financial statements 2017 - en.elekeiroz.com.br · continued improvement in demand, according to...

Elekeiroz S.A.

Financial statements in accordance with the accounting practices

in place in Brazil and the IFRS as of December 31st, 2017

CNPJ 13.788.120/0001-47 A Public Company NIRE 35300323971

SUMMARIZED MINUTES OF THE BOARD OF DIRECTORS MEETING HELD ON FEBRUARY 6th, 2018

DATE, TIME AND PLACE: On February 6th, 8:30 am, at Av. Paulista no. 1938, 20th floor, Room 1, in São Paulo, São Paulo (Brazil). CHAIRMAN: Marcos Antonio De Marchi. QUORUM: All elected members. DECISION MADE BY UNANIMOUS VOTE: Upon examination of the financial statements for the fiscal year ended on December 31st, 2017, the Board of Directors decided, by unanimous vote and in compliance with the provisions of Article 25, Paragraphs V and VI, of Instruction no. 480/09 from the CVM (Securities Commission), as amended, to declare that:

a) they have reviewed and discussed and agree with the opinions set out in the report issued by BDO RCS Auditores Independentes S/S, in their capacity as independent auditors, concerning the financial statements of December 31st, 2017, which financial statements, in observance of Corporate Governance practices, have also been examined by PricewaterhouseCoopers Auditores Independentes, in their capacity as independent auditors for the Conglomerate, and both such independent auditors have issued unqualified reports; and

b) they have reviewed and discussed and agree with the financial statements for the fiscal year ended

on December 31st, 2017. CLOSING: There being no further business to transact and no one wishing to speak, the meeting was adjourned, and these minutes were drafted, read and approved, and then signed by all. São Paulo, São Paulo, February 6th, 2018. (ss.) Marcos Antonio De Marchi, Chief Executive Officer; Elder Antonio Martini, and Ricardo Craveiro Massari, Directors. Marcos Antonio De Marchi Director of Investor Relations

Management Report

Management Report

Results for the 4th Quarter of 2017

Management Report

Scenario

Brazil’s industrial production grew 2.5 percent for 2017 relative to 2016, after falling for three years in a row: -3.0 percent for 2014, -8.3 percent

in 2015, and -6.4 percent in 2016, according to information from the IBGE (Brazilian Institute of Geography and Statistics).

In the chemical industry, the apparent domestic consumption (ADC) for 2017 increased by 6.0 percent by comparison to 2016, displaying

continued improvement in demand, according to information from Abiquim (short in Portuguese for Brazilian Chemical Industry Association)

The growth in consumption was mostly supplied by increased imports, which were up 21.1 percent, as well as a 1.8-percent rise in local

production.

Elekeiroz Operational Performance – Shipping

Shipping for the 4th quarter was 9-percent higher than for the same period of last year, confirming a growth trend suggested in the previous few

quarters. Sales of organic chemicals displayed a 23-percent increase in volume for the period, as a result of favorable market conditions and

Elekeiroz’s improved productivity. Inorganic chemicals, on the other hand, showed a slight, 1-percent decrease in shipping for that same period.

The total shipping for the year gained 25 percent over 2016, with 31-percent growth in shipping of inorganic chemicals (responsible for 56% of all

sales), and a 19-percent rise for organic chemicals (Graph 1).

Graph 1 – Shipping (1,000 tons)

Elekeiroz Financial Performance

Net revenues kept the growth trend seen in the previous quarters, boosted by a short supply of inorganic chemicals, which resulted in better

prices and more competitive organic chemicals.

For the 4th quarter of 2017, net revenues displayed a 40-percent hike relative to the same period of the previous year, from sales in both the

domestic and export markets (up 38% and 80%, respectively).

For 2017, net revenues increased by 27 percent, especially as sales in the domestic market grew 28 percent (Graph 2).

53 55

36

6168 71 70

60

39 39

45

40

50 44 54

48

128 4

2017Q2

119

+9%

2017Q3

121

2016Q3 2017Q1

3

3 3

2016Q2

97

2016Q4

84

104 3

3

2016Q1

99

7

2017Q4

114 5

Inorganic ChemicalsOrg. Chem., DMOrganic Chemicals, IM

+25%

270

384 197

206

2017

15

164

482

2016

15

Management Report

Graph 2 – Net Revenues (R$ million)

Gross profit for the 4th quarter was 1-percent higher than that achieved for the previous three-month period, thus remaining on the growth

trajectory that began in late 2016 (Graph 3).

Graph 3 – Gross Profit (R$ million)

186 176 184 176

216 210 257 242

20

2017Q3

+40%

271

223

2017Q2

12

13

10

2016Q1

193

2016Q3

9

2016Q4

10

2016Q2

206186

2017Q1

225

10

186

260

2017Q4

18

Domestic Market International Market

+27% 979

2017

53

925

49

2016

722

771

47.0 46.8

34.7

24.8

13.110.2

7.69.1

+259%

2017Q42017Q22017Q12016Q4 2017Q32016Q32016Q1 2016Q2 2016 2017

+284%

40.0

153.4

Management Report

Non-Recurring Events: In 2017 we had one non-recurring event, which was the recognition of a tax credit arising from a final judgment

unfavorable to the Company in the month of December. We should point out that several non-recurring events affected the Company’s 2016

performance, as shown in detail below (Table 1).

Table 1 – Non-Recurring Events

For 2016: (R$ million)

Provision for temporary shut-down costs of phthalic anhydride and plasticizer lines in Camaçari -8.2 Q1

Recognition of gain through advantageous purchase of 50% of Nexoleum’s assets 5.0 Q2 & Q3

Impairment of assets -154.8 Q4

Reversal of PER/PCS assets -50.5 Q4

De-recognition of Camaçari phthalic anhydride and plasticizer assets -30.0 Q4

Provisions for Camaçari phthalic anhydride and plasticizer plant shut-down -21.3 Q4

Complement to PAD -20.3 Q4

Layoff compensation packages – restructuring plan -5.8 Q4

Complement to provision for contingencies -3.8 Q4

Provision for restructuring -2.4 Q4

De-recognition of property, plant and equipment items -0.6 Q4

Ratification of and adjustments to tax credits -0.7 Q4

Total for 2016: -293.4

For 2017:

Recognition of a tax credit arising from the final, non-appealable judgment favoring the Company in a lawsuit concerning applicability of the INSS tax to Break/Meal Hours

7.7 Q4

Management Report

We achieved a significant recovery in our EBITDA for 2017 —a function of larger volumes and improved margins, combined with efforts towards

optimizing the supply chain and reducing costs and expenses. EBITDA reached R$32.2 million for the 4th quarter, and R$87.8 million for the full

year, corresponding to 9.0 percent of the net revenues. The recurring EBITDA for 2017 amounted to R$80.1 million (Graph 4).

Graph 4 – Recurring EBITDA (R$ million)

For the 4th quarter, the Company reported a net profit of R$24.3 million. For the full year, the net profit totaled R$47.7 million (Table 2).

Table 2 – Financial Highlights

R$ million

4th Quarter Full Year

2017

2016

Variance

2017

2016

Variance

Net Revenues

259.8 185.7 40%

978.5 770.8 27%

Domestic Market

242.1 175.8 38%

925.4 721.8 28%

International Market

17.7 9.8 80%

53.2 49.0 9%

Cost of Sales

212.7 172.6 23%

825.2 730.8 13%

Gross Profit

47.0 13.1 259%

153.4 40.0 284%

Profit Margin

18.1% 7.1%

15.7% 5.2%

Operating Profit (Loss)

25.1 -253.5 -

48.4 -315.4 -

Net Profit (Loss)

24.3 -303.4 -

47.7 -343.7 -

Recurring Net Profit (Loss)

16.7 -13.2 -

40.0 -50.3 -

EBITDA

32.3 -49.3 -

87.8 -56.4 -

EBITDA Margin

12.4% -26.6%

9.0% -7.3%

Recurring EBITDA

24.6 5.0 393%

80.1 1.1 + +

Recurring EBITDA Margin

9.5% 2.7%

8.2% 0.1%

Investments Investments reached R$26.6 million and were applied towards sustaining the operations.

24.625.5

19.3

10.7 5.0

0.7

-5.8

1.2

2016Q1 2017Q2

+393%

2016Q32016Q2 2017Q3 2017Q42017Q12016Q4

1.1

2017

80.1

2016

Management Report

Highlights of the Year

Awards & Recognition:

• Elekeiroz was honored at the 7th Brazilian Congress on Industry Innovation, an initiative by the CNI (National Industry Council),

Sebrae (short for Brazilian Micro and Small Enterprise Support Service), and the MEI (Business Mobilization for Innovation), as a

“company of value” for our development project for butyric acid, a product used in the flavor, fragrance and animal nutrition industries

that was previously available exclusively through import. Following development in 2016, Elekeiroz started to regularly make and sell

butyric acid out of our Camaçari assets.

• Recognized as “Distinguished Supplier of Raw Materials” at Evonik’s sustainability workshop.

• Recognized for the word done at Elekeiroz for excellence in logistics and supply chain management, as announced by the IMAM

(Material Movement and Storage Institute).

• Almaco (short for Latin American Composites Association) 2017 Top of Mind Awards: Elekeiroz ranked second in the polyester resin

supplier category.

Independent Auditors

BDO RCS Auditores Independentes S/S provided exclusively independent auditing services to the Company in the year 2017 (CVM Instruction

no. 381/03).

Closing Message and Acknowledgements

The year 2017 saw us achieve a significant recovery by combining larger volumes, a marked operational performance, and reductions in costs and

expenses. We would like to thank our employees for their commitment, our shareholders for their support, our suppliers for their partnership

spirit, and our customers for the trust they have put in us.

Management

ELEKEIROZ S.A. A Public Company

CNPJ: 13.788.120/0001-47

Audit and Risk Management Committee’s Opinion

The Audit and Risk Management Committee, exercising its duties, has proceeded with its review of the financial statements for the fiscal year ending on December 31st, 2017 and, considering the information provided by (i) Management at Elekeiroz S.A. (the “Company”), (ii) Deloitte Touche Tohmatsu Consultores Ltda., as internal auditors, (iii) BDO RCS Auditores Independentes S/S, as independent auditors, and (iv) PricewaterhouseCoopers Auditores Independentes, as independent auditors for the Conglomerate, having due regard for its duties and the limitations arising out of the scope of its responsibilities, hereby issues the opinion that said financial statements as of December 31st, 2017 do appropriately reflect, in all material respects, the Company’s equity and financial position, and recommends that they be approved by the Management Board. São Paulo, February 1st, 2018. Audit and Risk Management Committee Priscila Grecco de O. Neves Committee Coordinator Henri Penchas Committee Member Ricardo Egydio Setubal Committee Member Rodolfo Villela Marino Committee Member

Balance Sheet

Fiscal Years ending on December 31st

In thousands of reals

The accompanying explanatory notes form an integral part of these financial statements

Assets Note

December 31st, 2017

December 31st, 2016

Liabilities and shareholders’ equity

Note

December 31st, 2017

December 31st, 2016

A

Current assets

Current liabilities

Cash and cash equivalents

7

56,357

33,768

Trade payables

18

54,252

33,450

Trade receivables

8

122,363

97,349

Borrowings

19

80,807

67,715

Inventories

9

79,050

104,020

Financial liabilities at fair value

35

-

2,413

Other receivables 12 5,283 7,417 Salaries, wages and employee-related expenses 18 9,669 10,231

Taxes recoverable

10

28,412

8,086

Other payables

18

8,901

22,688

Prepaid expenses

1,719

1,797

Taxes payable

20

5,930

4,394

Dividends payable 31 7,767 51

Officer and employee profit sharing payables 9,118 -

Total current assets 293,184 252,437

Total current liabilities 176,444 140,942

A

Non-current liabilities

Non-current assets

Borrowings

19

87,982

149,526

Long-term receivables :

Financial liabilities at fair value

35

-

1,054

Held-to-maturity investments

7(b)

3,587

3,335

Provision for contingencies

21

26,717

31,011

Trade receivables 8 - 364

Other payables 18 15,408 409

Taxes recoverable 10 681 13,723

Deferred taxes 11 18,345 18,345

Financial assets at fair value 35 430 - Other receivables 12 25,500 33,405

Total non-current liabilities 130,107 182,000

Investment properties 14 2,029 2,037

Investments

13

21,245

22,972

Total liabilities

306,551

322,942

Property, plant and equipment

15

90,167

83,923

Intangible assets 16 2,661 3,784

Shareholders’ equity

Total non-current assets 164,645 181,888

Capital stock

22(a)

103,057

322,000

Capital reserve 22(c)

8,326

8,326

Retained earnings 22(d) 39,895 -

Loss carryover

22(d)

-

(218,943)

Total shareholders’ equity

151,278

111,383

A

Total assets

457,829

434,325

Total liabilities and shareholders’ equity

457,829

434,325

Statement of Income and Comprehensive Income Fiscal Years ending on December 31st



Statement of Income Note

2017

2016

Operating revenues, net 23

978,541

770,785

Cost of sales 24

(825,186)

(730,803)

A

Gross profit

153,355

39,982

Selling expenses 24

(47,536)

(37,913)

General and administrative expenses 24 (64,110) (64,639)

Other income (expense), net 25

26,085

(234,855)

A

Operating profit (loss)

67,794

(297,425)

A

Financial income 26

35,442

27,854

Financial expenses 26

(53,734)

(44,843)

A

Financial income (loss), net

(18,292)

(16,989)

Share in joint venture profits (losses) 13 (1,091) (1,029)

Profit (loss) before income and social security taxes

48,411

(315,443)

A

Deferred income tax and social security-funding tax 28

-

(28,239)

Current income tax and social security-funding tax 28 (749) -

A

Profit (loss) for the year

47,662

(343,682)

A

Earnings (loss) per share, basic and diluted 30

1.51

(10.92)

Statement of Income and Comprehensive Income Fiscal Years ending on December 31st



Statement of comprehensive income Nota

2017

2016

Profit (loss) for the fiscal year

47,662

(343,682)

Other comprehensive income components for the period

-

-

Total comprehensive income for the fiscal year

47,662

(343,682)

Statement of Changes in Shareholders’ Equity



A

Capital reserve

Revenue reserves

Capital

Tax

Tax

Accrued profit

Total shareholders’

stock

incentive Statutory

incentive

Special

(Loss)

equity

A

On January 1st, 2017

322,000

8,326

-

-

- (218,943)

111,383

A

Profit for the fiscal year, net

- - - - - 47,662 47,662

A


- - - - - 47,662 47,662

Appropriation of loss for the fiscal year

Absorption of losses for the year

(218,943) - - - - 218,943 - Statutory reserve

- - 1,635 - - (1,635) -

Tax incentive - - - 1,648 - (1,648) - Re-establishment of tax incentive reserve - - - 13,310 - (13,310) - Dividend pay-out - - - - - (7,767) (7,767) Formation of special reserve - - - - 23,302 (23,302) - Total appropriation of profit for the fiscal year

(218,943) - 1,635 14,958 23,302 171,281 (7,767)

A

On December 31st, 2017

103,057 8,326 1,635 14,958 23,302 - 151,278

A

Statement of Changes in Shareholders’ Equity



A

Capital reserve

Revenue reserves

Capital

Tax

Tax

Loss

Total shareholders’

stock

incentive Statutory

incentive

Special

carryover

equity

A

On January 1st, 2016

322,000

8,326

18,811

13,310

92,618

-

455,065

A

Loss for the fiscal year

- - - - - (343,682) (343,682)

A


- - - - - (343,682) (343,682)

Appropriation of loss for the fiscal year

Absorption of losses for the period

- - (18,811) (13,310) (92,618) 124,739 - A

Total absorption of loss of the fiscal year

- - (18,811) (13,310) (92,618) 124,739 - A


322,000 8,326 - - - (218,943) 111,383 A

Statement of Cash Flows




2017

2016

Cash flow of operating activities

A

Loss before income and social security funding taxes

48,411

(315,443)

Adjustments for

Depreciation and amortization

19,252

53,731

Residual value of derecognized PP&E and investments

2,240

31,651

Provision for trade receivables, in inventories and contingencies

(6,297)

47,597

Share in joint venture profit (loss) 1,091 1,029

Advantageous purchase to acquire equity interest - (4,987)

Impairment of property, plant and equipment and intangible assets - 154,798

Interest expenses

18,039

7,823 Derivative transactions

2,931

- Patent amortization 636 -

Changes in assets and liabilities

Trade receivables

(25,142)

2,680

Inventories

27,101

66,349

Court deposits

2,332

(161)

Other receivables

(18,115)

2,034

Taxes recoverable, non-current

13,042

1,879

Receivables, non-current

5,937

(834)

Trade payables

20,801

(25,801)

Employee-related taxes and expenses

1,443

(761)

Other payables

9,820

(7,479) A

Cash provided by operating activities

123,522

14,105 A

Income and social security funding taxes paid (749) -

Interest on borrowings repaid

(17,816)

(8,297) A

Cash provided by operating activities, net

104,957

5,808

Cash flows from investing activities

Equity interests

-

(13,864)

Purchase of investments - (568)

Purchase of property, plant and equipment

(26,412)

(18,521)

Purchase of intangible assets

(232)

(76)

Revenue from disposal of assets

30

143

Held-to-maturity investments - 112

Financial investments (251) (3,335)

Cash used in investing activities, net (26,865)

(36,109)

Statement of Cash Flows




2017

2016

Cash flows from borrowing activities

(+/-) Short-term borrowings

-

(72,714)

New long-term borrowings

21,450

131,615

Borrowings repaid

(76,953)

(32,437)

A

Cash provided by (invested in) borrowing activities, net (55.503)

26,464

Increase (decrease) in cash and cash equivalents, net

22,589

(3,837)

Cash and cash equivalents at the start of the fiscal year (Note 7)

33,768

37,605

A

Cash and cash equivalents at the end of the fiscal year (Note 7)

56,357

33,768

Statement of Value Added Fiscal Years ending on December 31st



2017

2016

A

Revenues

Products sold 1,217,937

967,502

Provision for doubtful debtors (128)

(22,323) A

1,217,809

945,179

A

Inputs purchased from third parties

Costs of sales (984,210)

(806,013)

Materials, electric power, third-party services, and expenses (51,792)

(298,651) A

A (1,036,002)

(1,104,664) A

Value added, gross 181,807

(159,485)

Retentions

Depreciation, amortization and depletion (19,252)

(53,731)

A

Value added by the company, net 162,555

(213,216)

A

Value added received in transfers

Share in joint venture profit (loss) (1,091) (1,029)

Advantageous purchase to acquire equity interest - 4,987

Financial income 35,442

27,854

A

Total value added available for distribution 196,906

(181,404) A

Statement of Value Added Fiscal Years ending on December 31st



2017

2016

Value added distribution

Personnel

Direct compensation 63,155

63,772

Benefits 9,637

10,794

Severance Pay Fund (FGTS) 4,213

4,503

Taxes and charges

Federal 27,917

55,919

State (3,074)

343

Local/Municipal 1,221

1,033

Return on debt

Leases 3,773

4,458

Interest 42,402

21,456

Return on equity

Dividends 7,767

-

Retained earnings (loss carryover) for the fiscal year 39,895

(343,682)

Value added distributed 196,906

(181,404)

Management’s Explanatory Notes to the Financial

Statements as of December 31st, 2017

In thousands of reals, except where stated otherwise.

1 General Information

Elekeiroz S.A. (“Elekeiroz” or “the Company”) is a publicly-held corporation with shares traded on the B3 Stock, Commodities and Futures Exchange, controlled by Itaúsa - Investimentos Itaú S.A., and has three industrial sites, two in Camaçari, Bahia, and one in Várzea Paulista, São Paulo, where its headquarters are located. The Company is engaged in the business of processing and marketing chemicals and petrochemicals at large, including the business of reselling such products purchased from third parties, as well as importing, exporting and holding interests in other companies. The products processed by Elekeiroz are essentially designed for the manufacturing sector, particularly the building and construction, apparel, automotive and food industries. In compliance with CPC 01 (Impairment of Assets), in 2016 the Company found signs that its assets had lost economic representativeness and proceeded with an evaluation of the items making up its intangible assets and property, plant and equipment, which brought up the need to impair the assets of the Company’s oxo alcohol/gas, polyester resin and maleic anhydride plants. Based on consolidated, long-term projections for its operating plants, the Company also identified the need to reduce its tax credits for deferred taxes, derecognizing those credits which were expected to be recovered within more than 10 years. In 2017 the Company reviewed its long-term projections and, despite the significant improvement in the results of its operations, found that it was necessary to keep the impairment values of its assets and the measured amount of its deferred taxes. The aforementioned adjustments, as well as other provisions accounted for in 2016, have led to a R$276,866 decrease in the Company’s shareholders’ equity. The issuance of these financial statements was authorized at a meeting of the Company’s Management Board held on February 6th, 2018.

2 Summary of Principal Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are described below. These policies have been consistently applied in all reported fiscal years, except as otherwise provided.

2.1 Basis for Preparation

The financial statements have been prepared under the historical cost convention, and adjusted to reflect the measurement of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires Management to exercise its judgment in the process of applying the Company’s accounting policies. Those areas which involve a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

Financial Statements

The financial statements have been prepared and are being presented in accordance with accounting practices in place in Brazil, including the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC, the initials in Portuguese), as well as the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and reflect all of the relevant information typically disclosed in financial statements, and that alone, which have been consistent with those used by Management in its job. The presentation of the Statement of Value Added (DVA, the initials in Portuguese) is required by the Brazilian corporate laws and the accounting practices in place in Brazil for public companies. The presentation of said statement is not required by the IFRS. As a result, for IFRS purposes, such statement is presented as supplementary information, without prejudice to the set of financial statements.




Changes in Accounting Policies and Disclosures

Changes Adopted by the Company. Below is our account of the amendments to standards that have been first adopted for the fiscal year commencing on January 1st, 2017. Other than the amendment to CPC 03/IAS 7 (Note 2.21), all amendments adopted have had no material impacts on the Company.

(a) CPC 03/IAS 07: Statement of Cash Flows This amendment introduces an additional disclosure intended to enable users of financial statements to evaluate changes in liabilities arising from financing activities. Entities are required to disclose changes in liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities.

(b) CPC 32/IAS 12: Income Taxes

It clarifies that the analysis for recognizing deferred income tax assets is to be performed for the financial statements taken as whole, considering expected future taxable profits and taxable temporary differences available. This is a particularly relevant theme where an asset measured at fair value and that value is below its tax base. The general principle of recognizing a deferred income tax asset should always be applied, i.e. the recognition analysis must not be carried out considering one separate transaction.

(c) CPC 45/IFRS 12: Disclosure of Interests in Other Entities It clarifies that, other than the disclosure of summarized financial information, all disclosures required under CPC 45/IFRS 12 apply to interests classified as “held for sale”, according to CPC 31/IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. Other amendments effective for the fiscal year ending on January 1st, 2017 are not relevant to the Company.

2.2 Segment Reporting The information on operating segments is reported in a manner consistent with the internal report provided to the principal operating decision-maker. The principal operating decision-maker, who is responsible for allocating funds, assessing the performance of operating segments and making the Company’s strategic decisions, is the Company’s Management, which consists of the Management Board and the Board of Directors.

2.3 Foreign Currency Translation

(a) Functional Currency and Presentation Currency The items included in the Company’s financial statements are measured using the currency of the primary economic environment in which the Company operates (“functional currency”). These financial statements are presented in Reals (R$), which are the Company’s functional currency, and its presentation currency as well.

(b) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the respective transactions or of valuation, where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the statement of income for the fiscal year. Foreign exchange gains and losses relating to borrowings, trade receivables and trade payables are presented in the statement of income within financial income or expenses.

2.4 Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other highly liquid short-term investments with original maturities of three months or less and a negligible risk of change in value.




2.5 Financial Assets

2.5.1 Classification At the initial recognition, the Company classifies its financial assets in the following categories: measured at fair value through profit or loss; loans and receivables; and available for sale. The classification depends on the purpose for which the financial assets were acquired. Derivatives are also classified as measured at fair value through profit or loss, unless they have been designated as hedging instruments. Financial assets are presented as current assets, except for those with maturity dates in excess of 12 months of the balance sheet date.

2.5.2 Recognition and Measurement Purchases and sales of financial assets are usually recognized on the trading date. Investments are initially recognized at fair value, plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at fair value, and the relevant transaction costs deducted from the statement of income. Financial assets are derecognized when the rights to receive cash flows from investments have been realized or transferred, and in the latter case, to the extent that the Company has transferred substantially all related ownership risks and rewards. Financial assets measured at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method. Gains or losses arising out of changes in the fair value of financial assets measured at fair value through profit or loss are presented in the statement of income under “Other income (expenses), net” for the period in which they arise. Where securities classified as available for sale are sold or suffer loss (impairment), the accumulated fair value adjustments recognized in equity are included in the statement of income as “Financial income and expenses”. The fair values of publicly quoted assets and liabilities are based on current purchase prices. If the market for a given financial asset (and for unlisted securities) is not active, then the Company determines the fair value using valuation techniques. These techniques include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models that use as many market inputs as possible and rely as little as possible on inputs provided by the Company’s own Management. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in equity.

2.5.3 Offset of Financial Instruments Financial assets and liabilities are offset, and the net value is presented in the balance sheets where a legal right exists to offset recognized amounts and these are intended to be settled on a net basis or the asset is intended to be realized and the liability settled simultaneously. The legal right must not be contingent upon future events and must be applicable in the ordinary course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

2.5.4 Impairment of Financial Assets

(a) Assets Carried at Amortized Cost The Company assesses on the date of each set of balance sheets whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are recognized as such only if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the asset (a “loss event”) and that such loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Company applies to determine whether there is objective evidence of impairment losses include: (i) significant financial difficulty of the issuer or debtor; (ii) breach of contract, such as default or delinquency in interest or principal payments; (iii) the disappearance of an active market for the relevant financial asset on account of financial difficulties; or (iv) observable data indicating that there has been a measurable decrease in the estimated future cash flows from a portfolio

of financial assets since the initial recognition of such assets, notwithstanding that such decrease may not be identified with any individual financial assets in said portfolio, including: . adverse changes in the payment status of borrowers in the portfolio; and . national or local economic conditions that correlate with defaults on the assets comprised in the portfolio.




The amount of any impairment loss is measured as the difference between the carrying amount of the relevant assets and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the original interest rate in place for such financial assets. The carrying amount of the asset is reduced, and the amount of the loss is recognized in the statement of income. If the amount of the impairment loss decreases in a subsequent period and the decrease can be objectively related to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized loss is recognized in the statement of income.

(b) Assets Classified as Available for Sale At the end of each reporting period, the Company assesses whether any objective evidence exists that a financial asset or a group of financial assets is impaired. For debt securities, the Company uses the criteria referred to in item (a) above. For equity investments classified as available for sale, any significant or prolonged decline in the fair value of the relevant securities below their cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, then the cumulative loss —measured as the difference between the acquisition cost and the current fair value, minus any such impairment loss on the relevant financial asset as may have been previously recognized in profit or loss— is removed from equity and recognized in the statement of income. For debt instruments, if the fair value of any given instrument classified as available for sale increases in any subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, and then the impairment loss is reversed through the statement of income.

2.6 Trade Receivables Trade receivables correspond to amounts receivable from customers for products sold and are recorded and maintained at the nominal amount of the trade notes arising from sales of products, plus foreign exchange fluctuation, where applicable. If expected to be received within one year or earlier, the receivables are classified as current assets. Otherwise, they are presented as non-current assets. Trade receivables are initially recognized at fair value, and subsequently measured at amortized cost using the effective interest method, minus a provision for doubtful debtors (PDD) or provision for impairment of trade receivables.

2.7 Inventories Inventories are stated at either the cost or net realizable value, whichever the lower. The cost is determined using the moving weighted-average cost method. Costs of finished products comprise raw materials, direct labor, and other direct and indirect costs related to production (based on the normal operating capacity), except borrowing costs. The net realizable value is the estimated selling price in the ordinary course of business, minus estimated conclusion costs and estimated selling expenses. Imports in transit are stated at the accumulated cost of each import.

2.8 Other Receivables (Current and Non-Current) Other receivables are stated at cost or realizable value, including, where applicable, any interest accrued thereon and currency and exchange fluctuation, as adjusted to present value, where appropriate. Contingent assets are recognized only where there is evidence that realization is virtually certain or favorable, final and non-appealable court decisions have been obtained. Court deposits refer to amounts deposited in court and maintained until the relevant legal proceedings are concluded, and are measured at amortized cost. Where provision for contingencies exists, they are presented net of the related court deposits.

2.9 Intangible Assets

(a) Software Includes the right to use software, with software licenses capitalized on the basis of the costs incurred and amortized over their lifespan, which is estimated at 5 years. Costs associated with software maintenance programs are recognized as expense, as incurred.

(b) Registered trademarks and licenses

Registered trademarks and licenses acquired separately are initially stated at the historical amount. Subsequently, trademarks and licenses valued with a defined lifespan are carried at their cost amount minus accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of registered trademarks and licenses over their lifespan, which is estimated at 5 years.




2.10 Investment Property

The Company owns a property in Arujá, São Paulo, which it does not occupy. The Management has opted to value the property at

cost, and the balance is presented at the historical cost of acquisition minus the depreciation amount, where applicable.

Depreciation is calculated by the straight-line method to allocate the costs of the property to its residual value over its estimated

lifespan at an average rate of 4 percent per annum.

The Company owns an apartment located in Canoas, Rio Grande do Sul, which has been received as payment from a customer and

classified as investment property.

As of the date of these financial statements, the carrying amount of these assets does not exceed their recoverable value, as

estimated based on an appraisal report at market value. The balance of the investment property is presented in the “Investments”

account (Note 14).

2.11 Property, Plant and Equipment Land and buildings comprise mostly production plants and offices. Property, plant and equipment are stated at their historical cost minus accumulated depreciation. Historical cost includes expenditures directly attributable to the acquisition of such items and financing costs related to the acquisition of qualifying assets. Any subsequent costs, such as those incurred in connection with renovations and periodic inspections required for operating, are included in the carrying amount of the relevant assets or recognized as a separate assets, as appropriate, only where the Company is likely to perceive economic benefits associated with the item in the future and the cost thereof can be reliably measured. The carrying amount of replaced items or parts is derecognized. All other repair and maintenance costs are entered in the statement of income for the fiscal year as incurred. Land is not depreciated. Depreciation is calculated by the straight-line method at rates compatible with the lifespan of the relevant assets. For equipment and facilities used directly in the production process, the Company applies the unit-of-production method, taking into consideration the lifespan of the relevant assets. The estimated lifespan of each of such assets is reviewed annually, and then adjusted if necessary. The estimated average lifespan of each property, plant and equipment item by category is as follows:

Years Buildings 25 Equipment and facilities 3 to 20 (5 on average) (*) Data processing equipment 5 Furniture and fixtures 10 Vehicles 5

(*): The depreciation of equipment and industrial facilities will vary according to the production volume at average rates ranging from 5 to 33.33 percent per annum. The residual values and life spans are reviewed and, where appropriate, adjusted at the end of each reporting period. The residual value of property, plant and equipment items is promptly derecognized at their recoverable amount when the residual value exceeds said recoverable amount (Note 2.12). Gains and losses on disposals are determined by comparing the proceeds to the carrying amount and recognized in the “Other income (expenses), net” account in the statement of income. On the date of these financial statements, the Company does not have any leasing transactions.




2.12 Impairment of Non-Financial Assets Assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized at the value whereby the carrying amount of the relevant asset exceeds its recoverable amount. Recoverable amount is either the fair value of the asset minus selling costs or the current value thereof, whichever the higher. For impairment assessment purposes, assets are grouped at the lowest levels for which identifiable cash flows (Cash-Generating Units, or CGUs) exist separately. Non-financial assets other than goodwill having been adjusted due to impairment are subsequently reviewed for possible reversal of impairment on the balance sheet date.

2.13 Trade Payables Trade payables are obligations to pay for goods or services having been acquired in the ordinary course of business, and are classified as current liabilities if payment is due in one year or less. Otherwise, trade payables are presented as non-current liabilities. Trade payables are initially recognized at fair value, and subsequently measured at amortized cost using the effective interest method. In practice, they are usually recognized at the amount of the related invoices.

2.14 Borrowings Borrowings are initially recognized at fair value, net of transaction costs incurred, and subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the total amount payable is recognized in the statement of income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities, unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs directly attributable to the purchase, construction or production of a qualifying asset, which is one that necessarily takes a substantial period of time to get ready for the intended use or sale, are capitalized as part of the cost of the asset when they are likely to provide future economic benefits to the Company and can be reliably measured. Other borrowing costs are recognized as expenses for the period in which they are incurred.

2.15 Provisions Provisions for lawsuits (labor claims, civil, tax suits) are recognized when the Company has a present legal or constructive obligation as a result of past events, disbursements are likely to be required for settling the obligation, and the amount can be reliably estimated. These provisions do not include future operating losses. Where a series of similar obligations exist, the likelihood of settling them is determined taking into consideration the obligation class as a whole. A provision is recognized notwithstanding that the likelihood of settlement related to any individual item included in the same obligation class may be low. Provisions are measured by the present value of expenses required to be incurred for settling the obligation, using such a rate before taxes as will reflect the current market appraisal of the amount of money over time and the specific risks of the obligation. Any increase in an obligation as a result of lapse of time is recognized as financial expense.

2.16 Current and Deferred Income Tax and Social Security Funding Tax

The expenses incurred in connection with income tax and social security funding tax for the period comprise current and deferred taxes. Income taxes are recognized in the statement of income, except to the extent that they relate to items recognized directly in shareholders’ equity or in comprehensive income. In such cases, the taxes are also recognized in shareholders’ equity or comprehensive income. The current income and social security funding taxes are calculated on the basis of the tax laws enacted or substantively enacted as of the balance sheet date. Management periodically evaluates positions taken by the Company in income tax returns in respect of situations where the applicable tax regulations make room for interpretations. It makes provisions, where appropriate, based on the amounts expected to be paid to the relevant tax authorities. The current income tax and social security funding tax are presented net, either in liabilities, where any amounts are payable, or in assets, where any amounts prepaid exceed the total amount due on the reporting date. The income tax is calculated on taxable profit at the rate of 15 percent, plus a 10-percent surcharge, and existing tax losses are being offset. The social security funding tax on net profit is calculated on the adjusted accounting profit at the rate of 9 percent, also taking into consideration any offset of social security funding tax losses. The Company is the beneficiary of a partial income




tax reduction for its Camaçari production complex, Bahia, at the rate of 75 percent until December 31st, 2025. The provision for income tax is formed net of the tax incentive portion, and there are no such conditions to be met as might affect the recognition of such credit. Deferred income tax and social security funding tax are recognized on temporary differences between the tax bases for assets and liabilities and their carrying amounts in the financial statements. In practice, the inclusion of expenses in the accounting profit or exclusion of revenues from the accounting profit, which is temporarily non-deductible in either case, generates deferred tax credits or debts. However, the deferred income tax and social security funding tax are not accounted for if they result from the initial recognition of an asset or liability in any transaction other than a combination of business, which transaction, at its closing time, affects neither the accounting income nor the taxable profit (tax loss). Deferred income and social security funding tax assets are recognized only to the extent that future taxable profits are likely to be available against which temporary differences can be utilized. Deferred income tax assets and liabilities are presented in the balance sheet at net value where there is a legal right and the intent to offset them at the time of determination of current taxes generally relating to the same legal entity and the same tax authority.

2.17 Employee Benefits

(a) Private Pension Plan

The Company offers all of its employees a private pension plan of the defined contribution type whereby fixed contributions are paid to a separate Entity (a pension fund), and the Company has no legal or constructive obligations to pay any further contributions if the fund lacks sufficient assets to pay all benefits due. Contributions are recognized as expenses for the period in which they are incurred and cease when the employment relationship between an employee and the Company is terminated. Prepaid contributions are recognized as assets to the extent that a cash refund or reduction of the future payments is available.

(b) Profit Sharing The Company recognizes a profit-sharing liability and expense based on a methodology that takes into account the profit attributable to its shareholders after certain adjustments are made. The profit-sharing plan is also related to the achievement of specific operating targets and goals which are set and approved at the beginning of each fiscal year. The Company recognizes a provision where contractually required to do so or where a past practice has created a constructive obligation.

(c) Other Benefits Other benefits are provided as well, such as life insurance and health care, which are recorded on an accrual basis and cease when the employment relationship between an employee and the Company is terminated.

2.18 Capital Stock The Company’s capital is represented by shares in common and preferred stock, with no par value. Common and preferred shares are classified as shareholders’ equity. Any incremental costs directly attributable to any issuance of new shares or stock options are shown in shareholders’ equity as a deduction from the proceeds, net of tax.

2.19 Revenue Recognition Revenue consists of the fair value of a consideration received or receivable for a sale of products and services in the ordinary course of the Company’s business. Revenues are shown net of taxes, refunds, rebates and discounts. The Company recognizes revenues when the corresponding amounts can be reliably measured and future economic benefits to the entity are likely to result from the transaction. No revenue is recognized if the realization thereof is significantly uncertain.




(a) Product Sales Revenues from product sales are recognized in the statement of income when all the risks and benefits inherent in the relevant product are transferred to the purchaser, i.e. for FOB sales, revenues are recognized at the time that each buyer picks up the goods at a Company site, while for CIF sales, the revenue is only recognized after the goods are delivered to the location designated by the customer.

(b) Interest Income

Interest income is recognized on an accrual basis, using the effective interest method. When a loan or receivable instrument is impaired, the Company reduces the carrying amount to its recoverable amount, which corresponds to the estimated future cash flow, as discounted at the original effective interest rate of the relevant instrument.

(c) Dividend Income Dividend income is recognized when the right to receive payment is established.

(d) Other Income and Expenses Other income and expenses are recognized in the income statement on the accrual basis of accounting.

2.20 Dividend Payout and Return on Equity Capital Dividend payouts and returns on equity capital paid to the Company’s shareholders are recognized as a liability at the end of the fiscal year or in such shorter periods as may be determined by the Management Board based on the Company’s by-laws. Any amount in excess of the compulsory minimum amount is only provided for on date of approval thereof by the Management Board and the relevant Shareholders’ Meeting. The tax benefit of return on equity capital is recognized in the statement of income.

2.21 Changes in Accounting Policies and Disclosures

The new standard below have been issued by the IASB, but are not effective for the fiscal year 2017. While it is encouraged by the IASB, the early adoption of rules is not permitted by the Accounting Pronouncements Committee (CPC).

(i) IFRS 15/CPC 47 (Revenue from Contracts with Customers): This new standard introduces the principles an entity will apply to determine how the revenue is measured and when it is recognized. This standard is based on the principle that the revenue is recognized when control over the goods or services is transferred to a customers. Accordingly, the control principle will replace the risks and benefits principle. It takes effect on January 1st, 2018 and replaces IAS 11/CPC 17 (Construction Contracts), and IAS 18/CPC 30 (Revenues), as well as their relevant interpretations. Management expects the following impacts from its adoption of the new rule as of January 1st, 2018: For the purposes of transitioning to CPC 47, the Company has opted for the modified retrospective method, i.e. without re-presentation of the comparative figures for the previous year (2017), and with the accumulated impacts of initial adoption fully entered against retained earnings as of January 1st, 2018. Currently, revenues from contracts with customers that are eligible for the purposes of CPC 47 refer to sales of chemicals where the dealings do not imply any after-sales obligations, including incorporated services, customer retention programs, performance-linked discounts or in any other form. The Company estimates that there will be no potential effects in respect of the new standard as of January 1st, 2018.

(ii) IFRS 9/CPC 48 (Financial Instruments): It addresses the classification, measurement and recognition of financial assets and liabilities. The full version of IFRS 9 was published in July of 2014, to take effect as of January 1st, 2018 and replace IAS 39/CPC 38, which refer to the classification and measurement of financial instruments. The main changes IFRS 9 brings about are: (i) new criteria for classification of financial assets; (ii) a new impairment model for financial assets, a hybrid of expected and incurred losses, to replace the current incurred losses model; and (iii) relaxation of requirements for adopting hedge accounting. Management has reviewed their financial assets and liabilities, and expects the following impact from their adoption of the new standard as of January 1st, 2018: In the Company’s assessment, the following impacts are estimated from its adoption of CPC 48 based on its position as of December 31st, 2017:

• Impairment losses will increase the provision previously recognized under CPC 38 by R$100 to R$300. The Company is in the processes of preparing a methodology and defining impairment loss under CPC 48.




The Company intends to take advantage of an exemption that allows it to not re-present any comparative information for previous periods as a result of changes in the classification and measurement of financial instruments (including expected credit losses). The differences in carrying amounts of financial assets and liabilities resulting of the adoption of CPC 48 will be recognized in retained earnings and reserves as of January 1st, 2018.

(iii) IFRS 16 (Leases): This new standard requires a lessee to recognize liabilities for future payments and a right-of-use asset representing its right to use the underlying leased asset for practically all lease agreements, operational leases, while the scope of this new standard may exclude certain agreements concluded for short period or involving small amounts. The criteria for recognition and measurement of leases in the lessor’s financial statements remain substantially unchanged. IFRS takes effect for fiscal years commencing on or after January 1st, 2019 and replaces IAS 17/CPC 06 (Leases), as well as the relevant interpretations. This rule is mandatory for fiscal years commencing on or after January 1st, 2019. Management intends to take the simplified transition approach and will not re-present any comparative amounts for the year preceding that of such adoption. Potential impacts of adopting this standard on the Company’s financial statements are being assessed, and a conclusion will be reached by the date when the standard takes effect. There are no such other IFRSs or CPCs or IFRIC interpretations having not yet taken effect as might have a significant impact on the Company’s financial statements.

3 Critical Accounting Estimates and Judgments Accounting estimates and judgments are continuously reviewed and based on historical experience and other factors, including future events that are reasonably expected to occur given existing circumstances.

3.1 Critical Accounting Estimates and Assumptions Based on assumptions, the Company makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the corresponding actual results. Estimates and assumptions posing a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities for the next fiscal year are addressed below:

(a) Income Tax and Social Security Funding Tax on Net Profit The Company records deferred income and social security funding tax assets on income tax losses and social security funding tax losses. The recognition of these assets takes into consideration the expectation of future taxable profit. Estimates of future results that will allow these assets to be offset are based on the Company’s budget, which is reviewed and approved by the Management Board taking into consideration economic scenarios, discount rates and other variables that may not materialize.

(b) Pension Plan

The Company recognizes regular future contributions at present value, calculated by the projected unit credit method in respect of the Defined-Contribution Plan. The amount recorded in the “Private Pension Plan” account represents the estimated value of reductions of future contribution payments that will benefit the Company. Such value depends on a series of variables and assumptions regarding the discount rates and actual market conditions. Any change in those assumptions will affect the corresponding carrying amounts.

(c) Provisions for Contingencies

The Company discusses tax, labor and civil issues in administrative proceedings and lawsuits in the ordinary course of its business, and a provision for future payments is made based on the analysis performed by Management, in conjunction with their legal counsel. Any changes in decision trends or the case law may alter the estimates concerning provisions for contingencies.




3.2 Critical Judgments in Applying the Entity’s Accounting Policies The items in which the use of judgment can be considered more relevant refer to the determination of property, plant and equipment life spans, provisions for labor and tax liabilities, and provisions for doubtful debtors and asset impairment.

4 Financial Risk Management

4.1 Risk Factors The Company’s business exposes it to a variety of financial risks: market risks (including currency risk, interest rate risk and price risk), credit risks, liquidity risks, and the risk resulting from dependence on basic inputs. Risk management is carried out by the Executive Finance and IT Management in accordance with the policies approved by the Management Board. The Executive Finance and IT Management identifies, assesses and hedges the Company’s financial risks in cooperation with the operating units. The Audit and Risk Management Committee, which advises the Management Board, is responsible for risk exposure and tolerance policies and for assessing particular situations and the Company’s internal control processes and risk management framework. Concerning financial instruments, the risk management activity is carried out by Management according to operating strategies and aiming at liquidity, profitability and security. The control policy consists of the ongoing monitoring of contracted rates against those prevailing in the marketplace. The Company does not make any speculative investments in derivatives or any other risk assets.

(a) Market Risks

(i) Currency Risk Foreign exchange rate fluctuations may lead to reduction in value of assets or increase in liabilities. Since part of its revenues originates in exports, the Company generates assets in foreign currency in amounts higher than its liabilities in foreign currency as well, the latter arising out of importation of raw materials and equipment required for its regular operations or out of foreign borrowing on convenient terms. To prevent incurring or mitigate foreign exchange risks to the fullest extent possible, which is one of its key financial policies, the Company uses advances against exchange contracts, as well as financial derivative transactions, to avert unbalance between assets and liabilities in foreign currency. The net exposure and sensitivity to foreign exchange rate fluctuations are presented in Note 4.1 (e).

(ii) Derivative Transactions For 2017, in order to hedge against foreign exchange rate fluctuations, the Company contracted the derivative transactions relating to USD-CDI (the initials in Portuguese for Interbank Deposit Certificate) rate swap agreements. Details of these transactions are provided in Note 35.

(iii) Cash Flow or Fair Value Risk Associated with Interest Rates

Interest rate risk is the risk that the Company may incur losses due to interest rate fluctuations. This risk is continuously monitored in order to assess any possible need for contracting derivative transactions for hedging against volatility in interest rates. The required sensitivity analysis is shown in Note 4.1 (e).

(iv) Product and Input Price Risk The Company faces competition with Brazilian and international producers, and the prices for most of its products are fixed based on international markets. An increase in competition, as well as any unbalance between supply and demand, may force the Company to lower its prices, thereby harming results.

(b) Credit Risk

Credit risk arises from cash and cash equivalents and deposits with banks and other financial institutions, as well as credit exposures to domestic and foreign customers, including outstanding receivables. The credit risk in receivables is managed by a Credit Operating Committee, consisting of the staff members of offices of the Executive Finance and IT Management, Managing and Sales Directors and the Executive Financial Manager. The Company’s sales show a low degree of concentration, as no one customer accounts for more than 13 percent of its net revenues. The Company has a credit policy in place setting limits and repayment times consistent with liquidity standards determined by




several rating tools. In addition to diversification in the domestic market, a significant portion of its products is intended for foreign markets, following the same risk assessment procedure. As regards financial and other investments, the Company’s policy is to contract with prime institutions and to avoid concentrating investments in any one business group. No credit limits were exceeded during the fiscal year, and Management does not expect any significant losses to arise out of any default on the part of any of these counterparties other than losses already provided for in these statements.

(c) Liquidity Risk Cash flow forecasting is performed by the Finance Department, which monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The control of the Company’s liquidity position is carried out daily through the monitoring of cash flows. The surplus cash held is monitored by the Finance Department. The Company invests its surplus cash in financial investments and marketable securities with appropriate maturities or sufficient liquidity to provide sufficient margins, as determined by the aforementioned forecasts. As of the reporting date, the Company had investments in Bank Deposit Certificates (CDB, the initials in Portuguese) and funds with banks in the amount of R$53,337 (R$32,107 on December 31st, 2016), in investment funds of R$3,020 (R$1,661 on December 31st, 2016), and in marketable securities of R$3,587 (R$3,335 on December 31st, 2016), which are expected to promptly generate cash inflows for managing the liquidity risk. The table below shows the maturity of the financial liabilities and trade payables contracted by the Company as at the closing date of these financial statements: On December 31st, 2017:

Less than one

year Between 1 and

3 years Between 4 and 5

years Total Trade payables 54,252 - - 54,252 Borrowings 80,807 84,032 3,950 168,789 Other liabilities 8,901 15,408 - 24,309 Total 143,960 99,440 3,950 247,350

On December 31st, 2016:

Less than one

year Between 1 and

3 years Between 4 and 5

years Total Trade payables 33,450 - - 33,450 Borrowings 67,715 122,539 26,987 217,241 Other liabilities 22,688 409 - 23,097 Total 123,853 122,948 26,987 273,788

The projections included in the budget approved by the Management Board for the next year demonstrate the Company’s ability to generate cash and meet its liabilities if said projections materialize.

(d) Dependence on Basic Inputs

Due to price volatility in international markets, price increases for key inputs —such as propene, ortho-xylene, sulfur, natural gas, benzene, and electric power, amongst others— may influence the Company’s cost structure, thereby affecting its results.

(e) Additional Sensitivity Analysis – Foreign Exchange and Interest Rate Risk Based on the balances of assets and liabilities exposed to foreign exchange rates on December 31st, 2017, the Company prepared two simulations with increases in the foreign exchange rates (R$/US$) of 25 and 50 percent. The probable scenario considers the Company’s projected foreign exchange rates at the maturity of the transactions. As shown in the table below, considering a low net exposure, exchange rate fluctuations within the simulated limits would have no significant impacts on the Company’s results.




The Company carried out two simulations regarding the interest rates on borrowings and the return on financial investments at the Interbank Deposit Certificate (CDI, the initials in Portuguese) rate with increases and decreases of 25 and 50 percent, the results of which are shown in the table below.

4.2 Capital Management The Company conducts its capital management in such a manner as to ensure its ability to carry on with its operations, while providing returns to its shareholders and controlling its level of indebtedness by monitoring its financial leverage ratio. This ratio corresponds to the net debt divided by the total capital. The net debt, for its part, corresponds to the total borrowings (including both short and long-term borrowings, as shown in the balance sheet) minus the cash and cash equivalents amount. The total capital is determined by adding the shareholders’ equity, as shown in the balance sheet, to the net debt.

FOREIGN EXCHANGE RISK Balance Effects on Results up to Maturity

Transaction 12/31/2017 Probable Possible Remote (+/- 25%) (+/- 50%)

FINANCIAL ASSETS

Export Receivables 20,472 53 USD Depreciation (5,131) (10,263) USD Appreciation 5,131 10,263

Total Financial Assets 20,472

FINANCIAL LIABILITIES

BNDES – Revolving Credit 6,579 (1,148) USD Depreciation 1,932 3,864 USD Appreciation (1,932) (3,864)

Foreign Exchange Discount (-) SWAP 704 (20) USD Depreciation 181 362

USD Appreciation (181) (362)

Foreign Trade Payables 15,598 (40) USD Depreciation 3,910 7,819 USD Appreciation (3,910) (7,819)

Total Financial Liabilities 22,881

USD Depreciation 892 1,782 USD Appreciation (892) (1,782)

NET EXPOSURE (2,409) (1,155)

INTEREST RATE SENSITIVITY

Possible Remote Transaction (+/- 25%) (+/- 50%)

Financial investments Decrease (208) (418) Increase 207 412

Borrowings Decrease 667 1,342 Increase (658) (1,308)

NET EXPOSURE 8 28




In order to maintain or adjust its capital structure, the Company may review its dividend payout policy, return capital to shareholders or even issue new shares or otherwise dispose of assets to reduce its indebtedness, for example. For 2016, especially due to the decrease in the Company’s shareholders’ equity resulting from the losses for the period, the debt ratio reached 63 percent of the Total Capital. Nevertheless, thanks to its good operational performance for 2017, the Company has managed to lower its level of indebtedness to 43 percent of the Total Capital. The financial leverage ratios as of December 31st, 2017 and 2016 can be summed up as follows:

4.3 Fair Value Estimation The carrying values of trade receivables and trade payables minus impairment are assumed to be near their fair values. The fair value of financial liabilities, for reporting purposes, is estimated by discounting future contractual cash flows at the interest rate currently prevailing in the market that is available to the Company for similar financial instruments. The Company applies CPC 40/IFRS 7 for financial instruments that are measured in the balance sheet at fair value, which requires disclosure of fair value measurements by level, according the following fair value measurement hierarchy: . Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). . Inputs, other than quoted prices, included at level 1 that are observable market data for the asset or liability, whether directly

(i.e. prices) or indirectly (i.e. derived from prices) (level 2). . Inputs for the assets or liabilities that are not based on observable market data (i.e. unobservable inputs) (level 3).

4.4 Derivative Financial Instruments

Derivatives are initially recognized at their fair value on the conclusion date of a derivative agreement and subsequently re-measured at their fair value. Such derivative instruments do not qualify for recognition as hedging. Any changes in the fair value of any such derivative instruments are promptly recognized in the statement of income in “Other gains (losses), net”. The fair value of financial instruments not traded in active markets is determined using evaluation techniques. The Company exercises its judgment to choose various methods and specify their underlying assumptions especially in the market conditions prevailing on the date of the balance sheet.

December 31st,

2017 December 31st,

2016

A - Total borrowings (note 19) 168,789 217,241

B - (-) Cash and cash equivalents (note 7) (56,357) (33,768)

C - (+/-) Swap – short leg (-) long leg (note 35) (430) 3,467

D = (A – B – C) – Net debt 112,002 186,940

E - Total shareholders’ equity 151,278 111,383

F = (D + E) – Total capital 263,280 298,323

D / F = Financial leverage ratio 43% 63%




5 Financial Instruments by Category

December 31st, 2017

Available-

for-sale

financial

assets

Held-to-

maturity

investments

Assets measured at

fair value through profit

or loss

Loans and receivables

Total

Assets as per balance sheet

Trade and other receivables,

excluding prepayments

153,146 153,146


56,357 56,357

Held-to-maturity investments

3,587 3,587

Total

- 3,587 - 209,503 213,090

December 31st, 2017

Other financial liabilities

Total

Liabilities as per balance sheet

Borrowings and financing

168,789 168,789

Other payables

24,309 24,309

Trade payables 54,252 54,252 Total

247,350 247,350

December 31st, 2016

Available-

for-sale

financial

assets

Held-to-

maturity

investments

Assets measured at

fair value through profit

or loss

Loans and receivables

Total

Assets as per balance sheet

Trade and other receivables,

excluding prepayments

138,535

138,535


33,768

33,768

Held-to-maturity investments 3,335 3,335

Total

- 3,335

- 172,303

175,638

December 31st, 2016

Other financial liabilities

Total

Liabilities as per balance sheet

Borrowings and financing

217,241

217,241

Other payables

23,097

23,097

Trade payables

33,450

33,450

Fair value financial liabilities 3,467 3,467 Total

277,255

277,255




6 Credit Quality of Financial Assets The credit quality of financial assets pertaining to current and non-current trade receivables is assessed by an internal customer credit rating methodology which considers each customer’s listing time and track record of payments, resulting in the rating of financial assets into four categories:

Rating Listing Time Track Record of Payments

A Over 5 years Timely

B Over 3 years Average delay of up

to 1 day

C 3 years or less Average delay over

1 day

D - In Default

Rating December 31st,

2017 December 31st,

2016 A 50.7% 30.0%

B 1.6% 2.3%

C 28.3% 45.9%

D 19.4% 21.8%

Bank deposits and financial investments amounting to R$56,357 (R$33,768 on December 31st, 2016) are classified as posing a low short-term risk.

7 Cash and Cash Equivalents, Marketable Securities and Available-for-Sale Financial Assets

(a) Cash and cash equivalents

The short-term investments were classified as held for trading and are basically represented by floating-rate Bank Deposit Certificates (CDB) with prime financial institutions, bearing interest at the CDI rate. On December 31st, 2017 the average rate of return on the investments was 99.32 percent of the CDI rate (99.64% of the CDI rate on December 31st, 2016).

(b) Held-to-Maturity Investments On December 31st, 2017 the Company had a balance of R$3,587 (R$3,335 on December 31st, 2016) concerning financial investments that it intends to hold up to maturity. These financial investments bear interest at 100 percent of the CDI rate.

December 31st,

2017 December 31st,

2016

Cash in banks and on hand 75 815

Short-term financial investments – CDI 53,262 31,292

Short-term financial investments – investment funds 3,020 1,661

Total 56,357 33,768




8 Trade Receivables

December 31st, 2017

December 31st, 2016

Domestic trade receivables 104,882 82,897

Trade receivables abroad 20,472 17,511

Provision for doubtful debtors (2,991) (3,059)

Total current 122,363 97,349

Domestic trade receivables 26,076 26,244

Provision for doubtful debtors (26,076) (25,808)

Adjustment to present value - (72)

Total non-current - 364

Total trade receivables 122,363 97,713

Trade receivables are amounts receivable from customers and reduced through a provision to their probable realizable values. The provision for doubtful debtors is made in an amount considered sufficient by Management to cover any possible losses on the realization of trade receivables. The Company reviews its receivables portfolio on a quarterly basis by assessing expectations for realization of the relevant credits. Such an assessment will primarily consider: (i) change in listing information; (ii) economic and financial information; (iii) track record of purchases and payments; (iv) restrictive information in the marketplace; (v) consultation of external information systems; and (vi) guarantees. For all customers commencing judicial reorganization, provisions are promptly made in amounts ranging from 20 to 100 percent of the affected credits receivable. Such provisions are based on case-by-case analyses and reviewed to the extent that the customer’s situation evolves as a result of their submission of a reorganization plan and related terms, whether or not the plan is approved at a meeting of creditors, a judgment as to whether or not the customer can actually succeed in implementing that plan, etc. The fair values of trade receivables are near their carrying amounts on December 31st, 2017 and December 31st, 2016, and no one of the Company’s customers accounted for more than 13 percent of its total revenues in any of these periods. The table below shows the balances of accounts receivable by age past maturity:

On December 31st, 2017 trade receivables overdue for up to 60 days in the amount of R$7,476 (R$3,022 on December 31st, 2016) with losses of R$156 (R$252 on December 31st, 2016) refer to a series of independent customers which have no recent default in their track record, are extensions and normal delays. Receivables overdue for more than 61 days, in the amount of R$29,809 (R$28,630 on December 31st, 2016) with losses of R$28,911 (R$28,615 on December 31st, 2016) substantially refer to customers in judicial reorganization. Full provisions have been made for receivables from such customers.

December 31st,

2017 December 31st,

2016

Not yet due 114,145 95,000

Overdue for up to 30 days 6,011 2,804

Overdue for 31 to 60 days 1,465 218

Overdue for 61 to 90 days 946 136

Overdue for 91 to 120 days 113 156

Overdue for over 120 days 28,750 28,338

(-) Provision for doubtful debtors (29,067) (28,867)

(-) Present value adjustment - (72)

Total 122,363 97,713




The changes in the Company’s provision for doubtful debtors were as follows:

December 31st, 2017

December 31st, de 2016

Opening Balance 28,867 2,080

(+) Formation of provision 778 6,697

(+) Formation of long-term provision - 20,300

(-) Realization of provision (578) (210)

Closing Balance 29,067 28,867

Classified as:

Current 2,991 3,059

Non-current 26,076 25,808

The formation and de-recognition of the provision for doubtful debtors were recorded in the statement of income for the fiscal year as “other operating expenses”. The Company’s trade accounts receivable are denominated in the following currencies:

December 31st,

2017 December 31st,

2016

Reals 101,891 80,201

Euros 567 996

US Dollars 19,905 16,516

122,363 97,713

9 Inventories

December 31st, 2017

December 31st, 2016

Finished products 41,088 54,513

Raw, auxiliary and packaging materials 29,405 43,471

General warehouse 13,250 12,860

Provision for losses on inventories (i) (4,693) (6,824)

Total 79,050 104,020

The provision for losses on inventories is formed for those products which are considered obsolete on the date of the financial

statements.

The cost of inventories recognized as expenses and included in “Cost of sales” totaled R$825,186 on December 31st, 2017 (R$730,803 on

December 31st, 2016).




10 Taxes Recoverable

December 31st,

2017 December 31st,

2016

Taxes recoverable/to be offset Social Security Funding Tax on Net Profit 12 60

Income tax 802 1,264

ICMS to be offset on acquisition of assets 1,614 1,626

(-) Impairment of ICMS credits on acquisition of assets (204) (252)

ICMS credit balance – State of Bahia 4,997 3,226

Tax credit related to the “Reintegra” program 1,035 118

Federal tax credits to be offset arising from lawsuits upon final judgment (¹) 20,366 14,639

Other 471 1,128

Total 29,093 21,809

Classified as: Current 28,412 8,086

Non-current 681 13,723

(¹) That tax credits will be offset during the fiscal year 2018 against the PIS and COFINS taxes payable and the Social Security contribution on payroll.

11 Deferred Taxes For the purposes of a better presentation and in accordance with the provisions of CPC 32 (Taxes on Profit), the Company is presenting deferred tax assets net of differed tax liabilities. The amounts for future offsets are as follows:

December December

31st 31st

2017 2016

Net of deferred taxes recoverable within 12 months 980 -

Net of deferred taxes recoverable within more than12 months

17,365 18,345

Deferred taxes, net 18,345 18,345




Net changes in the deferred tax account are as follows:

Deferred tax assets are recognized for tax loss purposes proportionally to the probability of realizing the relevant tax benefit through future taxable profit. The Company did not recognize any deferred taxes as of December 31st, 2017 in the amount of R$119,255 (R$134,390 on December 31st, 2016) for a tax loss, as of December 31st, 2017, in the amount of R$186,812 and a negative CSL base of R$ 157,111 (tax loss of R$186,812 on December 31st, 2016 and negative CSL base of R$160,674), which can be offset against future taxable profit. ( ¹ ) Amount recoverable within 10 years, according to projected tax assets.

12 Other Assets

December 31st,2017

December 31st,2016

Restricted and court deposits 6,833 9,165

Participation in pension fund - Plan CD 10,395 11,286

Disposal of property, plant and equipment (¹) 12,153 15,821

Other amounts receivable 1,402 4,550

Total 30,783 40,822

Classified as:

Current 5,283 7,417

Non-current 25,500 33,405

(¹)In August 2015 the Company disposed of a property it owned located in the municipality of Várzea Paulista for R$23.500, with payments to be received in 64 installments adjusted for currency depreciation by the IGPM + 2% p.a., having already received a R$3,000 installment. In compliance with CPC 12 (Present Value Adjustment), the Company computed the present value adjustment (PVA) of accounts receivable by deducting the installments at the CDI in the amount of R$8,347 and recognizing the PVA in trade receivables, short and long-term installments.

Opening

Balance 12/31/16

Formation Reversal

Closing Balance 12/31/17

Deferred tax assets

Tax losses and negative tax bases 61,164 - (321) 60,843

Provision for doubtful debtors 9,839 264 (221) 9,882

Provision for labor contingencies 7,424 1,207 (2,866) 5,765

Provision for tax contingencies 3,318 830 (3,137) 1,011

Impairment of PPE and intangible assets 52,631 - (9,138) 43,493

De-recognition of shut-down plants in property, plant and equip. 10,193 - - 10,193

Miscellaneous provisions 14,864 5,836 (7,439) 13,261

Present value adjustment 855 45 (180) 720

Disposal of deferred charges 170 - (114) 56

Research and projects 68 - (68) -

Total deferred tax assets 160,526 8,182 (23,484) 145,224

Deferred tax liabilities

Miscellaneous provisions 3,954 136 - 4,090

Surplus contributions to pension plan 3,837 493 (796) 3,534

Total deferred tax liabilities 7,791 629 (796) 7,624

Total deferred tax, net 152,735 7,553 (22,688) 137,600 Summary:

Amount recoverable ( ¹ ) 18,345 - - 18,345 Amount of deferred taxes not assessed 134,390 7,553 (22,688) 119,255

Total deferred tax, net 152,735 7,553 (22,688) 137,600




13 Investments

The other investments do not represent any subsidiaries and/or associated companies, and their accounting balances are recorded at acquisition cost, net of impairment, where applicable.

May 2016 saw the Company acquire a 50-percent stake in the Nexoleum Bioderivados S.A., a joint venture engaged in the market for plasticizers from renewable sources by producing and providing bio-products in Brazil and such relevant regions as the United States and Europe.

14 Investment Property

December 31st,

2017 December 31st,

2016 Value of property, land and facilities, net of depreciation 2,029 2,037

The Company owns a piece of land and facilities in the municipality of Arujá which are classified as investment property. The fair

value as of December 31st, 2017, based on expert reports, is R$32,680 (carrying amount of the property on December 31st, 2017: R$1,461). There was no significant change in that amount until the date of these financial statements.

In September 2016 the Company accepted as payment of a debt owed by a customer an apartment located in the city of Canoas,

Rio Grande do Sul, which has been classified as investment property. The fair value as of December 31st, 2017, based on an expert report, is R$500 (carrying amount of the apartment on December 31st, 2017: R$568).

Cetrel S.A. Nexoleum Bioderivados S.A. Other Total Carrying Carrying Amount Amount Intangible Total

Balance on December 31st, 2016 5,463 3,582

13,922

17,504

5

22,972

Equity accounting -

1,091- -

1,091-

- 1,091 -

Amortization of intangible assets -

636 -

636 - -

636 -

Balance on December 31st, 2017 5,463 2,491

13,286

15,777

5

21,245

Asset Appreciation




15 Property, Plant and Equipment

The amount of R$17,825 (R$50,709 on December 31st, 2016) corresponding to depreciation expense was recorded in the statement of income in “Cost of sales”, while R$16,644 (R$49,061 on December 31st, 2016) and R$1,181 (R$1,648 on December 31st, 2016) were recognized in “General and administrative expenses”. On December 31st, 2017 the Company had items of property, plant and equipment, basically land, offered as guarantee in the defense of lawsuits in the amount of R$4,351.

Property, plant and equipment breakdown:

Land Buildings

Equipment and

facilities

Furniture & fixtures Vehicles

Data processing

equipment Construction in progress Impairment Total

Opening balance on 12/31/15 Cost 9,819 57,302 608,912 4,718 3,553 3,589 34,608 - 722,501

Accumulated depreciation - (43,287) (370,710) (3,171) (2,300) (2,895) - - (422,363) Net book amount 9,819 14,015 238,202 1,547 1,253 694 34,608 - 300,138

On 12/31/2016 Opening balance 9,819 14,015 238,202 1,547 1,253 694 34,608 - 300,138

Purchases - - 1,651 112 97 393 16,268 - 18,521

Disposals, costs - (4,832) (97,456) (217) (410) (218) - - (103,133) Disposals, accumulated depreciation - 3,881 67,020 156 360 216 - - 71,633

Depreciations - (1,810) (47,868) (301) (365) (365) - - (50,709)

Impairment (8,835) (132,891) (796) (131) (363) (7,501) - (150,517)

Transfers - 2,998 26,993 147 10 369 (32,527) - (2,010) Net book amount 9,819 5,417 55,651 648 814 726 10,848 - 83,923

Balance on 12/31/2016 Cost 9,819 55,468 540,144 4,753 3,250 4,130 18,349 635,913

Accumulated depreciation - (41,216) (351,602) (3,309) (2,305) (3,041) - (401,473)

Impairment (8,835) (132,891) (796) (131) (363) (7,501) (150,517) Net book amount 9,819 5,417 55,651 648 814 726 10,848 - 83,923

On 12/31/2017 Opening balance 9,819 5,417 55,651 648 814 726 10,848 - 83,923

Purchases - 34 1,687 28 247 170 24,246 - 26,412

Disposals, costs - - (331) (3) (156) (99) (2,123) - (2,712) Disposals, accumulated depreciation - - 234 1 120 86 - - 441

Depreciations - (1,974) (41,547) (286) (394) (364) - 26,740 (17,825)

Transfers - 709 20,813 100 36 55 (21,785) - (72) Net book amount 9,819 4,186 36,507 488 667 574 11,186 26,740 90,167

Balance on 12/31/2017

Cost 9,819 56,210 562,313 4,878 3,377 4,255 18,686 - 659,538

Accumulated depreciation - (43,189) (392,915) (3,593) (2,579) (3,318) - - (445,594)

Impairment - (8,835) (132,891) (797) (131) (363) (7,500) 26,740 (123,777) Net book amount 9,819 4,186 36,507 488 667 574 11,186 26,740 90,167




16 Intangible Assets

17 Impairment of Non-Financial Assets (Intangible and Property, Plant & Equipment)

In compliance with CPC 01, with a view to ascertaining the existence of assets stated at amounts exceeding their recoverable amounts, the Company has conducted an appraisal of the items making up its intangible assets and property, plant and equipment on December 31st, 2016. The Company found that the Alcohol, Maleic Anhydride and Polyester Resin Cash Generating Units displayed carrying amounts in excess of their recoverable amounts, leading it to proceed with the impairment of such assets, as shown below:

Intangible assets breakdown: Software

right to use

Trademarks

and patentsImpairment Total

Opening balance on 12/31/15 Cost 8,877 5,670 14,547

Accumulated amortization (4,534) (1,038) (5,572) Net book amount 4,343 4,632 - 8,975

On 12/31/2016

Opening balance 4,343 4,632 8,975

Purchases 76 - 76

Disposals, costs (626) - (626) Disposals, accumulated amortization 334 - 334

Amortization (1,573) (1,131) (2,704) Impairment (780) (3,501) (4,281) Transfers 2,010 - 2,010

Net book amount 3,784 - - 3,784

Balance on 12/31/2016

Cost 10,337 5,670 - 16,007

Accumulated amortization (5,773) (2,169) - (7,942) Impairment (780) (3,501) - (4,281) Net book amount 3,784 - - 3,784

On 12/31/2017 Opening balance 3,784 - - 3,784

Purchases 232 - - 232

Amortization (1,565) - 138 (1,427) Transfers 72 - - 72

Net book amount 2,523 - 138 2,661

Balance on 12/31/2017 Cost 10,641 - 10,641

Accumulated amortization (7,338) - (7,338) Impairment (780) 138 (642) Net book amount 2,523 - 138 2,661




In Million Reals

Cash generating unit Asset recoverable

amount

Intangible assets and PP&E

carrying amount

Impairment of property,

plant and equipment

Impairment of intangible assets

Total impairment

Maleic Anhydride (0.5) 11.1 (11.1) - (11.1)

Polyester Resin (3.8) 9.3 (9.2)

(0.1)

(9.3)

Várzea Paulista Site (4.3) 20.4 (20.3) (0.1) (20.4)

Alcohols (130.0) 122.9 (122.2) (0.7)

(122.9)

Utilities -

8.0 (8.0) -

(8.0)

Coskata intangible assets - 3.5 -

(3.5)

(3.5)

Camaçari Site (130.0)

134.4 (130.2)

(4.2)

(134.4)

Total (134.3) (154.8) (150.5) (4.3) (154.8)

The only Camaçari Cash Generating Unit is the Alcohol/Gas plant, which required impairment, wherefore the same treatment was extended to the assets of its supporting areas and indirect areas. In 2017 the Company conducted an impairment analysis of its intangible assets and property, plant and equipment for a period of 10 years, using economic assumptions published by Banco Itaú BBA for the next 5 years and extrapolating said assumptions for the following years, considering changes in its main raw materials and products according to projected market fluctuations. In spite of the improved performance displayed by the Company for 2017, long-term projects still confirm the 2017 impairment analysis, which has therefore been maintained by the Company.

18 Trade Payables; Salaries, Wages and Employee-Related Expenses; and Other Payables

December 31st, 2017

December 31st, 2016

Trade payables 54,252 33,450 Salaries, wages and employee-related expenses 9,669 10,231 Other payables 24,309 23,097

Total 88,230 66,778 Classified as: Current 72,822 66,369 Non-current 15,408 409




19 Borrowings Borrowings, which refer to investments in the expansion and modernization of facilities and in working capital, are characterized as follows:

12/31/2017 12/31/2016

Type Charges (%) Guarantees Amortization Ending CurrentNon-

current Current

Non-current

BNDES TJLP + 1.72-4.32 p.a.

Itaúsa Surety Monthly and Quarterly

02/15/2021 12,003 20,097 15,411 31,645

BNDES IPCA + 1.96-2.26 p.a.


04/15/2021 2,478 6,701 4,513 7,278

BNDES 3.00-6.00 p.a. Itaúsa Surety Monthly and Quarterly

02/15/2021 670 1,264 842 1,929

VENDOR - - - 230 -FINEP 3.50 p.a. Itaúsa Surety Monthly 04/15/2021 4,780 2,062 6,829BNB 9.50 p.a. Itaúsa Surety Monthly 12/29/2020 9,299 19,408 16 27,949SAFRA FINAME

TJLP + 4.50 p.a.

Monthly 09/15/2022 13177

--

NCE – SAFRA 127.00% CDI Half-yearly 06/27/2019 27,466 25,000 - 54,083

TOTAL NATIONAL CURRENCY 53,988 77,427 23,074 129,713

BNDES

EXCHANGE RATE FLUCTUATION + 2.12-2.16 p.a.


15/10/2020 2,800 3,780 3,817 6,463

NCE – ABC 129.25% CDI Yearly 07/04/2019 7,134 6,775 7,189 13,3504131 – ABC 129.00% CDI Itaúsa Surety Final 12/08/2017 - - 29,381 -4131 – SAFRA 131.70% CDI Itaúsa Surety Final 17/07/2018 16,885 - - -ACC – BRASIL 2.88% p.a. Final 07/05/2018 - - - -

EXP. PREPAYMENT

CDI + 5.22% p.a.

Half-yearly 02/23/2017 - - 4,254 -

TOTAL FOREIGN CURRENCY 26,819 10,555 44,641 19,813

TOTAL 80,807 87,982 67,715 149,526

The sureties securing the Company’s borrowings were granted by the shareholder Itaúsa S.A., amounting to R$102,223 on December 31st, 2017 (R$138,135 on December 31st, 2016). Borrowings classified as non-current liabilities break down as follows, by year of maturity:

December 31st,2017

December 31st, 2016

2018 - 57,747 2019 58,654 64,792 2020 25,378 23,550 2021 onwards 3,950 3,437

Total 87,982 149,526

In December 2015 the Company contracted R$27,949 in loan with Banco do Nordeste do Brasil S.A. (BNB), which funds are to be provided out the Northeast Financing Constitutional Fund (FNE, the initials in Portuguese), for the specific purpose of financing modernization of the gas plant located at the Camaçari petrochemical complex. The amount borrowed was released in one installment in April 2016, upon production of physical and financial evidence that the funds were fully applied in the manner set forth in the Gas Plant upgrade project. The principal amount of said loan will be repaid in thirty-six (36) installments, with an initial grace period of two years, and the first payment to be made in January 2018. The loan agreement provides for interest at the effective rate of 11.18% p.a., with a performance bonus equivalent to 15 percent of the effective rate, for payments made by the relevant due dates, which shall be made each quarter both during and after the grace period, on a monthly basis, together with the installment repayment of the principal amount of the debt.




Borrowing amounts are stated at their amortized costs, which are near their fair values. The following table provides details of changes in borrowings and the net debt breakdown:

Covenants In the ordinary course of its business, the Company borrows money from financial institutions and enters into commercial agreements with other entities, which are contractually formalized with their respective compliance, restriction and/or guarantee clauses (“covenants”). In general, the restrictions to which the Company is subject, especially as regards borrowing contracts with the BNDES (National Economic and Social Development Bank), refer to the appropriate allocation of funds from the bank, which are to be invested in the following: (i) capacity expansion; (ii) modernization of plants; (iii) environment; (iv) purchase of domestically-made machinery and equipment; and (v) implementation of production lines. For 2016, in face of the negative results for the period, the Company failed to comply with the following indicators under the agreement: Net Debt/EBITDA; and EBITDA/Net Financial Expanse. Its failure to achieve the specified values for these indicators did not lead to any changes to the terms and due dates of the debt. Under the financing agreement, the Company has posted real estate security by mortgaging items of its permanent assets.

20 Taxes Payable

December 31st,

2017 December 31st,

2016 Federal tax liabilities 4,247 3,103 State tax liabilities 1,683 1,291 Total current 5,930 4,394 COFINS (¹) - 25,567 Court deposits - (25,567) Total non-current - - Total taxes payable 5,930 4,394

(¹) The Company had a lawsuit on questioning the legality of charging a 1-percent tax rate difference in respect of an increase in the COFINS rate. In July of 2017, upon publication of a final, non-appealable judgment in that matter against the Company, the accrued liability of R$26,080 and related court deposits of R$26,084 were de-recognized.

Current Non- current

Total

debt

Cash & cash

equivalents Derivatives Net debt

Net debt as of January 1st, 2016 118,949 76,751 195,700 (37,605) - 158,095

Transactions affecting cash flow (98,326) - (98,326) 3,837 - (94,489) Transactions not affecting cash flow 3,374 - 3,374 - - 3,374

Purchase - 131,615 131,615 - - 131,615

Currency/foreign exchange fluctuations (15,122) - (15,122) - - (15,122)

Transfers current assets 58,840 (58,840) - - - -

Net debt as of December 31st, 2016 67,715 149,526 217,241 (33,768) 3,467 186,940

Transactions affecting cash flow (94,769) - (94,769) (22,589) - (117,358) Transactions not affecting cash flow 43,572 - 43,572 - (3,897) 39,675

Purchase 21,450 - 21,450 - - 21,450

Currency/foreign exchange fluctuations (18,705) - (18,705) - - (18,705)

Transfers current assets 61,544 (61,544) - - - -

Net debt as of December 31st, 2017 80,807 87,982 168,789 (56,357) (430) 112,002

Bank Loans




21 Provision for Contingencies The Company is a party to labor, civil and tax lawsuits and administrative proceedings arising in the ordinary course of business.

(a) Provisions for Tax, Labor and Civil Contingencies The provisions for labor, tax and civil contingencies are sufficient to cover any of the losses initially classified as probable. Management believes, based on the opinion of its legal counsel, that such provisions are sufficient to cover probable losses arising out any unfavorable decisions and that the relevant final and non-appealable court decisions will not have significant impacts on the Company’s financial and economic position, as shown below:

Tax Labor Civil Total

On January 1st, 2017 2,634 21,836 6,541 31,011

Adjustment for inflation 147 1,661 174 1,982

Formation 2,296 1,889 1,000 5,185

Reversal (1,919) (2,724) (668) (5,311)

Payments (184) (5,704) (262) (6,150)

On December 31st, 2017 2,974 16,958 6,785 26,717

Tax Labor Civil Total

On January 1st, 2016 160 16,974 6,220 23,354

Adjustment for inflation 74 2,088 951 3,113

Formation 2,400 4,567 864 7,831

Reversal - (689) (1,259) (1,948)

Payments - (1,104) (235) (1,339)

On December 31st, 2016 2,634 21,836 6,541 31,011

(i) Tax

Tax lawsuits likely to be lost refer to ICMS bookkeeping issues, an increase in the IPTU (real estate tax) rate, and miscellaneous matters.

(ii) Labor and Civil

The Company is a party to labor and civil lawsuits that are being handled by the relevant courts. Provisions pertaining to all such lawsuits are made when loss is deemed probable in the opinion of the attorneys responsible for such lawsuits and are fully stated in the balance sheet. The labor lawsuits mainly refer to claims of joint liability, occupational disease, salary equalization, and overtime. On the date of these financial statements, 69 lawsuits totaling R$16,958 (on December 31st, 2016, 105 lawsuits totaling R$21,836) had their outcomes classified as probable losses. Individually, the amounts involved in such labor claims do not represent a material risk to the Company’s operations. The civil lawsuits mainly refer to complaints arising out of environmental and commercial matters.




(b) Possible Losses

The Company is involved in other tax, labor and civil lawsuits for which no provision has been made because the likelihood of loss in those cases is only possible in the opinion of the Company’s legal counsel, as shown in the table below:

December 31st, 2017

December 31st,2016

Tax 48,677 48,512

Labor 86,040 38,557

Civil 6,056 5,119

Total 140,773 92,188

(i) Tax

The tax liabilities as of December 31st, 2017 refer to 64 lawsuits in the amount of R$48,677 (69 lawsuits in the amount of R$48,512 on December 31st, 2016) set in motion by tax assessment notices concerning especially the following themes: (i) assumed IPI (Tax on Industrial Products) credit offset amounting to R$3,971 (R$7,145 on December 31st, 2016); (ii) PIS and COFINS taxes on financial income amounting to R$4,931 (R$5,473 on December 31st, 2016); (iii) ICMS credits on purchases of raw materials originating in the Manaus Free-Trade Zone, in the amount of R$2,393 (R$2,344 on December 31st, 2016); (iv) social security contribution of R$3,320 (R$3,138 on December 31st, 2016); (v) irregularity in the ICMS Bahia bookkeeping in the amount of R$9,979 (R$9,343 on December 31st, 2016); (vi) PIS/COFINS tax credit on utilities amounting to R$4,970 (R$0.0 on December 31st, 2016); (vii) inclusion of the ICMS in the import ARFMM tax base in the amount of R$4,501 (R$0.0 on December 31st, 2016); and (viii) other lawsuits amounting to R$14,612 (R$21,069 on December 31st, 2016).

(ii) Labor and Civil Labor and civil liabilities refer to 168 lawsuits involving the amount of R$92,096 (146 lawsuits amounting to R$43,676 on December 31st, 2016) —the R$48,420 addition is mostly due to new lawsuits being filed over the year 3017, which are classified as possible. The main claims remain the same, i.e. pain and suffering damages, overtime, and joint liability in relation to third parties. Civil lawsuits refer especially to pain and suffering damages and pecuniary damages.

(c) Contingent Assets The Company is discussing in court the reimbursement of taxes, and it is also a party to civil lawsuits in which it has rights or the expectation of rights receivable. According to the assessment of the Company’s legal counsel, these lawsuits are classified based on the possibility of victory as probable, possible or remote. Since they are contingent assets, the amounts below are not recorded in the financial statements. The table below shows the main lawsuits pending decision to which the Company is a party where favorable outcomes are considered probable:

December 31st, 2017

December 31st, 2016

Tax PIS offset under Executive Laws 2,445 and 2,449 of 1988 18,307 - IRPJ, petition for review - 18,309 Other tax lawsuits involving amounts lower than R$10 million 9,455 4,495 Total tax 27,762 22,804 Civil Collection/foreclosure on securities out of court 14,790 14,263 Other civil lawsuits involving amounts lower than R$10 million 2,778 2,895 Total civil 17,568 17,158




(d) Adherence to Tax Amnesty Programs

(i) Adherence to PERT (Special Tax Liability Settlement Program) In 2017 the Company adhered to a special tax liability settlement program of the federal government, known as PERT, to settle

three lawsuits whose risks of loss were rated as possible, two of which with the PGFN (National Treasury Prosecution Service). The amounts in question were disbursed in the second half of 2017, totaling R$239 —in January of 2018, part of the IRPJ (business income tax) loss, in the amount of R$6,612, will be used to settle those cases.

(ii) Adherence to the 2017 Concilia Bahia Program

In 2017 the Company adhered to the tax liability settlement program of the State of Bahia, known as Concilia Bahia 2017, to settle to tax assessment notices in the total amount of R$973, which was disbursed in the second half. The risk of losing these cases was rated as possible.

(iii) Adherence to the PPI (Special Installment Program)

In 2017 the Company adhered to the tax liability settlement program of the Várzea Paulista City Hall known as PPI to settle 9 IPTU related lawsuits for the fiscal years 2008 and 2009, having paid a total amount of R$88 in second half, of which lawsuits 7 were rated likely to be lost, with a provision of R$103, and 2 were rated for risk of loss as possible.

22 Shareholders’ Equity

(a) Capital Stock On December 31st, 2017 the subscribed and paid-up capital stock amounted to R$103,057 (R$322,000 on December 31st, 2016), divided into 31,485,170 book-entry shares with no par value, 14,518,150 of which were common shares, and 16,967,020 non-voting preferred shares (on December 31st, 2016, 31,485,170 book-entry shares with no par value, 14,518,150 of which were common shares, and 16,967,020 non-voting preferred shares). The Annual and Special Shareholders’ Meeting convened on April 11th, 2007 approved a paid-up capital reduction from R$322,000 to R$103,057 through the absorption of R$218,943 in loss not covered by retained earnings.

(b) Characteristics of Shares The non-voting preferred shares have the following characteristics: (i) Priority over common shares in the distribution of mandatory minimum dividends; (ii) Dividends per preferred share are never to be inferior to those attributed to each common share; (iii) Share in capital increases arising out of the capitalization of reserves and profits; (iv) Priority over common shares in capital reimbursement, without premium, in the event that the Company is liquidated; (v) In the event of transfer of control, the right to be included in the public offering for the acquisition of shares, so as to

ensure a unit price equivalent to 80 percent of the amount paid for each voting share in the control stock; (vi) Minimum annual non-cumulative priority dividend of R$2.00 per thousand shares, to be adjusted in the event of split

or reverse split.

(c) Capital Reserve

Made up with credits arising from the income tax reduction incentive and the FINOR directly stated in shareholders’ equity. On December 31st, 2017 it amounts to R$8,326 (R$8,326 on December 31st, 2016).

(d) Revenue Reserves The revenue reserve is composed of the following reserves:

(i) Statutory Reserve

The statutory reserve is made annually as an appropriation of 5 percent of the net profit for the fiscal year and cannot exceed 20 percent of the capital stock. The purpose of the statutory reserve is to ensure the integrity of capital stock, and it can only be used to offset losses and increase the capital. On December 31st, 2017 the statutory reserve amounted to R$1,635 (R$0.00 on December 31st, 2016).




(ii) Special Reserve

The special reserve is formed out of the net profit balance remaining after the statutory reserve has been formed and dividends have been paid out, and serves the following purposes: (a) exercise of preemptive subscription rights in capital increases of any investees; (b) any future additions of the relevant funds to the capital stock; and (c) payment of interim dividends distributable according to the decision of the Management Board, subject to approval by the Shareholders Meeting. On December 31st, 2017 the special reserve amounted to R$23,302 (R$0.00 on December 31st, 2016). (iii) Tax Incentive Reserve The tax incentive reserve is formed out credits resulting from an income tax cut that are recorded in the income statement for the fiscal year, which are subsequently transferred to the tax incentive reserve and excluded from the dividend calculation because, according to the tax laws for the time being in force, they cannot be distributed to shareholders. On December 31st, 2016 it amounted to R$13,310, which was absorbed by the loss recorded for the fiscal year 2016. On December 31st, 2017 the company is reinstating this reserve in the amount of R$13,310, and its current total balance is R$14,958.

(e) Proposed Dividends

The shareholders are entitled to receive, as compulsory dividend, an amount equivalent to 25 percent of the net profit determined for the fiscal year, as adjusted by subtracting or adding the amounts specified in article 202, items (a) and (b), of Law no. 6,404/76, subject to sections II and III of that same statute. The dividend calculation is demonstrated in Note 31.

23 Revenues The reconciliation of gross revenues to net revenues is shown in the following table:

December 31st, 2017

December 31st,

2016 Gross sales revenues 1,217,937 967,502 Domestic market 1,164,772 918,528 Foreign market 53,165 48,974 Taxes on sales and returns (IPI, ICMS, PIS, COFINS) (239,396) (196,717) Net sales revenues 978,541 770,785




24 Expenses by Nature

December 31st, 2017

December 31st, 2016

Raw materials and consumables 734,459 594,419

Compensation, payroll charges and employee benefits 82,555 94,862

Variable selling expenses 47,536 37,913

Depreciation and amortization 19,252 53,413

PIS and COFINS credits on depreciation (2,395) (2,933)

Maintenance expenses 8,524 10,568

Third-party services 13,508 16,660

Profit sharing 9,118 -

Other expenses 24,275 28,453

Total 936,832 833,355

Cost of sales 825,186 730,803

Selling expenses 47,536 37,913

General and administrative expenses 64,110 64,639

Total 936,832 833,355

25 Other Revenues (Expenses), Net

December 31st, 2017

December 31st, 2016

Tax reversals (provisions), net (2,344) (2,589)

Labor reversals (provisions), net (118) (6,327)

Civil and environmental reversals (provisions), net (388) (382)

Reversals (provisions) for losses on inventories 2,131 4,082

Insurance indemnity - 4,978

Projects and research (261) (958)

Variation in the pension plan of Fundação Itaúsa Industrial (891) (561)

PIS and COFINS credits on purchases of raw materials (i) 15,320 15,316

Ratification of tax credits (ii) 16,259 823

Compensation payments for Camaçari phthalic anhydride and plasticizer

plant shut-down - (10,882)

Camaçari phthalic anhydride and plasticizer plant shut-down (iii) - (51,305)

Reversals (provisions) for doubtful debtors (iv) 361 (21,885)

Advantageous purchase (v) - 4,987

Disposal of property, plant and equipment (net) (71) (2,422)

Impairment of intangible assets and property, plant and equipment (vi) - (154,798)

Other expenses (3,913) (12,932)

Total other revenues (expenses), net 26,085 (234,855)




(i) Relating to Law 12,859 of September 10th, 2013, which granted tax incentives to the chemical industry by means of assumed credits and lower PIS/PASEP and COFINS tax rates on purchases of raw materials. (ii) During the fiscal year 2017, the Company recognized tax credits upon succeeding in securing final, non-appealable judgments in its favor in the relevant lawsuits. (iii) Plant shut-down expense breakdown: R$29,979 in de-recognition of property, plant and equipment; R$15,000 for making a provision for plant dismantling; and R$6,326 in de-recognition of inventories. (iv) A complement to the provision for doubtful debtors concerning customers undergoing judicial reorganization, among others, including an additional R$20.3-million adjustment made in December of 2016. (v) As mentioned in note 13, it refers to the gain on the advantageous purchase of a joint ventures, as defined in CPC 18. (vi) Upon review of the projected income and cash flows for its production plants, the Company recognized an impairment of its assets in the amount of R$134,383, for the oxo alcohol plant, the amount of R$11,092 for the maleic anhydride plant, and the amount of R$9,323, for the resin plant.

26 Financial Income (Expenses) The financial result comprises the following financial income and expense items:

December 31st, 2017

December 31st, 2016

Financial income

Return on financial investments 4,023 4,933 Foreign exchange gains 27,888 18,705 Interest and discounts earned 2,677 1,702 Reversal of present value adjustment 510 232 Other 344 2,282 Total financial income

35,442 27,854 Financial expenses

Charges on borrowings (16,992) (21,456) Foreign exchange losses (30,125) (21,517) Derivative transactions (2,931) Other (3,686) (1,870) Total financial expenses

(53,734) (44,843) Total financial income (expenses), net (18,292) (16,989)

The amounts above are shown in the “financial income (expenses)” account in the statement of income for the fiscal year.

27 Foreign Exchange Gains (Losses), Net The exchange differences (charged) credited to the statement of income are as follows:

December 31st, 2017 December 31st, 2016Foreign exchange fluctuation gain 27,888 18,705Foreign exchange fluctuation loss (30,125) (21,517) (2,237) (2,812)

The amounts above are shown in the “financial income (expense)” account in the statement of income for the fiscal year.




28 Income Tax and Social Security Funding Tax Reconciliation of income tax (IRPJ) and social security funding tax (CSLL) expense.

IRPJ and CSLL expense breakdown December 31st,

2017 December 31st,

2016

Profit (loss) before income and social security funding taxes 48,411 (315,443) Income tax and social security funding tax rate of 34% (16,460) 107,250

Permanent additions (exclusions) (729) (1,088) Temporary additions (exclusions) 14,814 - Income tax and social security funding tax rate of 34% with no deferred tax credits earned - (83,939) De-recognition of non-recoverable deferred tax credits (¹) - (50,462)

Offset for negative CSLL base 321 -

PAT (Worker Food Program) 55 -

IRPJ rate cut tax incentive calculated based on the profit from the operation 1,250 -

Total (749) (28,239)

Current income tax and social security funding tax (749) -

Deferred income tax and social security funding tax - (28,239)

(¹) De-recognition of income tax and social security funding tax on net profit credits with recovery expected to occur within more than 10 years.

29 Segment Information In adopting the principles set forth by the pronouncement concerning Segment Information, Management defined the Company’s reportable operating segments based on its review of the reports used in strategic decision-making, and is responsible for allocating funds, assessing performance by operating segment and making strategic decisions. Accordingly, the operating segments were divided into two major product groups, namely, Organic Chemicals and Inorganic Chemicals, which have different characteristics in relation to their respective markets. Organic Chemicals: These include oxo alcohols, phthalic and maleic anhydrides, plasticizers, unsaturated polyester resins, formaldehyde, urea-formaldehyde concentrate, and fumaric acid. Inorganic Chemicals: Comprising sulfuric acid and some other resale activities. On December 31st, 2017

Organic

chemicals

Inorganic chemicals

Corporate

Total Company

Net revenue 861,777 116,764 - 978,541

Cost of sales (755,249) (69,937) - (825,186)

Gross margin 106,528 46,827 - 153,355

Selling expenses (29,902) (17,634) - (47,536)

Administrative expenses/other - - (38,025) (38,025)

Financial income (expense) - - (18,292) (18,292)

Equity accounting - - (1,091) (1,091)

Taxes on profit - - (749) (749)

Net income (loss) 76,626 29,193 (58,157) 47,662

Property, plant and equipment, net 50,034 20,870 19,263 90,167





Organic

chemicals Inorganic chemicals Corporate

Total Company

Net revenue 680,490 90,295 - 770,785 (-) Cost of sales (658,908) (71,895) - (730,803)

Gross margin 21,582 18,400 - 39,982 Selling expenses (24,896) (13,017) - (37,913) Administrative expenses/other - - (144,696) (144,696) Financial income (expense) - - (16,989) (16,989) Impairment of intangible assets and property, plant and equipment (154,798) - - (154,798) Share in joint venture profits (losses) - - (1,029) (1,029) Taxes on profit - - (28,239) (28,239) Net income (loss) (158,112) 5,383 (190,953) (343,682) Property, plant and equipment, net 32,662 19,329 31,932 83,923

The Company has elected not to state profit, assets and liabilities separately for each of the operating segments in which it is engaged because they share the same indirect cost, administrative expense and selling expense structure.

30 Earnings (Loss) per Share

December 31st, 2017

December 31st, 2016

Net earnings (losses) attributable to shareholders 47,662 (343,682)

Weighted average number of outstanding shares (in thousands) 31,485 31,485

Earnings (losses) per share (R$), basic and diluted 1.51 (10.92)

For the fiscal years presented herein, the Company did not have any such convertible instruments or other liabilities as could potentially dilute the number of outstanding shares.

31 Dividends

The shareholders are entitled to a compulsory dividend in an amount equivalent to 25 percent of the net profit determined for that same fiscal year, as adjusted by any decrease or increase in the amounts specified article 202, section I, items (a) and (b), of Law no. 6,404/76, subject to sections II and III of said article. The proposed dividends posted in the Company’s financial statements, subject to approval by the shareholders at the Shareholders’ Meeting, are calculated as set forth in the aforementioned law, particularly as regards the provisions of articles 196 and 197 of the Joint-Stock Companies Act. The dividends have been calculated as follows:

December 31st, 2017

Net profit for the period 47,662 (-) IRPJ-cut tax incentive recognized in the statement of income (1,250) (-) Tax incentive from the Desenvolve Bahia program (398) (-) Reinstatement of tax incentive reserve (13,310) (-) Statutory reserve (5%) (1,635) (=) Base 31,069 Minimum mandatory dividend (25%) 7,767




32 Balances and Transactions with Related Parties

(a) Sales and Purchases of Products and Services, Dividends and Financial Investments

The transactions with companies owned by the parent company Itaúsa refer to purchases and sales of products and services and property leases, and are carried out at prices, for periods and on terms commonly in use in the marketplace.

The financial investments in Banco Itaú S.A. are made under normal money market conditions and within the limits set to the Company by Management. Returns on financial investments are recognized in the statement of income. a) Itaú Unibanco S.A. – Cash and cash equivalents. b) Itaú Corretora de Valores S.A. – Provision of share custody services. c) Itaúsa Empreendimentos S.A. – Provision of economic and financial analysis services; payment of dividends. d) Itaú Seguros S.A. – Contracting of insurance policies. e) Itaúsa Investimentos Itaú S.A. – Payment of dividends and property lease. The sureties securing the Company’s borrowings were granted by the shareholder Itaúsa Investimentos Itaú S.A., amounting to R$102,223 on December 31st, 2017 (R$138,135 on December 31st, 2016), as mentioned in Note 19.

(b) Management Compensation Key management personnel includes management board members elected at the Annual Shareholders Meeting and directors appointed under the Company’s By-Laws. The compensation paid to management personnel breaks down into fixed fees, profit sharing, and benefits. The amounts incurred are fully recorded in the statement of income for the fiscal year, as shown in detail below:

December 31st, 2017

December 31st, 2016

Board of Directors 9,418 3,991 - Fees 4,406 2,890 - Profit sharing 2,916 - - Payroll charges (INSS and FGTS) 1,234 809 - Short-term benefits 382 113 - Post-employment benefits 480 179 Management Board 1,671 1,671 - Fees 1,322 1,322 - Payroll charges (INSS) 264 264 - Post-employment benefits 85 85

33 Employee Benefits

Defined-Contribution Plan – Private Pension Plan Elekeiroz S.A. offers all of its employees a private pension plan of the defined contribution type (PAI-CD Plan). The plan is managed by Fundação Itaúsa Industrial, a non-profit closed private pension entity sponsored by the Company, among other entities. Due to the nature of the plan, there is no actuarial risk, and the investment risk is borne by its participants. The regulations for the time being in force provide for contributions from employees ranging from 1 to 10 percent of their salaries, while the sponsor contributes 100 percent of the amount contributed by employees. Up until December 31st, 2016, contributions amounted to R$3,005 (R$1,847 on December 31st, 2016).

December 31st

, 2017 December 31st

, 2016

Company Re. Nature Assets Liabilities Profit (loss)

Assets Liabilities Profit (loss) of Transaction

Itaú Unibanco a Financial investment 4,738 - 265 3,459 - 661 Itaú Corretora de Valores b Service provided - - (32) - - (26)

Itaúsa Empreendimentos c Service provided and dividends/ROE - 9 (245) - - (212)

Itaú Seguros d Service provided - - (670) - -

Itaúsa e Service provided and

dividends/ROE - 7,494 (236) - - (235)




The PAI-CD Plan comprises a pension fund consisting of contributions from sponsors which remained in the plan because the relevant participants have opted for redemption or early retirement. According to the regulations for the plan, such funds have been utilized to offset contributions from sponsors. As a result, the Company recorded in its balance sheets an asset related to such credits (prepaid expenses – pension fund) taking into consideration the reduction of future payments that will occur due to the offsets against this fund. Said asset was measured by calculating the present value of future contributions to be made by the Company, considering the employees subscribing to the plan on the closing date of these financial statements, and amounted to R$10,395 (R$11,286 on December 31st, 2016).

34 Insurance Coverage (Not Audited) The Company has a risk management program in place to delimit risks and searches the market for insurance coverage compatible with its size and operations. Insurance coverage has been contracted for amounts considered sufficient by Management to cover any losses, considering the nature of the Company’s business, the risks involved in its operations and the advice of its insurance consultants. On December 31st, 2017 the insurance coverage and miscellaneous risks for inventory and property, plant and equipment items amounted to R$669,165 (R$722,839 on December 31st, 2016).

35 Derivative Financial Instruments

In derivative transactions there are no monthly settlements or margin calls. Rather, contracts are settled at maturity and recognized at fair value considering market conditions such as time to due date and interest rates. On December 31st, 2017 the Company had the following contract: - USD-CDI Rate Swap Agreement The Company has two contracts of this type the notional value of which is US$9,096 maturing on July 17th, 2019 and July 4th, 2019, with an active position (bought) in US Dollars and a passive position (sold) in CDI. The Company contracted these transactions in order to hedge against constant fluctuations in the US Dollar exchange rate, securing the following contracts: one export credit note; and one under Law no. 4,131 in foreign currency at the CDI rate. The amount receivable under the swap agreements is recorded in current and non-current liabilities as financial liabilities at fair value. On December 31st, 2017

Swap Agreement Notional Amount

(USD) Active Position Passive Position Amount Payable

9,096 31,339 30,909 (430)

On December 31st, 2016 Swap Agreement

Notional Amount Active Position Passive Position Amount Payable 16,394 54,186 57,653 3,467

MANAGEMENT BOARD

Chairman Rodolfo Villela Marino

Deputy Chairman Olavo Egydio Setubal Júnior

Incumbent Board Members Henri Penchas

César Suaki dos Santos Ricardo Egydio Setubal

Deputy Board Members Alfredo Egydio Setubal Ricardo Villela Marino

BOARD OF DIRECTORS

Chairman and Chief Executive Officer Marcos Antonio De Marchi

Director of Investor Relations Marcos Antonio De Marchi

Directors Ricardo Craveiro Massari Elder Antonio Martini

Djalma Roberto Zillo Accountant

CRC 1SP 244668/O-1

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