Vulcabras Azaleia S A : Conference Call 4Q20

Conference Call (English Transcription)

Vulcabras

Earnings Release 4Q20

March 10th, 2021

Operator: Good morning and thank you for waiting. Welcome to the Vulcabras conference call to discuss results for 4Q20. Present today with us are Pedro Bartelle, CEO of the company, Mr. Wagner Dantas, CFO and Investor Relations Officer and our Investor Relations team, Mr. Valdinei Tortorelli, Ms. and Ms. Luciana Serrano

We inform you that this event is being recorded and that all the participants will be only listening to the conference call during the presentation of Vulcabras Then we will start the Q&A session, when further instructions will be provided. If you need any assistance during the conference call, please request the assistance of an operator by entering * zero.

This event is also being transmitted simultaneously through the internet, via webcast, and can be accessed atwww.vulcabrasazaleiari.com.br,where the respective presentation is available. The selection of the slides will be controlled by you. The replay of this event will be available soon after its closure. Please note that webcast participants will be able to register, via website, questions for Vulcabras, which will be answered after the end of the conference, by the IR area.

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding Vulcabras business prospects, projections, operating and financial goals, constitute beliefs and assumptions of the Company's Management, as well as information currently available for Vulcabras. Future considerations are not performance guarantees, involve risks, uncertainties and assumptions as they relate to future events, and therefore depend on circumstances that may or may not occur.

Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the future results of Vulcabras and may lead to results that differ materially from those expressed in such future conditions.

I would now like to give the floor to Mr. Pedro Bartelle, CEO of the company, who will begin the presentation. Please, Mr. Pedro Bartelle, you may proceed.

Mr. Pedro Bartelle: Good Morning!

Welcome to the Vulcabras results conference call.

Vulcabras discloses hereby its financial results for the fourth quarter of 2020 at a time when retailers are still looking for stability and sales recovery.The companyreports a positive performance in the last three months of the year, with growth of more than 20% in most of its financial indicators.

According to the Brazilian Institute of Geography and Statistics (IBGE), retail sales in Brazil fell in November and December 2020, after a few months of recovery. In December, sales decreased 6.1% compared to November 2020, and 0.1% in November compared to October 2020.

Following the same trend, a study carried out by the Brazilian Association of Handicraft and Footwear Retailers (ABLAC) with 3,000 stores, including medium and large footwear chains in the country, points out that the Brazilian footwear retailer closed 2020 in a 33% drop in turnover compared to 2019. Revenue fell from R$ 51 billion to R$ 34 billion in the period. According to the association, the numbers are still a reflection of the pandemic that hit business worldwide.

Against this backdrop, Vulcabras presents a healthy quarter with sales growth above double digits.

This growth above the sector is mainly due to the company's decision not to demobilize its operations and to adapt very quickly to the new market conditions. The Company maintained the prices of its products in the new collections sold in the second half of the year and also granted longer payment terms in order to support its customers in the process of resuming retail. Vulcabras' accelerated response reinforced its position as a strategic partner in the resumption of retail and provided the market share growth for its brands.

The collections launched for the second half of 2020 had excellent market support and absorbed retail demand at the time of resumption of activities, increasing the share of the Company's brands in national retail. Adapting their product collections to the current moment was a strategy that proved to be effective. The Company understands that having adequate products for each moment is important to guarantee the preference of the consumer and partners.

During the quarter, the brands' e-commerce continued to expand in 2020 and increased 141.1% compared to 2019.

Moreover, the Company has invested in a new distribution center, in Extrema (MG), which will enter into full operation in the second half of March. This new distribution center will have a logistics operation dedicated to all the brands e-commerce and also with the operation of distribution of finished products purchased from third parties (imported and domestic). The strategic choice of location, which includes logistical facilitators, labor and specialized services, will give Vulcabras even more efficiency and competitiveness for its business.

Focusing on Sport on January 29, 2021, Vulcabras completed the acquisition of

Mizuno's operation in Brazil, starting to develop, produce and import branded products, including footwear, clothing and accessories, exclusively in the national territory for retail distribution and direct marketing to the consumer through its own stores or e-commerce (www.mizuno.com.br) until December 2033. With the integration of the Mizuno brand into its sports brand portfolio, as well as the licensing of the Azaleia brand to Grendene, Vulcabras concludes a strategictransition, which began in 2018 with the acquisition of Under Armour, and consolidates itself as the largest manager of sports brands in the country

Olympikus, Under Armour and Mizuno will have at their disposal all the technology and innovation of the Company's shoe development center, the largest in Latin America, its modernized industrial park, with production technology worldwide, a large commercial team that serves more 10,000 customers nationwide and marketing strategies dedicated to each brand. This composition of brands allows Vulcabras to offer products that meet all the profiles of consumers and athletes and their respective needs, with shoes ranging from R$ 149 to R$ 1,600 and sports clothing and accessories from R$ 49 to R$ 999.

Today Vulcabras is the largest sports brand management company in Brazil, this is due to the investments made and the constant search for growth. Today the company has a relevant portfolio of brands, a modern structure for development, production and distribution and a team of highly qualified employees. Therefore, we are convinced that we are ready to grow even faster and faster.

We continue to seek the growth of our brands and see a future with gains in sales and profitability, which will provide increasingly better results.

Now the presentation of our performance in the quarter. I would now like to give the floor to Mr. Wagner Dantas, our CFO and Investor Relation Officer,

Mr. Wagner Dantas: Good morning everyone.

We started the presentation with slide 5, gross volume of pairs and pieces.

In 4Q20, gross volume totaled 9.7 million pairs/pieces, an increase of 31.5% compared to the total in 4Q19 of 7.4 million pairs/pieces.

The volume sold grew in almost all categories in 4Q20, with the only exception being the category of women's footwear, which presented a retraction due to the licensing of the Azaleia brand to Grendene and consequent phase out of our own production during the quarter. The production capacity released by the decrease in women's shoes was fully occupied by the production of sports shoes, which showed a 24.6% growth in sales in 4Q20 compared to the same period in 2019.

In 2020, the gross volume billed amounted to 25.1 million pairs/pieces, a decrease of 7.6% as opposed to the volume in 2019, of 27.2 million pairs/pieces. The decrease observed in 2020 is due to the generalized halt in industrial and commercial activities throughout the first half of the year in almost all countries in the world as a measure to combat the spread of the Covid-19 pandemic. Even in the face of this extremely difficult scenario, the categories of Apparel and Accessories and Other Footwear and Other (mainly composed of Boots for professional use) showed growth in comparison with 2019.

On page 06, we present the net revenue per product category.

In 4Q20, net revenue was R$ 459.1 million, a 22.8% increase over R$ 373.9 million in 4Q19. The robust order book created after the launch of the new collections at the end of July, added to the easing of social isolation measures inall Brazilian states and the reopening, even with some restrictions from most physical retail, it was essential for the excellent performance of revenue during the 4th quarter

Athletic footwear revenue increased by 21.7% in 4Q20, with all orders fulfilled and an important presence in Black Friday and Christmas sales. The revenue from Olympikus shoes as well as that from Under Armour shoes increased in relation to the same quarter of the previous year.

The Women Footwear category recorded a decrease of 7.2% when compared to the same period of 2019. The downturn is due to the licensing strategy of the Azaleia brand and the consequent decrease in the production of women footwear with the transfer of production capacity to athletic footwear.

The Apparel and Accessories category recorded an increase of 59.0% when compared to 4Q19. Both revenue from Under Armour brand and Olympikus brand increased.

The Other footwear and other category increased by 87.5%, mainly driven by the growth in sales in the boots category, mainly due to the rapid resumption of the pace of full production after the shutdown that occurred in the peak months of the Covid-19 pandemic.

In 2020 net revenue was R$ 1,179.2 million, 13.3% lower than in 2019, when it was R$ 1,360.0 million. The decrease observed in 2020 is due to the generalized halt in industrial and commercial activities observed throughout the first half of the year in almost all countries in the world as a measure to combat the spread of the Covid-19 pandemic. The positive highlights were the Apparel and Accessories and Other Footwear and Other (mainly professional boots) categories, which showed positive performance even in the face of all the difficulties experienced throughout the year.

On page 07, we present the opening of net revenue per market.

Net revenue in 4Q20, in the domestic market, totaled R$ 425.3 million, an increase of 24.3% compared to 4Q19, when it was R$ 342.2 million.

In the domestic market: the increase is due to the increase in almost all categories, with women footwear being the only exception. With the reopening of physical stores, even with restrictions on access and opening hours, retail sales once again took center stage in our revenues.

In the foreign market, net revenue in 4Q20 was R$ 33.8 million, an increase of 6.6% over the R$ 31.7 million posted in 4Q19.

In this quarter, there was an expansion in direct sales to the foreign market in relation to the same period of the prior year. The positive highlight was the growth of business with Argentina, despite the difficulties imposed by that country. In sales of subsidiaries abroad, there was a slight growth in revenue in relation to the same period of the prior year. The problems and effects resulting from the Covid-19 pandemic are still being felt in the economies of the countries where