Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Analysis

Company Seeks Synergy, Optimism High

In the midst of integrating new brands and portfolios, particularly women's apparel, the company is leveraging the strong heritage and culture of Arezzo&Co and Hering to become a powerhouse in this area. Executives were unable to provide specific EBITDA guidance but highlighted 'low-hanging fruit' synergies, particularly in footwear and apparel, expected to yield significant results. A focus on improving efficiency and franchise operations was mentioned, with gains in same-store sales of 5% or more seen as especially beneficial. The management is focusing on 2024 for realizing initial synergy potential, with longer-term strategies planned for 2025 and beyond. Throughout the discourse, there's a strong emphasis on maintaining brand independence and identity, with the overarching goal being revenue enhancement through synergies rather than cutting expenses. The executives are enthusiastic about creating a cohesive company, positioned as Latin America's largest house of brands, with potential for international licensing opportunities.

Introduction to the Merger and Brand Portfolio

The aspiring narrative begins with the recent merger designed to bring forth a powerhouse in the fashion industry, boasting an impressive clientele, employees, and a diversified brand portfolio. A thrilling aspect is the company's significant net income of BRL 753 million and a robust financial base reflected by low leverage. The diverse offering includes 34 brands and a strong presence with 559 owned stores coupled with a network of over 1,500 franchisees, all serving an 11 million-strong active client base. Investors should note this company's versatility across different segments, from luxury footwear to streetwear and a solid womenswear presence with brands like Carol Bassi and Animale, and not to forget, Hering which stands separate due to its unique franchise-based model.

Expanding and Streamlining Operations

A compelling chapter unfolds as the company focuses on streamlining its General and Administrative (G&A) Expenses to enhance operations significantly. By tapping into Hering's extensive industrial park, this organization foresees substantial value creation aimed at delivering long-term shareholder benefits. This strategic move consolidates the company's vision to become a colossal fashion brand in Latin America.

A New Governance Structure

As the company envisions a strong future, it's implementing a novel governance structure where shareholders will be entitled to 0.12% shares from Soma, as part of the incorporation into Arezzo&Co. This new arrangement promises a balanced and representative Board, safeguarding minority shareholders' interests, and hinting at a focus on long-term value creation.

The Roadmap to Synergies

Looking ahead, the management's confidence dazzles, with synergy plans well articulated, pointing to a promising horizon. By amalgamating various brands under a unified corporate identity, the company will draw on the strengths of each brand while maintaining their cultural uniqueness akin to luminaries like Balenciaga and Gucci. The vivid goal is set: to nourish a blend of autonomy and inter-brand synergies to cultivate a significant presence, not just in Brazil, but potentially on a global stage. The projected synergy benefits are anticipated to take full effect by 2025, with meticulous preparations already underway for an impactful 2024.

Earnings Call Transcript 2023-Q4

[Unknown Executive]

Good morning, everyone. How are you doing? Welcome, everyone. It's a very proud day for all of us here. We're announcing the biggest retail operation in the past 10, 12 years, very emblematic. Where we're bringing together 2 big powerhouses, big people, Alexandre and [indiscernible], 2 great friends that I truly admire, where we've been together in the past 10 days intensely working together.

Actually, the entire team has been working together with us, and a lot of things going back and forth in the operation. But you can see, from -- based on their faces that this operation was very successful. I'd like to thank [indiscernible], 2 very special people who made that happen, once again, together with the entire team from both companies that made this dream possible.

It's obvious that the operation brings on absurd advantage. It's not only just on the synergies side, but also culture and intelligence. Alexandre and [indiscernible] on to each other, very different but very similar. They are both very passionate. They will do, and they will build a long-term, long-lasting relationship. And overall, with a lot of respect and humbleness. I believe those 2 things are very important.

I'm very proud to be -- because I was invited to be a part of the Board. I've never been in external [indiscernible]. taking on this invitation because I want this company.

[Audio Gap]

down in history.

But I mentioned that I had very high goals. So you're going to have to work very hard. You're going to have to put up with me. So they are the stars today. I just wanted to welcome everyone.

[Audio Gap]

Say that I'm very proud of this union and that they will continue to [indiscernible] in history and drive entrepreneurship in Brazil and make our country even stronger. Thank you.

[Unknown Executive]

Roberto, I'd say he is our godfather, right? And when appointing him as a Board member, he was the Ambassador of this association and just [indiscernible] of transformation. Definitely, it's great to have them with us. [indiscernible] feel very confident.

I'm very confident of the culture. And I believe it was a determining factor, being able to count on cooperation of the entire team at XP in this process.

So good morning, everyone. Thank you for coming here in person. I'm sorry for the last minute invitation. It's not what we should -- what we normally do, but there was no other way.

I'd like to thank everyone who's connected remotely as well. This is a very special moment, a historical moment. February 5, almost the same date as our IPO, February 2, my father's birthday, 13 years ago.

So what we're sharing today, it goes much beyond a business combination. We are creating a new business model, a new company. This company that has come this far, the first brand created in '72 by my father, Arezzo. And during all these years, we've been adapting, transforming and evolving.

And more recently, since 2020, this company has really taken on a different path. And we're only here because Rony, back in 2020 joined us, because they believed in our dream. And so we can learn about building a brand platform. And now once again, I have the honor of having Roberto here next to me, sharing this dream that's just starting, right?

Yes, I'd like to take this opportunity to thank all the partners at the Soma Group. In 2024, in this very important event, we're here. But there is a beautiful path of the Soma Group that started back in 2010, where Marcello and [indiscernible] hand over the farm's keys in regards to the financial operation.

So as a relationship of trust -- mutual trust, [indiscernible] created our own cash generation and the first model of consolidation without major engines and then that gained traction. We had some transactions, reached the conclusion, Alexandre, that I think [indiscernible] always likes to say that the river moves towards the ocean. So I think we really add on to each other. We're very much on the same page and the long-term objectives for the company, both of us, you and I, and all the partners that the company are very much engaged in this project and want to build more and grow more.

Before we continue, I'd like to thank all our partners that have worked 24 hours a day in the [indiscernible] days. And lawyers, [indiscernible] the banks [indiscernible]. And more recently, JPMorgan, [indiscernible] Bank of America Merrill Lynch, all the that have [indiscernible], our entire team. [indiscernible], Gabriel, who worked day and night. Today, thank you all. Your work will really pay off.

About our future, we talked a lot about this topic, and all of you as [indiscernible] and maximize who invest in your...

[Audio Gap]

the company. We also want to maximize our returns. And then the most important word that [indiscernible] is synergies, synergies you receive, how we maximize this union between the 2 companies.

Obviously, we'll talk about our strategic rationale [indiscernible] main avenues of growth.

[Audio Gap]

for takeaway here to you all is that our focus [indiscernible] that already taken on the mantra on the path to [ 21 to 54. ] So it's generating long-term value.

We're here to build a legacy for Brazil. Everything that we are creating here will go through our optimization [indiscernible] categories that add on to each other and have industrial plant complex that spearheaded by [indiscernible], the experience in the channels. Some are more stronger in franchises and others in digital, the ability to internationalize Brazilian fashion and Marcello and [indiscernible] are doing that brilliantly. We'll learn from that.

So yes, we will dig into all of that, but the main takeaway is to generate long-term value [indiscernible].

We're not in a hurry. We want to [indiscernible] and exchanging best practices. We'll go through a very important practice in balancing out the processes and standards, strategic consulting that will help us. And in terms of the platform for systems, processes and logistics, make sure that this platform is well implemented so that in 2025, the additional revenues and the streamlining of our negotiations as a platform will bring on leverage in revenues, and bottom line for our company.

So the initial remarks, let's start off with the presentation now. As I just mentioned, right, Roberto? An emblematic picture of Brazil to the world. We have iconic brands, brands that generate a lot of value. Farm is already an international brand as Alexandre Birman and Schutz. And today, you are celebrating the biggest bang of Brazilian fashion, and it's the beginning of an era. We should bear that in mind.

This is a summary of the main ones. I'm sorry for the brands that still aren't here, couldn't fit on the slide. We wanted to be brief. Imagine what's behind that we do every[indiscernible], our creatives, which is [indiscernible] essential.

When we [indiscernible] they think of us as a retail brand. We are about brands. We're not retailers that buy merchandise and sale. We...

[Audio Gap]

We created an ability to [indiscernible] customers to see these brands, very much...

[Audio Gap]

57 stores.

[Audio Gap]

Fashion is more challenging. We have a strong concern with the supply chain. So in this past years, we've advanced a lot. And today, we have that strong capability of operating this, our retail -- women's retail operations with confidence. It's more complex. Margin is higher, but there's the cost to everything in life.

Yes, bringing together the agility with the margin of fashion. We didn't even consider that in the math.

Our goal, I would like you to share what you said Friday night. I was unsure if you were going to say, what is the big dream? The big dream is Latin America, but -- our big dream is something global, international.

Brazil has a difficulty in growing, so we have to increase our addressed market and grow with responsibility. We're not going to be sending money overseas. So I think that this is what we're going to center on. Increase the addressable market. And we think about Latin America, we see a high demand on the website from other countries and Latin American consuming our products on Farm Brazil's website, we're opening to admire Latin America.

So we have a market. I think our mission is to increase the addressable market so that we can continue in our growth path.

We've been generating complementary of brand channels and teams. We're going to boost our omnichannel, we have more than BRL 3 billion in revenues. Additionally, we're going to show actual gains and generating value for our shareholders and the combined company. We will provide liquidity.

Our average daily transaction is BRL 130 million, which makes us very comfortable. More figures. Most people here are analysts and investors and know well, the 2 companies combine 11 [indiscernible] EBITDA BRL 1.5 billion. Net income BRL 753 and very low leverage, and this will be one of our strengths.

The figures, in terms of employees, 21,000 employees, 34 brands, 559 owned stores. More than 1,500 franchisees, more than 21,000 [indiscernible] million multi-brand and an active client base of 11 million. This is our print. We're considered satellite stores. And these stores that are larger are anchor stores at malls. We have 15 average sized company stores in Brazil, more than 20,000 square meters in the malls, and this is what we're going to add to with our new partners.

How are we going to split up this new brand portfolio in the product categories? So our vertical in footwear and accessories. We got from luxury to street wear and casual. The brands are very well augmented with this DNA and very strong personality.

In women's apparel, we have Carol Bassi, Animale. In upscale, contemporary Farm Rio, Mara Filo and Farm, which is a different segmentation and basic and jeanswear, we have Jeans, Dzarm and Hering. From Roberto [indiscernible] we already in men's wear. We have 2 big brands [indiscernible] large market [indiscernible] market share with Reserva and with room to bring other brands. And we still [indiscernible] child wear. It's a lot. It's a very difficult [indiscernible], it's not easy, but there's a lot that we can create with the Hering to create products and leverage these brands.

This is how the company is going to be organized. We're going to share some slides for the new structure. When we break down [indiscernible], the [indiscernible] together in terms of the product profile. So our footwear brands are here. And in the past 12 months, they generated BRL 4.3 billion as of 3/2/23, and important information because digital is very important, added they have 15 million followers on Instagram.

Women's apparel, BRL 3.7 billion. We have a large number of owned stores. Maria Filo has a little bit of franchises, but we believe that for this segment and this position, we're going to study the possibility of franchising. That will depend on what will happen with the tax reform in Brazil. But these are brands that were hand-picked. They generate a lot of value. They're well-known.

I'm looking for which other brand we could have in our portfolio. The opportunities of M&A in women's apparel are plenty. It's more spread out, right? We can -- with distributing tax, I think it will be easier.

I was in a position that I was overloaded. Governance really takes up a lot of the CEOs time. So I'm going to now focus on what I'm going to do. Going to build good partnership relations, M&A that are sustainable and really bring this new partnership to this portfolio. And you can see some changes of how the company is going to be organized.

Carol Bassi obviously now is part of this vertical of women's apparel. And we did a spin-off, and Hering, since it has its own life and a product profile that is pretty much based on franchises, is now stand-alone structure. Hering, with its 774 stores, there is sub labels as listed here.

And just a comment about Hering. I think it has 2 great levers, and I think this is how we met, right? But I think both me and Alexandre see a lot of value on -- in Hering. It's a larger business. I think now the merger [indiscernible], we have some operating efficiencies, assortment to the different sizes of Hering. And on the other hand, there's a lever that Alexandre will be able to contribute greatly, which is rebranding and repositioning the brand. I think that will bring value. It will be spearheaded by [indiscernible] Hering and we're going to raise the bar and make the brand more refreshed, and with autonomy and a different focus and Roberto focuses on women's apparel, it will work well.

And now in our menswear. Our inorganic merger in 2020 under Rony Meisler. These are the brands. You can see AR&Co, 217 stores and 6 million followers on Instagram. So we have 23, 27, 32 million followers on Instagram. And we have several followers in common. We have 25 million people that follow our brands on social media.

Now speaking of the main synergies, and we're sure that it will generate long-term value for the shareholders. We talked about the evolution of the channel -- what Anderson did in the '90s was unheard of. There was never a company like Arezzo that has the know-how of developing technical products with partners, suppliers and our own plants and a lot of agility.

Our motto was always speed. [indiscernible] is different, but Brazil has the [indiscernible] from cotton to thousands of producers, and this will be mid to long term, but our main focus is to speed up the response in the supply chain.

We're very confident on -- and 2023 at Reserva.

[Audio Gap]

We've been very strong, but internationally. The fashion brands, especially luxury, is 20% to 30% of their revenues coming from footwear and accessories. So we're going to start a multi-structured journey. There are several technical difficulties, but the expertise from 100 years of Arezzo&Co will be used on these amazing [indiscernible] relevant manner. We have an opportunity in global Farm.

The United States market put high demand and due to our technical capacity, we wouldn't be able to deliver a product that was suitable to that market. I think that now in terms of design and ideas, that is very well built under [Cacia.] It's very well done by Arezzo. Yes, [indiscernible] is going to have the shoemaker Alexandre Birman on her side. And a lot of you who are part of Schutz, we're going to make a lot of new shoes.

Managing franchise channel -- managing franchise, especially for fashion, is a huge challenge. It's not two company [indiscernible]. You have usually the franchisees, an individuals that has personal issues, and we have to have a close relationship. Arezzo and Hering are the largest franchises. And with the exchange of best practices, this will strengthen us in managing franchises. And this is a very important part of the job, especially with the receivables and with the tax reform. Stores that are under the simple tax bracket. That will be an issue.

So there's a playbook to be done of franchising separations and some other brands and create huge synergy between the 2 largest fashion franchises in Brazil, Arezzo and Hering.

Optimizing G&A, we're going to streamline our operations. All of you, as of today, the largest rent/lease in malls buying [indiscernible], we have dedicated routes. Shipping is a very important part. And I think we have a lot of work to do and a lot of value to remove from here.

I love the industry, from '72 to 1991, I was just operations. Schutz also was operations, we're going to focus on using Hering's industrial park from weaving all the way to sales.

Well, with that, this is a summary. From now on, we are consolidating the biggest brand -- fashion brand platform in Latin America to offer long-term value for shareholders. The complementarity of the portfolio, we don't have cannibalism, expertise in multichannels and multi geographies and especially the digital potential.

This is the summary of the transaction. So this is a summary of the transaction. So this is already public domain, we'll call in [indiscernible] for Q&A. So [ 66% ] of the base of Arezzo, 40% Soma. This is a new company that's being born now. We will have the formal execution of integration. Roberto invited me to take on the position of spearheading this company, and he will continue to spearhead women's apparel line. So we have the shareholder agreement [indiscernible] 10-year term, and then we have the shareholder agreement.

The terms would be an incorporation of Soma into Arezzo&Co. So shareholders will receive 0.12% shares from Soma to reach that share. As referenced shareholders, Roberto and myself agree and the shareholders, we take on the commitment so that each one would elect 2 members -- Board members were actually 1 in 1 independent that will represent the minority shareholders, and we will pick the share together.

There's one point here that I'd like to mention. When Alexandre said that I invited him, that I gave him that honor. I have to say that there is a very important distribution of tasks. You can't do everything. With the Hering acquisition, we've clearly realized the time allocation. You allocate time here and there and effectively wouldn't have the correct agenda. So I did, in fact, invite Alexandre to take that on. He's a great guy to navigate all of that and take IR and governance away from me, will let me really leverage the vertical of women's fashion. We're not disputing the star role here. The focus is to generate value. And that's how we agreed here.

Long-term markup and Alexandre, myself and all partners in the company, there's something that's much above that, that's all our net worth in the company and the long term. We're really focusing on generating value for our shareholders.

So the share, after we [indiscernible] association. So Arezzo [indiscernible], for Soma, 16.45%. And then we have another block with 37.75% of the new company, other shareholders, 62%, maintaining that share in the [indiscernible].

This is a NewCo that's born now and picks away many relevant issues that's a result of 3 years of negotiation. And when we disclose and announce a deal like this, it seems we're caught by surprise. But actually, we've been talking, how many meetings? Over 15, not to mention all the phone calls, that is how we would adjust things and governance, and now we've achieved a model that's very good [indiscernible]. And it's a model that will generate more value.

So this is, for information here, so we have 4 companies that gave origin to the NewCo. These 4 companies will maintain their individual culture. They will have an intended vertical. We're inviting [ Luciana ] [indiscernible] to [indiscernible] family. She's not the founder and the only one that's not the [indiscernible]. Congratulations, Luciana. [indiscernible] independently in the legacy culture of Arezzo.

Roberto, start off with [indiscernible] style. Her photo is almost perfect. Roberto is the CEO of the Soma legacy, [indiscernible] Hering, running that important vertical that we know that we have opportunity to capture more [indiscernible] in a brilliant way that they know how to attract talent like [indiscernible] and [indiscernible] and you know how to add that, and [indiscernible] will go on to Rony, and Roberto completely focused on women's fashion and Rony Meisler, he creates value in men's apparel and lifestyle. He really knows how to do that.

And putting a new company completely independent, and I had a pleasure of talking to Fabio many times last week and yesterday at home [indiscernible], new spearhead, independently bringing on the entire legacy of that was learned with Soma and everything that Soma can do to generate brands.

So now independent with his company, with independence in AR&Co and even more in this case because we have built a platform. And then [ 4 ] [ C ] levels that will provide services to these brands. Each brand will have a position, a director of business partner. So the CEO and Operations and Logistics, CTO handling infrastructure, technology, infrastructure and digital sales. CHRO will handle people, people and management, culture, governance and sustainability and our CFO, who will look at the whole, having business partners in each one of those verticals and looking at all our financial management, market relationships and strategic management.

That's the NewCo. It will receive a name in the next 4 months. So the culture will be for NewCo. And then we have the individual cultures of Arezzo&Co, AR&Co -- excuse me, and Hering and they know how to develop their businesses. They will be independent. And NewCo will create [indiscernible], the principles, vision, mission of that huge legacy that we're creating as of today.

To conclude the presentation, this is the time line. This evening, we're celebrating the execution of the association agreement and that's what we're announcing here today. There's strong work to do with our legal team. So first half of the year of 2024, we'll have that approval in the General Shareholders' Meeting. And then first half of 2025, that's a limit date of approvals. That's on paper, we know that will happen before and the conclusion of the transaction in 2025. So we also believe that, that will be earlier.

Now I'd like to open for Q&A. I'd like to invite Rafael and Gabriel to join us. Can we get 4 chairs here, please? Roberto, let's go for it. Rony? 4 chairs please. Need another one, please.

[Unknown Executive]

Okay. We have open questions. Our assistants have microphones. How much time do we have? We have 30 minutes. Can I begin?

[Ruben Couto, analyst]

Ruben Couto from Santander. I have two quick questions. First of all, about the structuring of the offer that Arezzo was announced that it would be incorporating Soma. So I'd like to know about the expectation of premium, taking advantage of the premium over Hering, if you can give us an idea about that?

The other point, Alexandre, you mentioned the benefits in synergy was evolving the business model, improving the lead times. [indiscernible] seem easier to understand, but that first one, evolve business. Can you give some more details on that? Do you believe that would offer the company more agility in [indiscernible] products, better sales, better margin? Could you give us a more detailed summary on that point, that would be great.

[Alexandre Birman, executive]

Okay, I'll start off and then Gabriel and Rafael can answer. So thank you for your question. Thank you for being here with us.

When you have a quick response model. You lead to -- you have a lot of benefits for the business. First of all, is improving the working capital. Where you have to have less inventory overall. That's a point that we can clearly see an opportunity, especially considering that Brazil is a verticalized country, from cotton production to clothes production. So Hering is very experienced in that. And their hardware is going to be the basis of it all. But the software, which is how you connect product creation to development, to sourcing in a way that it would come out faster. That is the big thing.

And the synergies that we pointed out that are more medium and long term, it will require a lot of belief from the people, which was aligned with leadership, and through Hering, we will have that beginning because they're the most verticalized in procurement.

And then women's apparel, where you have more implications, we'll have medium- and long-term transformation. But the main brand in women's fashion, which is Farm, and shorten the time from creation to product in the store and having all of that to have full price sales, that's the process that is extremely complex, but is one of our biggest assumptions in generating long-term value for our shareholders.

[Unknown Executive]

Thank you for the question, Ruben. The structure that was assessed and developed together with our tax and legal consultants involves the incorporation of the company and not the shares. Otherwise, we would have higher taxes, income tax, and the incorporated part would have higher income tax at the base and that wouldn't be necessary because we have relevant premium that Soma is carrying from the Hering acquisition of BRL 3.6 billion. It's in the balance sheet. You've seen that. So it wouldn't really make sense to generate that cost pressure for the shareholder base on day 1.

So we decided to go for a company incorporation and so we started off with operations, less operational impact and Arezzo has heavier operations because it has more business and companies in it. And in addition, there's a tax issue with interest on own capital. And we can -- and we can't forget that we can adjust that also and that doesn't affect cash generation in considering the premium.

The net worth is higher in Arezzo&Co, it's higher, so it's going to lead to interest on own capital that also helps us in these main movements.

[Unknown Analyst]

Congratulations on the transaction. My question is about governance and alignment. Apparently, you've advanced a lot. 15 meetings, many phone calls to understand because there are 2 houses of brands but with -- you have different characteristics, [indiscernible] characteristics and Alexandre's and many leaders in the verticals. So I'd like to understand how the vertical heads are in line and understand that -- and we also heard [indiscernible] would be one of the Board members and the other [indiscernible], well, that's a lot of the topics. Culture and governance, they are similar topics, but they are different.

About the culture that was a huge of ours, many conversations with founding partners. And the way we've created the brand verticals and the legacy companies where you have 2 spinoffs, one of them, AR&Co, being completely independent because it was completely -- it was together with Arezzo&Co and Hering that has more stores, more employees, so another spinoff and a very well-established culture. In spinning those off, these 4 companies, you can see the revenues that they generate in footwear BRL 4.3 billion, BRL 6.2 billion and democratic BRL 2.5 billion. They are big companies that will be completely independent in their management in all centers.

But when we have [ 4 C ] levels with a lot of experience that will support the business partner in those verticals, we are created that -- creating that. And in terms of culture that will be developed in many different hands as a new company, a new holding company. So when you talk to a Gucci employee, they work at Gucci with the Gucci culture. When you talk to the head of operations of the Kering group, they're Kering, they provide services for Balenciaga, Gucci and other brands. When you talk to a Christian Dior employee, they have their own culture, they're Dior. When you talk to someone from LVMH, they have their own culture, and that's what we're creating.

This group that will have a name in 4 months and their own culture, but in an armored way, it's respecting the individuality and culture of each one of the 4 verticals that start off with fourth. We may have a fifth, a sixth. And the way we develop this structure, this company is ready for a plug-and-play of other business verticals, and that's the most important aspect.

In terms of governments, now I'd like to ask Roberto to talk about that. He has a wide experience in society and Gabriel to give us more flavor in the agreement -- shareholder agreement, association agreement and how that will work.

[Unknown Executive]

The proposal of governance was already tested inside Soma. We have a very clear budget with the Board and the company's CEO. And with that budget, we allocate the resources according to decisions and also money for investment, for HBU with a lot of autonomy.

We have protective measures for the brands. We're going to replicate that on the verticals. We have a very clear division between where is the autonomy of that business CEO, a commitment in generating cash and results, but we're going to do that in a way that they believe in what they're doing. And each one has their own style. They can generate value in their own manner.

It's worth mentioning our talk a year ago at dinner. When we talk about the culture, we're talking about the principles, and that's the base of everything. I like that. Yes, sometimes, you have different cultures in the company, but it's important to have principles. People -- that have -- sometimes people have different principles and values from you and you can't really work together. And in an M&A process, we can identify very clearly the principles of our partners, and that's a very sensitive matter.

Any culture, I think we have to respect that each brand inside Soma, if we look at Farm's culture with Animale, they're completely different when we merged in the past and respecting a culture, but having great alignment on the goals and values of each one of the partners, we achieved results. And with this methodology, we thought about these BUs with the same criteria. Autonomy, culture of each one of the brands. Of course, Alexandre will be responsible for looking for synergies. He will be the person who will look for these synergies, but always respecting what each brand thinks it's best for itself.

As for the shareholders' agreement, I think we have 2 major points. First, an element in the long term. No one is thinking about 1, 2, 3 years ahead. We want to generate share -- value for the shareholders in the future. It's time to unlock value on a bigger company, a more structured company. So it has a combined generation of value that is great for everyone. That ends in 10 years. That's the time necessary to build this culture together and work together.

I think we learned a lot with Hering that the greatest generation of value depends on people. And this cultural integration is key for us to work on [ D+1. ] And this takes time. It's not overnight. We need time working and growing and knowing each other. So how is this designed?

In the first 5 years, 25% of the shares. And after that, between years 6 and 10, the other 75%. And why that? Because we think that after 5 years, we have unlocked the value generation. So that's how the journey is. A little bit more locked in the first 5 years and then unlocking them after year 6.

In addition to that, I think it's the time that [indiscernible] we...

[Audio Gap]

to their creators, think one of the goals that we have. Soma plus Hering, myself and [indiscernible], we're concerned on leaving a legacy, brands that are 100, 120 years old. And maybe we're in a hurry to achieve results, but we have to be diligent in creative association. It happens in time, like we have in-house the case of [indiscernible] and today, it's spearheaded by an amazing team, and they were able to be successors and the brand now is much younger than it was in the past.

Let's talk about the Board constitution, which was interesting. The parties agreed to recommend 3 -- nominate 3 members from each party to the Board and together, they chose the Board Chairman. So this will be made by the permit family block.

[Audio Gap]

story. We're going to choose the best Board members. Of course, we have rights in the contracts that we're going to look for the best way to do this.

[Unknown Analyst]

Congratulations for the merger. I wanted to ask Alexandre as the CEO of this powerhouse of brands. How do -- will you allocate your time and navigate between these parts? Roberto said that you have a huge potential to leverage the growth of the company.

[Alexandre Birman, executive]

You answered the first question with your second question. So speaking about the 4 business units. I'm going to start with the one that is more mature in terms of leadership and management. And where I worked hard in the past few years and is ready to have more and more independence. We have 6 annual meetings, 2 focusing on collection, 4 focusing on results.

So the one that I'm going to allocate less time is AR&Co. Luciana just took over Schutz. We've been talking a lot about Schutz. I'm going to spend a lot of time with her and managing the supply chain for footwear with the speed that we use. So Luciana is very well on her way, and the international partner together with Farm's expertise, we are going to exchange best practices. We didn't even put it up in the synergies. But definitely, it has a lot of value added.

Roberto?

Now coming -- going back to the legacy that he created 14 years ago together with Farm and the strategy in managing new brands and portfolio of women's apparel, and we are becoming an apprentice of [indiscernible] is that Hering. I already defined my routine with him, Roberto and I already established our agenda. So I was on the way to [indiscernible]. So it's just the land there at [indiscernible] to talk to [indiscernible] . We're going to transfer a lot of the culture that Arezzo&Co has a strong at [indiscernible] and use the legacy of Hering's family at Blumenau to be that powerhouse of apparels. So I'm going to spend a lot of time with [indiscernible], learning from him.

[Joao Pedro Soares, analyst]

Joao Soares from Citi. I would like to congratulate the entire team for the transaction. I want to explore 2 points. First, if we could try to quantify things. So when we look at the low-hanging fruits that you mapped for synergy, what will be the EBITDA? So can we work on a range or reference that we can work with, considering what is tangible.

The second point is about expansion. We have, in our minds, [indiscernible] how does this change in the short and long term?

[Unknown Executive]

About your questions, short term and we need our dream team structuring using the best governance possible.

Looking at your question about quantifying value generation, I can't give you a figure or even a range. You can make the assumptions that you find that you think that are fitting, but the first low-hanging fruit. [Foreign Language] [The interpreter apologizes, the sound isn't reaching her.]

We see Arezzo&Co as if we had license for shoe wear. For Reserva, the technical team, the entire team, logistics for shoes. Everything that was approved that is successful will be applied. We have a well structured [Foreign Language].

So we're at a very important moment, and shoes and accessories will help [indiscernible] at the moment. So that is more quantified. The numbers are very obvious [Foreign Language].

We're going to improve our efficiency. When you go to G&A, we don't have a short-term play here. We're going to do the negotiations together, and we have an incredible know-how for franchise [indiscernible] from Hering and Arezzo. [Foreign Language]

And then go through a process of refresh a franchise and [indiscernible]. And also, to give a provision that you can management and maintain the purchasing brand experience, even if it's a franchise operation. So that's a process that we just start to [indiscernible], test that out, feel how it's going to work. And legacy -- for the legacy brands that are still not in the franchisee channel.

So -- and what was mentioned before by Ruben, about bringing in a fast-response management model for apparel. That's more in the long term, and we would have synergies in that sense as of 2025. 2024 is a year to follow the plan that was established. We're not in a hurry. It's short-term levers, and we expect to launch the categories and the brands that I mentioned. So we're going to start off the low-hanging fruit and for 2024 [The interpreter apologizes as she lost the audio.]

So this has been planned for a while now. And then the cycle, without advancing to the other side, but looking at each synergy and bringing in the expertise of an entire group in quantifying, putting that on paper and testing that in our strategic committees and internal evaluation committees that we have in the company, as well as external knowledge so that we could reach today with the fact that we will have synergies. We're not going to talk about the figures yet, but we do have important synergies, and the focus of our management in all group brands would be to capture that without losing the brand independence and identity of the culture and not worsening the brand, always improving. And the best synergy will come from revenues.

The gross margin level sharing here and one little thing is important, we will save. But if we can grow 5%, the math -- everything will pay off. So anything in 5% that we will get in same-store sales will really be worth it.

Oh, you could talk about Soma and I'll let Gabriel do that.

[Unknown Executive]

I'd like to add, you mentioned that perfectly. I would only mention one thing that something is missing in the presentation as we mentioned G&A. But when you look at things, there's less value in G&A in back office admin. Obviously, you can always capture something, but that's not where the value is at. As there's an opportunity, I wouldn't say a reduction, I'd say an optimization.

So like was mentioned before. We don't want to reduce our expense allocation to sell more. We optimize to make that better. So I think of us as something significant in the company perspectives moving forward?

[Unknown Executive]

So I'm sorry, I have to be the timekeeper here. It's 12:25 BRT. Tomorrow, we [indiscernible] conference with another large bank and Roberto and IR. We're looking for a slot to be a part of that. Mainly focused in Q&A because today, the presentation was given. Our teams would be ready to talk to all of you. We have 5 more minutes before we end. And I'd really like to thank you all that are present and everybody who's attending remotely.

Any more questions?

[Unknown Attendee]

Congratulations on [indiscernible]. I'm Director at [indiscernible]. I'm a journalist, not an investor.

[Unknown Executive]

We have a session specific for the press.

[Unknown Attendee]

Okay. Could you give us a spoiler about the company name? I know that the 4 companies will remain, right? Within their own structure, framework. So is there a name for the NewCo? Are you thinking of that? Are you going to respect the 4 months?

[Unknown Executive]

Yes. We're going to take our time. I know there's a lot of anxiety, right [indiscernible]? A lot of creativity from our teams. They're very strong. We have strong creatives. We have many ideas. We're going to have a group of people here that are very creative.

And in addition to the name, more importantly, are the principles, mission, vision, values of the NewCo. So we'll be very careful in choosing that, and it'll be ready in 4 months.

Okay. I guess that's it. I'd like to conclude Roberto, would you like to make closing remarks?

[Unknown Executive]

I would like to say that all of us are very excited. We've had many meetings Marcello, [indiscernible] and talking for [indiscernible] as well, so we can have a company that's very cohesive. And very happy about all of that and always very much focused on the results. That was the main concern, the governance and culture, and I think we were able to address that very well.

Today, we have a big company, big scale, with a foot outside Brazil. Very concerned about that already because of the size of the company. And today, we're the biggest house of brands in Latin America. So we can also have licensing for Brazil of other assets and you already have that. You have Vans as a successful case. But the more we have, the bigger we will get and more trust we will have. There's some relevant players abroad that we could operate in Brazil, and they could feel confident about that.

So this is a historical moment, I'd like to thank my family, all our partners that have trusted in us this decision. Our Boards, that during all these years have worked correctly in governance. I'd like to thank you for the trust you have in us, our teams, and thank you, our investors, to say that what we are building here today will generate a lot of value for our business.

But even more than that, Roberto and I have a dream to generate value for Brazilian fashion that has been hurt for so many years. And we are committed with hundreds and thousands of brands and billions of employees in such a very important industry in Brazil. So that's our commitment so that fashion in Brazil will take the place it deserves with a lot of value. So let's do it, on the way to [ 21 54. ]

[Statements in English on this transcript were spoken by an interpreter present on the live call.]