2017: Netrevenueup10.1%; Results for Ebit up 16.5%, at R$ …static.grendene.aatb.com.br/releases/1335_007_GRND_PR_4Q17.pdf · Conference call in portuguese: Feb. 23, 2018 at 10:30

Results for 4Q17 and 2017 Page 1 of 25

Results for 4Q17 and 2017

B3 ticker: GRND3

http://ri.grendene.com.br

Number of shares: Common shares: 300,720,000

Price (Dec. 31, 2017): R$ 28.45 per share

Market value: R$ 8.6 billion US$2.6 billion

Conference call in portuguese: Feb. 23, 2018 at 10:30 a.m. Connect: - From Brazil: +11-3193-1001 +11-2820-4001 Conference call in English: Feb. 23, 2018 at 8:30 a.m. (Eastern time) (Simultaneous translation) Connect: +1-646-828-8246 (USA) +44-20-7442-5653 (UK) Contacts: Francisco Schmitt CFO & IRO [email protected] Telephone: +55-54-2109-9022 Fax: +55-54-2109-9991

2017: Net revenue up 10.1%; Ebit up 16.5%, at R$ 465.6mn – Ebit margin 20.7%.

Sobral, February 22, 2018 – In this release GRENDENE (B3:GRND3), publishes its results for 4Q17 and 2017. Figures are consolidated, and stated in accordance with IFRS (International Financial Reporting Standards).

Highlights of results: 4Q17 and 2017

Main financial and economic indicators R$ million 4Q16 4Q17 Change %,

4Q16–4Q17 2016 2017 Change % 2016-2017

Gross revenue 763.2 846.9 11.0% 2,483.0 2,727.7 9.9% Domestic market 575.3 624.5 8.5% 1,870.3 2,106.6 12.6% Exports 187.9 222.4 18.3% 612.7 621.1 1.4% Net revenue 626.0 705.4 12.7% 2,045.1 2,252.0 10.1% COGS (301.6) (338.6) 12.3% (1,048.6) (1,151.2) 9.8% Gross profit 324.4 366.8 13.1% 996.5 1,100.8 10.5% Operational expenses (169.2) (179.6) 6.2% (596.9) (635.2) 6.4% Ebit 155.2 187.2 20.6% 399.6 465.6 16.5% Ebitda 169.9 202.8 19.4% 457.5 526.2 15.0% Net financial revenue 73.8 46.7 (36.8%) 268.5 238.5 (11.2%) Net profit 247.0 250.5 1.4% 634.5 660.9 4.2% Profit per share (R$) 0.82 0.83 1.4% 2.11 2.20 4.2% Volume (mn pairs) 50.5 55.0 8.8% 163.6 171.4 4.8% Domestic market 39.3 39.0 (0.9%) 123.6 126.4 2.2% Exports 11.2 16.0 42.7% 40.0 45.0 12.5% Gross revenue per pair (R$) 15.12 15.41 1.9% 15.18 15.92 4.9% Domestic market 14.64 16.03 9.5% 15.13 16.67 10.2% Exports 16.76 13.90 (17.1%) 15.33 13.81 (9.9%) Margins % 4Q16 4Q17 Change p.p. 2016 2017 Change p.p. Gross 51.8% 52.0% 0.2 48.7% 48.9% 0.2 Ebit 24.8% 26.5% 1.7 19.5% 20.7% 1.2 Ebitda 27.1% 28.7% 1.6 22.4% 23.4% 1.0 Net 39.5% 35.5% (4.0) 31.0% 29.3% (1.7) Highlights, 2017 vs. 2016: Net revenue up 10.1%, at R$ 2.25 billion.

Net profit up 4.2%, at R$ 660.9 million.

Ebit up 16.5%, at R$ 465.6mn.

Margins – Gross margin, Ebit margin, Ebitda margin: all higher – Net margin down 1.7 p.p.

Dividends and Interest on Equity for 2017: R$ 377.8mn R$ 149.6mn distributed for 4Q: ex-dividend May 4 – payment starts May 16.

Export: Grendene leads Brazilian footwear exports – for the 15th year – with 35.4% of all Brazilian footwear exports in 2017.


Management discussion and analysis

Gross revenue, Net revenue and Volumes In 4Q17 we maintained our year-on-year earnings growth, with net profit of R$ 250.5mn in the quarter, 1.4% up from net profit of R$ 247mn in 4Q16.

For the full year net profit was up 4.2% from 2016 – on Ebit up 16.5%, and Net financial revenues 11.2% lower YoY (with the corresponding tax effects).

Volumes in the domestic market were down 0.9% YoY in the quarter, though up 2.2% in the year: This shows higher growth than we expected for local consumption: we believe the market may have likely contracted in 2017, which would indicate we gained market share.

In the international market, the positive moment of economic recovery gave us a robust volume growth of 42.7% YoY in 4Q17 (volume of pairs shipped) – and YoY growth of 12.5% in the full year. Even so, due to the ending of the incentives for exports (Proapi) and a less favorable exchange rate, our export revenue in 2017 – under US$200 million – was below historic levels.

With costs and expenses growing less than revenue, gross margin and Ebit margin were both higher YoY in 4Q17 – and also for the whole year. Once again operational discipline was a fundamental factor in getting these results.

The changes in taxation continue to have an effect on profit. In 2017 the deposit in the Ceará State Fiscal Balance Fund (FEEF) was R$ 4.2mn, reducing the ICMS tax incentive total by this amount. Termination of the Proapi export incentive in March, 2017 (as scheduled – see Note 17(a) on periods of tax benefits) had a negative effect of R$ 41.6mn on export revenues in the year.

Meanwhile there was a boost of R$ 10.7mn to profit in the full year from the increase in the Reintegra tax credit on exports, from 0.1% in 2016 to 2% in 2017.

In the full year, we achieved results in line with our initial expectations: some small growth in volume, higher than the consumption growth in the domestic market; higher gross revenue; slightly better gross margin; and bottom line up 4.2%, with a small fall in net margin, from 31% to 29.3% – reflecting lower Net financial revenue.

Operational cash flow in 2017 was R$ 525.7mn, resulting in year-end net cash at R$ 1.7 billion, and gross cash at R$ 1.8 billion – respectively up 13.2% and 12.0% from December 31, 2016.

763.2 850.0 846.9(4.9) 54.1 80.2 (42.6) (3.1)

Grossrevenue -

4Q16

Volume effect- domestic

market

Mix and grossrevenue perpair effect -domesticmarket

Volume effect- Exports

Mix and grossrevenue perpair effect -

Exports

Grossrevenue

without FXeffect

FX effect -Exports

Grossrevenue -

4Q17

R$

milli

on

Change in gross revenue, domestic market and exports - analysed by effect of volume, mix and gross revenue per pair

2,483.0 2,785.7 2,727.743.0 193.3 76.6 (10.2) (58.0)

Grossrevenue -

2016

Volume effect- domestic

market

Mix and grossrevenue perpair effect -domesticmarket

Volume effect- Exports

Mix and grossrevenue perpair effect -

Exports

Grossrevenue

without FXeffect

FX effect -Exports

Grossrevenue -

2017

R$

milli

on

Change in gross revenue, domestic market and exports - analysed by effect of volume, mix and gross revenue per pair


Comparison of performance with targets For the full year, both gross revenue and net profit were slightly below the band indicated by our long-term expectations (for a nine-year period), as follows:

Performance: CAGR (compound average growth rate), 2008–2017: R$ million 2008 2009 2010 2011 2012 2013 2014* 2015* 2016 2017 CAGR Gross revenue 1,576.0 1,819.4 1,998.6 1,831.6 2,324.5 2,711.4 2,719.4 2,630.0 2,483.0 2,727.7 6.3% YoY change 15.4% 9.9% (8.4%) 26.9% 16.6% 0.3% (3.3%) (5.6%) 9.9% Net profit 239.4 272.2 312.4 305.4 429.0 433.5 493.7 603.0 634.5 660.9 11.9% YoY change 13.7% 14.8% (2.2%) 40.5% 1.1% 13.9% 22.1% 5.2% 4.2%

* 2014 and 2015 – Figures adjusted to exclude non-recurring effect – A3NP. R$ million 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CAGR Advertising expenses 107.6 116.1 127.1 138.7 147.0 163.7 169.2 148.9 125.2 125.6 1.7% % of Net revenue 8.6% 8.0% 7.9% 9.4% 7.8% 7.5% 7.6% 6.8% 6.1% 5.6%

In 2008 we published the following parameters as our targets for a period spanning ten years – 2008 to 2018:

Gross revenue: Compound average growth rate (CAGR) between 8% and 12%.

Net profit: CAGR between 12% and 15%.

Advertising expenses: Average of 8% to 10% of net revenue over this period.

In the ninth of these 10 years, we see CAGR for gross revenue of 6.3% p.a., and CAGR for net profit of 11.9% p.a. The CAGR of Ebit from 2008 through 2017 was 12.2% p.a.; and CAGR of dividends was 14.8% p.a. In this period, the return on stockholders’ equity averaged 23.2% p.a.

In our opinion our operational execution to achieve these expected levels has been very good, and although the growth has been slightly lower than expected we consider the results to be successful, in view of the long period we gave for our target (10 years); and the considerable economic turbulence Brazil has suffered in the period. In spite of those difficulties, taking into account the transparency that we always seek to uphold in our communications with the market, starting in 2015 we already stated that there was a risk of not meeting the targets, due to the economic outlook that we could see at the time.

To meet our targets for the end of the 10-year period – to achieve the minimum levels of the bands indicated for these variables – gross revenue in 2018 would have to be between R$ 3.4 billion and R$ 4.9 billion, and net profit would have to be between R$ 743mn and R$ 968mn – representing YoY growth of 24.7% and 12.4% respectively – which we now believe will probably not happen. This is indicated in the charts below.

For revenue growth at this percentage the market conditions must be much better than those we expect to face in 2018. We expect some recovery in the market, but we do not expect to see a recovery to 2013 levels before the end of this current year – and this makes it unlikely, in our view, that we will succeed in generating gross revenue in 2018 within the band of figures that we stated in 2008 for the 10-year target.

At the same time, continuing low interest rates means lower net financial revenues – which are thus less likely to help us achieve growth in net profit on the scale necessary to achieve that target. We do expect improvement in operational results; but not enough to make up for the low growth in net financial revenue – and provide the 12.4% YoY growth in net profit that would be necessary to bring us within the target for the last year of the period. These numbers, in our assessment, could be within the range of the possible – but we would not say they are probable.

For the whole of this period we have had some years with low interest rates – but strong growth of consumption in Brazil; and some years with recession, but very high interest rates. 2017 was not a case of the latter, and we do not expect 2018 to be. For this year, we expect modest recovery in consumption; and very low interest rates. In that scenario, we would expect to have very low growth, or even reduction, in our net financial revenue, and higher growth in the operational result, but we would expect it to be unlikely that YoY net profit growth would reach two digits.

Also, we are expecting an increase in operational expenses, possibly of as much as 1% (beyond normal growth), to adapt to the new rules of the Novo Mercado, and the Brazilian Corporate Governance Code. On the other hand, possibly not all of this increase will happen in 2018.

The charts below show our guidance targets for gross revenue and net profit for 2008-2018 – and performance up to and including 2017.


* 2014 and 2015 – Figures adjusted to exclude non-recurring effect – A3NP.

* 2014 and 2015 – Figures adjusted to exclude non-recurring effect – A3NP.

1,702 1,8381,985 2,144 2,316 2,501

2,701 2,917 3,150 3,402

1,765 1,977 2,2142,480

2,777 3,111 3,4843,902

4,3704,895

1,374 1,515 1,5761,819

1,9991,832

2,3242,711

2,719

2,630 2,483 2,728

1000

2000

3000

4000

5000

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

R$

milli

on

Target - Gross revenue

Guidance 8% p.a. Guidance 12% p.a. Fulfilled

268 300

336

377 422 472 529

593

664 743

275 317 364 419

481 554

637 732

842 968

257 261 239 272 312

305

429 434 494

603 634 661

200

400

600

800

1000

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

R$

milli

on

Target - Net profit

Guidance 12% p.a. Guidance 15% p.a. Fulfilled


Highlights On December 31, 2017 our ‘Clube Melissa’ franchise had 263 stores – throughout Brazil – which compares to 241 at the end of 2016. This is 31.5% more than the potential figure of 200 stores that we estimated as achievable in 2017 when we started this store franchise in 2012.

In an unprecedented collaboration with Rei Kawakubo’s grife Comme des Garçons, Melissa showed two models resulting from this partnership on the runway in Paris.

Kawakubo, famous for her conceptual creations, is the only fashion designer to be the subject of a museum exhibition in her own right – from the Metropolitan Museum of Art.

Grendene was present at the Zero Grau fair at the Serra Park Exhibition Center in Gramado, southern Brazil, to present the launches of its autumn-winter collection. Zero Grau is now a fashion benchmark for retailing in Brazil and numerous countries, especially in Latin America.

On the popular Sunday afternoon TV program Domingão do Faustão, we ran merchandizing of our Ipanema brand, presented by Mônica Salgado, Taís Araújo, Bells, Jade Baraldo, Gabi Oliveira and Maia Gabeira.

In continuation of the ‘Hits’ of its campaigns, Grendene’s Rider brand invited singer/composer Fióti to write a song inspired on stories of ‘Those who Do’ – the slogan of his #dá pra fazer campaigns.

https://conecta.grendene.com.br/portal/p/001/ecmnavigation?app_ecm_navigation_doc=181863&app_ecm_navigation_docVersion=1000


Launches

Awards

November 22, 2017: Grendene was in the ranking of the 500 Maiores do Sul, an initiative of the Amanhã Group in partnership with PwC (PricewaterhouseCoopers). – Grendene placed ninth in the ranking of the state (Rio Grande do Sul), and 27th among the ‘500 Greatest of the South’. It was also recognized as outstanding in net revenue and profitability in the Leather and Footwear sector.

Dec. 7, 2017: At the 17th annual Delmiro Gouveia Awards, held by the Demócrito Rocha Foundation (FDR) and the O POVO communications group, Grendene received awards among the leading companies of Ceará State, based on criteria including stockholders’ equity, total adjusted assets and companies’ social action. Grendene was recognized as the State’s fourth largest company, awarded third place in Best Economic and Financial Results above R$ 90 million, and won first place among Accounting Highlights.


Operational results – 4Q17 and 2017 (Consolidated, IFRS)

Gross revenue A key factor in the boost to revenue in 4Q17 was the number of pairs exported – 42.7% higher year-on-year.

Total (Domestic market + Exports) 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 Gross revenue (R$mn) 763.2 846.9 11.0% 2,483.0 2,727.7 9.9% Volume (million pairs) 50.5 55.0 8.8% 163.6 171.4 4.8% Gross revenue per pair (R$) 15.12 15.41 1.9% 15.18 15.92 4.9%

763.2 846.9

4Q16 4Q17

Gross revenue (R$ mn)

50.5 55.0

4Q16 4Q17

Volume (million pairs)

15.12 15.41

4Q16 4Q17

Gross revenue per pair (R$)

75.4%

24.6%

Share of gross revenue4Q16

Domestic market Exports

73.7%

26.3%

Share of gross revenue4Q17


77.8%

22.2%

Share sales volume4Q16


70.9%

29.1%

Share sales volume4Q17



Domestic market (DM) The domestic market is recovering at the same slow rate as the recovery of the economy.

Domestic Market (DM) 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 Gross revenue – DM (R$mn) 575.3 624.5 8.5% 1,870.3 2,106.6 12.6% Volume – DM (million pairs) 39.3 39.0 (0.9%) 123.6 126.4 2.2% Gross revenue per pair – DM (R$) 14.64 16.03 9.5% 15.13 16.67 10.2%

2,483.0 2,727.7

2016 2017

Gross revenue (R$ mn)

163.6 171.4

2016 2017

Volume (million pairs)

15.18 15.92

2016 2017

Gross revenue per pair (R$)

75.3%

24.7%

Share of gross revenue2016


77.2%

22.8%

Share of gross revenue2017


75.6%

24.4%

Share sales volume2016


73.8%

26.2%

Share sales volume2017



Export market (EM) With the exchange rate 1.4% lower in 4Q17 than 4Q16, and the ending of the incentives for exports (Proapi), gross revenue per pair was 17.1% lower YoY in Reais, and 15.9% lower in US dollars, although the volume of pairs exported was 42.7% higher YoY.

One of the main factors for this decline in revenue per pair it was the end of the export incentive, which occurred in March this year, which had a negative impact on the growth of export revenue in 4Q17, compared to the same period of last year. In absolute numbers, gross export revenue increased by R$ 34.5 million, with a reduction in the export incentive of R$ 16.8 million and an increase in export revenues (comparing both periods without the export incentive) of R$ 47.6 million, increase in the value of Reintegra of R$ 4.2 million and decrease in the value of APV of R$ 0.5 million.

575.3 624.5(4.9) 54.1

Gross revenue- DM - 4Q16

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

Gross revenue- DM - 4Q17

R$

milli

on

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

39.3 39.0

4Q16 4Q17

Volume - DM (million pairs)

14.64 16.03

4Q16 4Q17

Gross revenue per pair - DM (R$)

1,870.32,106.643.0 193.3

Gross revenue- DM - 2016

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

Gross revenue- DM - 2017

R$

milli

on

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

15.13 16.67

2016 2017

Gross revenue per pair - DM (R$)


Exports (EM) 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 Gross revenue – EM (R$mn) 187.9 222.4 18.3% 612.7 621.1 1.4% Gross revenue – EM (US$mn) 57.1 68.5 20.0% 175.5 194.6 10.9% Volume – EM (million pairs) 11.2 16.0 42.7% 40.0 45.0 12.5% Gross revenue per pair – EM (R$mn) 16.76 13.90 (17.1%) 15.33 13.81 (9.9%) Gross revenue per pair – EM (US$mn) 5.09 4.28 (15.9%) 4.39 4.33 (1.4%)

In full-year 2017, in absolute terms, gross export revenue increased by R$ 8.6 million, with a reduction in the export incentive of R$ 41.6 million and an increase in export revenues (comparing both periods without the export incentive) R$ 43.1 million, an increase of R$ 10.7 million in the amount of Reintegra and a decrease of R$ 3.6 million in the value of the APV. On top of this, there was the adverse effect of the exchange rate. If the volumes and prices of this year had been invoiced at the average exchange rate of 2016, gross revenue from exports would have been increase by R$ 58mn – as shown here:

187.9 225.5 222.480.2 (42.6) (3.1)

Gross revenue EM- 4Q16

Volume effect - EM Mix and grossrevenue per pair

effect - EM

Gross revenuewithout FX effect -

EM

FX effect - EM Gross revenue EM- 4Q17

R$

milli

on

Change in gross revenue from exports market - effects of volume, mix and gross revenue per pair

57.1 68.524.4 (13.0)

Gross revenue EM - 4Q16 Volume effect - EM Mix and gross revenue perpair effect - EM

Gross revenue EM - 4Q17

US$

milli

on

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

11.216.0

4Q16 4Q17

Volume - EM (million pairs)

16.76 13.90

4Q16 4Q17

Gross revenue per pair - EM (R$)

612.7 679.1 621.176.6 (10.2) (58.0)

Gross revenue EM- 2016

Volume effect - EM Mix and grossrevenue per pair

effect - EM

Gross revenuewithout FX effect -

EM

FX effect - EM Gross revenue EM- 2017

R$

milli

on

Change in gross revenue from exports market - effects of volume, mix and gross revenue per pair


According to the figures for 2017 and 2016 from the Foreign Trade Service of the Central Bank (Secex), and the Brazilian Footwear Manufacturers’ Association (Abicalçados), total volume of pairs of Brazilian footwear exported was 1.2% higher in the year, with revenue in dollars up 9.3% and average price in dollars up 7.9%. By comparison, Grendene’s number of pairs exported rose 12.5% from 2016 to 2017, with export revenue in dollars 10.9% higher, and gross revenue per pair 1.4% lower. In 2017 Grendene’s share of Brazilian footwear exports was 35.4% – maintaining its leadership in number of pairs exported from Brazil for the 15th consecutive year.

Net sales revenue The YoY increases in net revenue (12.7% in 4Q17, and 10.1% in the year) reflect the behavior of volumes of pairs in the domestic market (down 0.9% YoY in 4Q17 and up 2.2% in 2017) – and also in the export market: up 42.7% YoY in 4Q17, and up 12.5% in the year.

The market mix contributed a higher added value in the domestic market, reflected in higher gross revenue per pair (up 9.5% in 4Q17, and up 10.2% in 2017).

Note that there are also effects on net revenue from the ending of the Proapi export incentive receivable, partially offset by the increase in the Reintegra tax credit.

R$ million 4Q16 4Q17 Change % 4Q16-17 2016 2017 Change %

2016–2017 Net sales revenue 626.0 705.4 12.7. 2,045.1 2,252.0 10.1%

Cost of goods sold (COGS) In 4Q17 the increase in COGS, at 12.3% YoY, was slightly lower than the increase in net revenue (12.7%), in spite of net revenue from exports having been hit by the mentioned effects above, when compared to 4Q16.

175.5 194.622.0 (2.9)

Gross revenue EM - 2016 Volume effect - EM Mix and gross revenue perpair effect - EM

Gross revenue EM - 2017

US$

milli

on

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

40.0 45.0

2016 2017

Volume - EM (million pairs)

15.33 13.81

2016 2017

Gross revenue per pair - EM (R$)

626.0 705.4

4Q16 4Q17

Net sales revenue (R$ mn)

2,045.1 2,252.0

2016 2017

Net sales revenue (R$ mn)


R$ million 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 COGS 301.6 338.6 12.3% 1,048.6 1,151.2 9.8% COGS per pair (R$) 5.97 6.16 3.2% 6.41 6.71 4.7%

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 4Q17

46,752 31,784 46,953 54,911 34,906 33,599 44,558 50,494 37,860 33,361 45,181 54,944

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

Gross profit In spite of the adverse tax effects in 2017, gross margin increased by 0.2 p.p. from 48.7% to 48.9%.

R$ million 4Q16 4Q17 Change % 4Q16-17 2016 2017 Change %

2016–2017 Gross profit 324.4 366.8 13.1% 996.5 1,100.8 10.5% Gross margin 51.8% 52.0% 0.2 p.p. 48.7% 48.9% 0.2 p.p.

301.6 338.6

4Q16 4Q17

COGS (R$ mn)

1,048.6 1,151.2

2016 2017

COGS (R$ mn)

5.97 6.16

4Q16 4Q17

COGS per pair (R$)

6.41 6.71

2016 2017

COGS per pair (R$)

6.056.99 6.50

5.92

7.256.60 6.09 5.97

6.95 7.21 6.806.16

- 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-

15Fe

b-15

Mar

-15

Apr-1

5M

ay-1

5Ju

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Jul-1

5Au

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Sep-

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ct-1

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5D

ec-1

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Feb-

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ar-1

6Ap

r-16

May

-16

Jun-

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l-16

Aug-

16Se

p-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17Fe

b-17

Mar

-17

Apr-1

7M

ay-1

7Ju

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Jul-1

7Au

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Sep-

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R$ / pairR

$ th

ousa

nd /

ton.

Plastifying oils / ton. (FOB ) - R$ PVC resin / ton. (CFR) - R$ CPV 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 situations, inflation, wage policy, higher taxes and the exchange rate, we have successively increased our gross margins and ensured good results. In 4Q17 we established a new record for gross margin in the fourth quarter of a year, with 52%. Growth in our gross margin was lower, not because our efforts were less successful, but because increases in taxes annulled part of the gain achieved. This can also be seen in the result for the year – in which once again we achieved a record gross margin, of 48.9% in 2017.

(*) 4Q14, 4Q15, 2014 and 2015 – Figures adjusted to exclude non-recurring effect – A3NP.

Selling expenses Selling expenses as a percentage of net revenue were slightly lower year-on-year.


2016–2017 Selling expenses 144.7 154.2 6.6% 490.6 525.8 7.2% % of net revenue 23.1% 21.9% (1.2 p.p.) 24.0% 23.3% (0.7 p.p.)

Advertising expenses Expenses on advertising and marketing as a percentage of net revenue were slightly lower.


2016–2017 Advertising expenses 41.6 40.8 (1.9%) 125.2 125.6 0.3% % of net revenue 6.6% 5.8% (0.8 p.p.) 6.1% 5.6% (0.5 p.p.) Strategic brand projects 2.5 2.8 10.7% 7.3 7.6 4.0% Adjusted advertising expenses 44.1 43.6 (1.2%) 132.5 133.2 0.5% % of net revenue 7.0% 6.2% (0.8 p.p.) 6.5% 5.9% (0.6 p.p.)

183.0 190.8 230.5 243.2 325.9 322.2 370.3 349.9 324.4 366.8

45.1% 39.7%47.2% 48.0% 49.4% 45.9% 50.0% 51.8% 51.8% 52.0%

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

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

518.7 566.0 651.2 640.6 882.2 993.7 1,025.6 1,066.0 996.5 1,100.8

41.5% 38.9% 40.6% 43.3% 46.9% 45.4% 45.9% 48.4% 48.7% 48.9%

2008 2009 2010 2011 2012 2013 2014* 2015* 2016 2017

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

144.7 154.2

23.1% 21.9%

4Q16 4Q17

Selling expenses (R$ mn) % of net revenue

490.6 525.8

24.0% 23.3%

2016 2017

Selling expenses (R$ mn) % of net revenue


General and administrative expenses (G&A) The effort we make in controlling expenses continues.


2016–2017 G&A expenses 22.7 22.4 (1.1%) 97.5 91.3 (6.3%) % of net revenue 3.6% 3.2% (0.4 p.p.) 4.8% 4.1% (0.7 p.p.)

Ebit and Ebitda Ebit Ebit is operational profit before financial effects. We believes that because Grendene has a high cash position which generates significant financial revenues, Ebit – Earnings before interest and taxes – is the best indicator of operational profit.

41.6 40.8

6.6% 5.8%

4Q16 4Q17

Advertising expenses (R$ mn)

% of net revenue

125.2 125.6

6.1% 5.6%

2016 2017

Advertising expenses (R$ mn)

% of net revenue

22.7 22.4

3.6% 3.2%

4Q16 4Q17

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

97.5 91.3

4.8%4.1%

2016 2017

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

155.2 187.2

24.8% 26.5%

4Q16 4Q17

Accounting EBIT (R$ mn)

Accounting EBIT margin (%)

399.6465.6

19.5% 20.7%

2016 2017

Accounting EBIT (R$ mn)

Accounting EBIT margin (%)


Reconciliation of EBIT / EBITDA *

R$ ’000 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 Recurrent Net profit for the period / year 246,957 250,453 1.4% 643,278 668,710 4.0% Non-recurring effect - - - (8,786) (7,781) (11.4%) Net profit for the period / year 246,957 250,453 1.4% 634,492 660,929 4.2% Non-controlling stockholders (141) - (100.0%) (537) (26) (95.2%) Taxes on profit (17,787) (16,560) (6.9%) 34,157 43,189 26.4% Net financial revenue (expenses) (73,820) (46,661) (36.8%) (268,518) (238,502) (11.2%) Accounting Ebit 155,209 187,232 20.6% 399,594 465,590 16.5% Non-recurring effect - - - 8,786 7,781 (11.4%) Recurring Ebit 155,209 187,232 20.6% 408,380 473,371 15.9% Depreciation and amortization 14,663 15,560 6.1% 57,878 60,639 4.8% Accounting Ebitda 169,872 202,792 19.4% 457,472 526,229 15.0% Recurring Ebitda 169,872 202,792 19.4% 466,258 534,010 14.5%

Accounting Ebit margin 24.8% 26.5% 1.7 p.p. 19.5% 20.7% 1.2 p.p. Recurring Ebit margin 24.8% 26.5% 1.7 p.p. 20.0% 21.0% 1.0 p.p.

Accounting Ebitda margin 27.1% 28.7% 1.6 p.p. 22.4% 23.4% 1.0 p.p. Recurring Ebitda margin 27.1% 28.7% 1.6 p.p. 22.8% 23.7% 0.9 p.p.

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

The non-recurring amount of R$ 8.8mn in 2016 is made up of: R$ 7.3mn in 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, and R$ 7.8mn in 2017 for foreign exchange losses on an investment in a subsidiary, which were recognized directly in the stockholders’ equity of Grendene (the parent company) over time – accumulated and transferred to the result for 1Q17 (disposal of the subsidiary Grendene Argentina S.A.). This 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.

169.9 202.8

27.1% 28.7%

4Q16 4Q17

Accounting EBITDA (R$ mn)

Accounting EBITDA margin (%)

457.5526.2

22.4% 23.4%

2016 2017

Accounting EBITDA (R$ mn)

Accounting EBITDA margin (%)

155.2 187.2

24.8% 26.5%

4Q16 4Q17

Recurring EBIT (R$ mn)

Recurring EBIT margin (%)

408.4 473.4

20.0% 21.0%

2016 2017

Recurring EBIT (R$ mn)

Recurring EBIT margin (%)


Ebitda: Our business is low capital-intensive: depreciation is approximately 2.7% of net revenue (2.8% in 2016, and 2.7% in 2017). The Company regularly invests an amount greater than its depreciation to keep its production capacity updated. It also maintains positive net cash, and has no costs of interest that need to be paid with funds from operations. As a result we believe that analyzing Ebit makes more sense as an indicator for the Company’s management. Net financial revenue (expenses) In 2017 Grendene reports Net financial revenues, of R$ 238.5mn, which is R$ 30mn lower than in 2016, as follows:

R$ ’000 4Q16 4Q17 Change %, 4Q16–4Q17 2016 2017 Change %

2016–2017 Interest received from clients 436 607 39.2% 2,163 2,225 2.9% Revenue from cash investments 49,942 32,745 (34.4%) 207,734 169,812 (18.3%) Other financial revenues 599 1,066 78.0% 3,308 3,045 (8.0%) Subtotal 50,977 34,418 (32.5%) 213,205 175,082 (17.9%) Costs of financings (3,635) (3,220) (11.4%) (18,340) (10,852) (40.8%) Cofins and PIS taxes on Financial revenues (1,827) (1,633) (10.6%) (10,967) (8,346) (23.9%) Other financial expenses (957) (998) 4.3% (4,920) (3,780) (23.2%) Subtotal (6,419) (5,851) (8.8%) (34,227) (22,978) (32.9%) Net financial revenues (expenses) (1) 44,558 28,567 (35.9%) 178,978 152,104 (15.0%) Revenue from FX derivatives – BM&F 16,045 7,487 (53.3%) 49,091 29,976 (38.9%) Foreign exchange gains 14,622 8,655 (40.8%) 69,700 34,503 (50.5%) Subtotal 30,667 16,142 (47.4%) 118,791 64,479 (45.7%) Op. exp. on FX derivatives – BM&F (5,385) (12,376) 129.8% (11,563) (19,808) 71.3% Expenses of FX variation (16,976) (5,647) (66.7%) (82,390) (31,240) (62.1%) Subtotal (22,361) (18,023) (19.4%) (93,953) (51,048) (45.7%) Net gain (loss) on FX variations (2) 8,306 (1,881) (122.6%) 24,838 13,431 (45.9%) Adjustments to present value (APV) 20,956 19,975 (4.7%) 64,702 72,967 12.8% Financial result – APV (3) 20,956 19,975 (4.7%) 64,702 72,967 12.8% Net financial revenues (exp.) (1) + (2) + (3) 73,820 46,661 (36.8%) 268,518 238,502 (11.2%)

From January 1, 2009 discounts to clients for punctual payment have been posted as deductions from gross sales revenue (see ‘Net sales revenue’). Net profit Although operational results were robust, with operational profit (Ebit) up 20.6% YoY in the quarter, the joint effect of two factors – (a) the negative tax effects and (b) the lower financial revenue as a result of lower interest rates – resulted in net profit being only a modest 1.4% higher year-on-year in 4Q17 – compared to 4Q16:


2016–2017 Net profit 247.0 250.5 1.4% 634.5 660.9 4.2% Net margin, % 39.5% 35.5% (4.0 p.p.) 31.0% 29.3% (1.7 p.p.)

169.9 202.8

27.1% 28.7%

4T16 4T17

Recurring EBITDA (R$ mn)

Recurring EBITDA margin (%)

466.3 534.0

22.8% 23.7%

2016 2017

Recurring EBITDA (R$ mn)

Recurring EBITDA margin (%)


Capex (Fixed and intangible) Our capital investment in 2017 was 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.

We are estimating that we will invest capex between R$ 110 and R$ 120mn in 2018.


2016–2017 Capex 19.4 30.4 56.5% 71.5 107.5 50.4%

Cash generation Cash generated by operations in FY2017, totaling R$ 525.7mn, was allocated for payment of: loans in the net amount of R$ 9.7mn; investments in PP&E and intangible assets, totaling R$ 107.5 mn; cash investments, in the net amount of R$ 17.9mn; Interest on Equity, and dividends, totaling R$ 376.7mn; and a net loss of R$ 4.4mn on purchase of shares to hold in Treasury for exercise of stock options. This resulted in the amount held in current account and very short term cash investments being R$ 9.5mn higher at the end of the 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 December 31, 2017 totaled R$ 1.7 billion, or 13.2% more than at December 31, 2016 (R$ 1.5 billion).

The proportion of 12-month net revenue held in Cash and cash equivalents and cash investments increased from 77.7% at December 31, 2016 to R$ 79.1% at December 31, 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:

247.0 250.5

39.5% 35.5%

4Q16 4Q17

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

634.5 660.9

31.0% 29.3%

2016 2017

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

1,652.9 1,570.0 1,610.5 1,589.4 1,873.5 1,781.4 1,742.9 1,780.6

(265.6) (133.5) (109.2) (125.4) (193.3) (120.4) (106.6) (123.6)

1,387.3 1,436.5 1,501.3 1,464.01,680.2 1,661.0 1,636.3 1,657.0

(500)

0

500

1000

1500

2000

2500

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

R$

milli

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, liabilities and value indicators

Assets:

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2017

Cash and cash equivalents plus cash investments

Working capital (excluding cash and cash equivalents and cash investments – ST and LT)

Non-current assets Liabilities: Current + non-current liabilities

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2017

Liabilities – Financial

Liabilities – Operational

Consolidated Stockholder´s equity Value indicators:

* Dec. 31, 2017 / ** last 12 months

47.6%

34.8%

17.6%

53.4%30.5%

16.1%

54.7%29.4%

15.9%

7.0%7.1%

85.9%

3.9% 6.3%

89.8%

3.5% 6.5%

90.0%

5.92 8.40 10.70

2.20

28.45

12.93

Cash and cashequivalents and

financial investmentper share *

Net working capitalper share *

Book value per share*

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


Dividends Under the bylaws and the present dividend policy, established February 13, 2014 and published in a Material Announcement on that date, and based on the amount demonstrated below, management proposes allocation of the net profit for the 2017 business year as follows:

a) R$ 96,719,155.51 as minimum mandatory dividend, corresponding to 25% of the dividend calculation base, shown below;

b) R$ 281,053,987.83 in dividends additional to the minimum mandatory dividend.

The sum of these amounts is a total of R$ 377,773,143.34, which after deduction of the quarterly interim payments of Interest on Equity plus dividends totaling, gross, R$ 228,143,143.34, results in a balance of R$ 149,630,000.00, which the Company will pay, subject to confirmation by the Annual General Meeting that approves the accounts for the business year 2017, as from May 16, 2018, as follows:

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

b) R$ 19,630,000.00 as complementary dividends for the 2017 business year.

The Interest on Equity, and the complementary dividends, will be payable to holders of GRND3 (common shares – GRND3) in the Company’s records on May 3, 2018 (the cut-off date). From that date, the Interest on Equity will be credited individually to stockholders, with retention of the income tax applicable at source, in accordance with the legislation. Thus Grendene shares (GRND3) will trade ex-dividend and ex-Interest on Equity on the B3 exchange (BM&FBovespa) on May 4, 2018.

Basis for the distribution of dividends1 Grendene S.A. (holding company) R$ Net profit for 2017 business year 660,928,515.86 ( - ) Tax incentives reserve (253,689,966.35) Basis for calculation of the Legal reserve 407,238,549.51 ( - ) Constitution of Legal reserve (20,361,927.47) Basis for calculation of the mandatory dividend 386,876,622.04 ( - ) Reserve for the purchase of shares - Stock Options* (9,103,478.70) Dividends referring to the result for the 2017 business year 377,773,143.34 ( - ) 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) ( - ) 3rd interim Dividend paid in November 22, 2017 (73,480,889.01) Balance of dividends payable for 2017 business year 149,630,000.00

Minimum mandatory dividend – 25% 96,719,155.51

Dividend in addition to the minimum mandatory amount for 2017 281,053,987.83

* Reserve recorded in compliance with the stock options or subscription plan (‘Stock options’), under Clause 32, §2, of the bylaws.

Dividend and interest on equity (I.E.) distributed / proposed

Dividend / I.E.

Date approved

Ex-dividend date

Date of start of payment

Gross amount R$

Gross amount per

share R$ Net amount R$

Net amount per

share R$ Dividend 1 27/04/2017 03/05/2017 17/05/2017 69,078,060,63 0.2297 69,078,060.63 0.2297 I.E. 1 27/04/2017 03/05/2017 17/05/2017 30,000,000,00 0.0998 25,500,000.00 0.0848 Dividend 1 27/07/2017 04/08/2017 16/08/2017 55,584,193,70 0.1848 55,584,193.70 0.1848 Dividend 1 26/10/2017 07/11/2017 22/11/2017 73,480,889,01 0.2444 73,480,889.01 0.2444 Dividend 1 and 2 22/02/2018 04/05/2018 16/05/2018 19,630,000,00 0.0653 19,630,000.00 0.0653 I.E. 1 and 2 22/02/2018 04/05/2018 16/05/2018 130,000,000,00 0.4323 110,500,000.00 0.3675

Total 377,773,143.34 1.2563 353,773,143.34 1.1765

1 Dividends approved subject to confirmation by the Annual General Meeting of Stockholders that will examine the balance sheets and financial statements for 2017.

2 Dividends per share subject to changes due to the amount of treasury shares at the cut-off date (May 3, 2018). Statement of the unit value of the dividend with base date 12/31/2017.


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

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

Dividend policy For 2018, we will maintain the same policy approved on February 13, 2014, which consists of distribution, as dividends, after the constitution of the Legal Reserve and the Reserve under the by-laws, of the totality of such profits that does not arise from state tax incentives. We remind you that these dividends may be paid in the form of Interest on Equity, as allowed by the legislation.

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

Corporate events October 20, 2017: Notice to Stockholders: On November 22, 2017, Grendene began payment of the third interim dividend, totaling R$ 73,480,889.01 (R$ 0.244355986 per share), for the 2017 business year. The shares traded ex-dividend on November 7, 2017.

February 22, 2018 – Meeting of the Board of Directors: This meeting approved the financial information for the 4th quarter and the financial statements for the business year 2017; approved allocation of the net profit for the 2017 business year; and approved distribution of Interest on Equity, and complementary dividends, proposed by the Executive Board.

Capital markets In 2017, Grendene’s shares (GRND3) provided a return of 69.3%, when reinvestment of the dividends is included. In the same period the Ibovespa index rose by 26.9%. Average daily trading volume in the year was R$ 8.9mn (R$ 4.9mn in 2016).

Number of trades, number of shares traded, financial volume, and daily average trading:

Period Nr. of trading sessions

Nr. of trades Nr. of shares Volume R$

Price R$ Average nr. of shares

Average financial volume R$

Weighted average Close Per trade Daily Per trade Daily

2016 249 336,512 70,808,700 1,214,895,573 17.16 17.58 210 284,372 3,610 4,879,099

2017 246 381,336 88,072,400 2,202,354,443 25.01 28.45 231 358,018 5,775 8,952,660

The lowest market price for GRND3 in the 52 weeks to December 31, 2017 was R$ 17.20, on January 16, 2017, and the high for the 12-month period was R$ 31.49, on July 18, 2017. The dividend yield calculated on the basis of the weighted average price of the share in 2017 was 4.7% p.a. (6.3% p.a. in 2016).

This chart shows performance of Grendene ON shares compared to the Bovespa index (Base: Dec. 31, 2008 = 100), and daily trading volume.

0.86781.0887 1.1764

48.6% 53.1% 55.2%

5.2% 6.3% 4.7%

2015 2016 2017

%R

$ pe

r sha

re

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


Information in this release may contain statements about future outcomes. Such statements reflect the present perception and outlook of the 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.

020406080100120140160180200

- 5

10 15 20 25 30 35 40 45 50

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

Basis 100 = 31-dec-2016Volu

me

-R$

milli

on

GRND3 vs. Ibovespa, and trading volume

Daily trade volume - R$ GRND3 - with reinvest. Dividends Ibovespa index


Appendix I – Gross revenue, volume, gross revenue per pair and market share Consolidated gross revenue (R$ ’000)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Change % 4Q17/4Q16 2016 2017 Change %

2017/2016

Domestic market 380,848 394,745 519,459 575,321 470,696 414,185 597,202 624,466 8.5% 1,870,373 2,106,549 12.6% Exports 185,754 104,495 134,498 187,918 150,260 121,803 126,681 222,382 18.3% 612,665 621,126 1.4% Exports (US$) 47,506 29,772 41,388 57,056 47,809 37,901 40,040 68,478 20.0% 175,498 194,588 10.9% Total 566,602 499,240 653,957 763,239 620,956 535,988 723,883 846,848 11.0% 2,483,038 2,727,675 9.9%

Volume (Thousand pairs) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Change % 4Q17/4Q16 2016 2017 Change %

2017/2016 Domestic market 23,747 26,225 34,338 39,285 26,844 24,133 36,448 38,950 (0.9%) 123,595 126,375 2.2% Exports 11,159 7,374 10,220 11,209 11,016 9,228 8,733 15,994 42.7% 39,962 44,971 12.5% Total 34,906 33,599 44,558 50,494 37,860 33,361 45,181 54,944 8.8% 163,557 171,346 4.8%

Gross revenue per pair (R$) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Change % 4Q17/4Q16 2016 2017 Change %

2017/2016 Domestic market 16.04 15.05 15.13 14.64 17.53 17.16 16.39 16.03 9.5% 15.13 16.67 10.2% Exports 16.65 14.17 13.15 16.76 13.64 13.20 14.51 13.90 (17.1%) 15.33 13.81 (9.9%) Exports (US$) 4.26 4.04 4.05 5.09 4.34 4.11 4.59 4.28 (15.9%) 4.39 4.33 (1.4%) Total 16.23 14.86 14.67 15.12 16.40 16.07 16.02 15.41 1.9% 15.18 15.92 4.9%

US Dollar Exchange rate 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Change % 4Q17/4Q16 2016 2017 Change %

2017/2016 US dollar at the end of period 3.5589 3.2098 3.2462 3.2591 3.1684 3.3082 3.1680 3.3080 1.5% 3.2591 3.3080 1.5% US dollar - average 3.9100 3.5099 3.2472 3.2934 3.1429 3.2137 3.1639 3.2475 (1.4%) 3.4901 3.1920 (8.5%)

Gross revenue – Share % 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2016 2017 Domestic market 67.2% 79.1% 79.4% 75.4% 75.8% 77.3% 82.5% 73.7% 75.3% 77.2% Exports 32.8% 20.9% 20.6% 24.6% 24.2% 22.7% 17.5% 26.3% 24.7% 22.8% Total 100.0% 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 4Q17 2016 2017 Domestic market 68.0% 78.1% 77.1% 77.8% 70.9% 72.3% 80.7% 70.9% 75.6% 73.8% Exports 32.0% 21.9% 22.9% 22.2% 29.1% 27.7% 19.3% 29.1% 24.4% 26.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Appendix II – Consolidated statement of financial position, IFRS (R$ ’000) Assets Dec. 31, 2016 V.A. Dec. 31, 2017 V.A. Change Current 2,492,979 76.6% 2,846,997 79.6% 114.2%

Cash and cash equivalents 20,663 0.6% 30,119 0.8% 145.8% Cash Investments 1,288,070 39.6% 1,537,477 43.0% 119.4%

Securities at fair value through profit or loss 483,659 14.9% 836,254 23.4% 172.9% Securities held to maturity 804,411 24.7% 701,223 19.6% 87.2%

Accounts receivables from clientes 760,953 23.4% 850,345 23.8% 111.7% Inventories 260,646 8.0% 279,267 7.8% 107.1% Tax credits 29,347 0.9% 50,810 1.4% 173.1% Income tax and Social Contribution taxes recoverable 3,681 0.1% 3,841 0.1% 104.3% Securities receivable 84,217 2.6% 76,828 2.1% 91.2% Prepaid costs and expenses 3,677 0.1% 4,047 0.1% 110.1% Other 41,725 1.3% 14,263 0.4% 34.2%

Non-current 760,841 23.4% 729,011 20.4% 95.8% Long-term assets 342,916 10.5% 276,957 7.7% 80.8%

Cash investments 280,645 8.6% 213,049 6.0% 75.9% Securities held to maturity 280,645 8.6% 213,049 6.0% 75.9%

Judicial deposits 1,073 - 1,316 - 122.6% Tax credits 533 - 782 - 146.7% Deferred income tax and Social Contribution tax 53,932 1.7% 54,627 1.5% 101.3% Securities receivable - - 150 - - Prepaid expenses 6,733 0.2% 7,033 0.2% 104.5%

Investiments 412 - 412 - 100.0% Property, plant and equipment 387,071 11.9% 422,361 11.8% 109.1% Intangible assets 30,442 0.9% 29,281 0.8% 96.2%

Total assets 3,253,820 100.0% 3,576,008 100.0% 109.9% Liabilities and Stockholders’ equity Dec. 31, 2016 V.A. Dec. 31, 2017 V.A. Change Current 275,383 8.5% 322,074 9.0% 117.0%

Loans and Financings 70,734 2.2% 89,666 2.5% 126.8% Suppliers 41,369 1.3% 36,705 1.0% 88.7% Contractual obligations – Licensing 14,011 0.4% 17,618 0.5% 125.7% Commissions payable 39,831 1.2% 41,622 1.2% 104.5% Taxes 38,375 1.2% 37,597 1.1% 98.0% Income tax and Social Contribution tax payable 7,560 0.2% 6,425 0.2% 85.0% Salaries and related charges payable 51,497 1.6% 59,942 1.7% 116.4% Provision for employment-law litigation risk 2,485 0.1% 833 - 33.5% Advances from clients 4,597 0.1% 31,384 0.9% 682.7% Other accounts payable 4,924 0.2% 282 - 5.7%

Non-current 56,367 1.7% 36,325 1.0% 64.4% Loans and Financings 54,638 1.7% 33,961 0.9% 62.2% Provision for employment-law litigation risk 710 - 452 - 63.7% Other debits 1,019 - 1,912 0.1% 187.6%

Consolidated stockholders’ equity 2,922,070 89.8% 3,217,609 90.0% 110.1% Controlling stockholders 2,921,998 89.8% 3,217,609 90.0% 110.1%

Share capital 1,231,302 37.8% 1,231,302 34.4% 100.0% Capital reserves 6,480 0.2% 8,385 0.2% 129.4% Shares in treasury (1,169) - (134) - 11.5% Revenue reserves 1,682,354 51.7% 1,965,609 55.0% 116.8% Other comprehensive income 3,031 0.1% 12,447 0.3% 410.7%

Non-controlling interests 72 - - - - Total liabilites and equity 3,253,820 100.0% 3,576,008 100.0% 109.9%


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

R$ ’000 4Q16 V.A. 4Q17 V.A. Change % 4Q17/4Q16

Domestic market 575,321 91.9% 624,466 88.5% 8.5% Exports 187,918 30.0% 222,382 31.5% 18.3%

Gross revenue from sales and services 763,239 121.9% 846,848 120.1% 11.0% Sales returns and sales taxes (108,248) (17.3%) (110,236) (15.6%) 1.8% Discounts given to clients (29,036) (4.6%) (31,223) (4.4%) 7.5%

Deduction from sales (137,284) (21.9%) (141,459) (20.1%) 3.0% Net sales revenue 625,955 100.0% 705,389 100.0% 12.7% Cost of goods sold (301,541) (48.2%) (338,541) (48.0%) 12.3% Gross profit 324,414 51.8% 366,848 52.0% 13.1% Operational expenses (revenues) (169,205) (27.0%) (179,616) (25.5%) 6.2%

Selling expenses (144,655) (23.1%) (154,181) (21.9%) 6.6% General and administrative expenses (G&A) (22,660) (3.6%) (22,402) (3.2%) (1.1%) Other operating revenues 1,939 0.3% 10,616 1.5% 447.5% Other operating expenses (3,829) (0.6%) (13,649) (1.9%) 256.5%

EBIT (Operational profit before financial revenue (expenses) and taxes) 155,209 24.8% 187,232 26.5% 20.6%

Financial revenues 102,600 16.4% 70,535 10.0% (31.3%) Financial expenses (28,780) (4.6%) (23,874) (3.4%) (17.0%)

Financial results 73,820 11.8% 46,661 6.6% (36.8%) Pretax profit 229,029 36.6% 233,893 33.2% 2.1% Income tax and Social Contribution tax: Current (26,994) (4.3%) (28,285) (4.0%) 4,8% Deferred 44,781 7.2% 44,845 6.4% 0,1% Minority interests 141 - - - (100,0%) Net profit for the period 246,957 39.5% 250,453 35.5% 1,4%

Depreciation and amortization 14,663 2.3% 15,560 2.2% 6,1% EBITDA 169,872 27.1% 202,792 28.7% 19,4%

R$ ’000 2016 V.A. 2017 V.A. Change %

2017/2016 Domestic market 1,870,373 91.5% 2,106,549 93.5% 12.6% Exports 612,665 30.0% 621,126 27.6% 1.4%

Gross revenue from sales and services 2,483,038 121.4% 2,727,675 121.1% 9.9% Sales returns and sales taxes (346,729) (17.0%) (372,621) (16.5%) 7.5% Discounts given to clientes (91,194) (4.5%) (103,082) (4.6%) 13.0%

Deduction from sales (437,923) (21.4%) (475,703) (21.1%) 8.6% Net sales revenue 2,045,115 100.0% 2,251,972 100.0% 10.1% Cost of goods sold (1,048,588) (51.3%) (1,151,216) (51.1%) 9.8% Gross profit 996,527 48.7% 1,100,756 48.9% 10.5% Operational expenses (revenues) (596,933) (29.2%) (635,166) (28.2%) 6.4%

Selling expenses (490,574) (24.0%) (525,817) (23.3%) 7.2% General and administrative expenses (G&A) (97,514) (4.8%) (91,343) (4.1%) (6.3%) Other operating revenues 44,454 2.2% 19,028 0.8% (57.2%) Other operating expenses (53,299) (2.6%) (37,034) (1.6%) (30.5%)

EBIT (Operational profit before financial revenue (expenses) and taxes) 399,594 19.5% 465,590 20.7% 16.5%

Financial revenues 396,698 19.4% 312,528 13.9% (21.2%) Financial expenses (128,180) (6.3%) (74,026) (3.3%) (42.2%)

Financial results 268,518 13.1% 238,502 10.6% (11.2%) Pretax profit 668,112 32.7% 704,092 31.3% 5.4% Income tax and Social Contribution tax: Current (44,713) (2.2%) (44,106) (2.0%) (1.4%) Deferred 10,556 0.5% 917 - (91.3%) Minority interests 537 - 26 - (95.2%) Net profit for the year 634,492 31.0% 660,929 29.3% 4.2%

Depreciation and amortization 57,878 2.8% 60,639 2.7% 4.8% EBITDA 457,472 22.4% 526,229 23.4% 15.0%


Appendix IV – Consolidated Statement of Cash Flow (R$ ’000) Statement of cash flow 31/12/2016 31/12/2017

Cash flow from operating activities Net profit for the year 633,955 660,903 Adjustments to reconcile profit to cash from operating activities

Depreciation and amortization 57,878 60,639 Deferred Income tax and Social contribution (10,378) (695) Foreign exchange losses on investments - 7,774 Residual value on disposal of property, plant and equipment 16,199 12,322 Residual value on disposal of intangible assets 4,758 37 Impairment of fixed assets - 4,733 Provision for losses / Specific reversal (11,793) (3,270) Stock option or subscription plan 5,283 6,368 Provision for doubtful receivables 1,490 2,615 Provision for discount on prompt payments 737 2,833 Provision for obsolete inventories 3,996 1,114 Provision for labor risks 312 (1,910) Interest expenses on borrowings 9,027 3,355 Interest income on financial investments (204,851) (163,876) Foreign exchange variations, net (30,049) 5,139

476,564 598,081 Changes in assets and liabilities:

Trade receivables 91,811 (94,840) Inventories (3,180) (19,735) Other receivables 15,767 11,916 Suppliers (3,534) (4,664) Salaries and related charges payable (1,223) 8,445 Taxes and contributions 2,624 (778) Income tax and Social Contribution payable (6,148) (1,135) Advances from clients 922 26,787 Other payables (7,132) 1,649

Net cash provided by operating activities 566,471 525,726 Cash flow from investing activities:

In property, plant and equipment (59,302) (98,500) In intangible assets (12,166) (8,983) Financial investments (2,125,588) (3,097,100) Redemption of financial investments 1,856,314 2,815,398 Interest received 166,005 263,767 Loss on disposal of investment - (46)

Net cash used in investing activities (174,737) (125,464) Cash flow from financing activities:

Loans contracted 531,301 324,588 Payment of loans (593,756) (329,828) Interest paid (11,489) (4,464) Dividends paid (183,683) (216,737) Interest on Equity paid (130,000) (160,000) Purchase of treasury shares (11,020) (9,837) Sale of treasury shares through exercise of purchase options 6,416 5,472 Loss on increase in stockholding interest (125) -

Net cash used in financing activities (392,356) (390,806) Decrease / increase in cash and cash equivalents (622) 9,456 Changes in cash and cash equivalents

Cash and cash equivalents at the beginning of the year 21,285 20,663 Cash and cash equivalents at the end of the year 20,663 30,119

Decrease / increase in cash and cash equivalents (622) 9,456

Documents

2017: Netrevenueup10.1%; Results for Ebit up 16.5%, at R$ …static.grendene.aatb.com.br/releases/1335_007_GRND_PR_4Q17.pdf · Conference call in portuguese: Feb. 23, 2018 at 10:30