order Entry Textile

Operation Factions Control

Production

Stores

Product Develop.

Payroll

Accounting

Financial Purchases

Fiscal

Logistics

Invocing

Ordering process

Receiving Products

50

SAP Implementation

Critical factors in the implementation: Technology, People, Processes and Transition Plan

PEOPLE AND PROCESSES TECHNOLOGY

Pré ‘Go-Live’ Supply Plan; Showcases delivery - Winter/16; Involved teams mobilization;

Post ‘Go-Live’ Resumption of goods movement; Billing resumption; Billing evolution as planned (ramp-

up)

TRANSITION PLAN

Technological solution Ready and stabilized since mar/15 Successfully tests conducted: Adversity scenarios Non core scenarios Score above recommended

Trainings Empowering people in the new technology and processes

250 Groups

800 People

90 Courses

14,800 training hours

3 ‘Go-Live’ Simulations Relation Multiplier/user

51

SAP Implementation

Assessment of SAP Company on the Project's readiness for 'GO-LIVE'

Quality Gate SAP – 05 (Realization) sheduled for Dec. 10th

Go-Live readiness comparison with SAP customer base Updated on Nov. 20th

Worst Readiness

Best Readiness

Tests

Trainings

Simulations

Change management

Business Readiness

Scope management

52

SAP Implementation

Implementation schedule foresees project closure in March/16

‘Go-Live’ with assisted operation during the month

Operation normalization, but still monitored by the project team

Project closure, with operations conducted by the company normally

Jan

Mar

Feb

53

FINANCIAL MANAGEMENT

81.7 78.6

190.0 208.7

123.7 166.8

46.3 82.0

58.5 43.5

131.1 76.6

31.2

69.6

47.5 63.5 72.2 96.6

159.3

230.3

295.9 315.7 327.0 339.9

2009 2010 2011 2012 2013 2014

CaPEX

Working Capital

FCF

FCO - Ex ResFinanceiro

Financial Management| Cash Flow

Strong cash flow despite increasing investments needs (CapEx and Working Capital) over the last years

CapEx Reduction and Inventories Normalization tends to benefit cash generation in 2016

In R$ million

CFO – Ex Fin. Result

55

Financial Management| Capital Structure Conservative capital structure appropriate to the current macroeconomic scenario

24.4

61.0

164.9 168.8

116.3

158.6

2009 2010 2011 2012 2013 2014

Net Cash In R$ million

56

Financial Management| Shareholder’s Return

Cash generation converted into shareholder’s return (interest on capital, dividends and share buyback)

81.7 78.6

190.0 208.7

123.7

166.8

19.7

82.4

171.6

261.9

138.5 157.7 24%

105% 90%

125% 112%

95%

2009 2010 2011 2012 2013 2014

FCF

Dividends + ShareBuyback

Ratio

In R$ million

57

Share Buyback

Financial Management| Priorities in 2016

Focus on results normalization and cash generation

Result

Resume revenue growth through P&S strategy- Product and Store Margins recovery - leftovers reduction and Product Fronts Strict expenses control

Cash Generation

CapEx Reduction Inventories normalization post SAP ‘go-live’

Financial Management Conservatism

58