Votorantim Cimentos S.A. (Parent Company and Consolidated) Condensed interim financial statements at March 31, 2014 and report on review

Transcription

1 (A free translation of the original in Portuguese) Votorantim Cimentos S.A. (Parent Company and ) Condensed interim financial statements at March 31, 2014 and report on review (DC1) Uso Interno na PwC - Confidencial

2 (A free translation of the original in Portuguese) Report on review of interim condensed interim financial statements To the Board of Directors and Stockholders Votorantim Cimentos S.A. Introduction We have reviewed the accompanying financial statements of Votorantim Cimentos S.A. ("Company" or "Parent Company"), which comprise the balance sheet as and the statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended. We have also reviewed the accompanying consolidated financial statements of Votorantim Cimentos S.A. and its subsidiaries, which comprise the consolidated balance sheet as and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended. Management is responsible for the preparation and fair presentation of the condensed interim parent company financial statements in accordance with the accounting CPC 21 - "Interim Financial Reporting", of the Brazilian Accounting Pronouncements Committee (CPC), and of the condensed interim consolidated financial statements in accordance with CPC 21 and International Accounting Standard (IAS) 34 - "Interim Financial Reporting" issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these condensed interim financial statements based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (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 information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope 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 be identified in an audit. Accordingly, we do not express an audit opinion. 2 PricewaterhouseCoopers, Al. Dr. Carlos de Carvalho 417, 10 o, Curitiba, PR, Brasil , Caixa Postal 699 T: (41) , F: (41) , (DC1) Uso Interno na PwC - Confidencial

3 Conclusion on the condensed interim parent company financial statements Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim parent company financial statements referred to above have not been prepared, in all material respects, in accordance with accounting standard CPC 21 - "Interim Financial Reporting". Conclusion on the condensed interim consolidated financial statements Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements referred to above have not been prepared, in all material respects, in accordance with accounting standard CPC 21 - "Interim Financial Reporting" and International Accounting Standard (IAS) 34 - "Interim Financial Reporting" issued by the International Accounting Standards Board (IASB). Other matters - supplementary information Statements of value added We have reviewed the parent company and consolidated statements of value added for the quarter ended March 31, 2014, prepared under the responsibility of the Company's management and presented as supplementary information. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the interim financial statements taken as a whole. Curitiba, May 12, 2014 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Carlos Eduardo Guaraná Mendonça Contador CRC 1SP196994/O-2 3 (DC1) Uso Interno na PwC - Confidencial

4 Contents Interim parent company and consolidated financial statements Interim balance sheet...5 Interim statement of income...6 Interim statement of comprehensive income...7 Interim statement of changes in equity...8 Interim statement of cash flow Interim statement of value added General considerations Presentation of the interim parent company and consolidated financial statements Basis of preparation Consolidation Changes in accounting practices and disclosure Financial risk management Financial risks factors Liquidity risk Capital management Derivatives contracted Significant transactions and future commitments subject to cash flow and fair value hedges Hedge of net investment Sensitivity analysis Credit quality of financial assets Cash and cash equivalents Financial investments Trade accounts receivable Inventory Taxes recoverable Related parties Other assets Investments Property, plant and equipment Intangible assets Loans and financing Current and deferred income tax and social contribution Provisions Accounts payable - trading Other liabilities Use of public assets Stockholders' equity Revenues Other operating income (expenses), net Expenses by nature Employee benefit expenses Finance income (expenses), net Tax benefits Insurance coverage Non-current assets (or disposal groups) held for sale Financial information by operating segment Events after the balance sheet date... 63

5 Interim balance sheet All amounts in thousands of reais Ass ets Note 12/31/ /31/2013 Liabilities and stockholders ' equity Note 12/31/ /31/2013 Current assets Current liabilities Cash and cash equivalents 6 3,115 14, , ,588 Loans and financing , ,526 1,278, ,745 Financial investments 7 1,164,570 1,027,785 1,283,668 1,274,323 Derivative financial instruments 4.4 5, ,777 2,450 Derivative financial instruments 4.4 2,548 15,010 5,540 18,548 Trade payables 372, , , ,215 Trade accounts receivable 8 332, , ,961 1,047,747 Payables - Trading 19 93, ,445 93, ,445 Inventory 9 457, ,343 1,277,855 1,305,655 Salaries and payroll charges 90, , , ,606 Other taxes recoverable 10 69,038 86, , ,448 Income taxand social contribution payable 9,226 68,618 Current income tax and s ocial contribution receivable 10 18,182 95,826 36, ,686 Taxes payable 143,621 99, , ,783 Advances to suppliers 52,830 42,200 99,040 90,165 Dividends payable 11 1,880 1,880 45,083 45,664 Dividends receivable ,974 66,219 24,555 Advances from customers 6,614 6,990 86,037 69,957 Other assets 12 99, , , ,880 Use ofpublic assets 21 25,272 24,859 Other liabilities , , , ,919 2,200,743 2,273,768 4,625,749 4,971,595 1,502,271 1,416,274 2,978,688 2,701,261 Assets ofdisposal group classified as held for sale , ,981 Liabilities ofdisposal group classified as held for sale , ,305 2,200,743 2,273,768 5,374,409 5,759,576 1,502,271 1,416,274 3,350,309 3,091,566 Non-current ass ets Non-current liabilities Long-term receivables Loans and financing 16 11,079,840 11,326,447 12,050,108 12,779,596 Related parties 11 27,447 17,833 99, ,767 Derivative financial instruments 4.4 3,795 3,826 3,795 3,826 Judicial deposits 18 (c) 171, , , ,994 Related parties 11 2,136,455 2,860,017 83, ,623 Deferred taxes 17 (b) 477, ,157 1,023,189 1,012,915 Provisions , , , ,205 Other taxes recoverable , , , ,802 Deferred taxes 17 (b) 710, ,675 1,266,007 1,191,153 Other assets 12 62,372 61, , ,155 Payables with investees 13 25,878 26,407 Use of public ass ets , , , ,646 1,839,259 1,795,633 Pension liabilities 113, ,897 Other liabilities , , , ,162 Investments in ass ociates and joint ventures 13 12,415,288 13,283,863 1,373,462 1,491,090 Property, plant and equipment 14 5,007,352 4,945,756 10,311,713 10,384,454 14,729,720 15,594,953 15,226,579 15,945,987 Intangible assets , ,548 5,085,769 5,219,632 Total liabilities 16,231,991 17,011,227 18,576,888 19,037,553 18,177,015 18,995,167 16,770,944 17,095,176 Stockholders' equity 22 Capital 2,731,375 2,731,375 2,731,375 2,731,375 Revenue reserves 1,703,108 1,761,803 1,703,108 1,761,803 Retained earnings 137, ,814 Cumulative other comprehensive income 475, , , ,176 Total equityattributable to owners ofthe parent 5,047,623 5,160,354 5,047,623 5,160,354 Non-controlling interests 360, ,478 Total s tockholders' equity 5,047,623 5,160,354 5,407,724 5,612,832 Total assets 21,279,614 22,171,581 23,984,612 24,650,385 Total liabilities and stockholders ' equity 21,279,614 22,171,581 23,984,612 24,650,385 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 5 of 63

6 Interim statement of income Quarters ended March 31 All amounts in thousands of reais o Continuing operations Note Revenue 23 1,599,699 1,393,611 2,785,552 2,480,784 Cost of sales and services 25 (928,078) (837,272) (1,925,293) (1,759,620) Gross profit 671, , , ,164 Operating income (expenses) Selling 25 (164,230) (118,023) (238,443) (186,196) General and administrative 25 (106,654) (114,108) (182,913) (181,107) Other operating income (expenses), net 24 15,553 17,363 96,311 91,886 (255,331) (214,768) (325,045) (275,417) Operating profit before equity results and net financial result 416, , , ,747 Results of investees Equityin the results of associates and joint ventures 13 90,552 39,294 16, ,552 39,294 16, Net financial result Financial income 40, ,222 54, ,192 Financial expenses (302,295) (190,732) (336,149) (225,677) Exchange variations, net 5,301 3, (17,953) 27 (256,164) (81,153) (281,465) (113,438) Profit before taxation 250, , , ,698 Income tax and social contribution 17 (a) Current (12,283) (59,367) (52,237) Deferred (56,261) (93,169) 1,238 (72,931) Profit for the quarter from continuing operations 194, , , ,530 Discontinued operations Loss for the quarter from discontinued operations 30 (6,055) (11,353) Net income for the quarter 194, , , ,177 Net income attributable to the owners of the parent 194, , , ,260 Net income attributable to non-controlling interests 11,912 1,917 Net income for the quarter 194, , , ,177 Total number of shares - thousand (*) 5,422,032 5,421,132 5,422,032 5,421,132 Basic and diluted earnings per share - R$ (*) From continuing operations Basic and diluted earnings per share - R$ (*) From discontinued operations Basic and diluted loss per share - R$ (*) (0.001) (0.002) (*) Adjusted retrospectively from January 1, 2013 by the stock split approved on April 30 and May 27, Note 24 (a). The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 6 of 63

7 Interim statement of comprehensive income Quarters ended March 31 All amounts in thousands of reais Note Net income for the year 194, , , ,177 Other comprehensive income (loss) net of taxes, all of which can be reclassified to profit & loss Realization of other comprehensive income on disposals of 26,701 24,328 investments 22 (e) 5,495 18,143 Hedge of a net investment 22 (e) 135,369 83, ,369 83,526 Currency translation of investees located abroad 22 (e) (353,920) (175,043) (379,675) (171,086) Other comprehensive losses for the quarter (191,850) (67,189) (238,811) (69,417) Total comprehensive income for the quarter 2, ,071 (32,482) 126,760 Comprehensive income attributable to the owners of the parent: Continuing operations - (26,427) 138,113 Discontined operations 30 (a) (iii) - - (6,055) (11,353) (32,482) 126,760 Comprehensive income (loss) attributable to: Comprehensive income attributable to the owners of the parent 2, ,071 Comprehensive income attributable to non-controlling interests (35,049) (311) (32,482) 126,760 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 7 of 63

8 Interim statement of changes in equity Quarters ended March 31 All amounts in thousands of reais Attributable to owners of the parent Profit reserves Cumulative other Tax incentive Retained comprehensive Non-controlling Total stockholders' Note Capital reserve Legal Profit retention earnings income Total interests equity At January 1, ,746, , , , ,725 4,657, ,875 4,907,846 Totalcomprehensive income for the quarter Net income for the quarter 194, ,260 1, ,177 Other components ofcomprehensive income for the quarter to be subsequently reclassified to profit or loss 22 (e) (67,189) (67,189) (2,228) (69,417) Total comprehensive income for the quarter 194,260 (67,189) 127,071 (311) 126,760 Totalcontributions byand distributions to stockholders Reversal oflapsed unclaimed dividends 62,027 62,027 62,027 Tax incentive reserve 24 51,639 (51,639) Dividends (R$ per share (*)) (100,000) (100,000) (100,000) Total contributions byand distributions to stockholders 51,639 (89,612) (37,973) (37,973) At March 31, ,746, , , , , ,536 4,747, ,564 4,996,633 (*) Adjusted retrospectively from January 1, 2013 by the stock split approved on April 30 and May 27, Note 22 (a). The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 8 of 63

9 Interim statement of changes in equity Quarters ended March 31 All amounts in thousands of reais Attributable to owners of the parent Profit reserves Cumulative other Tax incentive Retained comprehensive Non-controlling Total stockholders' Note Capital reserve Legal Profit retention earnings income Total interests equity At January 1, ,731, , , , ,176 5,160, ,478 5,612,832 Total comprehensive income for the quarter Net income for the quarter 194, ,417 11, ,329 Other components ofcomprehensive income for the quarter to be subsequently reclassified to profit or loss 22 (e) (191,850) (191,850) (46,961) (238,811) Total comprehens ive incom e for the quarter 194,417 (191,850) 2,567 (35,049) (32,482) Total contributions by and distributions to stockholders Acquisition of non-controlling interest VCNNE 1 (72,524) (72,524) (100,102) (172,626) Reclass ification from non-controlling interests to revenue reserve 22 (c) (42,774) (42,774) 42,774 Taxincentive reserve 24 56,603 (56,603) Total contributions by and distributions to s tockholders 56,603 (115,298) (56,603) (115,298) (57,328) (172,626) At March 31, ,731, , , , , ,326 5,047, ,101 5,407,724 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 9 of 63

10 Interim statement of cash flow Quarters ended March 31 All amounts in thousands of reais Cash flow from operating activities Note Profit before income tax and social contribution 250, , , ,698 Loss from discontinued operations (6,055) (11,353) Adjustments to reconcile net income to cash from operations Depreciation, amortization and depletion 14 and 15 69,586 50, , ,368 Loss (gain) on sale of property, plant and equipament and intangible assets 24 1,443 (1,397) (4,132) (2,365) Equity in the results of associates and joint ventures 13 (90,552) (39,294) (16,764) (389) Allowance for doubtful accounts 8 (b) 5,471 2,010 10,712 7,352 Provision (reversal) for inventory losses 9 5,540 (17,069) 6,251 (20,920) Interest, indexation and exchange variations 244, , , ,913 Fair value adjustment of derivative instruments (8,924) (536) (8,924) (536) Provisions 24,194 7,025 33,333 45, , , , ,508 Changes in assets and liabilities Financial investments (110,577) 240,504 18, ,588 Trade accounts receivable (79,872) (72,648) 55,707 (37,196) Inventories 20,818 (15,206) 23,229 26,344 Taxes recoverable 27,071 (5,993) 43, Related parties (28,411) (22,263) 7,630 (6,942) Other assets (28,162) 38,828 (24,073) 41,116 Trade payables 9,355 (4,317) (97,816) (89,267) Taxes payable 134,840 27,385 58,429 35,725 Salaries and social charges (69,859) (32,253) (111,829) (49,938) Advances from customers (376) 6,716 16, ,184 Accounts payable and other liabilities (51,477) (131,090) (135,065) (129,324) Cash provided by operations 325, , , ,340 Interest paid 16 (107,445) (86,495) (117,679) (98,564) Income tax and social contribution paid (13,064) (297) (46,689) (8,615) Cash flow from operating activities 204, , , ,161 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 10 of 63

11 Interim statement of cash flow Quarters ended March 31 All amounts in thousands of reais Note Cash flow from investment activities Capital increase in investees (3,949) (4,962) Acquisition of equity investment in C+PA (17,200) Acquisition of equity investment in Cementos Artigas (50,795) Acquisition of equity investment in Cementos Avellaneda (121,909) Acquisition of investment in VCEAA (155,946) Acquisitions of property, plant and equipment (123,596) (253,808) (232,894) (331,067) Acquisitions of intangible assets 15 (17,889) (33) (18,572) Advances to the controlling shareholders (12,823) (99,606) Proceeds from disposals of property, plant and equipment 1,992 16,252 Proceeds from sales of non-current assets 13,717 25,950 Dividends received 3,868 4,640 12,490 Net cash used in investing activities (106,011) (286,477) (207,299) (766,353) Cash flow from financing activities New loans and financing 18,707 7,489 41,494 52,535 Derivative financial instruments (787) 430 Payments of loans and financing (79,835) (38,830) (120,817) (492,320) Related parties, net (49,274) 5,346 (71,211) 2,740 Acquisition of non-controlling interest 1 (172,626) Dividends paid (101,881) (418) (109,060) Net cash used in financing activities (110,059) (127,446) (324,365) (545,675) Exchange results on cash and cash equivalents of foreign subsidiaries (16,233) (34,177) Decrease in cash and cash equivalents (11,103) (117) (122,632) (626,867) Cash and cash equivalents at the beginning of the quarter 14,218 5, , ,254 Cash and cash equivalents at the end of the quarter 3,115 5, , ,210 Principal non-cash transaction Offsetting of dividends receivable from related parties (liabilities) 655,491 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 11 of 63

12 Interim statement of value added Quarters ended March 31 All amounts in thousands of reais Note Revenue Sales of products and services 2,127,290 1,845,351 3,495,557 3,106,821 Other operating income (expenses) 24 15,553 17,363 96,311 91,886 Allowance for doubtful accounts 8 (b) (5,471) (2,010) (10,712) (7,352) 2,137,372 1,860,704 3,581,156 3,191,355 Inputs acquired from third parties Raw materials and other production inputs (446,066) (475,689) (1,093,342) (1,000,777) Materials, energy, oustourced services and other (396,160) (328,974) (615,043) (558,742) (842,226) (804,663) (1,708,385) (1,559,519) Gross value added 1,295,146 1,056,041 1,872,771 1,631,836 Depreciation, amortization and depletion 14 and 15 (69,586) (50,790) (203,014) (173,368) Net value added generated by the Company 1,225,560 1,005,251 1,669,757 1,458,468 Value added received through transfer Equity in the results of investees 90,552 39,294 16, Financial income 27 46, ,579 54, , , ,873 71, ,581 Total value added to distribute 1,362,243 1,154,124 1,741,205 1,589,049 Distribution of value added Personnel and payroll charges 26 Direct remuneration 107,808 92, , ,377 Social charges 55,952 51,771 87,285 79,158 Benefits 33,525 28,742 58,404 54, , , , ,724 Taxes and contributions Federal 172, , , ,972 State 416, , , ,479 Municipal 6,564 7,039 7,379 7,839 Deferred taxes 56,261 93,169 (1,238) 72, , , , ,221 Third-party capital remuneration 27 Financial expense 302, , , ,630 Rentals 16,291 13,459 26,161 27, , , , ,927 Own capital remuneration Non-controlling interests 11,912 1,917 Dividends 100, ,000 Reinvested profits 194,417 94, , ,613 Losses on discontinued operations (6,055) (11,353) 194, , , ,177 Value added distributed 1,362,243 1,154,124 1,741,205 1,589,049 The accompanying notes are an integral part of these interim parent company and consolidated financial statements. 12 of 63

13 1 General considerations Votorantim Cimentos S.A. (the "Company" or "VCSA") and its subsidiaries are principally engaged in the production and sale of a wide portfolio of building materials, including cement, aggregates, ready-mix concrete, mortar, as well as well as raw materials and byproducts, similar and related products; rendering of concrete pouring services; research, mining and processing of mineral reserves in connection with its cement producing activities; transportation, distribution and importing; and holding investments in other companies. The Company is a corporation headquartered in the city and State of São Paulo. The Company and its subsidiaries operate in all regions of Brazil, in North and South America, Europe, Africa and Asia. The Company is directly controlled by Votorantim Industrial S.A. ("VID"), and its ultimate parent company is Votorantim Participações S.A. ("VPAR"). VPAR is a privately held company controlled by the Ermírio de Moraes family and is the holding company of Votorantim (Votorantim), headquartered in São Paulo, Brazil. Main changes in interests during the first three months of 2014 Purchase of non-controlling interest - Votorantim Cimentos N/NE S.A.( VCNNE ) On January 20, 2014, the Company's subsidiary VCNNE repurchased shares of its own share capital held by Banco Votorantim S.A. and its finance entities, to be kept in treasury. The number of shares acquired was 806,620, 663,591 of which were common shares and 143,029 were preferred shares. The unit cost per of the share was R$ reais, totaling R$ 172,626. Accordingly, its subsidiary Votorantim Cimentos S.A. starts to account for 100% of the equity in subsidiaries. The purchase price was determined by a valuation appraisal which was elaborated by an independent third party. 2 Presentation of the interim parent company and consolidated financial statements This consolidated interim financial information was approved for issue by Management on May 12, Basis of preparation The interim parent company and consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board ( IASB ) and Technical Pronouncement CPC 21 (R1) Interim Financial Reporting, issued by the Brazilian Accounting Pronouncements Committee ( CPC )and contain selected explanatory notes only, in order not to duplicate information already included in the parent company and consolidated financial statements at December 31, 2013, which were publicly disclosed on March 11, Therefore, the interim parent company and consolidated financial statements do not contain all of the explanatory notes and disclosures required by the accounting standards applicable to the annual financial statements. As a consequence, they should be read together with the parent company and consolidated financial statements at December 31, 2013 prepared in accordance with the accounting practices adopted in Brazil issued by CPC and the IFRS standards issued by IASB. The interim parent companyand consolidated financial statements have been prepared in a manner consistent with the information disclosed in Note 2 to the consolidated financial statements at December 31, of 63

14 2.2 Consolidation The main consolidated entities and joint operations are: % of ownership interest 12/31/2013 Place of business Votorantim Cimentos S.A. and subsidiaries Itacamba Cemento S.A Bolivia Interávia Transportes Ltda Brazil Silcar - Empreendimentos Comércio e Participações Ltda Brazil Pedreira Pedra Negra Ltda Brazil Acariuba Mineração e Participação Ltda Brazil Seacrown do Brasil, Com. Import. e Part. S.A Brazil Votorantim Cimentos N/NE S.A. (Nota 1) Brazil Votorantim Cimentos Chile Ltda Chile Votorantim Cements Internacional Spain SE Spain LuxCem International S.A Luxembourg Eromar S.A Uruguay Votorantim Cement North America inc.and subsidiaries St. Marys CementInc. (Canada) Canada Votorantim Cement North America inc Canada Votorantim Cimentos North America inc Canada St Marys VCNA, LLC Canada Rosedale Securities Ltd Canada VCNA Nova Scotia ULC Canada Hutton Transport Lim ited Canada VCNA US Inc Canada Ontario Limited Canada St. Barbara Cem ent, Inc USA St. Marys Cement, Inc. (US) USA Suwannee Holdings LLC USA VCNA Prestige Gunite, Inc USA Am erican Gunite Managem ent Co., Inc USA Sacramento Prestige Gunite, Inc USA VCNA Prestige Concrete Products, Inc USA VCNA US Materials, Inc USA VCNA Prairie inc USA Central ReadyMixConcrete, Inc USA VCNA Prairie Aggregate Holdings Illinois, Inc USA Votorantim Cimentos EAAInversiones S.L and subsidiaries Cimpor Macau Investment Company, S.A China Votorantim Europe S.L.U. (i) Spain Cementos Cosmos S.A Spain Sociedad de Cementos ymateriales de Construcción de Andalucia, S.A Spain Cementos Antequera S.A Spain Shree DigvijayCement Company Limited India Asment De Tem ara, S.A Morocco Societe Les Ciments de Jbel Oust - CJO Tunisia Votorantim Çimento Sanayi ve Ticaret A.Ş. (formerly Cimpor Çimento Sanayi ve Ticaret A.Ş.) Turkey Yibitas YozgatIsci Birligi Insaat Malzemeleri Ticaret ve Sanayi A.S Turkey Cementos Artigas S.A Uruguay Cimpor Canarias,S.L. (ii) Spain Joint operations Great Lakes Slag Inc Canada Bot-Duff Resources Inc Canada Voto - Votorantim Overseas Trading Operations IVLtda Cayman Island (i) This entity was merged into the Company in (ii) This entity was merged into Cementos Cosmos S.A. in September Changes in accounting practices and disclosure (a) Adoption of new standards, amendments and interpretations issued by the CPC The main changes in accounting practices applied to the preparation of the accounting information and financial statements, based on the new standards, amendments and interpretations to standards, applicable to the Company, effective from January 1, 2014, were as follow: 14 of 63

15 IFRIC 21 - Levies In May 2013 the IASB issued a new interpretation that addresses the recognition of obligations imposed by government agents, related to the recognition of a tax liability when this is derived from the requirement of IAS 37 Provisions, contingent liabilities and contingent assets. The adoption of the updates will be required from January 1, The Company analyzed possible impacts related to this update on its financial statements and concluded that there are no material impacts on its financial statements. (b) New standards and interpretations not yet adopted IFRS 9 (CPC 38) - Financial instruments: Recognition and measurement IFRS 9 (CPC 38) addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010 and replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made upon initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the statement of income, unless this creates an accounting mismatch. The Company is still analyzing the impact of the adoption of this standard on its financial statements. There are no other IFRSs or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Company. 4 Financial risk management 4.1 Financial risks factors The Company s activities expose it to a number of financial risks: (a) market risk (including currency risk and interest rate risk); (b) credit risk; and (c) liquidity risk. A significant portion of the products sold by the Company are denominated in Reais. The Company s costs and investments in assets, however, are denominated in foreign currency. The Company has loans linked to indices and denominated in foreign currencies, which may impact its cash flow. In order to mitigate the adverse effects of each market risk factor, the Company adopted the Parent Company's Market Risk Management Policy, which is also followed by its subsidiaries, for the purpose of establishing the governance and the macro-guidelines of the market risk management process, as well as the metrics for their measurement and monitoring. This policy is complemented by other policies that establish guidelines and rules for: (i) Foreign Exchange Exposure Management; (ii) Interest Rate Exposure Management; (iii) Commodity Price Exposure Management; (iv) Issuer and Counterparty Risk Management, and (v) Financial Indebtedness and Liquidity Management. 4.2 Liquidity risk This risk is managed by means of the Parent Company's Liquidity and Financial Indebtedness Management Policy, aimed at ensuring sufficient net funds to meet the Company's financial commitments with no additional cost. 15 of 63

16 One of the main liquidity measurement and monitoring instrument is the cash flow projection, using a minimum projection period of 12 months from the benchmark date. The liquidity and indebtedness management uses comparable metrics provided by global risk ratings agencies for credit risks of BBB stable or equivalent. The table below analyzes the Company's main financial liabilities by maturity, corresponding to the remaining period from the balance sheet date up to contractual maturity. The amounts represent undiscounted contractual cash flow. Less than 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years At March 31, 2014 Loans and financing 1,258,274 1,244,656 8,522,361 3,251,470 6,421,333 Trade payables 372,277 Dividends payable 1,880 Related parties 715,853 1,121,477 90, ,046 Payables - Trading 93,689 Derivatives 5, ,953 2,447,221 2,366,975 8,616,248 3,663,516 6,421,333 At December 31, 2013 Loans and financing 1,228,700 1,227,243 8,114,691 3,840,589 6,643,467 Trade payables 362,922 Dividends payable 1,880 Related parties 766,922 1,791,177 94, ,540 Payables - Trading 112,445 Derivatives ,217 2,473,051 3,019,029 8,212,040 4,267,129 6,643,467 Less than 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years At March 31, 2014 Loans and financing 1,917,633 1,468,088 9,086,141 3,662,894 6,426,005 Trade payables 837,399 Dividends payable 45,083 Related parties 33,553 32,919 17,361 Payables - Trading 93,689 Use of Public Assets 25,575 27,182 92, , ,113 Derivatives 6, ,953 2,959,709 1,529,031 9,181,120 3,875,585 7,323,118 At December 31, 2013 Loans and financing 1,467,034 1,871,679 8,730,106 4,268,549 6,648,077 Trade payables 925,215 Dividends payable 45,664 Related parties 83,553 55,774 12,296 Payables - Trading 112,445 Use of Public Assets 24,942 26,514 89, , ,936 Derivatives 2, ,217 2,661,303 1,954,576 8,823,088 4,471,374 7,547,013 As the amounts included in the table represent undiscounted contractual future cash flow, these amounts may not agree directly to the amounts in the balance sheet. 16 of 63

17 4.3 Capital management The Company s objectives when managing its capital are to safeguard the Company's ability to continue as a going concern in order to provide returns to its stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure of the Company, management can make, or may propose to the stockholders when their approval is required, adjustments to the amounts of dividends paid to stockholders, return capital to stockholders or, also, issue new shares or sell assets to reduce debt, for example. The Company monitors its capital on the basis of the gearing ratio, which corresponds to net debt divided by Adjusted EBITDA. Net debt is calculated as total borrowing (including current and non-current borrowing as shown in the consolidated balance sheet) less cash and cash equivalents and financial investments. Adjusted EBITDA is calculated based on the sum of operating profits, depreciation, amortization, depletion, dividends received, any other non-cash items included in operating profit, and items assessed by the Company's management as exceptional. Exceptional items are basically comprised of equity in the results of investees (gains/losses on acquisitions, disposals and impairment). The net debt/adjusted EBITDA ratios and December 31, 2013 are summarized as follows: Note 12/31/2013 Loans and financing 16 13,329,008 13,501,341 Cash and cash equivalents 6 (526,723) (665,588) Derivative financial ins truments 4.4 5,032 (12,272) Financial inves tments 7 (1,283,668) (1,274,323) Net debt - (A) 11,523,649 11,549,158 Adjusted EBITDA - (B) 3,627,958 3,516,695 Net debt / adjusted EBITDA - (A/B) /01/2013 to 0 01/01/2013 to 12/31/2013 Net income for the year1,398,987 1,388,835 Plus (less): Equity in the results of associates (144,283) (127,908) Financial income, net - continuing operations 953, ,796 Financial income, net - discontinued operations 36,764 24,994 Income tax and social contribution - continuing operations 518, ,908 Income tax and social contribution - discontinued operations 234 (1,134) Depreciation, amortization and depletion - continuing operations 802, ,093 Depreciation, amortization and depletion - discontinued operations 24,465 24,465 EBITDA before results of investees 3,591,598 3,454,049 Plus (less): Dividends received 53,854 61,704 Exceptional items: EBITDA - discontinued operations (17,904) 532 Gains on disposal of equity investments - FINOR (1,853) (1,853) Gains on disposal of equity investments - CPA (34,904) (34,904) Adjustment of non-recurring item: Impairment provision for goodwill - SPCIM 1,616 1,616 Impairment provision for advances do supliers 4,517 4,517 Impairment provision for invesments - Usina Pai Querê and Santa Izabel 26,356 26,356 Impairment provision for property, plant and equipment - VCNA 4,678 4,678 Adjusted EBITDA 3,627,958 3,516, of 63

18 4.4 Derivatives contracted The derivative instruments contracted by the Company are described below. All derivative transactions were carried out on the over-the-counter market. Hedging program for interest rates in US Dollars - derivative financial instruments contracted to adjust the Company s exposure to LIBOR (arising from loans in US Dollars indexed to LIBOR floating rates) to be in compliance with the parameters established by the policy. Mitigation of risks is carried out by means of swaps. Hedging program for exchange rate exposure hedging instruments contracted for the purpose of adjusting the exchange exposure to be in compliance with the parameters established in the policy. The mitigation of these risks is carried out through the purchase of US Dollar and Euro forward contracts. Instruments to hedge real-denominated debts - derivative financial instruments contracted to transform fixed rates of Real-denominated debts into CDI floating rates. Risk mitigation is carried out by means of swaps. Changes in fair value are recognized in the statement of income. The table below summarizes the derivative financial instruments and the underlying hedged items: Program Fair value Unit 12/31/ /31/2013 Realized gain (loss) Principal Fair value bymaturity Hedging instrument for foreign exchange exposure US Dollar forward USD MM (5,135) 5,261 (5,135) Euro forward EUR MM ,434 9,233 2,434 Hedging instrument for debts Fixed rate in Reais vs. CDI floating rate swaps BRL MM (3,794) (3,492) 343 (83.0) (759) (1,176) (988) (789) Total (assets and liabilities, net) (6,495) 11, (2,784) (759) (1,176) (988) (789) Fair value Program Unit 12/31/ /31/2013 Hedging intrument for interest rates in US Dollars LIBOR floating rate vs. US Dollar fixed rate swaps USD MM (1,529) (2,216) (757) (1,529) Hedging instrument for foreign exchange exposure US Dollar forward USD MM (5,135) 5,261 (5,135) Euro forward EUR MM ,434 9,233 (1,130) 2,434 Consolidadted Realized gain (loss) Principal Fair value by maturity Hedging instrument for debts Fixed rate in Reais vs. CDI floating rate swaps BRL MM (3,795) (3,493) 343 (83) (759) (1,176) (988) (789) Rupee vs. US Dollar swaps USD MM 5 5 2,993 3,487 (124) 2,995 Total (assets and liabilities, net) (5,032) 12,272 (1,668) (1,318) (759) (1,176) (988) (789) 18 of 63

19 4.5 Significant transactions and future commitments subject to cash flow and fair value hedges The table below shows a summary of the derivatives classified under these criteria: Realized gain (loss) Fair value by maturity Average Principal Rate/Price Average Fair value Program 12/31/2013 Unit FWD term (days) 12/31/2013 Hedging intrument for interest rates in US Dollars LIBOR floating rate vs. US Dollar fixed rate swaps USD MM (1,529) (2,216) (1) (1,529) Hedging instrument for debts Rupee vs. US Dollar swaps 5 5 USD MM ,995 3,487 2, Hedge of net investment From December 21, 2012, the Company designated its debt denominated in Euros, at an aggregate amount equal to EUR 750 million (R$ 2,338 million) (December 31, 2013: EUR 750 million - R$ 2,424 million) as a hedging instrument to hedge its net investment in VCEAA, which has the Euro as its functional currency. From January 1, 2013, the Company also designated as a hedge of the net investment its consolidated entity VCNA, including its US subsidiaries. From this date, the Company designated a portion of its debt denominated in US Dollars, at an aggregate amount equal to US$ 1,566 million (R$ 3,545 million) (December 231, US$ 1,554 million - R$ 3,641 million) as a hedge of the net investment in its equity investment in VCNA. VCNA, a Company domiciled in Canada, has the Canadian Dollar as its functional currency, which is strongly correlated with the US Dollar. The Company documents this correlation by assessing the effectiveness of this net investment hedge both prospectively as well as retrospectively on a quarterly basis. The foreign exchange gain on the translation of debt recognized as other comprehensive income was R$ 135,369 for the quarter ended March 2014, and R$ 83,526 for the quarter ended March Sensitivity analysis Presented below is a sensitivity analysis for the main risk factors that impact the pricing of the outstanding financial instruments of cash and cash equivalents, financial investments, loans and financing, and derivative financial instruments. The main sensitivities are the exposure to the fluctuations of the Dollar and Euro, the LIBOR and CDI interest rates. The scenarios for these factors are prepared using market sources and specialized sources, in compliance with the Company s policies. The scenarios are described below: Scenario I: considers a change in the market forward yield curves and quotations as, according to the base scenario defined by the Company for June 30, Scenario II: considers a change of + or -25% in the market forward yield curves as. Scenario III: considers a change of + or -50% in the market forward yield curves as. 19 of 63

20 Risk factor Asset Liability Principal Currency Changes from Scenario I Results of scenario I -25% -50% +25% +50% Scenario I Impacts on comprehensive income Scenarios II and III Results of scenario I -25% -50% +25% +50% Foreign exchange rate USD 3,621,075 85,000 USD 4.73% 9,076 (47,989) (95,978) 47,989 95,978 (154,202) 853,875 1,707,750 (853,875) (1,707,750) EUR 2,451,336 39,000 EUR 4.20% 409 (903) (1,805) 903 1,805 (97,050) 608,794 1,217,588 (608,794) (1,217,588) Interest rates BRL - CDI 1,164,570 4,952, ,000 BRL 23 bps (8,269) 101, ,164 (101,192) (201,912) USD - LIBOR 127, ,750 USD 16 bps (77) (124) (247) Risk factor Asset Liability Principal Currency Changes from Scenario I Impacts on P&L Scenarios II and III Impacts on P&L Scenarios II and III Results of scenario I -25% -50% +25% +50% Scenario I Impacts on comprehensive income Scenarios II and III Results of scenario I -25% -50% +25% +50% Foreign exchange rate USD 504,736 4,531, ,050 USD 4.73% (18,455) 104, ,919 (104,460) (208,919) (163,575) 905,756 1,811,513 (905,756) (1,811,513) EUR 38,370 2,451,801 39,000 EUR 4.20% 409 (902) (1,806) 902 1,806 (95,476) 598,924 1,197,849 (598,924) (1,197,849) Interest rates BRL - CDI 1,227,790 4,952, ,355 BRL 23 bps (8,123) 100, ,756 (99,489) (198,505) USD - LIBOR 974, ,750 USD 16 bps (583) 930 1,861 (930) (1,861) 177 (70) (140) With respect to changes in the foreign exchange rate, the impacts on comprehensive income are due to the effects of hedge accounting (Note 4.6). 20 of 63

21 5 Credit quality of financial assets Cash and cash equivalents, financial investments and derivative financial instruments The following table reflects the credit quality of issuers and counterparties for transactions involving cash and cash equivalents, financial investments and derivative financial instruments: Local Rating Global Rating 12/31/ /31/2013 Local Global Local Global Local Global Total Rating Rating Total Rating Rating Total Rating Rating Total Cash and cash equivalents AAA 9,261 9,261 19,175 19,175 AA ,641 63,648 AA ,025 2,226 A ,719 81, , ,057 A 39,738 39,738 65,698 65,698 A- 1,216 25,669 26,885 BBB ,067 57,072 BBB , , , , ,939 BB+ 4 2,172 2,176 2,248 2, ,005 10,009 2,248 2,248 BB 8,342 8,342 37,122 37,122 BB B+ 25,589 25,589 16,388 16,388 Without rating ,506 2, , ,912 2,894 28,236 31, ,172 3,115 11,970 2,248 14,218 11, , ,723 23, , ,588 Financial investments AAA 542, , , ,491 AA+ 436, , , ,778 AA- 15,864 15,864 15,864 15,864 A20,012 20,012 72,855 72,855 A- 26,217 26,217 BB BB- 15,284 15,284 15,284 15,284 BBB- 974, ,845 1,037,393 1,201 1,038,594 2,802 2,802 Without rating 174, ,257 32,435 32, ,257 9, ,329 32,435 32,435 1,164,570 1,164,570 1,027,785 1,027,785 1,227,166 56,502 1,283,668 1,198,666 75,657 1,274,323 Derivatives AAA 2,548 2,548 15,010 15,010 2,547 2,547 15,010 15,010 A- 2,993 2,993 3,487 3,487 BBB ,548 2,548 15,010 15,010 2,547 2,993 5,540 15,010 3,538 18,548 1,168,061 2,172 1,170,233 1,054,765 2,248 1,057,013 1,241, ,487 1,815,931 1,237, ,285 1,958,459 The local and global ratings were obtained from rating agencies Standard & Poor's, Moody's and Fitch. 21 of 63

22 6 Cash and cash equivalents 12/31/ /31/2013 Local currency Cash and banks ,970 11,731 23, ,970 11,731 23,498 Foreign currency Cash and banks 2,172 2, , ,293 Bank Deposit Certificate (CDB) 362, ,797 2,172 2, , ,090 3,115 14, , ,588 The average yield of the portfolio for the quarter ended March 31, 2014 was % of the CDI (100.78% of the CDI at December 31, 2013). 7 Financial investments 12/31/ /31/2013 Held for trading Local currency Treasury financial contracts 3, ,355 2,069 Investment fund quotas 1,145,600 1,011,483 1,206,127 1,180,339 Bank Deposit Certificates (CDB) 15,327 15,909 15,683 16,258 1,164,570 1,027,785 1,227,165 1,198,666 Foreign currency Financial investments 56,503 74,145 Investment fund quotas 1,512 56,503 75,657 1,164,570 1,027,785 1,283,668 1,274,323 The average yield of the portfolio for the quarter ended March 31, 2014 was % of the CDI (100.02% of the CDI at December 31, 2013). Investment fund shares are all invested in Votorantim exclusive funds. The exclusive funds are controlled by VID's corporate treasury, and the assets/agreements comprise basically bank deposit certificates, repurchase agreements and government securities. 8 Trade accounts receivable (a) Analysis Note 12/31/ /31/2013 Local customers 273, , , ,878 Foreign customers , ,585 Related parties 11 79,585 68,515 91,828 83,921 Allowance for doubtful accounts (20,968) (15,497) (73,365) (66,637) 332, , ,961 1,047, of 63

23 (b) Changes in the allowance for doubtful accounts are as follows: Balance at the beginning of the quarter (15,497) (10,960) (66,637) (29,545) Additions, net (5,471) (2,010) (10,712) (7,352) Trade accounts receivable written off during the quarter as uncollectible 2,351 2,772 Exchange variation 1, Balance at the end of the quarter (20,968) (12,970) (73,365) (33,901) During the last quarter of 2012, the Company transferred customer receivables to a financial institution, assuming up to 1% of the losses on the receivables transferred. Since the Company transferred the significant risks and rewards of the receivables, it has derecognized receivables with a carrying amount of R$ 975 (December 31, ,797) and recognized a liability under Other liabilities in the amount of R$ 9 (R$ 997 at December 31, 2013), representing the fair value of the guarantee granted with respect to the 1% of losses which is also the amount of the Company s maximum exposure related to continuing involvement in the receivables transferred. The decrease in balances is due to the non-realization of the assignment of receivables from January The Company has no obligation, right or option to repurchase the receivables and there are no other contractual obligations or rights that may result in any significant gain or loss. The additions to and the release of the allowance for doubtful accounts have been included in "Selling expenses". Amounts charged to the allowance for doubtful accounts are generally written off when there is no expectation of recovering additional cash. 23 of 63

24 9 Inventory (a) Analysis 12/31/ /31/2013 Finished products 44,024 40, , ,072 Semi finished products 186, , , ,384 Raw materials 121, , , ,593 Auxiliary materials and consumables 146, , , ,742 Imports in transit 26,278 33,558 76,488 83,703 Other 5,243 3,348 26,676 26,795 Provision for losses (71,827) (66,287) (132,205) (127,634) 457, ,343 1,277,855 1,305,655 The provision for losses refers mainly to obsolete materials in inventory. The Company had no inventories pledged as collateral for any of its liabilities. (b) Changes in the provision for inventory losses Finished products Semi finished products Raw materials Auxiliary materials Other Total Total Balance at the beginning of the quarter (12,190) (8,788) (9,529) (35,170) (610) (66,287) (94,309) Addition (2,154) (1,692) (2,549) (6,395) (3,588) Reversal ,657 Balance at the end of the quarter (14,344) (8,788) (11,221) (34,315) (3,159) (71,827) (77,240) Finished products Semi finished products Raw materials Auxiliary materials Other Total Total Balance at the beginning of the quarter (18,138) (11,246) (28,223) (62,743) (7,284) (127,634) (160,250) Addition (2,407) (263) (1,768) (461) (3,089) (7,987) (1,937) Reversal ,736 25,370 Foreign exchange variation ,680 1,471 Balance at the end of the quarter (20,407) (11,137) (28,927) (61,362) (10,373) (132,205) (135,346) 24 of 63