Report on review of parent company and consolidated condensed interim financial statements

Transcription

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2 (A free translation of the original in Portuguese) Report on review of parent company and consolidated condensed interim financial statements To the Board of Directors and Stockholders Votorantim Cimentos S.A. Introduction We have reviewed the accompanying condensed interim balance sheet of Votorantim Cimentos S.A. (the "Company"), as at June 30, 2018, and the related condensed interim statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended, as well the consolidated condensed interim balance sheet of Votorantim Cimentos S.A. and its subsidiaries (""), as at June 30, 2018, and related consolidated condensed interim statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation and presentation of the parent company and consolidated condensed interim financial statements in accordance with the accounting standard CPC 21 - "Interim Financial Reporting" and with 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 accounting information 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 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: +55 (41) ,

3 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated condensed interim financial statements referred above are not prepared, in all material respects, in accordance with CPC 21 - "Interim Financial Reporting" and with International Accounting Standard, IAS 34 - "Interim Financial Reporting", issued by the International Accounting Standards Board (IASB). Curitiba, August 1 st, 2018 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Carlos Eduardo Guaraná Mendonça Contador CRC 1SP196994/O-2 3

4 Contents and consolidated condensed interim financial statements Condensed interim balance sheet...5 Condensed interim statement of income... 6 Condensed interim statement of comprehensive income...8 Condensed interim statement of changes in equity Condensed interim statement of cash flow Notes to the parent company and consolidated condensed interim financial statements 1 General information Presentation of the parent company and consolidated condensed interim financial statements Basis of preparation Main changes to the companies included in the parent company and consolidated condensed interim financial statements Restatement of comparative figures Changes in accounting policies and disclosures Critical accounting estimates and judgments Financial risk management Foreign exchange risk Liquidity risk Derivative financial instruments Hedging of net investments in foreign entities Sensitivity analysis Credit quality of financial assets Cash and cash equivalents Financial investments Trade receivables Inventory Taxes recoverable Related parties Investments Property, plant and equipment Intangible assets Borrowing Confirming payables transactions Current and deferred income tax and social contribution Provisions Stockholders equity Revenue Expenses by nature Employee benefit expenses Other operating income (expenses), net Financial results, net Insurance Assets and liabilities classified as held for sale Supplemental information... 57

5 Condensed interim balance sheet In thousands of reais Assets Note 12/31/ /31/2017 Liabilities and stockholders' equity Note 12/31/ /31/2017 Current assets Current liabilities Cash and cash equivalents 7 333, ,971 1,424,639 2,721,669 Borrowing ,630 1,354, ,737 1,665,908 Financial investments 8 1,232,726 1,670,224 1,380,601 1,952,112 Derivative financial instruments ,787 63,841 12,385 64,607 Derivative financial instruments ,166 Confirming payables , , , ,646 Trade receivables 9 464, ,264 1,169, ,904 Trade payables 576, ,860 1,355,510 1,285,248 Inventory , ,560 1,538,742 1,357,695 Salaries and social charges 132, , , ,396 Income tax and social contribution recoverable 74,928 63, , ,653 Income tax and social contribution payable 10,487 43,019 Taxes recoverable 11 74, , , ,864 Taxes payable 123, , , ,227 Advances to suppliers 8,543 25,720 75,934 63,016 Advances from customers 10,167 6,665 31,885 30,886 Dividends receivable 12 30, ,098 Dividends payable ,715 1, ,273 Receivables from disposal of investments 82, ,863 Use of public assets 31,744 31,278 Other assets 26,657 41, , ,290 Other liabilities 229, , , ,997 2,610,923 2,901,108 6,034,047 7,523,330 1,492,933 2,849,584 3,665,246 4,836,485 Assets classified as held for sale 27 3,667 4,526 Liabilities related to assets held for sale 27 3,345 3,596 2,610,923 2,901,108 6,037,714 7,527,856 1,492,933 2,849,584 3,668,591 4,840,081 Non-current assets Non-current liabilities Long-term receivables Borrowing 16 9,014,849 8,568,332 13,091,858 11,967,499 Derivative financial instruments , ,884 Derivative financial instruments ,227 61,227 Income tax and social contribution recoverable 452, , , ,112 Deferred income tax and social contribuition , ,367 Taxes recoverable 11 84,413 93, , ,764 Related parties 12 1,146,234 1,015, , ,033 Deferred income tax and social contribuition , ,821 1,091, ,636 Provision , ,935 1,096,567 1,087,663 Related parties 12 75,027 85,170 67,111 64,320 Use of public assets 466, ,928 Judicial deposits , , , ,460 Pension liabilities 207, ,000 Receivables from disposal of investments 10,819 4, , ,247 Other liabilities 78,243 91, , ,200 Other assets 47,359 46, , ,841 11,032,575 10,430,993 15,899,160 14,635,690 2,104,487 1,692,907 3,195,340 2,567,380 Total liabilities 12,525,508 13,280,577 19,567,751 19,475,771 Investments in associates and joint ventures 13 10,770,681 11,593, , ,240 Property, plant and equipment 14 4,807,799 4,947,689 12,852,149 12,425,037 Stockholders' equity 20 Intangible assets , ,562 5,973,916 5,464,149 Capital 5,596,590 5,430,875 5,596,590 5,430,875 Retained earnings 2,708,067 2,681,567 2,708,067 2,681,567 18,367,907 18,906,637 22,750,373 21,151,806 Accumulated losses (358,338) (358,338) Other comprehensive income 507, , , ,726 Total equity attributable to owners of the parent 8,453,322 8,527,168 8,453,322 8,527,168 Non-controlling interests 767, ,723 Total stockholders' equity 8,453,322 8,527,168 9,220,336 9,203,891 Total assets 20,978,830 21,807,745 28,788,087 28,679,662 Total liabilities and stockholders' equity 20,978,830 21,807,745 28,788,087 28,679,662 The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 5 of 60

6 Condensed interim statement of income Six month periods ended June 30 Note Restated (Note 2.3) Restated (Note 2.3) Continuing operations Net revenue from goods sold and services rendered 21 2,121,679 1,950,061 5,737,979 4,992,119 Cost of goods sold and services rendered 22 (1,838,864) (1,685,800) (4,843,917) (4,219,678) Gross profit 282, , , ,441 Operating income (expenses) Selling 22 (178,589) (172,020) (318,420) (277,708) General and administrative 22 (203,215) (248,189) (377,448) (406,594) Other operating income, net 24 68, , , ,948 (313,404) (312,793) (556,423) (383,354) Operating profit (loss) before equity results and net financial results (30,589) (48,532) 337, ,087 Results of investees Equity in the results of associates and joint ventures , ,823 71,194 61,248 Realization of other comprehensive income of investees 3,457 3, , ,280 71,194 64,705 Financial results, net 25 Financial income 136, , , ,146 Financial expenses (491,978) (606,351) (632,700) (731,422) Derivative financial instruments 58,742 (53,023) 57,892 (53,306) Exchange variations, net (157,161) (30,092) (251,801) (72,665) (454,101) (372,393) (653,432) (413,247) Profit (loss) before income tax and social contribution (326,790) (180,645) (244,599) 40,545 Income tax and social contribution 18 Current (4,102) 500 (85,774) (73,401) Deferred 1,317 96,967 40,382 46,013 Profit (loss) for the period from continuing operations (329,575) (83,178) (289,991) 13,157 Discontinued operations Loss from discontinued operations 27 (896) (146,979) Loss for the semester (329,575) (83,178) (290,887) (133,822) Loss attributable to the owners of the parent (329,575) (83,178) (329,575) (83,178) Net profit (loss) attributable to non-controlling interests 38,687 (50,644) Loss for the semester (329,575) (83,178) (290,887) (133,822) Weighted average number of shares, thousands 7,510,951 6,223,358 7,510,951 6,223,358 Basic and diluted losses per thousand shares, reais (43.88) (13.37) (43.88) (13.37) From continuing operations Basic and diluted earnings (losses) per thousand shares, reais (43.88) (13.37) (43.76) From discontinued operations Basic and diluted losses per thousand shares, reais (0.12) (23.62) The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 6 of 60

7 Condensed interim statement of income Quarters ended June 30 4/1/2018 to 4/1/2017 to Restated (Note 2.3) 4/1/2018 to 4/1/2017 to Restated (Note 2.3) Continuing operations Net revenue from goods sold and services rendered 1,112, ,119 3,281,778 2,787,069 Cost of goods sold and services rendered (942,704) (859,385) (2,650,084) (2,289,934) Gross profit 169, , , ,135 Operating income (expenses) Selling (94,071) (91,707) (164,576) (150,985) General and administrative (113,458) (113,865) (201,076) (193,668) Other operating income, net 75, , , ,251 (132,291) (59,370) (256,737) (29,402) Operating profit before equity results and net financial results 37,091 71, , ,733 Results of investees Equity in the results of associates and joint ventures 208, ,252 44,780 37,937 Financial results, net Financial income 79, ,478 96, ,639 Financial expenses (289,277) (302,906) (369,891) (364,290) Derivative financial instruments 44,815 54,804 44,420 54,522 Exchange variations, net (142,330) (94,018) (180,576) (133,826) (307,758) (139,642) (409,451) (154,955) Profit (loss) before income tax and social contribution (61,681) 148,974 10, ,715 Income tax and social contribution Current (3,868) 500 (71,288) (58,022) Deferred 38,770 5,124 59,197 (57,338) Profit (loss) for the quarter from continuing operations (26,779) 154,598 (1,805) 235,355 Discontinued operations Loss from discontinued operations (388) (139,922) Net profit (loss) for the quarter (26,779) 154,598 (2,193) 95,433 Net profit (loss) attributable to the owners of the parent (26,779) 154,598 (26,779) 154,598 Net profit (loss) attributable to non-controlling interests 24,585 (59,165) Net profit (loss) for the quarter (26,779) 154,598 (2,193) 95,433 Weighted average number of shares, thousands 7,535,200 6,319,776 7,535,200 6,319,776 Basic and diluted earnings (losses) per thousand shares, reais (3.55) (3.55) From continuing operations Basic and diluted earnings (losses) per thousand shares, reais (3.55) (3.50) From discontinued operations Basic and diluted losses per thousand shares, reais (0.05) (22.14) The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 7 of 60

8 Condensed interim statement of comprehensive income Six month periods ended June 30 In thousands of reais Note Loss for the semester (329,575) (83,178) (290,887) (133,822) Other components of comprehensive income for the semester for subsequent reclassification to the statement of income Currency translation of investees abroad 20 (b) 753, , , ,012 Hedge accounting for net investments in foreign operations, net of income tax and social contribution 5.4 (654,240) (160,143) (654,240) (160,143) Realization of other comprehensive income of investees 20 (b) (30,469) (84,798) Interest in other comprehensive income of investees 20 (b) (6,664) 18,890 (6,664) 68,610 Other components of comprehensive income not for subsequent reclassification to the statement of income Remeasurement of retirement benefits 20 (b) Other comprehensive income for the semester 92, , , ,681 Total comprehensive income (loss) for the semester (237,298) 47,354 (121,704) 53,859 Comprehensive income (loss) from Continuing operations (237,298) 74,366 (120,808) 200,838 Discontined operations 27 (27,012) (896) (146,979) (237,298) 47,354 (121,704) 53,859 Comprehensive income (loss) attributable to Owners of the parent (237,298) 47,354 Non-controlling interests 115,593 6,505 (121,704) 53,859 The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 8 of 60

9 Condensed interim statement of comprehensive income Quarters ended June 30 In thousands of reais 4/1/2018 to 4/1/2017 to 4/1/2018 to 4/1/2017 to Net profit (loss) for the quarter (26,779) 154,598 (2,193) 95,433 Other components of comprehensive income for the quarter for subsequent reclassification to the statement of income Currency translation of investees abroad 693, , , ,656 Hedge accounting for net investments in foreign operations, net of income tax and social contribution (597,577) (270,362) (597,577) (270,362) Realization of other comprehensive income of investees (27,012) (81,341) Interest in other comprehensive income of investees (2,254) 4,184 (2,232) 45,989 Other components of comprehensive income not for subsequent reclassification to the statement of income Remeasurement of retirement benefits (30) Other comprehensive income for the quarter 93, , , ,942 Total comprehensive income for the quarter 66, , , ,375 Comprehensive income (loss) from Continuing operations 66, , , ,297 Discontined operations (27,012) (388) (139,922) 66, , , ,375 Comprehensive income attributable to Owners of the parent 66, ,050 Non-controlling interests 89,351 1, , ,375 The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 9 of 60

10 Condensed interim statement of changes in equity Six month periods ended June 30 In thousands of reais Attributable to owners of the parent Income reserves Profit Accumulated Other comprehensive Non-controlling Total stockholders' Note Capital Tax incentive Legal retention losses income Total interests equity At January 1, ,730,875 1,200, ,222 1,492, ,769 7,284, ,572 7,858,864 Comprehensive income Loss for the semester (83,178) (83,178) (50,644) (133,822) Other comprehensive income 20 (b) 130, ,532 57, ,681 (83,178) 130,532 47,354 6,505 53,859 Contributions by and distributions to stockholders Capital increase 700, , ,000 Allocation of loss for the semester Recognition of tax incentive reserve 24 40,149 (40,149) Capital reduction (7) (7) Reversal (payment) of dividends approved 79,313 79,313 (30,188) 49, ,000 40,149 79,313 (40,149) 779,313 (30,195) 749,118 At June 30, ,430,875 1,240, ,222 1,571,679 (123,327) 462,301 8,110, ,882 8,661,841 At January 1, ,430,875 1,159, , , ,726 8,527, ,723 9,203,891 Initial adoption of IFRS (2,344) (2,344) (2,344) At January 1, 2018, after impacts of IFRS 9 adoption 5,430,875 1,159, , , ,726 8,524, ,723 9,201,547 Comprehensive income for the semester Net income (loss) for the semester (329,575) (329,575) 38,687 (290,888) Other comprehensive income 20 (b) 92,277 92,277 76, ,183 (329,575) 92,277 (237,298) 115,593 (121,705) Contributions by and distributions to stockholders Capital increase 1 (g) 165, , ,715 Increase in non-controlling interest - VCEAA (81) Allocation of net income (loss) for the semester Recognition of tax incentive reserve 24 28,763 (28,763) Dividends approved (25,221) (25,221) 165,715 28, (28,763) 165,796 (25,302) 140,494 At June 30, ,596,590 1,188, , ,486 (358,338) 507,003 8,453, ,014 9,220,336 The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 10 of 60

11 Condensed interim statement of cash flow Six month periods ended June 30 In thousands of reais Cash flow from operating activities Note Profit (loss) before income tax and social contribution (326,790) (180,645) (244,599) 40,545 Loss from discontinued operations (896) (146,979) Adjustments of items that do not represent changes in cash and cash equivalents Depreciation, amortization and depletion , , , ,714 Equity in the results of associates and joint ventures 13 (b) (157,900) (236,823) (71,194) (61,248) Realization of other comprehensive income of investees (30,469) (84,798) Impairment provision (reversal) of property, plant and equipment, net 14 (174) (7,615) 16,970 Impairment provision (reversal) of intangible assets, net (8,490) (836) (12,041) Impairment of goodwill 82,941 82,941 Net loss (gain) on disposal of property, plant and equipment and intangible assets 2,791 8,202 (16,280) 35,543 Loss (gain) on sales of investments (196) (905) Allowance for doubtful accounts, net of reversals 13,804 7,492 16,097 11,004 Constitution (reversal) of provision for civil, labor, tax and environmental lawsuits and ARO (17,204) (135,948) (238) (196,959) Net finance result 144, , , ,871 Other non-cash items (2,440) (39,052) 6,301 30,133 (152,246) (56,473) 782, ,791 Decrease (increase) in assets Trade receivables (122,548) (78,347) (312,897) (98,443) Inventory (17,995) 47,441 (181,047) 2,308 Taxes recoverable 60,092 66,360 57,434 98,100 Related parties 298,769 66,777 (7,894) 9,211 Judicial deposits 21,332 (21,000) 13,810 (31,245) Other receivables and other assets 31,355 22,511 (160,828) 23,804 Increase (decrease) in liabilities Trade payables (9,884) 34,218 70,262 (103,136) Salaries and social charges (36,175) (24,329) (40,304) (84,658) Advances from customers 3, ,316 Taxes payable (23,164) 13,088 (46,830) 2,319 Payments of tax, civil and labor lawsuits (2,993) (6,184) (7,460) (12,886) Other accounts payable and other liabilities (9,151) (176,276) 79,699 (259,376) Cash from operating activities 40,894 (111,845) 247, ,105 Interest paid (326,040) (407,331) (451,816) (506,240) Income tax and social contribution paid (111,613) (87,128) Net cash provided by (used in) operating activities (285,146) (519,176) (315,804) (265,263) Cash flow from investing activities Financial investments 504, , ,903 Proceeds from disposals of property, plant and equipment and intangible assets 7,363 6,922 65,662 40,147 Proceeds from disposals of investments 43,387 28,586 Dividends received 1,530,290 18,000 12,855 34,257 Acquisitions of property, plant and equipment 14 (73,210) (79,306) (397,496) (539,576) Acquisitions of intangible assets 15 (50) (274) (5,775) (2,478) Receivables from disposal of investments (6,111) (23,545) Cash effect of capital reductions (increases) in investees 226, ,088 (904) Net cash provided by (used in) investing activities 2,189, , ,374 (218,161) Cash flow from financing activities New borrowing 16 (c) 325, ,063 1,044, ,720 Payments of borrowing 16 (c) (1,924,661) (418,290) (2,359,529) (514,816) Derivative financial instruments 5.3 (c) (43,970) (118,657) (43,887) (118,657) Capital increase 700, ,000 Increase in non-controlling interest 81 Dividends paid (16,074) Dividends paid to non-controlling stockholders (25,116) Related parties (130,336) 348,137 12, Net cash provided by (used in) financing activities (1,773,667) 1,011,253 (1,372,229) 607,290 Increase (decrease) in cash and cash equivalents 130, ,794 (1,344,659) 123,866 Effect of exchange rate changes 47,629 21,523 Cash and cash equivalents at the beginning of the period 202, ,620 2,721,669 2,312,499 Cash and cash equivalents at the end of the period 333,477 1,590,414 1,424,639 2,457,888 Main non-cash transactions Distribution of VCEAA's share premium 613,491 Settlement of bond with VCEAA's share premium 16 (c) (613,491) Securitization of receivables from VCEAA 62,507 Capital increase with dividends payable to VSA 1 (g) 165, ,715 Payment of dividends to VSA with capital increase 1 (g) (165,715) (165,715) The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 11 of 60

12 Condensed interim statement of cash flow Quarters ended June 30 In thousands of reais Cash flow from operating activities Note 4/1/2018 to 30/6/2018 4/1/2017 to 4/1/2018 to 4/1/2017 to Profit (loss) before income tax and social contribution (61.681) Loss from discontinued operations (388) ( ) Adjustments of items that do not represent changes in cash and cash equivalents Depreciation, amortization and depletion Equity in the results of associates and joint ventures ( ) ( ) (44.780) (37.937) Realization of other comprehensive income of investees (27.012) (81.341) Impairment provision (reversal) of property, plant and equipment, net (174) (3.227) Impairment provision (reversal) of intangible assets, net 50 (8.467) (416) (9.025) Impairment of goodwill Net loss (gain) on disposal of property, plant and equipment and intangible assets (18) (13.427) Loss (gain) on sales of investments (905) Allowance for doubtful accounts, net of reversals Constitution (reversal) of provision for civil, labor, tax and environmental lawsuits and ARO (22.678) ( ) (16.425) ( ) Net finance result Other non-cash items (2.440) (410) (9.939) (27.054) ( ) (76.516) Decrease (increase) in assets Trade receivables (78.426) (8.002) ( ) (35.750) Inventory (66.711) Taxes recoverable Related parties (8.748) Judicial deposits (7.301) (11.713) Other receivables and other assets (40.859) (48.556) Increase (decrease) in liabilities Trade payables Salaries and social charges Advances from customers (520) Taxes payable (8.782) (33.267) Payments of tax, civil and labor lawsuits (628) (2.734) (3.418) (7.527) Other accounts payable and other liabilities (18.660) (48.124) ( ) Cash from operating activities (25.248) Interest paid ( ) ( ) ( ) ( ) Income tax and social contribution paid (66.251) (42.126) Net cash provided by (used in) operating activities (16.083) ( ) Cash flow from investing activities Financial investments (85.954) Proceeds from disposals of property, plant and equipment and intangible assets Proceeds from disposals of investments Dividends received Acquisitions of property, plant and equipment (46.717) (49.935) ( ) ( ) Acquisitions of intangible assets (49) (14) (256) (2.478) Receivables from disposal of investments (6.111) (23.545) (2.359) Cash effect of capital reductions (increases) in investees ( ) (9.019) Net cash provided by (used in) investing activities (1.818) ( ) ( ) Cash flow from financing activities New borrowing Payments of borrowing ( ) (79.015) ( ) (99.481) Derivative financial instruments (2.920) (54.374) (2.784) (54.374) Capital increase Increase in non-controlling interest 81 Dividends paid (16.074) Dividends paid to non-controlling stockholders (25.116) Related parties ( ) (185) Net cash provided by (used in) financing activities ( ) ( ) Increase (decrease) in cash and cash equivalents ( ) ( ) Decrease in cash resulting from the relassification of assets held for sale Effect of exchange rate changes Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Main non-cash transactions Securitization of receivables from VCEAA (1.228) Capital increase with dividends payable to VSA 1 (g) Payment of dividends to VSA with capital increase 1 (g) ( ) ( ) The accompanying notes are an integral part of these parent company and consolidated condensed interim financial statements. 12 of 60

13 1 General information Votorantim Cimentos S.A. (the "Company" or "VCSA") and its subsidiaries are principally engaged in the following activities: the production and sale of a wide portfolio of heavy building materials, including cement, aggregates, ready-mix concrete, mortar and other building materials, as well as raw materials and byproducts, similar and related products; research, mining and processing of mineral reserves in connection with its cement producing activities; transportation, distribution and importing, co-processing of alternative fuels for energy generation; and holding investments in other companies. The Company is a corporation headquartered in the City and State of São Paulo, Brazil. The Company and its subsidiaries operate in all regions of Brazil, as well as in North America and South America, Europe, Asia and Africa. The Company is directly controlled by Votorantim S.A. ("VSA"), a privately held company headquartered in the city and State of São Paulo, Brazil, which is the holding company of the Votorantim companies and is fully controlled by the Ermírio de Moraes family. Main events which occurred in the first half of 2018 (a) Distribution of share premium of the subsidiary Votorantim Cimentos EAA Inversiones S.L. ( VCEAA ) In January 2018, the Company s Management approved a reduction in the capital of VCEAA in the amount of USD 84,797 thousand (R$ 275,886). On the same date, VCEAA s Management approved the distribution of extraordinary dividends to the Company in the amount of USD 356,628 thousand (R$ 1,160,290). The Company used these amounts for the early settlement of debts, as mentioned in Note 16 (g.2). (b) Capital reduction in the subsidiary Votorantim Cimentos Chile S.A. ( VCC ) In January 2018, the Company s Management approved a reduction in the capital of VCC in the amount of CLP 13,000 million (R$ 70,779), reducing VCC s capital from CLP 21,535 million to CLP 8,535 million, as detailed in Note 13 (b). (c) Incorporation of the company Juntos Somos Mais Fidelização Ltda. ( Juntos Somos + ) On October 19, 2017, Juntos Somos + was incorporated, engaged in: (i) the development and management of a loyalty program in the construction retail market in Brazil; (ii) the sale of rights to redeem gifts; and (iii) the creation and development of related technologies, among other activities. The shareholders which created the company were Votorantim Cimentos S.A., with a % interest, and Votorantim Cimentos N/NE S.A., with a 0.001% interest. Effective from April 10, 2018, the Company signed a shareholders agreement for the admission of two new shareholders of Juntos Somos +, and this agreement is currently being reviewed by CADE. If the merger is approved by CADE, the equity interests will be held by Votorantim Cimentos S.A. with 45% and Gerdau S.A. and Grupo Tigre with 27.5%,. (d) Liability management Since the beginning of the year, the Company has carried out its liability management strategy through borrowing, repayments and amendments, in order to extend its indebtedness profile and reduce the average cost of debt. In the six month period ended June 30, the Company issued new debentures and loans under Resolution 4131 amounting to R$ 775,300 (Note 16 (g.1)), repaid R$ 2,359,529 of borrowing, of which R$ 1,872,000 in advance (Note 16 (g.2)), together with amendments to debts amounting to R$ 1,893,750 (Note 16 (g.3)). 13 of 60

14 (e) Capital increase in the subsidiary Votorantim Cimentos N/NE S.A. ( VCNNE ) At the Extraordinary General Meeting held on April 16, 2018, Management approved the increase in the capital of the subsidiary VCNNE by R$ 120,000, through the issue of 1,622 common shares, increasing its capital to R$ 859,559, as detailed in Note 13 (b). The book value of the shares subscribed and paidup through this increase, computed as at December 31, 2017, was R$ per share. (f) Acquisition of equity interests On May 24, 2018, the subsidiary VCNNE signed a share purchase and sale agreement with Cemex, through which the investee acquired the total equity interest in Cimento Vencemos Do Amazonas Ltda, for the amount of USD 30 million. The transaction relates to a warehouse for receipt, storage and sale of cement. The agreement was submitted to the approval of CADE, and a positive position was received on June 13, Now, the Company is awaiting for the approval of the transaction by the National Agency of Hydro Transportation ( ANTAQ ), which will be received soon. This transaction is part of our expansion strategy into new markets and allows us to expand our logistics network in regions such as the Amazon. (g) Capital increase in the Company On June 1, 2018, the shareholders approved an increase in the capital of the Company by R$ 165,715, through the conversion of mandatory dividends related to the year 2015, through the subscription and payment of 145,495,121 common shares by the shareholder VSA. 2 Presentation of the parent company and consolidated condensed interim financial statements 2.1 Basis of preparation (a) and consolidated condensed interim financial statements The financial statements have been prepared and are being presented in accordance with Technical Pronouncement CPC 21 - (R1) Interim Financial Reporting, and with the international accounting standard IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board ( IASB ) and show all information relevant to the interim financial statements, which is consistent with that used by Management. The parent company and consolidated condensed interim financial statements as at June 30, 2018 do not contain all the accompanying notes and disclosures required by the accounting standards applicable to the annual financial statements, since their purpose is to provide an update on significant activities, events and circumstances compared to the annual financial statements. Therefore, they should be read together with the financial statements for the year ended December 31, 2017, approved on February 27, 2018 and publicly disclosed on April 5, 2018 in the Diário Oficial of the State of São Paulo. The parent company and consolidated condensed interim financial statements have been prepared in a manner consistent with the accounting policies disclosed in the consolidated financial statements at December 31, (b) Approval of the parent company and consolidated condensed interim financial statements The issue of these condensed interim financial statements was authorized by the Company s Board of Directors on August 1, of 60

15 2.2 Main changes to the companies included in the parent company and consolidated condensed interim financial statements For the six month period ended June 30, 2018, the main change in equity interests in subsidiaries and joint operations included in the consolidation, compared to the information disclosed in Note 2.2 (g) to the last annual financial statements, was the sale of the equity interest in the following company, in March 2018: Percentage of total and voting capital 12/31/2017 Place of operation Main activity Votorantim Cimentos S.A. and subsidiaries Minerações e Construções Ltda Brazil Aggregates 15 of 60

16 2.3 Restatement of comparative figures In accordance with IFRS 5 / CPC 31 Non-current Assets Held for Sale and Discontinued Operations, the Company reclassified the operations in China, and in the states of Florida and California (USA) which were sold during 2017, from continuing operations to discontinued operations. Also, as a result of the application of IFRS 15 / CPC 47 Revenue from Contracts with Customers, there were changes in accounting policies, which resulted in reclassifications to and from the Company s profit or loss at June 30, 2017, as mentioned in Note Accordingly, the consolidated balances of the statement of income have changed relative to the amounts previously presented in the financial statements as at June 30, 2017, issued on August 7, These changes are necessary appropriately to reflect the balances of operations. Original balance Operations in the States of Florida and California China operations Effect of adoption of IFRS 15 / CPC 47 (i) Continuing operations Net revenue from goods sold and services rendered 5,392,398 (313,375) (86,904) 4,992,119 Cost of goods sold and services rendered (4,326,922) 281,388 67,042 (241,186) (4,219,678) Gross profit (loss) 1,065,476 (31,987) (19,862) (241,186) 772,441 Operating income (expenses) Selling (527,347) 7, ,186 (277,708) General and administrative (417,469) 4,807 6,068 (406,594) Other operating income (expenses), net 200,341 (33) 100, ,948 (744,475) 12, , ,186 (383,354) Operating profit before equity results and net financial results 321,001 (19,651) 87, ,087 Restated Results of investees Equity in the results of associates and joint ventures 72,500 (11,252) 61,248 Realization of other comprehensive income on disposal of investments 3,457 3,457 75,957 (11,252) 64,705 Financial results, net Financial income 444,815 (202) (467) 444,146 Financial expenses (736,071) 4, (731,422) Derivative financial instruments (53,306) (53,306) Exchange variations, net (119,089) 46,424 (72,665) (463,651) 4,142 46,262 (413,247) Profit (loss) before taxes (66,693) (26,761) 133,999 40,545 Income tax and social contribution Current (73,470) (10) 79 (73,401) Deferred 41,781 2,633 1,599 46,013 Profit (loss) for the period from continuing operations (98,382) (24,138) 135,677 13,157 Discontinued operations Profit (loss) from discontinued operations (35,440) 24,138 (135,677) (146,979) Loss for the semester (133,822) (133,822) Loss attributable to the owners of the parent (83,178) (83,178) Loss attributable to non-controlling interests (50,644) (50,644) Loss for the semester (133,822) (133,822) Weighted average number of shares, thousands 6,223,358 6,223,358 6,223,358 6,223,358 6,223,358 Basic and diluted loss per thousand shares, reais (13.37) (13.37) From continuing operations Basic and diluted earnings (loss) per thousand shares, reais (7.68) (3.88) From discontinued operations Basic and diluted earnings (loss) per thousand shares, reais (5.69) 3.88 (21.80) (23.62) (i) The effect of this adoption on the parent company's comparative balance was R$ 180, of 60

17 3 Changes in accounting policies and disclosures In the six month period ended June 30, 2018, there were no new standards, amendments to and interpretations of standards other than those mentioned in the last annual financial statements. 3.1 Adoption of standards IFRS 9/CPC 48 Financial instruments (i) Classification and measurement The changes in accounting policies arising from the adoption of IFRS 9/CPC 48 were applied from January 1, 2018 and did not generate effects on the measurement of the Company s financial assets and liabilities. (ii) Impairment The Company and its subsidiaries adopted the new standard from January 1, 2018 and applied the simplified approach to recognizing the expected credit losses on trade receivables. The method adopted to calculate the provision for impairment is based on a risk matrix, which was recognized based on the history of losses for all aging lists and prospective data, including the receivables not yet due. The initial impact of the adoption was R$ 2,344 in the parent company and R$ 4,603 in the consolidated from January 1, 2018, recognized in equity. (iii) Hedge accounting The Company analyzed the economic relationship of its current net investment hedge operations and concluded that they still qualified for hedge accounting following the adoption of IFRS 9/CPC 48. As the standard does not change the general accounting principles for effective hedges, there was no significant impact resulting from the adoption of IFRS 9/CPC IFRS 15/CPC 47 Revenue from contracts with customers The Company and its subsidiaries adopted the new standard from January 1, 2018, resulting in changes to the accounting policies regarding the performance obligations related to the delivery of products to customers and, accordingly, changes to the comparative figures. In accordance with the new standard, the Company made retrospective adjustments to the balances originally presented as at June 30, 2017, as mentioned in Note 2.3 Restatement of comparative figures. As at June 30, 2018, the amount reclassified was R$ 309, IFRS 16/CPC 06 Leases The Company and its subsidiaries will apply IFRS 16/CPC 06 on January 1, 2019 and expect to disclose the quantitative effect of the adoption and its approach on the transition date. 4 Critical accounting estimates and judgments In the first six month period ended June 30, 2018, there have been no changes to estimates and assumptions entailing a significant risk, with a probability of causing material adjustments to the carrying amounts of assets and liabilities for the current fiscal year, compared to those detailed in Note 4 to the latest annual financial statements. 17 of 60

18 5 Financial risk management 5.1 Foreign exchange risk Note 12/31/ /31/2017 Assets denominated in foreign currency Cash and cash equivalents (i) 7 851,070 2,406,199 Financial investments 8 127, ,107 Derivative financial instruments 5.3 (a) 111, ,950 1,166 Trade receivables 3,330 4, , ,161 Related parties 20,102 17,307 31,813 30, ,316 21,890 1,773,860 3,150,299 Liabilities denominated in foreign currency Borrowing (ii) 7,545,714 6,440,113 11,473,825 9,859,224 Derivative financial instruments 5.3 (a) 73,014 63,841 73,612 64,607 Confirming payables , ,289 Trade payables 839 3, , ,034 Related parties 1,013, ,896 53,454 45,361 8,633,374 7,388,896 12,647,726 10,916,515 Net exposure (8,498,058) (7,367,006) (10,873,866) (7,766,216) (i) As at December 31, 2017, the amount of cash and cash equivalents included funds received in foreign currency related to the divestment of non-strategic assets. (ii) Funding costs are not considered in these amounts. 18 of 60

19 5.2 Liquidity risk The table below analyzes the Company's main financial liabilities by maturity, corresponding to the remaining period from the balance sheet date up to the contractual maturity date. The derivative financial liabilities are considered in the analysis when their contractual maturity is essential to understanding the temporary cash flow. The amounts included in the table represent the undiscounted contractual future cash flow; and may not reconcile directly with the amounts recorded in the balance sheet. Note Less than 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years At June 30, 2018 Borrowing (i) 646, ,532 5,511,600 2,221,973 8,617,120 17,576,438 Derivative financial instruments 5.3 (a) 11,787 15,747 45,480 73,014 Confirming payables , ,979 Trade payables 576, ,976 Related parties 54, , ,595 1,274,170 1,424,406 1,190,403 6,181,675 2,221,973 8,617,120 19,635,577 At December 31, 2017 Borrowing (i) (ii) 1,751, ,798 3,903,664 3,918,422 7,530,834 17,722,926 Derivative financial instruments 5.3 (a) 63,841 63,841 Confirming payables , ,788 Trade payables 586, ,860 Dividends payable 12 (a) 165, ,715 Related parties 54, , ,052 1,147,080 2,783,280 1,152,958 4,461,716 3,918,422 7,530,834 19,847,210 Total Note Less than 1 year Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years At June 30, 2018 Borrowing (i) 1,276,728 1,513,928 7,265,596 4,863,524 8,617,120 23,536,896 Derivative financial instruments 5.3 (a) 12,385 15,747 45,480 73,612 Confirming payables , ,046 Trade payables 1,355,510 1,355,510 Dividends payable 12 (b) 1,663 1,663 Related parties 181, ,442 Use of public assets 31,744 34, , , ,408 1,093,565 3,222,076 1,745,461 7,427,350 5,110,319 9,281,528 26,786,734 Total At December 31, 2017 Borrowing (i) (ii) 2,226,720 1,135,433 5,482,665 6,315,662 7,530,834 22,691,314 Derivative financial instruments 5.3 (a) 64,607 64,607 Confirming payables , ,646 Trade payables 1,285,248 1,285,248 Dividends payable 12 (b) 167, ,273 Related parties 175, ,033 Use of public assets 31,246 32, , , ,571 1,091,945 4,311,740 1,342,539 5,591,248 6,546,134 8,220,405 26,012,066 (i) Does not consider the fair value adjustment of Resolution 4131 transactions. (ii) Includes, in the column Less than 1 year the amounts of R$ 700,000, R$ 160,675 and R$ 234,883 related to the early settlement of debentures, Resolution 4131 loans, and borrowing from BNDES, respectively, all of which occurred in January of 60

20 5.3 Derivative financial instruments (a) Effect of derivatives on the balance sheet Principal Programs Currency 12/31/2018 Average rate/price FWD Average term (days) Current assets Non-current assets Current liabilities Non-current liabilities and consolidated 12/31/2017 Total (net between Total (net assets and between assets liabilities) and liabilities) Hedging of foreign exchange exposure USD forward (BRL/USD) USD 451,000 (21,178) Debt hedge LIBOR floating rate vs. CDI floating rate swap USD 100, % CDI 1, ,884 (11,787) (61,227) 38,870 USD fixed rate vs. CDI floating rate swap USD 50,000 (42,663) Total parent company 111,884 (11,787) (61,227) 38,870 (63,841) Fair value Hedging instruments for foreign exchange exposure Turkish Lira forward (TRY/USD) USD 3,876 26,024 5,19 TRY/USD (598) (532) 400 Total consolidated ,884 (12,385) (61,227) 38,338 (63,441) (b) Maturity profile and consolidated Fair value by maturity Programs Total Debt hedge LIBOR floating rate vs. CDI floating rate swap (5,289) (14,660) (16,310) (17,317) (15,921) 108,367 38,870 Total parent company (5,289) (14,660) (16,310) (17,317) (15,921) 108,367 38,870 Hedging instruments for foreign exchange exposure Turkish Lira forward (TRY/USD) (532) (532) Total consolidated (5,289) (15,192) (16,310) (17,317) (15,921) 108,367 38, of 60

21 (c) Effect of derivatives on the financial result and cash flow and consolidated Programs Currency Principal Fair value adjustment Realized loss Total Principal Fair value adjustment Realized loss Total Hedging of foreign exchange exposure USD forward (BRL/USD) USD 21,178 8,000 29,178 25, (3,863) (3,518) EUR forward (BRL/EUR) EUR 14, Debt hedge LIBOR floating rate vs. CDI floating rate swap USD 100,000 38,871 (2,920) 35, ,000 60,574 (105,834) (45,260) USD fixed rate vs. CDI floating rate swap USD 42,663 (49,050) (6,387) 50,000 4,713 (8,960) (4,247) Total parent company 102,712 (43,970) 58,742 65,634 (118,657) (53,023) Foreign exchange hedge Turkish Lira forward (TRY/USD) USD 3,876 (933) 83 (850) 9,408 (283) (283) Total consolidated 101,779 (43,887) 57,892 65,351 (118,657) (53,306) 21 of 60

22 5.4 Hedging of net investments in foreign entities The Company evaluates quarterly the effectiveness of its investment hedge transactions prospectively, as required by IFRS 9 Financial Instruments: Recognition and Measurement. The Company designated as a hedging instrument its debt denominated in Euros at an amount of EUR 570 million (R$ 2,568,247) (December 31, EUR 570 million - R$ 2,263,755) with respect to the investment in its subsidiary VCEAA, which has the Euro as its functional currency. The foreign exchange loss on the translation of debts, net of income tax and social contribution, recognized as Other comprehensive income at June 30, 2018, amounted to R$ 200,965 (June 30, 2017 net loss of R$ 119,566) (Note 20 (b)). The Company designated its debt denominated in US Dollars, except for its Resolution 4131 borrowing, at an aggregate amount equal to USD 1,255 million (R$ 4,832,698) (December 31, 2017 USD 1,275 million R$ 4,219,047), as a hedging instrument for the investment in its subsidiary VCNA. The hedged item includes only the VCNA investments which originated in USD, since this is a company domiciled in Canada which has subsidiaries with transactions which have the US Dollar as their functional currency, and subsidiaries with transactions in the functional currency of the Canadian Dollar. The foreign exchange loss on the translation of debts, net of income tax and social contribution, recognized as Other comprehensive income at June 30, 2018, amounted to R$ 453,275 (June 30, 2017 net loss of R$ 40,577) (Note 20 (b)). 5.5 Sensitivity analysis The main risk factors that have an impact on the pricing of the financial instruments, cash and cash equivalents, financial investments, borrowing, related parties and derivative financial instruments are the exposure to the fluctuations of the US Dollar, Euro, Boliviano, Turkish Lira and Argentine Peso, the CDI, LIBOR and USD onshore interest rates. The scenarios for these factors are prepared using market data and specialized sources, according to the Company's governance. The scenarios as at June 30, 2018 are as follow: Scenario I - considers a change in indicative pricing yield curves as at June 30, 2018, according to the base scenario defined by Management for September 30, Scenario II - considers a change of + or -25% in the yield curves as at June 30, Scenario III - considers a change of + or -50% in the yield curves as at June 30, of 60

23 Impacts on P&L Impacts on comprehensive income Scenario I Scenarios II and III Scenario I Scenarios II and III Risk factor Cash and cash equivalents and financial investments (i) Borrowing and related parties (i) Principal of derivative financial instruments Currency Changes from Results of scenario I -25% -50% +25% +50% Results of scenario I -25% -50% +25% +50% Foreign exchange rate USD (ii) 5,517, ,000 USD -5.99% 4,628 19,327 38,655 (19,327) (38,655) 302,858 1,264,903 2,529,807 (1,264,903) (2,529,807) EUR 2,968,175 EUR -4.61% 18,435 99, ,964 (99,982) (199,964) 118, ,062 1,284,124 (642,062) (1,284,124) Interest rates BRL - CDI 1,564,478 1,600, ,580 BRL 0 bps 3,623 7,689 (3,247) (6,173) USD - LIBOR 385, ,000 USD 17 bps 3,411 (11,927) (23,854) 11,927 23,854 US Dollar onshore interest rate 100,000 USD 14 bps (22,372) 17,340 36,443 (15,813) (30,295) Impacts on P&L Impacts on comprehensive income Scenario I Scenarios II and III Scenario I Scenarios II and III Risk factor Cash and cash equivalents and financial investments (i) Borrowing and related parties (i) Principal of derivative financial instruments Currency Changes from Results of scenario I -25% -50% +25% +50% Results of scenario I -25% -50% +25% +50% Foreign exchange rate USD (ii) 365,301 7,473, ,876 USD -5.99% 428 1,787 3,575 (1,787) (3,575) 402,282 1,680,155 3,360,310 (1,680,155) (3,360,310) EUR 215,432 3,341,495 EUR -4.61% 293 1,589 3,179 (1,589) (3,179) 143, ,926 1,559,852 (779,926) (1,559,852) BOB 36, ,700 BOB -6.67% 29, , ,429 (108,715) (217,429) TRY 24, ,160 TRY -4.15% (1,016) (6,124) (12,248) 6,124 12,248 9,750 58, ,580 (58,790) (117,580) ARS 5,776 ARS -1.49% (86) (1,444) (2,888) 1,444 2,888 Interest rates BRL - CDI 1,822,527 2,050, ,580 BRL 0 bps 6,690 13,821 (6,314) (12,306) USD - LIBOR 468, ,000 USD 17 bps 3,268 (11,441) (22,881) 11,441 22,881 US Dollar onshore interest rate 100,000 USD 14 bps (22,372) 17,340 36,443 (15,813) (30,295) (i) The balances presented in this Note do not reconcile with the notes on Cash and cash equivalents, Financial investments, Related parties and Borrowing, since the analysis covered only the most significant currencies. (ii) Considers the currency basket. 23 of 60