SPRINGS GLOBAL PARTICIPAÇÕES S.A. CNPJ/MF / NIRE Publicly Traded Company. Dear Shareholders,

Transcription

1 Dear Shareholders, SPRINGS GLOBAL PARTICIPAÇÕES S.A. CNPJ/MF / NIRE Publicly Traded Company The management of Springs Global Participações S.A. submits for your consideration the Company s Management s Discussion and Analysis and Financial Statements for the year of Such information, prepared in accordance with the International Financial Reporting Standards (IFRS), as well as the accounting practices adopted in Brazil and standards established by CVM, the Brazilian Securities Exchange Commission, is accompanied by its Independent Auditors report Fiscal year The year 2018 was marked by macroeconomic challenges in Brazil and Argentina, in addition to the political uncertainty in our country, due to the presidential elections. Notwithstanding these adversities, we ended the year with important events impacting the Company s equity by 35% and cash, over the next quarters, by R$ 543 million. These events place us at a new level of competitiveness and strengthen our financial structure. At the end of 2018, we entered into an agreement with Keeco, an American home fashion company, to combine its North American operations. The transaction was concluded in March 2019, when we received US$ 90 million in cash and US$ 36 million in common shares of the combined company, Keeco Holdings, LLC, representing 17.5% of its equity ownership. The combined company has a product portfolio and leading brands in the curtain, utility bedding, and decorative bedding markets, as well as a diversified customer portfolio, including the major companies in the North American traditional retail and e-commerce market. This business combination will strengthen Springs Global s participation in the North American market, through a significant equity ownership in a company with an extensive product portfolio, improved competitiveness, growth potential, and better profitability due to synergies. At the same time, it will enable Springs Global s management to focus on its South American business, with a more robust financial structure. Given a successful lawsuit, we recognized, in the fourth quarter of 2018, income of R$ million, related to the elimination of ICMS from the PIS and COFINS calculation in our subsidiary Coteminas S.A.

2 With the cash proceeds in March related to the agreement with Keeco plus the compensation of PIS and COFINS in the upcoming quarters, we will reduce our net debt by R$ 543 million. Digital transformation We remain engaged and optimistic about our sales from our digital channels. We launched, in the beginning of 2018, the digital franchise model, with great success. The success is measured not only by the strong e-commerce sales growth year-over-year (yoy), but, mainly, by the alignment of the interests of our franchisees, who also have gains from the digital channel sales growth. Our consumers also enjoy a better shopping experience, as they can choose where they purchase, receive, and pick up their desired products, with the same quality of service and with better delivery times. The digital model is robust and its technology, which was developed in-house, is functional and, at the same time, adaptable, enabling us to take the next step, implemented in the second half of 2018: the launch of the Santista s virtual store. The direct sales of Santista products, through its virtual store, will enable us to become even closer to our final consumers, contributing to a better understanding of their needs and desires, and, consequently, enhancing our brand loyalty and increasing our sales. We have also launched the store front-end system PIX, which was developed in-house and brings the multichannel concept to our physical stores, providing a personalized service and product recommendations, based on information from previous purchases or from the consumer profile. The PIX system transforms the way that our collections are designed, built, displayed and communicated, providing a better shopping experience for our consumer and, accordingly, adding more value to our brands. Finally, the incorporation of sensors in our sleep products is already in the test stage, providing data to the consumer such as tips to improve their quality of sleeping, with a positive impact on the productivity of their day, after a good night's sleep. Outlook Prospects for 2019 are positive and consumption should be one of the levers of growth. The scenario of low interest rates, low inflation and gradual recovery of the labor market indicates that the economy will grow more than in The continuity of this growth will depend on the approval of macroeconomic reforms, which guarantee the process of fiscal consolidation, and of microeconomic reforms that bring productivity gains. Springs Global has unique conditions that ensure competitiveness and resilience. 2

3 We have a fully integrated, efficient supply chain, with better control and management, and hence, with lower conversion cost. Our plants have a high degree of automation and flexibility, as well as installed capacity that enables us to increase production with low investment. We have leading brands in the bed, table and bath segment, which enable the Company to sell its products to different consumer profiles, seeking to attend with great care. We are proud to occupy the first, second, and third places on a customer service website. We practice every day the maxim that the consumer is always right. We recognize that the commitment and dedication of our employees are essential for our success. Our staff is our main asset. We were qualified for the third consecutive year among the 150 best companies to work for, by a renowned guide, highlighting our program to welcome and implement ideas from our employees. Relationship with independent auditors In 2018, the Company did not engage its independent auditors for services other than those related to the audit work. Acknowledgements We would like to express our appreciation to SUDENE, BNDES, BDMG, BNB, Banco do Brasil, our network of commercial banks, the press, our customers and suppliers, our shareholders, government officials, trade and social organizations, our employees and everyone that has contributed directly or indirectly to the achievement of the Company s social goals. Management 3

4 Company overview Springs Global Participações S.A. (Springs Global) is the Americas largest company in bedding, tabletop and bath products, with traditional and leading brands in the segments in which it operates, strategically positioned to target customers of different socioeconomic profiles. In Brazil, Springs Global s main brands are Santista, Artex, MMartan, and Casa Moysés. The first is only sold in the wholesale channel, while the last two are only sold in the monobrand retail channel. The Artex brand is sold in both distribution channels. In Argentina, the Company has the brands Palette, Arco-Íris, and Fantasia, which are market leaders. Our brands have a high rate of awareness among consumers and specialists, being a quality reference in the sector. Springs Global operates vertically integrated plants, from spinning, through weaving, preparation, dyeing, printing, finishing and cutting and sewing, with nine plants located in Brazil, and one in Argentina. All plants have high degree of automation and flexibility. Springs Global s products sold in the wholesale market are classified as: (a) Bedding, Tabletop and Bath ( CAMEBA ), and (b) intermediate products. The CAMEBA line includes bed sheets and pillow cases, sheet sets, tablecloths, towels, rugs and bath accessories. Intermediate products are yarns and fabrics, in their natural state or dyed and printed, sold to small and medium-sized clothing, knitting and weaving companies. The Company distributes its products through the wholesale channel, in all its markets, and in its monobrand retail stores, in Brazil. Springs Global entered into an agreement, in December 2018, with Keeco, an American home fashion company, to combine its North American operations, valued at US$ 126 million, concluded on March 15, 2019, after the fulfillment of all precedent conditions. According to CPC 31, Springs Global began presenting income from operations related to the operations sold to Keeco as Discontinued operations. For comparison purpose, we presented our 2017 results reclassified, excluding discontinued operations. Financial performance 1 Springs Global reported in 2018 net revenues of R$ 1,370.8, 3.1% below the amount, with gross margin of 31.0%. 1 The financial and operational information presented in this release, except when otherwise indicated, is in accordance with accounting policies adopted in Brazil, which are in accordance with international accounting standards (International Financial Reporting Standards IFRS). 2 Reclassified, excluding discontinued operations, for comparison purpose 4

5 Income from operations totaled R$ million, with positive effect from tax recovery, given a successful lawsuit related to the elimination of ICMS from the PIS and COFINS calculation. The net earnings was R$ million. Cash generation, as measured by EBITDA, reached R$ million, of which R$ million related to continuing operations and R$ 66.7 million related to discontinued operations. Revenue and Gross margin in R$ million and % 35% 31.9% 31.0% 3,500 30% 26.3% 26.9% 26.8% 26.3% 3,000 25% 2, , , , ,500 20% 2,000 15% 10% 5% 0% 1, , R ,500 1, R - Reclassified, excluding discontinued operations, for comparison purpose Adjusted EBITDA and Adjusted EBITDA margin in R$ million and % 40% 35% 30% % % 20% 15% 10% % 9.5% % 11.6% 18.0% % 0% R R - Reclassified, excluding discontinued operations, for comparison purpose 5

6 in R$ million Continuing operations Income (Loss) (+) Income and social contribution taxes (27.7) n.a. (+) Financial results (+) Depreciation and amortization (-) Result from discontinued operations (62.9) (0.1) (-) Depreciation from discontinued operations (2.2) 0.2 EBITDA from continuing operations (i) Discontinued operations Operational result from discontinued operations 69.6 (0.1) (+-) Depreciation from discontinued operations EBITDA from discontinued operations (ii) 71.8 (0.1) EBITDA (i) + (ii) Reclassified, excluding discontinued operations, for comparison purpose Capex and working capital Capital expenditures (Capex) totaled R$ 62.1 million in 2018, mainly focused on asset modernization. The working capital needs amounted to R$ million at the end of Capex in R$ million

7 Working Capital in R$ million , Debt and debt indicators Springs Global s net debt was R$ million as of December 31, 2018, of which 81% was denominated in Brazilian Reais and 19% in US Dollars. The Company entered into an agreement to combine its North American operations and, as part of the payment, it received US$ 90 million in cash at the close of the transaction on March 15, Considering the receipt of these funds, plus the compensation of PIS and COFINS in the upcoming quarters, the Company expects to reduce its net debt by R$ 543 million. Performance of the business units Springs Global presents its results segregated in the following business units: (a) South America Wholesale, (b) South America Retail, and (c) North America Wholesale. South America - Retail 19% 2018 Revenue R$ 1,370.8 million South America - Wholesale 81% 7

8 South America - Wholesale Net revenue from the South America Wholesale business unit amounted to R$ 1,189.4 million in 2018, with a 3.7% yoy decrease, negatively impacted by lower sales volume, mainly in Argentina, which was partially offset by better price and mix. Gross profit totaled R$ million, with gross margin equal to 25.4%. In the fourth quarter of 2018, we recognized tax recovery of R$ million, given a successful lawsuit. EBITDA reached R$ million, with EBITDA margin of 30.0%, both positively impacted by the tax recovery. 35% 30% 25% 20% South America - Wholesale - Revenue and Gross margin in R$ million and % 28.8% 30.3% 28.2% 26.0% 1, , , , % 1, ,500 2,000 1,500 1,000 15% % South America - Retail Net revenue from the South America Retail business unit totaled R$ million in 2018, 2.3% greater than At the end of 2018 we had 234 stores, of which 69 were owned and 165 franchises, compared to 231 at the end of Sell-out revenue was R$ million in 2018, 8.4% higher yoy. We started, in 2018, the operation of digital franchises, in which our e-commerce sales are fulfilled by our franchisers, with positive impact in the experience of online purchase, as there was a decrease in delivery time and cost. In August, we launched the Santista virtual store. There was a 150% yoy growth in our e-commerce revenue in We are increasing sell-out revenue much faster than net revenue as we are transferring sales to our franchisees, through the digital franchise model. Gross profit amounted to R$ million, with gross margin of 51.4%, and EBITDA reached R$ 9.0 million. 8

9 60% 50% 40% 30% 20% 10% 0% South America - Retail - Revenue and Gross Margin in R$ million and % 47.3% 45.7% % 51.3% 51.4% North America - Wholesale The Company entered into an agreement, at the end of 2018, with Keeco, to combine its North American operations. According to CPC 31, Springs Global began presenting the results related to the operations sold to Keeco as Discontinued operations. We presented the pro forma result from the North America Wholesale business unit, including the data from discontinued operations, for the purpose of comparison with the Company s historical data. Net revenue from the North America Wholesale business unit reached R$ million in , 15.4% higher yoy, in line with the 12.9% appreciation of the US Dollar against the Brazilian Reais in the same period. Gross profit amounted to R$ million 3, with gross margin of 13.4% 3. EBITDA totaled R$ 43.3 million 3, with EBITDA margin of 4.8% 3. The North America Wholesale business unit has expenses for operating leasing, pension plans and benefits, called legacy costs, which, in 2018, totaled R$ 19.8 million, and will gradually reduce in the coming years and will remain in the Company as continuing operations, as well as the idle real estate available for sale. EBITDA from continuing operations was negative R$ 23.2 million in Pro forma result, including discontinued operations, for comparison purpose 9

10 Dec-17 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Sep-18 Sep-18 Oct-18 Oct-18 Nov-18 Nov-18 Dec-18 Dec-18 20% 15% 10% 5% North America - Wholesale - Revenue and Gross margin in R$ million and % 10.9% % 16.8% % % ,000 1,500 1, % Pro forma 0 Value generation to shareholders The 2018 closing price of Springs Global s shares, traded on the B3 under the ticker SGPS3, was R$ 6.90, 36.2% lower than the 2017 closing price, while the IBOVESPA and SmallCap indices increased 15.0% and 8.1%, respectively, in the same period SGPS3 x Ibovespa x Small Cap 2018 (Base 100) SGPS3 Ibovespa Small Cap Index Human Resources At the end of 2018, we had 9,387 direct employees, of which 7,920 were in Brazil and 1,467 overseas, against 9,801 at the end of

11 Number of employees 11,994 10,377 10,094 9,801 9,387 Awards and Recognitions The company received several awards and recognitions in 2018, among them: Reclame Aqui Award 1 st, 2 nd and 3 rd places in 2018 Reclame Aqui Award in the bedding, tabletop and bath category, represented by the Santista, MMartan and Artex brands; Best Companies to Work for Award ranked among the 150 best companies to work for, according to Você S.A. magazine ranking; Recognition for Excellence in Franchising from ABF; Ser Humano award, regional level, in Paraíba state, promoted by the Associação Brasileira de Recursos Humanos; and Best Trainee Practices award, 1 st place in the state level, in Santa Catarina state, and in the national level; and Honorable Mention from IF - Instituto Federal da Paraíba pela Parceria de Inovação. Shareholder structure At the beginning and in the end of 2018, Springs Global s voting and total capital stock was represented by 50,000,000 common shares. The free float was 46.8%. Business outlook Springs Global maintains its strategy to consolidate its leading position in the bedding, tabletop and bath market, and to expand its multibrand channel and monobrand retail, prioritizing franchises and e-commerce. In 2018, we launched (i) the digital franchise model, (ii) the Santista virtual store, and (iii) the store front-end system PIX, all aiming to improve our end consumer s shopping experience, and, simultaneously, to increase sales and profitability of our franchisees and wholesale clients. With the combination of our North American operations, we have strengthened our position in this market, where we will have a significant equity ownership in a company with 11

12 an extensive product portfolio, improved competitiveness, growth potential, and better profitability due to synergies. We will continue to improve the profitability of our business, in South America, by higher capacity utilization of our factories in Brazil, resulting in higher absorption of fixed costs, mainly due to growth: (a) in e-commerce sales; (b) in sales of decorative textile products; and (c) in the number of franchises. Moreover, the recovery of the Brazilian and the Argentinean economies will leverage the growth in sales of discretionary consumer products, such as our products. These products suffer consumption declines during recession periods in R$ million Guidance Net revenue South America - Wholesale* 1,300-1,400 South America - Retail North America - Wholesale - Total net revenue 1,500-1,700 EBIT EBITDA CAPEX * Including intercompany revenue **Excluding result from asset combination 12

13 (Convenience Translation into English from the Original Previously Issued in Portuguese) Springs Global Participações S.A. Individual and Consolidated Financial Statements for the Year Ended December 31, 2018 and Independent Auditor s Report Deloitte Touche Tohmatsu Auditores Independentes

14

15

16

17

18

19

20 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. BALANCE SHEETS AS OF DECEMBER 31, 2018 and 2017 (In thousands of Brazilian Reais) ASSETS Company Consolidated Note CURRENT: Cash and cash equivalents , ,442 Marketable securities ,995 35,163 Derivative financial instruments - - 4,798 - Accounts receivable , ,647 Inventories 6.a , ,175 Advances to suppliers 6.b ,614 37,159 Recoverable taxes 18.c ,736 28,662 Other receivables 1,168 1,044 33,783 52,307 Assets held for sale , Total current assets 1,365 1,295 1,486,794 1,344, NONCURRENT: Long-term assets: Marketable securities ,729 63,819 Receivable clients ,934 37,388 Receivable sale of property ,587 Related parties ,946 39,711 Advances to suppliers 6.b ,914 - Recoverable taxes 18.c ,231 14,895 Deferred taxes 18.b 1,905 1, ,033 89,357 Property, plant and equipment held for sale 11.b ,444 33,731 Escrow deposits ,541 13,678 Others ,601 34, ,905 1, , ,734 Investments in subsidiaries 9.a 1,383,186 1,193, Investment properties , ,176 Property, plant and equipment 11.a , ,165 Intangible assets 12 27,303 27,303 81, , Total noncurrent assets 1,412,394 1,222,543 1,737,250 1,376, Total assets 1,413,759 1,223,838 3,224,044 2,721,418 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements.

21 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. BALANCE SHEETS AS OF DECEMBER 31, 2018 and 2017 (In thousands of Brazilian Reais) LIABILITIES AND EQUITY Company Consolidated Note LIABILITIES CURRENT: Loans and financing 13 4,759 21, , ,861 Debentures ,653 11,952 Suppliers , ,265 Taxes ,451 13,553 Income and social contribution taxes payable ,766 1,186 Payroll and related charges ,983 59,691 Government concessions ,361 19,473 Noneconomic leases ,765 7,202 Other payables ,928 41,698 Liabilities related to assets held for sale , Total current liabilities 5,027 22,099 1,145, , NONCURRENT: Loans and financing , ,180 Debentures ,669 36,643 Noneconomic leases ,456 13,816 Related parties 22 83,690 50, Government concessions ,087 42,784 Miscellaneous accruals ,933 18,610 Employee benefit plans ,968 95,536 Deferred taxes 18.b ,394 4,287 Other obligations - 2,056 22,555 15, Total noncurrent liabilities 83,690 52, , , EQUITY: 21 Capital 1,860,265 1,860,265 1,860,265 1,860,265 Capital reserves 79,381 79,381 79,381 79,381 Assets and liabilities valuation adjustments 114,036 82, ,036 82,435 Cumulative translation adjustments (241,807) (274,173) (241,807) (274,173) Earnings reserves - 25,170-25,170 Accumulated deficit (486,833) (623,571) (486,833) (623,571) Total equity 1,325,042 1,149,507 1,325,042 1,149, Total liabilities and equity 1,413,759 1,223,838 3,224,044 2,721,418 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements.

22 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Brazilian Reais) Company Consolidated Note NET REVENUES ,370,837 1,414,168 COST OF GOODS SOLD (945,686) (962,907) GROSS PROFIT , ,261 OPERATING INCOME (EXPENSES): Selling expenses (261,667) (250,568) General and administrative expenses 26 (3,314) (3,290) (105,075) (102,209) Management fees 26 (1,029) (973) (12,116) (10,538) Equity in subsidiaries 9.a 72,210 (28,436) - - Tax recovery ,924 - Others, net - - 6,178 23, INCOME (LOSS) FROM OPERATIONS 67,867 (32,699) 261, , Financial expenses interests (8,493) (8,253) (124,696) (137,914) Financial expenses bank charges and others (1,481) (989) (49,333) (59,601) Financial income ,916 26,959 Exchange rate variations, net - - (46,925) (9,663) INCOME (LOSS) FROM OPERATIONS BEFORE TAXES 57,894 (41,824) 65,357 (68,967) Income and social contribution taxes: Current 18.a - - (19,562) 266 Deferred 18.a ,099 27, NET INCOME (LOSS) FOR THE YEAR CONTINUING OPERATIONS 57,894 (41,824) 57,894 (41,243) Equity in subsidiary - discontinued operations 29 53,674 62, Net income from subsidiary discontinued operations ,674 62, NET INCOME FOR THE YEAR 111,568 21, ,568 21,624 ======= ======= ======= ======= ATTRIBUTED TO: Owners of the Company Continuing operations 57,894 (41,824) Discontinued operations 29 53,674 62,867 Non-controlling interests ,568 21,624 ======= ======= BASIC AND DILUTED EARNINGS (LOSS) PER SHARE R$ 28 Continuing operations (0.8364) Discontinued operations Total ====== ====== The accompanying notes are an integral part of these financial statements.

23 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Brazilian Reais) Company Consolidated NET INCOME FOR THE YEAR 111,568 21, ,568 21,624 Other comprehensive income (loss): - Items that will impact the statements of operations: Exchange rate variations on foreign investments 12,471 (3,083) 12,471 (3,104) - Items that will not impact the statements of operations: Actuarial gain on pension plans 2,427 8,579 2,427 8,579 Initial valuation adjustment on investment properties 29, ,520 29, , COMPREHENSIVE INCOME FOR THE YEAR 155, , , ,619 ======= ======= ======= ======= ATTRIBUTABLE TO: Owners of the Company Continuing operations 101,966 74,192 Discontinued operations 53,674 62,867 Non-controlling interests Continuing operations , ,619 ======= ======= The accompanying notes are an integral part of these interim financial statements.

24 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian Reais) Note Capital Capital reserve Assets and liabilities valuation adjustments Cumulative translation adjustments Earnings reserves Retained Legal earnings Accumulated deficit Total equity attributable to the owners of the Company Non-controlling interests Total equity BALANCES AS OF DECEMBER 31, ,860,265 79,381 (36,664) (271,090) 1,842 23,328 (633,926) 1,023,136 4,668 1,027,804 Comprehensive income (loss): Net income for the year ,043 21, ,624 Exchange rate variations on foreign investments 2.1.b , ,570 (21) 5,549 Actuarial gain on pension plans - - 8, ,579-8,579 Impact of subsidiaries- Exchange rate variations on foreign investments 2.1.b (8,653) (8,653) - (8,653) Initial valuation adjustment on investment properties , , , Total comprehensive income (loss) ,099 (3,083) , , ,619 Transactions with shares of indirect subsidiary 9.b (10,688) (10,688) (5,228) (15,916) BALANCES AS OF DECEMBER 31, ,860,265 79,381 82,435 (274,173) 1,842 23,328 (623,571) 1,149,507-1,149,507 ======== ====== ====== ======== ======= ======= ======= ======== ======= ======== The accompanying notes are an integral part of these financial statements.

25 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2018 (In thousands of Brazilian Reais) Note Capital Capital reserve Assets and liabilities valuation adjustments Cumulative translation adjustments Earnings reserves Retained Legal earnings Accumulated deficit Total equity BALANCES AS OF DECEMBER 31, ,860,265 79,381 82,435 (274,173) 1,842 23,328 (623,571) 1,149,507 Effects of the hyperinflationary adjustment of the 2.4 indirect subsidiary in Argentina , , BALANCES AS OF JANUARY 1, ,860,265 79,381 82,435 (254,278) 1,842 23,328 (623,571) 1,169,402 Comprehensive income (loss): Net income for the year , ,568 Exchange rate variations on foreign investments 2.1.b , ,656 Actuarial gain on pension plans - - 2, ,427 Impact of subsidiaries- Exchange rate variations on foreign investments 2.1.b (10,185) (10,185) Initial fair value adjustment on investment properties , , Total comprehensive income (loss) ,601 12, , ,640 Absorption of accumulated deficit (1,842) (23,328) 25, BALANCES AS OF DECEMBER 31, ,860,265 79, ,036 (241,807) - - (486,833) 1,325,042 ======== ====== ====== ======== ======= ======= ======= ======== The accompanying notes are an integral part of these financial statements.

26 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Brazilian Reais) Company Consolidated Cash flows from operating activities Net income for the period 111,568 21, ,568 21,624 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ,364 73,710 Equity in subsidiaries (72,210) 28, Equity in subsidiaries discontinued operations (53,674) (62,867) - - Change in fair value of investment properties - - (18,309) - Income and social contribution taxes ,183 (25,965) Tax recovery - - (208,924) - Gain on disposal of property, plant and equipment and intangibles - - (2,748) (16,653) Monetary variations - - 7, Exchange rate variations ,925 9,371 Bank charges, interests and commissions 8,490 9, , ,365 Other provisions - - (69) 2, (5,826) (4,252) 165, ,380 Changes in assets and liabilities Marketable securities ,727 (8,694) Accounts receivable - - (152,935) (24,120) Inventories - - (30,997) 17,609 Advances to suppliers - - (73,231) (1,611) Suppliers (4) (75) 105,067 21,565 Others (2,334) (908) (25,405) (40,655) Net cash provided by (used in) operating activities (8,164) (5,235) 18, ,474 Interest paid (1,316) (3,075) (101,975) (125,324) Income and social contribution taxes paid - - (3,645) (6,151) Net cash provided by (used in) operating activities after interest and income taxes (9,480) (8,310) (87,513) 53, Cash flows from investing activities Investment properties - - (17,609) (15,916) Property, plant and equipment - - (44,487) (55,307) Intangibles - - (2,081) (3,144) Proceeds from disposal of property, plant and equipment - - 8,505 41,820 Loans between related parties 26,765 8,145 30,215 (3,405) Net cash provided by (used in) investing activities 26,765 8,145 (25,457) (35,952) The accompanying notes are an integral part of these financial statements.

27 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Brazilian Reais) Company Consolidated Cash flows from financing activities Proceeds from new loans, net of prepaid charges - 17, , ,879 Repayment of loans (17,339) (17,000) (823,115) (860,252) Net cash provided by (used in) financing activities (17,339) - 90,168 (19,373) Effect of exchange rate variations on cash and cash equivalents of foreign subsidiaries - - 6,834 (3,592) Decrease in cash and cash equivalents (54) (165) (15,968) (4,918) Cash and cash equivalents: At the beginning of the year , ,360 At the end of the year , , Decrease in cash and cash equivalents (54) (165) (15,968) (4,918) ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements.

28 (Convenience Translation into English from the Original Previously Issued in Portuguese) SPRINGS GLOBAL PARTICIPAÇÕES S.A. STATEMENTS OF VALUE ADDED FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Brazilian Reais) Company Consolidated REVENUES Sales of products, goods and services - - 1,637,129 1,705,977 Allowance for expected losses on doubtful accounts - - (609) (5,101) Gain on disposal of property, plant and equipment and intangibles ,360 Tax recovery , ,845,958 1,718,236 MATERIALS ACQUIRED FROM THIRD PARTIES Cost of goods and services sold - - (585,424) (629,477) Materials, energy, third party services, and others (4,394) (4,152) (415,236) (354,624) Change in fair value of investment properties , (4,394) (4,152) (982,351) (984,101) GROSS VALUE ADDED (4,394) (4,152) 863, ,135 RETENTIONS Depreciation and amortization - - (76,567) (71,508) NET VALUE ADDED PRODUCED BY THE COMPANY (4,394) (4,152) 787, ,627 VALUE ADDED RECEIVED BY TRANSFER Equity in subsidiaries 72,210 (28,436) - - Equity in subsidiaries discontinued operations 53,674 62, Financial income ,916 26,959 Exchange rate variation ,168 6,057 Royalties ,318 16,373 Net income for the year discontinued operations 53,674 62, ,885 34, , , TOTAL VALUE ADDED FOR DISTRIBUTION 121,491 30, , ,883 ====== ====== ========= ========= DISTRIBUTION OF VALUE ADDED Salary, wages and compensation , ,728 Taxes, duties and contributions 1,430 1, , ,111 Payments to third parties 8,493 8, , ,420 Net income (loss) for the year 111,568 21, ,568 21, VALUE ADDED DISTRIBUTED 121,491 30, , ,883 ====== ====== ========= ========= The accompanying notes are an integral part of these financial statements.

29 (Convenience Translation into English from the Original Previously Issued in Portuguese) 1. OPERATIONS SPRINGS GLOBAL PARTICIPAÇÕES S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018 (Amounts in thousands of Brazilian Reais) Springs Global Participações S.A. (the Company ), headquartered at Avenida Lincoln Alves dos Santos, number 955, in Montes Claros MG, Brazil, was incorporated on November 24, On January 24, 2006 received as capital contribution 100% of the shares of Coteminas S.A. ( CSA ) and Springs Global US, Inc. ( SGUS ), privately-held companies headquartered in Brazil and in the United States, respectively, whose shareholders were Companhia de Tecidos Norte de Minas Coteminas ( CTNM ), the Company s parent company, and the former shareholders of Springs Industries, Inc. ( SI ), respectively. On April 30, 2009, the Company started its bed, tabletop and bath retail operations, under the brands MMartan and Casa Moyses and later, in October 2011, with the brand Artex. The retail operation of these brands is run by subsidiary AMMO Varejo Ltda. ( AMMO ). On July 27, 2007, the Company s stock began trading in the Novo Mercado segment of B3 S.A. Brazilian Stocks, Commodities and Futures Exchange ( B3 ), under the code SGPS3. The Company has leading brands in their markets, such as MMartan, Casas Moysés, Artex, Santista, Paládio, Calfat, Garcia, Arco Íris, Magicolor, among others. The Company s products have a privileged market standing on the shelves of the largest and most demanding retail channels of the world. As disclosed in note 29 to the financial statements, on March 15, 2019, the sale of the operating assets and liabilities of the North American subsidiary SGUS was concluded. As explained in that note, as of that date, the subsidiary SGUS holds 17.5% of the combined company, Keeco Holdings, LLC, and ceases to directly market its products. 2. PRESENTATION OF FINANCIAL STATEMENTS The financial statements were approved by the Company s Board of Directors on April 5, The Company presents its individual ( Company ) and consolidated ( Consolidated ) financial statements, prepared, simultaneously, in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ("IASB"), and accounting practices adopted in Brazil, which include the standards in the Brazilian Corporate Law and the pronouncements, orientations and interpretations issued by Brazilian Committee of Accounting Pronouncements ( CPC ), approved by the CVM (Brazilian Securities and Exchanges Commission) and the CFC (Federal Accounting Council). The Company adopted all standards, review of standards and interpretations issued by the IASB and the CPC which were effective on December 31, All relevant information relating to the financial statements is included herein and corresponds to those used by Company s management in its administration. 1

30 2.1 Translation of balances in foreign currency a) Functional and presentation currency The financial statements of each subsidiary included in the consolidation of the Company and used as a basis for valuation of investments under the equity method are prepared using the functional currency of each entity. The functional currency of an entity is the currency of the primary economic environment in which it operates. To determine the functional currency of each of its subsidiaries, Management considered which currency significantly influences the selling price of their products and services, and the currency in which most of the production cost inputs are paid or incurred. The consolidated financial statements are presented in Reais (R$), which is the functional and presentation currency of the Company. b) Conversion of balances The results and financial position of all subsidiaries included in the consolidation that have functional currencies different from the presentation currency are translated to the presentation currency as follows: i) assets and liabilities are translated at the exchange rate prevailing on the date of the consolidated financial statements; ii) income and expenses are translated at the monthly exchange rate; and iii) all differences resulting from the translation are recognized in equity under the caption "Cumulative translation adjustments" and are presented as other comprehensive income in the statement of comprehensive income. 2.2 Accounting policies The significant accounting policies used in the preparation of the financial statements are as follows: (a) Results of operations--results of operations are calculated in accordance with the accrual basis of accounting. Revenue is not recognized if there is significant uncertainty regarding its realization. Interest income and expense are recognized using the effective interest rate as financial income and expenses in the statements of operations. The extraordinary gains and losses and the transactions and provisions involving property, plant and equipment are recorded in the statements of operations as "Others, net ". (b) Financial instruments--the Company classifies financial assets and liabilities in the following categories: at fair value through profit or loss ("FVTPL"), at fair value through other comprehensive income ("FVOCI") and at amortized cost. i) Non-derivative financial assets and liabilities - recognition and derecognition The Company recognizes financial assets and liabilities when and only when it becomes part of the contractual provisions of the instruments. The Company derecognizes a financial asset when the contractual rights to the asset s cash flows benefits expire, or when the Company transfers the rights to the receipt of contractual cash flows on a financial asset in a transaction in which substantially all the risks and benefits of ownership of the financial asset are transferred. Any participation that is created or retained by the Company in such transferred financial assets is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligation is withdrawn, canceled or expired. 2

31 The financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to offset the amounts and intends to liquidate them on a net basis or to realize the asset and settle the liability simultaneously. ii) Non-derivative financial assets - measurement A financial asset is measured at amortized cost if it meets both of the following conditions: - the asset is kept within a business model with the purpose of collecting contractual cash flows; and - the contractual terms of the financial asset give rise, on specific dates, to the cash flows that are only payments of principal and interest on the outstanding principal amount. A debt instrument is measured at fair value through other comprehensive income only if it satisfies both of the following conditions: - the asset is kept within a business model which the purpose is achieved by collecting contractual cash flows and selling financial assets; and - the contractual terms of the financial asset give rise, on specific dates, to the cash flows that are only payments of principal and interest on the outstanding principal amount. All other financial assets are classified as measured at fair value through profit or loss. In addition, at initial recognition, the Company may irrevocably designate a financial asset or liability as measured at fair value through profit or loss in order to eliminate or significantly reduce a possible accounting mismatch resulting from the result of the respective asset or liability. iii) Non-derivative financial liabilities - measurement Financial instruments classified as liabilities, after their initial recognition at fair value, are measured based on the amortized cost method based on the effective interest rate. Interest, monetary restatement, exchange variation, are recognized in income, as financial income or expenses, when incurred. iv) Derivatives measured at fair value through profit or loss Contracted derivative instruments are not designated for hedge accounting. Changes in the fair value of any of these derivative instruments are recognized immediately in the statement of operations. 3

32 (c) Impairment of financial instruments--financial assets not classified as financial assets at fair value through profit or loss, are valued at each balance sheet date to determine whether there is objective evidence of impairment loss. Objective evidence that financial assets had a loss of value includes: - default or delays by the debtor; - restructuring of a value due to the Company under conditions that would not be accepted under normal conditions; - indications that the debtor or issuer will go into bankruptcy or judicial recovery; - negative changes in the payment situation of debtors or issuers; - the disappearance of an active market for the instrument due to financial difficulties; or - observable data indicating that there was a decline in the measurement of the expected cash flows of a group of financial assets. The Company considers evidence of impairment of assets measured at amortized cost both individually and collectively. All individually significant assets are evaluated for impairment. Those that have not individually suffered a loss of value are then evaluated collectively for any loss of value that may have occurred, but has not yet been identified, which includes the expected credit losses. Assets that are not individually significant are evaluated collectively as to the loss of value based on the grouping of assets with similar risk characteristics. In evaluating the impairment loss on a collective basis, the Company uses historical trends of the recovery period and the amounts of loss incurred, adjusted to reflect management's judgment as to whether current economic and credit conditions are such that losses are likely to be higher or lower than those suggested by historical trends. An impairment loss is calculated as the difference between the book value and the present value of the estimated future cash flows discounted at the original effective interest rate of the asset. Losses are recognized in the statement of operations and reflected in the impairment provision account. When the Company considers that there are no reasonable expectations of recovery, the amounts are written off. When a subsequent event indicates a reduction of the impairment loss, the reduction of the impairment provision is reversed through the statement of operations. An impairment loss relating to an investment accounted for under the equity method is measured by comparing the recoverable value of the investment with its carrying amount. An impairment loss is recognized in profit or loss and reversed if there was a favorable change in the estimates used to determine recoverable value. (d) Cash and cash equivalents--includes cash, deposits, cash in transit and short-term investments with immediate liquidity and original maturities of 90 days or less (or without fixed maturity), which are subject to an insignificant risk of change in its value. Cash and cash equivalents are classified as non-derivative financial assets, measured at amortized cost, and interest earned is recognized in the statements of operations of the year. (e) Marketable securities--represented by amounts of immediate liquidity with maturities of more than 90 days and are subject to an insignificant risk of change in their value. The marketable securities relating to investment funds in equity instruments are classified as non-derivative financial assets, and are measured fair value through the statement of operations. All other marketable securities are classified as non-derivative financial assets measured at amortized cost and interest earned is recognized in the statements of operations of the year. (f) Accounts receivable and allowance for expected losses on doubtful debt accounts-- Accounts receivable from customers are initially recognized at transaction value and subsequently measured at amortized cost using the effective interest rate method less the estimated loss with doubtful accounts. 4

33 The Company adopted the measurement of the estimated loss with doubtful accounts based on the entire life of the instruments, using the simplified approach, taking into account the history of movements and historical losses. As a general rule, accounts overdue at more than 180 days represent a relevant indicator of expected loss, and are evaluated individually. (g) Inventories--Valued at average acquisition or production cost, which is lower than net realizable value and are stated net of provision for losses on discontinued and/or obsolete items. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion of manufacturing and directly related selling expenses. (h) Property, plant and equipment held for sale--includes out-of-use machinery and equipment measured at fair value less selling expenses, when this amount is lower than net book value. (i) Investments--Investments in subsidiaries are accounted for using the equity method based on the balance sheet of the respective subsidiaries as of the same date as the Company s balance sheet. The value of the equity of foreign subsidiaries is converted into Reais based on the current rate of its functional currency and the foreign exchange rate variation is recorded in "Cumulative translation adjustments" in equity and presented as other comprehensive income. (j) Business combinations--the cost of the acquired entity is allocated to the acquired assets and liabilities, based on their estimated fair value at the acquisition date. Any difference between the entity s cost and the fair value of the acquired assets and liabilities is recognized as goodwill. (k) Research and development expenses--are recognized as expenses when incurred, except when they meet the criteria for capitalization. (l) Leases--Operating leases are recognized as expense on a straight-line basis over the lease term, except when another systematic basis is more representative of the future economic benefits. Contingent leases, related to either capital or operating leases, are recognized in the statements of operations when incurred. Subsidiary SGUS records an accrual for unrecoverable lease costs based on the estimated present value of future lease obligations (whose contracts are still valid after the closing of the leased facilities), net of existing sublease income and estimated sublease income for closed facilities which were not yet subleased. (m) Investment properties--are held for income or capital appreciation. Investment properties are initially recorded at cost and include transaction costs. After initial recognition, investment properties are measured at fair value against comprehensive income (loss) net of taxes, and thereafter, are measured annually at fair value and the variations arising from this valuation and taxes are recognized in the statements of operations. (n) Property, plant and equipment--recorded at acquisition or construction cost. Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets. Expenses incurred that increase the value and extend the estimated useful lives of the assets are capitalized; maintenance and repairs are recorded as expenses when incurred. 5