CONFERENCE CALL. (only in Portuguese) Date: May 14 th, at 9 am BRT/ 8 am US ET/ 1 pm London. Phone: Dial-in Brazil:

Transcription

1 CONFERENCE CALL (only in Portuguese) Date: May 14 th, 2018 at 9 am BRT/ 8 am US ET/ 1 pm London Phone: Dial-in Brazil: Code: Alpargatas Presentation: Speakers: Márcio Utsch CEO Fabio Leite CFO fabiols@alpargatas.com.br jsalvio@alpargatas.com.br biehl@alpargatas.com.br pbueno@alpargatas.com.br 1

2 FIRST QUARTER 2018 PERFORMANCE PRESS RELEASE 1Q18 R$ million 1Q18 1Q17 Var. NET REVENUE % BRAZIL % SANDALS INTERNATIONAL % ARGENTINA % GROSS PROFIT % Gross margin 45.3% 43.4% 1.9 pp BRAZIL % Margin 46.1% 41.6% 4.5 pp SANDALS INTERNATIONAL % Margin 65.0% 63.7% 1.3 pp ARGENTINA % Margin 19.0% 24.1% -5.1 pp EBITDA (1) % EBITDA margin (1) 18.7% 30.7% pp BRAZIL % Margin 14.2% 43.2% pp SANDALS INTERNATIONAL % Margin 23.5% 27.1% -3.6 pp ARGENTINA R$ 50.3 mm Margin 30.6% -2.8% 33.4 pp Non recurring charges (1) % Recurring EBITDA % Recurring EBITDA margin 14.3% 11.4% 2.9 pp CONSOLIDATED NET INCOME (FROM CONTINUING OPERATIONS) % Net margin 12.5% 22.5% pp NET RESULT FROM DISCONTINUED OPERATIONS R$ 1.7 mm CONSOLIDATED NET INCOME % Net margin 12.5% 22.3% -9.8 pp (1) In the first quarters of 2017 and 2018 EBITDA was impacted by non-recurring items. In 1Q17, there was a reversal of the tax provision related to the exclusion of ICMS from the COFINS calculation base in Brazil. In 1Q18, there was a sale of real estate in Argentina. 2

3 In the first quarter of 2018, worthy of note in Alpargatas results was the strong performance in Brazil, where net revenue increased by 22.9% as a result of revenue growth in all businesses, in particular Sandals. Havaianas and Dupé sales volume exceeded the 1Q17 figure by 33.1% or 6.8%, if the sale of the 8.8 million pairs brought forward to 4Q16 is added to the number sold in 1Q17. As the Sandals business increased its share in revenue and showed increased profitability, the gross margin in Brazil was 4.5 percentage points higher than in 1Q17. Recurring EBITDA in Brazil increased by 175.0% (discounting non-recurring effects, such as the exclusion of ICMS tax from the COFINS calculation base in 1Q17). In Sandals International, there was a reduction in revenues in foreign currencies in most regions, with the exception of LATAM, due to the decreases in volumes. Gross margin was 1.3 percentage point higher. This was insufficient to offset the lower productivity in operating expenses, resulting in a reduction in EBITDA margin. In Argentina, the positive variation of 19.0% in revenue in pesos was below local inflation. Gross margin dropped 5.1 percentage points due to the impact of lower manufacturing efficiency in production costs. Discounting the effects of non-recurring items, EBITDA margin in Argentina was down 4.2 percentage points. In comparison with 1Q17, the variations in the main consolidated indicators for 1Q18 were as follows: Net revenue: R$ million, up 11.7%. Gross profit: R$ million, an increase of 16.7%. At 45.3%, gross margin was 1.9 percentage point higher. EBITDA: R$ million, 31.8% lower, with a margin of 18.7%. Discounting the impact of nonrecurring items in both quarters, the consolidating recurring EBITDA increased by 40.3% and margin was 2.9 percentage points higher. Net income: R$ million, 37.2% lower, with a margin of 12.5%, impacted by non-recurring items in Brazil and Argentina. Operating cash generation: R$ million in the 12 months ended on March 31, In the following comments, the variations for 1Q18 refer to the 1Q17 numbers. 1. SALES VOLUME Sandals and Havaianas Extension Products Thousand pairs/pieces 1Q18 1Q17 Var. SANDALS 54,541 44, % DOMESTIC MARKET 47,391 35, % INTERNATIONAL MARKETS 7,150 9, % NON-SANDALS PRODUCTS % DOMESTIC MARKET % INTERNATIONAL MARKETS % TOTAL 54,996 45, % DOMESTIC MARKET 47,672 35, % INTERNATIONAL MARKETS 7,324 9, % 3

4 In Brazil, the growth in sell out in the main indirect channel customers (wholesalers and distributors) at the beginning of this year drove the sell in for sandals, which increased 33.1% or 6.8%, if the sale of the 8.8 million pairs brought forward to 4Q16 is added to the number sold in 1Q17. The volume of Havaianas brand extension products was higher due to a review of the product portfolio and the readjustment of prices. In the overseas market, the LATAM region showed a 9.5% increase in sandals sales volume. In the other regions, sales volume was lower due to diverse factors: Lower exports to some distributors served by the EMEA operation; Review of distribution strategy in the USA and; Elevated stock levels at distributors in certain countries in the APAC region. Sporting goods and Textiles Thousand pairs/pieces 1Q18 1Q17 Var. FOOTWEAR 2,422 1, % BRAZIL % ARGENTINA 1,428 1, % APPAREL % BRAZIL % ARGENTINA % TOTAL 3,096 2, % BRAZIL 1, % ARGENTINA 1,878 1, % TEXTILE (km) 1Q18 1Q17 Var. ARGENTINA 2,579 3, % Mizuno increased its sports footwear sales volume due to the renewal of the basic and performance lines. In addition to the new products in traditional footwear, there was also a greater number of models in the new collection, which helped to drive sales. In Argentina, sports footwear sales volume continued to rise with Topper imports, which, as commented in other reports, has enabled the brand to meet growing demand for higher added value products. A sourcing project is being executed in Alpargatas Argentina aimed optimizing the balance between local production and imports, which should improve margins. The promotions from the last collection also contributed to the increase in the volume of footwear sold. Osklen Thousand pairs/pieces 1Q18 1Q17 Var. (footwear, apparel and accessories) % Osklen product volume increased due to strong performance in the multibrand channel. 4

5 2. NET REVENUE R$ million 1Q18 1Q17 Var. NET REVENUE % BRAZIL % SANDALS INTERNATIONAL % ARGENTINA % The increase in Havaianas, Mizuno and Osklen revenues was due to growth in sales volume and, for sandals, also to higher average prices, resulting in an increase in net revenue in Brazil. In Sandals International, net revenue in reais benefited from the appreciation of the dollar and the euro, but even so was below 1Q17 because of the drop in revenues in foreign currencies in most regions. In EMEA, revenue was impacted by the postponement of billing from March to April for some customers in the multibrand channel. In the USA and APAC, average prices increased but did not offset the decreases in volume. In LATAM, the higher volume and average prices benefited the region s net revenue. In Argentina, revenue in pesos grew 19.0%, due mainly to the performance of the Footwear business. In reais, the revenue was lower because of the 17.9% appreciation of the real against the peso (compared with 1Q17). In the quarter, the growth in revenues in Alpargatas retail on a same store basis was as follows: Havaianas (franchises and company-owned stores in Brazil): 2.8%. Osklen: 6.4%. CHANGE IN NET REVENUE FOREIGN CURRENCIES 1Q18 x 1Q17 EMEA - euro -18.0% USA - dollar -9.0% LATAM - dollar 35.0% APAC - dollar -47.4% 5

6 03/31/18 03/31/17 STORES FRANCHISES OWN TOTAL FRANCHISES OWN TOTAL HAVAIANAS Brazil Overseas OSKLEN Brazil Overseas MIZUNO TOPPER ARGENTINA OUTLETS Brazil Overseas TOTAL GROSS PROFIT R$ million 1Q18 1Q17 Var. GROSS PROFIT % Gross margin 45.3% 43.4% 1.9 pp BRAZIL % Margin 46.1% 41.6% 4.5 pp SANDALS INTERNATIONAL % Margin 65.0% 63.7% 1.3 pp ARGENTINA % Margin 19.0% 24.1% -5.1 pp In Brazil, gross margin was higher because the share of the Sandal s business in total revenue in Brazil evolved from 71.0%, in 1Q17 to 75.0%, in 1Q18. Moreover, there was an increase in Havaianas gross profitability due to, among other factors, the lower cost of rubber; changes in manufacturing processes and greater dilution of fixed costs. There was an increase in Sandals International gross margin because of the growth in share and gross margins of EMEA and LATAM in total overseas sandals market revenue. In Argentina, the drop in profitability continues because of lower manufacturing efficiency and increased raw material prices, in particular cotton. 4. EBITDA R$ million 1Q18 1Q17 Var. EBITDA % EBITDA margin 18.7% 30.7% pp BRAZIL % Margin 14.2% 43.2% pp SANDALS INTERNATIONAL % Margin 23.5% 27.1% -3.6 pp ARGENTINA R$ 50.3 mm Margin 30.6% -2.8% 33.4 pp 6

7 In Brazil, the growth in gross margin and the greater productivity in general and administrative expenses which corresponded to 38.2% of net revenue in Brazil in 1Q17 and 33.5% in 1Q18, benefited EBITDA margin. However it was lower than the 1Q17 margin because in this period there was net benefit of R$ million relative to the accounting for non-recurring items, worthy of note being the reversal of the tax provision on the exclusion of ICMS from the COFINS calculation base. From a recurring standpoint, growth in EBITDA was 175.0%, with an 8.0 percentage point gain in margin. In Sandals International, the gain in gross margin did not offset the low SG&A productivity resulting from the decrease in revenue and the investments in Havaianas stores in the United States and Europe, as well as the formation of the teams in the new APAC and LATAM regions. In Argentina, the sale of real estate generated non-recurring revenue of R$ 45.5 million, which benefited 1Q18 EBITDA. From the recurring standpoint, EBITDA was 58.4% lower. CALCULATION OF EBITDA - CVM 527 R$ million 1Q18 1Q17 (=) Consolidated Net Income Payment of taxes Financial Result Depreciation and Amortization Result from Discontinued Operations (=) EBITDA R$ million 1Q18 1Q17 Other non recurring revenues (expenses) Brazil Argentina Discounting the effect of other non-recurring revenues (expenses), recurring consolidated EBITDA grows 40.3% and margin increases 2.9 percentage points. R$ million 1Q18 1Q17 Var. Recurring EBITDA % Recurring EBITDA margin 14.3% 11.4% 2.9 pp 5. NET INCOME R$ million 1Q18 1Q17 Var. CONSOLIDATED NET INCOME % Net margin 12.5% 22.3% -9.8 pp Consolidated net income for the quarter totaled R$ million, with margin at 12.5%. The most significant variations in the consolidated net income for 1Q18 were: R$ 78.8 million less in EBITDA, whose variation is explained in chapter 4. Plus R$ 13.0 million in income tax, because there was a reduction in taxable income. R$ 1.8 million less with exchange variation of financial assets and liabilities and with the financial result. 7

8 Net financial position 03/31/2017 EBITDA Items with no impact on cash Working capital CAPEX Financial result Payment of taxes Exchange rate NFP before payment to shareholders Payment to shareholders Net financial position 03/31/2018 PRESS RELEASE 1Q18 CONSOLIDATED NET INCOME (CONTINUING OPERATIONS) Quarterly variation (R$ million) (115.9) 13.0 (1.8) Net income 1Q17 Recurring EBITDA Non recurring charges Income taxes Exchange rate/financial result Other Net income 1Q % Margins (% of \ net revenue) 12.5% 6. NET FINANCIAL POSITION On March 31, 2018, Alpargatas had a net financial position of R$ million, the result of a cash balance of R$ million (operating generation totaled R$ million in the 12 months ended in March 2018) and indebtedness of R$ million, with the following profile: R$ million (43.0% of the total) due in the short term, of which R$ 85.5 million in Brazilian currency. The short-term debt in foreign currency was R$ million, with a swap line for reais for R$ 32.1 million, and mainly financed working capital for the overseas subsidiaries. R$ million (57.0%) due in the long term, all of which in Brazilian currency. Operating cash generation of R$ million Net Financial Position POSIÇÃO(R$ FINANCEIRA million) LÍQUIDA (R$ milhões) (17.3) (88.1) (61.5) (36.6) (148.7) (78.7) 8

9 7. CAPITAL MARKET AND SHAREHOLDER COMPENSATION On March 31, 2018, Alpargatas preferred shares (ALPA4) were quoted at R$ 17.30, and the voting shares (ALPA3) at R$ 16.90, respectively 1.0% and 0.8% higher than on December 31, From January to March, Ibovespa appreciated by 11.7%. At the end of 1Q18, Alpargatas market cap on the B3 index was R$ 8.0 billion, 51.3% higher than at the same time in The average daily trading volume for ALPA4 in the first quarter was R$ 11.9 million, 74.0% higher than the average daily volume traded in the year ago period. In a meeting held on May 11, 2018, the Board of Directors decided to anticipate payment of interest on own equity amounting to R$ 35.3, to be paid on July 4, Added to the R$ 37.7 million from February, Alpargatas shareholder compensation now totals R$ 73.0 million in ********************* 9

10 BALANCE SHEET (in thousand reais) ASSETS 03/31/ /31/2017 LIABILITIES 03/31/ /31/2017 Current assets 2,351,174 2,194,715 Current liabilities 1,074,220 1,003,419 Cash and banks 118, ,910 Suppliers 369, ,879 Tempory cash investment 591, ,290 Loans and financing 257, ,688 Trade accounts receivable (net of provisions) 758, ,163 Debt reestructuring agreements 3,051 5,870 Inventories 749, ,463 Payroll and related charges 152, ,767 Other receivables 28,317 37,112 Reserve for contingencies 16,214 15,209 Prepaid expenses 39,018 41,965 Provision for income and social contribuition taxes 25,850 34,433 Assets held for sale - - Taxes payable 13,084 25,465 Other assets - - Interest on capital and dividends payable 135,179 37,402 Recoverable taxes 65,587 59,947 Other payable liabilities 101, ,465 Assets from discontinued operations - 15,865 Liabilities on assets from discontinued operations - 1,241 Long-term assets 232, ,593 Long-term liabilities 473, ,568 Recoverable taxes 30,776 53,263 Loans and financing 341, ,194 Deferred income and social contribuition taxes 126,468 57,718 Debt reestructuring agreements 12,938 24,387 Escrow deposits 23,937 22,335 Provision for taxes - - Other receivables 51,269 51,277 Taxes Installments - - Provision for income and social contribuition taxes 51,328 62,292 Reserve for contingencies 40,038 37,254 Other payable 27,667 24,441 Permanent Assets 1,200,262 1,354,950 Shareholders' equity 2,236,317 2,209,271 Investments 2,245 3,062 Capital 648, ,497 Property, plant and equipment 709, ,484 Capital reserves 172, ,799 Intangible 488, ,404 Treasury shares (64,248) (64,248) Profit reserves 1,554,717 1,513,070 Equity assessment (151,698) (144,490) Hedge operation - - Additional dividend - - Minority interest 76,250 83,643 TOTAL ASSETS 3,783,886 3,734,258 TOTAL LIABILITIES 3,783,886 3,734,258 Book value per share (R$)

11 INCOME STATEMENT (in thousands of Brazilian reais) 1Q18 1Q17 Net Sales 902, ,460 Cost of sales (493,249) (457,234) Gross Profit 408, ,226 gross margin 45.3% 43.4% Operating Income (Expenses) (264,829) (126,352) Selling (244,397) (220,245) General and administrative (49,890) (52,063) Management fees (4,927) (4,618) Amortization of intangible charges (8,011) (7,394) Other operating Income (expenses), net 42, ,968 EBIT - Operating Results 144, ,874 operating margin 16.0% 27.7% Financial Result (8,700) (9,529) Exchange variation (5,449) (2,891) Operating Income 129, ,454 Income and social contribution taxes (16,977) (30,016) Net Income from continuing operations 112, ,438 Net result from discontinued operations - (1,674) Consolidated net income 112, ,764 Net Income from controlling shareholder 114, ,847 Minority Interest (1,192) (6,083) EBITDA - R$ million EBITDA margin 18.7% 30.7% 11

12 CASH FLOW (in thousand reais) CASH FLOW FROM OPERATING ACTIVITIES 03/31/ /31/2017 Cash from operating activities 148,596 98,183 Net income for the period 112, ,437 Depreciation and amortization 24,820 24,074 Income (loss) from disposal/derecognition of property, plant and equips. 2,350 7,027 Equity pickup 0 0 Interest and Monetary and foreign exchange variation 9,399 11,572 Provisions for tax, civil contingencies and labor claims 5,212 3,795 Deferred income and social contribuition taxes -6,184 14,458 Suspended taxes payments Allowance (reversal of) for doubtful accounts 6,274 5,558 Provision for (reversal of) inventory losses 3,713 8,498 Amortization of charges on loans and financing -9,371-11,340 Unrealized gains/losses on derivative transactions Gain/loss in operation with derivatives 0 44 Stock option plan granted 0 0 Remeasurement adjustment - 1st acquisition Osklen 0 0 From sale of Real property 0 0 Provision for Impairment of property, plant and equipment/intangible assets Remeasurement od asset for sale 0 0 Osklen Impairment Adjustment 0 0 Net cash spent in discontinued operations 0 36,627 Changes in assets and liabilities 8,978-55,722 Trade accounts receivable 135, ,206 Inventories -63, ,604 Prepaid expenses -27,783-30,269 Taxes recoverable 2,394-29,535 Trade accounts payable -12,866-53,519 Taxes payable -14,073-8,180 Payroll and social charges 22,345 10,486 Payment of income and social contribuition taxes Other -33,127 63,306 NET CASH - OPERATING ACTIVITIES 157,574 42,461 12

13 CASH FLOW FROM INVESTING ACTIVITIES 03/31/ /31/2017 Acquisition of property, plant and equipment and intangible assets -9,804-27,115 Short-term investments -47,401-46,610 Redemption of Financial Investments 113, ,603 Receivable from sale of permanent assets 0 0 Acquisition of Investments 0 0 Initial Cash Balance of controlled company 0 0 NET CASH - INVESTING ACTIVITIES 56,781 26,878 CASH FLOW FROM FINANCING ACTIVITIES Loans and financing raised 52,662 45,115 Amortization loans and financing - Principal -191,471-47,081 Payment of dividends and interest on equity -4,917-5,554 Amortization through debt restructuring of subsidiary -4,581-1,676 Acquisition shares to be held in treasury, net 0 0 NET CASH - FINANCING ACTIVITIES -148,307-9,196 Exchange gains (losses) on cash and cash equivalents 554-1,624 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 66,602 58,519 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 629, ,347 CASH AND CASH EQUIVALENTS AT END OF PERIOD 695, ,866 13