Parent company and consolidated financial statements at December 31, 2017 and report of independent auditors (A free translation of the original in Portuguese) Independent auditor's report To the Board of Directors and Stockholders Votorantim Cimentos S.A. Opinion We have audited the accompanying parent company financial statements of Votorantim Cimentos S.A. (the "Company" or “Parent Company”), which comprise the balance sheet as at December 31, 2017 and the statements of income, comprehensive income (loss), changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of Votorantim Cimentos S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2017 and the consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Votorantim Cimentos S.A. and of Votorantim Cimentos S.A. and its subsidiaries as at December 31, 2017, and the financial performance and the cash flows for the year then ended, as well as the consolidated financial performance and the cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers, Al. Dr. Carlos de Carvalho, 417 – 10º andar, Curitiba, PR, Brasil 80410‐180, Caixa Postal 699 T: (41) 3883‐1600, F: (41) 3322‐6514, www.pwc.com/br 2 Votorantim Cimentos S.A. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Matters current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate Why it is a Key Audit opinion on these matters. Matter Our audit for the year ended December 31, 2017 was planned and How the executed considering that the operations of the Company and its matter was subsidiaries did not had any significant changes in relation to the to the addressed prior year. In this context, the Key Audit Matters, as well as our audit approach, have remained substantially aligned with prior year, except for the exclusion of the matter related to the securitization of receivables from the Company's subsidiary, as it was related to an event of the year ended on December 31, 2016. Why it is a Key Audit Matter How the matter was addressed in the audit Assessment of impairment of goodwill (Notes 16 and 18) In this respect, we obtained an understanding of The Company has goodwill based on the the existing key controls for this area and tested expectation of future profitability from business them. We also assessed the methodology that combinations made in prior years totaling R$ management used to identify the CGUs. In 3,138,865 thousand (R$ 3,043,951 recorded in addition, we assessed the reasonableness of the Intangible assets and R$ 94,914 thousand recorded Company's main assumptions, including the in Investments). discount rate used to determine the value in use or the fair value less cost to sell, when applicable, and During 2017, management recognized a provision the growth rates for prices and volumes, by for impairment in the amount of R$ 47,981 comparing them with available economic and thousand, as a result of the reduction in economic industry-related estimates. Furthermore, with the activity in Brazil and a decrease in sales volumes in support of our experts, we tested the mathematical some Cash Generating Units, and the amount of R$ accuracy of the calculations and data for the main 228,487 thousand as a result of the sale of the assumptions used in the cash flow estimates. operations in China. We used sensitivity analyses involving the main For the Cash-Generating Units (“UGCs”) to which assumptions used in order to assess whether the the goodwill has been ascribed, to determine that individual or cumulative changes would lead to recoverable value, which is the higher of the fair impairment losses that significantly exceeded those value, net of selling expenses, and the value in use, recorded by the Company. involve critical judgements by the Company's management. The recoverable value is sensitive to After performing these audit procedures, we changes in assumptions related to cement price considered that the methodology used by fluctuations, customer portfolio management, management is consistent with the methodology operating expenses, and determination of the adopted in prior years, and that the disclosures are appropriate discount rates, among other supported by data and information obtained assumptions used in the calculations. Adverse through our procedures. 3 Votorantim Cimentos S.A. Why it is a Key Audit Matter How the matter was addressed in the audit economic and market conditions may significantly affect these assumptions. Realization of deferred income tax and social contribution tax assets (Notes 13 and 21) The Company and its subsidiaries have recorded In this respect, we obtained an understanding of deferred tax assets arising from income tax and the key controls that the Company uses to calculate social contribution losses as well as credits from and record the tax credits and tested these controls, income tax and social contribution recoverable. as well as the templates used to estimate the future These credits are recorded to the extent taxable profits, which were subject to Company’s management considers that it will generate future Board of Directors approval. taxable profits that are sufficient for the utilization of these credits. We counted on the support of our specialists in tax matters and in company valuations to test the We focused on this area in our audit because calculations of the credits in relation to the management’s assessment of the realization of templates and critical assumptions used by these credits requires important and subjective management. We compared these assumptions judgments to determine the future taxable bases for with macroeconomic information available in the the utilization of these amounts. market and compared the information from these projections with budgets approved by the Company's governance bodies. In addition, we analyzed the realization periods considered in the Company's historical data and studies in order to test the adequacy and the consistency of these realization estimates in relation to those used in prior years. Finally, we assessed the disclosures related to the recognition of these tax credits. We consider that the criteria and assumptions that management adopted to determine the tax credits are reasonable in all relevant aspects in the context of the financial statements. Provisions and contingent liabilities (Note 22) At December 31, 2017, the Company and its In this respect, we determined whether the subsidiaries had recorded provisions calculated procedures adopted by management to calculate based on probable losses estimated in the the provisions and their related disclosures were in respective proceedings. The Company and its compliance with the related accounting policy. subsidiaries also have tax, civil, and labor Furthermore, we obtained confirmation from the proceedings in progress for which no provisions external legal advisors regarding the likelihood of were recorded in the financial statements because loss for the major proceedings and the 4 Votorantim Cimentos S.A. Why it is a Key Audit Matter How the matter was addressed in the audit management considered the likelihood of losses quantification of the amounts estimated as possible arising from these proceedings as only possible, and probable losses. We counted on the support of based on the opinion of the Company's internal and our tax specialists to assess the reasonableness of external legal advisors. estimates prepared by management and its internal and external legal advisors for certain proceedings, Management applies critical judgments to considering their progress and the existing case law, determine the likelihood of positive outcomes for when applicable. proceedings in progress as well as to estimate the probable losses, since these matters depend on We consider that the criteria and assumptions used future events that management is not able to by management to determine the provisions and control. In this context, the progress of these the disclosures in the related explanatory notes are proceedings in the different applicable levels can consistent with the information received during our differ from the results estimated by the Company audit. and its internal and external legal advisors, taking into account that changes in court directives or in case law may significantly affect management's estimates. Other matters Statements of Value Added The parent company and consolidated Statements of Value Added for the year ended December 31, 2017, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the Company’s financial statements.