CONFERENCE CALL. (only in Portuguese) Date: February 15 th, at 5 pm BRT/ 2 pm US ET/ 7 pm London. Phone: Dial-in Brazil:

Transcription

1 CONFERENCE CALL (only in Portuguese) Date: February 15 th, 2018 at 5 pm BRT/ 2 pm US ET/ 7 pm London Phone: Dial-in Brazil: Code: Alpargatas Presentation: Speakers: Márcio Utsch CEO Fabio Leite CFO fabiols@alpargatas.com.br jsalvio@alpargatas.com.br mweger@alpargatas.com.br pbueno@alpargatas.com.br 1

2 FOURTH QUARTER 2017 PERFORMANCE R$ million 4Q17 4Q16 Var. 4Q NET REVENUE 1, , % BRAZIL % SANDALS INTERNATIONAL % ARGENTINA % GROSS PROFIT % Gross margin 43.8% 42.7% 1.1 pp BRAZIL % Margin 48.1% 45.6% 2.5 pp SANDALS INTERNATIONAL % Margin 55.3% 56.7% -1.4 pp ARGENTINA % Margin 14.3% 20.6% -6.3 pp EBITDA % EBITDA margin 5.1% 13.7% -8.6 pp BRAZIL % Margin 6.8% 17.4% pp SANDALS INTERNATIONAL Margin 1.9% -7.9% 9.8 pp ARGENTINA Margin -1.5% 5.0% -6.5 pp Non recurring charges (1) % Recurring EBITDA % Recurring EBITDA margin 17.7% 15.7% 2.0 pp CONSOLIDATED NET INCOME (FROM CONTINUING OPERATIONS) % Net margin 4.1% 9.7% -5.6 pp NET RESULT FROM DISCONTINUED OPERATIONS R$ 0.7 mm CONSOLIDATED NET INCOME % Net margin 4.1% 9.6% -5.5 pp (1) 4Q17 EBITDA was impacted, mainly, by the non-recurring expense of R$ million from the impairment of part of the goodwill from Osklen acquisition with no cash effect. This amount does not affect the balance sheet of the subsidiary Terras de Aventura Ind. de Artigos Esportivos S.A. (Osklen). 2

3 In the fourth quarter 2017 (4Q17), Alpargatas performance was differentiated from the other quarters in the year, with a 3.5% increase in net revenue compared with 4Q16. The 4Q16 was positively impacted by the sale of 8.8 million pairs of sandals that was brought forward from January 2017 to December In the domestic market, net revenue was 1.1% higher than in 4Q16 driven by Mizuno and Osklen revenue growth. Gross margin in Brazil increased 2.5 percentage points (pp), with higher profitability in Havaianas and Mizuno. The gain in gross margin and the higher general and administrative expense productivity benefited EBITDA margin in the domestic market. However, it was not higher than in 4Q16 due to increases in other non-recurring expenses mainly resulting from the impairment of part of the goodwill from the acquisition of Osklen (expense of R$125.5 million in 4Q17), to reflect new expectations of future gains for this company. This amount represents approximately 40% of Osklen s book value for Alpargatas. In International Sandals, revenue in reais was 34.9% higher than in 4Q16. In euros, it was 17.5% higher in the same comparison, due to the increase in volume sold in the EMEA region. The 21.1% increment in dollars was due to the increases in the average price of products exported and the volume commercialized in the United States. These factors, in conjunction with the resumption of sandals sales in Argentina and the exchange variation (FX), explain the growth in reais. The gain in gross profitability in Exports did not offset the reduction in the margins in own operations, resulting in a 1.4 pp decrease in the gross margin of the international sandals businesses. Even so, strong revenue growth and greater operating expense productivity drove a positive EBITDA, with a variation of over R$ 8.2 million and a margin of 1.9%. In Argentina, the positive variation of 18.5% in revenue in pesos was below local inflation. Gross margin decreased by 6.3 pp due to the impact of lower manufacturing efficiency in production costs. The reduction in gross margin and lower operating expense productivity resulted in a 6.5 pp retraction in EBITDA margin. In comparison with 4Q16, the variations in the main consolidated indicators for 4Q17 were as follows: Net revenue: R$ 1,103.6 million, 3.5% higher. Gross profit: R$ million, increase of 6.3%. At 43.8%, gross margin was 1.1 pp higher. EBITDA: R$ 56.7 million, 61.1% lower, with a 5.1% margin. Non recurring expense of R$125.5 million, from the impairment of part of the goodwill from the Osklen acquisition, with no cash effect. Recurring EBITDA: R$ million, 16.9% higher. At 17.7%, margin was 2 pp higher. Net income: R$ 45.1 million, 56.0% lower, with a 4.1% margin. Operating cash generation: R$ million in the 12 months ended on December 31, Appreciation of preferred shares in the year: 78.6%. Shareholders compensation in the year: R$ million including interest on own equity and dividends. 3

4 Since 2Q17, the company has been disclosing P&L indicators excluding the sales cut-off effect (goods sold and not yet delivered) so that the capital market can track performance without this effect. Pro forma (without sales cut off) R$ million 4Q17 4Q16 Var. 4Q Net Revenue 1, , % Gross Profit % Gross Margin 43.7% 42.7% 1.0 pp EBITDA % EBITDA Margin 4.8% 13.0% -8.3 pp Consolidated Net Income % Net Margin 3.7% 8.8% -5.1 pp In the following comments, the 4Q17 variations are in comparison with 4Q SALES VOLUME Sandals and Havaianas Extension Products In Brazil, sandals sales volume in the second half of the year was 71.0% higher than in the first half, confirming the expected resumption in sales announced by the company. Compared with 4Q16, there was an 8.1% decrease in volume. As reported in the 1Q17 Management Report and mentioned in the results conference call for that quarter, sandals sales volume was higher by 8.8 million pairs in 4Q16, due to the anticipation of 1Q17 sales. Discounting these sales in 4Q16, the volume of sandals commercialized in the domestic market would have grown 5.3% in 4Q17. The Havaianas brand extension product volume in 4Q17 was impacted by lower consumption than in 2016, as was the case in the three quarters of this year. Thousand pairs/pieces 4Q17 4Q16 Var. 4Q SANDALS 69,589 74, % DOMESTIC MARKET 63,133 68, % INTERNATIONAL MARKETS 6,456 5, % NON-SANDALS PRODUCTS % DOMESTIC MARKET % INTERNATIONAL MARKETS % TOTAL 70,220 74, % DOMESTIC MARKET 63,717 69, % INTERNATIONAL MARKETS 6,503 5, % International sandals volume benefited from sales growth in the EMEA region and in the United States, and by the beginning of Havaianas sales to Argentina, commercialized by Alpargatas Argentina, since 4Q17. 4

5 Sporting Goods and Textiles Mizuno increased its footwear sales volume due to the higher offer of basic and performance line products, with the launch of the Sky, Horizon and Ironman models. Sports footwear volume growth was also driven by the good sales of the Prophecy 7 line. Sports apparel sales increased due to expanded distribution and a better product mix. Thousand pairs/pieces 4Q17 4Q16 Var. 4Q FOOTWEAR 2,830 2, % BRAZIL 1,398 1, % ARGENTINA 1,432 1, % APPAREL % BRAZIL % ARGENTINA TOTAL 3,622 3, % BRAZIL 1,817 1, % ARGENTINA 1,805 1, % TEXTILE (km) 4Q17 4Q16 Var. 4Q ARGENTINA 3,417 3, % In Argentina, after successive quarterly decreases, sports footwear volume increased due to larger Topper imports, which fulfilled growing demand for higher added value products. Footwear sales were also boosted by improvements in inventory management at key accounts and higher concession of discounts in retail. Osklen Thousand pairs/pieces 4Q17 4Q16 Var. 4Q (footwear, apparel and accessories) % Even with the drop in sales performance in Rio de Janeiro (due to the political-economic situation in the region), Osklen retail showed 5.0% volume growth. In contrast, the reductions in the multibrand channels and franchises led to a 4.4% decrease in total volume. 2. NET REVENUE R$ million 4Q17 4Q16 Var. 4Q NET REVENUE 1, , % BRAZIL % SANDALS INTERNATIONAL % ARGENTINA % 5

6 In Brazil, strong Mizuno growth helped drive net revenue. In Sandals International, increased sales volume in the EMEA region offset the lower average price, resulting in increased revenue in euros. Export revenue in dollars grew driven by the increase in the average price of the sandals exported as a result of a richer country mix. Furthermore, the start up of direct Havaianas sales by Alpargatas Argentina helped to increase revenues. The factors above and the FX drove the growth of R$ 27.4 million in international sandals business revenue. In Argentina, revenue in pesos grew 18.5%, due mainly to volume increase. The average price of footwear was benefited from the richer mix; however it remained below inflation due to the discounts granted. In reais, revenue was lower due to the 13.0% appreciation of the real against the peso (vs. 4Q16). The Footwear business accounted for 69.0% of 4Q17 revenue (67.0% in 4Q16), and Textiles, 31.0% (33.0% in 4Q16). STORES CHANGE IN NET REVENUE FOREIGN CURRENCIES 12/31/17 12/31/16 FRANCHISES OWN TOTAL FRANCHISES OWN TOTAL HAVAIANAS Brazil Overseas OSKLEN Brazil Overseas MIZUNO TOPPER ARGENTINA OUTLETS Brazil Overseas TOTAL Q17 x 4Q16 EMEA - euro 17.5% USA - dollar -5.3% Exports - dollar 29.7% During the quarter, the variations in Alpargatas retail revenue on a same store basis were as follows: Havaianas (franchises and company-owned stores in Brazil): +5.4% Osklen: +10.2% 6

7 In November the Mizuno store in the Contagem outlet center in Minas Gerais was opened. This outlet has the largest variety of sporting goods brands in Brazil. Since the inauguration, the store has outperformed projections. 3. GROSS PROFIT R$ million 4Q17 4Q16 Var. 4Q GROSS PROFIT % Gross margin 43.8% 42.7% 1.1 pp BRAZIL % Margin 48.1% 45.6% 2.5 pp SANDALS INTERNATIONAL % Margin 55.3% 56.7% -1.4 pp ARGENTINA % Margin 14.3% 20.6% -6.3 pp In Brazil, gross margin was higher due to: the increase in Havaianas gross profitability, stemming from (i) the positive impact of industrial changes on costs, such as the internalization of the rubber injection process; (ii) the lower cost of rubber and; growth in Mizuno gross margin due to the exchange rate (positive impact on footwear imports) as well as local production in Brazil. In Sandals International there was a reduction in gross margin due to the increased share of Exports in revenue versus own operations. In Argentina, the conjuncture characterized by reduced profitability due to lower manufacturing efficiency and higher price competition, particularly in textiles, continues. 4. EBITDA R$ million 4Q17 4Q16 Var. 4Q EBITDA % EBITDA margin 5.1% 13.7% -8.6 pp BRAZIL % Margin 6.8% 17.4% pp SANDALS INTERNATIONAL Margin 1.9% -7.9% 9.8 pp ARGENTINA Margin -1.5% 5.0% -6.5 pp In Brazil, the growth in gross margin and greater general and administrative expense productivity the spending contention plan drove a 22.1% reduction in this group of expenses compared with 4Q16 benefited EBITDA margin. 7

8 However, the margin was below 4Q16 due to the increase in other non-recurring operating expenses, referring mainly to the impairment of part of the goodwill from the acquisition of Osklen (expense of R$125.5 million in 4Q17), to reflect the new expectations of future gains for this company. This amount represents approximately 40.0% of Alpargatas book value for Osklen. In Sandals International, EBITDA margin was positive due to the R$ 8.2 million increase in EBITDA resulting from revenue growth, as explained in chapter 2. In Argentina, EBITDA margin decreased as a result of the reduction in gross margin and lower operating expense productivity. CALCULATION OF EBITDA - CVM 527 R$ million 4Q17 4Q16 (=) Consolidated Net Income Payment of taxes Financial Result Depreciation and Amortization Result from Discontinued Operations (=) EBITDA The main non-recurring item impacting EBITDA in Brazil in 4Q17 was the R$ million expense related to the impairment of Osklen. R$ million 4Q17 4Q16 Other non recurring revenues (expenses) Brazil Argentina Discounting the effect of non-recurring items, recurring EBITDA grew 16.9% and margin was 17.7%. R$ million 4Q17 4Q16 Var. 4Q Recurring EBITDA % Recurring EBITDA margin 17.7% 15.7% 2.0 pp 5. NET INCOME R$ million 4Q17 4Q16 Var. 4Q CONSOLIDATED NET INCOME % Net margin 4.1% 9.6% -5.5 pp Consolidated net income in the quarter totaled R$ 45.1 million, with a margin of 4.1%. The most significant variations in consolidated net income in 4Q17 were: 8

9 - R$ 89.2 million in EBITDA, the variation in which is explained in chapter 4. +R$ 40.3 million in income tax, because a tax credit was generated as a result of the reduction in profit before taxes. +R$ 3.0 million in the financial result due to the discontinuity of financial charges on taxes resulting from the successful suit to exclude ICMS tax from the COFINS calculation base. - R$ 2.8 million with the FX in financial assets and liabilities. -R$ 8.8 million in other items, the most significant of which was the expense with the amortization of commercial locations (initiated in 2017). CONSOLIDATED NET INCOME (CONTINUING OPERATIONS) Quarterly variation (R$ million) (2.8) (8.8) (89.2) 50 Net Income 4Q16 EBITDA Income taxes Financial result Exchange rate Other Net income 4Q17 9.6% Margins (% \ of net revenue) 4.1% 9

10 2017 PERFORMANCE 1. NET REVENUE R$ million FY Var. NET REVENUE 3, , % CHANGE IN NET REVENUE FOREIGN CURRENCIES 2017 x 2016 BRAZIL 2, , % SANDALS INTERNATIONAL % ARGENTINA % EMEA - euro 7.8% USA - dollar -1.6% Exports - dollar 18.7% The consolidated net revenue of R$ 3.7 billion decreased 8.2% in comparison with 2016 due to the drop in revenue in operations in the domestic and overseas markets. In Brazil, the 8.3% decrease was due mainly to the 11.0% reduction in Sandals business revenue. In the international sandals operation, the 5.8% growth in sandals sales volume and the increase in the average prices in dollars drove an increase of 7.8% in revenues in euros and 18.7% in dollar revenues from sandals exports. There was a slight 1.0% drop in revenue in reais due to the FX. In Argentina, the positive 5.6% variation in revenue in pesos was below local inflation. The appreciation of the real against the Argentinean peso provoked a 14.0% reduction in revenue in reais. 2. GROSS PROFIT R$ million FY Var. GROSS PROFIT 1, , % Gross margin 44.1% 44.4% -0.3 pp BRAZIL 1, , % Margin 45.1% 43.8% 1.3 pp SANDALS INTERNATIONAL % Margin 64.7% 68.3% -3.6 pp ARGENTINA % Margin 20.3% 26.6% -6.3 pp Consolidated gross profit totaled R$ 1.6 billion and the consolidated gross margin, at 44.1%, was practically equal to Gross margin in Brazil was 45.1%, or 1.3 percentage point (pp) higher than in The reasons for this increase were the growth in gross margin in Sandals and Mizuno, the latter benefiting from the appreciation of the real against the dollar and the domestic production of footwear. 10

11 In Sandals International, at 64.7% gross margin was 3.6 pp lower, explained by the variation in exchange rates as well as country and channel mix. In Argentina, the gross margin of 20.3% dropped 6.3 pp because the increase in production costs resulting from the loss of manufacturing efficiency was much higher than the increase in average prices, which suffered because of intensified competition in the country. 3. EBITDA R$ million FY Var. EBITDA % EBITDA margin 13.1% 14.2% -1.1 pp BRAZIL % Margin 15.4% 13.9% 1.5 pp SANDALS INTERNATIONAL % Margin 15.6% 19.7% -4.1 pp ARGENTINA % Margin 2.1% 10.8% -8.7 pp Consolidated EBITDA totaled R$ million, 15.6% lower than in 2016, and the 13.1% margin was 1.1 pp lower than last year. In Brazil, the EBITDA of R$ million increased 2.0%, while the 15.4% margin was 1.5 pp higher. This evolution was driven by the gain in gross margin and greater general and administrative expense productivity, the result of the spending contention program. Moreover, during the year, there was a R$ 10.9 million in increment from non-recurring revenues (net of non-recurring expenses). Worthy of note in this item was the revenue of R$ million in 1Q17 accounted as a reversal of the tax provision relative to the exclusion of ICMS from the COFINS calculation base and the expense of R$ million from the impairment of Osklen to reflect the new expectation for future earnings. This amount represents approximately 40% of Osklen s book value for Alpargatas. The reduction in the gross margins of Sandals International and Argentina, and the lower productivity in operating expenses, explain the respective decreases of 4.1 pp and 8.7 pp in the EBITDA margins for these operations. CALCULATION OF EBITDA - CVM 527 R$ million (=) Consolidated Net Income Payment of taxes Financial Result Depreciation and Amortization Result from Discontinued Operations (=) EBITDA R$ million Other non recurring revenues (expenses) Brazil Argentina

12 Discounting the effect of non-recurring items, recurring EBITDA decreased 15.9% and margin was 13.5% in R$ million FY Var. Recurring EBITDA % Recurring EBITDA margin 13.5% 14.8% -1.3 pp 4. NET INCOME R$ million FY Var. CONSOLIDATED NET INCOME % Net margin 9.4% 8.8% 0.6 pp Consolidated net income totaled R$ million, down 2.2% on 2016, and at 9.4% net margin was 0.6 pp higher. The most significant variations in consolidated net income in the year were: - R$ 89.8 million in EBITDA, variation in which is explained in item 3. +R$ 69.5 million in income tax, because a tax credit was generated as a result of the reduction in profit before taxes. +R$ 11.4 million in the financial result due mainly to the discontinuity in the financial charges on taxes as a result of the success of the suit to exclude ICMS tax from the COFINS calculation base. +R$ 2.0 million in the FX of financial assets and liabilities CONSOLIDATED NET INCOME (CONTINUING OPERATIONS) Annual variation (R$ million) (1.0) (89.8) Net income 2016 EBITDA Income taxes Financial result Exchange rate Other Net income % Margins (% \ of net revenue) 9.4% 12

13 Net financial position 12/31/2016 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 12/31/ NET FINANCIAL POSITION PRESS RELEASE 4Q17 and 2017 On December 31, 2017 Alpargatas had a negative net financial position of R$ 27.3 million, resulting from a cash balance of R$ million (operating cash generation totaled R$ million in the year) and indebtedness of R$ million, with the following profile: R$ million (56.0% of the total) due in the short term, of which R$ million in Brazilian currency. The short-term debt in foreign currency was R$ million, in most part financing working capital for the overseas subsidiaries. R$ million (44.0%) due in the long-term, in Brazilian currency. In December 2017, Alpargatas raised R$ million by means of the issue of three series of unsecured bonds non-convertible in shares. The funds raised will be used in the normal course of running the business, as provided for in the company bylaws. Amortization will be via single payments on the due date for each series, the first of which will be in December 2019, the second in December 2020 and the third in December Operating cash generation of R$ million Net Financial Position POSIÇÃO(R$ FINANCEIRA million) LÍQUIDA (R$ milhões) (41.4) (65.3) (105.4) (38.6) (37.1) (149.3) (27.3) (90.6) 6. CAPITAL MARKET AND SHAREHOLDER COMPENSATION On December 31, 2017 Alpargatas preferred shares (ALPA4) were quoted at R$ 17.45, having appreciated 78.6% in the year, and its voting shares (ALPA3) at R$ 17.04, an increase of 96.5% in comparison with December 31, This was against an appreciation of 26.3% for Ibovespa from January to December. At the end of the year, Alpargatas market cap on the B3 index was R$ 8.1 billion, 82.8% higher than in The average daily trading volume for ALPA4 was R$ 10.3 million, 92.8% higher than the average volume traded in The amount paid out to shareholders in interest on own equity totaled R$ million in the year. Additionally, dividends of R$ 27.8 million, corresponding to the net profit from 2017, and R$

14 million corresponding to the net profit from previous years, will be paid out on April 18, Therefore, overall compensation for Alpargatas shareholders totals R$ million and the company has distributed the totality of its distributable profits. 7. SOCIAL RESPONSIBILITY In 2017, investments in training, development and education helped further improve the performance of Alpargatas employees. A total of 102,000 hours of training were given in the offices and plants initiatives that drove the development of successors and professionals in diverse areas. The Instituto Alpargatas commemorated yet another year of significant results. Its educational and sports initiatives benefited more than 147,000 children, adolescents and young people aged from 7 to 29 years. The beneficiaries had the opportunity to develop their schooling in function of the Education through Sport, Education through Culture and Enterprise Volunteer programs. The schools benefited from Education through Sport program totaled 406 and a further 245 from Education through Culture. The total amount invested was R$ 3.5 million in measures that included the training of physical education teachers, the remodeling of schools and the construction and maintenance of sports facilities, in addition to donations of educational and sports materials. To recognize the efforts of the people involved, the institute also gave awards to students and teachers. A total of 3,940 students, plus ten projects submitted by teachers and ten projects submitted by school administrators received awards. Alpargatas focuses on preventing damage to the environment and health. During the year, the company invested R$ 3.3 million in the adoption, continuity and expansion of initiatives in the Occupational Health and Safety and Environmental areas. 8. ADDED VALUE In 2017, Alpargatas generated R$ 2.2 billion in added value, distributed as follows: 42% for employees, 31% for government, 11% for financiers, 8% for the profit reserve and 8% for shareholders. ***************************** 14

15 BALANCE SHEET (in thousand reais) ASSETS 12/31/ /31/2016 LIABILITIES 12/31/ /31/2016 Current assets 2,439,913 2,262,005 Current liabilities 1,121, ,530 Cash and banks 141,231 86,144 Suppliers 388, ,288 Tempory cash investment 565, ,974 Loans and financing 408, ,908 Trade accounts receivable (net of provisions) 911, ,300 Debt reestructuring agreements 4,855 6,100 Inventories 698, ,408 Payroll and related charges 131, ,695 Other receivables 26,838 35,566 Reserve for contingencies 14,992 13,349 Prepaid expenses 11,262 11,684 Provision for income and social contribuition taxes 4,636 19,399 Assets held for sale - - Taxes payable 28,149 49,441 Other assets - - Interest on capital and dividends payable 5,044 4,891 Recoverable taxes 85,158 63,476 Other payable liabilities 135,440 88,931 Assets from discontinued operations - 65,453 Liabilities on assets from discontinued operations - 12,528 Long-term assets 196, ,601 Long-term liabilities 467, ,773 Recoverable taxes 16,564 19,523 Loans and financing 324, ,766 Deferred income and social contribuition taxes 106,406 76,689 Debt reestructuring agreements 18,834 24,626 Escrow deposits 23,328 22,337 Provision for taxes - 198,624 Other receivables 50,444 30,052 Taxes Installments - - Provision for income and social contribuition taxes 55,917 67,510 Reserve for contingencies 41,967 38,358 Other payable 26,140 9,889 Permanent Assets 1,216,799 1,371,446 Shareholders' equity 2,264,389 2,065,749 Investments 1,320 2,206 Capital 648, ,497 Property, plant and equipment 721, ,083 Capital reserves 172, ,799 Intangible 493, ,157 Treasury shares (64,248) (64,248) Profit reserves 1,578,434 1,365,194 Equity assessment (149,092) (146,219) Hedge operation - - Additional dividend - - Minority interest 77,999 89,726 TOTAL ASSETS 3,853,454 3,782,052 TOTAL LIABILITIES 3,853,454 3,782,052 Book value per share (R$)

16 INCOME STATEMENT (in thousands of Brazilian reais) Q17 4Q16 Net Sales 3,721,863 4,054,404 1,103,649 1,065,911 Cost of sales (2,082,261) (2,254,120) (619,784) (610,798) Gross Profit 1,639,602 1,800, , ,113 gross margin 44.1% 44.4% 43.8% 42.7% Operating Income (Expenses) (1,260,187) (1,327,942) (461,997) (334,516) Selling (1,020,857) (975,963) (266,696) (243,000) General and administrative (192,953) (251,279) (46,584) (56,088) Management fees (12,185) (16,672) (1,486) (3,744) Amortization of intangible charges (37,564) (33,657) (17,334) (8,174) Other operating Income (expenses), net 3,372 (50,371) (129,897) (23,510) EBIT - Operating Results 379, ,342 21, ,597 operating margin 10.2% 11.7% 2.0% 11.3% Financial Result (57,082) (68,443) (15,984) (18,973) Exchange variation (16,539) (18,619) (1,551) 1,213 Operating Income 305, ,280 4, ,837 Income and social contribution taxes 46,441 (23,022) 40, Net Income from continuing operations 352, ,258 45, ,270 Net result from discontinued operations (1,675) (3,785) - (647) Consolidated net income 350, ,473 45, ,623 Net Income from controlling shareholder 362, ,567 47, ,218 Minority Interest (11,727) (3,094) (2,074) 2,405 EBITDA - R$ million EBITDA margin 13.1% 14.2% 5.1% 13.7% 16

17 CASH FLOW (in thousand reais) CASH FLOW FROM OPERATING ACTIVITIES 12/31/ /31/2016 Cash from operating activities 478, ,086 Net income for the period 352, ,258 Depreciation and amortization 106, ,621 Income (loss) from disposal/derecognition of property, plant and equips. 13,858 6,332 Equity pickup 0 0 Interest and Monetary and foreign exchange variation 48,294 71,702 Provisions for tax, civil contingencies and labor claims 22,937 31,430 Deferred income and social contribuition taxes -39,060-24,520 Suspended taxes payments -198,624 0 Allowance (reversal of) for doubtful accounts 26,070 8,370 Provision for (reversal of) inventory losses 12,552 11,566 Amortization of charges on loans and financing -55,674-42,560 Unrealized gains/losses on derivative transactions 498 3,118 Gain/loss in operation with derivatives 0-2,052 Stock option plan granted 0 0 Remeasurement adjustment - 1st acquisition Osklen 0 0 From sale of Real property Provision for Impairment of property, plant and equipment/intangible assets 11,425 0 Remeasurement od asset for sale 0 0 Osklen Impairment Adjustment 125,500 0 Net cash spent in discontinued operations 51,251-13,966 Changes in assets and liabilities -175, ,115 Trade accounts receivable -54,182-96,111 Inventories -111, ,909 Prepaid expenses Taxes recoverable -24,739 24,576 Trade accounts payable -14,078 24,514 Taxes payable -2,694 47,567 Payroll and social charges -26,200 5,845 Payment of income and social contribuition taxes -37,140-37,183 Other 95,186-33,316 NET CASH - OPERATING ACTIVITIES 303, ,971 17

18 CASH FLOW FROM INVESTING ACTIVITIES 12/31/ /31/2016 Acquisition of property, plant and equipment and intangible assets -105, ,103 Short-term investments -115, ,052 Redemption of Financial Investments 152,713 93,267 Receivable from sale of permanent assets 0 11,886 Acquisition of Investments 0 0 Initial Cash Balance of controlled company 0 0 NET CASH - INVESTING ACTIVITIES -68, ,002 CASH FLOW FROM FINANCING ACTIVITIES Loans and financing raised 456, ,458 Amortization loans and financing - Principal -304, ,546 Payment of dividends and interest on equity -149, ,790 Amortization through debt restructuring of subsidiary -4,712-9,689 Acquisition shares to be held in treasury, net 0 23,890 NET CASH - FINANCING ACTIVITIES -2, ,677 Exchange gains (losses) on cash and cash equivalents 5,365-40,871 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 237,891-3,579 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 391, ,926 CASH AND CASH EQUIVALENTS AT END OF PERIOD 629, ,347 18