Independent Auditor s Report in the Individual and Consolidated Financial Statements

Transcription

1 Independent Auditor s Report in the Individual and Consolidated Financial Statements (A free translation of the original report in Portuguese, as filed with Brazilian Securities and Exchange Commission (CVM), prepared in accordance with the accounting practices adopted in Brazil, rules of CVM and the International Financial Reporting Standards IFRS) To the Management and Shareholders of the Company B2W Companhia Digital Rio de Janeiro - RJ

2 Opinion We have audited the individual and consolidated financial statements of B2W Compahia Digital ( the Company ), respectively referred to as Individual and Consolidated, which comprise the statement of financial position as of December 31, 2017, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. Opinion on the individual financial statements In our opinion, the accompanying individual financial statements present fairly, in all material respects, the financial position of the B2W Companhia Digital ( the Company ) as of, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the B2W Companhia Digital as of, and of its consolidated financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Basis for Opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Individual and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics ( Código de Ética Profissional do Contador ) and in the professional standards issued by the Brazilian Federal Accounting Council ( Conselho Federal de Contabilidade ) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 2 The accompanying notes are an integral part of this financial statement

3 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the individual and consolidated financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Realization of Deferred taxes recoverable See Notes 2.18, 3, 11 and 12 to the individual and consolidated financial statements. The key audit matter The Company has a balance of recoverable taxes (ICMS, PIS and COFINS) and deferred income tax and social contribution recorded in its assets. The realization of recoverable taxes is based on a technical study and in the purchases and sales forecast in future years, and in deferred taxes in the expectation of generating future taxable income. The Company uses accounting and business assumptions to calculate the aforementioned forecasts, which include, among others, assumptions regarding the estimated purchases and sales, growth rates in operations and expected profit margins. Due to the high degree of judgment involved to determine such forecasts and the impact that any changes in the assumptions could have in the financial statements, we consider this issue as a significant matter in our audit work. How the matter was addressed in our audit Our procedures included, among others, the engagement of our specialists, for the technical support in corporate finance analyzes, and evaluation of the adequacy and consistency of assumptions used in the estimates and projections of future taxable income comparing them, when available, with data from external sources, such as projected economic growth and cost inflation. We performed an evaluation of the calculation methodology and of the sensitivity analysis of assumptions. Moreover, we engaged our tax experts in the analysis of alternatives to use these recoverable taxes in future payments of federal taxes through a request for restitution and/or compensation and, for deferred taxes, on a testing basis, in the assessment of adherence with Brazilian tax law, of deductible expenses and taxable income that comprise the balance of temporary differences. We performed recalculation and analyzes for amounts recorded in the individual and consolidated financial statements. Our procedures also included the assessment of disclosures made by the Company in the individual and consolidated financial statements. Based on audit evidence obtained through the procedures summarized above, we consider that the balance of taxes recoverable and deferred taxes 3 The accompanying notes are an integral part of this financial statement

4 are acceptable in the context of the individual and consolidated financial statements for the year ended December 31, 2017 taken as a whole. Tax, labor and civil contingencies See Notes 2.17 and 22 to the individual and consolidated financial statements. The key audit matter The Company is party to several tax, labor and civil contingencies arising in the normal course of its business. The determination of the amount of provisions and other required disclosures, and the classification of the loss likelihood, require significant judgment of the Company and its subsidiaries and of its legal advisors. Due to this fact and to the complexity and uncertainties related to the legal and constitutional aspects involved in tax, civil and labor issues, we consider this issue material in our audit work. How the matter was addressed in our audit Our audit procedures included evaluating the design of key internal controls related to the identification, evaluation, measurement and disclosure of Contingent Liabilities and Provisions. We have obtained the list of internal and external legal advisors who represent the Company in the judicial and administrative proceedings, and in the tax positions taken by the Company, and analyzed the documentation and responses to the confirmation letters, containing information on the amounts involved and assessment of loss risk. For certain amounts, with technical support from our tax specialists, we evaluate the documentation that supports the legal opinions issued and the legal and tax aspects of Brazilian law, in order to understand the merits and arguments that guided the Company and its subsidiaries on the classification of losses of the processes and the measurement of the values, which were tested by us. Our procedures also included the evaluation of the disclosures made by the Company in the individual and consolidated financial statements. In the course of our audit, we identified adjustments that would affect the measurement and disclosure of contingent provisions and liabilities, which were not recorded and disclosed by management, since they were considered immaterial. Based on the audit evidence obtained through the procedures summarized above, we consider the accounting 4 The accompanying notes are an integral part of this financial statement

5 Capitalization of website and software development costs record of provisions and the disclosures of contingent liabilities acceptable in the context of the individual and consolidated financial statements for the year ended taken as a whole. See Notes 2.10, 3 and 16 to the individual and consolidated financial statements. The key audit matter The Company makes significant expenditures related to the development of systems and websites (the main sales channel), such as the development of operational applications and technological infrastructure and graphic development, which are recorded in intangible assets. Due to the relevance of the amounts involved, the judgments made in the classification of expenditures on internally generated intangible assets and the level of controls necessary for the registration of such assets, we have classified this issue as a significant issue in our audit of the individual and consolidated financial statements How the matter was addressed in our audit The audit procedures carried out included the understanding, design assessment and operational effectiveness, on a sample basis, of the Company's internal control systems related to the identification, evaluation, measurement and accounting of expenses with the development of websites and systems, which includes evaluation of the measurement, recognition and registration criteria for the costs to be capitalized. On a sample basis, we analyzed whether the criteria for the capitalization of development costs were meet and whether the capitalized expenses occurred before the end of the project development phase. For completed projects, we consider whether the allocated useful life remains appropriate. Our procedures also included the evaluation of the information disclosed by the Company in the individual and consolidated financial statements. During the course of our audit, we identified adjustments that would affect the measurement and disclosure of the intangible asset derived from the development of websites and systems, which were not recorded and disclosed by management, since they were considered immaterial. Based on the audit evidence obtained through the procedures summarized above, we consider acceptable the balance of the intangible assets derived from the development of websites and systems in the context of the individual 5 The accompanying notes are an integral part of this financial statement

6 and consolidated financial statements for the year ended taken as a whole. Commercial Agreements See Notes 2.8, 2.14 and 17 to the individual and consolidated financial statements. The key audit matter The Company presents in its individual and consolidated financial statements significant amounts referring to commercial agreements defined in partnership agreements entered into with suppliers, carried out in the normal course of business. Due to the relevance of the amounts involved, the high number of transactions, some of a complex nature, and the significant judgment involved in the accounting recognition of each commercial transaction negotiated with suppliers, we consider this matter significant for our audit. How the matter was addressed in our audit The audit procedures performed included the understanding, design assessment and operational effectiveness, on a sample basis, of the Company's key internal control systems related to the purchasing process and commercial agreements. Our audit procedures also included, on a sampling basis, the analysis of the relevant clauses and conditions of the signed contracts. We performed the external confirmation of balances with the suppliers on a test basis, analyzed the responses and performed an alternative procedure for the non-received responses. We also evaluated the adequacy of the amount recognized as cost reductions, on a sample basis, and the disclosure of accounting policies. Based on audit evidence obtained through the procedures summarized above, we consider the trade balance of trade agreements as well as related disclosures to be acceptable in the context of the individual and consolidated financial statements for the year ended taken as a whole. 6 The accompanying notes are an integral part of this financial statement

7 Other matters Statements of value added The individual and consolidated statements of value added (DVA) for the year ended, prepared under the responsibility of the Company s management, and presented herein as supplementary information for IFRS purposes, have been subject to audit procedures jointly performed with the audit of the Company's financial statements. In order to form our opinion, we assessed whether those statements are reconciled with the financial statements and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added issued by the Committee for Accounting Pronouncements (CPC). In our opinion, the statements of value added have been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement, and are consistent with the overall individual and consolidated financial statements. Other information accompanying the individual and consolidated financial statements and the auditor's report Management is responsible for the other information comprising the management report. Our opinion on the individual and consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. Responsibilities of Management and Those Charged with Governance for the Individual and Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the individual and consolidated financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s and subsidiaries financial reporting process. 7 The accompanying notes are an integral part of this financial statement

8 Auditors Responsibilities for the Audit of the Individual and Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s and its subsidiaries internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s and its subsidiaries ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company and subsidiaries to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other 8 The accompanying notes are an integral part of this financial statement

9 matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the individual and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Rio de Janeiro, March 06, 2018 KPMG Auditores Independentes CRC SP /O-6 F-RJ Original report in Portuguese signed by Carla Bellangero Accountant CRC 1SP196751/O-4 9 The accompanying notes are an integral part of this financial statement

10 Balance sheet In thousands of reais Parent Company Consolidated Parent Company Consolidated ASSETS Note LIABILITIES AND SHAREHOLDERS' EQUITY Note CURRENT CURRENT Cash and cash equivalents 7 1,466, ,112 1,469, ,248 Suppliers 17 1,576,847 1,966,972 1,766,581 2,107,960 Marketable securities 8 2,841,006 1,452,747 2,987,229 1,742,541 Borrowings and financing 18 1,496, ,165 1,563, ,129 Accounts receivables 9 361, , , ,083 Debentures Inventories 10 1,179,420 1,518,638 1,207,347 1,541,324 Salaries, provisions and social contributions 32,417 45,717 52,330 65,341 Recoverable taxes , , , ,343 Accounts payable - Business combination 20 12,363 12,555 19,173 36,229 Prepaid expenses 24,460 31,793 36,142 51,952 Taxes payable 21 35,562 49,840 51,164 68,400 Other current assets 443, , , ,909 Income tax and social contribution - - 5,906 5,252 Advances received from clients 29,409 35,798 29,409 35,798 Other current liabilities 129, , , ,555 Total current assets 6,695,235 4,519,715 6,959,525 4,936,400 Total current liabilities 3,312,989 2,710,087 3,697,406 3,119,426 NON CURRENT NON CURRENT LIABILITIES Long-term assets: Long-term liabilities: Marketable securities - 35, Borrowings and financing 18 4,478,071 3,527,560 4,478,071 3,539,288 Recoverable taxes 11 1,142,150 1,067,452 1,142,150 1,067,452 Debentures , , , ,000 Deferred income tax and social contribution 12 (a) 889, , , ,770 Provisions for contingencies 22 (b) 62,647 55, , ,212 Judicial deposits 22 (a) 37,168 17,550 37,211 17,707 Related parties , , ,896 81,820 Related parties 13 69,860 62, Accounts payable - Business combination 20-11,250 9,156 27,395 Other non current assets 67,093 67,188 73,525 73,620 Other non current liabilities 15,776 16,053 16,624 16,206 Total non current liabilities 5,134,852 4,024,724 5,020,008 4,043,921 SHAREHOLDERS' EQUITY 24 Investments , , Capital 5,709,151 4,483,041 5,709,151 4,483,041 Fixed assets , , , ,290 Capital reserve 52,314 38,927 52,314 38,927 Intangible 16 2,480,191 2,375,029 2,987,161 2,885,110 Carrying value adjustments (941) (905) (941) (905) Accumulated losses (1,854,561) (1,443,111) (1,854,561) (1,443,111) Total non current assets 5,658,569 5,293,048 5,663,602 5,304,949 3,905,963 3,077,952 3,905,963 3,077,952 Participation of non controllers - - (250) 50 Total shareholders's equity 3,905,963 3,077,952 3,905,713 3,078,002 TOTAL ASSETS 12,353,804 9,812,763 12,623,127 10,241,349 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,353,804 9,812,763 12,623,127 10,241, The accompanying notes are an integral part of this financial statement

11 Statement of Operations Year ended In thousands of reais, except the (losses) Earnings per thousand shares in reais (A free translation of the original in Portuguese) Parent Company Consolidated Note Net revenue 26 6,249,522 7,901,839 7,120,777 8,601,311 Cost of goods and services sold (4,655,964) (5,975,308) (5,554,882) (6,889,181) Gross profit 1,593,558 1,926,531 1,565,895 1,712,130 Operating income (expenses) Selling expenses 27 (985,636) (1,237,906) (841,311) (942,976) General and administrative expenses 27 (381,221) (338,528) (436,995) (372,750) Other operating income (expenses) 27 (44,538) (32,962) (39,738) (35,325) Result before financial result 182, , , ,079 Financial revenue , , , ,088 Financial expenses 28 (1,318,108) (1,484,971) (1,369,502) (1,565,366) Financial result (853,421) (1,040,941) (868,541) (1,084,278) Equity accounting 38,195 (6,179) - - Loss before income tax and social contribution (633,063) (729,985) (620,690) (723,199) Income tax and social contribution 12 (c) Current - - (22,001) (9,702) Deferred 221, , , ,000 Loss of the period (411,450) (485,860) (411,750) (485,901) Atributed to controlling shareholers (411,450) (485,860) (411,450) (485,860) Atributed to non controlling shareholers (300) (41) Loss of the period (411,450) (485,860) (411,750) (485,901) Loss per share - basic (1.0052) (1.6617) (1.0052) (1.6617) Loss per share - diluted (0.9860) (1.6177) (0.9860) (1.6177) 11 The accompanying notes are an integral part of this financial statement

12 Statement of Comprehensive Results Year ended In thousands of reais, except the (losses) Earnings per thousand shares in reais (A free translation of the original in Portuguese) Parent Company Consolidated Loss of the period (411,450) (485,860) (411,750) (485,901) Itens to be posteriorly reclassified to the result Accumulated conversion adjustment of foreign investments (36) (537) (36) (537) Total comprehensive result (411,486) (486,397) (411,786) (486,438) Atributed to controlling shareholers (411,486) (486,397) (411,486) (486,397) Atributed to non controlling shareholers - - (300) (41) 12 The accompanying notes are an integral part of this financial statement

13 Statement of changes in shareholders equity Parent company In thousands of reais (A free translation of the original in Portuguese Valuation Acumulated Capital Stock Capital Reserve Adjustment losses Total Balance at January 1st, ,483,041 38,927 (905) (1,443,111) 3,077,952 Total Comprehensive result Net loss for the period (411,450) (411,450) Foreign exchange variation of offshore investments (36) (36) Contribution of shareholders and distributions to shareholders Advance for future capital increase 1,216,584 1,216,584 Capital increase 9,526 (9,526) - Stock option plan 22,913 22,913 Balance at 5,709,151 52,314 (941) (1,854,561) 3,905,963 Valuation Acumulated Capital Stock Capital Reserve Adjustment losses Total Balance at January 1st, ,635,970 27,691 (368) (957,251) 2,706,042 Total Comprehensive result Net loss for the period (485,860) (485,860) Increase of participation in controlled companies - Foreign exchange variation of offshore investments (537) (537) Contribution of shareholders and distributions to shareholders Advance for future capital increase 847, ,071 Stock option plan 11,236 11, Balance at December 31, ,483,041 38,927 The accompanying notes (905) are an integral (1,443,111) part of this 3,077,952 financial statement

14 Statement of changes in shareholders equity Consolidated In thousands of reais (A free translation of the original in Portuguese) Capital Stock Capital Reserve Valuation Adjustment Acumulated losses Non controlling shareholders participation Total Balance at January 1st, ,483,041 38,927 (905) (1,443,111) 50 3,078,002 Total Comprehensive result Net loss for the period (411,450) (411,450) Foreign exchange variation of offshore investments (36) (36) Contribution of shareholders and distributions to shareholders Capital increase 1,216,584 1,216,584 Capital increase with issuance of plan of action 9,526 (9,526) - Resourses to capital increase non controlling shareholders (300) (300) Stock option plan 22,913 22,913 Balance at 5,709,151 52,314 (941) (1,854,561) (250) 3,905,713 Capital Stock Capital Reserve Valuation Adjustment Acumulated losses Non controlling shareholders participation Total Balance at January 1st, ,635,970 27,691 (368) (957,251) 91 2,706,133 Total Comprehensive result Net loss for the period (485,860) (485,860) Foreign exchange variation of offshore investments - (537) (537) Contribution of shareholders and distributions to shareholders Advance for future capital increase 847, ,071 Resourses to capital increase non controlling shareholders (41) (41) Stock option plan 11,236 11,236 Balance at December 31, ,483,041 38,927 (905) (1,443,111) 50 3,078, The accompanying notes are an integral part of this financial statement

15 Statement of Cash Flows Year ended In thousands of reais Cash flows from operating activities (A free translation of the original in Portuguese) Parent Company Consolidated Loss of the period (411,450) (485,860) (411,750) (485,901) Adjustments to net loss: Depreciation and amortization 326, , , ,843 Deferred income tax and social contribution (221,613) (244,125) (230,941) (247,000) Interest and indexation and exchange variances 522, , , ,143 Equity accounting (38,195) 6, Others (21,874) 68,154 (16,263) 21,986 Adjusted net loss 156, ,470 (90,920) 127,071 Decrease (increase) in operational assets: Accounts receivable 514, , , ,938 Inventories 339,046 (151,777) 333,805 (134,056) Recoverable taxes (34,643) (425,458) (31,182) (432,619) Prepaid expenses 7,333 (696) 15,810 (6,148) Judicial deposits (19,618) 1,257 (19,504) 1,456 Other accounts receivable (current and non-current) (198,862) (126,744) (200,723) (125,637) 607,953 (298,466) 616,170 (288,066) Decrease (increase) in operational liabilities: Suppliers (568,231) (466,109) (519,485) (370,564) Payroll and related charges (13,300) (5,731) (13,011) (4,711) Taxes and contributions (current and non current) (14,278) 21,961 (15,029) 17,633 Other accounts payable (current and non current) (37,923) (65,623) (63,253) (27,148) Accounts payble affiliate companies 156,999 51,751 45,076 76,238 (476,733) (463,751) (565,702) (308,552) Interest Expense on Loans and Debentures (389,092) (293,979) (399,751) (311,846) Paid Income Tax and Social Contribution - - (2,207) (3,487) Net cash provided by (used in) operational activities (101,603) (917,726) (442,410) (784,880) Cash flow from investing activities: Marketable securities (1,352,781) 553,803 (1,244,688) 496,345 Fixed assets (2,585) (29,625) (3,903) (29,906) Intangible (375,678) (422,371) (376,037) (430,937) Investiments (255) (60,341) - - Value paid for the acquisition of subsidiaries - (11,091) (42,065) (67,351) Net cash used in investment activities (1,731,299) 30,375 (1,666,693) (31,849) Cash flow from financing activities: Borrowings and financing 2,635, ,551 2,681, ,875 Payments of borrowings and financing (769,916) (419,680) (538,448) (544,393) Capital increase in cash 1,211, ,071 1,211, ,071 Net cash provided by financing activities 3,076, ,942 3,354, ,553 Increase (decrease) in cash and cash equivalents 1,243,662 (102,409) 1,245,252 (105,176) Opening balance of cash and cash equivalents 223, , , ,424 Closing balance of cash and cash equivalents 1,466, ,112 1,469, ,248 Increase in cash and cash equivalents 1,243,662 (102,409) 1,245,252 (105,176) The accompanying notes are an integral part of this financial statement 15

16 Statement of Operations Year ended In thousands of reais, except the (losses) Earnings per thousand shares in reais (A free translation of the original in Portuguese) Parent Company Consolidated Revenues Sales of goods and services 7,642,314 9,582,841 8,763,573 10,520,435 Other revenues (10,719) (93) (10,373) 855 Reversal (allowance) for doubtful accounts (21,758) (48,285) (36,060) (49,489) 7,609,837 9,534,463 8,717,140 10,471,801 Goods acquired from third parties Costs of goods and services sold (5,724,674) (7,370,200) (6,867,054) (8,379,525) Materials, energy, third party services and others (713,998) (768,930) (453,130) (413,357) Lost / Recuperation of asset value - 9,044-9,078 (6,438,672) (8,130,086) (7,320,184) (8,783,804) Gross value added 1,171,165 1,404,377 1,396,956 1,687,997 Depreciation and amortization (326,927) (284,802) (335,428) (291,843) Net value added generated 844,238 1,119,575 1,061,528 1,396,154 Value added received in transfer Equity result 38,195 (6,179) - - Financial income 464, , , ,088 Total value added to distribute 1,347,120 1,557,426 1,562,489 1,877,242 Distribution of value added Employees Direct compensation 175, , , ,678 Benefits 73,305 72,488 87,029 87,367 Guarantee fund for years of service 20,629 29,825 30,495 36, , , , ,442 Taxes and contributions Federal (217,968) (207,919) (207,014) (181,929) State 277, , , ,461 Municipal 6,015 5,922 12,254 11,429 65,516 31,017 94, ,961 Compensation of third party capital Interest 1,318,108 1,484,971 1,369,502 1,565,366 Rentals 103, , , ,067 Others 1,205 1,306 1,205 1,307 1,423,296 1,616,518 1,488,513 1,715,740 Remuneration of own capital Loss for the period (411,450) (485,860) (411,450) (485,860) Participation of non controlling shareholers in retained profits - - (300) (41) (411,450) (485,860) (411,750) (485,901) Distribution of value added 1,347,120 1,557,426 1,562,489 1,877, The accompanying notes are an integral part of this financial statement

17 MANAGEMENT REPORT 2017 In compliance with legal provisions and pursuant to current Brazilian corporate law, B2W Digital presents this Management Report with financial and operating statements for the fiscal year ended December 31st, ORGANIZATIONAL PROFILE B2W Digital is a leader in Latin America and its purpose is to CONNECT PEOPLE, BUSINESS, PRODUCTS AND SERVICES IN A DIGITAL PLATFORM. The Company has the largest and most beloved Internet brands (Americanas.com, Submarino, Shoptime and SouBarato) and the fastest growing Marketplace operation in the world. The platform built over the years allows B2W Digital to also offer technology, logistics, distribution, customer service and consumer finance services, in addition to enabling the development of new business models at a high speed. 17

18 Lojas Americanas S.A. is B2W Digital s controlling shareholder, with participation of 61.99%. The Company is headquartered in Rio de Janeiro and its shares are traded through the BTOW3 code on BM & FBOVESPA, in the Novo Mercado segment, which has the highest Corporate Governance index in Brazil. VISION To be closer to our customers, becoming the largest and most beloved Digital Company in Latin America. VALUES Have the best people Be a good "Business Owner" Seek Excellence in Operation Focus on the customer Delta - Doing more and better every day Being obsessed with results Breathing innovation all the time 1.1 THE LARGEST AND MOST BELOVED INTERNET BRANDS B2W Digital has the most complete e-commerce brand portfolio, with a low overlap of clients. Americanas.com, Submarino, Shoptime and SouBarato have different consumer profiles, representing almost all of the Brazilian population. 18

19 Americanas.com The biggest store. The lowest prices. Americanas.com is the largest Brazilian online store with over 4 million items available in diversified categories. Voted by customers as the number one in service and the internet's most esteemed store, Americanas.com offers the best prices and great deals all year long. It is a democratic, inclusive brand that is present in the daily lives of Brazilians. In addition to the site, clients can buy through apps and kiosks located in Lojas Americanas stores throughout the country. Submarino The products you enjoy and the best service on the internet. Submarino is a brand of the generation Y / Z, 100% digital (pure player), reference in technology, entertainment, culture and innovation. The brand's role is to bring customers the latest trends, exploring novelties and contents by curating products made by influencers from a wide range of subjects. This posture translates into an agile and personalized navigation that enhances the experience of discovery and choice within the site. Shoptime Exclusive products and live demonstration. Shoptime is the largest home shopping channel in Latin America. Specializing in live broadcasts of product demonstrations, it is on the air 24 hours per day, offering clients good content and entertainment. Shoptime offers unique items and practical solutions for day-to-day use with its own brands: Home & Comfort (bed and bath), Fun Kitchen (portable electric appliances), La Cuisine (houseware) and Life Zone (sports and leisure). Sou Barato The Americanas.com outlet Sou Barato offers repackaged products in perfect condition and used products with warranty certification, as well as discounts of up to 70% in various categories. All repackaged and used products undergo rigorous screening of specialized technical review and are sold under warranty MARKETPLACE (3P) The B2W Marketplace offers the best value proposition for the sellers, who can access the brands with the internet's best reputation to deliver highly qualified traffic to leverage their sales. To deliver 19

20 the best customer shopping experience, sellers are also supported by a highly experienced and qualified commercial team as well as B2W Digital's technology, logistics, distribution and customer service platform. Feedback from sellers has been superior sales on the B2W Marketplace when compared to other platforms available in the market. In just three years, the Marketplace has already reached GMV $ 4.5 billion in 2017, with growth of 108% and representing 35.3% of total GMV. Over the past year, 5,000 new sellers have been connected, more than doubling the base to 9,700 sellers. As a consequence, the number of items offered to customers registered growth of 71% compared to 2016, reaching more than 4.6 million products. Being a relevant part of the Company s strategy, the Marketplace should drive strong future growth and profitability BIT SERVICES: PLATFORM OF TECHNOLOGY SERVICES BIT Services, result of the acquisition of ten "best in class" technology companies, offers complete, different verticalized technology solutions to support B2W's (1P) and Marketplace's sellers (3P) e- commerce operations. Technology Verticals: [B] Seller: Webstore and ERP Services Sieve: Online Price Intelligence Skyhub: Marketplace Integration Admatic: Digital Marketing Site Blindado: Digital Security Infoprice: Offline Price Integration 20

21 1.4. DIGITAL LAB: B2W INNOVATION AND TECHNOLOGY (BIT) B2W's Digital Lab has developed innovative projects with Harvard, MIT and Stanford Universities, resulting in articles being published in the scientific community. The development fronts were: Marketing Optimization (in partnership with the Artificial Intelligence Laboratory of Stanford University with Professor Andrew Ng, founder of Google Brains and co-founder of Coursera), Dynamic Pricing (with Professor David Simchi-Levi of MIT), Last Mile (with Professor Matthias Winkenbach, PhD - director of the MIT Megacity Logistics Lab) and Artificial Intelligence (creation of Marvin, an open source platform for artificial intelligence and machine learning) B2W FULFILLMENT: LOGISTICS AND DISTRIBUTION In 2013 and 2014, B2W Digital acquired two of the main providers of last mile transportation in Brazil (Click-Rodo and Direct). In 2016, B2W established an operating agreement with Vialog, the leading e-commerce delivery carrier in the south region of the country. B2W's logistics and distribution platform utilizes innovative technology (proprietary routing and delivery control system) and full capillarity (11 distribution centers and 200 Hubs) to provide logistics services across the country including warehousing, transportation, last-mile delivery, technology, customer service and back-end support. As a result of these movements, we created B2W Fulfillment (warehousing, distribution and customer service). Currently, the platform is responsible for delivering 98% of 1P's orders and serving customers of B2W Digital sites. 21

22 To support the growth of Marketplace sellers, in March 2017 we launched B2W Entrega, a platform that operates and controls 3P deliveries. The sellers connected to the platform have access to cheaper and faster deliveries, as well as a higher level of service, which allows them to leverage their sales. B2W Entrega reached more than 4,900 sellers at the end of 4Q17, representing 50.5% of the total base of sellers PRIME LOYALTY PROGRAM Customers of the Americanas.com, Submarino and Shoptime brands are offered the Prime loyalty program, which provides the customer with free shipping and differentiated service levels (unlimited fast delivery, exclusive offers, and dedicated service). Currently the program is available in all 2,479 cities in the South and Southeast regions of Brazil and the Marketplace sellers connected to B2W Entrega are able to have their products eligible to Prime. Prime customers double the frequency of purchases and spend three times more. At Shoptime, program members can also develop and purchase unique and customized products CONSUMER FINANCE With the goal of becoming Submarino's best means of payment, evolve the client shopping experience and promote the growth of sales, in 2006 Submarino Finance was created through a joint venture with Banco Cetelem. As the pioneer in online credit granting and approval, in just a few years Submarino obtained a significant share of the site's credit card sales along with high levels of customer base activation and high receivables portfolio profitability. In 2014, B2W Digital expanded the operation, also creating Digital Finance and began offering cards and financial products to Americanas.com, Shoptime and Sou Barato clients. With 100% digital contracting, B2W Digital cards offer customers exclusive discounts, the best installment plan payment options, loyalty programs, extra credit limit for purchases on the websites 22

23 and personal loans. Among B2W Digital's advantages are: lower commission cost (MDR), higher customer loyalty. The volume of transactions approved by Submarino Finance (Submarino Card) and Digital Finance (Americanas.com, Shoptime and Sou Barato) credit cards totaled R $ 3.3 billion in At the end of 2017, operations totaled a base of 2.6 million cards issued, 1.7 million in Submarino Finance and 949 thousand in Digital Finance. The operation of the Credit Promoter is profitable for B2W. Net income in 4Q17 was 3.5 times higher than in 4Q16, doubling in size in 2017 (vs. 2016). 2. MESSAGE FROM MANAGEMENT Over the last 5 years, B2W has invested heavily in its Digital Platform, with greater focus on connecting people, businesses, products and services. This important investment cycle was part of the Company s Strategic Plan to address the country's structural and logistical challenges, creating the best customer experience. The platform built allows the Company to consolidate its leadership position in e-commerce in Brazil (1P) and to develop a rapidly growing Marketplace (3P) operation. In the same way that our Digital Platform is appealing to the customer, the centerpiece of the Company's strategy, it must also be able to attract strategic partners such as suppliers and sellers to the Marketplace. In less than 4 years of operation, the Marketplace has reached R$ 4.5 billion in volume transacted (2017 GMV) and continues to grow rapidly (+108.4% in 4Q17 vs. 4Q16). This result reflects the value 23

24 proposition that B2W offers to its sellers: qualified traffic, access to the most beloved internet brands in Brazil, customer service, different types of digital solutions, a highly experienced and qualified commercial team and above all, support in logistics and distribution. B2W invested in the construction of a proprietary logistics and distribution platform that provides sellers with the same high level of customer service offered by the Company in 1P sales. The growth of 3P has allowed B2W Digital to accelerate the transition from its e-commerce (Direct Sales / 1P) business model to a hybrid digital platform model (Direct Sales / 1P, Marketplace / 3P and Services). The year 2017 marked the accelerated migration of items/ product lines from 1P to 3P (Marketplace reached over 35% share of total GMV in 2017). As a result of this process, the Company presented a significant advancement in the trajectory of cash generation, generating R$ 509 million in cash in 4Q17. For the full year 2017, cash consumption decreased significantly (~ R$ 700 MM improvement vs. 2016). After the transition year (2017), the Company's 2018 initiatives will focus on accelerating total GMV through the exponential growth of Marketplace (representing more than 50% total GMV for the year), continue to attract and develop the best talent, develop new business fronts, and to continue in the trajectory of free cash generation in the short-term, an important movement for B2W to become selfsustaining THE MANAGEMENT 3. STRATEGY AND INVESTMENT 3.1 ECONOMIC LANDSCAPE In 2017, despite the macroeconomic challenges that limited the growth of the economy expectation of a 1.0% growth in GDP e-commerce, according to e-bit data, posted a turnover of R$ 47.7 billion, an increase of 7.5% compared to The growth of the market is driven by the constant expansion of the internet user base and growth in the number of e-consumers. 24

25 Thus, B2W Digital reiterates its confidence and its positive perspectives for the future, both in relation to the development of the country as well as to the opportunity of growth of the Internet, boosting the penetration of e-commerce as a percentage of total retail commerce and other business opportunities. Sources: Brazilian Institute of Geography and Statistics, the Central Bank of Brazil and ebit. 3.2 STRATEGY The core of the Company's strategy is the customer, and ensuring an excellent online shopping experience is the focus of our efforts. To ensure superior experience in the midst of an environment with structural and logistical challenges, it was necessary to invest heavily in the creation of a unique platform, which allows us to meet and exceed the expectations of our clients. Over the last few years, the Company has invested in technology, logistics, distribution and service, creating the premier shopping experience. With the main structural investments made, B2W continues to invest in its Digital Platform, with the greater purpose of connecting people, businesses, products and services. After consolidating its leading position in e-commerce in Brazil (1P) and developing a fast-growing Marketplace (3P) operation, the Company is in a rapid transition from e-commerce to a digital platform. To ensure success in executing this strategy, the Company relies on its innovative culture and the best digital team in Latin America, including more than a thousand internet / technology engineers. Strategic initiatives to leverage the digital platform o Comercial Marketing o o Market Share: Since the beginning of the investment plan, B2W has expanded its market share by 7.8 p.p. from 19.9% in 1H12 to 27.7% in 4Q17. Assortment: The number of items (SKUs) offered on the site totaled 4.6 million at the end of 4Q17, up 71% from 4Q16, driven primarily by Marketplace. 25

26 o Prime: With the Prime loyalty program, the customer receives free shipping with differentiated service levels (unlimited fast delivery, exclusive offers, and dedicated service). The Company expanded the program's offerings to all 2,479 cities in the South and Southeast regions of the country, which was previously restricted to the capitals of Rio de Janeiro, São Paulo and Belo Horizonte. In November 2017, the company launched Americanas Prime, the Americanas.com loyalty program, enabling the brands customers to access the service in time for Black Friday. Throughout 4Q17, B2W Digital added more than 1,000 marketplace sellers to the Submarino Prime and Americanas Prime programs, expanding the product offerings from 160,000 previously to more than 1 million offers available to subscribers. To participate in Prime, sellers must be integrated with B2W Entrega, the B2W logistics and distribution service, and have a high level customer service reputation. In February 2018, the Prime program was also extended to the Shoptime brand. Prime customers have two times higher purchase frequency and three times higher spend. o Marketplace Evolution o Marketplace GMV: In 4Q17, Marketplace grew by 108.4% vs. 4Q16, reaching R$ 1,796.5 million in GMV with a participation of 42.8% in total GMV. o o o Sellers: In 4Q17, the B2W Marketplace connected more than 1,900 new sellers. Over the course of 2017, more than 5,000 new sellers were connected. The feedback from the sellers (positive news) has been superior sales volume on the B2W Marketplace when compared to other platforms available in the market. Product Assortment: B2W Marketplace reached over 4.2 million items by the end of 4Q17, increasing 92% in comparison to the year ago period. C2C: Launched in December 2017 at Americanas.com, the company made available the sale of used products between individuals (C2C), providing unlimited assortments and significantly contributing to increases in recurring traffic to the sites and expanding the B2W customer base. o Logistics and Operations o o B2W Distribution Unit (UND): In 4Q17, the participation of UND reached 97% of the Company s deliveries in direct sales/ 1P. During the quarter, the Distribution Unit began to process deliveries for 14 new customers, including major sellers from the marketplace. Revenues from external clients represented 45% of total sales in the quarter. Freight Menu: The verticalization of the logistics and distribution unit allowed for the creation of the Freight Menu, which offers 6 delivery options throughout the country: Same Day, Next Day, Fast, Standard, Scheduled Delivery and Click & Collect. In 4Q17, the number of daily deliveries via Next Day option on the Freight Menu grew 120% in relation to the year ago period. 26

27 o B2W Entrega: The platform that operates and controls the Marketplace deliveries reached more than 4,900 sellers by the end of 4Q17, representing 50.5% of the total base of sellers. At year end, the platform was integrated into the Prime loyalty program, allowing sellers to make their items available to Prime subscribers. o Last Mile: In October 2017, the completion of the "Last Mile" project was presented in partnership with MIT to develop efficient logistics systems in the last mile. The presentation was held at our digital lab in São Paulo (BIT-SP) and featured a lecture on Urban Logistics and new trends in Supply Chain, by Professor Matthias Winkenbach, PhD (director of MIT). o Mobile and Technology o Traffic: During 4Q17, traffic from mobile devices represented more than half of total visits, reaching 62.7% of the total, an expansion of 11.4 p.p. compared to 4Q16. o Apps: B2W s apps reached more than 3.8 million downloads in 4Q17, an increase of 85% compared to 4Q16 and totaling approximately 18.2 million downloads since inception. o Artificial Intelligence: As a result of 2 years of research and development, B2W has created an artificial intelligence (AI) system called Marvin. In late 2017, the decision was made to make it an open source AI system for the global developer community, allowing for a robust and innovative platform to use the technology and in turn accelerate the knowledge of Marvin. Marvin is fundamental to enhance B2W's Last Mile, Buy Box, Pricing, Product Search (SEO) systems, among others o Digital Services o B2WAds: The B2W Marketplace native ads platform connected 375 new sellers in 4Q17, totaling a base of more than 1,300 advertisers. B2WAds allows the Sellers to have greater visibility of their products within B2W's websites and increase their sales. o BIT Services: The provider of complete technology solutions to support the operations and sustainable growth of Marketplace sellers and major online operations. In 4Q17, service revenue from solutions offered by B2W s technology companies grew 32%. o Financial Services o Credit Promotion: In 4Q17, B2W and Cetelem s joint venture (Submarino Finance and Digital Finance) recorded volume of R$ million in approved transactions. Over the course of 2017, recorded volume reached R$ 3.3 billion in approved transactions, representing growth of 17% compared to In the same period, the receivables portfolio for these operations was R$ 1.25 billion, an increase of 12% from the year ago period. As of, the operations registered 2.6 million credit cards issued (1.685 million for Submarino Finance and 949 thousand for Digital Finance which includes the brands Americanas.com, Shoptime and Sou Barato). 27

28 The Credit Promotion operation is profitable for B2W. Net income in 4Q17 was 3.5 times higher than in 4Q16, and 2 times higher in 2017 (vs. 2016). o BNDES Card: The BNDES Card is offered as a means of payment on the B2W Empresas website (corporate sales), which became the first e-commerce website to accept the Card. The BNDES card has R$ 55.6 billion in pre-approved credit and transacted R$ 2.9 billion in In February 2018, the assortment available for purchases with the card has been expanded to approximately 20,000 items. o Customer Service o B2W Digital s main brands are regarded as industry benchmarks in customer service, having received the best evaluation given by the Reclame Aqui website. The average score given by customers on Reclame Aqui website for B2W s brands is 7.0 while the main competitors have an average score of % of customers who registered complaints on Reclame Aqui website indicated their intent to buy again from B2W s brands, while only 53% of customers indicated that they intended to buy again on the main competitors websites. The average solution rate of B2W s brands on Reclame Aqui website is 87%, while the average solution rate of competitors brands is 77%. These achievements are the result of the Company's commitment in optimizing the quality of service and attentiveness offered to its customers. o Digital Talents o Hackathon: As a stimulus to the development of entrepreneurial technology projects with potential to create new businesses, we promoted 3 editions of the IronBIT event, where important initiatives were developed through a Hackathon (programming marathon). In total there were more than 200 registered participants and 40 projects developed. o o Project on Means of Payment: In October B2W promoted the Immersion Program of FGV-SP, where 20 undergraduate students spent a week based at BIT SP together with Professor Adrian Cernev to develop a program of products / services B2W can offer to unbanked consumers, allowing them to buy online. CLAV Big Data & Applied Retail Analysis: B2W participated in the Latin American Retail Congress (CLAV), with the intention to promote the generation, sharing and dissemination of knowledge in Retail. During the event, which aims to integrate the academic approach to professional relevance under the theme "Big Data & Applied Retail Analytics, B2W presented initiatives on the subject of Marvin, our Open Source platform for artificial intelligence. 28

29 o Corporate Responsibility o ISE: For the fourth consecutive year, B2W was selected to the Corporate Sustainability Index (ISE) portfolio of Brazil stock trading. o BVSA: B2W maintained its partnership with the B3 Socioenvironmental Stock Exchange (BVSA), supporting another project in April Between 2015 and 2017, the Company supported 11 projects based on the UN's Sustainable Development Objectives (ODS). o o o Transparency: B2W is among the most transparent companies in Brazil for the quality of its financial statements, being recognized as one of the winners of the "Transparency Trophy" Award at the 21st ANEFAC (National Association of Finance Executives). Communication: Reflecting the search for efficiency in communication with the market and in the best practices of Investor Relations, B2W was selected in two categories in the Latin America Executive Team 2017 ranking, promoted by Institutional Investor Magazine. The Company ranked among the top 3 companies in the categories "Best IR Team, Small Cap" (Consumer / Retailing) and "Best IR Professionals, Small Cap" (Consumer / Retailing Ethos Institute: In 2017, B2W joined Ethos Institute, a civil society organization dedicated to mobilizing, sensitizing and assisting companies to manage their businesses in a socially responsible way, and forming partnerships in building a just and sustainable society. 3.3 INVESTMENT As part of its strategy, B2W continues to invest in the digital platform built, with the objective of enabling the growth and improvement of its operations. In 2017, R$ million were invested, mainly in technology and innovation, with a focus on the development of the Marketplace and the platforms for sale by mobile devices. 4. RESULTS OVERVIEW 4.1 GENERAL CONSIDERATIONS The accounting information that serves as the basis for the comments below is in accordance with International Financial Reporting Standards (IFRS), the standards issued by the Brazilian Securities and Exchange Commission (CVM), as well as by the Novo Mercado listing rules and in reais (R$). The following analysis refers to the Consolidated results and the comparisons refer to the fourth quarter of 2017 (4Q17) and to the year 2017, except where indicated otherwise. 29

30 4.2 RESULTS B2W Marketplace generated record sales during Black Friday. The investments made in the digital platform in recent years reflected, once again, the traffic and sales leadership during the event. Sellers were able to scale their businesses, selling 20 times more than a typically strong day. During Black Friday, we were Brazil's largest Marketplace platform, and 3P accounted for more than 50% of B2W's Total GMV. Total GMV: In 4Q17, GMV was R$ 4,200.9 million, compared to R$ 4,436.0 million in 4Q16. In 2017, GMV was R$ 12,838.5 million compared to R$ 12,457.7 million registered in 2016, representing an increase of 3.1%. The B2W Marketplace continues to grow rapidly and reached GMV of R$ 1,796 million in 4Q17 (108.4% growth), with a 42.8% share of total GMV. In 2017, Marketplace GMV reached R$ 4,533 million (108% growth), representing 35.3% of total GMV. Gross Revenue: In 4Q17, gross revenue was R$ 2,580.4 million, compared to R$ 3,666.3 million in 4Q16. For 2017, gross revenue was R$ 8,763.6 million, compared to R$ 10,520.4 million in Net Revenue: In 4Q17, net revenue was R$ 2,106.1 million, compared to R$ 3,024.7 million in 4Q16. For 2017, net revenue was R$ 7,120.8 million, compared to R$ 8,601.3 million in

31 Adjusted Gross Profit: In 4Q17, adjusted gross profit was R$ million, compared to R$ million in 4Q16. Adjusted gross margin expanded 4.0 pp, from 23.7% in 4Q16 to 27.7% in 4Q17. For 2017, adjusted gross profit was R$ 1,769.3 million, compared to R$ 2,077.2 million in Adjusted Selling, General and Administrative (SG&A) Expenses: In 4Q17, adjusted SG&A expenses were R$ million, a reduction of $86.8 million (-19.1%) vs. the R$ million recorded in 4Q16. In 4Q17, SG&A accounted for 8.8% of GMV, a reduction of 1.4 p.p. compared to 4Q16, when adjusted SG&A accounted for 10.2% of total GMV. For 2017, adjusted SG&A expenses were R$ 1,149.2 million, representing a reduction of R $ million (-17.3%) vs. the R $ 1,389.0 recorded in SG&A expenses represented 9.0% of total GMV, a reduction of 2.2 p.p. compared to 2016 when adjusted SG&A accounted for 11.2% of total GMV. Adjusted EBITDA: In 4Q17, Adjusted EBITDA reached R$ million, compared to R$ million in 4Q16. Adjusted EBITDA margin expanded from 8.6% in 4Q16 to 10.2% in 4Q17, an increase of 1.6 p.p. For 2017, Adjusted EBITDA reached R$ million, compared to R$ million in In this period Adjusted EBITDA margin increased by 0.7 p.p., from 8.0% in 2016 to 8.7% in Net Financial Result: In 4Q17, net financial result was R$ million, representing a reduction of -46.4% in relation to the R$ million in 4Q16. For 2017, net financial result was R$ million, representing a reduction of -19.9% in relation to the R$ -1,084.3 million in Net Result: In 4Q17, the net result was R$ million, representing a reduction of -65.9% in relation to the R$ million in 4Q16. For 2017, the net result was R$ million, compared to R$ million in

32 Cash Management: Cash Generation: In 4Q17, the Company generated R$ 509 million in cash. As a way of capturing all effects, cash generation / consumption is measured by the variation of net debt in relation to the previous quarter, always disregarding possible resources and impact of capital increase operations. Accordingly, on 12/31/2017, the Company's Net Debt totaled R$ 1,466.2 million, a reduction of R$ million compared to the net debt of R$ 1,975.4 million recorded on 09/30/2017. For the full year of 2017, cash consumption decreased by R$ million vs. the amount registered in Working Capital: Improved 4 days (4Q17 vs. 4Q16) mainly due to the strong acceleration of 3P (Marketplace). It is important to remember that Marketplace (whose credit card transactions are approved on the B2W platform and make up the gross balance of receivables) does not demand Working Capital (B2W is an intermediary and receives a commission on realized sales). CAPEX: B2W uses its cash generation prioritizing investments that present optimal returns to shareholders. Accordingly in 2017, consolidated investments in plant, property and equipment and intangibles (development of websites and systems) totaled R$ million (down -17.6% vs. R$ million in 2016), representing 3.0% of total GMV (reduction of 0.7 p.p vs. the 3.7% in 2016). Accordingly, Adjusted EBITDA in 2017 covered 163% of CAPEX for the period, compared to a coverage ratio of 149% in Financial Debt: B2W s cash balance, excluding FIDC consolidation, at 12/31/2017 totaled R$ 4,559.6 million, 3.4x times the sum of the Company's short-term debt, which totaled R$ 1,347.7 million. The level of leverage (defined as Net Debt / Adjusted EBITDA LTM) was 2.4x on 12/31/2017, compared to 3.0x on 09/30/

33 Accounts receivable are mainly composed of credit card receivables, net of the discounted value, which have immediate liquidity and can be considered as cash. The breakdown of B2W s accounts receivable is demonstrated in the following table: 4.3 Capital Increase: On March 9, 2017, a Board of Directors Meeting was held in order to approve the proposal to increase the Company's capital stock, which was subsequently submitted to the Extraordinary General Meeting for approval, in the amount of R$ 1,210,000, (one billion, two hundred and ten million reais), through the private issue of 110,000,000 (one hundred and ten million) new common shares at an issue price of R$ (eleven reais) per share. 33

34 The capital increase was approved by majority at the Extraordinary General Meeting held on March 25, Accordingly, shareholders had from March 27, 2017 to April 25, 2017 to exercise their rights of preference for the subscription of the new shares issued in proportion to their participation in the Company's capital on the close of trading on March 24, The objective of the Capital Increase is to strengthen the cash of the Company and to improve its capital structure. The capital increase will allow the Company to continue investing in its digital platform and accelerating the growth of its Marketplace. The Capital Increase had participation of nearly 100% of the Company's shareholders. Lojas Americanas entered with R$ 752 million on March 27, 2017 (equivalent to its 62.16% stake) and minority shareholders joined in with the remaining R$ 458 million between the end of April and the beginning of May INCOME STATEMENT EXCLUDING THE EFFECTS OF THE CONSOLIDATION OF B2W DIGITAL S TRANSPORTATION SUBSIDIARIES Effects of the consolidation of B2W Digital s transportation subsidiaries. 34

35 NON-EXCLUDING THE EFFECTS OF THE CONSOLIDATION OF B2W DIGITAL S TRANSPORTATION SUBSIDIARIES 4.5 NOTE REGARDING THE FINANCIAL STATEMENTS Effects in the consolidation of B2W Digital s transportation subsidiaries Click-Rodo and Direct (subsidiaries of B2W Digital) provide merchandise distribution services to the Company, generating an elimination effect in consolidated gross revenue and selling, general and administrative expenses (distribution expenses), according to the present accounting rules. The consolidated gross profit is reduced in an amount equal to the positive effect observed in the selling, general and administrative expenses, but with no effect on Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA On October 4th, 2012, Brazilian Securities Exchange Commission (CVM) enacted Instruction 527/12, regarding the voluntary disclosure of non-accounting information such as EBITDA. The Instruction aims to standardize the disclosure, in order to improve the understanding of this information and make it comparable among publicly listed companies. 35