A new way forward for Gildan

Team Presidents Choice November 10, 2013

Background

Logic Summary
Audience : Board of Directors Assumptions : Formal; friendly; action bias
primary decision maker; limited knowledge- need reminding likely will agree Goal : Decision to go ahead with 3 point programme

Gildan is a leading supplier of low-cost, quality branded basic family apparel Gildan has grown at a CAGR of 19% in the last 10 years Gildan has three sources of long-term sustainable competitive differentiated advantage (LTSCDA) Low-cost position of high quality apparel products A highly integrated and effective global supply network A strong management team focused on creating value for the customer

Complications:
Gildan has saturated its key wholesale distribution market with a 70% market share. Gildans branded apparel is still developing and is currently weaker than its competitors.

Question : How will Gildan sustain its growth in the next 5 years?

Gildan must take 3 steps to drive future growth

1. Increase penetration of printwear segment in Europe and Asia-Pacific

Gildan currently has limited penetration in Europe and Asia-Pacific printwear markets Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S. Gildan can leverage its cost advantage in producing printwear to achieve international market leader position

2. Expand licensing agreements with other brands and build Gildans own brand to grow its branded apparel segment in the U.S.
Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution Increased sales volumes achieved through 2 and Gildans own expanding brand licenses brand will result in economies of scale and higher profit margins

3. Invest in fabric R&D to develop a differentiated next generation of Gildan active wear products
Gildans vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth As innovative materials are valued in active wear, Gildans cost advantage allow it to uniquely position an innovative product line-up within this market

Executive Summary
Background: Gildan is a leading supplier of low-cost, quality branded basic family
apparel. Its competitive advantage stems from its low cost, high quality products, integrated supply chain, and strong management team. It has grown at a CAGR of 19% for the last 10 years.

Complication: Gildan has captured 70% of the US wholesale distribution market

for printwear segment with little room for further growth and its branded apparel is weaker than its competitors.

Question: How can Gildan sustain its growth in the next 5 years ? Recommendation: In order for Gildan to sustain its growth in the next 5 years, it
must
1. Increase penetration of printwear segment in Europe and Asia-Pacific. 2. Expand licensing agreements with other brands and build its own brand. 3. Invest in fabric R&D to develop a differentiated next generation of products.

BACKGROUND

Gildan is a leading supplier of low-cost quality basic apparel

BACKGROUND

Gildan has two core business segments: (1) Branded Apparel

with a diversified portfolio of company-owned and licensed brands and (2) Printwear

It is one of the largest suppliers of branded athletic, casual and

dress socks for a broad spectrum of retailers in the U.S.

It has 70% market share in the wholesale T-shirt category in the

U.S.

Gildan has consistently grown its revenues and profits

Revenue
2,500

BACKGROUND

Earnings Before Interest & Taxes (EBIT)

400 350 300 250 200 150 100 50

+12% / year
2,000

+19% / year

$millions

1,000 500

$millions

1,500

2013E

2010

2011

2009

2012

Fiscal Year

Fiscal Year

Source: RBC Capital Markets Research Gildan Activeweat Inc - July 28, 2013

2013E

2009

2010

2011

2012

Gildans stock has returned 19% CAGR over the past 10 years compared to 5.5% for the TSX

BACKGROUND

Source: Bloomberg

LTSCDA

Gildan has three sources of long-term sustainable competitive differentiated advantage (LTSCDA)

LTSCDA

Operational excellence to produce low cost high quality apparel products

A highly effective and integrated global supply network

A strong management team focused on creating value for the customer

Operational excellence to produce low cost high quality apparel products - LTSCDA 1

Lean vertically integrated manufacturing facilities improve cost efficiency

LTSCDA

High manufacturing efficiency

High gross margins achieved through owned and operated vertically-integrated manufacturing facilities Substantial CAPEX into modernizing and refurbishing existing and newly acquired manufacturing facilities to achieve cost efficiency

Economic returns

Low production cost

Operational excellence to produce low cost high quality apparel products - LTSCDA 1

Investments in technological innovations reduce costs and advance product quality

LTSCDA

Installation of biomass facilities for steam generation to lower energy costs and reduce reliance on high-cost fossil fuels
Innovations in manufacturing process and technology innovations to advance product performance via features such as moisture management and anti-microbial properties

Operational excellence to produce low cost high quality apparel products - LTSCDA 1

Gildans quality system and focus on basic fashion supports efficient production

LTSCDA

The Gildan Quality System uses quality controls to promote best practices to improve operational efficiency at all its manufacturing plants
Basic apparel allows flexibility to respond to changes in consumer preferences and demand and to achieve economies of scale

A highly effective and integrated global supply network - LTSCDA 2

Strategically-located manufacturing hubs world wide support an effective global value chain

LTSCDA

Central America and Caribbean Basin facilities support North American sales; facilities in Bangladesh support sales in Asia and Europe Benefits gained from low transportation, wage, tax rate, and trade costs

A highly integrated and effective global supply network - LTSCDA 2

The global supply network supports efficient replenishment programs with short production/delivery cycle time

LTSCDA

The Company has control over backward linkages with raw material and forward linkages into distribution and retailing to support industry leading replenish turnaround time
Worldwide distribution channel enables Gildan to better positioned to meet the service requirements of the target markets Information system investments and economies of scale support Gildans efficient supply chain organization
Component global networks Production global networks Marketing global networks

Export global networks

A highly integrated and effective global supply network LTSCDA 2

Gildan has built strong relationships with global wholesale distributors, consumer brands, and retailers to create integrated supply network

LTSCDA

Whole sale distributors in 30 countries across North America, Europe, and the AsiaPacific region Leading supplier of socks in the U.S. mass-market retail channel such as Walmart, Target, Kohls and JC Penny Supply chain partner to global consumer brands

A strong management team creating value - LTSCDA 3

Stable management team ensures leadership continuity with a high level of expertise in apparel industry

LTSCDA

Senior executives have unique talents and expertise derived

from a long tenure with the Company and apparel industry

Succession planning with a focus on promoting internally

ensures leadership continuity
Glenn J Chamandy President & CEO
Founder of Corporation 1984

Laurence G. Sellyn Executive Vice-president

Joined company 1999

Michael R. Hoffman President, International sales

Joined company 1997 Prior experience: fruit of the loom

Eric Lehman President, Retail Sales

Joined company 2008 Prior experience: major apparel brands supply chain

Benito Masi Executive Vice President

Manufacturing Joined company 1986

Peter Iliopoulos Senior Vice-President

Public and government affairs Joined company 2002

A strong management team creating value - LTSCDA 3

Management has executed key strategic initiatives to achieve Gildans market leader position in U.S. printwear
U.S. printwear market share 1998-2012

LTSCDA

Market share (%)

Years

A strong management team creating value - LTSCDA 3

Management focuses on being socially and environmentally responsible at all of its manufacturing facilities

LTSCDA

Implements industry-leading labour &

environmental practices in all of its facilities

First to report social and environmental

results on an annual basis

Gildans commitment to being socially

and environmentally responsible valued by the market

COMPLICATION

Gildan has saturated the printwear market in the U.S.

Wholesale Distributer Market Share

COMPLICATION

Other brands 30% Gildan 70%

Source: Desjardins Capital Markets Research Gildan Activeweat Inc - April 15, 2013

Gildans branded apparel is still developing and is currently weaker than its competitors
Hanes Brands Inc.

COMPLICATION

Gildan

HOW WILL GILDAN SUSTAIN ITS GROWTH OVER THE NEXT 5 YEARS?

In order to sustain future growth Gildan must focus on following three horizons

ACTION

Horizon 3

Horizon 2

Invest in R&D for innovative products

Profit

Horizon 1
Protect printwear segment via international expansion

Grow branded apparel in US market

Time

Gildan must take 3 steps to drive future growth Action 1

Action 1: Increase market penetration of printwear segment in Europe and Asia-Pacific

Gildan currently has limited penetration in Europe and Asia-Pacific printwear markets Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S.

Gildan can leverage its cost advantage in producing printwear to achieve international market leader position

Gildan must take 3 steps to drive future growth Action 1

ACTION

Gildan currently has limited market share in Europe & Asia-Pacific printwear segment
Europe printwear market share in 2013
Asia-Pacific printwear market share in 2013 Gildan 1%

Gildan 15% Other brands 99%

Other brands 85%

Total market size $US 2.5B

Total market size $US 3.2B

Gildan must take 3 steps to drive future growth Action 1

Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S.
Annual growth rate (2013) of printwear market by geography

ACTION

8%
2%

10%

5%

Gildan must take 3 steps to drive future growth Action 1

Gildan can leverage its cost advantage in producing printwear to achieve international market leader position
6
$5.00

ACTION

Comparison of Gildans average T-shirt price to its competitors

5
Average price (US$)/unit

4 3 2 1 0
$1.50

Other leading brand

Gildan

Gildan must take 3 steps to drive future growth Action 2

Action 2: Expand licensing agreements with other brands and build Gildans own brand to grow its branded apparel segment in the U.S.
Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution Increased sales volumes achieved through expanding brand licenses and Gildans own brand will result in economies of scale and higher profit margins

Gildan must take 3 steps to drive future growth Action 2

ACTION

Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share
Branded apparel sales, U.S. 2013
Gildan 6%

Other brands 94%

Total market size $US 11.5B

Gildan must take 3 steps to drive future growth Action 2

Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution

ACTION

The three pillars of Gildans advantage

Gildan must take 3 steps to drive future growth Action 2

Increased sales volumes achieved through expanding brand licenses and Gildans own brand will result in economies of scale and higher profit margins
Increasing market share versus unit cost
40%

ACTION

$1.60

35%

Market Share Percent

Average unit cost

$1.40

Average unit cost ($/item)

30%

$1.20

25%

$1.00

20%

$0.80

15%

$0.60

10%

$0.40

5%

Branded Market Share

$0.20

0% 2013 2014 2015 2016 2017 2018 2019 2020

$-

Year

Gildan must take 3 steps to drive future growth Action 3

Action 3: Invest in fabric R&D to develop a differentiated next generation of Gildan active wear products

Gildans vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth

As innovative materials are valued in active wear, Gildans cost advantage allow it to uniquely position an innovative product lineup within this market

Gildan must take 3 steps to drive future growth Action 3

Gildans vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations
The Apparel Global Value Chain

ACTION

Cotton, wool, silk, etc

Yarn (Spinning)

Fabric (weaving, knitting, finishing)

Oil, natural gas

Petrochemicals

Synthetic fibers

Production Networks

Export Networks

Marketing Networks

Component Networks
integrated and controllable

Gildan must take 3 steps to drive future growth Action 3

Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth

ACTION

Performance Activewear
250 Market Size ($ bn) 240 230 220

+7.5% / year

210
200 190 2010 2011 Year

2012

$US 244B

Gildan must take 3 steps to drive future growth Action 3

As innovative materials are valued in active wear, Gildans cost advantage allow it to uniquely position an innovative product line-up within this market
Low End

ACTION

High End

Gildan Activewear: $100

Combine

(+) Multiple materials (+) High innovation, margin (+) Mass market (+) Value priced

Combine

MEC Tight: $35

(-) Low innovation (-) Low margin (+) Low price (+) Mass market

Castelli Tight: $355

(+) High innovation (+) High margin (-) High cost (-) Niche market

Valued

FINANCIAL SUMMARY

Gildan share price is expected to grow at 10.5% CAGR over the next 5 years based on the recommendation assumptions
Projected Financials ($ mm)
$1,600.00

North American Printwear

Assumptions

$1,400.00

Increase in market share

Branded Wear

$1,200.00

Total $mm

$1,000.00

& annual international market growth modeled at 15% overall in next 5 years

$800.00

Branded apparel growing

EBITDA

$600.00

at 5% over the next 5 years

$400.00

A YoY growth rate of 5%

for CoGS
International Printwear

$200.00

A constant 11x EBITDA

multiple for the share price

$2013 2014 2015 2016 2017

Year