Business context and reporting period
Companhia Siderúrgica Nacional (CSN), a Brazil-based integrated steel, mining, cement, logistics and energy group, filed this Form 20-F on April 27, 2023 for the fiscal year ended December 31, 2022. This is an annual report, not a stand-alone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB; amounts below are in Brazilian reais (R$).
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | R$44.36bn | R$47.91bn |
| Gross profit / margin | R$13.31bn / 30.0% | R$22.07bn / 46.1% |
| Operating income / margin | R$7.64bn / 17.2% | R$20.54bn / 42.9% |
| Net income | R$2.17bn | R$13.60bn |
| Net income attributable to CSN | R$1.55bn | R$12.26bn |
| EBITDA, non-IFRS / margin | R$10.43bn / 23.5% | R$22.65bn / 47.3% |
| Cash provided by operating activities | R$2.04bn | R$14.79bn |
| Cash and cash equivalents | R$11.99bn | R$16.65bn |
| Debt carrying value | R$40.92bn | R$32.51bn |
EBITDA is a company-defined non-IFRS measure and should not be treated as a substitute for net income or operating cash flow. At year-end, current assets were R$30.61bn and current liabilities R$22.48bn (about 1.36x current coverage). Debt principal before transaction costs was R$41.44bn, including R$5.27bn due within one year and R$36.17bn long-term; cash less debt principal was approximately R$29.45bn net debt. Debt was about 60.4% U.S.-dollar-denominated or dollar-linked. The company reported debt at 1.88x shareholders’ equity and compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue declined 7.4%, while cost of sales increased 20.2%; gross profit fell 39.7% and operating income fell 62.8%. Net income decreased to R$2.17bn from R$13.60bn.
- Mining revenue fell 30.6% to R$12.53bn, principally because average iron ore prices declined 24.7%; sales volume was broadly stable at 33.3 million tons. Mining production was affected by heavy rain and maintenance.
- Steel revenue declined 2.5% to R$29.34bn: sales volume was down 4.6%, partly offset by a 2.4% rise in average prices. Higher coal and coke costs pressured margins.
- Cement revenue nearly doubled to R$2.82bn, partly reflecting the September 2022 acquisition of LafargeHolcim Brasil. Cement installed capacity rose to approximately 17 million tons per year.
- Operating cash flow fell to R$2.04bn from R$14.79bn, reflecting lower earnings and working-capital movements, including increased inventories and reduced supplier balances. Investing activities used R$11.45bn, including substantial acquisition payments.
- Other operating expenses were R$2.91bn versus R$1.72bn in 2021; reported items included hedge-accounting realization, mining idle capacity, steel demurrage, legal-case write-offs and inventory losses. The prior-year comparison included R$2.47bn gain from a partial CSN Mineração share sale.
- Net financial expenses rose to R$3.52bn from R$1.94bn, including losses on Usiminas shares and higher borrowing and forfaiting interest expenses.
Outlook, risks, contingencies and unusual items
- Management expects mining expansion to increase CSN Mineração’s production capacity from 34 million tons in 2022 to as much as 108 million tons per year by 2033; this is planned capacity, not a production guarantee. The company also aims for iron ore shipments above 60 million tons annually in coming years and TECAR capacity expansion.
- In March 2023, CSN Mineração signed a conditional, 12-year export prepayment financing agreement of up to US$1.4bn, intended in part to support a pellet-feed plant at Casa de Pedra. Completion is subject to customary conditions, including an offtake agreement.
- Management described uncertainty around iron ore and steel demand and prices, especially in China; raw-material, fuel and energy costs; Brazilian inflation, interest rates and currency movements; refinancing needs; trade restrictions; and environmental, climate, licensing and operational risks. Debt maturities in 2023–2025 are expected to be paid or refinanced using operating cash flow or new financing. A separate liquidity discussion refers to possible asset sales and extensions of credit facilities.
- Possible-loss legal claims totaled R$47.69bn and were not provisioned because management and counsel assessed them as possible rather than probable losses. Major matters include a R$14.17bn tax assessment concerning the alleged sale of Namisa shares and a separate arbitration involving approximately US$1bn of claimed damages related to iron-ore supply agreements. CSN disputes these claims. Recorded provisions for tax, social-security, labor, civil and environmental risks totaled R$1.48bn.
- The company reported R$937.7m of environmental liabilities and asset-retirement obligations. It states that CSN Mineração has used dry tailings stacking since 2020 and does not operate active upstream tailings dams; several structures remain subject to de-characterization or regulatory proceedings.
- Grant Thornton issued an unqualified audit opinion on the IFRS financial statements and an unqualified opinion on internal control over financial reporting. The control assessment excluded certain 2022 acquisitions, including CSN Cimentos Brasil and energy subsidiaries, which represented approximately 12% of consolidated assets and 3% of revenue.
Most important facts for investors to verify
- Whether operating cash flow recovers and whether inventory, supplier financing and other working-capital movements are sustainable.
- Debt refinancing progress, maturity concentration, borrowing costs and the conditions and use of proceeds for the US$1.4bn export prepayment facility.
- Realized performance and funding needs for cement and energy acquisitions, and progress against planned mining and port capacity expansions.
- Developments in the Namisa tax dispute, the US$1bn arbitration and other unprovisioned claims, including any changes in loss assessments or collateral requirements.
- Iron ore and steel price trends, China-related demand, input-cost pass-through, and exposure to foreign exchange and interest-rate movements.
- Environmental licensing and dam de-characterization milestones, and integration of acquired businesses into internal financial controls.