9M17 Ebit R$ 278.4mn up 13.9% from 9M16; Results for...

Results for 3Q17 and 9M17 of 23

Results for 3Q17 and 9M17

BM&FBOVESPA ticker: GRND3

http://ri.grendene.com.br

Number of shares:

Common shares: 300,720,000

Price (Sep. 30, 2017):

R$ 26.73 per share

Market value:

R$8.0 billion

US$ 2.5 billion

Conference call

- Brazilian:

Oct 27, 2017: 10:30 a.m. (Brasilia time)

Connect on:

- Brazil:

+11-3193-1001 or

+11-2820-4001

Conference call

International:

Oct. 27, 2017 8:30 a.m. (Eastern time) (Simultaneous translation)

Connect on:

- USA, rest of world:

+1-646-828-8246

+1-786-924-6977

Contacts:

Francisco Schmitt

CFO & IRO

[email protected]

Tel:

+55-54-2109-9022

Fax:

+55-54-2109-9991

9M17 Ebit R$ 278.4mn – up 13.9% from 9M16; 9M17 Net revenue R$ 410.5mn – up 5.9% from 9M16.

Sobral, October 26, 2017 – In this release GRENDENE (BM&FBOVESPA: Novo Mercado - GRND3), publishes its results for 3Q17 and 9M17. Figures are consolidated, and stated in accordance with IFRS (International Financial Reporting Standards).

Highlights of 3Q17 vs. 3Q16 and 9M17 vs. 9M16 Main financial and economic indicators

R$ mn 3Q16 3Q17

Change % 3Q16–3Q17

9M16 9M17

Change % 9M16–9M17

Gross revenue 654.0 723.9 10.7% 1,719.8 1,880.8 9.4%

Domestic market 519.5 597.2 15.0% 1,295.1 1,482.1 14.4%

Exports 134.5 126.7 (5.8%) 424.7 398.7 (6.1%)

Net revenue 536.4 596.3 11.2% 1,419.1 1,546.6 9.0%

COGS (271.9) (307.4) 13.0% (747.0) (812.7) 8.8%

Gross profit 264.5 288.9 9.2% 672.1 733.9 9.2%

Operational expenses (157.0) (177.5) 13.0% (427.7) (455.5) 6.5%

Ebit 107.5 111.4 3.7% 244.4 278.4 13.9%

Ebitda 121.6 126.7 4.2% 287.6 323.4 12.5%

Net financial revenue 63.0 55.3 (12.2%) 194.7 191.8 (1.5%)

Net profit 150.9 146.7 (2.8%) 387.5 410.5 5.9%

Profit per share (R$) 0.50 0.49 (2.8%) 1.29 1.37 6.0%

Volume (mn pairs) 44.5 45.2 1.4% 113.1 116.4 3.0%

Domestic market 34.3 36.5 6.1% 84.3 87.4 3.7%

Exports 10.2 8.7 (14.5%) 28.8 29.0 0.8%

Average price (R$) 14.67 16.02 9.2% 15.21 16.16 6.2%

Domestic market 15.13 16.39 8.3% 15.36 16.95 10.4%

Exports 13.15 14.51 10.3% 14.77 13.76 (6.8%)

Margins % 3Q16 3Q17 Change p.p. 9M16 9M17 Change p.p.

Gross 49.3% 48.5% (0.8 p.p.) 47.4% 47.5% 0.1 p.p.

Ebit 20.0% 18.7% (1.3 p.p.) 17.2% 18.0% 0.8 p.p.

Ebitda 22.7% 21.3% (1.4 p.p.) 20.3% 20.9% 0.6 p.p.

Net 28.1% 24.6% (3.5 p.p.) 27.3% 26.5% (0.8 p.p.)

Highlights, 9M17 vs. 9M16

Net revenue: Up 9.0% YoY.

Net profit: R$410.5 million - up 5.9% YoY.

Ebit: Up 13.9% YoY, at R$278.4 million.

Higher margins: Gross, Ebit, Ebitda margins all up YoY.

Net margin: Slightly (0.8 p.p.) lower YoY.

Volume of pairs: Up 3.0% YoY at 116.4 million.

Dividends: R$73.5 mn for 3Q; paid from Nov. 22, 2017. Ex-dividend Nov. 7. Total dividends in 9M17: R$228.1 mn – up 12.5% YoY.

Leader in exports – Grendene still leader in Brazilian footwear exports for 15th year running – with 32.8% of total Brazilian footwear exports in 9M17.


Management discussion and analysis

Gross revenue, Net revenue and Volumes

The behavior of the consumer market, and Brazil’s domestic market in particular, has provided no surprises, accompanying the slow recovery of the Brazilian economy. There have been some months of growth – causing enthusiasm – alternating with months of retraction, or slower growth, making it impossible, so far, to predict any more robust and consistent recovery.

Reflecting (in our view) what recovery there is, domestic market volume was up 2% year-on-year in 1H17, and up 3.7% YoY in 9M17.

Our results were once again good, with growth in revenues and in operational profit (Ebit), but unfortunately with some negative impacts from increases in taxes.

The end of the Proapi benefit on exports had a negative effect of R$ 13.6 million on earnings in 3Q17 – when compared with 3Q16 – though this was partially offset by the higher export tax benefit under the Reintegra system – providing an addition of R$ 2.2 million in the period. To this picture we need to add the complexity and instability of the rules: the federal law governing companies’ contribution to the national Social Security System (under the legislation described as ‘unburdening of payroll’) was valid for only the month of July, and repealed by the government in August. As a result, we calculated this contribution for July on the basis of 20% of payroll, and in August, returning to the previous rule, calculating it based on 1.5% of domestic market revenue. We are currently studying measures to recover the amount deposited for the INSS contribution for the month of July.

We continue to face significant difficulties in maintaining our good results. Although Brazil’s crisis of economic adversity is relenting, with unemployment falling along with interest rates and inflation – contributing to recovery of the population’s income levels, and deleveraging of the economy – the macroeconomic imbalances continue, accompanied by the government’s fiscal voraciousness, which creates uncertainty on the future development of the economy, and keeps levels of investment low, which in turn prevents a more sustainable recovery. As is known, our revenue is sensitive to the population’s income levels, especially in the ‘C’ income group – and also, in exports, to exchange rates. Levels of consumption are currently much lower that at their peak in 2013; in our opinion the recovery is likely to continue to be based, primarily, on recovery of use of idle capacity in the economy, and increasing employment.

Even with the weak market, increases in taxes, and lower net financial revenue, in 9M17 we achieved net profit of R$ 410.5 million – 5.9% higher than in 9M16, and operational profit (Ebit) of R$ 278.4 million, up 13.9% from 9M16.

We believe these results have been possible because of our significant discipline in costs and expenses – which in this period have resulted in increased gross and operational margins, possibly with some gain in market share: gross margin was up 10bp, and Ebit margin up 110bp. In export, we have had to face the effects of a US dollar trading at 10.7% lower than in the same period of last year – toppling our export prices in Reais by 6.8% in the YoY comparison (9M17 vs. 9M16), in spite of the export price per pair in dollars being 4.6% higher YoY. Clearly, to obtain an increase in margins on these lower export prices in Reais, we have to counterbalance the effect with product mix and efficiency gains.

Our operational cash flow was once again robust in 9M17, totaling R$ 427.6 million and attesting to good control of the operational and financial cycles, and increasing net cash to R$ 1.6 billion, and gross cash to R$ 1.7 billion – respectively up 11.8% and 9.7% from December 2016.

654.0 727.2 723.931.9 45.8 (19.7) 15.2 (3.3)

Grossrevenue -

3Q16

Volumeeffect -

domesticmarket

Mix andaverage price

effect -domesticmarket

Volumeeffect -exports

mix andaverage price

effect -exports

Grossrevenue

without FXeffect

FX effect -exports

Grossrevenue -

3Q17

R$ m

illio

n

Change in gross sales revenue, domestic market and exports –analysed by effect of volume, mix and average prices


The changes in taxation continue to have an effect on profit. In 9M17 the deposit in the State Fiscal Balance Fund (FEEF) was R$ 2.4 million, reducing the ICMS tax incentive total by this amount. Another factor in the period was the termination, in March 2017, of the Proapi export incentive support – as scheduled (see Note 17(a) on periods of tax benefits), with a negative effect of R$ 24.8 million on export revenues in 9M17. On the other hand there was a positive effect from the increase in the Reintegra tax credit on exports from 0.1% in 2016 to 2%, representing an addition of R$ 6.6 million in 9M17.

Comparison of performance with targets

The guidance we publish is for complete years, not quarters – but for optimum transparency and analysis we are showing comparisons of quarters in this chart:

CAGR (compound average growth rate) in third quarters of the year, 2008–2017:

R$ million 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 CAGR

Gross revenue 457.9 475.5 546.4 511.3 613.0 739.0 730.1 733.9 654.0 723.9 5.2%

YoY change 3.9% 14.9% (6.4%) 19.9% 20.6% (1.2%) 0.5% (10.9%) 10.7%

Net profit 73.3 65.6 104.8 83.5 119.4 122.1 126.6 136.3 150.9 146.7 8.0%

YoY change (10.5%) 59.7% (20.3%) 43.0% 2.2% 3.7% 7.7% 10.7% (2.8%)

R$ million 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 CAGR

Advertising expenses 32.3 33.9 44.4 46.3 42.9 45.7 53.4 54.9 36.1 37.7 1.8%

% of net revenue 9.0% 9.0% 10.2% 11.2% 8.6% 7.6% 8.9% 8.9% 6.7% 6.3%

CAGR figures for first 9 months of year – 2008–2017:

R$ million 9M08 9M09 9M10 9M11 9M12 9M13 9M14 9M15 9M16 9M17 CAGR

Gross revenue 1,076.1 1,218.7 1,394.0 1,210.6 1,521.1 1,847.3 1,834.2 1,833.8 1,719.8 1,880.8 6.4%

YoY change 13.2% 14.4% (13.2%) 25.6% 21.4% (0.7%) (0.02%) (6.2%) 9.4%

Net profit 156.7 187.2 189.7 183.9 261.0 290.6 297.8 362.7 387.5 410.5 11.3%

YoY change 19.5% 1.4% (3.1%) 41.9% 11.4% 2.5% 21.8% 6.8% 5.9%

R$ million 9M08 9M09 9M10 9M11 9M12 9M13 9M14 9M15 9M16 9M17 CAGR

Advertising expenses 69.5 72.3 82.6 85.0 101.3 105.2 105.9 100.1 83.6 84.8 2.2%

% of net revenue 8.2% 7.4% 7.4% 8.7% 8.3% 7.1% 7.1% 6.6% 5.9% 5.5%

With these results, and for the reasons that we set out below, we maintain the projection of our targets for the long term, as previously published, for the period 2008–2018, and we now repeat them here:

We maintain the targets for 2008–2018:

CAGR of gross revenue: between 8% and 12%.

CAGR of net profit: between 12% and 15%.

Advertising expenses: the objective is an average of 8% to 10% of net revenue over the period.

1,719.8 1,928.9 1,880.848.6 138.4 3.1 18.9 (48.0)

Grossrevenue -

9M16

Volumeeffect -

domesticmarket

Mix andaverage price

effect -domesticmarket

Volumeeffect -exports

mix andaverage price

effect -exports

Grossrevenue

without FXeffect

FX effect -exports

Grossrevenue -

9M17

R$ m

illio

n

Change in gross sales revenue, domestic market and exports –analysed by effect of volume, mix and average prices


Reasons for unchanged targets; and why the risk of not achieving them has increased

With all the difficulties, we have maintained good performance. Our business model has shown itself to be resilient and capable of delivering results in the most adverse economic conditions. Clearly, we are still in a context of higher risk, with lower margin for making mistakes. But we are still confident in our expectations, and our capacity to deliver them.

We continue to position ourselves in accordance with the economic context; but we know it is not yet easy to establish an expectation for the bottom line for 2017. Our results in the first 9 months of 2017 have been good, especially in the first quarter, but this is no guarantee in a market that is still weak and has great uncertainties, especially in the area of taxes. On the other hand: we have been facing this kind of difficulty for numerous years, and we have come through it well. We will continue to pursue our objectives of expanding margins and obtaining better results than in prior years.

We assume the challenge of gaining market share in a market which is now smaller – we approach this mainly by our work to strengthen our brands, and anticipate our consumers’ desires. We also need to make a great effort to increase efficiency, so as to counterbalance the negative effects of increases in taxes – both the taxes that are already in place and those that may possibly be imposed as long as the government’s fiscal imbalances continue. The results of exports will depend on how the exchange rate varies, and conditions of the international market – which fortunately have improved this year.

Our policy will continue to be to preserve margins, and whenever possible achieve higher results in absolute terms.

Highlights

On September 30, 2017 the Clube Melissa franchise network had 255 stores spread throughout Brazil (compared to 224 on September 30, 2016).

The New York Galeria Melissa reopened to the public on July 27 at a new address: 500 Broadway, Soho – with architecture and designer by Muti Randolph.

Melissa presented the models from its partnership with Baja East, on September 12 in New York Fashion Week, at the Galeria Melissa in New York.

Celebrities Taís Araújo and Jade Baraldo were the presenters of the Ipanema brand’s collection Sempre Nova on the mass-audience Sunday TV program Domingão do Faustão.


Awards

July 28, 2017: Grendene received an award in the 24th annual Brazilian Expression of Ecology prizes. It competed in the Environmental Education category with its Clean Plate – Zero Food Waste Program. The Expression of Ecology awards are held annually by magazine publisher Editora Expressão and have become the leading environmental prize in Brazil in the corporate area, with recognition by the Environment Ministry.

August 24, 2017: Grendene was recognized as Best Company in Textiles, Leather and Apparel in the 17th edition of the Valor 1000, a highly regarded annual publication issued by Valor Econômico newspaper. The award recognizes companies that are outstanding in 25 sectors of the Brazilian economy among a ranking of the country’s one thousand largest companies.

October 17, 2017: Grendene was recognized, for the third year running, in the 21st annual Transparency Trophy, a joint initiative of Anefac (National Association of Finance, Management and Accounting Executives), Fipecafi (Accounting, Actuarial and Finance Research Institute Foundation) and Serasa Experian. The award recognizes good accounting practices of Brazilian companies, focused on the clarity and objectivity with which companies publish their financial information to the market. Grendene received the award in the category Companies with net revenue over R$ 5 billion.

Launches


Operational results – 3Q17 and 9M17 (Consolidated, IFRS)

Gross revenue

As in 2Q17, the growth in gross revenue in 3Q was basically due to a sales mix with higher added value:

Total (Domestic market + Exports) 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Gross revenue (R$ mn) 654.0 723.9 10.7% 1,719.8 1,880.8 9.4%

Volume (million pairs) 44.5 45.2 1.4% 113.1 116.4 3.0%

Average price (R$) 14.67 16.02 9.2% 15.21 16.16 6.2%

654.0 723.9

3Q16 3Q17

Gross sales revenue (R$ mn)

44.5 45.2

3Q16 3Q17

Volume (mn pairs)

14.67 16.02

3Q16 3Q17

Average price (R$)

79.4%

20.6%

Share of gross revenue3Q16

Domestic market Exports

82.5%

17.5%

Share of gross revenue3Q17


77.1%

22.9%

Share of sales volume 3Q16


80.7%

19.3%

Share of sales volume 3T17



Domestic market (DM)

The domestic market is recovering at the same slow rate as the economy. In 3Q17 volume (36.5 million pairs) returned to the level of 3Q15 (36.8 million pairs), leaving some way still open for recovery to the figures of 3Q14 (43.5 million pairs), as consumption gradually returns to previous levels.

Domestic market 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Gross revenue – DM (R$ mn) 519.5 597.2 15.0% 1,295.1 1,482.1 14.4%

Volume – DM (million pairs) 34.3 36.5 6.1% 84.3 87.4 3.7%

Average price – DM (R$) 15.13 16.39 8.3% 15.36 16.95 10.4%

1.719.8 1,880.8

9M16 9M17

Gross sales revenue (R$ mn)

113,1 116.4

9M16 9M17

Volume (mn pairs)

15.21 16.16

9M16 9M17

Average price (R$)

75.3%

24.7%

Share of gross revenue9M16


78.8%

21.2%

Share of gross revenue9M17


74.6%

25.4%

Share of sales volume 9M16


75.1%

24.9%

Share of sales volume 9M17



Export market (EM)

With the exchange rate in 3Q17 at 2.6% lower than in 3Q16, the year-on-year increase in prices in Reais in the quarter, at 10.3%, was lower, proportionally, than the year-on-year increase in prices in US dollars (13.3%), and this was not enough to make up for the volume of pairs sold for exports being 14.5% lower year-on-year.

However, it is worth remembering that the ending of the financial incentive credit for exports, in March, resulted in lower export revenue in this third quarter than in 3Q16. In absolute numbers, gross revenue from export was R$ 7.8 million lower – made up of the following components: the export incentive credit receivable was R$ 13.6 million lower; export revenue (year-on-year, excluding the export incentive credit) was R$ 3.9 million higher; the Reintegra tax credit was R$ 2.2 million higher; and the calculation also includes an adjustment to present value of R$ 0.3 million.

519.5597.231.9 45.8

Gross revenue - DM - 3Q16 Volume effect - DM Mix and average price - DM Gross revenue - DM - 3Q17

R$ m

illio

n

Change in gross revenue from domestic market –effects of volume, mix and average price

34.3 36.5

3Q16 3Q17

Volume - DM (million pairs)

15.13 16.39

3Q16 3Q17

Average price - DM (R$)

1,295.11,482.148.6

138.4

Gross revenue - DM - 9M16 Volume effect - DM Mix and average price - DM Gross revenue - DM - 9M17

R$ m

illio

n

Change in gross revenue from domestic market –effects of volume, mix and average price

84.3 87.4

9M16 9M17

Volume - DM (million pairs)

15.36 16.95

9M16 9M17

Average price - DM (R$)


Exports 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Gross revenue – EM (R$ mn) 134.5 126.7 (5.8%) 424.7 398.7 (6.1%)

Gross revenue – EM (US$ mn) 41.4 40.0 (3.3%) 119.4 125.6 5.2%

Volume – EM (million pairs) 10.2 8.7 (14.5%) 28.8 29.0 0.8%

Average price – EM (R$) 13.15 14.51 10.3% 14.77 13.76 (6.8%)

Average price – EM (US$ mn) 4.05 4.59 13.3% 4.15 4.34 4.6%

134.5 130.0 126.7(19.7) 15.2 (3.3)

Gross revenue -EM - 3Q16

Volume effect -EM

Mix and averageprice effect - EM

Gross revenuewithout FX effect

FX effect - EM Gross revenue -EM - 3Q17

R$ m

illi

on

Change in gross revenue from export market –effect of volume, mix and average price

41.4 40.0(6.0) 4.6

Gross revenue - EM - 3Q16 Volume effect - EM Mix and average priceeffect - EM

Gross revenue - EM - 3Q17

US

$ m

illi

on

Variation of gross revenue from footwear exports, in US$ –effects of volume, average price and mix

10.28.7

3Q16 3Q17

Volume - ME (million pairs)

13.15 14.51

3Q16 3Q17

Average price - EM (R$)

424.7 446.7 398.73.1 18.9 (48.0)

Gross revenue -EM - 9M16

Volume effect -EM

Mix and averageprice effect - EM

Gross revenuewithout FX effect

FX effect - EM Gross revenue -EM - 9M17

R$ m

illi

on

Change in gross revenue from export market –effect of volume, mix and average price


According to figures from the Brazilian Central Bank Foreign Trade Service (Secex) and the Brazilian Footwear Manufacturers’ Association (Abicalçados), total Brazilian revenue from footwear exports in US dollars in 9M17 was up 13.4% YoY, average price per pair exported was 11.5% higher; and the volume of pairs sold was 1.7% higher. By comparison Grendene’s export revenue in US dollars was 5.2% higher YoY, its average price per pair exported, in dollars, was up 4.6% YoY, and its volume of pairs sold was up 0.8%, YoY. In 9M17 Grendene’s share of Brazilian footwear exports was 32.8%, maintaining the company’s leadership in Brazilian footwear exports.

Net sales revenue

Net revenue was 11.2% higher YoY in 3Q17 – and 9% higher in 9M17, reflecting a small recovery in volume of pairs sold (1.4% YoY in 3Q17, and 3% YoY in 9M17), and a mix of higher added value sold for much higher prices (9.2% YoY in 3Q17, and 6.2% in 9M17). Note that there are also effects on net revenue from the ending of the Proapi export incentive receivable, and the increase in the Reintegra percentage.

R$ million 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Net sales revenue 536.4 596.3 11.2% 1,419.1 1,546.6 9.0%

Cost of goods sold (COGS)

Similarly to 2Q17, in 3Q17 the YoY growth in COGS, at 13.0%, was slightly higher than the growth in net revenue (11.2%), due to the adverse effect (in exports) of the tax changes referred to above. At the same time, due to a higher added value sales mix, COGs per pair was 11.7% higher, with the principal components of costs maintaining the same percentage of net revenue after tax effects.


9M16 9M17 Change %

9M16–9M17

COGS 271.9 307.4 13.0% 747.0 812.7 8.8%

COGS per pair (R$) 6.09 6.80 11.7% 6.60 6.97 5.6%

119.4125.60.9 5.3

Gross revenue - EM - 9M16 Volume effect - EM Mix and average priceeffect - EM

Gross revenue - EM - 9M17

US

$ m

illi

on

Change in gross revenue from export market in US$ – effect of volume, mix and average price

28.8 29.0

9M16 9M17

Volume - EM (Million pairs)

14.77 13.76

9M16 9M17

Average price - EM (R$)

536.4 596.3

3Q16 3Q17

Net sales revenue (R$ mn)

1,419.1 1,546.6

9M16 9M17

Net sales revenue (R$ mn)


The chart below shows the movement in market prices (ICIS-LOR) in dollars, converted to Reais, of Grendene’s principal raw materials, and the change in Grendene’s average cost per pair, for the quarters of 2015 to 2017.

Thousands of pairs

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

46,752 31,784 46,953 54,911 34,906 33,599 44,558 50,494 37,860 33,361 45,181

Source: Petrochemicals prices from ICIS-LOR and Grendene quartely data

As shown, international prices of resins have been very stable in recent years, acting in favor of our control of costs.

Gross profit

The consequence of the tax effects on revenue was a fall in gross margin from 49.3% in 3Q16 to 48.5% in 3Q17.


9M16 9M17 Change %

9M16–9M17

Gross profit 264.5 288.9 9.2% 672.1 733.9 9.2%

Gross margin, % 49.3% 48.5% (0.8 p.p.) 47.4% 47.5% 0.1 p.p.

271.9 307.4

3Q16 3Q17

COGS (R$ mn)

747.0 812.7

9M16 9M17

COGS (R$ mn)

6.09 6.80

3Q16 3Q17

COGS per pair (R$)

6.60 6.97

9M16 9M17

COGS per pair (R$)

6.056.99

6.505.92

7.256.60

6.09 5.976.95 7.21 6.80

- 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00

- 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

R$

/ pe

r pair

R$

th

ou

san

d /

to

n.

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

8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0

8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00


We reiterate our view that Grendene’s major highlight in recent years has been its industrial performance. In spite of the pressures of adverse macroeconomic conditions – inflation, wage policy, higher taxes and the exchange rate – we have successively increased our gross margins and ensured good results. In 9M17 we increased the record for gross margin in a period of the first nine months of the year, to 47.5%. This in fact represented lower growth in gross margin, not because our efforts were less successful, but because increases in taxes annulled part of the gain achieved.

Selling expenses

Selling expenses were at the same level as a percentage of net revenue as in the previous year:


9M16 9M17 Change %

9M16–9M17

Selling expenses 133.7 148.1 10.8% 345.9 371.6 7.4%

% of net revenue 24.9% 24.8% (0.1 p.p.) 24.4% 24.0% (0.4 p.p.)

Advertising expenses

Expenses on advertising and marketing were slightly lower than net sales revenues.


9M16 9M17 Change %

9M16–9M17

Advertising expenses 36.1 37.7 4.7% 83.6 84.8 1.4%


165.8 149.0214.0 192.4

249.6 281.2 286.6 309.4264.5 288.9

46.0%39.7%

49.0% 46.5% 50.3% 47.0% 47.7% 50.3% 49.3%48.5%

3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17

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

335.6 375.3 420.8 397.3556.2 671.5 655.3 716.1 672.1 733.9

39.8% 38.5% 37.7% 40.8%45.5% 45.2% 43.9% 46.9% 47.4% 47.5%

9M08 9M09 9M10 9M11 9M12 9M13 9M14 9M15 9M16 9M17

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

133.7 148.1

24.9% 24.8%

3Q16 3Q17

Selling expenses (R$ mn)

% of net revenue

345.9 371.6

24.4% 24.0%

9M16 9M17

Selling expenses (R$ mn)

% of net revenue


General and administrative expenses (G&A)

The effort to control expenses continues:


9M16 9M17 Change %

9M16–9M17

G&A expenses 22.0 23.1 5.1% 74.9 68.9 (7.9%)


Ebit and Ebitda

Ebit

Because it has a high cash position, generating significant financial revenues, Grendene believes that the operational profit of its activity is best characterized by Ebit – Earnings before interest and taxes (i.e. Operational profit before financial effects).

36.1 37.7

6.7% 6.3%

3Q16 3Q17

Advertising expenses (R$ mn)

% of net revenue

83.6 84.8

5.9% 5.5%

9M16 9M17

Advertising expenses (R$ mn)

% of net revenue

22.0 23.1

4.1% 3.9%

3Q16 3Q17

G&A expenses (R$ mn)

% of net revenue

74.9 68.9

5.3%4.5%

9M16 9M17

G&A expenses (R$ mn)

% of net revenue

107.5 111.4

20.0%18.7%

3Q16 3Q17

Ac

co

un

tin

g

Ebit (R$ mn) Ebit margin (%)

244.4 278.4

17.2%

13.9%

9M16 9M17

Ac

co

un

tin

g


121.6 126.7

22.7% 21.3%

3Q16 3Q17

Ac

co

un

tin

g

Ebitda (R$ mn) Ebitda margin (%)

287.6323.4

20.3% 20.9%

9M16 9M17

Ac

co

un

tin

g



Reconciliation of Ebit / Ebitda *

R$ ’000 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Net profit for the period 150,939 146,727 (2.8%) 387,535 410,476 5.9%

Non-controlling stockholders 3,943 - (100.0%) (396) (26) (93.4%)

Taxes on profit 15,625 20,082 28.5% 51,944 59,749 15.0%

Net financial revenue (expenses) (63,041) (55,347) (12.2%) (194,698) (191,841) (1.5%)

Accounting Ebit 107,466 111,462 3.7% 244,385 278,358 13.9%

Non-recurring effect - - - 8,786 7,781 (11.4%)

Recurring Ebit 107,466 111,462 3.7% 253,171 286,139 13.0%

Depreciation and amortization 14,169 15,274 7.8% 43,215 45,079 4.3%

Accounting Ebitda 121,635 126,736 4.2% 287,600 323,437 12.5%

Recurring Ebitda - - - 296,386 331,218 11.8%

Accounting Ebit margin 20.0% 18.7% (1.3 p.p.) 17.2% 18.0% 0.8 p.p.

Recurring Ebit margin - - - 17.8% 18.5% 0.7 p.p.

Accounting Ebitda margin 22.7% 21.3% (1.4 p.p.) 20.3% 20.9% 0.6 p.p.

Recurring Ebitda margin - - - 20.9% 21.4% 0.5 p.p.

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

The non-recurring amount of R$ 8.8mn in 9M16 is made up of: R$ 7.3mn for recognition (in 1Q16) of a provision for probable loss in a legal action; R$ 1.5mn (in 2Q16) for a settlement of a legal action.

The item of R$ 7.8mn in 9M17 refers to foreign exchange losses on an investment accumulated over time, which were recognized directly in Stockholders’ equity of Grendene (the parent company) in the results for 1Q17. That transfer is non-recurring, has no cash effect, and has no tax effect.

The non-recurring items were not excluded from the analyses of this report, and are shown in this table of Ebit and Ebitda as additional information.

Ebitda

Our business is low capital-intensive: Depreciation is approximately 3.0% of net revenue (it was 2.9% in 9M17, and 3.0% in 9M16). Grendene regularly invests an amount equivalent to its depreciation to keep its production capacity updated. It also maintains positive net cash, and has no costs of interest that need to be paid with funds from operations. As a result we believe that analyzing Ebit makes more sense as an indicator for the Company’s management.

253.2 286.1

17.8% 18.5%

9M16 9M17

Rec

urr

ing


296.4 331.2

20.9% 21.4%

9M16 9M17

Rec

urr

ing



Net financial revenue (expenses)

For 9M17 Grendene reports Net financial revenues, of R$191.8 mn, as follows:

R$ ’000 3Q16 3Q17 Change %, 3Q16–3Q17

9M16 9M17 Change %

9M16–9M17

Interest received from clients 562 505 (10.1%) 1,727 1,618 (6.3%)

Revenue from cash investments 51,610 40,267 (22.0%) 157,792 137,067 (13.1%)

Other financial revenues 722 200 (72.3%) 2,709 1,979 (26.9%)

Subtotal 52,894 40,972 (22.5%) 162,228 140,664 (13.3%)

Costs of financings (5,755) (2,489) (56.8%) (14,705) (7,632) (48.1%)

Cofins and PIS taxes on Financial revenues (2,473) (1,899) (23.2%) (9,140) (6,713) (26.6%)

Other financial expenses (705) (854) 21.1% (3,963) (2,782) (29.8%)

Subtotal (8,933) (5,242) (41.3%) (27,808) (17,127) (38.4%)

Net financial revenues (expenses) (1) 43,961 35,730 (18.7%) 134,420 123,537 (8.1%)

Revenue from FX derivatives – BM&FBovespa 2,081 5,707 174.2% 33,046 22,489 (31.9%)

Foreign exchange gains 2,937 7,079 141.0% 55,078 25,848 (53.1%)

Subtotal 5,018 12,786 154.8% 88,124 48,337 (45.1%)

Op. exp. on FX derivatives – BM&FBovespa (488) (584) 19.7% (6,178) (7,432) 20.3%

Expenses of FX variation (1,167) (9,150) 684.1% (65,414) (25,593) (60.9%)

Subtotal (1,655) (9,734) 488.2% (71,592) (33,025) (53.9%)

Net gain (loss) on FX variations (2) 3,363 3,052 (9.2%) 16,532 15,312 (7.4%)

Adjustments to present value (APV) 15,717 16,565 5.4% 43,746 52,992 21.1%

Financial result – APV (3) 15,717 16,565 5.4% 43,746 52,992 21.1%

Net financial revenues (exp.) (1) + (2) + (3) 63,041 55,347 (12.2%) 194,698 191,841 (1.5%)

Net profit

Although the operational results were positive, with operational result (Ebit) up 3.7% YoY in the quarter, the sum of the negative tax effects and the lower financial revenue as a result of lower interest rate resulted in net profit being 2.8% lower in 3Q17 than in 3Q16.


9M16 9M17 Change %

9M16–9M17

Net profit 150.9 146.7 (2.8%) 387.5 410.5 5.9%

Net margin, % 28.1% 24.6% (3.5 p.p.) 27.3% 26.5% (0.8 p.p.)

Capex (Fixed and intangible)

Our investments in 9M17 were in: maintenance of industrial buildings and facilities; replacement of fixed assets; acquisition of new equipment for modernization of the manufacturing plant; and various projects to improve the company’s efficiency.


9M16 9M17 Change %

9M16–9M17

Capex 13.6 25.5 87.0% 52.1 77.1 48.1%

150.9 146.7

28.1% 24.6%

3Q16 3Q17

Net profit (R$ mn)

Net margin (%)

387.5 410.5

27.3% 26.5%

9M16 9M17

Net profit (R$ mn)

Net margin (%)


Cash generation

Cash generated by operations in 9M17 was R$ 427.6 mn. Cash flow from investment activities was R$ 97.2mn, on cash investments of R$ 2.175 billion, with redemptions of R$ 2.350 billion, and investment of R$ 77.1 million in PP&E and intangible assets. Cash flow in financial activities comprised outflow of R$ 331mn: payments of R$ 303.2mn paid in dividends and Interest on Equity, and R$ 23.4mn in short and long-term loans; and a net loss of R$ 4.4 mn on sale of treasury shares to meet stock options.

The result was a balance in current account and very short-term financial investment R$ 193.8 million higher year-on-year. The complete cash flow is shown in Appendix IV.

Net cash and cash equivalents

Grendene continues to have a solid financial situation. Net cash (Cash, Cash equivalents and Short and Long-term financial investments, less Short and long-term loans and financings) on September 30, 2017 totaled R$1.6 billion, or 11.8% more than the net cash of R$1.5 billion at December 31, 2016.

The proportion of 12-month net revenue held in cash and cash equivalents and cash investments increased from 76.9% at September 30, 2016 to 80.2% at September 30, 2017.

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

1,652.9 1,570.0 1,610.5 1,589.4 1,873.5 1,781.41,742.9

(265.6) (133.5) (109.2) (125.4) (193.3) (120.4) (106.6)

1,387.3 1,436.5 1,501.3 1,464.01,680.2 1,661.0 1,636.3

(500)

0

500

1.000

1.500

2.000

31-Mar-16 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17

R$ m

illi

on

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

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

Net cash

,

,

,


Structure of assets and liabilities; value indicators

Assets

September 30, 2016

December 31, 2016

September 30, 2017

Cash and cash equivalents plus cash investments – short-term and long-term

Working capital (excluding Cash and cash equivalents plus cash investments – short-term and long-term)

Non-current assets

Liabilities: Current + non-current liabilities

September 30, 2016

December 31, 2016

September 30, 2017

Liabilities – Financial

Liabilities – Operational

Consolidated Stockholder’s equity

Value indicators

* September 30, 2017 / ** last 12 months

56.9%27.9%

15.2%

53.4%

30.5%

16.1%

56.1%29.0%

14.9%

3.6% 6.4%

90.0%

3.9%6.3%

89.8%

3.2% 6.5%

90.3%

5.808.10

10.16

2.19

26.73

12.21

Cash and cashequivalents and

financialinvestment per

share*

Net working capitalper share*

Book value pershare*

Profit per share** Share price* Share price* / Profitper share**


Dividends

In 3Q17 Grendene paid interim dividends totaling R$73.5mn, 3.4% less than the dividends distributed in 3Q16 (R$76.1mn) – bringing the total in 9M17 to R$228.1mn, 12.5% more than in 9M16 (R$202.8mn).

Under Grendene’s by-laws, the minimum obligatory dividend is calculated as 25% of the net profit remaining for the year after payments to reserves specified by law.

Based on the results at September 30, 2017, maintaining the policy of quarterly interim dividends and in accordance with the policy published on February 13, 2014, the Company is making advance payment of the third tranche of interim dividends, ad referendum the Annual General Meeting of Stockholders that approves the accounts for the year 2017, in the amount of R$73,480,889.01, equivalent to R$0.244355986 per share, excluding the shares in treasury, to be paid from November 22, 2017.

This will be payable to shareholders of record of the common shares (GRND3) on November 6, 2017 (the cut-off date). Thus GRND3 will be traded ex-dividend on the B3 (the São Paulo stock exchange) on November 7, 2017.

Basis for the distribution of dividends1 –– September 30, 2017

Grendene S.A. (holding company) R$

Net profit for the period 410,476,104.91

( - ) Tax incentives reserve (170,325,427.72)

Basis for calculation of the Legal reserve 240,150,677.19

( - ) Constitution of Legal reserve (12,007,533.85)

Basis for the dividend for the period up to September 30, 2017 228,143,143.34

( - ) 1st interim Dividend and Interest on Equity paid in May 17, 2017 (99,078,060.63)

( - ) 2nd interim Dividend paid in August 16, 2017 (55,584,193.70)

Balance of dividends payable, 3Q17 73,480,889.01

Minimum mandatory dividend payable – 25% 57,035,785.84

Dividend proposed in excess of the minimum mandatory dividend 171,107,357.50

Corporate action payments 1

Decision Date approved Ed-dividend

date Date of start of

payment Gross

amount R$

Gross amount per

share R$

Net amount R$

Net amount per share R$

Dividends Apr. 27, 2017 May 3, 2017 May 17, 2017 69,078,060.63 0.229714663 69,078,060.63 0.229714663

Interest on Equity Apr. 27, 2017 May 3, 2017 May 17, 2017 30,000,000.00 0.099763077 25,500,000.00 0.084798615

Dividends July 27, 2017 Aug. 4, 2017 Aug. 16, 2017 55,584,193.70 0.184841673 55,584,193.70 0.184841673

Dividends Oct. 26, 2017 Nov. 7, 2017 Nov. 22, 2017 73,480,889.01 0.244355986 73,480,889.01 0.244355986

Total 228,143,143.34 0.758675399 223,643,143.34 0.743710937

1 Corporate action payments (Interest on Equity + Dividends) approved subject to confirmation by the Annual General Meeting that will examine the balance sheet and financial statements for the 2017 fiscal year.

(*) Payout: Dividend + net Interest on Equity, divided by net profit after constitution of the legal reserves.

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

R$0.549

R$0.674R$ 0.759

47.4% 52.6% 56.1%

4.4% 8.0% 4.1%

9M15 9M16 9M17

%R

$ p

er

sh

are

Dividends per share Payout (*) Dividend yield (**)


Corporate events

July 27, 2017: Notice to Stockholders: On August 16, 2017, Grendene began payment of the second interim dividend, totaling R$55,584,193.70 (R$0.184841673 per share), for the 2017 business year. The shares traded ex-dividend on August 4, 2017.

October 26, 2017: Meeting of the Board of Directors: This meeting approved: the financial information for the third quarter of 2017; and the third interim dividend based on the profit to September 30, 2017, in the total amount of R$73,480,889.01.

Capital markets

In 9M17 Grendene’s shares (GRND3) increased in market value by 57.7%, when reinvestment of the dividends is included, while the Bovespa index rose by 23.4% in the same period. Average daily trading volume 9M17 was R$8.5mn (R$4.6mn in 9M16).

Number of trades, number of shares traded, financial volume, and daily average trading in 9M16 and 9M17:

Period No. of

trading sessions

No. of trades

No. of shares

Volume R$

Price R$ Average no. of shares Average financial

volume R$

Weighted average

Close Per trade Daily Per trade Daily

9M16 188 239,849 50,991,700 857,942,098 16.83 17.87 213 271,232 3,577 4,563,522

9M17 187 291,554 65,107,200 1,588,778,902 24.40 26.73 223 348,167 5,449 8,496,144

In the last 52 weeks (up to September 30, 2017) the lowest price of GRND3 was R$16.19, on December 16, 2016; and the highest was R$29.99, on July 17, 2017. The dividend yield calculated on the basis of the weighted average price of the share in 9M17 was 4.1% p.a. (8.0% p.a. in 9M16).

This chart shows performance of Grendene common shares (GRND3) compared to the Bovespa Index (Basis: December 31, 2016 = 100), and daily trading volume.

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

0

20

40

60

80

100

120

140

160

180

200

-

5

10

15

20

25

30

35

40

45

50

Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

Ba

sis

: Dece

mb

er 3

1, 2

01

6Tra

din

g v

olu

me

-R

$ m

n

GRND3 vs. Ibovespa, and trading volume

Daily financial volume - R$ GRND3 - with reinvest. Dividends Ibovespa


Appendix I – Gross revenue, volume, average price and market share

Consolidated Gross revenue

(R$ ’000)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Var. %

3Q16/3Q17 9M16 9M17

Var. % 9M16/9M17

Domestic market 380,848 394,745 519,459 575,321 470,696 414,185 597,202 15.0% 1.295,052 1.482,083 14.4%

Export 185,754 104,495 134,498 187,918 150,260 121,803 126,681 (5.8%) 424,747 398,744 (6.1%)

Export (US$) 47,506 29,760 41,388 57,056 47,809 37,901 40,040 (3.3%) 119,412 125,648 5.2%

Total 566,602 499,240 653,957 763,239 620,956 535,988 723,883 10.7% 1,719,799 1,880,827 9.4%

Volume (Thousand pairs)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Var. %

3Q16/3Q17 9M16 9M17

Var. % 9M16/9M17

Domestic market 23,747 26,225 34,338 39,285 26,844 24,133 36,448 6.1% 84,310 87,425 3.7%

Export 11,159 7,374 10,220 11,209 11,016 9,228 8,733 (14.5%) 28,753 28,977 0.8%

Total 34,906 33,599 44,558 50,494 37,860 33,361 45,181 1.4% 113,063 116,402 3.0%

Average price (R$)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Var. %

3Q16/3Q17 9M16 9M17

Var. % 9M16/9M17

Domestic market 16.04 15.05 15.13 14.64 17.53 17.16 16.39 8.3% 15.36 16.95 10.4%

Export 16.65 14.17 13.15 16.76 13.64 13.20 14.51 10.3% 14.77 13.76 (6.8%)

Export (US$) 4.26 4.04 4.05 5.09 4.34 4.11 4.59 13.3% 4.15 4.34 4.6%

Total 16.23 14.86 14.67 15.12 16.40 16.07 16.02 9.2% 15.21 16.16 6.2%

US dollar exchange rate

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Var. %

3Q16/3Q17 9M16 9M17

Var. % 9M16/9M17

- end of period 3.5589 3.2098 3.2462 3.2591 3.1684 3.3082 3.1680 (2.4%) 3.2462 3.1680 (2.4%)

- average of period 3.9100 3.5099 3.2472 3.2934 3.1429 3.2137 3.1639 (2.6%) 3.5557 3.1735 (10.7%)

Gross revenue – Share %

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17

Domestic market 67.2% 79.1% 79.4% 75.4% 75.8% 77.3% 82.5% 75.3% 78.8%

Export 32.8% 20.9% 20.6% 24.6% 24.2% 22.7% 17.5% 24.7% 21.2%

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

Sales volume – Share %

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17

Domestic market 68.0% 78.1% 77.1% 77.8% 70.9% 72.3% 80.7% 74.6% 75.1%

Export 32.0% 21.9% 22.9% 22.2% 29.1% 27.7% 19.3% 25.4% 24.9%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100% 100.0% 100.0%


Appendix II – Consolidated statement of financial position, IFRS (R$ ’000)

Assets Dec. 31, 2016 % total Sep. 30, 2017 % total Change

Current 2,492,979 76.6% 2,711,738 80.2% 108.8%

Cash and cash equivalents 20,663 0.6% 214,480 6.3% 1.038.0%

Cash Investments 1,288,070 39.6% 1,318,987 39.0% 102.4%

Securities at fair value through profit or loss 483,659 14.9% 579,804 17.1% 119.9%

Securities held to maturity 804,411 24.7% 739,183 21.8% 91.9%

Accounts receivables from clients 760,953 23.4% 702,158 20.8% 92.3%

Inventories 260,646 8.0% 294,972 8.7% 113.2%

Tax credits 29,347 0.9% 42,075 1.2% 143.4%

Income tax and Social Contribution taxes recoverable 3,681 0.1% 14,203 0.4% 385.8%

Securities receivable 84,217 2.6% 98,840 2.9% 117.4%

Prepaid costs and expenses 3,677 0.1% 5,211 0.2% 141.7%

Other 41,725 1.3% 20,812 0.6% 49.9%

Non-current 760,841 23.4% 671,348 19.8% 88.2%

Long-term assets 342,916 10.5% 227,967 6.7% 66.5%

Cash investments 280,645 8.6% 209,443 6.2% 74.6%

Securities held to maturity 280,645 8.6% 209,443 6.2% 74.6%

Judicial deposits 1,073 - 1,252 - 116.7%

Tax credits 533 - 773 - 145.0%

Deferred income tax and Social Contribution tax 53,932 1.7% 9,782 0.3% 18.1%

Prepaid expenses 6,733 0.2% 6,717 0.2% 99.8%

Investments 412 - 412 - 100.0%

Property, plant and equipment 387,071 11.9% 412,179 12.2% 106.5%

Intangible assets 30,442 0.9% 30,790 0.9% 101.1%

Total assets 3,253,820 100.0% 3,383,086 100.0% 104.0%

Liabilities and Stockholders’ equity Dec. 31, 2016 % total Sep. 30, 2017 % total Change

Current 275,383 8.5% 277,266 8.2% 100.7%

Loans and Financings 70,734 2.2% 59,567 1.8% 84.2%

Suppliers 41,369 1.3% 40,183 1.2% 97.1%

Contractual obligations – Licensing 14,011 0.4% 24,653 0.7% 176.0%

Commissions payable 39,831 1.2% 36,333 1.1% 91.2%

Taxes 38,375 1.2% 24,037 0.7% 62.6%

Income tax and Social Contribution tax payable 7,560 0.2% 4,578 0.1% 60.6%

Salaries and related charges payable 51,497 1.6% 81,148 2.4% 157.6%

Provision for employment-law litigation risk 2,485 0.1% 1,451 - 58.4%

Other accounts payable 9,521 0.3% 5,316 0.2% 55.8%

Non-current 56,367 1.7% 49,353 1.5% 87.6%

Loans and financings 54,638 1.7% 47,029 1.4% 86.1%

Provision for employment-law litigation risk 710 - 472 - 66.5%

Other debits 1,019 - 1,852 0.1% 181.7%

Consolidated stockholders’ equity 2,922,070 89.8% 3,056,467 90.3% 104.6%

Controlling stockholders 2,921,998 89.8% 3,056,467 90.3% 104.6%

Paid-up share capital 1,231,302 37.8% 1,231,302 36.4% 100.0%

Capital reserves 6,480 0.2% 6,908 0.2% 106.6%

Shares in treasury (1,169) - (134) - 11.5%

Revenue reserves 1,682,354 51.7% 1,734,542 51.3% 103.1%

Retained earnings - - 73,481 2.2% -

Other comprehensive income 3,031 0.1% 10,368 0.3% 342.1%

Non-controlling interests 72 - - - -

Total liabilities and equity 3,253,820 100.0% 3,383,086 100.0% 104,0%


Appendix III – Consolidated profit and loss account (R$ ’000)

R$ ’000 3Q16 % of net sales 3Q17 % of net sales Change %

3Q17 / 3Q16

Domestic market 519,459 96.8% 597,202 100.1% 15.0%

Exports 134,498 25.1% 126,681 21.2% (5.8%)

Gross revenue from sales and services 653,957 121.9% 723,883 121.4% 10.7%

Sales returns and sales taxes (93,334) (17.4%) (98,601) (16.5%) 5.6%

Discounts given to clients (24,197) (4.5%) (28,953) (4.9%) 19.7%

Deductions from sales (117,531) (21.9%) (127,554) (21.4%) 8.5%

Net sales revenue 536,426 100.0% 596,329 100.0% 11.2%

Cost of goods sold (271,952) (50.7%) (307,395) (51.5%) 13.0%

Gross profit 264,474 49.3% 288,934 48.5% 9.2%

Operational revenues (expenses) (157,008) (29.3%) (177,472) (29.8%) 13.0%

Selling expenses (133,706) (24.9%) (148,088) (24.8%) 10.8%

General and administrative expenses (SG&A) (22,014) (4.1%) (23,136) (3.9%) 5.1%

Other operating revenues 4,930 0.9% 3,707 0.6% (24.8%)

Other operational expenses (6,218) (1.2%) (9,955) (1.7%) 60.1%

Op. profit before fin. revenue (exp.) and taxes (EBIT) 107,466 20.0% 111,462 18.7% 3.7%

Financial revenues 73,629 13.7% 70,323 11.8% (4.5%)

Financial expenses (10,588) (2.0%) (14,976) (2.5%) 41.4%

Financial result 63,041 11.8% 55,347 9.3% (12.2%)

Pretax profit 170,507 31.8% 166,809 28.0% (2.2%)

Income tax and Social Contribution tax

Current (16,260) (3.0%) (21,518) (3.6%) 32.3%

Deferred 635 0.1% 1,436 0.2% 126.1%

Non-controlling stockholders (3,943) (0.7%) - - (100.0%)

Net profit for the period 150,939 28.1% 146,727 24.6% (2.8%)

Depreciation and amortization 14,169 2.6% 15,274 2.6% 7.8%

EBITDA 121,635 22.7% 126,736 21.3% 4.2%

R$ ’000 9M16 % of net sales 9M17 % of net sales Change %

9M17 / 9M16

Domestic market 1,295,052 91.3% 1,482,083 95.8% 14.4%

Exports 424,747 29.9% 398,744 25.8% (6.1%)

Gross revenue from sales and services 1,719,799 121.2% 1,880,827 121.6% 9.4%

Sales returns and sales taxes (238,481) (16.8%) (262,385) (17.0%) 10.0%

Discounts given to clients (62,158) (4.4%) (71,859) (4.6%) 15.6%

Deductions from sales (300,639) (21.2%) (334,244) (21.6%) 11.2%

Net sales revenue 1,419,160 100.0% 1,546,583 100.0% 9.0%

Cost of goods sold (747,047) (52.6%) (812,675) (52.5%) 8.8%

Gross profit 672,113 47.4% 733,908 47.5% 9.2%

Operational revenues (expenses) (427,728) (30.1%) (455,550) (29.5%) 6.5%

Selling expenses (345,919) (24.4%) (371,636) (24.0%) 7.4%

General and administrative expenses (SG&A) (74,854) (5.3%) (68,941) (4.5%) (7.9%)

Other operating revenues 42,515 3.0% 8,412 0.5% (80.2%)

Other operational expenses (49,470) (3.5%) (23,385) (1.5%) (52.7%)

Op. profit before fin. revenue (exp.) and taxes (EBIT) 244,385 17.2% 278,358 18.0% 13.9%

Financial revenues 294,098 20.7% 241,993 15.6% (17.7%)

Financial expenses (99,400) (7.0%) (50,152) (3.2%) (49.5%)

Financial result 194,698 13.7% 191,841 12.4% (1.5%)

Pretax profit 439,083 30.9% 470,199 30.4% 7.1%

Income tax and Social Contribution tax

Current (17,719) (1.2%) (15,821) (1.0%) (10.7%)

Deferred (34,225) (2.4%) (43,928) (2.8%) 28.4%

Non-controlling stockholders 396 - 26 - (93.4%)

Net profit for the period 387,535 27.3% 410,476 26.5% 5.9%

Depreciation and amortization 43,215 3.0% 45,079 2.9% 4.3%

EBITDA 287,600 20.3% 323,437 20.9% 12.5%


Appendix IV – Consolidated statements of cash flow (R$ ’000)

Statements of cash flow Sep. 30, 2016 Sep. 30, 2017

Cash flow from operations

Net profit for the period 387,139 410,450

Adjustments reconciling profit to cash from operations

Depreciation and amortization 43,215 45,079

Deferred income tax and Social Contribution tax 34,391 44,150

Foreign exchange losses on investments - 7,774

Gain on sale and write-off of investment 13,753 11,202

Gain on sale and write-off of intangible assets 4,766 -

Provision for losses / Reversals (9,826) (4,461)

Stock options plan 3,929 4,777

Provision for doubtful receivables 2,112 3,112

Provision for punctuality discounts (2,950) (495)

Provision for obsolete inventory 1,013 (707)

Provision for employment-law litigation and civil risks 1,005 (1,272)

Interest expenses on financing 7,475 2,667

Interest revenue on cash investments (155,781) (134,107)

FX variations, net (28,255) 1,391

301,986 389,560

Variations in assets and liabilities:

Accounts receivable from clients 231,413 56,178

Inventories (5,821) (33,619)

Other accounts payable 30,755 (18,897)

Suppliers (12,238) (1,186)

Salaries and related charges payable 19,606 29,651

Taxes (7,694) 5,162

Income tax and Social Contribution tax payable (8,891) (2,982)

Other accounts payable (9,483) 3,772

Net cash from operational activities 539,633 427,639

Cash flow, investment:

In PP&E (42,353) (69,607)

In Intangible assets (9,706) (7,505)

Cash investments (1,653,743) (2,175,357)

Redemption of cash investments 1,365,382 2,105,123

Interest received 113,510 244,626

Loss on disposal of investment - (46)

Net cash flow in investment activities (226,910) 97,234

Cash flow, financing:

Loans contracted 428,492 246,791

Payment of loans (506,447) (268,039)

Interest paid (10,180) (2,187)

Dividends paid (107,590) (143,256)

Interest on Equity paid (115,000) (160,000)

Acquisition of treasury shares (9,851) (9,837)

Sale of shares in treasury for exercise of purchase options 6,416 5,472

Loss on increase in equity interest (582) -

Net cash used in financing activities (314,742) (331,056)

Decrease / increase in cash and cash equivalents (2,019) 193,817

Statement of variation in cash and cash equivalents

At start of period 21,285 20,663

At end of period 19,266 214,480

Decrease / increase in cash and cash equivalents (2,019) 193,817

9M17 Ebit R$ 278.4mn up 13.9% from 9M16; Results for...

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