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25. SEGMENT INFORMATION
 12 Months Ended
Dec. 31, 2017
Segment Information  
SEGMENT INFORMATION

According to the Group´s structure, the businesses are distributed and managed in five operating segments as follows:

 

 

·          Steel

 

The Steel Segment consolidates all the operations related to the production, distribution and sale of flat steel, long steel, metallic containers and galvanized steel, with operations in Brazil, United States, Portugal and Germany. The Segment supplies the following markets: construction, steel containers for the Brazilian chemical and food industries, home appliances, automobile and OEM (motors and compressors). The Company’s steel units produce hot and cold rolled steel, galvanized and pre-painted steel of great durability. They also produce tinplate, a raw material used to produce metallic containers.

 

Overseas, Lusosider, which is based in Portugal, produces cold rolled steel and galvanized steel. CSN LLC in the U.S.A. meets local market needs by supplying cold rolled and galvanized steel.  In January 2012, CSN acquired Stahlwerk Thüringen (SWT), a manufacturer of long steel located in Unterwellenborn, Germany. SWT is specialized in the production of shapes used for construction.

 

In January 2014 the production of long steel products started in Brazil, consolidating the company as a source of complete construction solutions, complementing its portfolio of products with high value added in the steel chain.

 

 

·          Mining

 

This segment encompasses the activities of iron ore and tin mining.

 

The high quality iron ore operations are located in the Iron Quadrilateral in Minas Gerais, which has its own mines and sells third party iron ore.

 

At the end of 2015, CSN and the Asian Consortium formalized a shareholders' agreement for the combination of assets linked to iron ore operations and the related logistics structure, forming a new company that has focused in mining of the Group activities from December 2015. In this context, the new company, currently named CSN Mineração S.A., holds the TECAR arraignment, the Casa de Pedra mine and all the shares of Namisa, which was incorporated on December 31, 2015. CSN still owns 100% of Minérios Nacional which includes the mines of Fernandinho (operational), Cayman and Pedras Pretas (mineral resources), all located in Minas Gerais.

 

Moreover, CSN controls the Estanho de Rondônia S.A., company with mining units and tin casting, in the state of Rondonia.

 

·          Logistics

 

i. Railroad

 

CSN has equity interests in three railroad companies: MRS Logística, which manages the former Southeast Network of Rede Ferroviária Federal S.A. (RFFSA), Transnordestina Logística S.A. and FTL - Ferrovia Transnordestina Logística S.A., which has the concession to operate the former Northeast Network of the RFFSA in the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas.

 

  

a) MRS

 

The railroad transportation services provided by MRS are fundamental to the supply of raw materials and the shipment of final products. The total amount of iron ore, coal and coke consumed by the Presidente Vargas Mill as well as part of the steel produced by CSN for the domestic market and for export are carried by MRS.

 

The Southeast Brazilian railroad system, encompassing 1,674 kilometers of tracks, serves the tri-state industrial area of São Paulo-Rio de Janeiro-Minas Gerais, in the southeast region, linking the mines located in Minas Gerais to the ports located in São Paulo and Rio de Janeiro, and the steel mills of CSN, Companhia Siderúrgica Paulista, or Cosipa, and Gerdau Açominas.  Besides serving other customers, the railroad system carries iron ore from the Company’s mines in Casa de Pedra, Minas Gerais, and coke and coal from the Itaguaí Port, in Rio de Janeiro, to Volta Redonda, and carries CSN’s export products to the ports of Itaguaí and Rio de Janeiro.

 

b) TLSA and FTL

 

TLSA and FTL hold the concession of the former RFFSA’s Northeast Network. The Northeast Network totals 4,238 km, divided into two sections: i) Network I, which comprises the São Luiz–Mucuripe, Arrojado–Recife, Itabaiana–Cabedelo, Paula Cavalcante–Macau–Recife, and Propriá–Jorge Lins (Network I) ;and ii) Network II, which comprises the Missão Velha–Salgueiro, Salgueiro–Trindade, Trindade– Eliseu Martins, Salgueiro–Porto de Suape, and Missão Velha–Porto de Pecém sections.

 

The Network links up with the main ports in the region, offering an important competitive advantage by means of opportunities for combined transportation solutions and logistics projects tailored to customer needs. 

 

II. Port Logistics

 

The Port Logistics Segment consolidates the operation of the terminal built during the post-privatization period of the ports, Sepetiba Tecon.. The Sepetiba terminal features complete infrastructure to meet all the needs of exporters, importers and ship owners. Its installed capacity exceeds that of most other Brazilian terminals. It has mooring berths and a huge storage area, as well as the most modern and appropriate equipment, systems and intermodal connections.

 

The Company’s constant investment in projects in the terminals consolidates the Itaguaí Port Complex as one of the most modern in Brazil.

 

·       Energy

 

CSN is one of the largest industrial consumers of electric power in Brazil. As energy is fundamental in its production process, the Company invests in assets for generation of electric power to guarantee its self-sufficiency. These assets are as follows: Itá hydroelectric power plant, in the State of Santa Catarina, with rated capacity of 1,450 MW, where CSN has a share of 29.5%; Igarapava hydroelectric power plant, Minas Gerais, with rated capacity of 210 MW, in which CSN holds 17.9% of the capital; and a thermoelectric co-generation Central unit with rated capacity of 238 MW, which has been operating at the UPV since 1999, that uses the residual gases produced by the steel mill itself.

 

·       Cement

 

The cement division consolidates the cement production, distribution and sale operations, which use the slag produced by the Volta Redonda plant’s blast furnaces.

 

In the second half of 2016, the Company started the operation of a new clinker kiln in Arcos/MG, where the Company already operates a clinker kiln using its limestone of a company-owned mine and also two cement mills in additions to the mills that already operate in Volta Redonda/RJ.

 

The information presented to Management regarding the performance of each business segment is generally derived directly from the accounting records, combined with some intercompany allocations.

  

·       Sales by geographic area

 

Sales by geographic area are determined based on the customers’ location. On a consolidated basis, domestic sales are represented by revenues from customers located in Brazil and export sales are represented by revenues from customers located abroad.

 

·       Results per segment

 

As from 2013, the Company no longer proportionately consolidates the joint ventures MRS and CBSI. For segment information preparation and presentation purposes, Management decided to maintain the proportionate consolidation of the joint ventures, as historically presented. For consolidated profit reconciliation purposes, the amounts of these companies were eliminated in the column “Corporate expenses/elimination”.

 

 

 

 

 

                                12/31/2017
P&L   Steel   Mining    Logistics   Energy   Cement   Corporate expenses/elimination   Consolidated
            Port   Railroads   #N/D            
Metric tons (Thou)- (unaudited (*)               4,921,719             32,576,843                   3,313,061     (5,359,571)    
Net revenues                                
Domestic market               7,818,552                  829,268                  238,240               1,416,612          407,671          487,129     (2,491,006)         8,706,466
Foreign market               5,140,471               3,791,703                          885,961         9,818,135
Total Net Revenue (note 21)             12,959,023               4,620,971                  238,240               1,416,612          407,671          487,129     (1,605,045)       18,524,601
Cost of sales and services           (10,537,547)             (3,005,840)                (156,997)             (1,024,696)        (285,085)        (512,762)       1,926,786     (13,596,141)
Gross profit               2,421,476               1,615,131                    81,243                  391,916          122,586          (25,633)          321,741         4,928,460
General and administrative expenses              (963,822)                (158,958)                  (27,943)                  (94,921)          (27,098)          (80,823)        (877,383)       (2,230,948)
Depreciation (note 22)                  658,587                  490,805                    15,752                  294,571            17,265          121,801        (190,016)         1,408,765
Proportionate EBITDA of joint ventures                                  538,170            538,170
Adjusted EBITDA               2,116,241               1,946,978                    69,052                  591,566          112,753            15,345        (207,488)         4,644,447
                                 
Sales by geographic area                                
Asia                    23,364               3,592,226                          885,961         4,501,551
North America               2,009,337                                 2,009,337
Latin America                  506,951                                    506,951
Europe               2,564,823                  197,701                             2,762,524
Others                    35,996                      1,776                                  37,772
Foreign market               5,140,471               3,791,703                          885,961         9,818,135
Domestic market               7,818,552                  829,268                  238,240               1,416,612          407,671          487,129     (2,491,006)         8,706,466
Total             12,959,023               4,620,971                  238,240               1,416,612          407,671          487,129     (1,605,045)       18,524,601

 

 

 

                                12/31/2016
P&L   Steel   Mining    Logistics   Energy   Cement   Corporate expenses/elimination   Consolidated
            Port   Railroads                
Metric tons (Thou). - (unaudited)(*)               4,857,174             36,983,297                   2,814,476     (4,062,774)    
Net revenues                                
Domestic market               6,980,087                  542,028                  207,722               1,319,907          269,095          490,608     (2,079,534)         7,729,913
Foreign market               4,535,821               4,039,875                          843,340         9,419,036
Total Net Revenue (note 21)             11,515,908               4,581,903                  207,722               1,319,907          269,095          490,608     (1,236,194)       17,148,949
Cost of sales and services             (9,393,237)             (3,099,236)                (141,542)                (914,361)        (195,994)        (467,373)       1,571,701     (12,640,042)
Gross profit               2,122,671               1,482,667                    66,180                  405,546            73,101            23,235          335,507         4,508,907
General and administrative expenses              (914,927)                (185,149)                  (25,180)                  (83,020)          (25,196)          (74,528)        (907,128)       (2,215,128)
Depreciation (note 22)                  679,074                  461,287                    13,430                  227,792            17,140            73,030        (192,937)         1,278,816
Proportionate EBITDA of joint ventures                                  502,345            502,345
Adjusted EBITDA               1,886,818               1,758,805                    54,430                  550,318            65,045            21,737        (262,213)         4,074,940
                                 
Sales by geographic area                                
Asia                    30,815               3,519,713                          843,340         4,393,868
North America               1,891,865                                 1,891,865
Latin America                  259,640                                    259,640
Europe               2,324,580                  434,378                             2,758,958
Others                    28,921                    85,784                                114,705
Foreign market               4,535,821               4,039,875                          843,340         9,419,036
Domestic market               6,980,087                  542,028                  207,722               1,319,907          269,095          490,608     (2,079,534)         7,729,913
Total             11,515,908               4,581,903                  207,722               1,319,907          269,095          490,608     (1,236,194)       17,148,949
                                 

  

                          12/31/2015
P&L  Steel    Mining    Logistics        Energy    Cement   Corporate expenses / elimination     Consolidated 
          Port    Railroads                 
Metric tons (Thou.) - (unaudited)(*)  4,990,299    23,861,003                2,181,731         
Net revenues                               
Domestic market  6,757,186    175,223    212,729    1,156,933    244,549    431,820    (1,295,907)    7,682,533 
Foreign market  4,445,813    3,012,027                    121,324    7,579,164 
Total Net Revenue (note 23)  11,202,999    3,187,250    212,729    1,156,933    244,549    431,820    (1,174,583)    15,261,697 
Cost of sales and services  (9,126,889)    (2,323,687)    (141,809)    (788,046)    (195,644)    (330,263)    1,166,237    (11,740,101) 
Gross profit  2,076,110    863,563    70,920    368,887    48,905    101,557    (8,346)    3,521,596 
General and administrative expenses  (955,247)    (69,602)    (20,473)    (89,678)    (23,186)    (72,894)    (669,441)    (1,900,521) 
Depreciation (note 11 a)  670,496    377,344    12,777    189,361    17,073    46,505    (182,687)    1,130,869 
Proportionate EBITDA of joint ventures                        499,475    499,475 
Adjusted EBITDA  1,791,359    1,171,305    63,224    468,570    42,792    75,168    (360,999)    3,251,419 

 

Sales by geographic area                               
Asia  16,980    2,836,505                    122,267    2,975,752 
North America  1,901,989                            1,901,989 
Latin America  376,458    42,730                    (943)    418,245 
Europe  2,104,944    132,792                        2,237,736 
Others  45,442                            45,442 
Foreign market  4,445,813    3,012,027                    121,324    7,579,164 
Domestic market  6,757,186    175,223    212,729    1,156,933    244,549    431,820    (1,295,907)    7,682,533 
Total  11,202,999    3,187,250    212,729    1,156,933    244,549    431,820    (1,174,583)    15,261,697 

  

(*) The ore sales volumes presented in this note take into consideration Company sales and the interest in its subsidiaries and joint ventures .

 

·         EBITDA and Adjusted EBITDA

 

 

 

Adjusted EBITDA is the measurement based on which the chief operating decision maker assesses the segment performance and the capacity to generate recurring operating cash, consisting of profit for the year less net financial income (costs), income tax and social contribution, depreciation and amortization, equity in results of affiliated companies, results of discontinued operations and other operating income (expenses), plus the proportionate EBITDA of joint ventures.

 

Even though it is an indicator used in segment performance measurement, EBITDA is not a measurement recognized by accounting practices adopted in Brazil or IFRS, it does not have a standard definition, and may not be comparable with measurements using similar names provided by other entities.

 

As required by IFRS 8, the table below shows the reconciliation of the measurement used by the chief operating decision maker with the results determined using the accounting practices:

 

 

    12/31/2017   12/31/2016   12/31/2015
Net income (loss) for the year   111,229   (853,058)   (1,215,964)
Result from Discontinued Operations       9,561   (1,911)
Depreciation/Amortization/Depletion (Note 22)   1,408,765   1,278,816   1,130,869
Income tax and social contribution (Note 14)   409,109   266,546   2,903,216
Financial income (cost) (Note 24)   2,463,627   2,522,427   3,365,162
EBITDA   4,392,730   3,224,292   6,181,372
Other operating (income) expenses (Note 23)   (177,342)   413,221   (2,269,156)
Equity in results of affiliated companies   (109,111)   (64,918)   (1,160,272)
Proportionate EBITDA of joint ventures   538,170   502,345   499,475
Adjusted EBITDA (*)   4,644,447   4,074,940   3,251,419

 

 

(*) The Company discloses its adjusted EBITDA net of its share of investments and other operating income (expenses) because it understands that these should not be included in the calculation of recurring operating cash generation.