Independent Auditors Report on Review of Interim Financial Information

Transcription

1 ! " # " $ % & %! '(# # )* # +, (A free translation from Portuguese into English of Independent Auditors Report of Interim Financial Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and of Consolidated Interim Financial Information prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB and accounting practices adopted in Brazil). Independent Auditors Report on Review of Interim Financial Information To the Shareholders, Board of Directors and Officers of Duratex S.A. São Paulo, State of São Paulo Introduction We have reviewed the accompanying individual and consolidated interim financial information of Duratex S.A. and its subsidiaries (the Company ), included in the Quarterly Information Form (ITR) for the quarter ended March 31, 2014, comprising the balance sheet as of March 31, 2014, the related income statement, the statement of comprehensive income and the statement of changes in equity and cash flows for the three-month period then ended, and the explanatory notes. Management is responsible for the preparation of these individual interim financial information in accordance with Accounting Pronouncement CPC 21(R1) Interim Financial Information and of the consolidated interim financial information in accordance with CPC 21(R1) and with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board IASB, as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The scope of a review is significantly narrower than an audit conducted in accordance with Brazilian and International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might have be identified in an audit. Therefore, we do not express an audit opinion. 1 Uma empresa-membro da Ernst & Young Global Limited

2 Conclusion on the individual interim financial information Based on our review, nothing came to our attention that causes us to believe that the accompanying individual interim financial information included in the quarterly information referred to above is not fairly presented, in all material respects, in accordance with CPC 21(R1) applicable to the preparation of Quarterly Financial Information (ITR), consistently with the standards issued by the Brazilian Securities Commission (CVM). Conclusion on the consolidated interim financial information Based on our review, nothing came to our attention that causes us to believe that the accompanying consolidated interim financial information included in the quarterly information referred to above is not fairly presented, in all material respects, in accordance with CPC 21(R1) and IAS 34 applicable to the preparation of Quarterly Financial Information (ITR), consistently with the standards issued by the Brazilian Securities Commission (CVM). Other matters Statements of value added We have also reviewed the individual and consolidated statements of value added for the three-month period ended March 31, 2014, prepared under the responsibility of management, the presentation of which in the interim financial information is required by rules issued by the Brazilian Securities Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR), and as supplementary information by IFRS, whereby no statement of value added presentation is required. These statements have been subjected to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in accordance with the overall accompanying interim individual and consolidated financial information. Audit and review of previous year financial information The individual and consolidated financial information accompanying in the individual and consolidated interim financial information, comprising the balance sheet as of December 31, 2013 and the statements of income, comprehensive income, cash flows, changes in equity and value added for the three-months period ended March 31, 2013, presented for comparative purposes, were audited and reviewed, respectively, by other auditors who issued an audit report dated February 17, 2014 and a review of interim financial information report dated April 22, 2013, without any qualification. São Paulo, April 22, ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 2

3 Drayton Teixeira de Melo Accountant CRC-1SP236947/O-3 3

4 MANAGEMENT REPORT 1Q14 SCENARIO AND MARKET The beginning of 2004 was marked by negative sentiment in financial markets, principally due to: S&P s downgrade of Brazil s country risk classification to BBB-, the environment of persistent and rising inflation - with dilemmas about how much and when to adjust the so-called "administered prices" which could end up rekindling inflation, a scenario of rising interest rates, and lastly the low growth expectations for Brazilian GDP. On the other hand, there were good news in Duratex segments showed by a high degree of resilience. In the Wood Panel segment, according to figures from the Brazilian Panel Industry Association (ABIPA), volume shipped in the Brazilian market showed an annual increase of 2.1%, even bearing in mind the strong comparison with the excellent start at the beginning of While the construction materials industry, of which the Deca Division is a part, grew by 0.9%, according to the index published by the Brazilian Construction Materials Industry Association (ABRAMAT), which measures sales variation in the construction sector, in the domestic market. STRATEGIC MANAGEMENT Among the strategic moves taken by the Company during the period, of particular note were: i) The conclusion, on January 22, 2014, of the Tender Offer to acquire an additional stake in the capital of Tablemac, Colombia, for approximately R$152.0 million. As a result of this transaction, Duratex ended up with effective control of this company, with a total equity stake of 80.62%; ii) The disclosure of a Material Fact, on March 13, 2014, about: a) the Company's intention to carry out consecutive investment in two new panel plants (MDF and MDP), each with an individual production capacity of 700 K m 3 a year, in Minas Gerais. According to the announcement, which cites an investment of R$1.3 billion, between 2015 and 2018, these units are to be built within the Nova Monte Carmelo area, which will reduce the cost of wood supply due to the privileged logistics position of the project, which will enjoy a very low logging distance; b) the acquisition of 21,000 hectares of forest in the state of Minas Gerais, strategically located and thus reducing the average logging distance of the Uberaba plant, which has two panel units, one for MDF and the other for MDP. The purchase of these forests, for approximately R$150 million, is to be paid for with 5,600 hectares of land located in the state of São Paulo, and cash. Both properties - the land where the forests in Minas Gerais are being acquired and the land being given as part of the payment, in São Paulo - will be leased for a period of 39 years. iii) The acquisition of a new low-pressure finishing production line which will contribute to increasing coated-panel production capacity, with a view to adding value to the final product. Net investment in the period came to a total of R$ million, being R$271.9 million in cash and R$ 90 million by exchange of land, which includes the acquisition of the equity stake in Tablemac, the acquisition of the forests of Caxuana S.A., in Minas Gerais, forestry planting and maintenance, as well as a number of other smaller projects. In this way the Company is continuing to expand its operations, with a number of projects that will contribute to create significant cost differentials when completed, thus assuring the creation of wealth for its shareholders. ACQUISITION OF CONTROLLING STAKE IN TABLEMAC On January 22, 2014, Duratex informed the market of the result of its Tender Offer to acquire shares in Tablemac S.A., for approximately R$152.0 million, through which it acquired 14,772,002,647 shares, in addition to those it previously held. Thus, Duratex's stake in that company was increased from the original 37% to 80.62%. As a consequence, from this quarter onwards, the results from the Colombian subsidiary have been consolidated into Duratex s financial statements. Being a foreign subsidiary, and covered by CVM Deliberation 698 of 20/12/2012, CPC 36 R3, which in its items B92 and B93 deals with the consolidation of financial statements of different dates, the information from this subsidiary will be subject to a time-lag of 1 month compared to the usual manner reported in Brazil. As the transaction took place at the end of January, we are consolidating only two months of Tablemac's operation, January and February respectively, seeing that December was accounted for using the equity income result methodology. For the next quarter the three 1

5 months from March to May will be consolidated into the financial statements, continuing in this way in subsequent quarters. Based on the best corporate governance practices, and with the aim of achieving better comparability with results in previous periods, the table below includes the following consolidated figures for Tablemac for 1Q14 only: volume shipped in January and February: 33,927 m 3 ; Net Revenue: R$41.6 million; Gross Profit: R$14.7 million and Gross Margin of 35.4%; Ebitda of R$8.5 million with Ebitda margin of 20.4% and Net Earnings of R$4.7 million. CONSOLIDATED FINANCIAL SUMMARY (in R$ 000) 1Q14 4Q13 1Q13 HIGHLIGHTS Volume shipped Deca ( 000 items) Volume shipped Wood (m 3 ) Consolidated Net Revenue Gross Profit Gross margin 34,1% 34,6% 39,5% EBITDA according to CVM 527/12 (1) EBITDA Margin CVM 527/12 37,3% 35,0% 40,0% Adjustments for non-cash events (60.903) (42.169) (44.931) Non-recurring Events (3) (45.514) (5.739) (19.699) Recurring Adjusted EBITDA (2) Recurring Adjusted EBITDA margin 25,8% 30,2% 32,5% Net Income Recurring Net Income Recurring Net Margin 14,1% 11,7% 16,5% INDICATORS Current ratio (4) 2,22 1,98 1,88 Net debt (5) Net debt/ebitda LTM (6) 1,61 1,19 1,37 Average Net Equity ROE (7) 14,5% 6,4% 14,6% Recurring ROE 11,8% 10,8% 14,0% SHARES Basic net earnings per share (R$) (8) 0,2676 0,1132 0,2712 Closing share price (R$) 11,55 13,15 16,30 Net equity per share (R$) 7,48 7,23 7,57 Shares held in treasury (shares) Market Value (R$1,000) (1) EBITDA (Earnings Before Interest,Taxes, Depreciation and Amortization): a measure of operational performance in accordance with CVM Instruction No. CVM527/12. See page??? of this report for a complete reconciliation of this indicator. (2) EBITDA adjusted for non-cash events arising from the variation in the fair value of biological assets and combination of businesses, in addition to extraordinary (non-recurring) events and the effect of the discontinuation of the Argentinian operation, Deca Piazza. (3) Non-recurring event of an extraordinary nature namely: 1Q14: result from the sale of hectares given in part payment for the acquisition of the forests of Caxuana S.A. (Material Event Notice of March 13); 4Q13: the result from the sale of the operational assets of the discontinued operation Deca Piazza (Argentina); 1Q13: net effect of (+) R$42,318K of the reversion of the reserve surplus in the closed pension plan of Fundação Itaúsa Industrial, (-) R$20,362 K of accounting write-offs referring to the discontinuation of the Argentinian operation and (-) R$2.257 million concerning other adjustments. 2

6 (4) Current ratio: Current Assets divided by Current Liabilities. Indicates the amount available in R$ to cover each R$ of short-term obligations. (5) Net indebtedness: Total Financial Debt ( ) Cash balance held. (6) Financial leverage, calculated on recurring EBITDA over the last 12 months, adjusted for events of a purely accounting nature and non-cash events. (7) ROE (Return on Equity): measure of performance obtained by taking Net Earnings over the period, annualised in the quarters, and dividing by Average Net Equity. (8) Net Earnings Per Share is calculated by dividing the profit attributable to the Company's shareholders, by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares held in treasury. STOCK DIVIDEND At the Annual General Shareholders Meeting on April 22 it was decided to increase the Company's paid-up capital from R$1,705.3 million to R$1,875.8 million through the capitalisation of profit reserves, with a 10% stock dividend, which will be allocated to shareholders in the proportion of 1 (one) new share for every 10 (ten) shares held as at the close of trading on April 22, In this way, the Company's free-float will increase from 605,059,489 to 665,565,438 shares. From , the shares will trade ex-rights and the bonus shares received will be included as part of shareholders positions as of VALUE ADDED The Value Added in the period totalled R$556.8 million, up 7.8% compared to the same period of the previous year. Of this amount, R$160.6 million, equivalent to 13.0% of Revenues obtained and 28.9% of Total Value Added was paid out in the form of federal, state and municipal taxes and contributions. Distribution of Value Added in 1Q14 Remuneration for Labour: 30.4% Remuneration to Government: 28.9% Remuneration for Financing: 11.7% Remuneration to Shareholders: 29.0% OPERATION Wood Division HIGLIGHTS 1º tri/14 4º tri/13 % 1º tri/13 % SHIPMENTS (IN m³) Standard ,6% ,4% Coated ,1% ,9% TOTAL ,8% ,3% FINANCIAL HIGHLIGHTS (R$1,000) Net revenue ,5% ,4% Domestic market ,1% ,6% Export market ,1% ,5% Net unit revenue (in R$ per m3 shipped) 921,79 939,91-1,9% 903,48 2,0% Unit cash cost (in R$ per m3 shipped) (538,92) (500,82) 7,6% (454,37) 18,6% Sales expenses (66.917) (64.580) 3,6% (53.813) 24,4% General and administrative expenses (16.490) (15.402) 7,1% (15.739) 4,8% Operating profit before financial results ,1% ,0% Depreciation, amortization and depletion( (1) ,5% ,9% Depletion tranche of biological assets ,1% ,4% Ebitda according to CVM No. 527/12( (2) ,0% ,6% 3

7 Ebitda margin according to CVM No. 527/12 46,3% 40,8% 47,5% Variation in fair value of biological assets (55.607) (40.863) 36,1% (43.240) 28,6% Employee benefits (765) (1.008) -24,1% (1.026) -25,4% Others (2.856) (192) 1387,5% ,1% Extraordinary event( (3) - 188,0% (45.514) (15.803) Recurring adjusted Ebitda ,2% ,0% Recurring adjusted 28,3% 34,6% - 36,9% - (1) Note that in 4Q13 this line is "inflated", by the reversion in the amortization of the premium paid for the control of Tablemac, by R$53,574 K. (2) This refers to EBITDA, in accordance with the methodology set out by CVM Instruction No. 527/12. Taking this result, and in order to provide a better picture of the Company's operational cash generation, two adjustments have been made: (1) the stripping-out of events of an accounting and non-cash nature from EBITDA and (2) the disregarding of non-recurring items of an extraordinary nature. In this way, in keeping with good practices, below we show the calculation of this indicator (EBITDA) which best reflects the Company's cash generation. (3) Extraordinary, non-recurring events, namely: 1Q14: referring to profit on real-estate resulting from the sale of 5,600 hectares of land given in part payment for the acquisition of the forests of Caxuana S.A.. 1Q13: (+) R$18,060 K referring to the reversion of the surplus in the defined benefit closed pension plan of Fundação Itaúsa and (-) R$2,257 K referring to other adjustments. As mentioned in the chapter entitled "Acquisition of the Control of Tablemac, from this quarter onwards the result of the Colombian subsidiary will be consolidated in Duratex's financial statements. Being a foreign subsidiary, and covered by CVM Deliberation 698 of 20/12/2012, CPC 36 R3, which in its items B92 and B93 deals with the consolidation of financial statements of different dates, the information from this subsidiary will be subject to a time-lag of 1 month compared to the usual manner reported in Brazil. As the transaction took place at the end of January, we are consolidating only two months of Tablemac's operation, January and February respectively, seeing that December was accounted for using the equity income result method. For the next quarter the three months from March to May will be consolidated into the financial statements, continuing in this way in subsequent quarters. In the consolidation above, Tablemac is contributing with: volume shipped in January and February: 33,927 m 3 ; Net Revenue: R$41.6 million; Gross Profit: R$14.7 million and Gross Margin of 35,4%; EBITDA of R$8.5 million, with EBITDA margin of 20.4% and Net Earnings of R$4.7 million. Volume shipped, by the Wood Division, in the first quarter of 2014 showed a year-on-year increase of 3.3% contributing to an increase in net revenue to R$584.0 million, or a 5.4% growth YoY. Compared to the immediately preceding quarter, revenue was down by 13.5% due to the drop in sales, as a result of the seasonal nature of the business, and the lower pricing base in the Wood Panel segment. According to figures for the sector, released by the Brazilian Panel Industry Association (ABIPA), domestic demand for wood panels increased by 2.1% when compared to the same period in 2013, while Duratex's sales dropped by 2.2%, if we were to disregard the sales from the Colombian operation. The combination of lower shipped volume and net revenue per unit, and the increase in the cost of resin, electricity and freight, due to increased exports, all caused a reduction in EBITDA in the Wood Division to R$165.4 million, equivalent to an EBITDA margin of 28.3%, or 28,9% disregarding the contribution from the Colombian operation. In 2013, important investments were concluded, which are now operational and should contribute to putting the Company in a better position in the market, vis-à-vis its competitors. At the beginning of September 2013 the first commercial MDF board was shipped from the new plant in Itapetininga/SP, which has an annual production capacity of 520 K m³. Additionally, investment was completed in the unit at Taquari/RS, to debottleneck an MDP production capacity, adding 230 K m 3 extra volume to this unit. Finally, at the end of the 4

8 quarter, the first sheet of High Gloss finishing was produced, which will expand the Division's sales portfolio, in addition to making a contribution to enriching sales mix. In the first quarter of 2014, Duratex participated in the Expo Transamérica trade fair - at the 12th edition of Revestir, one of the biggest shop windows for trends in the architecture and construction sectors, at which visitors can gain a first-hand knowledge of the Company's product launches. In addition to this, Duratex was a sponsor of the Movesul 2014 trade fair, held in the town of Bento Gonçalves/RS. This is one of the largest furniture trade fairs in Latin America, with almost 300 exhibitors displaying their diversity in the furniture business, in a segmented manner. The fair received 36,000 visitors, including Brazilian store owners and importers from around the world. Visitors were registered from 27 Brazilian states and more than 40 countries. Deca Division Due to the discontinuance of Deca Piazza's operations in Argentina, and the consequent application of CPC 31 (IFRS), the amounts below are shown net of the results from the Argentinian operation, which are consolidated under the heading Discontinued Operations. HIGHLIGHTS 1Q14 4Q13 % 1Q13 % PRODUCT SHIPPED (in 000 ITEMS) Basic products ,8% ,7% Finishing products ,3% ,1% TOTAL ,1% ,0% FINANCIAL HIGHLIGHTS (R$1.000) Net revenue ,8% ,2% Domestic market ,6% ,7% Export market ,8% ,2% Net unit revenue (in R$ per item shipped) 48,84 51,31-4,8% 47,42 3,0% Unit cash cost (in R$ per item shipped) (28,75) (29,93) -3,9% (26,43) 8,8% Sales expenses (51.559) (50.232) 2,6% (44.833) 15,0% General and administrative expenses (15.341) (16.892) -9,2% (14.940) 2,7% Operating profit before financial results ,7% ,6% Depreciation and amortization ,1% ,7% Discontinued operations ,0% (20.362) -100,0% EBITDA according to CVM 527/12 (1) ,7% ,2% EBITDA margin according to CVM 527/12 22,1% 23,1% 26,5% Employee benefits (1.675) (106) 1480,2% (1.623) 3,2% Discontinued operations 0 (5.739) -100,0% ,0% Extraordinary event (2) - - (24.258) -100,0% Recurring adjusted EBITDA ,1% ,7% Recurring adjusted EBITDA margin 21,6% 21,3% - 24,7% - (1) Includes discontinued operations (Deca Piazza, Argentina). (2) 2013: (+) R$24,258 K referring to the reversion of the surplus in Duratex s defined benefit closed employee pension plan. The Deca Division reported an excellent performance, with an 8% increase in volume shipped, compared to the same period in 2013, and up by 9.1% when compared to the immediately preceding quarter. This increased rhythm of business activity boosted Net Revenue to R$345.6 million, up by 11.2% on 1Q13, and an increase of 3.8% compared to the last quarter of Recurring adjusted EBITDA in the quarter totalled R$74.6 million, with EBITDA margin of 21.6%, an increase compared to the immediately preceding period, but below the figure reported in the same period a year earlier. 5

9 This performance is explained by the worsening in the product shipment mix, which margin and unit prices are lower, and due to the start up of the new plant, in Queimador (RS), that is operating below its capacity and, in addition to, higher marketing expenses and salary charges. As a way of reinforcing its market presence, the Deca and Hydra brands displayed stands at the 12th edition of Expo Revestir, held in São Paulo. This event saw a record number of over 51,000 visitors. In addition to this, Deca participated at the 12th International Architecture and Construction Forum, with the object of demonstrating the concept of Building Information Modelling (BIM) in the development of building projects. Additionally, the Hydra brand had a presence at the 20th Feicon Batimat an international construction trade fair, which included activities such as debates on market trends and seminars given by internationally renowned speakers. Among other aspects of note in the period was the winning of the Company Partnership Awards 2013 for best business partner, for which the evaluation criteria include punctuality and after-sales service, and Prêmio Melhores Even 2013, which awards a prize to the best business partner of the year. Finally, Deca was ranked first in the metal bathroom fittings category at the 2013 Trophies for Outstanding Supplier in the National Hotel Sector. These recognitions all contribute to providing further motivation for Deca to continue to produce excellent results and exceed the market's expectations. CAPITAL MARKET AND CORPORATE GOVERNANCE At the end of the first quarter of 2014, Duratex had a market capitalisation of R$6,962.4 million, taking the closing share price at the end of the period of R$ There were 246,100 trades in Duratex's shares in the period on the BM&FBovespa spot market, involving a total of 75.9 million shares, representing a total trading volume of R$1,022.5 million, which works out at an average daily volume of R$16.7 million. This level of liquidity once more ensured the continued presence of the Company's shares in the main Bovespa index, the Ibovespa, which consists of approximately 60 shares, the principal inclusion criteria for which are aspects of liquidity. Duratex s shares are listed on the Novo Mercado, a segment of BM&FBovespa which brings together companies with the highest level of corporate governance. The Company also has a differentiated dividend policy requiring it to distribute a minimum of 30% of adjusted net earnings, while also adhering to the Abrasca Self-Regulation and Good Practices Code for Listed Companies. It is important to point out that in 2013 Duratex was selected, for the second year running, to form part of the Dow Jones Sustainability Emerging Markets Index (DJSI), one of the most demanding listing indices which evaluates economic and socio-environmental performance of listed companies. The Company was classified in the industrial materials group, in the Paper & Forestry Products sector. In all, 81 companies were selected to be part of this portfolio, of these 17 being Brazilian. Additionally, the shares of Duratex continued to be part of the new version, 2013/2014, of the BM&FBovespa Corporate Sustainability Index (ISE), which remains in force from January 6, 2014 to January 2, The shares of Duratex have featured as part of this index since its 2008/2009 edition. The Company is one of 51 listed companies in the segment that evaluate the application of sustainability concepts in their business management. Shareholding Structure as at the end of March 2014 Itaúsa and Families: 40.0% Ligna and Family: 20.0% Pension Funds: 0.3% Foreign Investors: 26.2% Others: 13.1% Treasury: 0.4% 6

10 SOCIAL AND ENVIRONMENTAL RESPONSIBILITY At the end of the period, the Company had 12,356 employees, who received a total remuneration of R$99.2 million in the quarter. The increase in the number of employees, compared to 2013, is related to the consolidation of Tablemac s operations in Colombia, in addition to the hiring of new staff following the inauguration of the new production units. in R$ 000) 1Q14 4Q13 % 1Q13 % Employees (quantity) ,3% ,2% Remuneration ,2% ,1% Obligatory legal charges ,7% ,9% Differentiated benefits ,9% ,2% During the first quarter of 2014 the Company invested R$7.7 million in environmental initiatives, of particular note being the treatment of effluents, the collection of residues and the maintenance of forestry areas and the environment. This figure represents an increase of 7.4% compared to investment of this nature carried out in the same period in Duratex continues to invest in various social and cultural projects, with the objective of establishing a close relationship with the communities in the proximity of its industrial and forestry units. In the first quarter of 2014, in terms of social action in counterparty to its BNDES projects, initiatives were made with the municipal governments of João Pessoa, Queimados and Itapetininga for the introduction of Ler é Preciso (the need to read) community libraries, with the installation of bicycle racks and open-air gymnasiums in João Pessoa and São Leopoldo. INDEPENDENT AUDITORS The Company's policy for procuring non-external audit services from its independent auditors is based on internationally accepted principles that preserve the independence of the auditors, and consists of the following principles: (a) the auditor should not audit their own work, (b) the auditor should not carry out management functions within the client, and (c) the auditor must not promote the interests of the client. In accordance with CVM Instruction No. 381, dated January 14, 2003, and Circular Letter CVM/SNC/SEP No. 002/2006 of December 28, 2006, Duratex and its subsidiaries reported that in the period from January to March 2014 did not contract other services that are not related to external audit, of Ernst & Young Independent Auditors SS, responsible for external audit of the Company. ACKNOWLEDGEMENTS We are most grateful for all the support received from our shareholders, the dedication and commitment of our employees, the partnerships we have with our suppliers and the confidence placed in us by our clients and consumers.. The Management 7

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13 '% ())*+, -"# $%& %,%./, $% %($%&*0 12 )34)54)5*4 Periods ended March 31 (In thousands of reais) STATEMENT OF COMPREHENSIVE INCOME (A free translation of the original in Portuguese) PARENT COMPANY CONSOLIDATED 161, , , ,279 Other components of comprehensive income Participation in the comprehensive income (loss) of subsidiaries (15,018) (9,894) (15,018) (9,894) 146, , , ,385 Attributable to:!"# $%& 146, , , ,076 "..,/, - - (163) 20,309 The accompanying notes are an integral part of this interim financial information

14 Duratex S.A - Listed company STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY National Register of Corporate Taxpayers - (CNPJ) No / (In thousands of Reais) (A free translation of the original in Portuguese) BALANCES AS AT DECEMBER 31, ,550,246 (7,823) 314,984 83,332 1,665, ,423 (10,101) - 4,019,981 3,624 4,023,605 COMPREHENSIVE INCOME FOR THE YEAR Net Income for the year , , ,142 Participation in the comprehensive income of subsidiaries , ,947-3,947 TOTAL COMPREHENSIVE INCOME FOR THE YEAR , , , ,089 Share options granted , ,358-8,358 Acquisition of treasury shares (14,751) - (14,751) - (14,751) Sales of treasury shares , ,723-6,723 Capital increase Capital increase using revenue reserves 155, (155,025) Interest on capital complement (5,833) (5,833) - (5,833) Realization of revaluation reserve (8,339) , APPROPRIATION OF NET INCOME FOR THE YEAR Allocated to the legal reserve , (25,996) Interest on capital 1st half-year 22 d (95,184) (95,184) - (95,184) Interest on capital 2nd half-year 22 d (73,817) (73,817) - (73,817) Dividends 2nd half-year 22 d (4,340) (4,340) - (4,340) Proposed additional dividend 22 d , (49,330) Appropriation to tax incentives (Article Law no /76) , (8,958) Appropriation to reserves , (270,849) - (3,846) (3,846) BALANCES AS AT DECEMBER 31, ,705,272 (7,823) 323,342 74,993 1,860, ,370 (18,344) - 4,365,005-4,365,005 The accompanying notes are an integral part of this interim financial information

15 Duratex S.A - Listed company STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY National Register of Corporate Taxpayers - (CNPJ) No / (In thousands of Reais) (A free translation of the original in Portuguese) BALANCES AS AT DECEMBER 31, ,705,272 (7,823) 323,342 74,993 1,860, ,370 (18,344) - 4,365,005-4,365,005 COMPREHENSIVE INCOME FOR THE PERIOD Net Income for the period , ,396 (163) 161,233 Participation in the comprehensive income of subsidiaries (15,018) - - (15,018) - (15,018) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (15,018) - 161, ,378 (163) 146,215 Share options granted , ,932-1,932 Acquisition of treasury shares (9,555) - (9,555) - (9,555) Interest on capital complement (58,800) (58,800) - (58,800) Realization of revaluation reserve (1,360) , Consolidation of Tablemac S.A. after acquisition of the control ,857 64,857 APPROPRIATION OF NET INCOME FOR THE PERIOD Allocated to the legal reserve , (8,070) Appropriation to reserves , (154,686) BALANCES AS AT MARCH 31, ,705,272 (7,823) 325,274 73,633 1,964, ,352 (27,899) - 4,444,960 64,694 4,509,654 The accompanying notes are an integral part of this interim financial information

16 OPERATING ACTIVITIES: Duratex S.A. - Listed company National Register of Corporate Taxpayers - (CNPJ) No / STATEMENT OF CASH FLOWS (A free translation of the original in Portuguese) PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 138, , , ,797 ADJUSTMENTS: Depreciation, amortization and depletion 70,991 60, , ,315 Variations in the fair value of biological assets - - (55,607) (43,240) Interest, foreign exchange and monetary variations, net 37,043 29,908 50,458 46,774 Equity in the results of investees (86,893) (11,672) (666) (669) Provisions, disposal of assets (15,930) (625) (72,903) 10,527 (Increase)/Decrease in Assets Trade accounts receivable (32,868) 1,940 (10,933) 3,983 Inventory (61,226) (35,123) (56,001) (45,874) Other assets 18,086 (67,130) 6,070 (71,257) Increase (Decrease) in Liabilities Suppliers (6,111) (2,367) (7,919) (11,887) Personnel liabilities (20,226) (11,645) (23,112) (11,068) Accounts payable 13,702 (7,531) 2,997 11,458 Taxes and contributions 29,507 5,572 32,738 4,670 Other liabilities (5,318) 19,693 (7,276) (7,498) Cash provided by operations 79, , , ,031 Income tax and social contribution paid (1,831) (36,127) (28,285) (54,153) Interest paid (49,640) (27,996) (51,277) (29,188) CASH PROVIDED BY OPERATING ACTIVITIES 28, ,258 84, ,690 INVESTMENT ACTIVITIES: Investments in biological, fixed and intangible assets (42,252) (93,491) (123,646) (137,007) Acquisition of subsidiary - (56,402) (148,240) (33,855) Payment of subscribed capital in investees (153,093) (18) - - CASH USED IN INVESTMENT ACTIVITIES (195,345) (149,911) (271,886) (170,862) FINANCING ACTIVITIES: Financing 394, , , ,484 Debentures (6,760) (6,288) (6,759) (6,288) Amortization of financing (178,723) (165,297) (189,086) (166,626) Interest on capital/dividends (136,830) (96,338) (136,891) (96,339) Loans from subsidiaries (8,040) (5) - - Treasury shares and others (9,554) 1,443 (9,554) 1,443 NET CASH FLOW FROM FINANCING ACTIVITIES 54,617 (154,330) 64,364 (147,326) Exchange variations on cash and cash equivalents - - (491) (486) INCREASE (DECREASE) IN CASH FOR THE PERIOD (112,447) (198,983) (123,733) (174,984) OPENING BALANCE 511, , ,843 1,032,077 FINAL BALANCE 398, , , ,093

17 Duratex S.A. - Listed company National Register of Corporate Taxpayers - (CNPJ) No / STATEMENT OF VALUE ADDED $*7!)!38((" 7!"!-.%! '5'!"#$##!" # $% $% $% $% % & '( # # &!'( )*#+,* '( ('#!)# -##+./( (!** +!(!"! ) ##+ * 0 1#+ ( : +5; &!'", - 1 & #* -)"!$%.!/#!(0"! ' & ( 3 3 1!('(* 2##+ *(' '* + #

18 Note 1 Operations NOTES TO THE INTERIM FINANCIAL INFORMATION AS AT MARCH 31, 2014 a) General information (All amounts in thousands of Brazilian Reais, unless otherwise indicated) Duratex S.A. (the Company) is a publicly-traded corporation headquartered in the city of São Paulo - SP, Brazil. Its controlling shareholders are Itaúsa - Investimentos Itaú S.A., which has significant operations in the financial and industrial sectors, and Companhia Ligna de Investimentos, which operates principally in the retail market, the distribution of civil construction and woodworking materials, and in property construction and rental. The main activities of Duratex and its subsidiaries (collectively the Group) comprise the manufacture of wood panels (through its Wood Division), vitreous chinaware, sanitary ceramics, metal products and showers (the Deca Division). Duratex presently has 15 industrial plants in Brazil, 4 industrial plants in Colombia, and maintains branches in the main Brazilian cities. Duratex also has commercial subsidiaries in the United States and Europe. The Wood Division operates five industrial plants in Brazil, responsible for the production of hardboard, medium density particle (MDP) panels, medium, high and super density fiberboard (MDF, HDF and SDF) panels, Durafloor laminate flooring and components for the furniture industry, four industrial plants in Colombia responsible for the production of hardboard, medium density particle (MDP) panels, medium density fiberboard (MDF) and components for the furniture industry. The Deca Division operates ten industrial plants in Brazil, responsible for the production of sanitary ceramic and metal products under the trademarks Deca, Hydra, Belize, Elizabeth and Thermosystem. b) Approval of financial statements The Condensed Interim Financial Information of Duratex S.A. and subsidiaries (Parent company and Consolidated) was approved by the Board of Directors of Duratex S.A. on April 22, Note 2 Basis of preparation and significant accounting practices The Condensed Interim Financial Information has been prepared in accordance with pronouncement no Interim Financial Reporting, issued by the Brazilian Accounting Pronouncements Committee (CPC) as well as in accordance with International Accounting Standard (IAS) no Interim Financial Reporting, issued by the International Accounting Standards Board (IASB). The Condensed Interim Financial Information is being presented according to the applicable standards of the Brazilian Securities Commission (CVM). As described in CVM Circular Letter CVM/SNC/SEP 03/2011, the Company has opted to present the explanatory notes in this Condensed Interim Financial Information in a summarized manner when the information is the same as that presented in the annual financial statements. Thus this Condensed Interim Financial Information should be read together with the annual financial statements for the year ended December 31, The non-financial data included in these interim financial information, such as number of planted area and number of units, and others, have not been audited by the independent auditors. Duratex S.A. Notes to the Interim Financial Information as at March 31,

19 For better presentation and comparability some balances of the prior period have been reclassified Accounting policies The accounting policies adopted for the preparation of the Condensed Interim Financial Information are the same as those used to prepare the annual financial statements for The following accounting practice is particularly relevant to this Condensed Interim Financial Information: Consolidation of the condensed interim financial information The consolidated Condensed Interim Financial Information includes the companies: Duratex S.A. and its direct subsidiaries: Duratex Florestal Ltda., Estrela do Sul Participações Ltda., Duratex Empreendimentos Ltda., Duratex Comercial Exportadora S.A., Thermosystem Indústria Eletro Eletrônica Ltda., Bale Comércio de Produtos para Construção S.A., Mykonos Administração e Participações Ltda., and its indirect subsidiaries: Duratex North America Inc., Duratex Europe NV., Duratex Belgium NV., Tablemac S.A., Tablemac MDF S.A.S. and TCI Trading S.A New accounting standards, amendments and interpretations a) Effective for periods beginning after January 1, IAS 32 Offsetting financial assets and financial liabilities Amendments to IAS 32: These amendments clarify the meaning of currently has a legally enforceable right to offset the recognized amounts and also clarify the applicability of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The Company believes that these amendments are not expected to have any significant effect on the interim financial statements. IFRIC 21 Levies: Clarifies that an entity recognizes a liability for a levy when the activity that triggers payment occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognized before the specified minimum threshold is reached. The Company has not novated its derivatives during the application of these amendments. IAS 39 Novation of derivatives and continuation of hedge accounting Amendments to IAS 39: under the amendments there would be no need to discontinue hedge accounting if a hedging derivative was novated, provided certain criteria were met. The Company has not novated its derivatives during the application of these amendments. b) Were issued by the International Accounting Standards Board (IASB) but were not effective until the date of issue of this interim financial information and not early adopted by the Company. IFRS 9 Financial instruments: As issued, reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS. The announcement was initially applied to fiscal years beginning on or after January 1, 2013, but the amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued as at December 2011, has delayed its term to January 1, In subsequent phases, the IASB will discuss issues such as accounting hedges and provision for losses of financial assets. The adoption of the first phase of IFRS 9 will have an impact on the classification and measurement of the Company's assets, but will not impact on the classification and measurement of financial Duratex S.A. Notes to the Interim Financial Information as at March 31,

20 liabilities. The Company will quantify the effect together with the effects of the remaining phases of the IASB's project, once the final amendment has been issued. The Company intends to adopt such amendment when it enters into force disclosing and recognizing the impact on the interim financial information that may occur when the application of these adoptions. Considering the Company and its subsidiaries'current operations, the management does not expect that this amendment will have a material effect on the interim financial information after their adoption. There are no other standards and interpretations issued and not yet adopted that, in management's opinion, have a significant impact on the results or equity disclosed by the Company. Note 3 Critical accounting judgments and estimates During the preparation of the Condensed Interim Financial Information, accounting judgments, estimates and assumptions are utilized to record the amounts of certain assets, liabilities and other transactions. The estimates and accounting judgments adopted by management were based on the information available on the date when the financial information was prepared, based on experience of past events and forecasts of future events. The Condensed Interim Financial Information includes several estimates, including the useful lives of property, plant and equipment items, the realization of deferred tax credits, the allowance for doubtful accounts, inventory losses, the evaluation of the fair value of biological assets, and provision for contingencies and impairment losses. The following are the main estimates and assumptions that entail a substantial risk of requiring adjustments to the book values of assets and liabilities: a) Risk of variations in the fair value of biological assets The Company used several estimates to value its forestry reserves in accordance with the methodology established by CPC 29/IAS 41. These estimates were based on market references, and are subject to changes which could impact the Company's financial statements. Specifically, a 5% reduction in standing wood prices would result in a reduction in the fair value of biological assets by about R$ 39,392, net of tax effects. If the discount rate used were increased by 0.5%, this would result in a reduction in the fair value of biological assets of about R$ 8,062, net of tax effects. b) Estimated impairment of goodwill The Company and its subsidiaries test the goodwill on an annual basis or if there is an indication that the goodwill may be impaired. The balance could be impacted by changes in the economic or market scenario without, however, creating a significant effect on stockholders equity. c) Pension plan benefits The current value of assets related to pension plans depends on a number of factors that are determined using actuarial calculations. These calculations involve a series of assumptions, including the discount rate and current market conditions. Any changes in these assumptions will affect the corresponding book values. Note 4 Financial risk management Duratex S.A. Notes to the Interim Financial Information as at March 31,

21 4.1 Financial risk factors The Company and its subsidiaries are exposed to market risk in relation to fluctuations in interest, and also to exchange rates and credit risk. Consequently, risk management is based on the policies approved by the Board of Directors, and is monitored by the Audit and Risk Committee. The Company and its subsidiaries have procedures to manage these situations and can use hedging instruments to reduce the impact of the risks in this regard. These procedures include monitoring the level of exposure to each market risk, in addition to establishing decision-making levels. All hedging transactions entered into by the Group are intended to protect its debts and investments. The Group does not utilize leveraged financial derivatives. (a) Market risk (I) Exchange rate risk: Exchange rate risk arises from the risk that there will be a reduction in the value of the Group's assets or an increase in its liabilities due to changes in exchange rates. The Group has an exchange rate risk policy establishing the maximum amount in foreign currency to which it is exposed in relation to exchange rate variations. In line with the risk management procedures, the objective of which is to minimize the foreign exchange exposure of the Company and its subsidiaries, hedging mechanisms are maintained, in order to mitigate, in large part, the foreign exchange exposure. (II) Derivatives: In terms of derivative instruments, no verifications, monthly settlements or margin calls are made, and the contracts are settled upon maturity and recorded at fair value, considering the market conditions for terms and interest rates. The outstanding contracts as at March 31, 2014 were as follow: a - US$ vs. Interbank deposit certificate (CDI) swap agreements The Company had seven agreements of this nature, with an aggregate notional amount of US$ 256,395,000, and varying maturities up to June 18, 2018, being an asset (purchase) position in US Dollars and a liability (sale) position in CDI. The Company made these agreements in order to convert its debts denominated in US Dollars into debts indexed to the CDI. b - Fixed rate vs. Interbank deposit certificate (CDI) swap agreements The Company had five agreements with an aggregate amount of R$ 144,897, maturing through November 4, 2016, consisting of an asset position at a fixed rate and a liability position at a percentage of the CDI. The subsidiary Duratex Florestal Ltda., had two agreements with an aggregate amount of R$ 163,545, maturing on September 21, 2015, being an asset position at a fixed rate and a liability position at a percentage of the CDI. The Company made these agreements in order to convert its total fixed interest rate debts into CDI-indexed debts. c - Calculation of the fair value of positions Duratex S.A. Notes to the Interim Financial Information as at March 31,

22 The fair value of the financial instruments was calculated by utilizing the estimated present value of both liability and asset positions, where the difference between the two represents the market value of the swap. Statement of consolidated position of derivative financial instruments Reference Value (notional) Fair Value Accumulated Effect (current period) Amount Amount 03/31/ /31/ /31/ /31/2013 receivable/ payable/ received paid I. Swap contracts Asset position Foreign currency (USD) 556, , , ,864 24,856 - Fixed rate 300, , , ,283 - (572) Liability position CDI (856,937) (745,318) (893,379) 774, The gains or losses on the transactions listed above were offset against the liability and asset positions in interest rates and foreign currency, the effects of which were recognized in the financial statements. d - Sensitivity analysis The table below sets out a sensitivity analysis of the Company s financial instruments, including derivatives, and describes the risk scenarios which could generate material losses for the Group. The analysis involves a Probable Scenario (Base Scenario) plus two other scenarios (under the terms determined by CVM 475/08) representing a 25% and 50% deterioration in the risk variables. For the rates of risk variables used in the probable scenario, BM&FBOVESPA (São Paulo Stock, Futures and Commodities Exchange)/ Bloomberg quotations for the respective maturity dates were used. Sensitivity analysis table Amounts in thousands of R$ Risk Instrument/Operation Description Probable Possible Remote Scenario Scenario Scenario Interest rate risk SWAP - FIXED / CDI Increase CDI (8,020) (20,110) (32,361) Subject to hedge: fixed rate loans. 8,020 20,110 32,361 Net Effect Foreign exchange SWAP - US$ / CDI ( Res.2770 e Res ) Decrease US$ (17,276) (211,128) (404,980) Subject to hedge: foreign currency debt ( US$ ) ( increase US$ ) 17, , ,980 Net Effect Total (III) Cash flow or fair value risk associated with the interest rate Interest rate risk is the risk that an economic loss will be suffered due to adverse changes in interest rates. This risk is continually monitored in order to evaluate any possible need to contract derivative transactions to hedge against interest rate volatility. (a) Credit Risk The Group's sales policy is directly associated with the level of credit risk it is willing to accept in the course of its business. The measures adopted to minimize defaults or losses on accounts Duratex S.A. Notes to the Interim Financial Information as at March 31,