net revenue up 3.6% yoy in 2018, up 5.2% yoy in...

Results for 4Q18 and 2018 of 24

Results: 4Q18 and 2018

B3 ticker: GRND3

http://ri.grendene.com.br

Number of shares:

Common: 902,160,000

Price (Dec. 31, 2018):

R$ 8.20 per share

Market value:

R$ 7.4 billion

US$1.9 billion

Conference call

- Brazil:

Feb. 15, 2019 – 10:30 am

Connect – Brazil:

+55-11-3193-1001 or

+55-11 -2820-4001

Conference call

International:

Feb. 15, 2019 – 10:30 am

(Simultaneous translation)

Connect on:

+1-646-828-8246 (USA)

+44-20-7442-5660 (UK)

Contacts:

Francisco Schmitt

CFO & IRO

[email protected]

Telephone:

+55-54 -2109-9022

Fax:

+55-54 -2109-9991

Net revenue up 3.6% YoY in 2018,

– up 5.2% YoY in 4Q18

Sobral, February 14, 2019 – This release publishes consolidated 4Q18 and 2018 results of GRENDENE (B3: Novo Mercado – GRND3), in accordance with IFRS.

Highlights of results: 4Q18 and 2018 Main financial and economic indicators

R$ mn 4Q17 4Q18

Change %

4Q17/4Q18 2017 2018

Change %

2017–2018

Gross revenue 846.9 884.1 4.4% 2,727.7 2,825.0 3.6%

Domestic market 624.5 645.9 3.4% 2,106.6 2,168.0 2.9%

Exports 222.4 238.2 7.1% 621.1 657.0 5.8%

Net revenue 705.4 742.4 5.2% 2,252.0 2,333.4 3.6%

COGS (338.6) (367.7) 8.6% (1,151.2) (1,227.3) 6.6%

Gross profit 366.8 374.7 2.2% 1,100.8 1,106.1 0.5%

Operational expenses (179.6) (196.8) 9.6% (635.2) (649.1) 2.2%

Ebit 187.2 177.9 (5.0%) 465.6 457.0 (1.9%)

Ebitda 202.8 194.6 (4.0%) 526.2 522.7 (0.7%)

Net fin. rev. (exp.) 46.7 57.4 23.0% 238.5 158.9 (33.4%)

Net profit 250.5 251.3 0.3% 660.9 585.5 (11.4%)

Profit per share (R$) 0.2777 0.2790 0.5% 0.7328 0.6501 (11.3%)

Volume (mm pairs) 55.0 55.6 1.1% 171.4 173.0 1.0%

Domestic market 39.0 41.5 6.5% 126.4 132.5 4.9%

Exports 16.0 14.1 (12.0%) 45.0 40.5 (9.9%)

Gross revenue per pair (R$) 15.41 15.91 3.2% 15.92 16.33 2.6%

Domestic market 16.03 15.56 (2.9%) 16.67 16.36 (1.9%)

Exports 13.90 16.93 21.8% 13.81 16.22 17.5%

Margins % 4Q17 4Q18 Change

p.p. 2017 2018 Change

p.p.

Gross 52.0% 50.5% (1.5) 48.9% 47.4% (1.5)

Ebit 26.5% 24.0% (2.5) 20.7% 19.6% (1.1)

Ebitda 28.7% 26.2% (2.5) 23.4% 22.4% (1.0)

Net 35.5% 33.9% (1.6) 29.3% 25.1% (4.2)

Highlights, 2018 vs. 2017:

Net revenue: Up 3.6% YoY.

Net profit: R$ 585.5 million (11.4% below 2018).

Ebit: R$ 457.0 mn – down 1.9% YoY.

All margins: Lower.

Volume of pairs: Up 1.0% YoY, at 173.0 million.

Dividends and Interest on Equity for 2018: R$ 315.1mn

R$ 143.4mn distributed for 4Q: Shares trade ex-dividend on April 24 – payment starts May 8,

2019.

Leader in exports: Grendene maintains leadership in Brazilian footwear exports for the 16th year

running – exporting 35.7% of all Brazilian footwear exported in 2018.


Management discussion and analysis

Gross revenue, Net revenue and Volumes

The domestic market showed a timid improvement in 4Q18. As we had expected sales were good on Children’s Day (October 12), and were reasonable on Black Friday and at Christmas. Our perception was that retailers reduced their inventories, which they had increased in the middle of the year.

Our sales in the domestic market were up 6.5% in 4Q18 by volume of pairs sold, and we estimate that this was higher than the growth in demand – i.e. that we increased our market share. The good news is that, according to our perception, sales growth returned in the domestic Brazilian footwear market in 4Q18 – when compared to 4Q17.

In 4Q18, as had happened in 3Q18, there was a strong positive impact from the exchange rate, of R$ 35.2mn – as shown in the chart below – and which can also be seen in the increase in unit revenue in Reais per pair exported, of 21.8%, compared to an increase in dollar terms of only 3.7%. The higher average revenue per pair in US dollars – US$ 4.44 in 4Q18, compared to USD$ 4.28 in 4Q17 – was mainly due to the mix effect caused by lower exports of the more basic models, especially to Latin America, which also explains the fall in the volume of pairs exported from 16.0 million in 4Q17 to 14.1 million m in 4Q18. In this quarter, as well as the difficulties that we have been reporting in exports to Argentina, Venezuela and Bolivia, we also faced a fall in exports to Paraguay, and a stoppage on exports to Ecuador (resumed in 2019), due to a commercial dispute with Brazil.

The combination of volume of pairs sold in the domestic market 6.5% higher, even though at average prices 2.9% lower, and the volume of pairs exported 12% lower, with export revenue per pair 21.8% higher, was enough to offset the effect of COGS 8.6% higher, and resulted in gross profit being 2.2% higher YoY in 4Q18. The growth in COGS basically reflects unit price of various inputs, as reported in the previous quarter. However, prices of the principal inputs, such as PVC resins, are now coming down and we expect this to be reflected in the first half of 2019.

Operational expenses were 9.6% higher YoY, in 4Q18, but this was basically due to higher advertising and marketing expenses which, although within the planned level for the whole year, were concentrated in the fourth quarter of this year. Internally, we analyze operational efficiency monthly and quarterly, excluding the expenses that have significant seasonal variation (taking them into account only in the annual result).

In 4Q18 financial revenues were up YoY for the first time this year: R$ 57.4mn in 4Q18, vs. R$ 46.7mn in 4Q17, contributing R$ 10.7mn more to pre-tax profit in 4Q18 than in 4Q17.

Although Brazilian footwear consumption did not grow in 2018, we increased our volume by 4.9%, with a fall of 9.9% in our volume of pairs exported – which compares to total Brazilian footwear exports 10.8% lower, by volume, YoY in the quarter. In both markets we gained market share.

In the full year of 2018 our net financial revenues were R$ 79.6mn lower. This difference was responsible for practically all of the YoY reduction in Net profit – from R$ 660.9mn in 2017 to R$ 585.5mn in 2018.

Operational cash flow in 2018 was R$ 483.8 mn. The proposed dividends represent a dividend payout (defined as {sum of dividends and Interest on Equity} divided by {profit after the legally required reserves}) of 55.5%, and a dividend yield of 4.0%. These results were achieved in spite of Financial revenue (expenses) being 33.4%, or R$ 79.6 mn, lower; and the positive affect on export revenue of a 14.5% variation in the exchange rate.

846.9 848.9884.1

40.9 (19.5) (26.7) 7.3 35.2

Grossrevenue -

4Q17

Volumeeffect - DM

Mix andgross

revenue perpair effect -

DM

Volumeeffect - EM

Mix andgross


EM

Grossrevenue

without FXeffect

FX effect -EM

Grossrevenue -

4Q18

R$ m

n

Change in gross revenue, domestic market (DM) and exports (EM) - analyzed by effect of volume, mix and gross revenue per pair


Comparison of performance with targets

Performance: CAGR (compound average growth rate), 2008–2018:

R$ mn 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CAGR

Gross revenue 1,576.0 1,819.4 1,998.6 1,831.6 2,324.5 2,711.4 2,720.3 2,631.9 2,483.0 2,727.7 2,825.0 6.0%

YoY change 15.4% 9.9% (8.4%) 26.9% 16.6% 0.3% (3.3%) (5.7%) 9.9% 3.6%

Net profit 239.4 272.2 312.4 305.4 429.0 433.5 490.2 551.2 634.5 660.9 585.5 9.4%

YoY change 13.7% 14.8% (2.2%) 40.5% 1.1% 13.1% 12.4% 15.1% 4.2% (11.4%)

R$ mn 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CAGR

Advertising exp. 107.6 116.1 127.1 138.7 147.0 163.7 169.2 148.9 125.2 125.6 141.3 2.8%

% of NOR 8.6% 8.0% 7.9% 9.4% 7.8% 7.5% 7.6% 6.8% 6.1% 5.6% 6.1%

In 2008 we published the following parameters as our targets for the 10 years – 2008 to 2018:

Compound average growth rate (CAGR) of gross revenue between 8% and 12%.

CAGR of net profit between 12% and 15%.

Objective of maintaining advertising expenses at an average of 8% to 10% of net revenue over this period.

Our aim was to give our investors our view for the long term of how the sector would develop and how Grendene would perform in this context.

2,727.7 2,741.9 2,825.0101.3 (39.9) (61.6) 14.4 83.1

Grossrevenue -

2017

Volumeeffect - DM

Mix andgross


DM

Volumeeffect - EM

Mix andgross


EM

Grossrevenue

without FXeffect

FX effect -EM

Grossrevenue -

2018

R$ m

n

Change in gross revenue, domestic market (DM) and exports (EM) - analyzed by effect of volume, mix and gross revenue per pair

1,702 1,838 1,9852,144

2,3162,501

2,7012,917

3,1503,402

1,7651,977

2,214

2,4802,777

3,111 3,484

3,902

4,370

4,895

1,374 1,515 1,576

1,8191,999

1,832

2,324

2,7112,720

2,632 2,4832,728 2,825

1000

2000

3000

4000

5000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

R$ m

n

Target - Gross revenue

Guidance 8% a.a. Guidance 12% a.a. Realized


In this period there were many economic and political changes, including the impeachment of a president of the country. In 2008, the year we first issued guidance, the world financial crisis (the ‘subprime’ crisis) exploded, initially in the US with the failure of Lehman Brothers, quickly expanding to the global economy. In Brazil there was a serious financial shock, with great losses on derivatives by many companies, the most marked examples being Sadia and Aracruz. It is true that we experienced a recovery, with the macroeconomic measures taken at the time, and Brazil’s GDP grew 7.5% in 2010 – but as from 2013 the country’s economy entered a major period of crisis, unprecedented in its scale and in the economic damage that it caused.

When we launched this guidance we had no way of imagining that we would reach a situation in which several states and municipalities of Brazil were paying their employees late – with the consequences that only an event of this type have on consumption in the country.

Unemployment rose, until 14 million Brazilians were unemployed; income fell, toppling consumers’ purchasing power, and reducing consumption for practically all industries and all categories of products. We estimate that consumption of footwear in Brazil fell by approximately 210 million pairs/year over the period 2013-18.

In this completely unexpected context we continued to pursue our targets and increase the level of our margins, and the quality of our sales. In 2008 and previous years, our Ebit margin was on the order of 10%, but it has been close to 20% since 2012. Gross margin, which reached 39% in 2011, was increased to levels between 46% and 49% in the last four years (2014-18).

However, there was no improvement in efficiency capable of offsetting the overwhelming falling consumption, and our sales were reduced from a peak of 216 million pairs in 2013 to 164 million pairs in 2016, rising to 173 million pairs in 2018. Clearly this fall of 43 million pairs/year in our production caused a profound impact on our costs and demanded redoubled efforts to compensate this effect and increase margins.

We cannot say that the exchange rate established any positive or negative trend in this period. We had moments at which the Brazilian currency was very highly valued, at R$ 1.6/US$, and moments when this rate exceeded R$ 4.0/US$. In 10 years our exports fell from 48 million pairs in 2008, reached a new peak at 55 million pairs in 2010, and declined again, to 41 million pairs, in 2018.

In this period, as we have repeatedly said, at no time did we take any decisions that would have increased our possibilities of complying with our guidance, to the detriment of our stockholders’ best interests.

We made the investments that we judged to be appropriate, not always successfully. We have invested R$ 1.5 billion in the development of our brands, and R$ 455 million in technological research and development; and we have distributed R$ 2.6 billion in dividends (including Interest on Equity).

As from 2016, as the adverse situation in the economy persisted, the chances of reaching our expected figures began to diminish and we started warning stockholders that it was unlikely they would be reached.

With the period now completed, we have indeed not reached the numbers we aimed for, as the charts above show, but we believe that in the existing economic context we have done very well, with an outstanding performance; also, investors were able to evaluate how we saw the market at the time, and how it developed in fact.

In 2008, we decided to give these estimates to the market: (a) because of the short time that Grendene had been listed; and (b) because the sector was not widely followed by analysts. For these two reasons we decided to offer a long-term vision, so that investors could have the optimum basis for a view and outlook for Grendene. Now, however, Grendene has a history of almost 15 years in which its numbers, and the adjustments to its expectations, have been monitored, and we have come to the conclusion that provision of long-term guidance is no longer strictly necessary. We will, though, continue to comment on our view of the market – leaving it to each analyst or investor to build their own forecasts.

268 300

336

377 422

472 529

593

664 743

275 317

364 419

481 554

637 732

842

968

257 261 239 272

312

305

429 434 490

551 634 661

586

200

400

600

800

1000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

R$ m

n

Target - Net profit

Guidance 12% a.a. Guidance 15% a.a. Realized


Highlights

In 2018, a total of 48 new Clube Melissa stores were opened (36 “Clube Melissa” and 12 “Mini Clube Melissa”). At the end of the year we had 311 of these stores throughout Brazil, 295 being full stores and 16 being Melissa mini-clubs (vs. 259 stores and 4 mini-clubs at the end of December 2017).

Our new “Melissa + Hello Kitty” partnership – with one of the most famous characters in the world – is gaining market space, on the brand’s footwear, in models full of style for the next season.

The Melissa Brand has launched a special line to celebrate the 90th anniversary of Mickey Mouse. This Mickey Mouse line has shoes, keyrings and purses.

The Rider brand launched a new campaign “Tipo Rider, só Rider” – promoting its slide-on model for summer 2019,

with actor and singer Nego do Borel as protagonist. The campaign has billboards with images of Nego do Borel in the main capital cities of Brazil: São Paulo, Rio de Janeiro, Recife, Fortaleza, Salvador, Belo Horizonte and Florianópolis.

In the digital environment, we have a video in the ‘flip book’ format in which the pages of the flip book are pictures of the original Rider product, in a copying machine, as it developed through its different models.

Rider joined up with the brand ÖUS and the tattoo artist Jun Matsui, for a collab. combining Jun’s aesthetic graphics with the skate universe of ÖUS. The product is available at the online stores of both Rider and ÖUS. These sandals are also being distributed in selected stores in Japan, Spain and the United States.

Melissa and the Campana Brothers launched an exclusive collab. to celebrate 15 years of partnership, which enjoyed the unprecedented participation of the NGO Arrastão. This launch was on November 13 at the Galeria Melissa in São Paulo.


The Bahian graffiti artist Ananda Nahu, famous for having painted the largest mural in Cleveland, Ohio (USA), has developed a collection for our Ipanema brand. Her work features vibrant and colored prints/ inspired by nature and the topicality of Brazil.

The brands Ipanema and Água de Coco by Liana Thomaz launched their first partnership at an event held at Casa Ipanema, Rio de Janeiro. This join-up resulted in a four-hand creation of two sandal models with timeless prints and exclusive pins with the distinctive tropical identity of the beachwear label.

The new Zaxy collection was launched at the Riachuelo in São Paulo, with one of the brand’s ambassadors, pop singer Luísa Sonza.

Among the trade fairs of this quarter we highlight our participation on November 19-21, 2018, in the eighth annual Zero Grau, at Gramado (Rio Grande de Sul) – focusing on autumn-winter 2019. This is the benchmark trade fair for Brazil’s footwear and accessories sector. There were more than 14,000 visitors, including industry players, store operators and importers, with 1,200 brands represented and 300 exhibitors.

Awards

November 20, 2018: Grendene was recognized in the ranking of the 500 Maiores do Sul, an initiative of the Amanhã group in partnership with PwC (PricewaterhouseCoopers), as being the most profitable company in the leather and footwear sector in the state.

October 2018: Grendene received the Outsystems Innovation Awards – Next Step 2018 prize in the category Corporate Transformation. The distinguishing factor in assessment for this award is recognition of focus on the principle of innovation in the world’s largest companies.


Operational results for 4Q18 and 2018 (Consolidated figures, IFRS) Gross revenue

Gross revenue was higher in 4Q18 than 4Q17 in three aspects: higher volume of pairs sold in the domestic market; a mix with higher added value in exports; and the positive effect of the exchange rate on the external market.

Total

(Domestic market + exports) 4Q17 4Q18

Change %, 4Q17–4Q18

2017 2018 Change %

2017–2017

Gross revenue (R$ mn) 846.9 884.1 4.4% 2,727.7 2,825.0 3.6%

Volume (million pairs) 55.0 55.6 1.1% 171.4 173.0 1.0%

Gross revenue per pair (R$) 15.41 15.91 3.2% 15.92 16.33 2.6%

The positive effect of the exchange rate can also be seen in the small increase in export revenue (in Reais) as percentage of total revenue, while pairs exported as a percentage of total pairs sold falls, both in the quarter and the year.

846.9 884.1

4Q17 4Q18

Gross sales revenue (R$ mn)

55.0 55.6

4Q17 4Q18

Volume (Million pairs)

15.41 15.91

4Q17 4Q18

Gross revenue per pair (R$)

73.7%

26.3%

Share of gross revenue

4Q17

Domestic market Exports

73.1%

26.9%

Share of gross revenue

4Q18


70.9%

29.1%

Share sales volume

4Q17


74.7%

25.3%

Share sales volume

4Q18



Domestic market

Domestic market 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018.

Gross revenue (R$ mn) 624.5 645.9 3.4% 2,106.6 2,168.0 2.9%

Volume (million pairs) 39.0 41.5 6.5% 126.4 132.5 4.9%

Gross revenue per pair – DM (R$) 16.03 15.56 (2.9%) 16.67 16.36 (1.9%)

2,727.7 2,825.0

2017 2018

Gross sales revenue (R$ mn)

171.4 173.0

2017 2018

Volume (million of pairs)

15.92 16.33

2017 2018


77.2%

22.8%

Share gross revenue

2017

Mercado interno Exportação

76.7%

23.3%

Share gross revenue

2018


73.8%

26.2%

Share sales volume

2017


76.6%

23.4%

Share sales volume

2018



Export market (EM)

The year-on-year increase in average gross revenue per pair exported, from US$ 4.28 in 4Q17 to US$ 4.44 in 4Q18 reflects the lower proportion of lower-priced products in the export mix (which are also the products with the highest volume). This effect reflects the fall in exports of lower-value products, especially to Latin America.

Export market 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Gross revenue (R$ mn) 222.4 238.2 7.1% 621.1 657.0 5.8%

Gross revenue (R$ mn) 68.5 62.5 (8.7%) 194.6 179.8 (7.6%)

Volume – EM (million pairs) 16.0 14.1 (12.0%) 45.0 40.5 (9.9%)

Gross revenue per pair – EM (R$) 13.90 16.93 21.8% 13.81 16.22 17.5%

Gross revenue per pair – EM (US$) 4.28 4.44 3.7% 4.33 4.44 2.5%

624.5 645.940.9 (19.5)

Gross revenue - 4Q17 Volume effect - DM Mix and gross revenue perpair effect - DM

Gross revenue - 4Q18

R$ m

n

Change in gross revenue from domestic market - effect of volume, mix and gross revenue per pair

39.0 41.5

4Q17 4Q18

Volume - DM (million pairs)

16.03 15.56

4Q17 4Q18

Gross revenue per pair - DM (R$)

2,106.6 2,168.0101.3 (39.9)

Gross revenue - 2017 Volume effect - DM Mix and gross revenue perpair effect - DM

Gross revenue - 2018

R$ m

n

Change in gross revenue from domestic market - effect of volume, mix and gross revenue per pair

126.4 132.5

2017 2018

Volume - DM (million pairs)

16.67 16.36

2017 2018

Gross revenue per pair - DM (R$)


222.4 203.0238.2

(26.7)7.3

35.2

Gross revenue -4Q17

Volume effect -EM

Mix and grossrevenue per pair

effect - EM

Gross revenuewithout FX effect

FX effect - EM Gross revenue -4Q18

R$ m

n

Change in gross revenue from export market - effect of volume, mix and gross revenue per pair

68.562.5

(8.2)2.2

Gross revenue - 4Q17 Volume effect - EM Mix and gross revenue perpair effect - EM

Gross revenue - 4Q18

US

$ m

illi

on

Change in gross revenue from export market in US$ - effect of volume, mix and gross revenue per pair

16.0 14.1

4Q17 4Q18

Volume - EM (million pairs)

13.9016.93

4Q17 4Q18

Gross revenue per pair - EM (R$)

621.1 573.9657.0(61.6) 14.4

83.1

Gross revenue -2017

Volume effect -EM

Mix and grossrevenue per pair

effect - EM

Gross revenuewithout FX effect

FX effect - EM Gross revenue -2018

R$ m

n

Change in gross revenue from export market - effect of volume, mix and gross revenue per pair

194.6 179.8(19.3) 4.5

Gross revenue - 2017 Volume effect - EM Mix and gross revenue perpair effect - EM

Gross revenue - 2018

US

$ m

ilh

õe

s

Change in gross revenue from export market in US$ - effect of volume, mix and gross revenue per pair


Data from the trade ministry, Secex and Abicalçados show Brazilian footwear exports in 2018 as being: 0.2% higher in average price per pair than in 2017 in US dollars; 10.5% lower in revenue in dollars; and 10.8% lower in number of pairs exported. By contrast, Grendene’s average price per pair exported was 2.5% higher in US dollars, with total export revenue in dollars 7.6% lower, and the number of pairs billed 9.9% lower. In spite of the fall in exports, Grendene's share of total Brazilian footwear exports remained significant at 35.7% in 2018 (35.4% in 2017).

Net sales revenue (R$ mn)

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Net sales revenue (R$ mn) 705.4 742.4 5.2% 2,252.0 2,333.4 3.6%

Cost of goods sold

COGS showed a higher percentage growth (8.6%) in 4Q18 than the growth in net revenue (5.2%), reflecting an increase in costs of raw materials, and other inputs such as freight – this can be seen in the 7.5% growth in COGS/pair, and in the chart below which shows growth in the price of resins and plasticizing oils.

The prices of principal inputs, however, such as PVC resins, are already falling back, which we expect to see reflected in the first half of 2019, as indicated in the chart of costs and resins below.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

COGS 338.6 367.7 8.6% 1,151.2 1,227.3 6.6%

COGS per pair (R$) 6.16 6.62 7.5% 6.71 7.09 5.7%

45.0 40.5

2017 2018

Volume - EM (million pairs)

13.8116.22

2017 2018

Gross revenue per pair - EM (R$)

705.4 742.4

4Q17 4Q18


2,252.0 2,333.4

2017 2018


338.6 367.7

4Q17 4Q18

COGS (R$ mn)

1,151.2 1,227.3

2017 2018

COGS (R$ mn)


The chart below shows the movement in market prices (ICIS-LOR) in dollars, converted to Reais, of Grendene’s principal raw materials, and the change in Grendene’s average cost per pair, for the quarters of 2016 to 2018.

Thousands of pairs

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

34.906 33.599 44.558 50.494 37.860 33.361 45.181 54.944 40.442 32.961 44.041 55.573

Source: Petrochemicals prices from ICIS-LOR and Grendene quarterly data.

As can be seen, there was an increase in the international prices of resins and also of plasticizing oils – both effects were amplified by the weakening of the Brazilian currency, with an adverse effect on gross margin, which was 1.5 p.p. lower YoY in 4Q18 and in full-year 2018. Note that costs of input materials have their effect on COGS with a delay due to the turnover time of inventories – thus the fall in prices of inputs at the end of the year will be reflected in COGS over the course of the first half of 2019.

Gross profit

The higher volumes in the internal market in 4Q18, combined with the positive FX effect, were enough to offset the increase in costs of inputs, and falls in volumes of export, and result in gross profit 2.2% higher year-on-year.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Gross profit 366.8 374.7 2.2% 1,100.8 1,106.1 0.5%

Gross margin, % 52.0% 50.5% (1.5 p.p.) 48.9% 47.4% (1.5 p.p.)

6.16 6.62

4Q17 4Q18

COGS per pair (R$)

6.71 7.09

2017 2018

COGS per pair (R$)

7.256.60

6.09 5.97

6.95 7.216.80

6.16

7.09 7.58 7.346.62

0,00

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R$ / p

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housand /

ton.

Plastifying oils / ton. (FOB ) - R$ PVC resin / ton. (CFR) - R$ COGS per pair - R$

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

-

183.0 190.8 230.5 243.2325.9 322.2 370.6 350.8 324.4 366.8 374.8

45.1%39.7%

47.2% 48.0% 49.4% 45.9%50.0% 51.9% 51.8% 52.0% 50.5%

4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18

Gross profit (R$ mn) Gross margin (%)


Selling expenses

Grendene’s selling expenses predominantly comprise variable such as freight, licensings, commissions, advertising and marketing remaining at approximately 24% of net revenue over the period.

In 2018 we had a higher concentration of advertising expenses in 4Q18, increasing them as a percentage of net revenue in the quarter – but in the full year they were in line with the historic average.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Selling expenses 154.2 181.1 17.5% 525.8 560.7 6.6%

% of Net revenue 21.9% 24.4% 2.5 p.p. 23.3% 24.0% 0.7 p.p.

Advertising expenses

With the increase in digital advertising and less traditional advertising, expenditure has fallen as a proportion of net revenue, to below the range that we indicated in the past, of 8%–10% of net revenue.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Advertising expenses (a) 40.8 55.4 35.8% 125.6 141.3 12.5%

% of Net revenue 5.8% 7.5% 1.7 p.p. 5.6% 6.1% 0.5 p.p.

Strategic brand projects (b) 2.8 3.3 17.8% 7.6 8.5 11.1%

Total (a + b) 43.6 58.7 34.7% 133.2 149.8 12.4%

% of net sales revenue 6.2% 7.9% 1.7 p.p. 5.9% 6.4% 0.5 p.p.

518.7 566.0 651.2 640.6882.2 993.7 1,025.9 1,067.9 996.5 1,100.8 1,106.1

41.5% 38.9% 40.6% 43.3% 46.9% 45.4% 45.9% 48.5% 48.7% 48.9% 47.4%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Gross profit (R$ MM) Gross margin (%)

154.2181.1

21.9%24.4%

4Q17 4Q18

Selling expenses (R$ mn)

% of net revenue

525.8 560.7

23.3% 24.0%

2017 2018

Selling expenses (R$ mn)

% of net revenue

43.658.7

6.2%

7.9%

4Q17 4Q18

Advertising expenses (R$ mn)

% of Net revenue

133.2 149.8

5.9% 6.4%

2017 2018

Advertising expenses (R$ mn)

% of Net revenue


General and administrative (G&A) expenses

These expenses grew by less than inflation in the year, and by less than net revenue. The percentage of sales revenue, at 4%, is lower than in the previous year, but still higher than the target we are pursuing.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

G&A expenses 22.4 24.8 10.7% 91.3 92.6 1.4%

% of Net revenue 3.2% 3.3% 0.1 p.p. 4.1% 4.0% (0.1 p.p.)

Ebit and Ebitda

Ebit

Ebit (earnings before interest and taxes – operational profit before financial effects):

Grendene believes that because it has a high cash position which generates significant financial revenues, the operational profit of its activity characterized by Ebit – Earnings before interest and taxes – is a better indicator of its operational performance.

Reconciliation of Ebit and Ebitda *

R$ ’000 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Net profit 250,453 251,315 0.3% 660,929 585,530 (11.4%)

Non-controlling stockholders - - - (26) - -

Taxes on profit (16,560) (15,970) (3.6%) 43,189 30,311 (29.8%)

Net financial revenue (expenses) (46,661) (57,397) 23.0% (238,502) (158,878) (33.4%)

(Ebit) 187,232 177,948 (5.0%) 465,590 456,963 (1.9%)

Depreciation and amortization 15,560 16,649 7.0% 60,639 65,761 8.4%

Ebitda 202,792 194,597 (4.0%) 526,229 522,724 (0.7%)

Ebitda margin 26.5% 24.0% (2.5 p.p.) 20.7% 19.6% (1.1 p.p.)

Ebitda margin 28.7% 26.2% (2.5 p.p.) 23.4% 22.4% (1.0 p.p.)

* Stated as per CVM Instruction 527 of October 4, 2012.

22.4 24.8

3.2% 3.3%

4Q17 4Q18

G&A expenses (R$ mn) % of net revenue

91.3 92.6

4.1%4.0%

2017 2018

G&A expenses (R$ mn) % of net revenue

187.2 177.9

26.5%24.0%

4Q17 4Q18

Ebit (R$ mn) Ebit margin (%)

465.6 457.0

20.7% 19.6%

2017 2018

Ebit (R$ mn) Ebit margin (%)


Ebitda:

Our business is low capital-intensive: Depreciation was approximately 2.8% of net revenue in both 2017 and 2018. Grendene regularly invests an amount equivalent to its depreciation to keep its production capacity updated. It also maintains positive net cash, and has no costs of interest that need to be paid with funds from operations. As a result we believe that analyzing Ebit makes more sense as an indicator for the Company’s management.

Net financial revenue (expenses)

In 2018 Grendene reports Net financial revenues, of R$ 158.9 mn, but this was R$ 79.6 mn lower than in 2017:

R$ ’000 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Interest received from clients 607 413 (32.0%) 2,225 2,110 (5.2%)

Revenue from cash investments 32,745 32,861 0.4% 169,812 135,499 (20.2%)

Other financial revenues 1,066 3,149 195.4% 3,045 7,523 147.1%

Subtotal 34,418 36,423 5.8% 175,082 145,132 (17.1%)

Costs of financings (3,220) (2,588) (19.6%) (10,852) (10,445) (3.8%)

Cofins and PIS taxes on financial revenues (1,633) (1,674) 2.5% (8,346) (6,949) (16.7%)

Other financial expenses (998) (810) (18.8%) (3,780) (4,069) 7.6%

Subtotal (5,851) (5,072) (13.3%) (22,978) (21,463) (6.6%)

Net financial revenues (expenses) (1) 28,567 31,351 9.7% 152,104 123,669 (18.7%)

Op. revenue on FX derivatives – BM&F 7,487 26,098 248.6% 29,976 62,052 107.0%

Foreign exchange gains 8,655 11,587 33.9% 34,503 75,213 118.0%

Subtotal 16,142 37,685 133.5% 64,479 137,265 112.9%

Op. expenses on FX derivatives – BM&F (12,376) (13,252) 7.1% (19,808) (81,856) 313.2%

FX variation expense (5,647) (12,796) 126.6% (31,240) (74,008) 136.9%

Subtotal (18,023) (26,048) 44.5% (51,048) (155,864) 205.3%

Net gain (loss) on FX variations (2) (1,881) 11,637 (718.7%) 13,431 (18,599) (238.5%)

Adjustments to present value (APV) 19,975 14,409 (27.9%) 72,967 53,808 (26.3%)

Financial result – APV (3) 19,975 14,409 (27.9%) 72,967 53,808 (26.3%)

Net financial revenues: = (1) + (2) + (3) 46,661 57,397 23.0% 238,502 158,878 (33.4%)

Average interest rates (as measured by the average Selic rate) were 35.6% lower in 2018 (at 6.5% p.a.) than in 2017 (10.1% p.a.).

Net profit

Net profit in 4Q18 was practically flat from 4Q17. The Ebit R$ 9.3 mn lower was mainly due to higher advertising expenses in this quarter, but was offset by net financial revenue being R$ 10.7 mn higher.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Net profit 250.5 251.3 0.3% 660.9 585.5 (11.4%)

Net margin: 35.5% 33.9% (1.6 p.p.) 29.3% 25.1% (4.2 p.p.)

202.8 194.6

28.7%26.2%

4Q17 4Q18

Ebitda (R$ mn) Ebitda margin (%)

526.2 522.7

23.4% 22.4%

2017 2018

Ebitda (R$ mn) Ebitda margin (%)


Capex (fixed and intangible investment)

Our investments in 2018 were in: maintenance of industrial buildings and facilities; replacement of fixed assets; and acquisition of new equipment for modernization of the manufacturing plant; and in various projects to improve the company’s efficiency.

R$ mn 4Q17 4Q18 Change %, 4Q17–4Q18

2017 2018 Change %

2017–2018

Capex investment 30.4 18.0 (40.7%) 107.5 72.3 (32.8%)

We are estimating that we will invest around R$ 100 mn in 2019.

Cash generation

In 2018, cash generated by operational activities was R$ 483.8 million. This was allocated to: R$ 72.2 mn for investments in fixed and intangible assets; R$ 75.6 mn, net, in financial investments; R$ 321.3 mn in dividends and Interest on Equity; and a net accounting loss of R$ 29.1 mn on the sale of treasury shares to meet exercise of stock options. In this period the Company raised loans of net R$ 0.8 mn. The final result was a reduction of R$ 13.6 mn in the amount held in current account and very short-term cash investments. The complete cash flow is shown in Appendix IV.

Net cash and cash equivalents

Grendene continues to have a solid financial situation. Net cash (Cash, Cash equivalents and Short and Long-term financial investments, less Short and Long-term loans and financings) on Dec. 31, 2018 totaled R$ 1.8 billion, or 10.1% more than at Dec. 31, 2017 (R$ 1.7 billion).

The proportion of 12-month net revenue held in cash and cash equivalents and cash investments increased from 79.1% at Dec. 31, 2017 to 84.7% at Dec. 31, 2018.

Changes in the cash position (cash, cash equivalents and short and long-term financial investments), loans and financings and net cash are as follows:

250.5 251.3

35.5% 33.9%

4Q17 4Q18

Net profit (R$ mn) Net margin (%)

660.9 585.5

29.3%25.1%

2017 2018

Net profit (R$ mn) Net margin (%)

1,873.5 1,781.4 1,742.9 1,780.6 2,054.4 1,932.71,896.6 1,977.0

(193.3) (120.4) (106.6) (123.6) (203.5) (143.3) (98.5) (152.9)

1,680.2 1,661.0 1,636.3 1,657.01,850.9 1,789.3 1,798.1 1,824.0

(500)

500

1500

2500

31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18

R$ m

n

Loans and financings (short-term and long-term)

Cash and cash equivalents plus cash investments (short-term and long-term)

Net cash


Structure of Assets and Liabilities, and value indicators

Assets

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2018

Cash and cash equivalents plus cash investments

Working capital (excluding Cash and cash equivalents and cash investments)

Non-current assets

Liabilities: Current and non-current liabilities

Dec. 31, 2016

Dec. 31, 2017 Dec. 31, 2018

Liabilities – Financial

Liabilities – Operational

Consolidated Stockholder’s equity

Value indicators

* Dec. 31, 2018 / ** Last 12 months

53.4%

30.5%

16.1%

54.7%

29.4%

15.9%

56.6%28.6%

14.8%

3.9%6.3%

89.8%

4.0%6.3%

89.7%

2.192.84

3.84

0.65

8.20

12.62

Cash and cashequivalents pluscash investments

per share *

Net working capitalper share *

Book value pershare *

Profit per share ** Share price * Share price * / profitper share **


Dividends

Under the bylaws and the present dividend policy, established on February 13, 2014, and published in a Material Announcement on the same date, and based on the amount demonstrated below, management proposes allocation of the net profit for the 2018 business year as follows:

a) R$ 82,739,057.68 as minimum mandatory dividend, corresponding to 25% of the dividend calculation base, shown below;

b) R$ 232,337,173.04 in dividends additional to the minimum mandatory dividend.

The sum of these amounts is a total of R$ 315,086,230.72, which after deduction of the quarterly interim payments on Equity plus dividends totaling, gross, R$ 171,642,046.10, results in a balance of R$ 143,434,184.62, which the Company will pay, subject to confirmation by the Annual General Meeting that approves the accounts for the business year 2018, as from May 8, 2019 as follows:

a) R$ 130,000,000.00 as Interest on Equity (gross), which is imputed as part of and on account of the dividend (net amount R$ 110,500,000.00);

b) R$ 13,434,184.62 as complementary dividends for the 2018 business year.

The Interest on Equity, and the complementary dividends will be payable to holders of GRND3 (common shares – GRND3) in the Company’s records on April 23, 2019 (cut-off date). As from this date, the credits of Interest on Equity will be credited individually to stockholders, with retention of the income tax applicable at source, in accordance with the legislation. Thus Grendene shares (GRND3) will be traded, ex-dividend and ex-Interest on Equity, on April 24, 2019 on the B3 (São Paulo stock exchange).

Basis for the distribution of dividends1 – December 31, 2018

Grendene S.A. Holding company R$

Net profit for 2018 business year 585,529,816.72

( – ) Tax incentives reserve (237,154,837.02)

Basis for calculation of the Legal reserve 348,374,979.70

( – ) Legal reserve (17,418,748.98)

Basis for calculation of the mandatory dividend 330,956,230.72

( – ) Reserve for purchase of shares – Stock Options (15,880,000.00)

Dividends referring to the result for 2018 business year 315,076,230.72

( – ) 1st interim dividend paid in May 23, 2018 90,731,045.64

( – ) 2nd interim dividend paid in August 22, 2018 33,685,929.15

( – ) 3rd interim dividend paid in November 21, 2018 47,225,071.31

Balance of dividends payable for 2018 business year 143,434,184.62

Minimum mandatory dividend – 25% 82,739,057.68

Dividend in addition to the minimum mandatory amount for 2018 232,337,173.04

Dividends /

I.O.E. Date approved

Ex-dividend date

Date of start of payment

Gross amount R$

Gross amount per share R$

Net amount R$ Net amount

per share R$

Dividend 1 and 2 Apr. 26, 2018 May 8, 2018 May 23, 2018 90,731,045.64 0.100570903 90,731,045.64 0.100570903

Dividend 1 Jul. 26, 2018 Aug. 7, 2018 Aug. 22, 2018 33,685,929.15 0.037418208 33,685,929.15 0.037418208

Dividend 1 Oct. 25, 2018 Nov. 6, 2018 Nov. 21, 2018 47,225,071.31 0.052457439 47,225,071.31 0.052457439

Dividend 1 and 3 Feb. 14, 2019 Apr. 24, 2019 May 8, 2019 13,434,184.62 0.014922644 13,434,184.62 0.014922644

I.O.E. 1 and 3 Feb. 14, 2019 Apr. 24, 2019 May 8, 2019 130,000,000.00 0.144403530 110,500,000.00 0.122743001

Total 315,076,230.72 0.349772724 295,576,230.72 315,076,230.72

1 Dividends approved subject to ratification by AGM that considers the financial statements for the 2018 business year.

2 Value per share adjusted for the stock Split approved at the EGM of April 23, 2018.

3 Amount of dividend and interest on equity per share, subject to changes due to the quantity of treasury shares at the cut-off date (April 23, 2019). Statement of the unit value of the dividend and I.E. per share with base date Dec. 31, 2018.


(*) Payout: Dividend plus net interest on Equity, divided by net profit after constitution of the Legal reserve.

(**) Dividend yield: Dividend per share plus net interest on Equity per share, divided by weighted average price of the share in the annualized period.

Dividend policy

For 2019, we will maintain the same policy approved on February 13, 2014, which consists of distribution, as dividends, after the constitution of the Legal Reserve and the Reserve under the by-laws, of the totality of such profits as do not originate from tax incentive arrangements with individual Brazilian states. We remind you that these dividends may be paid in the form of Interest on Equity, as allowed by the legislation.

Additionally, we will maintain our policy of quarterly distribution of dividends.

Corporate events

October 25, 2018 – Notice to Stockholders: November 21, 2018: Start of payment of the third interim dividend, totaling R$ 47,225,071.31 (R$ 0.052457439 per share), for the 2018 business year. The shares traded ex-dividend on Tuesday, November 6, 2018.

February 14, 2019 – Meeting of the Board of Directors: This meeting approved: the financial information for the 4th quarter of 2018, and the financial statements for the business year 2018; allocation of the profit for the 2018 business year, and distribution of Interest on Equity, and complementary dividends, proposed by the Executive Board, and other subjects of interest to the Company.

Capital markets

In 2018 Grendene’s shares (GRND3) decreased by 9.9%, when reinvestment of the dividends is included. In the same period the Ibovespa index rose by 15.0%. Average daily trading volume in the year was R$ 7.0 mn (R$ 8.9 mn in 2017).

In this table, the number of shares traded, financial volume, and daily average trading: (These figures are adjusted to reflect the stock split approved at the EGM of April 23, 2018.)

Period No. of

trading sessions

No. of trades

Quantity of shares

Volume R$

Price R$ Average number of

shares Average volume R$

Weighted average

Close Per trade Daily Per trade Daily

2017 246 381,336 264,217,200 2,202,354,443 8.34 9.48 693 1,074,054 5,775 8,952,660

2018 245 530,403 207,637,700 1,710,201,770 8.24 8.20 391. 847,501 3,224 6,980,415

The lowest market price for GRND3 in the 52 weeks to December 31, 2018 was R$ 6.59, on October 1, 2018, and the high for the 12-month period was R$ 10.50 on February 8, 2018. The dividend yield calculated on the basis of the weighted average price of the share in 2018 was 4.0% p.a. (4.7% p.a. in 2017).

This chart shows the performance of Grendene ON shares compared to the Bovespa index (Base: Dec. 31, 2017 = 100), and daily trading volume.

R$ 0.363R$ 0.392

R$ 0.328

53.1% 55.2% 52.0%

6.3% 4.7% 4.0%

2016 2017 2018

%R

$ p

er

sh

are

Dividend per share (R$) Payout, % (*) Dividend yield, % (**)


Information in this release may contain statements about future outcomes. Such statements reflect the present perception and outlook of the Company's Executive Officers on the development of the business, based on developments in the macroeconomic environment, industry conditions, performance of the Company and financial results. Any outcomes that are different from such expectations and factors could cause the Company’s results to be materially different from current expectations. Such statements and potential outcomes thus include various risks and uncertainties.

0

20

40

60

80

100

120

140

-

10

20

30

40

50

60

70

Dec. 31, 2017 Mar. 31, 2018 Jun. 30, 2018 Sep. 30, 2018 Dec. 31, 2018

Ba

sis

10

0 =

De

c. 3

1, 2

01

7V

olu

me

, R

$ m

illi

on

Daily trading volume and GRND3 vs. Ibovespa

Daily trading volume - R$ GRND3 - with reinvest. of dividends Ibovespa


Appendix I – Consolidated gross revenue, volumes, gross revenue per pair and market share

Gross revenue

(R$ ’000) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Change % 4Q17/4Q18

2017 2018 Change % 2017/2018

Domestic market 470,696 414,185 597,202 624,466 506,142 416,469 599,522 645,866 3.4% 2,106,549 2,167,999 2.9%

Exports 150,260 121,803 126,681 222,382 157,609 127,923 133,271 238,193 7.1% 621,126 656,996 5.8%

Exports (US$) 47,809 37,901 40,040 68,478 48,588 35,479 33,668 62,516 (8.7%) 194,588 179,777 (7.6%)

Total 620,956 535,988 723,883 846,848 663,751 544,392 732,793 884,059 4.4% 2,727,675 2,824,995 3.6%

Volumes (thousand of pairs)

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Change % 4Q17/4Q18

2017 2018 Change % 2017/2018

Domestic market 26,844 24,133 36,448 38,950 29,451 24,705 36,856 41,501 6.5% 126,375 132,513 4.9%

Exports 11,016 9,228 8,733 15,994 10,991 8,256 7,185 14,072 (12.0%) 44,971 40,504 (9.9%)

Total 37,860 33,361 45,181 54,944 40,442 32,961 44,041 55,573 1.1% 171,346 173,017 1.0%



2017 2018 Change % 2017/2018

Domestic market 17.53 17.16 16.39 16.03 17.19 16.86 16.27 15.56 (2.9%) 16.67 16.36 (1.9%)

Exports 13.64 13.20 14.51 13.90 14.34 15.49 18.55 16.93 21.8% 13.81 16.22 17.5%

Exports (US$) 4.34 4.11 4.59 4.28 4.42 4.30 4.69 4.44 3.7% 4.33 4.44 2.5%

Total 16.40 16.07 16.02 15.41 16.41 16.52 16.64 15.91 3.2% 15.92 16.33 2.6%

US dollar (USD 1.00 = R$)


2017 2018 Change % 2017/2018

US dollar at the end

3.1684 3.3082 3.1680 3.3080 3.3238 3.8558 4.0039 3.8748 17.1% 3.3080 3.8748 17.1%

Average US dollar 3.1429 3.2137 3.1639 3.2475 3.2438 3.6056 3.9584 3.8101 17.3% 3.1920 3.6545 14.5%

% of total gross revenue

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 2017 2018

Domestic market 75.8% 77.3% 82.5% 73.7% 76.3% 76.5% 81.8% 73.1% 77.2% 76.7%

Exports 24.2% 22.7% 17.5% 26.3% 23.7% 23.5% 18.2% 26.9% 22.8% 23.3%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

% of total volumes

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 2017 2018

Domestic market 70.9% 72.3% 80.7% 70.9% 72.8% 75.0% 83.7% 74.7% 73.8% 76.6%

Exports 29.1% 27.7% 19.3% 29.1% 27.2% 25.0% 16.3% 25.3% 26.2% 23.4%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Appendix II – Consolidated Statement of Financial Position, IFRS (R$ ’000)

Assets Dec. 31, 2017 % of total Dec. 31, 2018 % of total % of previous

Current 2,846,838 79.6% 2,930,313 75.9% 102.9%

Cash and cash equivalents 30,119 0.8% 16,562 0.4% 55.0%

Cash investments 1,537,477 43.0% 1,548,914 40.1% 100.7%

Accounts receivable from clients 850,345 23.8% 944,214 24.5% 111.0%

Inventories 279,267 7.8% 288,120 7.5% 103.2%

Tax credits 50,810 1.4% 44,361 1.1% 87.3%

Income and Social Contribution taxes recoverable 3,841 0.1% 4,852 0.1% 126.3%

Other receivables 76,828 2.1% 59,560 1.5% 77.5%

Prepaid costs and expenses 3,888 0.1% 7,870 0.2% 202.4%

Other credits 14,263 0.4% 15,860 0.4% 111.2%

Non-current 729,170 20.4% 930,443 24.1% 127.6%

Non-current assets 277,116 7.7% 475,422 12.3% 171.6%

Cash investments 213,049 6.0% 411,482 10.7% 193.1%

Escrow deposits 1,316 - 1,149 - 87.3%

Tax credits 782 - 996 - 127.4%

Deferred income tax and Social Contribution tax 54,627 1.5% 54,899 1.4% 100.5%

Other credits 7,342 0.2% 6,896 0.2% 93.9%

Investments 412 - 412 - 100.0%

Property, plant and equipment 422,361 11.8% 423,746 11.0% 100.3%

Intangible assets 29,281 0.8% 30,863 0.8% 105.4%

Total assets 3,576,008 100.0% 3,860,756 100.0% 108.0%

Liabilities and Stockholders’ equity Dec. 31, 2017 % of total Dec. 31, 2018 % of total % of previous

Current 322,074 9.0% 366,909 9.5% 113.9%

Loans and financings 89,666 2.5% 126,313 3.3% 140.9%

Suppliers 36,705 1.0% 42,095 1.1% 114.7%

Contractual obligations – Licenses 17,618 0.5% 17,192 0.4% 97.6%

Commissions payable 41,622 1.2% 45,897 1.2% 110.3%

Taxes 37,597 1.1% 34,836 0.9% 92.7%

Income tax and Social Contribution tax payable 6,425 0.2% 5,946 0.2% 92.5%

Salaries and related charges payable 59,942 1.7% 71,122 1.8% 118.7%

Provision for labor and tax risks 833 - 3,512 0.1% 421.6%

Advances from clients 31,384 0.9% 19,436 0.5% 61.9%

Other accounts payable 282 - 560 - 198.6%

Non-current 36,325 1.0% 28,805 0.7% 79.3%

Loans and financings 33,961 0.9% 26,614 0.7% 78.4%

Provision for employment-law litigation risk 452 - 531 - 117.5%

Other debits 1,912 0.1% 1,660 - 86.8%

Stockholders’ equity 3,217,609 90.0% 3,465,042 89.8% 107.7%

Share capital 1,231,302 34.4% 1,231,302 31.9% 100.0%

Capital reserves 8,385 0.2% 9,109 0.2% 108.6%

Shares in treasury (134) - (15,565) (0.4%) 11,615.7%

Profit reserves 1,965,609 55.0% 2,222,040 57.6% 113.0%

Other comprehensive income 12,447 0.3% 18,156 0.5% 145.9%

Total liabilities and Stockholders’ equity 3,576,008 100.0% 3,860,756 100.0% 108.0%


Appendix III – Consolidated Profit and Loss account (R$ ’000)

R$ ’000 4Q17 % of net revenue

4Q18 % of net revenue

Change %

4Q17 / 4Q18

Domestic market 624,466 88.5% 645,866 87.0% 3.4%

Exports 222,382 31.5% 238,193 32.1% 7.1%

Gross revenue from sales and services 846,848 120.1% 884,059 119.1% 4.4%

Sales returns and sales taxes (110,236) (15.6%) (110,123) (14.8%) (0.1%)

Discounts given to clients (31,223) (4.4%) (31,516) (4.2%) 0.9%

Deductions from sales (141,459) (20.1%) (141,639) (19.1%) 0.1%

Net sales revenue 705,389 100.0% 742,420 100.0% 5.2%

Cost of goods sold (338,541) (48.0%) (367,659) (49.5%) 8.6%

Gross profit 366,848 52.0% 374,761 50.5% 2.2%

Operational revenues (expenses) (179,616) (25.5%) (196,813) (26.5%) 9.6%

Selling expenses (154,181) (21.9%) (181,110) (24.4%) 17.5%

G&A (22,402) (3.2%) (24,806) (3.3%) 10.7%

Other operational revenues 10,616 1.5% 17,277 2.3% 62.7%

Other operational expenses (13,649) (1.9%) (8,174) (1.1%) (40.1%)

Profit before fin. rev. (exp.) and taxes (Ebit) 187,232 26.5% 177,948 24.0% (5.0%)

Financial revenues 70,535 10.0% 88,517 11.9% 25.5%

Financial expenses (23,874) (3.4%) (31,120) (4.2%) 30.4%

Net financial revenue (expenses) 46,661 6.6% 57,397 7.7% 23.0%

Pretax profit 233,893 33.2% 235,345 31.7% 0.6%

Income and Social Contribution tax:

Current (28,285) (4.0%) (28,420) (3.8%) 0.5%

Deferred 44,845 6.4% 44,390 6.0% (1.0%)

Net profit for the period 250,453 35.5% 251,315 33.9% 0.3%

Depreciation and amortization 15,560 2.2% 16,649 2.2% 7.0%

Ebitda 202,792 28.7% 194,597 26.2% (4.0%)

R$ ’000 2017 % of net revenue

2018 % of net revenue

Change %

2017 / 2018

Domestic market 2,106,549 93.5% 2,167,999 92.9% 2.9%

Exports 621,126 27.6% 656,996 28.2% 5.8%

Gross revenue from sales and services 2,727,675 121.1% 2,824,995 121.1% 3.6%

Sales returns and sales taxes (372,621) (16.5%) (385,282) (16.5%) 3.4%

Discounts given to clients (103,082) (4.6%) (106,261) (4.6%) 3.1%

Deductions from sales (475,703) (21.1%) (491,543) (21.1%) 3.3%

Net sales revenue 2,251,972 100.0% 2,333,452 100.0% 3.6%

Cost of goods sold (1,151,216) (51.1%) (1,227,328) (52.6%) 6.6%

Gross profit 1,100,756 48.9% 1,106,124 47.4% 0.5%

Operational revenues (expenses) (635,166) (28.2%) (649,161) (27.8%) 2.2%

Selling expenses (525,817) (23.3%) (560,749) (24.0%) 6.6%

G&A (91,343) (4.1%) (92,623) (4.0%) 1.4%

Other operational revenues 19,028 0.8% 25,788 1.1% 35.5%

Other operational expenses (37,034) (1.6%) (21,577) (0.9%) (41.7%)

Profit before fin. rev. (exp.) and taxes (Ebit) 465,590 20.7% 456,963 19.6% (1.9%)

Financial revenues 312,528 13.9% 336,205 14.4% 7.6%

Financial expenses (74,026) (3.3%) (177,327) (7.6%) 139.5%

Net financial revenue (expenses) 238,502 10.6% 158,878 6.8% (33.4%)

Pretax profit 704,092 31.3% 615,841 26.4% (12.5%)

Income and Social Contribution tax:

Current (44,106) (2.0%) (30,583) (1.3%) (30.7%)

Deferred 917 - 272 - (70.3%)

Minority interests 26 - - - (100.0%)

Net profit for the year 660,929 29.3% 585,530 25.1% (11.4%)

Depreciation and amortization 60,639 2.7% 65,761 2.8% 8.4%

Ebitda 526,229 23.4% 522,724 22.4% (0.7%)


Appendix IV – Consolidated Statement of cash flows (R$ ’000)

Statements of cash flow Dec. 31, 2017 Dec. 31, 2018

Cash flow from operating activities

Net profit for the year 660,903 585,530

Adjustments to reconcile results to cash generated by operating activities:

Depreciation and amortization 60,639 65,761

Deferred income tax and Social Contribution (695) (272)

Exchange losses on investments 7,774 -

PP&E and Intangible – residual value after write-down 12,359 6,046

Impairment of fixed assets 4,733 -

Provision for losses / Specific reversal (3,270) -

Stock option or subscription plan 6,368 6,564

Reducing accounts receivable from clients 2,993 (4,581)

Estimated losses for obsolete inventories 1,114 4,064

Provision for labor and tax risks (1,910) 2,758

Interest expenses on borrowings 3,355 1,804

Interest income on financial investments (163,876) (134,274)

Foreign exchange variations, net 5,139 29,857

595,626 563,257

Changes in assets and liabilities:

Trade receivables (92,385) (89,288)

Inventories (19,735) (12,917)

Other receivables 11,916 17,526

Trade payables (4,664) 5,390

Salaries and social security charges payable 8,445 11,180

Taxes and contributions (778) (2,761)

Income tax and social contribution payable (1,135) (479)

Advances from clients 26,787 (11,948)

Other payables 1,649 3,875

Net cash provided by operating activities 525,726 483,835

Cash flow from investing activities:

Acquisition of PP&E and intangible (107,483) (72,266)

Financial investments (3,097,100) (3,750,932)

Redemption of financial investments 2,815,398 3,527,483

Interest received 263,767 147,853

Loss on disposal of investment (46) -

Net cash used in investing activities (125,464) (147,862)

Cash flow from financing activities:

New borrowings 324,588 435,200

Repayments of borrowings (329,828) (432,830)

Interest paid (4,464) (1,530)

Dividends paid (216,737) (191,272)

Interest on Equity paid (160,000) (130,000)

Purchase of treasury shares (9,837) (35,148)

Sale of treasury shares through exercise of purchase options 5,472 6,050

Net cash used in financing activities (390,806) (349,530)

Increase (reduction) in Cash and cash equivalents 9,456 (13,557)

Statement of variation in cash and cash equivalents

At the beginning of the year 20,663 30,119

At the end of the year 30,119 16,562

Increase (reduction) in Cash and cash equivalents 9,456 (13,557)

net revenue up 3.6% yoy in 2018, up 5.2% yoy in...

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