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					                                                  4Q05 adjusted net profit: up 18% year-on-year.
          RELEASE OF                                   2005 adjusted net profit: R$ 195 mn
             4Q05                      Sobral, March 6, 2006: In this release GRENDENE (BOVESPA: Novo Mercado – GRND3) publishes its
           EARNINGS                    results for the fourth quarter of 2005 (4Q05) and the whole of 2005 (12M05). Figures in this release are
                                       consolidated, based on adjusted financial statements (pro forma) in Reais (Appendices III and IV). Quarterly
                                       adjusted statements of income are in Appendices V and VII, and cash flow statements in Appendix VIII.

                                                                        4Q05 vs. 4Q04 – highlights
                                       ↓ Gross revenue: R$ 398 mn, down 21%, on volume 19% lower, and average price 2% lower:
                                              ↓ Domestic revenue: R$ 345 mn (87% of gross revenue), 24% lower year-on-year, on volume
                                       24% lower, average price flat;
                                              ↑ Exports: R$ 53 mn (13% of revenue), 28% higher in dollar terms (4% higher in Reais) – on
                                       volume 1% higher and average price in dollars 28% higher (3.0% higher in Reais).
         BOVESPA ticker:               ↑ COGS: 19% lower, reflecting volume decrease; flat per-pair average (R$ 4.42, in 4Q05).
            GRND3                      ↑ SG&A: R$ 36 mn lower, and down from 30% of net sales in 4Q04 to 27% in 4Q05.
                                        ↑ Adjusted Ebitda: 7% lower, at R$ 105 mn, and margin up 490 basis points, at 33% (28% in 4Q04).
 www.grendene.com.br/www/ri             ↑ Net financial revenues (expenses): Strong turnaround from expense of R$ 25 mn in 4Q04 to
                                       revenue of R$ 2 mn.
 Number of shares:                     ↑ Adjusted net income: 18% higher, at R$ 79 mn, vs. R$ 67 mn in 4Q04.
 Common: 100 million
                                                                         2005 vs. 2004 – highlights
 Share price (March 3, 2006):
 R$ 20.19 per share                    ↓ Gross revenue: R$ 1,353 mn, down 11%, on volume 10% lower, average price 1% lower:
                                               ↓ Domestic revenue: R$ 1,170 mn (86% of gross revenue), down 9% – on volume 12%
                                       lower, average price 3% higher;
 Market capitalization:
                                               ↓ Exports: R$ 183 mn (14% of revenue) down 6% in dollars (down 22% in Reais) – on volume
 R$ 2,000 million
                                       4% lower and average price in dollars 3% lower (19% lower in Reais).
 US$ 945 million
                                       ↑ COGS: 9% lower, and 1% higher on whole-year average per pair (R$ 4.79).
                                       ↑ SG&A: R$ 32 mn lower; stable in approximately 29% of net sales.
 Brazilian conference call:
                                       ↓ Adjusted Ebitda: R$ 267 mn, Ebitda margin 25% (down 140 basis points).
 March 7, 2006 at 10:30 a.m.
                                       ↑ Net financial revenues (expenses): Strong recovery: from R$ 53 mn expenses in 2004, to almost null.
 International conference call:        ↑ Net cash: Up 81% from Dec. 31, 2004, to R$ 333 mn at Dec. 31, 2005.
 March 7, 2006 at 12:30 p.m.           ~ Adjusted net income: R$ 195 mn; net margin 18% (up 160 basis points).
                                       ↑ Dividends: Payable in April 2006: R$ 43 mn, totaling R$ 81 mn regarding to 2005.
 Contact:                              ↑ 2005 Annual Report: Published today, in a pioneering initiative, jointly with this release, on our website.
 Marcus Peixoto, CFA                                               Main Financial and Economic Indicators
 CFO and Investor Relations Director           (in million of R$)                     4Q04     4Q05    Var.%      2004     2005      Var.%
 marcus.peixoto@grendene.com.br                Gross Revenues                           504      398     (21%)    1,525    1,353       (11%)
                                                   Domestic                             453      345     (24%)    1,290    1,170        (9%)
 Dóris Wilhelm                                     Exports                               51       53       4%       235      183       (22%)
 Investor Relations Manager                    Net Sales                                397      316     (20%)    1,212    1,068       (12%)
 doris@grendene.com.br                         Gross Profit                             189      148     (22%)      526      444       (16%)
                                               Adjusted EBITDA                          113      105      (7%)      320      267       (17%)
 Telephone: +55 54 2109 9000                   Net Financial Result                     (25)     2.3      n.s.      (53)     (0.2)      n.s.
                                               Adjusted Net Income                       67       79      18%       202      195        (3%)
 Fax: +55 54 2109 9991                         EPS (R$ per share)                      0.67     0.79      18%      2.02     1.95        (3%)
                                               Sales Volume (million pairs)              47       38     (19%)      145      130       (10%)
 E-mail: dri@grendene.com.br                   Average Price (R$)                     10.66    10.45      (2%)    10.50    10.39      (1.0%)
                                               Adjusted Margins – as a % of net sale 4Q04      4Q05 Var.(bps)     2004     2005 Var.(bps)
                                                 Gross                               47.6%     46.7%      (90)    43.4%    41.5%     (190)
                                                 EBITDA                              28.4%     33.3%      490     26.4%    25.0%     (140)
                                                 Net                                 16.8%     24.9%      810     16.7%    18.3%      160
                                       ↑ Guidance: for the next six months, year-on-year ( 1Q06 + 2Q06 vs. 1Q05 + 2Q05):
                                             ↓ (i) Domestic sales:            down about 5 %;
                                             ↑ (ii) Exports:                  up about 5% in dollars;
                                             ↑ (iii) Adjusted Ebitda:         up by more than 20%;
                                             ↑ (iv) Adjusted net profit:      up by more than 20%;

Grendene S.A. – 4Q05 Earnings                                                                                                                  1 / 31
Management discussion and analysis –
   Part I:      Profit up 18%, though on weak sales: detailed view of 4Q05

Our 4Q05 adjusted net income, R$ 195 million, was 18% higher than in 4Q04 – perhaps a lower result than we
could have achieved, but in line with market expectations (our guidance was ~R$ 200 million). The trend to increase
in margins was maintained in the quarter (due to excellence in industrial management, reduction of costs and
expenses), though with a fall in sales.
Our guidance for the next six months (1Q06+2Q06) is on Page 5 (summary on Page 1) – indicating year-on-year
improvement. We believe this estimate is conservative. The main reason for the improvement continues to be better
margins (adjustment of costs and expenses), and a better result in Net financial revenues (expenses). Unfortunately,
if the difficulties faced in recent quarters continue, the outlook for increased sales is still somewhat adverse on the
visible horizon (short term = 1H06).
We believe the constant capacity to resolve difficulties and re-invent our activity, and also the speed of action to
react and overcome adverse conditions, is “written into our DNA”. For this reason we contracted two companies in
2005 to make two surveys: one focused on outlining the profile of the consumer and analyzing market trends – not
only in consumption but also in other spheres including behavior; and the other, directly in consumers’ homes,
focusing on auditing consumption by product and brand. The information resulting from this research has contributed
to strategic decisions adjusting our portfolio of products, aiming to minimize the risks inherent to the business.
We have new product launches planned, as well as maintenance of the present lines, seeking to meet consumers’
demand and desires, but also to win new niche markets, aiming for growth in both sales and profitability. With
installed capacity for 176 million pairs / year, we have the ability not only to meet present demand, but also to react
rapidly to an increase in footwear demand and consumption, with a high degree of competitiveness both locally and
in the international market.
4Q05: Gains in profitability continue, but still without a turnaround in the operational result ... The chart
below, with year-on-year comparisons, shows the continuing trend of growth in net income in two consecutive
quarters (3Q05 and 4Q05), after the inflection point in 2Q05, and after five consecutive quarters of downward
movement. We see in the chart that, in the year-on-year comparison, we are still down both in sales (in the last four
quarters), and Ebitda (in the last six quarters, except 3Q05).

                            Gross revenues, adjusted Ebitda and adjusted net income – year-on-year changes, %
 250%


 200%


 150%


 100%


 50%


  0%
        1Q02/1Q01   2Q02/2Q01   3Q02/3Q01   4Q02/4Q01   1Q03/1Q02   2Q03/2Q02   3Q03/3Q02    4Q03/4Q02   1Q04/1Q03      2Q04/2Q03    3Q04/3Q03   4Q04/4Q03   1Q05/1Q04   2Q05/2Q04   3Q05/3Q04   4Q05/4Q04

 -50%


-100%
                                                                                                     Period

                                                                                Gross Revenues   Adjusted Ebtida     Adjusted Net Income



                                                                    Source: Grendene financial statements.




Grendene S.A. – 4Q05 Earnings                                                                                                                                                                        2 / 31
Domestic sales in 4Q05 were weak, down 24% year-on-year – part of this fall is non-recurring, resulting from
positioning of some products: The domestic market suffered a lot in this last quarter, due to several factors: (i)
models in some projects did not please the public; (ii) the “Importers’ Christmas”; (iii) consumption of electronics; and
(iv) the increase in consumer credit (consumption mix more focused on durables than non-durables). Our domestic
gross revenue was 23.8% down in 4Q05 (vs. 4Q04), with average price almost flat (down 0.1%), while sales volume
fell by a significant 23.7%. The domestic scenario continues to be very competitive, with growing competition from
imported products (both footwear and other consumer goods – this is a “share of pocket” challenge).
Seasonally the fourth quarter has made a strong contribution to the year’s sales revenue and that of the second half.
In the last three years the fourth quarter has provided an average of 54% of the domestic sales revenue of the
second quarter, and 34% of the whole year, and in volume the figures are very similar: 53%, and 33%.
Exports react positively for the second quarter running, and for the first time in 2005 they grow both in
dollars and in Reais, and also volume – even with the exchange rate at this level. We are very satisfied with
the 28% increase in export sales revenue in US dollars (3.9% in Reais) – with 28% year-on-year growth in the
average price in US dollars (3% in Reais) – and also with the increase in sales volume of the order of 0.8%, which
although still timid shows signs of a recovery after various quarters of decline, in the context of an average exchange
rate nominally 19.2% stronger than in 4Q04 and 16.8% stronger in full-year 2005 than 2004.
The fourth quarter is seasonally strong, since exports are more concentrated in the fourth and first quarters (because
orders for the Northern Hemisphere summer are made six months in advance). In the last three years the fourth
quarter has provided, on average, 28% of the year’s export revenue, with the first quarter providing 33%. The trend
to recovery in average prices in dollars, and in Reais, continued – from US$2.20 (R$ 6.15) per pair in 4Q04 to
US$2.81 (R$ 6.33) per pair in 4Q05 (details in Appendix I).
COGS: 19% lower year-on-year, flat in cost per pair: The 19% fall in sales volume led to costs being R$ 40
million lower. Gross margin 90bp lower was due to the lower dilution of fixed costs. Gross profit fell by 22%, or the
equivalent of R$ 41 million in absolute terms.
Cost per pair remaining flat was due to two factors: (i) continuing rationalization in the use of raw materials (see
discussion on “deconstructing myths” on page 16, in relation to petrochemicals), and (ii) growing productivity on the
part of our workforce. Note that we had a relatively small fall in gross margin in spite of the fact that the footwear
industry has a high fixed costs structure, in a quarter with accentuated fall in volumes.
SG&A expenses 30% lower (R$ 36 million lower): ~360bp gain in margin. General and administrative expenses
were down 33%, or R$ 5.9 million lower, from 4Q04 to 4Q05. The reduction in selling expenses was 30% in 4Q05,
mainly due to expenses on advertising being R$ 19 million lower. However, the reduction in SG&A was not enough
to increase Ebitda, which was 6.8% lower in 4Q05 than 4Q04, reflecting the much lower revenue.
Financial revenue (expenses) R$ 27 million stronger than in 4Q04: We have an explicit policy of keeping our
net FX balance neutral (with the exception of ~US$7 mn, relating to the net assets of our subsidiaries outside Brazil).
This means that cash invested in dollars, plus exports expected for the next three months, less imports and local
purchases denominated in dollars (petrochemicals) for the next three months should sum to zero. Thus, the balance
of FX-related expenses and revenues was practically zero. Also, the present high interest rates favor us – especially
in a period in which our net cash position has increased by 81%.
Reclassification in financial revenues (expenses): In 2005, aiming to improve accounting and management
criteria, we began to include the account for our exchange rate hedge on the BM&F (the local futures exchange)
within Financial revenues (expenses) – it had been accounted in Other operational revenue (expenses) up to 2004.
The reclassification does not alter the bottom-line figures, nor indicators such as Ebitda and net income.
Conclusion: Adjusted net profit 18% higher, at R$ 79 mn in 4Q05 (vs. R$ 67 mn in 4Q04). We have maintained
the trend to recovery in the company’s profitability, but we recognize that our operational result has been a long way
short of the expectations of our investors, analysts – and ourselves.




Grendene S.A. – 4Q05 Earnings                                                                                       3 / 31
Evolution in corporate governance best practices – non-financial results:
i – Sustainability and governance: We continue to participate in the global footwear team of the GRI.
Grendene has taken a pioneer position in Brazil, participating in the global apparel and footwear project of the GRI
(Global Reporting Initiative). We are the first Brazilian company to take part in creating the GRI framework of
indicators for a specific sector. Best practices will be defined for obtaining sustainability based on the “triple bottom
line” of economic result, minimization of environmental impact and maximization of positive social impact. The first
meeting was in Amsterdam on September 29 and 30, and the second in Colombo, Sri Lanka, on December 15 and
16. Important companies from the sector were present: C&A, Feng Tay Group, Gap, Grendene, H&M, Levi-Strauss,
Mas Holdings, Nike and various representations of environmental and social organizations. The project will continue
for one year.
ii – Grendene Values: The team project involving the whole company, to increase management discipline and
reduce volatility of profit, is already showing concrete results. There were several training sessions in 4Q05 to
disseminate the Grendene Values, which will be used on banners, tags and places where many employees can see
them. The Grendene Values are:
I)   PROFIT:                    Profit is essential – irreplaceable for Grendene’s survival, and maintenance of jobs.
II) COMPETITIVENESS:            Growing productivity – constant re-examination, reduction of costs and expenses.
III) INNOVATION, AGILITY: Anticipate difficulties – innovate, improve.
IV) ETHICS:                     Integrity, respect and transparency – think, speak and act.

iii – Growing focus on forecasts and monitoring of monthly results: The improvement in the work of planning
and budgeting on a monthly basis – domestic sales and exports, Ebitda, financial revenue (expenses), net profit –
will result in (i) better guidance for investors and analysts, and (ii) better dissemination and analysis of the results to
a wider basis of employees in the company, increasing the speed of taking of decisions, and alignment of efforts.
iv – Annual Report in electronic version, published today, March 6, 2006. The Annual Report is a very
important document for investors and analysts, but production of the printed version usually involves high cash cost
– and the highest cost of all: the fact that many annual reports reach the market only by the end of the first half of the
year, when the information contained in them is already much less important, and new trends are being analyzed.
We have thus decided to publish only an Internet version, this year – which is available on our site simultaneously
with this release. This not only provides the advantages of Internet publication but also saves a significant amount in
costs – appropriate at a moment of austerity, in view of our operational results.
Innovation, too, in corporate governance practices: Most importantly, for the market, the information contained in our
Annual Report is available on March 6, 2006, on our website, much earlier than the market average, and
simultaneously with release of the financial statements. With this additional initiative we underline Grendene’s
characteristic of innovation – which extends to corporate governance best practices for the benefit of our investors
and analysts.




Grendene S.A. – 4Q05 Earnings                                                                                         4 / 31
Management discussion and analysis –
       Part II:                  Guidance for coming quarters (1H06)
I – Our last guidance was published on October 28, 2005: we expected adjusted net income for 2005 of
around R$ 200 mn.
We had not supplied specific guidance for 4Q05 (instead, we provided guidance for the six-month period of
4Q05 + 1Q06 – table below), but we did provide specific guidance for 12M05 – full-year 2005 – namely, net income
of ~R$ 200 mn. This contained the implicit guidance that 4Q05 adjusted net profit would be a minimum of R$ 75-85
mn (since 9M05 net income was R$ 116 mn).
Our 4Q05 net income was R$ 79 mn, and we reported 12M05 net income of R$ 195 mn – within our guidance.
4Q05 income was 18% up year-on-year, and slightly (3%) lower year-on-year.
 Previous guidance:
 Gross revenue                                                                3Q05/3Q04                         6M
                                1H04    2H04     1H05      3Q04      3Q05                  Next six months
 R$ mn                                                                           %                              %
 Domestic (R$ mn) = 0             462      828      484       375      341          (9%)     711         679      (4%)’
 Exports* (R$ mn)                 143       92       92        41       39          (6%)     108          99       (8%)
 Total                            605      920      575       416      379          (9%)     818         778       (5%)
 Exports* (US$ mn)                 48       32       34        14       17          20%       40          43       10%
 Ebitda                           116      205       67        92       95           3%      163         187       15%
 Adjusted net income               88      114       46        48       70          47%      104         128       23%

 II – New guidance for first half 2006, given on March 6, 2006: We now expect adjusted net profit for 1H06 of
 ~R$ 56 mn, 20% more than in 1H05. Once again we give guidance for the six-month period, not for a specific
 quarter or the whole year.
↑ Guidance for the next six months ( 1Q06 + 2Q06 vs. 1Q05 + 2Q05 ):
  We expect, year-on-year:
   ↓   (i) Domestic sales:      ~5% lower;
   ↑ (ii) Exports:              ~5% higher in dollars;
   ↑ (iii) Adjusted Ebitda: ~20% higher;
   ↑ (iv) Adjusted net profit: ~ 20% higher; and;
   ↑    (v) Total dividend for 2005: R$ 81.2 mn (100% of available profit). An interim dividend of R$ 38 mn was
            paid in November 2005. The proposed date for payment of the remaining dividend, of R$ 43.2 mn, will
            be in April 2006.

 Gross revenue                          Actual 4Q05/4Q04   Actual             2005/2004             Estimated   6M
                                4Q04                                 2004                  1H05
 R$ mn                                  4Q05       %        2005                 %                    1H06      %
 Domestic (R$ mn) = 0             453      345    (24%)      1,170    1,290         (9%)     484         460      (5%)’
 Exports* (R$ mn)                  51       53       4%        183      235       (22%)       92          80     (12%)
 Total                            504      398    (21%)      1,353    1,525       (11%)      575         540       (6%)
 Exports* (US$ mn)                 18       24      29%         75       80         (6%)      34          35         5%
 Ebitda                           113      105     (7%)       267      320        (17%)        67         80       20%
 Adjusted net income               67       79     18%        195      202         (3%)        46         56       20%


This guidance – conclusion: The context is adverse, and we are aware that we must make efforts to achieve a
substantial improvement in the operational result. However we have presented year-on-year increases in adjusted
net income of 47% in 3Q05 and 18% in 4Q05, and are now giving guidance of a 20% increase over the immediately
visible horizon – the next two quarters. That is to say, we have a sequence of four quarters providing a 20%+
year-on-year increase in net income.



Grendene S.A. – 4Q05 Earnings                                                                                      5 / 31
Gross revenue: weak performance in domestic market, exports higher in US$
Gross revenue from sales and services in 4Q05 was R$ 398.4 mn, 21% lower than in 4Q04, reflecting volume 19.3%
and average price 2% lower. 38.1 mn pairs were sold, compared to 47.3 mn in 4Q04. The complete pro forma adjusted
income statement is in Appendix IV. The lower total gross revenue reflects weak performance in the domestic market,
on considerably lower volume in some products and models that had performed much better in 4Q04.
Seasonally, the fourth quarter provides a strong percentage of the sales revenue for both the year and the second
half. Over the last three years it has provided 54% of total second half revenue, and 33% of the total revenue for the
year – and the figures are practically the same for volume: 54%, and 32%.
The charts below show that there was a year-on-year increase in export revenue and sales volume in 4Q05, but not
enough to reverse the reduction in the previous quarters of 2005 – the result being a recovery in percentage of
volume, but not in sales revenue, vis-à-vis 2004.
                      Gross revenues, %                                          Gross revenues, %


 100%                                                         100%
                                10.2%               13.4%                                 15.4%                13.5%
             21.2%                                                       23.7%
  75%                                                          75%

  50%                           89.8%                          50%
             78.8%                                  86.6%                                 84.6%                86.5%
                                                                         76.3%
  25%                                                          25%

   0%                                                           0%
             4Q03               4Q04                4Q05                  2003             2004                2005

                       Domestic Market    Exports                                 Domestic Market    Exports


                       Sales volum e, %                                           Sales volum e, %


 100%                                                         100%
             19.9%              17.6%               22.0%                22.2%            19.8%                21.2%
  75%                                                         75%

  50%                                                         50%
             80.1%              82.4%               78.0%                77.8%            80.2%                78.8%
  25%                                                         25%

   0%                                                          0%
             4Q03               4Q04                4Q05                 2003              2004                2005

                       Domestic Market    Exports                                 Domestic Market    Exports

In 12M05, total gross revenue was R$ 1,353 mn, 11.3% lower than in the whole of 2004, (R$ 1,525 mn). 2005 gross
revenue came 86.5% from the domestic market and 13.5% from exports, vs. 84.6% and 15.4% in 2004. The lower
gross revenue in 2005 basically reflects sales volume 10.3% lower, at 130.3 mn pairs in 12M05, vs. 145.3 mn pairs
in 12M04, while average price per pair declined slightly, from R$ 10.50 to R$ 10.39. Gross revenue was lower both
in the domestic market (9.3%) and also in the export market in Reais (22.1% lower) – though in US$ terms exports
were only 6.3% lower, with the 16.8% appreciation of the Real (full-year average) from 2004 to 2005. The 3%
increase in average domestic market price was not enough to offset the effect of average export price, in Reais,
being 19.1% lower (although only 2.9% lower in dollars) – resulting in the slight (1%) reduction in overall average
price.
The decline in volume from 12M04 to 12M05 was stronger in the domestic market (12%) than in exports (3.6%).
Demand in the domestic market continued to retract, on continuing reduction in disposable income, increasing credit
sales of consumer durables goods, and the weak performance of some shoes models. Exports continued to suffer
the effects of strengthening of the Real, though there was some reversal of the accentuated downward trend, due to:


Grendene S.A. – 4Q05 Earnings                                                                                          6 / 31
recovery in some markets, such as Europe; firm performance in the Andean countries, and Mexico; and growth on
new sales frontiers such as Asia and Africa.
In the last five years Grendene’s gross revenue has grown at an annual average of 18% p.a., with 8.4% p.a. average
growth in volume – higher figures than those for average annual growth of Brazilian GDP (2.3% p.a.) and growth in
the Brazilian footwear sector (3.6% p.a.), according to figures for apparent consumption in the period provided by the
Brazilian Footwear Manufacturers’ Association, Abicalçados. In 2005 per capita consumption of shoes in Brazil fell
by 1.3%, to 2.98 pairs per year.

Breakdowns of gross revenue, volume, and average price in the two periods, with percentage variations, are in
Appendices I and II to this release. Breakdowns of gross revenue and sales volume by market are as follows:
                          Gross revenues (R$ m n)                                                              Gross revenues (R$ m n)


 800                                                                               2000
                                                                                                                                       1,525.0
 600                                               504.1                           1500                      1,276.4 1,289.8                                      1,352.9
                        451.0      452.8                                                                                                         1,169.6
                                                                           398.3              973.7
        355.4                                               345.2
 400                                                                               1000

 200            95.6                                                                500               302.7                     235.2
                                           51.2                     53.2                                                                                   183.3

   0                                                                                    0
                4Q03                       4Q04                     4Q05                              2003                      2004                       2005

                          Domestic Market         Exports   Total                                               Domestic Market        Exports    Total


                      Sales volum e (in m illion of pairs)                                                 Sales volum e (in m illion of pairs)


 60                                                                                200
                                                   47.3
                       41.9                                                                                                             145.3
 45                                39.0                                    38.1    150                       121.3                                                 130.3
       33.6                                                                                                             116.6
                                                             29.7                            94.4                                                102.6
 30                                                                                100

 15             8.3                        8.3                      8.4             50                26.9                      28.7                       27.7

  0                                                                                  0
              4Q03                         4Q04                     4Q05                              2003                      2004                       2005

                          Domestic Market         Exports   Total                                              Domestic Market         Exports   Total


                                Average price (R$)                                                                   Average price (R$)


 20                                                                                20

 15                                                                                15
                                  11.62                     11.61
       10.58 11.46 10.97                           10.66                   10.44            10.32
                                                                                                    11.24 10.52        11.07           10.50
                                                                                                                                                 11.40
                                                                                                                                                                   10.39
 10                                                                                10                                           8.20
                                           6.15                     6.33                                                                                   6.63
  5                                                                                 5

  0                                                                                 0
              4Q03                         4Q04                     4Q05                            2003                        2004                       2005

                          Domestic Market         Exports   Total                                              Domestic Market         Exports   Total




Grendene S.A. – 4Q05 Earnings                                                                                                                                         7 / 31
Domestic market sales: revenue 23.8% lower, volume 23.7% lower

Gross revenue in the domestic market in 4Q05 was 23.8% lower year-on-year, on sales unit volume 23.7% lower, at
R$ 345.2 mn (vs. R$ 452.8 mn in 4Q04). Domestic market sales as a percentage of total gross revenue were lower,
at 86.6% in 4Q05, vs. 89.8% in 4Q04; and by volume were 78% of total volume in 4Q05 and 82.4% in 4Q04.
Average price was similar, year-on-year, at R$ 11.61 per pair (total volume was 23.7% lower year-on-year, at 29.7
mn pairs).
Negative highlight: accentuated fall in volume due to weak performance of some products. Some promotional
products in our spring-summer collection, which performed well in 4Q04, did not have the same success in 4Q05.
This is part of our business risk – success depends on an optimal combination of model and price.
Positive highlight in the feminine market: market segmentation by brands. In spite of the fall in gross revenue
and volume (though with average price higher than in 2004), several brands launched recently, such as Ilhabela,
starring Alinne Moraes, segmented for a younger public aged 18 to 25, with the Ilhabela Destiny and Bijoux
advertising campaigns, and products under the Malhação license, were well accepted and sold well in 4Q05, which
leads us to believe they could perform well in 2006.
In domestic consumption, the positive highlight in 2005 was the continuation of the sales growth trend in
the mass-market segment … – which showed good growth in gross revenue, volume and average price. Some
lines from the new Ipanema collection sold very well in the high summer season.
… and in the children’s segment, there was good year-on-year growth in average price in 4Q05, though with
a reduction (smaller than in other segments) in sales volume and revenue. We ran advertising campaigns for the
main children’s lines in 4Q05, including product campaigns such as: Senninha Spy Secret; Strawberry Collection
Fruits; Hot Wheels Truck; Barbie Miss; and Sandy Carmin.
In the men’s segment, both sales revenue and volume were lower, but not as markedly as in the feminine segment.
Outstanding advertising in the year included the Red Nose commercial, and the new campaign and launch of Rider
BRX at the Francal footwear fair in July. The Rider launch used an exclusive new recording by the band Jota Quest,
of the Roberto Carlos classic Além do Horizonte – which became a summer hit, taking the place of the “Let’s Rider”
campaign by the band Skank, which was the hit of the previous year’s summer collection with the track “Vamos
Fugir”.
In 12M05, our domestic sales totaled R$ 1,169.7 mn, 9.3% less than in 12M04, with sales volume 12% lower, but
average price recovering by 3%. Domestic sales provided 86.5% of total gross revenue in 12M05, vs. 84.6% in 12M04.
The stronger Real and its impact on the domestic market: unfortunately, we expect this factor to continue to
exert pressure. We continue to see several relatively counterintuitive adverse effects of the strengthening Real. As
well as the familiar increase in imports (including increased of smuggled items), there is also the reduced
competitiveness of other footwear exporters – who are obliged to place their product in the domestic market,
pressuring price downward due to increased supply. But the greatest impact – and maybe the most difficult to
measure – is that relative prices in the economy tend to fall as a result of the increase of other imported consumer
goods, outside the footwear segment, such as mobile phones, home electronics, toys, clothing, etc. And with the
present consensus outlook for the exchange rate, we do not expect a significant improvement on a visible horizon –
over the coming quarters.
What positive factors are there for an improvement in the scenario during 2006? The main factors are the
gradual recovery in economic activity (the scenario of reduction of the Selic basic interest rate), and the gradual
increase in real disposable income as a result of lower inflation, and the increase in the minimum wage. The
increase in the minimum wage is especially positive for a company selling mass-market products such as our
footwear, which mainly target the C, D and E income groups.
Taking into account these negative and positive aspects we are led to be conservative in our guidance (page 5),
which includes a year-on-year reduction (of 5%) in our domestic market sales in the first half of 2006.




Grendene S.A. – 4Q05 Earnings                                                                                  8 / 31
Export sales: strong growth in dollars in the quarter, and recovery in some markets – though exchange rate
continues to be adverse
The fourth quarter is seasonally strong for exports. The summer months in the Northern Hemisphere translate into
growing sales starting in October and November, extending into March and April (since orders are usually placed
around six months in advance). In a quarter in which the R$ /US$ exchange rate declined by 19.2%, we succeeded
in increasing our gross export revenue by 28.3% in dollars and increasing our average export price by 27.7% (to
US$2.81/pair in 4Q05, vs. US$2.20 / pair in 4Q04 – although this was 6.3% lower than the US$ 3.00 of 3Q05). The
resulting increase in average export price in Reais was 3% (from R$ 6.14 / pair to R$ 6.33/pair). Total export sales
volume was 0.8% higher year-on-year, at 8.4 mn pairs. We believe this should be seen as an important result, since
it is the second consecutive quarter in which our export revenues have grown year-on-year – in a period of heavy
weakening of the dollar.
In dollars, our export revenues were US$5.2 mn higher year-on-year, at US$23.6 mn (R$ 53.2 mn) in 4Q05,
compared with US$18.4 mn (R$ 51.2 mn) in 4Q04. Exports as a percentage of net sales increased to 13.4% in
4Q05, vs. 10.2% in 4Q04.
The main elements of the US$5.2 mn increase in export sales in dollars in 4Q05 were sales to Argentina and the
Andean countries, and the European market, which is beginning to improve gradually as inventories of last year’s
summer are sold, and as good winter sales, which have been very firm, generate cash for both store owners and
distributors. We are also opening up new sales channels in some groups of countries, and these – including Africa
and Asia – have shown growing results.
         These quarterly graphs show the seasonality of exports:
 160                                                                             36%   20                                                                                    40%
                                                                                            33.1%
       28.4%
                                                                                       16                                            28.5%
 120                                                                             27%                                                                                         30%
                                                                                                                                                                  22.0%
               17.6%                        17.9%                                      12                                                     19.3%
                                                                                                                          17.6%
  80                                                   13.5%             13.4%   18%                15.1%                                               15.4%                20%
                                                                                                              13.4%
                        9.9%       10.2%                         10.2%                 8
       95.6                                                                                 11.5
  40                                                                             9%                                                  8.9                                     10%
                                                                                       4                                   8.3                                        8.4
               47.2                51.2     56.3                         53.2
                        41.1                           35.2       38.6                                         5.3                             4.8       5.5
                                                                                                    3.6
  0                                                                              0%    0                                                                                     0%
       1Q04    2Q04     3Q04       4Q04     1Q05       2Q05       3Q05   4Q05               1Q04    2Q04       3Q04       4Q04       1Q05     2Q05       3Q05         4Q05

                       Exports (R$ mn)     As a % of gross revenues                                  Exports (in million of pairs)     As a % of total sales volume



In 12M05, total export market sales revenue was R$ 183.3 mn, 22.1% less in Reais than the R$ 235.2 mn export
revenue of 12M04, on sales volume 3.6% lower, at 27.7 mn pairs (28.7 mn pairs in 12M04) and average price in
Reais 19.1% lower. Export revenue in dollars was 6.3% lower, with average price 2.9% lower – at US$2.72 / pair in
2005 vs. US$ 2.80/pair in 2005 – but this was a much smaller reduction than the 16.8% reduction in the R$ /US$
exchange rate, comparing 12-month averages of 2005 and 2004.
In the whole of 2005, export sales were 13.5% of total net sales, compared with 15.4% in 2004. By volume, exports
were 21.2% of total volume in 2005, and 19.8% in 2004.
Net sales vs. gross revenue: proportional fall in sales
4Q05 net sales were R$ 316.3 mn, 20.4% lower (R$ 81 mn lower) than in 4Q04 (R$ 397.3 mn).
2005 net sales, at R$ 1,068 mn, were 11.8% lower than in 2004 (R$ 1,212 mn). This fall was proportional to the
decline in gross revenue.

Cost of goods sold: stable per pair

Low cost … and low volatility! With our continued concern for reduction of costs, and the resulting gains in terms
of cost per pair, we have significantly reduced volatility through excellence in industrial management. Average cost
per pair remained flat, around R$ 4.42, while the cost of raw material per pair was around 11% lower in 4Q05 than
4Q04.

Grendene S.A. – 4Q05 Earnings                                                                                                                                                9 / 31
COGS was R$ 168.5 mn in 4Q05, 19.1% lower than in 4Q04 (R$ 208.3 mn). This table shows the components of
our COGS for 4Q04 and 4Q05, with percentages of the total:
                                                                                                                                       Quarter
         COGS (R$ mn)                                                                                      4Q04               %         4Q05              %            %
         Raw material, supplies, intermediate materials, freight
         and packaging                                                                                        126.4          60.7%           90.5      53.7% (28.4%)
         Labor                                                                                                 66.5          31.9%           61.1      36.3% (8.1%)
         Depreciation                                                                                           5.5           2.6%            6.0       3.6%   9.1%
         Other costs (1)                                                                                        9.9           4.8%           10.8       6.4%   9.1%
         Cost of goods sold                                                                                   208.3         100.0%          168.5     100.0% (19.1%)
         Sales volume (million pairs of shoes sold)                                                            47.3                          38.1            (19.5%)
           (1) Other costs include electricity, water, gas, consultancy, IT services, maintenance and other costs.


                                                                                                                                        Quarter
         COGS per pair (R$)                                                                                  4Q04              %         4Q05             %                %
         Raw material, supplies, intermediate materials, freight
         and packaging                                                                                         2.67          60.5%             2.38    53.8% (10.9%)
         Labor                                                                                                 1.41          32.0%             1.60    36.2% 13.5%
         Depreciation                                                                                          0.12           2.7%             0.16     3.6% 33.3%
         Other costs (1)                                                                                       0.21           4.8%             0.28     6.4% 33.3%
     .
         Cost of goods sold                                                                                    4.41         100.0%             4.42   100.0%   0.2%
           (1) Other costs include electricity, water, gas, consultancy, IT services, maintenance and other costs.


Low correlation between cost of raw materials per pair and petrochemicals prices: A great variety of models,
and wide design diversity, result in the “average weight per pair” varying from quarter to quarter, not necessarily in
the same direction as the average price of raw materials – and this correlation is also affected by routine factors of
international supply and demand for PVC, volume and negotiation with suppliers, and our cycle of raw materials
inventories.
The chart below shows this low correlation clearly, indeed shows volatility between the lowest and highest prices in
Reais in the period: for PVC resin, 72%; for plastifying oils, 63%; – and for our own average price per pair,
only 30%.
                                                   ‘Deconstructing myths’ – I:
                           Low correlation between our raw material cost/pair and petrochemicals prices
            4,000                                                                                                                                                      4.00


                                63%

            3,000                                                                                                                                                      3.00

                                                                                                                                      30%


            2,000                                                                                                                                                      2.00
                                                                                                             72%




            1,000                                                                                                                                                      1.00




              -                                                                                                                                                        -
                  Jan-04       Mar-04         Jun-04            Aug-04              Nov-04        Feb-05           Apr-05          Jul-05        Sep-05       Dec-05

                                                       Plasticizing oils (R$'000)       PVC resin (R$'000)         COGs (raw materials) (R$)
                                        Source: Petrochemicals prices: Icis-Lor; quarterly data: Grendene (previously published).


Grendene S.A. – 4Q05 Earnings                                                                                                                                                  10 / 31
COGS as a percentage of net sales in 4Q05, at 53.3% was higher than in 4Q04 (52.4%).
COGS in 12M05 was R$ 624.5 mn, 9.0% (R$ 61 mn) less than in 12M04 (R$ 685.9 mn). The table below gives the
components of COGS for the period shown, with share of total and percentage variations. The cost per pair
increased by 1.3% from 12M04 (R$ 4.73), to R$ 4.79 in 12M05. This basically reflects increases in utilities prices
(administered prices, such as energy, water, gas) in the period; the increase in depreciation resulting from the
increase in fixed assets, with the seventh plant at Sobral; and increased cost of labor. The cost of raw material per
pair fell by 6.5% in 12M05, showing our rationalization in the use of raw materials, and also the effect of the
exchange rate on conversion of raw material prices from dollars into Reais. As a percentage of net sales, cost of
goods sold increased from 56.6% in 12M04 to 58.5% in 12M05.
                                                                                                                          12 Months
         COGS (R$ mn)                                                                            2004                 %      2005            %          %
         Raw material, supplies, intermediate materials, freight
         and packaging                                                                              404.7          59.0%        339.7        54.4% (16.1%)
         Labor                                                                                      224.7          32.8%        226.6        36.3%   0.8%
         Depreciation                                                                                21.9           3.2%         22.4         3.6%   2.3%
         Other costs (1)                                                                             34.6           5.0%         35.8         5.7%   3.5%
         Cost of goods sold                                                                         685.9         100.0%        624.5       100.0% (9.0%)
         Sales volume (million pairs of shoes sold)                                                 145.3                       130.3              (10.3%)
             (1) Other costs include electricity, water, gas, consultancy, IT services, and maintenance.

                                                                                                                        12 Months
             COGS per pair (R$)                                                                     2004              %    2005                 %        %
             Raw-material, supplies, intermediate materials, freight
             and packaging                                                                                 2.79     59.0%            2.61     54.5%     (6.5%)
             Labor                                                                                         1.55     32.8%            1.74     36.3%     12.3%
             Depreciation                                                                                  0.15      3.2%            0.17      3.5%     13.3%
             Other Costs (1)                                                                               0.24      5.0%            0.27      5.7%     12.5%
         .
             Cost of goods sold                                                                            4.73    100.0%            4.79    100.0%      1.3%
             (1) Other costs include electricity, water, gas, consultancy, IT services, and maintenance.

Gross profit
Gross profit was 21.7% lower in 4Q05, at R$ 147.8 mn, than in 4Q04 (R$ 188.9 mn). Gross margin on net sales in
4Q05 was 46.7%, vs. 47.6% in 4Q04. Even our successful efforts, reducing costs by about 19.1%, were not enough
to offset the effect of net sales 20.4% lower, resulting in a gross margin 90 basis points lower.
The year-on-year reduction in gross profit in absolute terms was R$ 41 mn, made up of the reduction of R$ 81 mn in
net sales, partially offset by a reduction of R$ 40 mn in cost of goods sold.

                         Gross profit (R$ mn) and gross margin, %                                             Gross profit (R$ mn) an gross margin, %

   300                                                                           60%      800                                                                60%
                          47.6%                             46.7%
                                                                                                              43.4%                            41.5%
   225                                                                           45%      600                                                                45%


   150                                                                           30%      400                                                                30%

                          188.9                                                                               525.7
    75                                                      147.8                15%      200                                                  443.6         15%


     0                                                                           0%         0                                                                0%
                           4Q04                             4Q05                                              2004                             2005

                                  Gross profit    Gross margin                                                        Gross profit    Gross margin




Grendene S.A. – 4Q05 Earnings                                                                                                                                11 / 31
‘Deconstructing myths” – II: Correlation between average price, sales unit volume and gross margin. Gross
    margin is not strongly affected by average price, as is shown by the chart below. In the last three quarters the
correlation between profitability and average price has been small. Volume has been the more determinant variable.
  Thus, the right expression is not “improvement or deterioration in the product mix”, but “higher or lower average-
                       price mix” – without this necessarily implying a larger or smaller margin.

                       60%                                                                             R$ 12.00

                                                                                                       R$ 10.00

                       50%                                                                             R$ 8.00

                                                                                                       R$ 6.00

                       40%                                                                             R$ 4.00

                                                                                                       R$ 2.00

                       30%                                                                             R$ -
                                1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05

                                               Gross margin, %        Average price, R$
                                                 Source: Grendene (previously published).


                          60%                                                                             60


                          50%                                                                             50


                          40%                                                                             40


                          30%                                                                             30


                          20%                                                                             20
                                  1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05

                                                Gross margin, %         Sales volume (million pairs)
                                                 Source: Grendene (previously published).

12M05 gross profit, at R$ 443.6 mn, was 15.6% down, from R$ 525.7 mn in 12M04. Gross margin (on net sales)
was 41.5%, compared to 43.4% in 2004. The reduction of around R$ 82 mn in gross profit reflects the R$ 144 mn
reduction in net sales and the reduction of R$ 62 mn in cost of goods sold.




Grendene S.A. – 4Q05 Earnings                                                                                     12 / 31
Sales, general & administrative expenses (SG&A)
Selling expenses: advertising as % of net sales returns to historic levels

Selling expenses were down 29.5% year-on-year in 4Q05, and down as a percentage of net sales, from 25.6% in
4Q04 (R$ 101.7 mn) to 22.7% (R$ 71.7 mn) in 4Q05. The main contributor to the reduction was advertising
expenses 43.8% lower – followed by freight 20.3% lower, and direct sales commissions 15.2% lower, since the
23.8% fall in gross revenue was mainly in the domestic market. Advertising expenses were reduced from R$ 42.5
mn, or 10.7% of net sales, in 4Q04, to R$ 23.9 mn, or 7.6% in 4Q05.
For the whole of 2005, selling expenses were 5.6% lower; though higher as a percentage of net sales, at 24.7% (R$
263.7 mn) – compared to 23.1% in 2004 (R$ 279.3 mn) – due to the fall in net sales. Elements of the reduction in
selling expenses for the year are: a 5.6% reduction in direct sales commissions (reflecting the fall in sales); a 5.4%
reduction in advertising expenses; and 3.1% less expenses on freight – also related to the fall in domestic sales.
Total expenses on advertising in 2005 were R$ 94.4 mn, or 8.8% of net sales, vs. R$ 99.8 mn, or 8.2%, in 2004.
Also, in 2005 we negotiated new licenses, which are now part of the Grendene portfolio: Batman; Hot Wheels;
Barney; Strawberry Collection and new Walt Disney products, adding Nemo, Pooh Bear and Princesses. One of our
new licenses in 2006 will be Superman, the film of which will reach the market in June.
 60                                                                                                                  12%
                                                    10.7%                       10.8%
                           9.5%                                        9.6%

                                          7.8%          9.4%                                   8.2%
                                                                       9.3%        9.7%                    7.6%
 40                        9.0%                                                                                      8%

                                          6.8%                                                 7.2%        6.9%
               4.3%
 20                                                    43                                                            4%
              4.9%
                                          26                           24          22           25          24
                            20
               12
   0                                                                                                                 0%
              1Q04         2Q04           3Q04        4Q04             1Q05       2Q05         3Q05        4Q05
           advertising expenses (R$ mn)          as a % of net sales          as a % of gross revenues on domestic market



 180                                                                                                                 12%

                                                                                                 8.8%
                                                               8.2%
 120                      7.3%                                                                                       8%
                                                               7.7%                              8.1%
                          6.7%

   60                                                                                                                4%
                                                               100                                   94
                           71

       0                                                                                                             0%
                          2003                                 2004                              2005

             advertising expenses (R$ mn)         as a % of net sales         as a % of gross revenues on domestic market

The reduction in advertising expenses represents our seeking an optimum allocation of advertising spending to
maximize our results, without omitting to pay attention to reactions from competitors, nor the strong competition in

Grendene S.A. – 4Q05 Earnings                                                                                         13 / 31
the domestic market. We continue to be attentive to market opportunities, but we are strategically more selective in
the use of television in our promotional products. There is already an improvement in the trend on a year-on-year
comparison, as the chart below shows.
Advertising spending as percentage of net sales is lower than recent average – without harming the
marketing strategy in 4Q04–4Q05: The year-on-year comparison in 4Q05 showed a reduction, for the first time in
six quarters: it was down to 7.6% of net sales, from an average of 8.5% in the quarters of 2004 and 2005. It also
increased as a percentage of net sales. The year-on-year reduction of 310 basis points shows an inflection point,
since it was the first reduction since 1Q04, as the chart below shows. For 2006 we expect to keep the percentage of
net sales around the historic level of 7%–8%, without prejudicing our aggressive marketing strategy, use of
celebrities, and emotional appeal.
                  Advertising expenses, as % of net sales, y/y variation, in basis points

    700
                                                                  530
    500
                                350
                                                     290
    300                                  220
                                                                               130
    100                                                                                     40


   -100     1Q04/1Q03      2Q04/2Q03   3Q04/3Q03   4Q04/4Q03   1Q05/1Q04   2Q05/2Q04    3Q05/3Q04    4Q05/4Q04


   -300        (190)
                                                                                                        (310)
   -500




Grendene S.A. – 4Q05 Earnings                                                                                   14 / 31
General and administrative expenses: reduction contributed to improvement in margins

General and administrative expenses (including management compensation) were 32% lower year-on-year in 4Q05,
at R$ 12.5 mn or 4.0% of net sales, compared to R$ 18.4 mn or 4.6% of net sales in 4Q04 – a saving of R$ 5.9 mn
year-on-year in the quarter. Much of this saving comes from reductions of spending on outsourced services –
totaling around R$ 3.3 mn. These include: one-off expenses of the IPO (legal advice, external audit, printing of
prospectuses, legally obligatory advertising, and other expenses inherent to listing), posted in the last quarter of
2004 (not repeated in 4Q05); as well as, reduction in spending on office material.
Over the whole of 2005, general and administrative expenses (including management compensation) were R$
49.9 mn, or 4.7% of net sales, a reduction of 24.8%, or R$ 16.5 mn, from R$ 66.4 mn, or 5.5% of net sales, in 2004,
for the same reasons as in the previous paragraph, and due to cessation of the expense on the leasing contract for
the Falcon 2000 company jet, terminated in July 2005.

Adjusted Ebitda: margin up from 28% to 33%

4Q05 adjusted Ebitda was R$ 105.2 mn, 6.8% lower than the 4Q04 adjusted Ebitda of R$ 112.9 mn. Adjusted
Ebitda margin on net sales was 33.3%, vs. 28.4% in 4Q04, or 490 basis points higher year-on-year, primarily
reflecting the reductions of 90bp in cost of goods sold, and 370bp in sales, general and administrative expenses.
                                                       Adjusted Ebitda
(R$ mn)                                         4Q04      % (*)   4Q05     % (*)   2004     % (*)    2005     % (*)
Gross profit                                   188,909 47.6% 147,831 46.7%        525,694 43.4%     443,590 41.5%
(-) Selling expenses                          (101,661) (25.6%) (71,674) (22.7%) (279,333) (23.1%) (263,706) (24.7%)
(-) General & administrative expenses          (18,229) (4.6%) (12,313) (3.9%) (65,996) (5.4%) (49,069) (4.6%)
(-) Management fees                               (194) 0.0%         (216) (0.1%)    (374) 0.0%        (835) (0.1%)
(+) Equity pick-up                                 -      0.0%        -     0.0%      -      0.0%       -      0.0%
(+) Adjustments for tax benefits                37,373    9.4%    34,440 10.9%    113,203    9.3%   109,664 10.3%
(+) Depreciation & amortization                  6,725    1.7%      7,123   2.3%   27,221    2.2%    27,089    2.5%
Adjusted Ebitda                                112,923    28.4% 105,191     33.3% 320,415    26.4% 266,733     25.0%
(*) % of net sales


                                  Adjusted Ebitda (R$ m n) and Adjusted Ebitda m argin, %


                     150                                                                       40.0%
                                                                             33.3%
                                        28.4%
                     113                                                                       30.0%


                         75                                                                    20.0%
                                        113                                   105
                         38                                                                    10.0%


                     -                                                                         0.0%
                                        4Q04                                 4Q05


                                          Adjusted Ebitda     Adjusted Ebitda margin, %




Grendene S.A. – 4Q05 Earnings                                                                                  15 / 31
                                     Adjusted Ebitda (R$ m n) and Adjusted Ebitda m argin, %


                   500                                                                                       40%


                   375                    26.4%                                                              30%
                                                                                     25.0%


                   250                                                                                       20%

                                              320
                   125                                                                  267                  10%


                     0                                                                                       0%
                                           2004                                         2005

                                               Adjusted Ebitda       Adjusted Ebitda margin, %


Total adjusted Ebitda in 12M05 was R$ 266.7 mn, 16.8% lower than the 2004 adjusted Ebitda of R$ 320.4 mn, and
the adjusted Ebitda margin for the whole of 2005 was 25% on net sales, vs. 26.4% in 2004.
Adjusted Ebitda margin – positive reversal of trend maintained: The chart below, of year-on-year changes in
our Ebitda margin over the last six quarters, shows that there has been a significant recovery. Although the context
continues to be an adverse one for the next two quarters, we are giving guidance (page 5) that growth will continue
for the next two quarters.

                                Change in Ebitda margin, y/y, as % of net sales, in basis points


    800

    600                                                                                                               490

    400                                                                                             350

    200

     -
              3Q04/3Q03            4Q04/4Q03            1Q05/1Q04            2Q05/2Q04           3Q05/3Q04         4Q05/4Q04
   (200)

   (400)          (290)               (300)

   (600)

   (800)                                                                        (690)

 (1,000)
                                                           (1,000)
 (1,200)




Grendene S.A. – 4Q05 Earnings                                                                                               16 / 31
Net financial income (expenses): important improvement from net expense to net income

Two factors have been the main causes of the improvement in net financial income (expenses): (i) greater discipline
in management, and (ii) the policy of taking on FX exposure based only on the operational need to cover
requirements for acquisition of PVC resins and plastifying oils (dollar-related) and pay for imports. This was
confirmed in 4Q05, in which we posted net financial income of R$ 2.3 mn, which compares with a net financial
expense of R$ 24.7 mn in 4Q04.
The main aspects of this result:
      i. Lower discounts given to clients, due to lower domestic market sales;
     ii. The effect of exchange rate variation (including BM&F hedge) was net income of R$ 3.8 mn (4Q05 ), vs. net
expense of R$ 5.2 mn in 4Q04; and
    iii. Income from cash investments was almost doubled, on the greater cash position in the period: net cash at
December 31, 2005 was 80.6% higher, at R$ 332.7 mn, than at December 31, 2004 (R$ 184.2 mn).
Financial expenses and revenues in the two quarters, and the two years, were made up as follows:

(R$'000)                                           4Q04      4Q05         %         2004        2005         %
Financial expenses
  Client discounts                                (19,793) (13,810)     (30.2%) (58,643) (47,522)          (19.0%)
  Loan costs                                       (4,838) (4,493)       (7.1%) (18,501) (14,232)          (23.1%)
  Exchange rate variation expenses                (11,226)    (881)     (92.2%) (22,780) (32,928)           44.5%
  BM&F hedge expenses                              (1,486) (5,038)      239.0%    (1,486)   (7,493)        404.2%
  Other financial expenses                         (3,512) (3,112)      (11.4%) (10,562) (10,077)           (4.6%)
Total financial expenses                          (40,855) (27,334)     (33.1%) (111,972) (112,252)          0.2%
Financial income
  Financial investments                             7,847    18,462     135.3%      32,300      66,936     107.2%
  Interest received from clients                      576       470     (18.4%)      2,495       2,557       2.5%
  Exchange rate variation revenue                     604     5,800     860.3%      13,811      13,283      (3.8%)
  BM&F hedge income                                 6,869     3,947     (42.5%)      6,869      26,527     286.2%
  Other financial income                              215     1,002     366.0%       3,166       2,793     (11.8%)
Total financial income                             16,111    29,681      84.2%      58,641     112,096      91.2%

Net financial result                              (24,744)    2,347      n.s.       (53,331)       (156)    n.s.


Financial income (expenses): Discounts given to clients in 4Q05 generated an expense of R$ 13.8 mn in 4Q05,
compared with R$ 19.8 mn in 4Q04.
Exchange rate effects (including BM&F hedge) in 4Q05 generated net income of R$ 3.8 mn (income of R$ 9.7 mn
less expense of R$ 5.9 mn), vs. net expense of R$ 5.2 mn in 4Q04 (expense of R$ 12.7 mn less income of R$ 7.5
mn).
In 12M05 discounts given to clients for punctual payment constituted a net expense of R$ 47.5 mn, vs. a net
expense of R$ 58.6 mn in 2004.
In 2005, there was an improvement in the net expense resulting from exchange rate variation (including BM&F
hedge expenses), to R$ 0.6 mn (R$ 40.4 mn in FX-related expenses, less R$ 39.8 mn in FX-related income), from
R$ 3.6 mn (R$ 24.3 mn expense, less R$ 20.7 mn revenue) in 12M04.
Income from cash investments: In 4Q05 financial income from cash investments was R$ 18.5 mn, vs. R$ 7.8 mn
in 4Q04.
In 12M05, financial income from cash investments totaled R$ 66.9 mn, vs. R$ 32.3 mn in 12M04.

Grendene S.A. – 4Q05 Earnings                                                                                 17 / 31
Other operational income (expenses) – accounting reclassification

Other operational income: In 4Q05 the other operational income account totaled R$ 0.3 mn, from sources such as
sale of scrap, agreements with the industrial training organization Sesi, rentals, etc. In 4Q04 this account was R$ 6.0
mn negative, mainly arising from R$ 6.9 mn of reclassification of income from an exchange rate hedge (BM&F),
which was transferred to Income arising from exchange rate variation in Financial income; and R$ 0.9 in Other
operational income, principally from sale of scrap, sale of consumption materials, the agreement with Sesi, and
rentals. This reclassification did not affect net income, Ebitda and other indicators for 2004. The amounts were
reclassified to allow better comparability of results.

The Other operational income line in the whole of 2005 totaled R$ 1.4 mn, mainly arising from sale of scrap and
consumption material in the amount of R$ 0.9 mn, rentals of R$ 0.2 mn, recovery of expenses, and training
agreements, mainly with Sesi, totaling R$ 0.3 mn. In the previous year, Other operational income totaled R$ 6.7 mn,
arising mainly from R$ 4.1 mn in recovered IPI and Cofins tax, under Law 10,833/03; R$ 1.0 mn from sale of scrap
and consumption material; R$ 0.2 mn in income from rentals; R$ 1.2 mn in recovery of costs and credits; and R$
0.20 mn in other account lines.

Other operational expenses: In 4Q05 Other operational expenses totaled R$ 1.8 mn, arising from the increase in
the provision for obsolete inventories in the amount of R$ 0.9 mn, and provision for credits receivable from suppliers
in the amount of R$ 0.9 mn; vs. an expense of R$ 0.2 mn in 4Q04.

The total of Other operational expenses in 2005 was R$ 1.2 mn primarily from Cofins, PIS and ICMS tax in the amount
of R$ 0.3 mn; and a provision for credits receivable from suppliers in the amount of R$ 0.9 mn. In 2004 the line totaled
R$ 2.3 mn, mainly Cofins, PIS and ICMS on Other operational income totaling R$ 0.9 mn; provision for obsolete
inventories in the amount of R$ 0.8 mn; and other expenses of R$ 0.6 mn.
Provision for income tax and Social Contribution
The provision for corporate income tax in 4Q05 was R$ 12 mn, vs. R$ 7.1 mn in 4Q04, since consolidated net
income was greater in 2005 than in 2004. The Social Contribution (CSLL) in 4Q05 was R$ 4.9 mn, vs. R$ 3.1 mn in
4Q04, since profit in 4Q05 was higher than in 4Q04.

The provision for corporate income tax in the whole of 2005 was R$ 31.7 mn, vs. R$ 32 mn in 12M04. The Social
Contribution (CSLL) in the year was R$ 12.3 mn, compared to R$ 11.8 mn in 2004.
                                        Income tax and Social Contribution
                                               Consolidated, R$'000
                 Item                              4Q04        4Q05        2004                2005
                 Income tax provision                7,081      11,992      31,955              31,744
                 Social Contribution provision       3,133       4,893      11,794              12,330

                                         Corporate income tax - net payable
                 Item                               4Q04        4Q05        2004               2005
                 Income tax provision                  7,081      11,992     31,955             31,744
                 (-) Income tax benefits              (7,622)    (11,572)   (20,048)           (25,701)
                 (=) Net payable                        (541)        420     11,907              6,043

As the table above shows, actual cash disbursement on taxes (tax payable less tax incentive credits) in 12M05 was
R$ 6.0 mn, vs. R$ 11.9 mn in 12M04.




Grendene S.A. – 4Q05 Earnings                                                                                     18 / 31
Adjusted net income: net margin 810 basis points higher, at 24.9%, vs. 16.8%
In spite of the weak performance of sales and the fall in volumes, respectively 21% and 19% lower year-on-year, the
company’s great effort to reduce costs and expenses, together with the adjustments to the financial statements,
resulted in adjusted net income being 18% higher, at R$ 78.7 mn, in 4Q05, than in 4Q04 (R$ 66.7 mn). Net margin
on net sales increased significantly, to 24.9%, vs. 16.8% in 4Q04.
In 2005, the net effect of the factors affecting the four quarters resulted in adjusted net income being 3.3% lower in
the year, at R$ 195.1 mn, than in 12M04 (R$ 201.8 mn). However, there was a recovery in net margin on net sales,
of 160 basis points, to 18.3%, from 16.7% in the previous year.
Debt
The total of cash, cash equivalents and consolidated cash investments on December 31, 2005 was R$ 510.8 mn,
while short and long term loans and financings totaled R$ 178 mn. On December 31, 2004 these figures were
respectively R$ 332.8 mn, and R$ 148.6 mn.
At December 31, 2005 long term loans and financings totaled R$ 150.9 mn, and short term loans and financings R$
27.2 mn. On December 31, 2004 these figures were R$ 128.9 mn and R$ 19.7 mn. The increase is made up of
loans contracted with Banco do Nordeste do Brasil S.A. (final maturity 2012, fixed-rate, 7.5 to 10.5% p.a.), for
acquisition of industrial equipment and financing of construction works, and with Banco do Estado do Ceará, in
contracts for periodic repayment loans linked to tax benefits (tenor 60 months, adjusted by the IGP-M inflation index
and the TJLP long term interest rate, plus 0% interest) granted to the company by the State of Ceará.
                                           Net cash: R$ 332.7 m illion on Dec. 31, 2005

                                                                                                        27.2
                                                                     21.7                       31.3
                                                                                    23.2
                                                                                                        150.9
                                                                    130.4                      141.0
                                15.3                     19.7                    131.0
                       14.6                 15.4
                                123.4                   128.9
                       119.5                128.0

                                                                    469.2                      476.5    510.8
                                                                                 449.0
                                347.1                   332.8
                       277.8                285.0



                       1Q04     6M04        9M04        12M04       1Q05            6M05        9M05    12M05

                                    Cash and cash equivalents   Long Term debt      Short term debt


                                                    Cost of debt at Dec. 31, 2005



                                 26%
                                                                                                  33%




                                                     41%


                                           IGP-M    TJLP    Fixed rate (7.5% to 10.5%p.a.)



Grendene S.A. – 4Q05 Earnings                                                                                   19 / 31
The table below indicates total debt, cash, cash equivalents and cash investments, and net debt, at the end of the
periods indicated:
Item (R$ mn)                                         1Q04          6M04         9M04        12M04       1Q05         6M05       9M05       12M05
Total debt                                             134.2         138.7        143.4        148.6      152.1        154.3      172.3       178.1
Cash and equivalents and financial investments         277.8         347.1        285.0        332.8      469.2        449.0      476.5       510.8
Net debt (cash)                                       (143.6)       (208.4)      (141.6)      (184.2)    (317.1)      (294.7)    (304.2)     (332.7)

Net cash at December 31, 2005 was R$ 332.7 mn, 80.6 % more than at December 31, 2004 (R$ 184.2 mn). The
increase was the result of operational activities.

Capex
Capital expenditure on fixed assets in 4Q05 totaled R$ 4.1 mn, vs. R$ 12 mn in 4Q04, distributed as follows:
            Capital expenditure
            (R$ mn)                                                               4Q04             4Q05            2004         2005
            Industrial buildings and plant                                           5.7              1.3            11.3         16.6
            Machinery and equipment                                                  4.3              2.2            10.7         20.2
            IT equipment & software                                                  0.6              0.1             2.4          2.2
                                       (1)
            Other capital expenditure                                                1.4              0.5             3.1          1.6
            Total capital expenditure                                               12.0              4.1            27.5         40.6
            (1) includes investments in vehicles, aircraft, real state, utensils, brands and patents

The project to expand and modernize the seventh plant in the company’s largest industrial unit (in the city of Sobral,
state of Ceará), which is responsible for 86% of total production – was concluded in June 2005, for capex of R$
25 mn, adding capacity for a further 16 mn pairs.
Total capex in 2005 was R$ 40.7 mn, compared with R$ 27.5 mn in 2004. As mentioned in previous quarters, the
memorandum of intent with the government of the state of Bahia, to expand our capacity with a new plant in Teixeira
de Freitas, Bahia, gives us up to September 2007 to decide whether or not to go forward with this expansion. The
decision is naturally tied to an improvement in market conditions, so as to ensure that the project has an attractive
return.
Currently with installed capacity for 176 mn pairs/year, the company is currently able not only to meet current
demand, but also to respond rapidly to any accelerated growth in consumption of semi-durables in the coming years.
We estimate our capital expenditure on maintenance in 2006 at around R$ 12 mn.

Cash flow (pro forma)
Adjusted cash flow (pro forma) can be seen in full in Appendix VIII, which gives the positions at the close of
December 31, 2005 and 2004. The statement shows the company’s high capacity to generate cash, with net cash
provided by operational activities of R$ 291.3 mn in 2005, 57% more than the R$ 185.6 mn generated in 2004. The
increase in cash and cash equivalents at the end of 2005 was R$ 178 mn.




Grendene S.A. – 4Q05 Earnings                                                                                                                 20 / 31
Corporate action and subsequent events
Board meeting of October 26, 2005: Financial statements for third quarter 2005 and 9M2005 approved.

Dividends (Board meeting of March 6, 2006): This meeting approved the directors’ proposal to distribute
dividends of R$ 81.2 mn (R$ 0.81181 per common share), for 2005 earnings. There was an interim dividend in
2005 of R$ 38,000,000.00 (R$ 0.38 per common share), as approved by the board meeting of October 28, 2005,
subject to confirmation (“ad referendum”) by the Annual General Meeting that reviews the balance sheet and
financial statements for the 2005 business year. The interim dividend was calculated from the net income for
January through September, and payable to shareholders of record at October 31, 2005. The shares were traded
ex-dividend on November 1, 2005. The interim dividend was paid on or after November 17, 2005.

Balance of dividends to be paid for 2005: The dividend for the 2005 business year will be payable to stockholders
in the company’s records on the date of the General Meeting of Stockholders that approves the financial statement
for the business year ended December 31, 2005, which will be held on April 10, 2006. The shares will trade ex-
dividend on April 11, 2006, with payment starting April 26, 2006.

The following is the calculation of dividends distributed, and the balance to be distributed, for the business
year ended December 31, 2005:
2005 business year
( + ) Net account income (company) 2005                                       R$                84,395,180.91
( - ) Legal reserve: 5%                                                       R$                (4,219,759.05)
( + ) Reversal of realizable profits reserve                                  R$                 2,402,584.44
( + ) Realizable profits reserve                                              R$                (1,397,000.00)
( = ) Net dividend distributable                                              R$                81,181,006.30
      Basis for calculation of dividends (per common share)                   R$          0.81181006
      Payout on distributable net income                                                       100%
Interim dividend for January-September 2005
( + ) Net account income (company) 2005                                       R$                 42,170,113.02
( - ) Legal reserve: 5%                                                       R$                  (2,108,505.65)
( + ) Reversal of realizable profits reserve                                  R$                   2,402,584.44
( + ) Realizable profits reserve                                              R$                  (3,491,000.00)
( - ) Retained earnings reserve                                               R$               (973,191.81)
( = ) Net dividend distributable                                              R$                 38,000,000.00
      Basis for calculation of dividends (per common share)                   R$               0.38
      Payout on distributable net income                                                         100%
Balance of 2005 dividends payable in April 2006
( = ) Net dividend distributable (after deducting interim payment)            R$                43,181,006.30
      Basis for calculation of dividends (per common share)                   R$          0.43181006
      Payout on distributable net income                                                       100%

Dividend policy: Under the Bylaws, the minimum obligatory dividend is 25% of the balance of net income for the
period remaining after constitution of the reserves required by law. Our dividend policy, however, is to distribute
100% of the distributable net accounting income after the legal reserves. Half-yearly dividends will be paid regularly,
in April and November, the latter payment being an interim dividend for the current year.




Grendene S.A. – 4Q05 Earnings                                                                                      21 / 31
The capital market
Grendene listed its shares through a Secondary Public Offering of Common Shares, in the highest corporate
governance category of the Brazilian capital markets, trading for the first time on October 29, 2004, under the ticker
GRND3. The company has 100 mn common shares listed, of which 19.9% are held by the market. Since the
company was listed on Bovespa’s Novo Mercado, it entered the Differentiated Corporate Governance Stock Index
(IGC), which returns the performance of a theoretical portfolio of shares of companies with good levels of corporate
governance. In the four-month period from September through December 2005 Grendene’s stock was 0.302% of
this Index.
On June 29, 2005, Bovespa launched its Tag-Along Shares Index (ITAG), measuring performance of a theoretical
portfolio of shares of companies that offer minority stockholders the best conditions in the event of a change of
control – i.e. superior tag-along rights to those specified in the applicable legislation.
The law lays down a tag-along percentage of 80% (i.e. in the event of a change in control a minority stockholder
receives for his shares 80% of the price received by the controlling stockholding group). Grendene, however,
guarantees a tag-along percentage of 100%. In the four-month period from September through December 2005
Grendene’s participation in the ITAG (Tag-Along Index) was 0.37%.
In the fourth quarter of 2005 the average number of Grendene’s common shares traded daily was 224,000 (112%
higher than the average for 3Q05), or R$ 4.3 mn/day (151% higher than the average for 3Q05), with an average of
152 trades per day (223% higher than the average for 3Q05).

     Trading, Oct. 01 - Dec. 31, 2005    Average Price   Change     Trades    Shares      Financial volume R$ Maximum price   Minimum price   Average Shares/trade
              Daily averages                    19.10                 152      223,952             4,266,466          22.80           14.99          1,472
          Total, Oct. 1 - Dec. 31                         (27.55)    9,279   13,661,100          260,254,404



In 2005 the average number of Grendene’s common shares traded daily was 152,000 shares/day, made up of an
average 101 trades/day, for average daily financial volume of R$ 3.1 mn.
     Trading, Jan. 1 - Dec. 31, 2005     Average Price   Change     Trades    Shares      Financial volume R$ Maximum price   Minimum price   Average Shares/trade
             Daily averages                     20.29                 101      152,279             3,133,325          34.61           13.29          1,510
          Total, Jan. 1 - Dec. 31                         (27.55) 25,110     37,917,500         780,197,820



Larger number of trades, smaller average number of shares per trade: The table below gives liquidity indicators
for Grendene’s common stock – number of trades, number of shares, financial volume – since the market maker
began operating on September 26, 2005. We noticed that financial volume per trade from approximately R$ 36,000,
averaging 2,258 shares per trade, in the period from July 1 to September 30, 2005 after hiring the market maker,
decreased to approximately R$ 28,000, and 1,485 shares/trade, a reduction of approximately 34% in the average
number of shares per trade per average lot.

     Trading, Sept. 26 - Dec. 31, 2005   Average Price   Change     Trades    Shares      Financial volume R$ Maximum price   Minimum price   Average Shares/trade
              Daily averages                    18.89                 148      219,348             4,144,626          22.80           14.99          1,485
         Total, Sep. 26 - Dec. 31                         (27.55)    9,747   14,477,000          273,545,298



The chart below shows the behavior of Grendene’s ON shares, on the basis of an index number of 100 for October
28, 2004 – the date of the initial published notice of the secondary public distribution of common shares at R$ 31.00
per share – in comparison with movements in the Bovespa Index, the IGC Index, the ITAG Index, and the US dollar
exchange rate, up to December 31, 2005.




Grendene S.A. – 4Q05 Earnings                                                                                                                                22 / 31
                                           GRENDENE ON - SHARE PRICE
                                             Basis 100 = Oct. 28, 2004
              200


              160
  Variation




              120


               80


               40
               10/28/04         01/24/05           04/22/05            07/18/05        10/11/05
                                                              Period
                                        Grendene      Ibovespa         IGC    Dollar   ITAG




                The information in this release may contain statements about expected future conditions.
                It reflects the current perception and outlook of the company’s management on the
                development of the business, based on the expected development of the macroeconomic
                environment, conditions in the industry, performance of the company, and financial
                results. Any changes in such expectations and factors may cause results to be materially
                different from current expectations, and reflect several risks and uncertainties.




Grendene S.A. – 4Q05 Earnings                                                                              23 / 31
                                                                                   APPENDICES

                                     Appendix I – Gross revenue, sales volume and average price:
                                         quarterly variations, domestic market and exports

Gross revenues                                                                                                                                                                    4Q05/4Q04
(millions)                                   1Q03        2Q03       3Q03       4Q03       1Q04       2Q04       3Q04       4Q04       1Q05       2Q05       3Q05       4Q05           %
Domestic market (R$)                          160.3       177.9      280.1      355.4      241.4      220.8      374.8      452.8      257.7      226.0      340.7      345.2        (23.8%)
Exports * (R$)                                 82.4        58.8       65.9       95.6       95.6       47.2       41.1       51.2       56.3       35.2       38.6       53.2          3.9%
Exports * (US$)                                23.6        19.7       22.5       32.9       33.0       15.5       13.8       18.4       21.1       14.2       16.5       23.6         28.3%
Total                                         242.7       236.7      346.0      451.0      337.0      268.0      415.9      504.0      314.0      261.2      379.3      398.4        (21.0%)

Sales volume                                                                                                                                                                      4Q05/4Q04
(thousand pairs)                             1Q03        2Q03       3Q03       4Q03       1Q04       2Q04       3Q04       4Q04       1Q05       2Q05       3Q05       4Q05           %
Domestic market                              18,680      15,727     26,369     33,592     23,210     20,322     34,074     38,955     22,419     20,229     30,205     29,742        (23.7%)
Exports                                       8,399       5,001      5,187      8,340     11,479      3,619      5,260      8,334      8,920      4,837      5,499      8,400          0.8%
Total                                        27,079      20,728     31,556     41,932     34,689     23,941     39,334     47,289     31,339     25,066     35,704     38,142        (19.3%)

Average price                                                                                                                                                                     4Q05/4Q04
                                             1Q03        2Q03       3Q03       4Q03       1Q04       2Q04       3Q04       4Q04       1Q05       2Q05       3Q05       4Q05          %
Domestic market (R$)                           8.58       11.31      10.62      10.58      10.40      10.87      11.00      11.62      11.49      11.17      11.28      11.61         (0.1%)
Exports * (R$)                                 9.81       11.76      12.70      11.46       8.33      13.04       7.81       6.14       6.31       7.28       7.02       6.33          3.1%
Exports * (US$)                                2.81        3.94       4.33       3.95       2.88       4.28       2.62       2.20       2.37       2.93       3.00       2.81        27.7%
Total                                          8.96       11.42      10.96      10.76       9.71      11.19      10.57      10.66      10.02      10.42      10.62      10.45         (2.0%)
US dollar at end of period                      3.3531     2.8720     2.9234     2.8892     2.9086     3.1075     2.8586     2.6544     2.6662     2.3504     2.2222     2.3407        -11.8%
Average US dollar                               3.4920     2.9859     2.9350     2.9002     2.8959     3.0452     2.9769     2.7857     2.6652     2.4818     2.3428     2.2509        -19.2%
(*) Includes sales of subsidiaries outside Brazil


Gross revenues
Market %                                     1Q03        2Q03       3Q03       4Q03       1Q04       2Q04       3Q04       4Q04       1Q05       2Q05   3Q05   4Q05
Domestic market                               66.0%       75.2%      81.0%      78.8%      71.6%      82.4%      90.1%      89.8%      82.1%      86.5% 89.8% 86.6%
Exports                                       34.0%       24.8%      19.0%      21.2%      28.4%      17.6%       9.9%      10.2%      17.9%      13.5% 10.2% 13.4%
Total                                        100.0%      100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0% 100.0% 100.0%

Sales volume
Market %                                     1Q03        2Q03       3Q03       4Q03       1Q04       2Q04       3Q04       4Q04       1Q05       2Q05   3Q05   4Q05
Domestic market                               69.0%       75.9%      83.6%      80.1%      66.9%      84.9%      86.6%      82.4%      71.5%      80.7% 84.6% 78.0%
Exports                                       31.0%       24.1%      16.4%      19.9%      33.1%      15.1%      13.4%      17.6%      28.5%      19.3% 15.4% 22.0%
Total                                        100.0%      100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0% 100.0% 100.0%




Grendene S.A. – 4Q05 Earnings                                                                                                                                                        24 / 31
                             Appendix II – Gross revenue, sales volume and average price:
                              half-year and annual variations, domestic market and exports

Gross revenues                                                                                          2H05/2H04                                     2005/2004
(millions)                                  1H03      2H03      1H04      2H04      1H05      2H05        Var.%       2003       2004       2005        Var.%
Domestic market (R$)                        338.2     635.5     462.2     827.6     483.7     685.9        (17.1%)     973.7    1,289.8    1,169.6       (9.3%)
Exports * (R$)                              141.2     161.5     142.8      92.4      91.5      91.8         (0.6%)     302.7      235.2      183.3      (22.1%)
Exports * (US$)                              43.6      52.5      48.1      31.6      33.6      37.7        19.3%        98.3       80.4       75.3       (6.3%)
Total                                       479.4     797.0     605.0     920.0     575.2     777.7        (15.5%)   1,276.4    1,525.0    1,352.9      (11.3%)

Sales volume
(thousand pairs)                            1H03       2H03      1H04      2H04      1H05      2H05       Var.%     2003         2004       2005        Var.%
Domestic market                            34,407     59,961    43,532    73,029    42,648    59,947       (17.9%) 94,368       116,561    102,595      (12.0%)
Exports                                    13,400     13,527    15,098    13,594    13,757    13,899         2.2%   26,927       28,692     27,656       (3.6%)
Total                                      47,807     73,488    58,630    86,623    56,405    73,846       (14.8%) 121,295      145,253    130,251      (10.3%)

Average price                                                                                           2H05/2H04                                     2005/2004
                                            1H03      2H03      1H04      2H04      1H05      2H05        Var.%      2003        2004       2005        Var.%
Domestic market (R$)                         9.83     10.60     10.62     11.33     11.34     11.44          1.0%     10.32       11.07      11.40         3.0%
Exports * (R$)                              10.54     11.94      9.46      6.80      6.65      6.60         (2.8%)    11.24        8.20       6.63      (19.1%)
Exports * (US$)                              3.25      3.88      3.18      2.32      2.44      2.71        16.8%       3.65        2.80       2.72       (2.9%)
Total                                       10.03     10.85     10.32     10.62     10.20     10.53         (0.8%)    10.52       10.50      10.39        (1.0%)
US dollar at end of period                   2.8720    2.8892    3.1075    2.6544    2.3504    2.3407                  2.8892     2.6544     2.3407       -11.8%
Average US dollar                            3.2390    3.0783    2.9705    2.9259    2.7274    2.4352                  3.0783     2.9259     2.4352       -16.8%
(*) Includes sales of subsidiaries outside Brazil


Gross revenues
Market %                                   1H03   2H03   1H04   2H04   1H05   2H05                                   2003        2004
Domestic market                             70.5% 79.7% 76.4% 90.0% 84.1% 88.2%                                       76.3%       84.6%
Exports                                     29.5% 20.3% 23.6% 10.0% 15.9% 11.8%                                       23.7%       15.4%
Total                                      100.0% 100.0% 100.0% 100.0% 100.0% 100.0%                                 100.0%      100.0%

Sales volume
Market %                                   1H03   2H03   1H04   2H04   1H05   2H05                                   2003        2004
Domestic market                             72.0% 81.6% 74.2% 84.3% 75.6% 81.2%                                       77.8%       80.2%
Exports                                     28.0% 18.4% 25.8% 15.7% 24.4% 18.8%                                       22.2%       19.8%
Total                                      100.0% 100.0% 100.0% 100.0% 100.0% 100.0%                                 100.0%      100.0%




Grendene S.A. – 4Q05 Earnings                                                                                                                             25 / 31
  Appendix III – Consolidated balance sheets at December 31, 2005 and 2004

                                          Grendene S.A and Subsidiaries
                                                  Balance Sheet
                                              (in thousands of R$)
                                                                      12/31/2005     12/31/2004
        Current assets                                                    970,105        876,194
           Cash and cash equivalents                                       23,039         23,534
           Financial investments                                          487,721        309,240
           Accounts receivable                                            329,319        369,764
           Inventories                                                    100,320        134,546
           Other receivables                                               29,706         39,110
        Noncurrent assets                                                   5,968          1,814
        Permanent assets                                                  183,367        172,060
        Total assets                                                     1,159,440      1,050,068
        Current liabilities                                               157,255        183,783
           Loans and financings                                            27,223         19,732
           Trade accounts payable                                          16,680         24,059
           Salaries and charges payable                                    33,069         34,258
           Other debts                                                     80,283        105,734
        Noncurrent liabilities                                            150,850        128,999
           Long term loans and financings                                 150,850        128,911
           Other debts                                                         -                  88
        Minority interests                                                    165             -
        Shareholders' equity                                              851,170        737,286
           Paid-in capital                                                733,783        620,580
           Reserves and retained earnings                                 117,387        116,706
        Total liabilities                                                1,159,440      1,050,068




Grendene S.A. – 4Q05 Earnings                                                                          26 / 31
     Appendix IV – Adjusted consolidated statements of income (pro forma)
                   4th quarter and fiscal year, 2005 and 2004

                                          Ajusted statement of income (pro forma)
                                                    (in thousands of R$)
                                                    4Q05        %     4Q04        %       2005           %       2004           %
Gross sales revenues                               398,346 125.9% 504,120 126.9%        1,352,900    126.7%    1,524,981    125.9%
Sales deduction                                    (82,005) (25.9%) (106,865) (26.9%)    (284,854)   (26.7%)    (313,363)   (25.9%)
Net sales revenues                                 316,341 100.0% 397,255 100.0%        1,068,046    100.0%    1,211,618    100.0%
Cost of sales                                     (168,510) (53.3%) (208,346) (52.4%)    (624,456)   (58.5%)    (685,924)   (56.6%)
Gross profit                                       147,831 46.7%     188,909 47.6%        443,590     41.5%      525,694     43.4%
Operating income (expenses)                                  (26.4%)                                 (29.4%)                (32.6%)
  Selling expenses                                 (71,674) (22.7%) (101,661) (25.6%)    (263,706)   (24.7%)    (279,333)   (23.1%)
  General and administrative expenses              (12,313) (3.9%)   (18,229) (4.6%)      (49,069)    (4.6%)     (65,996)    (5.4%)
  Financial expenses                               (27,334) (8.6%)   (40,855) (10.3%)    (112,252)   (10.5%)    (111,972)    (9.2%)
  Financial income                                  29,681 9.4%       16,111 4.1%         112,096     10.5%       58,641     4.8%
  Equity pick-up                                        -     0.0%        -     0.0%          -       0.0%           -        0.0%
  Management fees                                      (216) (0.1%)      (194) 0.0%          (835)    (0.1%)        (374)    0.0%
  Other operating income                                306 0.1%       (6,019) (1.5%)       1,418     0.1%         6,675     0.6%
  Other operating expenses                           (1,850) (0.6%)       221 0.1%         (1,206)    (0.1%)      (2,283)    (0.2%)
Operating result                                    64,431 20.4%      38,283 9.6%         130,036     12.2%      131,052     10.8%
Non-operating result, net                                11 0.0%            (4) 0.0%          157     0.0%             71     0.0%
Income before income taxes and minority interests
                                                    64,442 20.4%      38,279 9.6%        130,193     12.2%      131,123     10.8%
Current income tax                                 (11,992) (3.8%)     (7,081) (1.8%)    (31,744)    (3.0%)     (31,955)    (2.6%)
Current Social Contribution                          (4,893) (1.5%)    (3,133) (0.8%)    (12,330)    (1.2%)     (11,794)    (1.0%)
Deferred income tax                                  (2,457) (0.8%)       887 0.2%          (446)    0.0%           887     0.1%
Deferred Social Contribution                           (709) (0.2%)       341 0.1%          (219)    0.0%           341     0.0%
Minority interests                                      (72) 0.0%         -     0.0%         (53)     0.0%          -        0.0%
Earnings before tax benefit effects                 44,319 14.0%      29,293 7.4%         85,401      8.0%       88,602      7.3%
Tax benefits effect - Provin/Proapi                 22,868 7.2%       29,751 7.5%         83,963     7.9%        93,155     7.7%
Tax benefit effect - IRPJ                           11,572 3.7%         7,622 1.9%        25,701     2.4%        20,048     1.7%
Adjusted net income                                 78,759 24.9%      66,666 16.8%       195,065     18.3%      201,805     16.7%

Adjusted Ebitda (R$'000)                           4Q05               4Q04               2005                   2004
(+) Depreciation and amortization                   7,123              6,725              27,089                 27,221
Adjusted Ebitda                                   105,191            112,923             266,733                320,415
Adjusted Ebitda margin, %                           33.3%              28.4%               25.0%                  26.4%




Grendene S.A. – 4Q05 Earnings                                                                                                 27 / 31
                 Appendix V – Adjusted statements of income (pro forma)
                              4th quarter of 2005 and 2004

                                                                      4Q05         Deferred
                                                                                                 Provisions
                         Adjusted Statement of Income              according      income tax                  Effects of tax             4Q05
                                                                                               reversed Dec.
                                   (R$'000)                         financial     and Social                     benefits              pro forma
                                                                                                  31, 2005
                                                                   statements Contribution
               Gross sales revenues                                      398,346             -              -               -              398,346
               Sales deduction                                          (82,005)             -              -               -             (82,005)
               Net sales revenues                                        316,341             -              -               -              316,341
               Cost of sales                                           (168,510)             -              -               -            (168,510)
               Gross profit                                              147,831             -              -               -              147,831
               Operating income (expenses)                                                   -              -               -
               Selling expenses                                         (71,674)             -              -               -             (71,674)
               General and administrative expenses                      (12,313)             -              -               -             (12,313)
               Financial expenses                                       (27,334)             -              -               -             (27,334)
               Financial income                                           29,681             -              -               -               29,681
               Equity pickup                                                    -            -              -               -                    -
               Management fees                                              (216)            -              -               -                (216)
               Other operating expenses                                       306            -              -               -                  306
               Other operating income                                     (1,850)            -              -               -              (1,850)
               Operating result                                           64,431             -              -               -               64,431
               Non-operating result, net                                       11            -              -               -                   11
               Income before income taxes and minority interests
                                                                          64,442                   -            -               -           64,442
               Current income tax                                       (11,992)                   -            -               -         (11,992)
               Current Social Contribution                               (4,893)                   -            -               -          (4,893)
               Deferred income tax                                       (2,457)                   -            -               -          (2,457)
               Deferred Social Contribution                                (709)                   -            -               -            (709)
               Minority interests                                            (72)                  -            -               -              (72)
               Earnings before tax benefit effects                        44,319                   -            -               -           44,319
               Tax benefits effect - Provin/Proapi                              -                  -            -          22,868           22,868
               Tax benefit effect - IRPJ                                        -                  -            -          11,572           11,572
               Adjusted net income                                       44,319                -            -             34,440           78,759



                                                                     4Q04           Deferred
                                                                                                 Provisions
                         Adjusted Statement of Income              according       income tax                       Effects of tax       4Q04
                                                                                                  reversed
                              (in thousand of R$)                  Financial       and Social                          benefits        pro forma
                                                                                                Dec. 31, 2004
                                                                   Statement      Contribution
               Gross sales revenues                                     504,120               -                 -                  -       504,120
               Sales deduction                                        (106,865)               -                 -                  -     (106,865)
               Net sales revenues                                       397,255               -                 -                  -       397,255
               Cost of sales                                          (208,346)               -                 -                  -     (208,346)
               Gross profit                                             188,909               -                 -                  -       188,909
               Operating income (expenses)                            (150,626)               -                 -                  -     (150,626)
               Selling expenses                                       (101,661)               -                 -                  -     (101,661)
               General and administrative expenses                     (18,229)               -                 -                  -      (18,229)
               Financial expenses                                      (40,855)               -                 -                  -      (40,855)
               Financial income                                          16,111               -                 -                  -        16,111
               Equity pickup                                                    -             -                 -                  -               -
               Management fees                                             (194)              -                 -                  -          (194)
               Other operating expenses                                  (6,019)              -                 -                  -        (6,019)
               Other operating income                                        221              -                 -                  -            221
               Operating result                                          38,283               -                 -                  -        38,283
               Non-operating result, net                                      (4)             -                 -                  -             (4)
               Income before income taxes and minority interests
                                                                        38,279              -                   -               -          38,279
               Current income tax                                       (7,081)             -                   -               -          (7,081)
               Current Social Contribution                              (3,133)             -                   -               -          (3,133)
               Deferred income tax                                      (2,392)         3,279                   -               -              887
               Deferred Social Contribution                               (604)           945                   -               -              341
               Minority interests                                             -             -                   -               -                -
               Earnings before tax benefit effects                      25,069          4,224                   -               -          29,293
               Tax benefits effect - Provin/Proapi                            -             -                   -          29,751          29,751
               Tax benefit effect - IRPJ                                      -             -                   -           7,622            7,622
               Adjusted net income                                      25,069         4,224                -              37,373          66,666




Grendene S.A. – 4Q05 Earnings                                                                                                                          28 / 31
                Appendix VI – Adjusted statements of income (pro forma)
                                    2005 and 2004
                                                              2005       Deferred
                                                                                      Provisions
                       Adjusted Statement of Income       according     income tax                  Effects of tax                    2005
                                                                                       reversed
                                 (R$'000)                  financial    and Social                     benefits                     pro forma
                                                                                     Dec. 31, 2004
                                                          statements Contribution
                Gross sales revenues                         1,352,900             -              -               -                   1,352,900
                Sales deduction                              (284,854)             -              -               -                   (284,854)
                Net sales revenues                           1,068,046             -              -               -                   1,068,046
                Cost of sales                                (624,456)             -              -               -                   (624,456)
                Gross profit                                   443,590             -              -               -                     443,590
                Operating income (expenses)                  (313,554)             -              -               -                   (313,554)
                Selling expenses                             (263,706)             -              -               -                   (263,706)
                General and administrative expenses            (49,069)            -              -               -                     (49,069)
                Financial expenses                           (112,252)             -              -               -                   (112,252)
                Financial income                               112,096             -              -               -                     112,096
                Equity pickup                                         -            -              -               -                            -
                Management fees                                   (835)            -              -               -                        (835)
                Other operating expenses                          1,418            -              -               -                        1,418
                Other operating income                          (1,206)            -              -               -                      (1,206)
                Operating result                               130,036             -              -               -                     130,036
                Non-operating result, net                           157            -              -               -                          157
                Income before income taxes and minority
               interests                                       130,193                  -                    -              -          130,193
                  Current income tax                           (31,744)                 -                    -              -          (31,744)
                  Current Social Contribution                  (12,330)                 -                    -              -          (12,330)
                  Deferred income tax                             (446)                 -                    -              -             (446)
                  Deferred Social Contribution                    (219)                 -                    -              -             (219)
                Minority interests                                  (53)                -                    -              -               (53)
                Earnings before tax benefit effects              85,401                 -                    -              -            85,401
                Tax benefits effect - Provin/Proapi                    -                -                    -         83,963            83,963
                Tax benefit effect - IRPJ                              -                -                    -         25,701            25,701
               Adjusted net income                              85,401              -                    -            109,664          195,065


                                                              2004        Deferred
                                                                                             Reverted
                       Adjusted Statement of Income       according      income tax                              Effects of tax       2004
                                                                                            provisions
                                 (R$'000)                  financial     and Social                                 benefits        pro forma
                                                                                             12/31/03
                                                          statements Contribution
                Gross sales revenues                          1,524,981             -                  -                        -     1,524,981
                Sales deduction                               (313,363)             -                  -                        -     (313,363)
                Net sales revenues                            1,211,618             -                  -                        -     1,211,618
                Cost of sales                                 (700,034)             -             14,110                        -     (685,924)
                Gross profit                                    511,584             -             14,110                        -       525,694
                Operating income (expenses)                   (409,698)             -             15,056                        -     (394,642)
                Selling expenses                              (280,796)             -              1,463                        -     (279,333)
                General and administrative expenses             (65,996)            -                  -                        -       (65,996)
                Financial expenses                            (122,852)             -             10,880                        -     (111,972)
                Financial income                                  58,641            -                  -                        -         58,641
                Equity pickup                                          -            -                  -                        -              -
                Management fees                                    (374)            -                  -                        -          (374)
                Other operating expenses                           6,675            -                  -                        -          6,675
                Other operating income                           (4,996)            -              2,713                        -        (2,283)
                Operating result                                101,886             -             29,166                        -       131,052
                Non-operating result, net                             71            -                  -                        -             71
                Income before income taxes and minority
               interests                                      101,957               -             29,166                     -         131,123
                  Current income tax                          (31,955)              -                  -                     -         (31,955)
                  Current Social Contribution                 (11,794)              -                  -                     -         (11,794)
                  Deferred income tax                            6,930        (6,043)                  -                     -              887
                  Deferred Social Contribution                   2,516        (2,175)                  -                     -              341
                Minority interests                                   -              -                  -                     -                -
                Earnings before tax benefit effects             67,654        (8,218)             29,166                     -           88,602
                Tax benefits effect - Provin/Proapi                  -              -                  -                93,155           93,155
                Tax benefit effect - IRPJ                            -              -                  -                20,048           20,048
               Adjusted net income                             67,654         (8,218)             29,166              113,203          201,805




Grendene S.A. – 4Q05 Earnings                                                                                                                      29 / 31
            VII – Explanatory notes to the statement of income (pro forma)

The following adjustments were made to our income statements to achieve comparability between the financial
statements for the quarters ended December 31, 2005 (4Q05) and 2004 (4Q04) and the results for those years:

(i) Fourth quarter 2005:
In 4Q05 we made the following adjustments to net profit: (a) addition of R$ 22.868 mn corresponding to the tax
benefits from financings of ICMS tax and export incentive grants (Provin and Proapi) to which the company has full
entitlement; (b) addition of R$ 11.572 mn corresponding to the income tax benefits to which the company has full
entitlement. All the adjustment items are reflected in the adjusted income statement in their respective lines.

(ii) Fourth quarter 2004:
We made the following adjustments to net profit: (a) addition of R$ 29.751 mn corresponding to the tax benefits from
financings of ICMS tax and export incentive grants (Provin and Proapi) to which the company has full entitlement; (b)
addition of R$ 7.622 mn corresponding to the income tax benefits to which the company has full entitlement (Items
(a) and (b) are reflected in the adjusted income statement in their respective lines.); (c) subtraction of R$ 4.224 mn
for the elimination of deferred income tax and Social Contribution tax.

(iii) Full year 2005:
We made the following adjustments to net profit for the 12 months ending December 31, 2005: (a) addition of R$
83.963 mn corresponding to the tax benefits from financings of ICMS tax and export incentive grants (Provin and
Proapi) to which the company has full entitlement; (b) addition of R$ 25.701 mn corresponding to the income tax
benefits to which the company has full entitlement. All the adjustment items are reflected in the adjusted income
statement in the respective lines.

(iv) Full year 2004:
We made the following adjustments to net profit for the 12 months ending December 31, 2004: (a) deduction of R$
6.043 mn for the adjustment to deferred income tax; (b) deduction of R$ 2.175 mn for the adjustment to deferred
Social Contribution tax; (c) addition of R$ 29.166 mn in the respective lines, for reversal of the provisions not
accounted on December 31, 2003; (d) adjustment of R$ 93.155 mn corresponding to the tax benefits from financings
of ICMS tax and export incentive grants (Provin and Proapi) to which the company has full entitlement; (e) addition
of R$ 20.048 mn corresponding to the income tax benefits to which the company has full entitlement. All the
adjustment items are reflected in the pro-forma income statement in the respective lines.




                                All references to Adjusted Ebitda or Adjusted
                                net profit indicate inclusion of the value of all
                                      benefits under tax incentive grants.




Grendene S.A. – 4Q05 Earnings                                                                                   30 / 31
                Appendix VIII – Adjusted cash flow statements (pro forma)
                             to December 31, 2005 and 2004

                                         CONSOLIDATED STATEMENT OF CASH FLOW
                                                        (R$'000)
                                                                       12/31/2005 12/31/2005    12/31/2004 12/31/2004
                                                                        Audited Pro forma        Audited Pro forma

 CASH FLOW FROM OPERATING ACTIVITIES
  Net income for the year                                                 85,401    195,065        67,654    201,805
  Minority interest                                                          165        165           -          -
 Adjustments to reconcile net income to cash provided by operating
 activities
  Equity in results of subsidiaries                                          -          -             -          -
  Depreciation                                                            27,089     27,089        27,221     27,221
  Tax benefits income tax and exports incentives (Proapi and Provin)     109,664        -         113,203        -
  Deferred income tax                                                        665        665        (9,446)    (1,228)
  Adjustments from previous periods                                          -          -               4          4
  Decrease in assets                                                       2,231      2,231         1,722      1,722
                                                                         225,215    225,215       200,358    229,524
 Decrease (increase) in assets and liabilities
  Accounts receivable, net                                                40,445     40,445       (67,576)    (79,919)
  Inventories, net                                                        34,226     34,226        30,606      14,233
  Other accounts receivable                                                4,491      4,491        19,615      19,615
  Suppliers                                                               (7,379)    (7,379)       (1,466)     (1,466)
  Payroll and related charges                                             (1,189)    (1,189)        5,874       5,874
  Fiscal duties                                                           (1,180)    (1,180)       (1,704)     (1,704)
  Other                                                                   (3,295)    (3,295)         (134)       (584)
 Net cash provided by operating activities                               291,334    291,334       185,573    185,573
 Cash flows from investing activities
  Investments in affiliateds                                                 -           -            -           -
  Additions to property, plant and equipment                             (40,627)    (40,627)     (27,501)    (27,501)
 Net cash used in investing activities                                   (40,627)    (40,627)     (27,501)    (27,501)
 Cash flow from financing activities
  Capital increase                                                           -           -            -           -
  Short-term and long-term debt                                           29,430      29,430       16,428      16,428
  Dividends paid                                                        (102,151)   (102,151)     (69,331)    (69,331)
 Net cash provided by (used in) financing acticities                     (72,721)    (72,721)     (52,903)    (52,903)


 Increase in cash and cash equivalents                                   177,986    177,986       105,169    105,169
 Statement of increase in cash and cash equivalents
  Start of year                                                          332,774    332,774       227,605    227,605
  End of year                                                            510,760    510,760       332,774    332,774
 Increase in cash and cash equivalents                                   177,986    177,986       105,169    105,169




Grendene S.A. – 4Q05 Earnings                                                                                    31 / 31

				
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