press release 4q18 and 2018 - amazon web services · products for havaianas, and the negative...
TRANSCRIPT
1
PRESS RELEASE
4Q18 and 2018
RESULTS CONFERENCE CALL (Portuguese only)
February 18, 2019 | Monday
09:00 am (BRT) | 07:00 (EST)
Phones: +55 (11) 3193-1001
+55 (11) 2820-4001
Code: Alpargatas
This conference call will be simultaneously broadcasted via webcast over the internet. For access:
https://ri.alpargatas.com.br/
2
Quarter highlights
Sale of 21.8% interest of ASAIC (Topper) completed: on December 4, 2018, Alpargatas completed the
sale to Mr. Carlos Roberto Wizard Martins of a 21.8% interest in the capital stock of Alpargatas S.A.I.C.
(“ASAIC”), comprising the business unit related to the “Topper” brand in Argentina and in the world, as set
forth by the Purchase and Sale Agreement entered into on September 14, 2018. This interest was adjusted
based on the foreign exchange rate variation as set forth in said Agreement.
Joint venture Alpargatas India: on December 11, 2018, Alpargatas completed negotiations with Indian
company Periwinkle Fashions Private Limited to set up a joint venture in India, named Alpargatas India
Fashions Private Limited. Alpargatas India will develop the Havaianas business in India, which will be held by
Alpargatas and Shoezone Lifestyle LLP, a company controlled by Periwinkle, in the initial proportion of 51%
(Alpargatas’ interest) and 49% (Shoezone’s interest), respectively, of the total voting capital stock. A
Shareholders’ Agreement for Alpargatas India was executed accordingly.
Licensing Agreement with Safilo Group renegotiated: on December 28, 2018, the Company announced
that it had renegotiated the Havaianas brand licensing agreement with the Safilo Group, a world leading
company in the premium glasses sector listed in the Milan stock exchange, aimed at, among other business
conditions, extending the validity term of said agreement, which is now in force up to 2024, thus
strengthening the project to expand the Havaianas brand to the “non-sandals” products category, in line
with the purpose of taking the cheerful and easygoing spirit of the Brazilian summer to consumers in Brazil
and the world.
Events Subsequent to 2018
CEO Succession Plan: after a succession plan, the members of the Board of Directors received the
resignation request from Mr. Márcio Luiz Simões Utsch, then CEO of the Company, which became effective
as from January 1, 2019. Subsequently, the Board of Directors elected Mr. Roberto Funari as Alpargatas’ new
CEO, with his term of office beginning on January 1, 2019 up to the next Board of Directors’ meeting to be
held after the Annual General Shareholders’ Meeting of 2019, in conformity with the Company’s bylaws. Mr.
Funari has a distinguished career in business management and global brands, corporate strategy and
innovation, and has held leading positions in global companies. The Board of Directors thanks Mr. Márcio
Utsch one more time for his successful performance in Alpargatas and wishes Mr. Roberto Funari success in
the conduction of the Company’s business.
Professional Boots Line sold: on January 10, 2019, Alpargatas sold the assets related to the professional
boots business, under brand Sete Léguas, to M2JF Participações S.A., for R$5.1 million. Negotiations included
the sale of business related equipment and industrial property, and Alpargatas will keep on the production
and supply of products for a period of up to 18 months. Accordingly, the Company will no longer operate in
the professional boots segment.
3
Consolidated performance of the 4th quarter and year ended 2018
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Net Revenue 1,199.8 1,103.6 8.7% 3,904.5 3,721.9 4.9%
Brazil 944.9 836.8 12.9% 2,669.9 2,419.2 10.4%
Sandals International 136.9 105.9 29.3% 710.3 638.1 11.3%
Argentina 118.0 160.9 -26.7% 524.3 664.6 -21.1%
Gross Profit 508.9 483.9 5.2% 1,712.8 1,639.6 4.5%
Gross margin 42.4% 43.8% -1.4 pp 43.9% 44.1% -0.2 pp
Brazil 418.9 402.3 4.1% 1,180.5 1,091.3 8.2%
Gross margin 44.3% 48.1% -3.8 pp 44.2% 45.1% -0.9 pp
Sandals International 81.3 58.6 38.8% 473.3 413.1 14.6%
Gross margin 59.4% 55.3% +4.1 pp 66.6% 64.7% +1.9 pp
Argentina 8.6 23.0 -62.6% 59.0 135.2 -56.4%
Gross margin 7.3% 14.3% -7 pp 11.3% 20.2% -8.9 pp
EBITDA 123.6 56.7 117.9% 564.7 486.2 16.1%
EBITDA margin 10.3% 5.1% +5.2 pp 14.5% 13.1% +1.4 pp
Brazil 162.7 57.1 184.9% 561.2 372.9 50.5%
Margin 17.2% 6.8% +10.4 pp 21.0% 15.4% +5.6 pp
Sandals International -4.8 2.0 n/a 77.6 99.6 -22.1%
Margin n/a 1.9% n/a 10.9% 15.6% -4.7 pp
Argentina -34.4 -2.4 1332.5% -74.1 13.7 n/a
Margin n/a n/a n/a n/a 2.1% n/a
Non-recurring charges -96.7 -138.9 -30.4% 9.4 -17.8 n/a
Recurring EBITDA 220.3 195.6 12.6% 555.2 504.0 10.2%
Recurring EBITDA margin 18.4% 17.7% +0.7 pp 14.2% 13.5% +0.7 pp
Recurring Brazil 203.9 185.8 9.7% 436.0 361.2 20.7%
Recurring margin 21.6% 22.2% -0.6 pp 16.3% 14.9% +1.4 pp
Recurring Sandals International 10.4 2.8 270.5% 95.4 100.4 -5.0%
Recurring margin 7.6% 2.6% +5 pp 13.4% 15.7% -2.3 pp
Recurring Argentina 6.0 7.0 -13.5% 23.9 42.4 -43.6%
Recurring margin 5.1% 4.3% +0.8 pp 4.6% 6.4% -1.8 pp
Consolidated Net Income
(Continuing Operations)92.4 45.1 105.0% 324.0 352.2 -8.0%
Net margin 7.7% 4.1% +3.6 pp 8.3% 9.5% -1.2 pp
Net result from discontinued operations - - - - -1.7 n/a
Consolidated Net Income 92.4 45.1 105.0% 324.0 350.6 -7.6%
Net margin 7.7% 4.1% +3.6 pp 8.3% 9.4% -1.1 pp
4
Net Revenue
Net revenue increased 8.7% in 4Q18 on a year-on-year basis, mainly driven by the performance and operational improvement of Havaianas
Brazil and by the 29.3% increase in Havaianas international operations, even if we consider the negative impact of foreign exchange
variation/monetary adjustment in Argentina.
The Company’s net revenue in 2018 totaled R$3.9 billion, up 4.9% from 2017, as a result of increased revenues from Brazil and Sandals
International operations. The 10.4% increase in Brazil was mainly driven by the Sandals business growth. Net revenue in the International
Sandals operations was up 11.3% (driven by the appreciation of the US dollar and the euro against the Brazilian real), despite the 9.8% fall in
sales volume in 2018. In Argentina, net revenue in Brazilian real fell by 21.1% in 2018, as a result of the depressed market and devaluation of
the Argentinian peso in the period.
As established by IAS 29 (Financial Reporting in Hyperinflationary Economies), as from July 2018 Argentina has been considered a highly-
inflationary economy. Therefore, financial statements were restated by changing the overall purchasing power of the currency by applying a
general price index.
Gross Profit
Consolidated gross profit in 4Q18 was up 5.2%; gross margin, however, went down 140 basis points, being impacted by: (i) results from
Argentina, (ii) rise in the cost of rubber; and (iii) the effect of foreign exchange variation and bonus for Mizuno.
The Company’s gross profit in 2018 totaled R$1.7 billion (+4.5%), with a 43.9% gross margin, basically in line with 2017. Gross margin in
Brazil was 44.2%, or 90 basis points lower than 2017. This decrease was driven by the rise in the cost of rubber, higher sales of entry price
products for Havaianas, and the negative effect of foreign exchange variation for Mizuno. In Sandals International, gross profit in 2018 was
66.6%, up 190 basis points, mainly driven by the positive effect of foreign exchange variation and the mix of countries. The gross margin of
11.3% in Argentina fell by 900 basis points, driven by the foreign exchange variation in the period.
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Net Revenue 1,199.8 1,103.6 8.7% 3,904.5 3,721.9 4.9%
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Gross Profit 508.9 483.9 5.2% 1,712.8 1,639.6 4.5%
Gross margin 42.4% 43.8% -1.4 pp 43.9% 44.1% -0.2 pp
5
Selling Expenses
Selling expenses, including expenses on freight, advertising, marketing, commissions, royalties and licenses, totaled R$301.0 million in 4Q18.
This amount accounted for 25.1% of net revenue, up 90 basis points from 4Q17. This increase was mainly driven by the rise in freight prices
in 3Q18, the implementation of international structures, and the improved structure in Brazil for Havaianas over 2018.
In 2018, selling expenses totaled R$1.1 billion, accounting for 28.4% of net revenue, up 100 basis points from 2017, mainly driven by higher
freight expenses, the implementation of international structures, and the improved structure in Brazil for Havaianas.
General and Administrative Expenses
G&A expenses totaled R$51.3 million in the fourth quarter of 2018, or 4.3% of net revenue, up 10 basis points year-on-year.
In 2018, G&A expenses totaled R$198.6 million, accounting for 5.1% of net revenue, falling 10 basis points compared to 2017.
EBITDA
Recurring EBITDA in 4Q18 increased 12.6%, with the margin up 70 basis points from the same period of 2017. Main non-recurring items for
the fourth quarter were, as follows: in Brazil, the impact of R$41.2 million with negative effects from the sale of interest in ASAIC, allowance
for inventory losses and labor contract termination, in spite of the positive effects from deferred tax assets and write-off of assets; in
Argentina, the impact of R$40.3 million, of which R$27.8 million from inflation adjustments and R$12.5 million related to operation
restructuring; and in the US, the impact of R$15.2 million due to the provision for civil contingencies at Alpa USA.
In 2018, the Company’s EBITDA totaled R$564.7 million, up 16.1% from the previous year, and the 14.5% margin was 140 basis points higher
than 2017. In Brazil, EBITDA totaled R$561.2 million, up 50.5%, and the margin of 21% was up 560 basis points. Also noteworthy was the
amount of R$181 million arising from the successful outcome in the lawsuit requesting the exclusion of ICMS (state VAT) from the COFINS
tax base in Brazil in September 2018. In Sandals International, 2018 EBITDA was R$77.6 million, down 22.1% compared to 2017, driven by the
investments made over 2018 aimed at international growth, with expected return in the future.
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Recurring EBITDA 220.3 195.6 12.6% 555.2 504.0 10.2%
Recurring EBITDA margin 18.4% 17.7% +0.7 pp 14.2% 13.5% +0.7 pp
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
(=) Consolidated Net Income 92.4 45.1 105.0% 324.0 350.6 -7.6%
Income tax and social contribution taxes 11.6 -40.7 n/a 77.6 -46.4 n/a
Financial Result -8.3 17.5 n/a 56.5 73.5 -23.2%
Depreciation and Amortization 27.9 34.8 -19.8% 106.6 106.8 -0.2%
Result from Discontinued Operations - - - 1.7 n/a
(=) EBITDA 123.6 56.7 117.9% 564.7 486.2 16.1%
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Other non recurring revenues (expenses) -96.7 -138.9 -30.4% 9.4 -17.8 n/a
Brazil -41.2 -128.7 -68.0% 125.2 11.7 967.4%
Argentina -40.3 -9.4 331.1% -98.0 -28.7 241.3%
USA -15.2 -0.8 1796.6% -17.8 -0.8 2121.6%
6
Net Income
Net income in the fourth quarter of 2018 totaled R$92.4 million, with a 7.7% net margin. The most significant variations in consolidated net
income for 4Q18 were as follows:
+ R$94.6 million in EBITDA, the variation of which was explained above;
- R$27.8 million related to inflation adjustment in Argentina;
+ R$25.9 million in financial result/ foreign exchange variation;
- R$52.3 million of income tax and social contribution, mainly driven by the constitution of deferred income tax provision in 2017
for the partial write-off of assets.
The Company’s net income for 2018 totaled R$324.0 million, down 7.6% from 2017, and the 8.3% net margin was down 110 basis points.
The most significant variations in consolidated net income for the year were as follows:
+ R$129.5 million in EBITDA, the variation of which was explained above;
-R$51.1 million relation to inflation adjustment of operations in Argentina;
+R$65.4 million in financial result, mainly driven by the inflation adjustment to the net monetary position in Argentina;
-R$48.2 million, with foreign exchange variation mainly in Argentina arising from debts denominated in foreign currencies;
-R$124.0 million in income tax and social contribution, mainly driven by the non-recognition of deferred tax assets on tax loss
carryforwards, hyper-inflation adjustments and the constitution of deferred income tax provision in 2017 for the partial write-off
of assets, among others.
R$ million 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Consolidated Net Income
(Continuing Operations)92.4 45.1 105.0% 324.0 350.6 -7.6%
Net margin 7.7% 4.1% +3.6 pp 8.3% 9.4% -1.1 pp
7
8
CAPEX
In 2018, consolidated investments in the support/expansion of Alpargatas’ operations (CAPEX) totaled R$80.5 million. Most of this amount,
R$53.4 million, was invested in the operation support/maintenance, whereas the remaining R$27.1 million was invested in expansion
initiatives, especially in mono-brand retail stores in Brazil and abroad.
Net Financial Position
On December 31, 2018, Alpargatas recorded a net financial position of R$72.0 million, arising from a cash balance of R$540.9 million
(operating cash generation totaled R$287.8 million in the 12-month period ended December 2018), and indebtedness of R$612.9 million, as
follows:
R$382.3 million (62% of total) due in the short term, of which R$160.2 million in local currency. Short-term foreign currency debt
amounted to R$222.1 million, of which R$33.8 million with swaps for Reais, mainly financed working capital for foreign
subsidiaries. It is worth mentioning that the Company’s cash balance of R$ 147.2 million is in foreign currency;
R$230.6 million (38% of total) due in the long term, with total amount in local currency.
9
Performance by business for the fourth quarter and 2018
Brazil
Operational performance:
Sandals Brazil: The volume of Havaianas in Brazil increased in 4Q18 (Havaianas Sandals/Dupé +13.0% and expansion of Havaianas Brand
+ 6.9%), driven by the good pace of revenues and delivery over the quarter (mainly in December). Net revenue in the fourth quarter
increased mainly due to the richer mix of channels. In 4Q18, in direct consumer channels, revenue rose 12.3% in Havaianas mono-brand
stores on the basis of same store sales (SSS) concept.
Sporting Goods - Mizuno: Sales recovered in 4Q18 as a result of Black Friday sales promotions, the Holiday collection launched in
advance, and the opening of two Mizuno outlet stores. A double-digit growth with regional customers and a one-digit growth with
strategic customers - key accounts (recovery vs. previous quarters) were recorded. The mix of top and middle level products improved (in
spite of discounts given in the period).
Osklen: Net revenue increased 12.1% in 4Q18 year-on-year. Highlights: (ii) increase in net revenue: ecommerce by 24.6% and multi-
brands by 66.0%; (iii) the same store concept (SSS) increased for the 6th
consecutive quarter; this growth was 7.7% and 4.1% compared to
4Q17 and 2018, respectively.
Gross Profit and Gross Margin: In Brazil, gross profit was impacted by: (i) rise in the cost of rubber, which is Havaianas main raw material,
priced at US dollars and linked to the foreign exchange variation of butadiene and styrene; (ii) Mizuno, in view of foreign exchange
variation and bonus; and (iii) higher sales of entry price products for Havaianas.
Recurring EBITDA: Main non-recurring items for the fourth quarter totaled R$-41.2 million in Brazil, with positive effects from deferred
tax assets and write-off of assets, and negative effects arising from the proceeds from the sale of interest in ASAIC, provision for inventory
losses and labor claims.
(unit) 4Q18 4Q17 Δ
Number of stores 554 554 0
Havaianas 463 461 2
Franchises 457 457 0
Own 6 4 2
Osklen 77 79 -2
Franchises Brazil 20 22 -2
Own Brazil 53 53 0
Franchises overseas 1 1 0
Own overseas 3 3 0
Mizuno 3 1 2
Outlets 11 13 -2
(thousand pairs/pieces) 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Total volume 73,987 66,102 11.9% 220,356 194,325 13.4%
Havaianas + Dupé 71,324 63,133 13.0% 212,013 185,466 14.3%
Havaianas brand extension 624 584 6.9% 1,588 1,448 9.7%
Footwear (sports & professional) 777 775 0.3% 2,309 2,107 9.6%
Others 251 623 -59.7% 1,626 2,351 -30.8%
Apparel (sport) 436 419 4.0% 1,210 1,311 -7.7%
Osklen (footwear, apparel & accessories) 575 568 1.3% 1,610 1,642 -2.0%
(R$ million) 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Net Revenue 944.9 836.8 12.9% 2,669.9 2,419.2 10.4%
Gross Profit 418.9 402.3 4.1% 1,180.5 1,091.3 8.2%
Gross Margin (%) 44.3% 48.1% -3.8 pp 44.2% 45.1% -0.9 pp
EBITDA 162.7 57.1 184.9% 561.2 372.9 50.5%
Margin EBITDA (%) 17.2% 6.8% +10.4 pp 21.0% 15.4% +5.6 pp
Recurring EBITDA 203.9 185.8 9.7% 436.0 361.2 20.7%
Recurring margin (%) 21.6% 22.2% -0.6 pp 16.3% 14.9% +1.4 pp
10
Sandals International
Operational performance: Foreign markets expanded by 10.2% in volume in 4Q18, mainly driven by increased sales in the EMEA and
APAC regions.
EMEA (Europe and Middle East): Net revenue in local currency increased in the quarter, in spite of the low season period. Significant
expansion was witnessed in markets served through Distributors (+27%), Ecommerce (43%), and Retail (+11%). In direct markets,
performance was lower than in 2017 due to poorer performance in the UK and Spain.
North America: The 4Q18, a low season period in this region, posted growth and noteworthy were as follows: large accounts (+22%) with
higher turnover in Key Accounts; mono-brand stores (+34%) arising from revenues from new stores, and Ecommerce (+9%) with price
discounts and free-of-charge freight promotions.
LATAM (Latin America) & Africa: The Latin America operation in 4Q18 was mainly impacted by the poor performance in Argentina and
Mexico. The positive results from Angola, Paraguay and Colombia have reduced the total gap in 4Q18.
APAC (Asia Pacific): The 21.7% increase in net revenue was mainly driven by higher sales in Thailand, Indonesia and Hong Kong.
Negative impact in China was driven by the termination of a contract with a local distributor (with own operation starting in 2019).
Net revenue: Net revenue in Reais of the Sandals International business was up 29.3% from 4Q17, driven by the higher volume of sales
and boosted by the appreciation of the US dollar and the euro in the period, in spite of the fall in revenue in US dollars in the LATAM
region.
Gross Profit and Gross Margin: Gross margin increased in 4Q18, driven by higher market share of more profitable regions in the total
Sandals International business.
EBITDA and EBITDA Margin: The 4Q18 result was under more pressure compared to 4Q17 due to expenses on new structures in the
APAC and LATAM regions.
(unit) 4Q18 4Q17 Δ
Number of Havaianas stores 237 161 76
Franchises 190 119 71
Own 47 42 5
(thousand pairs/pieces) 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Total volume 7,174 6,503 10.3% 27,254 30,210 -9.8%
Havaianas + Dupé 7,117 6,456 10.2% 26,688 29,580 -9.8%
Havaianas brand extension 57 47 21.1% 566 630 -10.1%
(R$ million) 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Net Revenue 136.9 105.9 29.3% 710.3 638.1 11.3%
Variation in local currency
EMEA - euro 12.5% -4.2%
EUA - dollar 23.1% 0.3%
LATAM - dollar -4.1% -16.9%
APAC - dollar 21.7% -10.0%
Gross Profit 81.3 58.6 38.8% 473.3 413.1 14.6%
Gross Margin (%) 59.4% 55.3% +4.1 pp 66.6% 64.7% +1.9 pp
EBITDA -4.8 2.0 n/a 77.6 99.6 -22.1%
Margin EBITDA (%) n/a 1.9% n/a 10.9% 15.6% -4.7 pp
Recurring EBITDA 10.4 2.8 270.5% 95.4 100.4 -5.0%
Recurring margin (%) 7.6% 2.6% +5 pp 13.4% 15.7% -2.3 pp
11
Argentina
Operational performance:
Sporting goods + Retail: In spite of the fall in volume, price adjustments over the year generated more net revenue in 4Q18 in local
currency; however, revenue in Reais dropped, due to the foreign exchange variation in the period. Volume of footwear items decreased
11.6% due to lower consumption; on the other hand, apparels increased by 28.4%.
Textile: In 4Q18 volume slumped by 43.7% as a result of the strong fall in market driven by lower consumption, which was then escalated
by increased imports of apparel items. Retailers/ clothing manufacturers remain in crisis, with some companies filing for reorganization.
The competition environment was highly fierce in terms of prices and business conditions in view of a depressed market.
(unit) 4Q18 4Q17 Δ
Number of stores 26 25 1
Topper Argentina 10 10 0
Outlets 16 15 1
(thousand pairs/pieces) 4Q18 4Q17 Δ 2018 2017 Δ (%)
Total volume 3,671 5,222 -29.7% 16,330 20,798 -21.5%
Footwear 1,266 1,432 -11.6% 5,157 5,231 -1.4%
Apparel 480 373 28.4% 1,829 1,606 13.9%
Textile (km) 1,925 3,417 -43.7% 9,343 13,961 -33.1%
(R$ million) 4Q18 4Q17 Δ (%) 2018 2017 Δ (%)
Net Revenue 118.0 160.9 -26.7% 524.3 664.6 -21.1%
Gross Profit 8.6 23.0 -62.6% 59.0 135.2 -56.4%
Gross Margin (%) 7.3% 14.3% -7 pp 11.3% 20.2% -8.9 pp
EBITDA -34.4 -2.4 1332.5% -74.1 13.7 n/a
Margin EBITDA (%) n/a n/a n/a n/a 2.1% n/a
Recurring EBITDA 6.0 7.0 -13.5% 23.9 42.4 -43.6%
Recurring margin (%) 5.1% 4.3% +0.8 pp 4.6% 6.4% -1.8 pp
12
Capital Markets and Return to Shareholders
On December 31, 2018, preferred shares (ALPA4) were priced at R$17.02, and common shares (ALPA3) at R$16.36, up 38.9% and 31.9% from
September 30, 2018, respectively. From October to December, Ibovespa appreciated by 10.8%. At the close of 4Q18, Alpargatas’ value on B3
was R$7.8 billion, down 3% from the same period of 2017. Average daily trading volume of ALPA4 in the fourth quarter was R$8.0 million,
down 37% from ADTV in the same period of 2017.
Shareholder payout, as interest on capital, for 2018 totaled R$110.6 million. Furthermore, on April 18, 2018, the amounts of R$27.8 million
for 2017 profits and R$69.6 million for prior years’ profits were also paid out.
Social Responsibility
Investments made in 2018 in training, development and education have further contributed to improve the performance of Alpargatas’
employees. Over 5,000 hours of training were given, with teachers, managers and technicians from education departments taking part in
projects promoted by Instituto Alpargatas (IA). IA has commemorated one more year of spectacular results. Its educational and sports
initiatives have benefitted over 152,000 children, adolescents and youth aged from 7 to 29 years old, who had the opportunity to improve
their education background thanks to the “Educação pelo Esporte” (learning through sport), ”Educação pela Cultura” (learning through
culture) and “Voluntariado Empresarial” (business volunteering) programs. 387 schools were served by the Learning through Sport program,
as well as 283 schools by the Learning through Culture program in nine cities in Paraíba, one city in Pernambuco and one in Minas Gerais.
The amount invested totaled R$3.5 million in initiatives such as training Physical Education teachers, renovating school buildings, and
building and maintaining sports areas, in addition to donating learning and sports materials. As an acknowledgment of the efforts made by
the individuals involved, the Institute also rewarded teachers and students. 3,820 students and 15 projects enrolled by teachers were
recognized, as well as 10 of the projects rewarded by school management teams. Alpargatas operates with a focus on environmental and
health damage prevention. In the year, it invested R$3.6 million in the adoption, maintenance and expansion of initiatives in the
Environmental Occupational Health and Safety (EOHS) areas.
Added Value
In 2018, Alpargatas generated added value of R$2.5 billion, distributed as follows: 37% to employees, 34% to government, 15% to capital
lenders, 9% to revenue reserve, and 5% to shareholders.
Independent Auditors
In the period from October to December 2018, KPMG, the Company’s independent auditors, did not provide non-audit related services.
Pursuant to CVM Instruction 381/03, Alpargatas S.A. informs that, for the year ended December 31, 2018 it contracted, in addition to
auditing its individual and consolidated financial statements, and its subsidiaries, the following services of KPMG Auditores Independentes:
• ECF revision (accounting and fiscal bookkeeping);
• Revision of the calculation of income tax and social contribution.
For these services, fees of approximately R$37.5 thousand were disbursed. The provision of services did not represent conflicts of interest, as
it is permitted by the regulatory body and, consequently, did not affect the independence and objectivity required for the performance of
the audit work.
Representation of the Executive Board
In accordance with Article 25, paragraph 1, item 5 of CVM Instruction No. 480/09, the Executive Board hereby represents, to the best of its
knowledge, that it has reviewed, discussed and agreed with the accounting information of Alpargatas S.A. for the fourth quarter and year
2018 and the independent auditor’s review report.
São Paulo, February 15, 2019
Board of Directors
Investor Relations
Julian Garrido Del Val Neto
Carlos Augusto Biehl
Felipe Lucas Fontes
Fernanda Yuri Shiraishi
Contact Information
Email: [email protected]
Phone: +55 11 4569-7397
13
CONSOLIDATED BALANCE SHEET
(in thousands of Reais)
2018 2017 2018 2017
CURRENT ASSETS CURRENT LIABILITIES
Cash and banks 176,225 141,231 Suppliers 449,069 388,112
Tempory cash investment 364,713 565,122 Loans and financing 382,258 408,941
540,938 706,353 Debt reestructuring agreements 2,030 4,855
Payroll and related charges 148,432 131,336
Reserve for contingencies 20,271 9,344
Trade accounts receivable (net of provisions) 1,032,905 959,861 Provision for income and social contribuition taxes 6,342 4,636
Provision for doubtful receivables (60,406) (48,320) Taxes payable 38,360 28,149
972,499 911,541 Interest on capital and dividends payable 4,399 5,044
Other payable liabilities 108,449 135,440
1,159,610 1,115,857
Inventories 730,330 698,761
Other receivables 37,289 26,838
Prepaid expenses 22,712 11,262 LONG-TERM LIABILITIES
Recoverable taxes 85,544 85,158 Loans and financing 230,676 324,702
875,875 822,019 Debt reestructuring agreements 7,748 18,834
Provision for income and social contribuition taxes 70,603 55,917
Reserve for contingencies 17,872 40,553
Other payable 23,758 26,140
350,657 466,146
TOTAL CURRENT ASSETS 2,389,312 2,439,913
LONG-TERM ASSETS SHAREHOLDERS' EQUITY
Capital 648,497 648,497
Recoverable taxes 200,279 16,564 Capital reserves 172,799 172,799
Deferred income and social contribuition taxes 98,650 106,406 Treasury shares (64,248) (64,248)
Escrow deposits 44,395 16,266 Profit reserves 1,700,007 1,480,995
Trade accounts receivable 3,063 - Equity assessment (132,468) (149,092)
Other receivables 18,038 50,444 Other comprehensive income 2,247 -
364,425 189,680 Inflation Adjustment 53,979 -
Additional dividend - 97,439
Equity of controlled shareholders 2,380,813 2,186,390
Investments 2,322 1,320
Property, plant and equipment 770,722 721,645
Intangible assets 453,324 493,834 Minority interest 89,025 77,999
1,226,368 1,216,799 2,469,838 2,264,389
TOTAL NON-CURRENT ASSETS 1,590,793 1,406,479
TOTAL ASSETS 3,980,105 3,846,392 TOTAL LIABILITIES 3,980,105 3,846,392
Book value per share (R$) 5.14 4.72
BALANCE SHEET
ASSETS LIABILITIES
14
CONSOLIDATED INCOME STATEMENT
(in thousands of Reais)
4T18 ΔV(%) 4T17 ΔV(%) ΔH(%) 2018 ΔV(%) 2017 ΔV(%) ΔH(%)
Net Sales 1,199,795 100.0% 1,103,649 100.0% 8.7% 3,904,509 100.0% 3,721,863 100.0% 4.9%
Cost of sales (690,936) -57.6% (619,784) -56.2% 11.5% (2,191,673) -56.1% (2,082,260) -55.9% 5.3%
Gross Profit 508,859 483,865 5.2% 1,712,836 1,639,602 4.5%
gross margin 42.4% 43.8% 43.9% 44.1%
Operating Income (Expenses) (413,157) -34.4% (461,997) -41.9% -10.6% (1,254,760) -32.1% (1,260,187) -33.9% -0.4%
Selling (301,036) -25.1% (266,696) -24.2% 12.9% (1,108,981) -28.4% (1,020,857) -27.4% 8.6%
General and administrative (51,350) -4.3% (46,584) -4.2% 10.2% (198,631) -5.1% (192,953) -5.2% 2.9%
Management fees (3,924) -0.3% (1,486) -0.1% 164.0% (15,877) -0.4% (12,185) -0.3% 30.3%
Amortization of intangible charges (8,084) -0.7% (17,334) -1.6% -53.4% (33,698) -0.9% (37,564) -1.0% -10.3%
Other operating Income (expenses), net (48,763) -4.1% (129,897) -11.8% -62.5% 102,427 2.6% 3,372 0.1% 2937.2%
EBIT - Operating Results 95,702 21,868 337.6% 458,076 379,415 20.7%
operating margin 8.0% 2.0% 11.7% 10.2%
Financial Result (13,899) -1.2% (15,853) -1.4% -12.3% (39,350) -1.0% (57,105) -1.5% -31.1%
Gain/loss on net monetary position 25,207 2.1% - 54,838 -
Exchange variation 9,161 0.8% (1,551) -0.1% -690.8% (64,728) -1.7% (16,539) -0.4% 291.4%
Hedge operations (12,169) -1.0% (132) (7,222) 23
Operating Income 104,002 8.7% 4,333 0.4% 2300.4% 401,613 10.3% 305,794 8.2% 31.3%
Income and social contribution taxes (11,600) -1.0% 40,738 3.7% n/a (77,572) -2.0% 46,441 1.2% n/a
Net Income from continuing operations 92,402 7.7% 45,071 4.1% 105.0% 324,041 8.3% 352,235 9.5% -8.0%
Net result from discontinued operations - - - - - - - (1,675) 0.0% n/a
Consolidated net income 92,402 7.7% 45,071 4.1% 105.0% 324,041 8.3% 350,560 9.4% -7.6%
Net Income from controlling shareholder 93,289 7.8% 47,145 4.3% 97.9% 331,500 8.5% 362,287 9.7% -8.5%
Minority Interest (888) -0.1% (2,074) -0.2% -57.2% (7,460) -0.2% (11,727) -0.3% -36.4%
EBITDA - R$ million 123.6 56.7 117.9% 564.7 486.2 16.1%
EBITDA margin 10.3% 5.1% 14.5% 13.1%
15
STATEMENT OF CASH FLOWS
(in thousands of Reais)
CASH FLOW FROM OPERATING ACTIVITIES 12/31/2018 12/31/2017*
Cash from operating activities 494,927 553,284
Net income for the period 324,041 352,236
Depreciation and amortization 106,598 106,822
Income (loss) from disposal/write-off of property, plant and equips. 6,773 13,858
Interest and Monetary and foreign exchange variation 56,628 48,294
Provisions for tax, civil contingencies and labor claims 29,812 22,937
Provisions for income tax and social contribution 49,038 19,525
Deferred income and social contribuition taxes 28,534 (39,060)
Suspended tax payments (189,226) (198,624)
Allowance (reversal of) for doubtful accounts 17,678 26,070
Provision for (reversal of) inventory losses 38,728 12,552
Unrealized gains/losses on derivative transactions 7,222 498
Provision for Impairment of property, plant and equipment/Intangible assets 3,338 136,925
Net cash spent in discontinued operations - 51,251
Correction of legal deposits (12,624) -
Provision for success fees 7,457 -
Provision for employee benefits (501) -
Provision for Restructuring Argentina 21,431 -
Changes in assets and liabilities (302,517) (250,281)
Trade accounts receivable (149,100) (18,272)
Inventories (145,237) (84,153)
Prepaid expenses (11,576) 377
Taxes recoverable (11,592) (24,880)
IPI tax credit received 37,031 -
Trade accounts payable 131,845 (22,845)
Taxes payable 14,028 (22,743)
Payroll and social charges 30,726 (27,246)
Payment of income and social contribuition taxes (45,955) (37,140)
Operations with derivatives (3,657) -
Amortization of loans and financing (65,649) (55,674)
Contingencies (37,578) (16,291)
Other (45,803) 58,586
NET CASH - OPERATING ACTIVITIES 192,410 303,003
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible assets (80,795) (105,448)
Short-term investments (108,301) (115,575)
Redemption of Financial Investments 167,389 152,713
Proceeds from sale of owership interest 40,000 -
Minority interest 2,941 -
NET CASH - INVESTING ACTIVITIES 21,234 (68,310)
CASH FLOW FROM FINANCING ACTIVITIES
Loans and financing raised 434,937 456,557
Amortization loans and financing - Principal (543,992) (304,675)
Payment of dividends and interest on equity (206,408) (149,337)
Amortization through debt restructuring of subsidiary (6,576) (4,712)
NET CASH - FINANCING ACTIVITIES (322,039) (2,167)
Exchange gains (losses) on cash and cash equivalents (2,061) 5,365
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (110,456) 237,891
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 629,238 391,347
CASH AND CASH EQUIVALENTS AT END OF PERIOD 518,782 629,238
* There was a reclassification between accounts of the Net Cash of the operational activities for better adaptation