Individual and consolidated financial statements

Direcional Engenharia S.A.

December 31, 2021 with Independent Auditor's Report

Direcional Engenharia S.A.

Individual and consolidated financial statements

December 31, 2021

Contents

Independent auditor's report on individual and consolidated financial statements ................................ 1

Audited financial statements

Statements of financial position ............................................................................................................ 7

Statements of profit or loss .................................................................................................................. 9

Statements of comprehensive income (loss) ...................................................................................... 10

Statements of changes in equity ........................................................................................................ 11

Statements of cash flows ................................................................................................................... 12

Statements of value added ................................................................................................................ 14

Notes to individual and consolidated financial statements .................................................................. 15

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A free translation from Portuguese into English of Independent Auditor's Report on individual and consolidated financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) applicable to Brazilian real estate development entities registered with the Brazilian Securities and Exchange Commission (CVM)

Independent auditor's report on individual and consolidated financial statements

To the

Shareholders, Board of Directors and Officers of Direcional Engenharia S.A.

Belo Horizonte - MG

Opinion on the individual and consolidated financial statements prepared in accordance with accounting practices adopted in Brazil and the international financial reporting standards (IFRS), applicable to Brazilian real estate development entities registered with the Brazilian Securities and Exchange Commission (CVM)

We have audited the individual and consolidated financial statements of Direcional Engenharia S.A.

("Company"), identified as Individual and Consolidated, respectively, which comprise the statement of financial position as at December 31, 2021 and the statements of profit or loss, of comprehensive income (loss), of changes in equity and of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of Direcional Engenharia S.A. as at December 31, 2021, and its individual and consolidated financial performance and cash flows for the year then ended in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) applicable to Brazilian real estate development entities registered with the Brazilian Securities and Exchange Commission (CVM).

Basis for opinion

We conducted our audit in accordance with the Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the 'Auditors' responsibilities for the audit of the individual and consolidated financial statements' section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants, the professional standards issued by Brazil's National

Association of State Boards of Accountancy ("CFC") and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

A member firm of Ernst & Young Global Limited

Emphasis of matter

As described in Note 2.1.1, the individual and consolidated financial statements were prepared in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), applicable to Brazilian real estate development entities registered with the Brazilian Securities and Exchange Commission (CVM). Accordingly, the determination of the accounting policy adopted by the entity for recognition of revenue in contracts for the purchase and sale of incomplete real estate units, on the aspects related to transfer of control follow the understanding expressed in Circular Letter CVM/SNC/SEP No. 02/2018 on application of NBC TG 47 (IFRS 15). Our opinion is not qualified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide an individual opinion on these matters. For the matters below, our description of how our audit addressed the matter, including any commentary on the findings or outcome of our procedures is provided in the context of the financial statements taken as a whole.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of individual and consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying financial statements.

Recognition of revenue from incomplete real estate units and from construction services

As mentioned in Notes 2.1.18, 2.2 (a) and 17, the Company and its subsidiaries recognize revenue from contracts for the purchase and sale of incomplete real estate units and revenue from construction services using the Percentage of Completion ("POC") method.

The POC method requires the Company's executive board to estimate the costs to be incurred until completion of the construction and delivery of the keys to the real estate units sold of the development projects and of each stage of the construction services. Based on the costs incurred and the contractual conditions, the fair value of revenue from sales and service revenues to be recognized in each period is estimated, proportionally to the estimated value.

Given the significance, complexity and judgments involved in determining revenue from sales and construction services to be recognized, and the risk of material impacts on the profit or loss of each period that these changes in estimates may bring, we considered this matter significant for our audit. How our audit addressed this matter:

Our audit procedures included an evaluation of the design of key processes and internal controls related to recognition of revenue from the sale of incomplete real estate units and the provision of construction services, including preparation, review and timely approval of budgets of costs to be incurred, as well as the comparison and sample testing of costs incurred, with examination contracts, payments made and related supporting documents, among other procedures. We also involved our valuation experts to assist in the identification of evidence contrary to the estimated costs to be incurred, analyzing the stages of execution of certain construction works, and checking if the expected period for completion thereof within the respective budgets of the Company and its subsidiaries corresponded to the reality of operations.

In addition to comparing POC's auxiliary records with accounting balances, considering the different systems that support these transactions, we made independent calculations of the revenue from sale of incomplete units and construction services, and examined a sample of the documents that support the units sold considered in the POC.

We performed analytical procedures to evaluate significant changes in margins and budgets of real estate projects for the year ended December 31, 2021 compared to the previous year, and we also analyzed the disclosures made by the Company and its subsidiaries and their compliance with accounting practices adopted in the Brazil and with International Financial Reporting standards

("IFRS"), applicable to real estate development entities in Brazil registered with the Brazilian Securities

and Exchange Commission ("CVM").

Based on the results of our audit procedures, which are consistent with management's assessment,

the estimates prepared by management related to the balances of revenue from the sale of incomplete real estate units and from provision of construction services, as well as the respective disclosures in Notes 2.1.18, 2.2 (a) and 17, were considered acceptable in the context of the individual and consolidated financial statements taken as a whole.

Other matters

Statements of value added

The individual and consolidated statements of value added (SVA) for year ended December 31, 2021, prepared under the responsibility of Company's executive board, and presented as supplementary information for purposes of IFRS, were submitted to audit procedures conducted together with the audit of the Company's financial statements. To form our opinion, we evaluated if these statements are reconciled to the financial statements and accounting records, as applicable, and if their form and content comply with the criteria defined by Accounting Pronouncement NBC TG 09 - Statement of

Value Added. In our opinion, these statements of value added were prepared fairly, in all material respects, in accordance with the criteria defined in abovementioned standard, and are consistent in relation to the overall individual and consolidated financial statements.

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Direcional Engenharia SA published this content on 29 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2022 00:13:05 UTC.