Income Statement for the Company’s fiscal year (consolidated) - R$ thousand:
Comparison of the main accounts of the consolidated income of December 31, 2016, December 31, 2015 (restated) and December 31, 2014, prepared in accordance with IFRS and CPC.
Comparison of the Income (Loss) for the fiscal years ended on December 31, 2016 and December 31, 2015 (restated):
Net Revenue from Sales and/or Services
In the fiscal year ended on December 31, 2016, the net revenue reached R$17,149 million, 12% higher than in 2015, due to price adjustments of steel products, while in the mining segment, the increase in 2016 was due to the higher volume of ore traded together with the increase in the international price of ore.
Cost of goods and services sold
In the fiscal year ended on December 31, 2016, the consolidated cost of goods sold (“COGS”) reached R$12,640 million, 8% higher than in 2015, due to the higher volume traded in the mining segment and the increase in raw material prices in the steel segment.
Gross Income (Loss)
In the fiscal year ended on December 31, 2016, the gross profit totaled R$4,509 million, 28% higher than in 2015, due to the reasons described above.
SG&A Expenses
SG&A expenses totaled R$2,215 million in the fiscal year ended on December 31, 2016, 17% higher than in 2015, due to higher freight costs in the foreign market resulting from the increase in sales volumes of Mineração and, as of 2016, 100% of the mining assets were consolidated.
Other Revenues (Expenses), net
In 2016, the account of “Other Operating Revenues and Expenses” totaled a negative of R$413 million, mainly due to the impairment of the fair value of Transnordestina Logística S.A., in the amount of R$388 million, and in 2015 totaled a positive of R$2,269 million, due to the accounting gain with the combination of the mining businesses of CSN and Nacional Minérios S.A. (“Namisa”).
Equity Income
The Equity Income was of R$65 million, lower than the R$1,160 million income in 2015. This variation is basically due to the non-recognition of Namisa's equity in 2016, given its incorporation by CSN Mineração S.A. (“CSN Mineração”).
Net Financial Income
In 2016, the Company's net financial income was a negative of R$2,522 million over a negative of R$3,365 million in 2015, basically due to:
·
Increase of R$158 million in financial expenses, from R$3,125 million in 2015 to R$3,283 million in 2016,
mainly as a result from the increase in charges with loans in domestic currency, the increase in the CDI rate and the increase in costs with surety commissions and bank fees;
·
Decrease of R$845 million in net expenses with exchange rate and monetary variations, from an expense of R$728 million in 2015 to a revenue of R$117 million in 2016, mainly as a result from the 47% devaluation of the real in 2015 to a 17% appreciation in 2016.
Income Tax and Social Contribution - Current and Deferred
During the 2016 fiscal year, after a technical review of the estimates of 2015 future taxable income and the tax losses generated in recent years, the Company restated the 2015 deferred income tax expense to R$2,768 million, reflecting the write-off of tax credits with deferred income tax and social contribution that were included in noncurrent assets. For further details, see note 16 of the Consolidated Financial Statements.
Consolidated Net Profit (Loss)
Due to the explanations in the above items, in 2016 and 2015, the Company recorded a consolidated net loss of R$853 million and R$1,216 million, respectively.
Comparison of the Income (Loss) for the fiscal years ended on December 31, 2015 (restated) and December 31, 2014:
Net Revenue from Sales and/or Services
In the fiscal year ended on December 31, 2015, net revenue reached R$15,262 million, 5% lower than in 2014, mainly
due to the lower prices in the mining segment.
Cost of goods and services sold
In the fiscal year ended on December 31, 2015, COGS reached R$11,740 million, 1% higher than in 2014, mainly due to the exchange rate impact in the steel segment.
Gross Income (Loss)
In the fiscal year ended on December 31, 2015, the gross profit totaled R$3,522 million, 22% lower than in 2014, due to the reasons described above.
SG&A Expenses
SG&A expenses totaled R$1,901 million in the fiscal year ended on December 31, 2015, 28% higher than in 2014, mainly due to higher freight expenses in the foreign market.
Other Revenues (Expenses), net
In 2015, the account “Other Operating Income and Expenses” totaled R$2,269 million, resulting from revenues of R$3,610 million and expenses of R$1,341 million. Other operating revenues were impacted by the accounting gain with the combination of CSN’s and Namisa’s mining businesses in the amount of R$3,297 million.
Equity Income
The Equity Income was of R$1,160 million, higher than the R$331 million income in 2014. This is mainly due to the effect of the exchange rate variation on Namisa's cash position.
Net Financial Income
In 2015, the Company's net financial income was a negative of R$3,365 million over a negative of R$3,081 million in 2014, basically due to:
·
Increase of R$18 million in financial expenses, from R$3,104 million in 2014 to R$3,125 million in 2015, mainly due to a R$529 million increase in loans and financing, partially offset by a R$422 million decrease in related party accounts (reversal of interest on advances between Namisa and CSN).
·
Increase of R$579 million in net expenses with exchange rate and monetary variations, from an expense of R$149 million in 2014 to an expense of R$728 million in 2015, mainly due to net exchange rate variations.
Income Tax and Social Contribution - Current and Deferred
After a technical review of the estimates of 2015 future taxable income and the tax losses generated in recent years, the Company restated the deferred income tax expense to R$2,768 million, reflecting the write-off of tax credits with deferred income tax and social contribution that were included in noncurrent assets. For further details, see note 16 of the Consolidated Financial Statements.
Consolidated Net Profit (Loss)
Due to the explanations above, the Company recorded a consolidated net loss of R$1,216 million in 2015.
Balance Sheet of the Company (consolidated) - R$ thousand:
Comparison of the main accounts of the consolidated income of December 31, 2016, December 31, 2015 (Restated) and December 31, 2014, prepared in accordance with IFRS and CPC.
Comparison between the balance sheets of December 31, 2016 and December 31, 2015:
Cash and Cash Equivalents
: mainly including financial investments in public and private securities and investments in first-tier banks. The balance of cash and cash equivalents on December 31, 2016 is of R$4,871 million, 38% lower than the R$7,861 million on December 31, 2015. This decrease is mainly due to the use of the financial resources of the subsidiaries abroad invested in time deposits to meet the Company's cash requirements.
Financial Investments
: On December 31, 2016, the balance of R$760 million included: (i) government securities managed by exclusive funds, which were connected as collateral for CDI interest rate futures contracts, are traded on B3 S.A. – Brasil, Bolsa, Balcão, has Selic income and immediate liquidity; and (ii) financial investment connected to the Bank Deposit Certificate (CDB) to guarantee a surety letter, with CDI income, immediate liquidity and also traded at B3 S.A. – Brasil, Bolsa, Balcão.
Accounts Receivable
: On December 31, 2016, accounts receivable from clients totaled R$1,997 million, 26.5% higher than in 2015, mainly due to the effect of the increase in prices in the domestic market of steel segment, the expansion of the average term of collection, with a 6-day increase (35 days in 4Q16 x 29 days in 4Q15) and the increase in accounts receivable from related parties arising from the sale of steel products.
Inventories
: On December 31, 2016, CSN's inventories totaled R$3,964 million, a 19.8% decreased when compared to December 31, 2015, with a 32-day reduction in the average term of the inventory (94 days in 4Q16 vs. 126 days in 4Q15), due to the higher volume traded in the steel segment, reflecting the higher demand in the domestic market.
Other current assets
: 33.8% decrease (from R$1,286 million on December 31, 2015 to R$852 million on December 31, 2016), mainly due to variations in the following groups:
·
Taxes payable
: The R$216 million decrease was basically due to IRPJ, CSLL, PIS/Cofins, ICMS to recover and extemporaneous credits with other federal taxes;
·
Prepaid expenses
: The R$92 million decrease is basically due to the reduction of shipments made in the "floating" condition during the 2016 fiscal year. The agreements with this condition provide for the payment of 90% of the amount of the freight approximately 10 days before the conclusion of the shipment. Thus, the freight expenses are recorded as prepaid expenses and, when the goods are delivered, this balance is recorded as income.
·
Derivative financial instruments
: decrease of approximately R$116 million.
Noncurrent Assets
Deferred Taxes
: During the 2016 fiscal year, after a technical review of the estimates of future taxable income and the tax losses generated in recent years, the Company restated the balances of asset deferred taxes, limiting their recognition to 30% of liabilities deferred taxes. As a result, all credits arising from temporary differences were provisioned and held in stock of credits in the Company's fiscal books for subsequent use.
Investments
: On December 31, 2016, the investment account totaled R$4,568 million, 14.3% higher than the balance on December 31, 2015, of R$3,998 million. The variation in the balance of the investment in the period is mainly due to the mark-to-market of investments classified as available-for-sale, exchange into the currency of investments abroad whose functional currency is not Real, actuarial gain resulting from CSN Mineração, a hedge gain of investments reflecting the investments accounted with the equity method and the Impairment of the fair value of Transnordestina Logística S.A. totaling R$387,989 thousand recorded in other operating income and expenses and R$131,916 thousand in deferred taxes.
Property, Plant and Equipment
: On December 31, 2016, the balance of the property, plant and equipment account reached R$18,136 million, an 1.7% increase, or R$310 million, over 2015. This variation is mainly due to the acquisitions made in the period, of approximately R$1,636 million, of which R$1,413 million refers to acquisitions for projects in progress, partially offset by the depreciation of R$1,254 million in the period.
Intangible Assets
: On December 31, 2016, the balance of the intangible asset account reached R$7,258 million, a R$164 million decrease over 2015. The balance mainly refers to the accounting of the goodwill and the fair value of intangible assets of the combination of the mining
and related logistics
businesses of CSN and Namisa in 2015.
Liabilities
Loans and Financing
: The Company's consolidated gross debt totaled R$30,441 million on December 31, 2016, a 11% decrease over the R$34,283 million on December 31, 2015, mainly due to (i) the repurchase and payment of interest rates on fixed rated notes agreements; (ii) amortization of prepayment agreements; (iii) liquidation of forfaiting transactions and drawee risk; and (iv) appreciation of real against the dollar during the period.
Deferred Taxes
: On December 31, 2016, the account of deferred tax liability totaled R$1,047 million, which mainly includes:
·
R$1,324 million related to unrecorded deferred income tax and social contribution;
·
R$3,014 million of estimated losses with deferred income tax and social contribution credits;
·
R$1,073 million of deferred income tax and social contribution arising from the combination of the mining and related logistics businesses of CSN and Namisa in 2015;
·
Partially offset mainly by (i) R$1,590 million related to the taxation of exchange rate variations under the cash basis regime to ascertain the income tax and social contribution on net profit; (ii) R$706 million from losses with financial assets available-for-sale; and (iii) R$1,311 million of tax losses and negative basis.
Pension and Health Plan
: Balance of R$719 million on December 31, 2016 (R$514 million on December 31, 2015). The R$205 million increase basically refers to the post-employment health benefit, impacted by the reduction of the actual discount rate and the increase in the average medical cost (claim cost).
Net Equity
: On December 31, 2016, the Company's net equity was of R$7,385 million, R$293 million higher than the net equity of December 31, 2015, mainly due to the R$1,083 million gain from the Hedge Accounting cash flow, partially offset by the consolidated loss of R$853 million in the period.
Comparison between the balance sheets of December 31, 2015 and December 31, 2014:
Cash and Cash Equivalents
: mainly including financial investments in public and private securities and investments in first-tier banks. The balance of cash and cash equivalents on December 31, 2015 is of R$7,861 million, 9.5% lower than the R$8,686 million on December 31, 2014. This decrease is mainly due to the decrease of financial resources of the subsidiaries abroad invested in time deposits.
Financial Investments
: Including public and private securities managed by their exclusive funds that were connected as collateral to agreements of future exchange rate from Real to Commercial Dollar traded on B3 S.A. – Brasil, Bolsa, Balcão. The balance of these financial investments totaled R$764 million on December 31, 2015. These investments have a pre-established fixed income and immediate liquidity.
Accounts Receivable from Third Parties
: On December 31, 2015, accounts receivable from third parties totaled R$1,578 million, 10% lower than in 2014. This variation is mainly due to the decrease of accounts receivable from related parties and dividends receivable as a result of the incorporation process of Namisa by CSN Mineração in 2015.
Inventories
: On December 31, 2015, CSN's inventories totaled R$4,941 million, a 19.9% increase when compared to December 31, 2014, with a 22-day increase in the average term of the inventory, mainly due to the decrease in sales in the steel market.
Other Current Assets
:6.4% decrease (from R$1,374 million on December 31, 2014 to R$1,286 million on December 31, 2015), mainly explained by variations in the following groups:
·
Taxes recoverable
: R$398 million increase of recoverable PIS/COFINS and ICMS and income tax and social contribution to be offset. The variation of the year is due to the recognition of extemporaneous credits in 2015;
·
Prepaid expenses
: R$83 million increase, due to the adjustment of the appropriation to the accrual basis, of sales related to the foreign mining market, with the reversal of the insurance expense in this group.
·
Loans with related parties
: Due to the combination of the mining and related logistics businesses of CSN and Namisa, pre-existing agreements between CSN and Namisa were settled, resulting in a R$517 million decrease in the group of loans with related parties;
·
Derivative financial instruments
: decrease of approximately R$56 million.
Noncurrent Assets
Deferred Taxes
: During the 2016 fiscal year, after a technical review of the estimates of future taxable income and the tax losses generated in recent years, the Company restated the balances of asset deferred taxes, limiting their recognition to 30% of liabilities deferred taxes. As a result, all credits arising from temporary differences were provisioned and held in stock of credits in the Company's fiscal books for subsequent use.
Other Noncurrent Assets
: 67% increase in 2014 vs. 2015 (from R$947 million in 2014 to R$1,584 million in 2015), mainly explained by the following variations:
·
Increase of R$290 million in recoverable PIS/COFINS and ICMS and income tax and social contribution to be offset. The variation of the year is due to the recognition of extemporaneous credits in 2015;
·
Increase of R$295 million in loans with related parties, mainly loans to Transnordestina Logística S.A.
·
Increase of R$40 million in judicial deposits, mainly in relation to labor claims.
Investments
: On December 31, 2015, the investment account totaled R$3,998 million, 71% lower than the balance on December 31, 2014, of R$13,665 million. The decrease in the year’s investment balance is due to the incorporation of Namisa by CSN Mineração, which was consolidated after the combination of the mining
and related logistics
businesses of CSN and Namisa in December 2015.
Property, Plant and Equipment
: On December 31, 2015, the balance of the property, plant and equipment account reached R$17,826 million, an 14.1% increase, or R$2,202 million, over 2014. This variation is mainly due to the acquisitions made in the period, of approximately R$2,182 million, of which R$1,915 million refers to acquisitions for projects in progress, partially offset by the depreciation of R$1,127 million in the period. Another reason contributing with the increase in this account balance in the period was the accounting of R$662 million of fair value of the assets acquired in the combination of the mining
and related logistics
business of CSN and Namisa.
Intangible Assets
: On December 31, 2015, the balance of the intangible asset account reached R$7,422 million, a R$6,479 increase over 2014, due to the accounting of goodwill and of the fair value of the intangible assets of the combination of the mining
and related logistics
businesses of CSN and Namisa.
Liabilities
Loans and Financing
: The Company's consolidated gross debt totaled R$34,283 million on December 31, 2015, a 13% increase over the R$30,354 million on December 31, 2014, mainly due to prepayment transaction with related parties, fixed rated notes and intercompany loans. The exchange rate variation had a key role on the increase in gross debt, given that a significant part of the loans and financing is in foreign currency.
There was also the reclassification of forfaiting transactions and drawee risk with commercial suppliers, of the suppliers to loans and financing line, which totaled R$373 million on December 31, 2015 and R$471 million on December 31, 2014.
Deferred Taxes
: On December 31, 2015, the account of deferred tax liability totaled R$1,072 million, which mainly includes:
·
R$1,673 million related to unrecorded deferred income tax and social contribution;
·
R$3,173 million of estimated losses with deferred income tax and social contribution credits;
·
R$1,058 million of deferred income tax and social contribution arising from the combination of the mining and related logistics businesses of CSN and Namisa in 2015;
·
Partially offset mainly by (i) R$2,428 million related to the taxation of exchange rate variations under the cash basis regime to ascertain the income tax and social contribution on net profit; (ii) R$947 million from losses with financial assets available-for-sale; (iii) R$579 million of tax losses and negative basis; and (iv) R$517 million of the balance with the hedge accounting transaction of the cash flow.
Pension and Health Plan
: The balance of R$514 million on December 31, 2015 (R$588 million on December 31, 2014) is related mainly to the post-employment health benefit,
Environmental Liabilities and deactivation
: increased from R$239 million in 2014 to R$329 million in 2015. The variation is mainly due to the additional provision for asset’s demobilization (ARO - Asset Retirement Obligation), a long-term obligation in which the assumptions for an eventual closure of iron ore mines are periodically reviewed by a specialized company. The ARO update was made after the conclusion of the new certification report of the mineral ore reserves in Casa de Pedra’s and Engenho’s mines in 2015.
Net Equity
: On December 31, 2015, the Company's net equity was of R$7,091 million, R$1,356 million higher than in December 31, 2014, mainly due to (i) Consumption of the
profit reserve
line resulting from the transfer of the result of the 2015 fiscal year, net of the dividend resolved on March 11, 2015, totaling R$275 million, absorption of R$847 million from the 2015 loss; (ii) R$ 1,766 million increase in
other comprehensive income
, mainly due to the gain with the combination of the mining and related logistics businesses of CSN and Namisa, totaling R$2,956 million, partially offset by the R$1,441 million loss of hedge cash flow; and (iii) R$1,091 million increase in non-controlling interest in CSN Mineração, by Consórcio Asiático, with a final share capital of 12.48% (see item 10.3 (a)).
Cash Flow of the Company
The table below shows the comparative table of the Company's cash flows on December 31, 2016, December 31, 2015 and December 31, 2014, in R$ thousand:
Comparison between 2016 and 2015 (restated) cash flows
The Company's free cash flow in 2016 was a negative R$2,990 million, compared to a negative cash flow of R$825 million in 2015.
Operating Activities
Operating cash generation was of R$276 million and R$5,069 million in 2016 and 2015, respectively. The R$4,793 million decrease in cash from operating activities is due to the R$2,781 million decrease resulting from the reconciliation of net income (loss) consolidated by items that do not affect the cash items and the R$2,012 million decrease in the working capital of the Company, highlighting:
·
In 2016 and 2015, the Company recorded a consolidated net loss of R$853 million and R$1,216 million, respectively, a R$363 million decrease due to the effects mentioned below:
·
The equity result in 2016 was positive in R$65 million over a positive income of R$1,160 million in 2015. This variation is basically due to the non-recognition of Namisa's equity result in 2016, given its incorporation by CSN Mineração S.A. (new corporate name of Congonhas Minérios S.A.).
·
Decrease in the line of net monetary and exchange rate variations, mainly due to the 47% devaluation of real against dollar in 2015 over a 17% appreciation of real against dollar in 2016.
·
In the line of Impairment securities available for sale, in 2015 there was a R$555 million decrease referring to Usiminas shares, which was not the case in 2016.
·
The line of gains from the business combination in 2016 was a positive of R$66 million over a positive income of R$3,297 in 2015, due to the combination of the mining and logistics business of CSN and Namisa in 2015.
·
The change in assets and liabilities was mainly due to: (i) inventories, with an average 32-day decrease in the average term (94 days in 4Q16 vs. 126 days in 4Q15); and (ii) accounts receivable from related parties due to the receipt of dividends from Namisa in the amount of R$3,239 million in 2015, which was not the case in 2016 given its incorporation by CSN Mineração.
Investment Activities
The cash flow used in investing activities was of R$2,305 million in 2016 and R$2,865 million in 2015. The variation of R$560 million is mainly due to the payments of derivative transactions, cash received from the sale of Cia Metalic Nordeste (“Metalic”) and effects from the combination of the mining and logistics businesses of CSN and Namisa in 2015.
Financing Activities
The cash flow used in financing activities was of R$3,091 million in 2015 and of R$883 million in 2016. This variation was mainly due to the decrease in funding and the liquidation of forfaiting agreements and drawee risk.
Comparison between 2015 and 2014 cash flows
The Company's free cash flow in 2015 was a negative R$835 million, compared to a negative cash flow of R$1,310 million in 2014.
Operating Activities
Operating cash generation was of R$5,069 million and R$824 million in 2015 and 2014, respectively. The R$4,245 million increase was mainly due to the receipt of Namisa’s dividends in the amount of R$3,239 million, part of the process to conclude the transaction and combination of the mining and logistics businesses of CSN and Namisa in 2015 and other variations in taxes/Refis of R$634 million.
Investment Activities
The cash flow used in investing activities was of R$2,865 million in 2015 and R$1,658 million in 2014. The R$1,207 million increase is mainly due to the payment of US$707 million by CSN, equivalent to R$2,727 million, related to the acquisition of 4.16% of CSN Mineração’s shares held by Consórcio Asiático, partially offset by other transactions, highlighting the receipt of R$827 million in derivative transactions.
Financing Activities
The cash flow used in financing activities was of R$531 million in 2014 and of R$3,090 million in 2015. This variation was mainly due to the R$1,525 million decrease in funding, to the R$283 million decrease in forfaiting and drawee risk, to the R$1,139 million increase in amortization and to the R$869 million increase in forfaiting and drawee risk amortization.
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