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Hidrovias do Brasil
S.A.
Individual and Consolidated Interim Financial Information for the Three- and Nine-month Periods Ended September 30, 2017 and Report on Review of Interim Financial Information
Deloitte Touche Tohmatsu Auditores Independentes
(Convenience Translation into English from the Original Previously Issued in Portuguese)
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and Management of Hidrovias do Brasil S.A. São Paulo - SP
Introduction
We have reviewed the accompanying individual and consolidated interim financial information of Hidrovias do Brasil S.A. (“Company”), identified as Parent and Consolidated, respectively, included in the Interim Financial Information Form (ITR), for the quarter ended September 30, 2017, which comprises the balance sheet as at September 30, 2017 and the related statement of profit and loss and statement of comprehensive income for the three- and nine-month period ended September 30, 2017, and statement of changes in equity and statement of cash flows for the nine-month period then ended, including the explanatory notes.
Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with CPC 21 (R1) and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of such information in accordance with the standards issued by Brazilian Securities Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.
Scope of review
We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Emphases of matter
We draw attention to Note 1 to the interim financial statements, which states that in the nine-month period ended September 30, 2017 the Company recorded current liabilities in excess of total current assets in the amount of R$15,952 thousand (Parent) and R$179,546 thousand (Consolidated). These facts may entail the need of capital contributions by the Company’s shareholders or borrowings and financing so that the Company can be able to honor its short-term commitments. Our conclusion is not qualified regarding this matter.
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
BALANCE SHEETS AS AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(In thousands of Brazilian reais - R$)
ASSETS 09/30/2017 12/31/2016 09/30/2017 12/31/2016 LIABILITIES AND EQUITY 09/30/2017 12/31/2016 09/30/2017 12/31/2016
(Restated) (Restated)
Current assets Current liabilitiesCash and cash equivalents 4 356 352 125,961 95,182 Trade payables 11 1,855 1,498 50,895 39,942
Securities 5.1 51,954 140,505 63,244 167,196 Payor risk payable 12.1 - - 61,806 67,831
Trade receivables 6 - - 67,603 23,101 Borrowings and financing 12 74,359 15,683 234,345 1,362,888
Inventories - - 7,166 11,187 Financial instruments 18.4 - - 12,445 14,464
Recoverable taxes 4,589 2,773 18,034 12,292 Payroll and related taxes 13 8,162 9,357 21,080 15,762
Advances to suppliers 318 - 5,501 4,358 Taxes payable 5,590 5,539 17,764 16,964
Prepaid expenses 355 455 7,569 6,845 Due to related parties 17 1,210 349 - -
Guarantees and security deposits 7 and 17 - 15,970 - 15,989 Advances to suppliers - - 15,456 -
Due from related parties 17 17,881 8,286 - - Payables from acquisition of subsidiaries 1 - - 45,464 104,690
Other receivables - 18 1,571 3,371 Other payables 229 947 16,941 5,044
Total current assets 75,453 168,359 296,649 339,521 Total current liabilities 91,405 33,373 476,196 1,627,585
Noncurrent assets Noncurrent liabilitiesRestricted short-term investments 5.2 - - 134,571 51,915 Financial instruments 18.4 - - 30,256 29,932
Due from related parties 17 133,358 10,000 3,105 - Borrowings and financing 12 38,110 - 1,881,889 689,710
Escrow deposits 5,104 3,977 5,104 3,977 Deferred taxes 24.1 - - 124,779 124,504
Guarantees and security deposits 7 and 17 5,334 75,262 5,334 75,262 Payables from acquisition of subsidiaries 1 - - - 27,450
Prepaid expenses - - 671 1,878 Other payables - - - 107
Other receivables 7 6 16 16 Total noncurrent liabilities 38,110 - 2,036,924 871,703
Investments 8 1,058,224 929,596 63,968 64,936
Property, plant and equipment 9 14,900 11,125 2,811,777 2,756,693 EQUITY
Intangible assets 10 13,250 15,878 368,040 385,920 Capital 15 1,296,778 1,296,778 1,296,778 1,296,778
Total noncurrent assets 1,230,177 1,045,844 3,392,586 3,340,597 Cost on issuance of equity instruments (24,885) (24,885) (24,885) (24,885)
Capital reserves 7,593 7,577 7,593 7,577
Accumulated losses (206,113) (214,795) (206,113) (214,795)
Other comprehensive income 102,742 116,155 102,742 116,155
Total equity 1,176,115 1,180,830 1,176,115 1,180,830
Total assets 1,305,630 1,214,203 3,689,235 3,680,118 Total liabilities and equity 1,305,630 1,214,203 3,689,235 3,680,118
The accompanying notes are an integral part of this interim financial information.
Consolidated
Note Note
Parent Consolidated Parent
3
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
STATEMENTS OF PROFIT AND LOSS FOR THE THREE-AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016.
(In thousands of Brazilian reais - R$, except earnings (loss) per share)
Note07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
Net revenue 21 9,031 9,031 - - 232,268 553,070 114,153 312,008
Cost of services 22 - - - - (118,638) (334,540) (67,570) (179,638)
Gross profit 9,031 9,031 - - 113,630 218,530 46,583 132,370
OPERATING INCOME (EXPENSES)Salaries, payroll taxes and benefits 22 (8,029) (20,307) (6,052) (18,588) (9,522) (25,201) (7,646) (22,828)
General and admministrative expenses 22 (1,609) (1,958) (1,713) (3,961) (3,042) (6,634) (1,529) (9,388)
Professional services 22 6,328 (7,680) (1,586) (6,128) 5,424 (11,329) (1,959) (9,018)
Depreciation and amortization 9, 10 and 22 (955) (2,866) (1,989) (3,014) (1,194) (3,569) (2,242) (3,723)
Share of profit (loss) of investees or joint ventures 8 and 22 43,185 36,725 (5,918) 8,637 (2,487) (7,611) (1,998) (8,121)
Total 38,920 3,914 (17,258) (23,054) (10,821) (54,344) (15,374) (53,078)
Operating profit (loss) before finance income (costs) 47,951 12,945 (17,258) (23,054) 102,809 164,186 31,209 79,292
Finance income 23 3,536 14,386 2,743 15,667 31,490 66,625 3,009 16,931
Finance costs 23 (6,140) (18,649) (333) (27,356) (71,790) (207,942) (48,173) (129,890)
Finance income (costs), net 23 (2,604) (4,263) 2,410 (11,689) (40,300) (141,317) (45,164) (112,959)
Operatinng profit (loss) before income tax and social contribution 45,347 8,682 (14,848) (34,743) 62,509 22,869 (13,955) (33,667)
Current income tax and social contribution 24 - - - - (7,946) (14,462) (893) (1,076)
Deferred income tax and social contribution 24.1 - - - - (9,216) 275 - -
Total - - - - (17,162) (14,187) (893) (1,076)
Profit (loss) for the period 45,347 8,682 (14,848) (34,743) 45,347 8,682 (14,848) (34,743)
Earnings (loss) per share - R$ 16 0.0655 0.0125 (0.0235) (0.0551)
The accompanying notes are an integral part of this interim financial information.
Parent Consolidated
4
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
STATEMENTS OF COMPREHENSIVE INCOMED FOR THE THREE-AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
(In thousands of Brazilian reais - R$)
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
Profit (loss) for the period 45,347 8,682 (14,848) (34,743) 45,347 8,682 (14,848) (34,743)
Other comprehensive income:Items that may be reclassified to the statement of profit and loss:Exchange difference on translation of foreign operations (21,490) (15,980) 982 (90,870) (21,490) (15,980) 982 (90,870)
Effective loss on changes in the fair value of cash flow hedge 2,834 2,567 2,413 (22,311) 2,834 2,567 2,413 (22,311)
Total (18,656) (13,413) 3,395 (113,181) (18,656) (13,413) 3,395 (113,181)
Comprehensive income for the period 26,691 (4,731) (11,453) (147,924) 26,691 (4,731) (11,453) (147,924)
The accompanying notes are an integral part of this interim financial information.
Parent Consolidated
5
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
STATEMENTS OF CHANGES IN EQUITY FOR THE THREE-AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016 - PARENT AND CONSOLIDATED
(Em milhares de reais - R$)
Note Capital
Share issuance
costs Other
Stock
options
granted
Accumulated
losses
Cumulative
translation
adjustments
Adjustments to
financial
instruments Total
BALANCES AS AT DECEMBER 31, 2015 1,072,386 (24,270) 2,514 4,813 (125,894) 233,838 (48,197) 1,115,190
Stock options granted recognized 19 - - - 201 - - - 201 Loss for the period - - - - (34,743) - - (34,743)
Other comprehensive income - - - - - (90,870) (22,311) (113,181)
BALANCES AS AT SEPTEMBER 30, 2016 1,072,386 (24,270) 2,514 5,014 (160,637) 142,968 (70,508) 967,467
BALANCES AS AT DECEMBER 31, 2016 1,296,778 (24,885) 2,514 5,063 (214,795) 150,411 (34,256) 1,180,830
Stock options granted recognized 19 - - - 16 - - - 16 Profit for the period - - - - 8,682 - - 8,682 Other comprehensive income - - - - - (15,980) 2,567 (13,413)
BALANCES AS AT SEPTEMBER 30, 2017 1,296,778 (24,885) 2,514 5,079 (206,113) 134,431 (31,689) 1,176,115
The accompanying notes are an integral part of this interim financial information.
Capital reserves Other comprehensive income
6
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
STATEMENTS OF CASH FLOW FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
(In thousands of Brazilian reais - R$)
09/30/2017 09/30/2016 09/30/2017 09/30/2016
(Restated)
CASH FLOW FROM OPERATING ACTIVITIESProfit (loss) for the period 8,682 (34,743) 8,682 (34,743) Adjustments to reconcile profit (loss) for the period to net cash provided by (used in) operating activities:Accrued bonuses and awards 480 3,141 (2,068) 5,058 Provision for PIS/COFINS 1,997 764 401 794 Deferred taxes - - 277 - Interest, net 7,168 - 123,228 70,351 Hedge charges recognized in profit or loss - - - - Inflation adjustments and exchange rate changes 85,120 18,177 72,707 18,208 Stock option plan 16 201 16 201Interest - payor risk - - 8,499 - Interest on short-term investment (6,863) (7,153) (9,085) (7,685) Depreciation and amortization 2,867 3,014 105,886 61,901 Share of profit (loss) of subsidiaries (36,725) (8,637) 7,611 8,121
(Increase) decrease in operating assets:Trade receivables - - (47,064) (5,966) Inventories - - 3,642 447 Recoverable taxes (1,816) (953) (5,849) (3,852) Advances to suppliers (318) (650) (1,204) 72,445 Prepaid expenses 100 (737) 406 (7,923) Related parties - (26,326) - (816) Escrow deposits (1,127) (733) (1,127) (733) Other receivables 23 629 1,677 3,114
Increase (decrease) in operating liabilities:Trade payables 357 323 (4,600) (193,840) Payor risk payable - - (14,524) - Payroll and related taxes (3,192) (6,245) (2,504) (5,982) Taxes payable (429) (1,829) 12,007 (1,827) Advances from customers - - 15,456 -
Other payables (724) 155 12,113 (1,491)
Cash provided by (used in) operating activities 55,616 (61,602) 284,583 (24,218)
Payment of interest on borrowings and financing (4,604) - (80,430) (154,696)
Income tax and social contribution paid - - (11,575) -
Net cash provided by (used in) operating activities 51,012 (61,602) 192,578 (178,914)
CASH FLOW FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment (3,963) (6,809) (157,268) (91,991) Acquisition of intangible assets (51) (1,505) (51) (6,498) Securities 95,414 59,900 113,037 165,319 Restricted short-term investments - - (82,655) - Related parties (136,108) - (6,440) - Capital increase in subsidiaries (102,161) (16,941) - -
Acquisition of subsidiaries - - (85,429) -
Net cash provided by (used in) investing activities (146,869) 34,645 (218,806) 66,830
CASH FLOW FROM FINANCING ACTIVITIESBorrowings 110,000 15,000 166,549 823,478 Amortization of principal - borrowings (15,000) - (111,437) (622,662)
Other payables to related parties 861 492 - -
Net cash provided by (used in) financing activities 95,861 15,492 55,112 200,816
Effects of exchange rate changes on cash balance held in foreign currency - - 1,897 (25,510)
Cash and cash equivalents at the beginning of the period 352 11,816 95,182 108,037
Cash and cash equivalents at the end of the period 356 351 125,961 171,259
Increase (decrease) in cash and cash equivalents 4 (11,465) 28,884 88,732
The accompanying notes are an integral part of this interim financial information.
Parent Consolidated
7
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
STATEMENTS OF VALUE ADDED FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016
(In thousands of Brazilian reais - R$)
09/30/2017 09/30/2016 09/30/2017 09/30/2016
REVENUEService revenue 9,031 - 579,955 325,735 Revenues related to the construction of own assets 17,403 8,314 162,199 351,635
INPUTS PURCHASED FROM THIRD PARTIESCost of services - - (196,511) (121,460) Supplies, power, outside services and other inputs (9,638) (10,089) (17,963) (18,406) Construction of own assets (17,403) (8,314) (162,199) (351,635)
Gross value added (consumed) (607) (10,089) 365,481 185,869
Depreciation, amortization and depletion (2,867) (3,014) (105,886) (61,901)
Value added (consumed) by the Company (3,474) (13,103) 259,595 123,968
Vlue added (consumed) in transfer:Share of profit (loss) of subsidiaries 36,725 8,637 (7,611) (8,121) Finance income 14,386 15,667 66,625 16,931
Total value added (consumed) for distribution 47,637 11,201 318,609 132,778
Distribution of value added (consumed) 47,637 11,201 318,609 132,778
Personnel 17,356 15,836 85,762 17,765
Salaries and wages 14,163 10,106 81,540 10,845 Benefits 1,967 1,768 2,620 2,367 Severance Pay Fund (FGTS) 1,213 3,763 1,399 4,354 Other 13 199 203 199
Taxes 2,950 2,752 16,223 19,866
Federal 2,950 2,752 16,223 19,866
Lenders and lessors 18,649 27,356 207,942 129,890
Other 18,649 27,356 207,942 129,890
Shareholders 8,682 (34,743) 8,682 (34,743)
Profit (loss) for the period 8,682 (34,743) 8,682 (34,743)
The accompanying notes are an integral part of this interim financial information.
Parent Consolidated
8
9
(Convenience Translation into English from the Original Previously Issued in Portuguese)
HIDROVIAS DO BRASIL S.A.
NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1. GENERAL INFORMATION
Hidrovias do Brasil S.A. (“Company”), a publicly-held company, “A” type, was established on August 18, 2010 and is headquartered in the city of São Paulo, State of São Paulo, at Rua Gilberto Sabino, 215 - 7º andar - Pinheiros, and may, by resolution of the Board of Directors, open branches, offices and establishments in any part of Brazil or abroad. The Company is engaged in activities related to waterway, highway and multimodal logistics and infrastructure, in Brazil and abroad, including those listed below, as well as in holding ownership interests in companies that are engaged in such activities:
a) Transportation of passengers and goods.
b) Construction and operation of ports, cargo terminals, shipyards, workshops and warehouses.
c) River and sea navigation, coastal shipping and storage of goods.
d) Provision of logistics services, whether directly or through third parties.
e) Other related activities or activities that may be related in any matter to its corporate purpose.
The Company is authorized to increase its capital by up to R$1,720,000 by decision of the Board of Directors and regardless of amendment to its bylaws, in accordance with Article 168 of Law 6404/76.
The Company is an intervening party in the shareholders’ agreement that regulates the terms and conditions of the relationship between the shareholders and, indirectly, in the companies where the Company holds or comes to hold investments, including the exercise of voting rights, the shareholders’ participation in management, each shareholder’s obligation to pay in the subscribed capital, agreements relating to future capitalization, and some other restrictions on the transfer of shares or equivalent securities issued by the Company.
The Company holds direct and indirect ownership interests and joint control in the following companies:
• Hidrovias do Brasil - Holding Norte S.A. (“Hidrovias do Norte”), holding domiciled in northern Brazil, is primarily engaged in holding equity interests in other companies.
• Hidrovias do Brasil - Vila do Conde S.A. (“HB Vila do Conde”), engaged in the construction, operation and exploitation of own or third parties’ multipurpose and multimodal terminals, for private, mixed or public use, and handling and warehousing of goods intended for or originating from waterway, highway and railway transportation, in addition to the performance of any activities related to, accessory or supplemental to the ones described above, in Barcarena region, State of Pará. This company may also hold interests in other companies operating in these industries, as a partner or consortium member, or through other types of investments.
Hidrovias do Brasil S.A.
10
• Hidrovias do Brasil - Miritituba S.A. (“HB Miritituba”), engaged in the construction, operation and exploitation of own or third parties’ multipurpose and multimodal terminals, for private, mixed or public use, in addition to the performance of any activities related to, accessory or supplemental to the ones described above, in Itaituba region, State of Pará. This company may also hold interests in other companies operating in these industries, as a partner or consortium member, or through other types of investments.
• Hidrovias do Brasil - Marabá S.A. (“HB Marabá”), a company at the preoperating stage, engaged in the construction, operation, and exploitation of own or third parties’ multipurpose and multimodal terminals, for private, mixed or public use, in addition to the performance of any activities related, accessory or supplemental to the ones described above, in Marabá region, State of Pará. This company may also hold interests in other entities operating in these industries, as a partner, shareholder or consortium member, or through other types of investments.
• Hidrovias do Brasil - Navegação Norte S.A. (“HB Navegação Norte”), engaged in the operation of waterway transportation of general cargo, liquid or solid bulk; provision of port operating services, loading and unloading of barges and cargo warehousing services; transportation of general cargo and solid bulk in the intermunicipal, interstate and international inland shipping longitudinal route; provision of inland shipping services, transportation, warehousing and transshipment of general cargo and solid and liquid bulk.
• Hidrovias do Brasil – Intermediação e Agenciamento de Serviços Ltda. (“HB Intermediação”) is engaged in the intermediation and agency of services in general, except real estate, in addition to the performance of similar, related, accessory or supplemental activities.
• Hidrovias do Brasil – Cabotagem Ltda. (“HB Cabotagem”), engaged in the long haul maritime transportation - cargo inland shipping and transportation, in the intermunicipal, interstate and international mode of transportation, except transatlantic crossings.
• Obrinel S.A. (“Obrinel”), an operating company domiciled in Uruguay, primarily engaged in the construction and operation of a terminal specialized in solid bulk cargo in Montevideo Port’s facilities.
Obrinel holds concession for a specified period of 20 years, approved and authorized by the National Ports Agency - ANP of Uruguay, through the Public Tender 1/05, and has the obligation to develop the construction and operation of the terminal in the Port of Montevideo, in the manner and conditions for inviting tenders. The concession agreement sets forth that the executive branch may establish tariffs for port services depending on the level of competitiveness.
• Hidrovias del Sur S.A. (“Hidrovias Del Sur”), a holding domiciled in Uruguay, primarily engaged in holding interests in other companies.
• Baloto S.A. (“Baloto”), a holding domiciled in Uruguay, which is primarily engaged in holding a 49% equity interest in Obrinel S.A. (“joint venture”).
• Girocantex S.A. (“Girocantex”) and Girocantex S.A. - Paraguay Branch (“Girocantex Paraguay”), operating companies domiciled in Uruguay and Paraguay, primarily engaged in the waterway transportation of goods.
• Hidrovias del Paraguay S.A. (“Hidrovias Del Paraguay”), a company domiciled in Paraguay, primarily engaged in commercial activities related to waterway transportation.
Hidrovias do Brasil S.A.
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• Pricolpar S.A. (“Pricolpar”), a company domiciled in Paraguay, primarily engaged in commercial activities related to waterway transportation.
• Cikelsol S.A. (“Cikelsol”), a company domiciled in Uruguay, primarily engaged in the lease of shipping assets and waterway transportation of goods abroad (Paraguay).
• Limday S.A. (“Limday”), a company domiciled in Uruguay, primarily engaged in the transportation of paper pulp from Fray Bentos’ port facilities to the port terminal located in Nova Palmira, Uruguay.
• Resflir S.A. (“Resflir”), a company domiciled in Uruguay, primarily engaged in the lease of shipping assets.
Negative net working capital
As at September 30, 2017, the Company recorded in the interim financial information negative net working capital in the amount of R$15,952 in the Parent (R$134,986 of positive working capital as at December 31, 2016) and R$179,547 in consolidated (R$1,288,064 of negative working capital as at December 31, 2016, according to the reclassification), arising mainly from the repayment of borrowings and financing. The Company plans to balance the negative net working capital with the growth in the North Corridor’s operations (comprises shipping, transshipment and cargo lifting and also coastal shipping operations) . In addition, the Company is supported by the capital contributions from its shareholders (Private Placement).
Regulatory aspects
On December 7, 2012, the Federal Official Gazette published Provisional Act 595, of December 6, 2012, which provided for, among others, the direct and indirect operation, by the Federal Government, of ports and port facilities and the activities performed by port operators. Such Provisional Act was converted into Law on June 5, 2013 (Law 12815).
On December 2, 2016, the Pará State Environmental and Sustainability Department Council issued the Operating Permit (LO) of the Private Use Port Terminal (TUP), owned by Hidrovias do Brasil – Vila do Conde S.A. and located in the city of Barcarena, State of Pará.
On April 11, 2013, the State Environmental Council (Coema) granted the provisional permit (LP) for the Cargo Transshipment Station (ETC) project of the direct subsidiary HB Miritituba, located in Itaituba, State of Pará.
On May 9, 2014, HB Vila do Conde, a direct subsidiary, entered into the Contract of Adhesion 016/2014 with the Presidency of the Republic’s Special Department of Ports (SEP/PR), as the Concession Grantor, and the National Agency for Waterway Transportation (ANTAQ), as the intervening party, which authorizes the construction and/or operation of a port facility by HB Vila do Conde, under Private Use Terminal (TUP), located at Avenida Verde e Branco, Estrada de Itupanema, in the city of Barcarena/PA, for purposes of handling and/or storage of solid bulk (vegetal grains, bran and fertilizers), to or from waterway transportation.
On July 31, 2014, HB Miritituba, a direct subsidiary, entered into the Contract of Adhesion 019/2014 with the Presidency of the Republic’s Special Department of Ports (SEP/PR), as the Concession Grantor, and the National Agency for Waterway Transportation (ANTAQ), as the intervening party, which authorizes the construction and/or operation of a port facility by HB Miritituba, under Cargo Transshipment Station (ETC), located at the right bank of Tapajós river, Santa Cruz site, not numbered, Vila de Miritituba, in the city of Itaituba/PA, for purposes of handling and/or storage of solid bulk (grains and soy bran), to or from waterway transportation.
Hidrovias do Brasil S.A.
12
On December 5, 2014, HB Vila do Conde, a direct subsidiary, obtained Special Arrangements for the Grant of Taxation Incentive for Modernization and Expansion of the Port Structure (REPORTO) by the Brazilian Federal Revenue Service, through Executive Declaratory Act (ADE) 335, published in the Federal Official Gazette.
On December 29, 2014, HB Miritituba, a direct subsidiary, obtained Special Arrangements for the Grant of Taxation Incentive Modernization and Expansion of the Port Structure (REPORTO) by the Brazilian Federal Revenue Service, through Executive Declaratory Act (ADE) 303, published in the Federal Official Gazette.
Established on May 24, 2016, HB Intermediação is mainly engaged in the agency and intermediation of logistics solutions, with capital in the amount of R$2,500, to be fully paid in up to May 24, 2019.
Established on September 22, 2016, Resflir is mainly engaged in the lease of shipping assets.
On December 1, 2016, Resolution 5120, of November 30, 2016, was published in the Federal Official Gazette, whereby the National Agency for Waterway Transportation (ANTAQ) authorized Resflir to operate as a Brazilian Shipping Company, in the coastal shipping segment.
On December 20, 2016, the Maritime Court issued the shipowner certificate for this company. After the issuance of such authorization and registration, the company started to operate in Brazil.
1.1 Establishment of Hidrovias do Brasil Cabotagem Ltda. (“HB Cabotagem”) and Log-In business combination
On December 23, 2016, the Company, through its direct subsidiary Hidrovias do Brasil - Cabotagem S.A. (“HB Cabotagem”), acquired from Log-In – Logística Intermodal S.A. (“Log-In”) the rights and obligations of a commercial transportation bauxite agreement, effective for 19 years, in the section between Porto Trombetas/PA and Barcarena/PA and two vessels with 85,000 ton capacity each, called HB Tucunaré and HB Tambaqui.
The purpose of this acquisition was to expand the Company’s transport modes, which are now part of the coastal shipping operation in its portfolio.
The acquisition was completed on December 23, 2016, as detailed below:
The Board of Directors approved, at its meeting held on September 14, 2016, the acquisition of Log-In assets and on December 23, 2016 the conditions precedents were met and the Company assumed control of the operations.
The consideration transferred under this transaction was R$191,175, broken down as follows:
(a) Payment of R$200,000 in cash, of which R$60,000 was paid on December 23, 2016 and the remaining amount will be paid in 14 monthly, consecutive installments and adjusted using the General Market Price Index (IGPM). In 2017, payments of R$90,659 were made in relation to the line item “Payable from acquisition of subsidiaries”.
(b) Discount agreed by the parties amounting to US$2,700 thousand, equivalent to R$8,205 at the transaction date, which will be proportionally deducted following the cash payment schedule.
Hidrovias do Brasil S.A.
13
Management concluded that this asset acquisition is a business combination and recorded the assets and liabilities at fair value in the recently established company HB Cabotagem. The allocation of the assets and liabilities at fair value is as follows:
HB Cabotagem 12/23/2016
Historical cost
Adjustments to fair value
Assets and liabilities at fair value
Noncurrent assets: Property, plant and equipment 421,852 23,305 445,157 Intangible assets - 343,681 343,681
Current liabilities: Borrowings and financing 30,331 - 30,331
Noncurrent liabilities: Borrowings and financing 442,508 - 442,508 Deferred taxes - 124,824 124,824
Net assets acquired (50,987) 242,162 191,175 Price paid to be allocated 242,162 (242,162) -
Consideration transferred 191,175 - 191,175
Additional information on the acquisition
a) Assets acquired and liabilities assumed at the acquisition date - preliminary
The transaction price was allocated on the date of acquisition of the assets acquired and liabilities assumed at fair values, including the intangible assets related to the rights and obligations of a commercial agreement entered into between Log-In and Alunorte – Alumina do Norte do Brasil S.A., on April 20, 2009, which will be amortized over the remaining 19-year period. Consequently, the transaction price was provisionally allocated to identifiable assets and liabilities and no residual value was allocated to goodwill in this transaction.
The Company’s Management does not expect that the amount allocated as rights and obligations of a commercial agreement to be deductible for tax purposes and, therefore, recognized deferred income tax and social contribution related to the difference between the amount allocated and this asset’s tax base.
The initial allocation of the transaction price is based on analyses conducted by Management itself, until the business valuation report is completed. The allocation and consequently the initial recognition were provisionally made on December 23, 2016.
Management expects the report on the allocation of the price paid or the acquisition of the assets to be completed by the end of 2017.
b) Financial information on net operating revenue and the profit for the year of HB Cabotagem included in the consolidated interim financial information in the acquisition year.
09/30/2017
Revenue
Profit for the period
HB Cabotagem (*) 76,047 15,087
(*) HB Cabotagem was acquired in December 2016, and therefore, it does not disclose any information as at September 30, 2016.
Hidrovias do Brasil S.A.
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1.2 Supplementary disclosures
• The valuation reports of the acquired tangible and intangible assets are being prepared.
• The account groups that are subject to changes are: property, plant and equipment, intangible assets – agreements, deferred taxes and goodwill.
2. BASIS OF PREPARATION AND PRESENTATION OF INTERIM FINANCIAL INFORMATION
a) Statement of compliance
The Company’s interim financial information includes the individual and consolidated interim financial information prepared in accordance with the International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB"), and the accounting practices adopted in Brazil.
The accounting practices adopted in Brazil comprise those set out in the Brazilian Corporate Law and the technical pronouncements, guidelines and interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the Federal Accounting Council (CFC).
Management states that all the relevant information reported in the individual and consolidated interim financial information is being disclosed and only this information corresponds to the information used by the executive committee to manage the Company.
The individual and consolidated interim financial information is expressed in thousands of Brazilian reais, rounded to the nearest thousand, except when otherwise indicated.
b) Basis of measurement
The individual and consolidated interim financial information has been prepared based on the historical cost, except if otherwise stated, as described in the accounting policies below. The historical cost is generally based on the fair value of the consideration paid in exchange for the assets.
c) Statement of comprehensive income
Other comprehensive income comprises revenue and expense components that are not recognized in the statement of profit and loss as required or permitted by the technical pronouncements, interpretations and guidelines issued by the Accounting Pronouncements Committee (CPC). In the case of the Company, these items may be reversed to the statement of profit and loss upon settlement of the transactions or sale of the investees.
d) Functional and reporting currency
The individual and consolidated interim financial information is expressed in Brazilian reais, which is the functional and reporting currency of the Company. The functional currency of the subsidiaries in Uruguay and Paraguay is the U.S. dollar. The impacts of the translation of the foreign subsidiaries’ functional currency into the Brazilian real are accounted for in equity as other comprehensive income. All interim financial information presented in Brazilian reais has been rounded to the nearest real amount, unless otherwise stated.
Hidrovias do Brasil S.A.
15
e) Use of estimates and judgments
The preparation of individual and consolidated interim financial information pursuant to IFRSs and CPC standards requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. The main estimates are related to the measurement of the recoverable amount of property, plant and equipment and intangible assets (notes 9 and 10) and the determination of the useful life of property, plant and equipment (note 9).
f) Restatement of the consolidated balance sheet as at December 31, 2016
As mentioned in note 12, the consolidated balance sheet and related notes for the year ended December 31, 2016 are being restated in the interim financial information for the nine-month period ended September 30, 2017 to contemplate the effects of the failure to comply with certain non-financial covenants that resulted in the reclassification of part of the debt recorded in noncurrent liabilities to current liabilities in the amount of R$1,287,749. Additionally, as at December 31, 2016, part of the balance of cash and cash equivalents in the amount of R$51,915 was reclassified to restricted short-term investments in noncurrent assets.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Company to prepare the individual and consolidated interim financial information did not change in relation to the policies disclosed in note 3 to the financial statements for the year ended December 31, 2016, published on March 28, 2017 in the newspapers Diário Oficial (Official Gazette) and Diário Comercial, available in www.cvm.gov.br and www.hbsa.com.br, and should, therefore, be read in conjunction with said financial statements.
The individual and consolidated interim financial information includes the financial statements of the Company (Parent) and the following direct and indirect investees and joint ventures:
Country
Equity interest - %
09/30/2017 12/31/2016
Direct subsidiaries Hidrovias del Sur S.A. Uruguay 100.00 100.00 Hidrovias do Brasil - Marabá S.A. Brazil 100.00 100.00 Baloto S.A. (*) Uruguay 100.00 100.00 Hidrovias do Brasil - Holding Norte S.A. Brazil 100.00 100.00 Hidrovias do Brasil - Interm. e Agenc. Serv. Ltda. Brazil 100.00 100.00 Hidrovias do Brasil – Cabotagem Ltda. Brazil 100.00 100.00 Indirect subsidiaries Girocantex S.A. Uruguay 100.00 100.00 Girocantex S.A. - Paraguay Branch Paraguay 100.00 100.00 Hidrovias del Paraguay S.A. Paraguay 100.00 100.00 Pricolpar S.A. Paraguay 100.00 100.00 Cikelsol S.A. Uruguay 100.00 100.00 Resflir S.A. Uruguay 100.00 100.00 Hidrovias do Brasil - Miritituba S.A. Brazil 100.00 100.00 Hidrovias do Brasil - Navegação Norte S.A. Brazil 100.00 100.00 Hidrovias do Brasil - Vila do Conde S.A. Brazil 100.00 100.00 Joint ventures Obrinel S.A. Uruguay 49.00 49.00 Limday S.A. Uruguay 44.55 44.55
(*) 4.94% of direct equity interest and 95.06% of indirect equity interest through subsidiary Hidrovias Del Sur.
Hidrovias do Brasil S.A.
16
The new and revised International Financial Reporting Standards (IFRS) below, effective for annual periods beginning on or after January 1, 2017, were adopted in the Company’s interim financial information. The adoption of these new and revised IFRSs, applicable to the Company, did not have any significant impact on the amounts reported and/or disclosed for the current period.
Pronouncement Description Amendments to IAS 1 Disclosure Initiative Amendments to IAS 16 and
IAS 38 Clarification of Acceptable Methods of Depreciation and
Amortization Annual Improvements 2012-2014 IFRS Cycle New and revised standards and interpretations issued and not yet adopted
Pronouncement Description
IFRS 9 Financial Instruments (b) IFRS 15 Revenue from Contracts with Customers (b) IFRS 16 Leases (c) IFRS 17 Insurance Contracts (d) Amendments to IFRS 2 Classification and Measurement of Share-based
Payment Transactions (b) Amendments to IFRS 10 and
IAS 28 Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture (e) Amendments to IAS 7 Disclosure Initiative (a) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized
Losses (a) IFRIC 22 Foreign Currency Transactions and Advance
Consideration (b) IFRIC 23 Uncertainty over Income Tax Treatments (c) Annual Improvements 2014–2016 IFRSs Cycle (a) (b) (a) Effective for annual periods beginning on or after January 1, 2017.
(b) Effective for annual periods beginning on or after January 1, 2018.
(c) Effective for annual periods beginning on or after January 1, 2019.
(d) Effective for annual periods beginning on or after January 1, 2021.
(e) Effective for annual periods beginning on or after a date to be determined.
The Company's Management did not estimate the extent of the possible impacts of the new pronouncements, guidelines and interpretations on its Interim Financial Information.
4. CASH AND CASH EQUIVALENTS
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016 (Reclassified) Cash and bank deposits 356 352 125,961 95.182
Hidrovias do Brasil S.A.
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5. SHORT-TERM INVESTMENTS
5.1. SECURITIES
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016 Fundo Itaú PP Portfólio (a) 11,142 140,505 22,432 167,196 Banco Pine (b) 20,778 - 20,778 -
Banco BBM (c) 20,034 - 20,034 -
Total 51,954 140,505 63,244 167,196
(a) Short-term investments that consist of investments in the fund Fundo Itaú PP
Portfólio, subject to the Interbank Deposit Rate (CDI), yielding average interest equivalent to 100.52% of CDI (100.9% as at December 31, 2016). The fund portfolio is exclusively comprised of fixed-income securities, distributed among federal government bonds, repurchase agreements, fund units and other securities from financial institutions.
(b) Short-term investments in CDB that consist of investments in Banco Pine, subject to the Interbank Deposit Rate (CDI), yielding interest equivalent to 100.0% of CDI.
(c) Short-term investments in CDB that consist of investments in Banco BBM, subject to the Interbank Deposit Rate (CDI), yielding interest equivalent to 100.00% of CDI.
5.2. RESTRICTED SHORT-TERM INVESTMENTS - CONSOLIDATED
09/30/2017 12/31/2016 (Reclassified) Norte Project (a) 79,127 - Vale Project (b) 50,496 51,915
Coastal Shipping (c) 4,948 -
Total 134,571 51,915
(a) In 2017, subsidiaries HB Vila do Conde, HB Miritituba and HB Navegação Norte organized an investment fund in Banco Soberano, which is pegged to the North corridor loan.
(b) In 2016, subsidiary Girocantex S.A. organized an investment fund in Banco Deutsche Bank Trust Company Americas, which is pegged to the Vale Project loan. As at December 31, 2016, the balance in the amount of R$51,915 was originally classified as “Cash and cash equivalents and, as at September 30, 2017, it was reclassified to “Restricted short-term investments” for purposes of better disclosure.
(c) Represent investments in the fund BNP PARIBAS SOBERANO FIC FI RF, subject to the fluctuation of the SELIC interest rate, yielding interest equivalent to 96.95% of Selic. The fund portfolio is comprised of federal government bonds issued by the National Treasury and/or Central Bank, with fixed rate or indexed to CDI fluctuation, or, still, by repurchase agreements based on federal government bonds.
Hidrovias do Brasil S.A.
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6. TRADE RECEIVABLES – CONSOLIDATED
Consolidated 09/30/2017 12/31/2016 Foreign customers (a) 33,616 18,878 Domestic customers (b) 33,987 4,223
Total 67,603 23,101
(a) Refer to the balances of indirect subsidiaries Girocantex of R$23,999 (R$18,625 as at
December 31, 2016) and Cikelsol of R$9,617 (R$253 as at December 31, 2016).
(b) Refer to the balances of indirect subsidiaries Vila do Conde of R$8,635 (R$96 as at December 31, 2016), Navegação Norte of R$14,756 (R$234 as at December 31, 2016), Miritituba of R$3,905 (R$0 as at December 31, 2016), Cabotagem of R$6,577 (R$3,893 as at December 31, 2016) and intermediation of R$114 (R$0 as at December 31, 2016).
Aging list of trade receivables
Consolidated
09/30/2017 12/31/2016 Current 45,068 11,195 Up to 30 days past due 12,075 - 30-60 days past due 6,636 - 60-90 days past due 573 9,943 90-120 days past due 906 894 120-180 days past due 1,505 1,069 Over 180 days past due 840 -
Total 67,603 23,101
7. GUARANTEES AND SECURITY DEPOSITS
Parent Consolidated 09/30/2017 12/31/2016 09/30/2017 12/31/2016
Vale Project (a) - 74,959 - 74,959
Obrinel Project (b) 5,031 15,970 5,031 15,970
Other 303 303 303 322
Total 5,334 91,232 5,334 91,251
Classified as:
Current - 15,970 - 15,989
Noncurrent 5,334 75,262 5,334 75,262
(a) On October 9, 2013, the Company granted funds to Girocantex in the amount of
US$23,000, relating to the guarantee set forth in the terms and conditions of the “Project
Funds Support and Corporate Guarantee Agreement – PFSCGA”. The amount was released
after the confirmation of performance of the navigation assets of Vale Project,
accomplished after six consecutive voyages of each convoy and other disbursement terms,
which took place on July 6, 2017.
(b) On July 25, 2014, the Company granted funds to Obrinel in the amount of US$4,900,
under the terms and conditions of the Project Completion Guarantee signed on June 13,
2014. The amount was released on August 2, 2017, in the amount of US$3,312, and the
residual balance, in the amount of US$1,588 thousand will remain as security deposit until
the Financial Completion of the Obrinel Project.
Hidrovias do Brasil S.A.
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8. INVESTMENTS
None of the companies accounted for under the equity method has its shares traded on a stock exchange.
Breakdown of investments Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016
Equity interests measured under the equity
method 1,058,224 929,596 63,968 64,936
The consolidated balance refers to Limday, in the amount of R$13,466 (R$14,308 as at December 31, 2016) and Obrinel, in the amount of R$50,502 (R$50,628 as at December 31, 2016), recognized under the equity method, pursuant to CPC 19 (R2) and IFRS 11.
In Parent, goodwill relating to Baloto, in the amount of R$16,316, is recorded in line item investments.
The variation in the Parent’s and consolidated investments for the period ended September 30, 2017 is as follows:
Parent
12/31/2016 09/30/2017
Opening balance of
investments Capital increase
Share of profit (loss)
of subsidiaries
Valuation adjustmen
ts to equity
Currency translation
Closing balance of
investments
Baloto S.A. 15,412 - 1,113 - (209) 16,316 Hidrovias del Sur 450,427 10,377 60,878 2,567 (12,616) 511,633 HB Marabá 9,261 224 (218) - - 9,267 Hidrovias del Paraguay (12) - 11 - - (1) Hidrovias do Norte 388,975 - (11,117) - - 377,858 Pricolpar 6 - (4) - - 2 Coastal shipping services 65,035 91,252 (15,087) - - 141,200 Intermediation 492 308 1,149 - - 1,949
Total 929,596 102,161 36,725 2,567 (12,825) 1,058,224
Consolidated
12/31/2016 09/30/2017
Opening
balance of
investments
Capital
increase
Share of
profit (loss)
of
subsidiaries
Valuation
adjustments to
equity
Closing
balance of
investments
Limday 14,308 - 1,612 (2,454) 13,466
Obrinel 50,628 10,369 (9,223) (1,272) 50,502
Total 64,936 10,369 (7,611) (3,726) 63,968
The variation in the Parent’s and consolidated investments for the year ended December 31, 2016 is as follows:
Parent 12/31/2015 12/31/2016
Opening
balance of investments
Capital increase
Share of profit (loss) of
subsidiaries
Valuation adjustments
to equity Currency
translation
Closing balance of
investments Baloto S.A. 19,397 - (785) - (3,200) 15,412 Hidrovias del Sur 441,709 11,665 63,342 13,941 (80,230) 450,427 HB Marabá 9,276 313 (328) - - 9,261 Hidrovias del Paraguay (11) - (1) - - (12) Hidrovias do Norte 412,432 72,944 (96,401) - - 388,975 Pricolpar 3 - - - 3 6 Coastal shipping services - 63,400 1,635 - - 65,035 Intermediation - 453 39 - - 492
Total 882,806 148,775 (32,499) 13,941 (83,427) 929,596
Hidrovias do Brasil S.A.
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Consolidated
12/31/2015 12/31/2016
Opening balance of
investments
Share or profit (loss) of
subsidiaries
Currency
translation
Closing balance of
investments
Limday 16,249 1,135 (3,076) 14,308
Obrinel 79,190 (15,896) (12,666) 50,628
Total 95,439 (14,761) (15,742) 64,936
The main information on the direct and indirect subsidiaries and joint ventures is shown below:
%
09/30/2017
Number of shares
Total assets
Total liabilities Equity
(Loss) profit of
companies in the period
Net revenues
(*) Direct subsidiaries Hidrovias del Sur 100.00 2,828,608,315 1,255,728 744,095 511,633 60,878 248,715 HB Marabá 100.00 20,000,000 9,310 43 9,267 (218) - HB Cabotagem 100.00 63,400,000 784,188 642,988 141,200 (15,087) 84,236 HB Intermediação 100.00 454,000 2,909 960 1,949 1,149 10,934
Hidrovias do Norte 100.00 496,971,094 1,535,108 1,157,250 377,858 (11,117) 242,301
Total 3,587,243 2,545,336 1,041,907 35,605 586,186
Indirect subsidiaries and joint ventures Limday 44.55 96,302,000 38,134 7,907 30,227 1,612 8,549 Obrinel 49.00 423,323,815 278,663 175,598 103,065 (9,223) 13,217 Baloto 100.00 208,927,039 55,051 1,558 53,493 1,113 - Girocantex 100.00 2,422,140,009 1,046,081 650,797 395,284 58,706 219,971 Hidrovias del
Paraguay 100.00 450,000 37,390 62,402 (25,012) 5,428 60,420 Pricolpar 100.00 225,000 34,968 8,479 26,489 2,844 15,556 Cikelsol 100.00 800,000 163,997 124,318 39,679 8,147 63,974 Resflir 100.00 20,000 23,335 27,606 (4,271) (4,282) 238 HB Vila do Conde 100.00 253,934,860 751,322 567,802 183,520 (8,590) 77,764 HB Miritituba 100.00 115,961,546 296,043 230,077 65,966 (9,592) 41,870 HB Navegação
Norte 100.00 134,289,228 538,543 402,228 136,315 13,897 122,667
Total 3,263,527 2,258,772 1,004,755 60,060 624,226
(*) Include intragroup revenues.
12/31/2016
% Number of shares
Total assets
Total liabilities Equity
(Loss) profit of companies
in the period
Net revenues
(*) Direct subsidiaries Hidrovias del Sur 100.00 2,828,608,315 1,302,389 851,962 450,427 63,342 304,820 HB Marabá 100.00 20,000,000 9,313 52 9,261 (328) - HB Cabotagem 100.00 63,400,000 794,979 729,944 65,035 1,635 3,893 HB Intermediação 100.00 454,000 732 240 492 38 248
Hidrovias do Norte 100.00 496,971,094 1,375,877 986,902 388,975 (96,401) 111,109
Total 3,483,290 2,569,100 914,190 (31,714) 420,070
Hidrovias do Brasil S.A.
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12/31/2016
% Number of shares
Total assets
Total liabilities Equity
(Loss) profit of companies
in the period
Net revenues
(*) Indirect subsidiaries and
joint ventures Limday 44.55 96,302,000 42,034 9,914 32,120 2,548 19,189 Obrinel 49.00 423,323,815 280,057 175,630 104,427 (31,260) 13,217 Baloto 100.00 208,927,039 53,833 50 53,783 (15,884) - Girocantex 100.00 2,422,140,009 1,102,508 758,656 343,852 75,246 275,856 Hidrovias del Paraguay 100.00 450,000 28,378 59,680 (31,302) (2,182) 66,994 Pricolpar 100.00 225,000 31,851 7,486 24,365 (3,204) 11,949 Cikelsol 100.00 800,000 141,920 109,422 32,498 8,541 67,626 HB Vila do Conde 100.00 253,934,860 716,194 524,084 192,110 (51,463) 34,899 HB Miritituba 100.00 115,961,546 359,939 284,382 75,557 (35,643) 17,837
HB Navegação Norte 100.00 134,289,228 477,895 355,477 122,418 (9,299) 58,373
Total 3,234,609 2,284,781 949,828 (62,600) 565,940
(*) Include intragroup revenues.
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9. PROPERTY, PLANT AND EQUIPMENT
The breakdown of property, plant and equipment as at September 30, 2017 and December 31, 2016 is as follows:
Parent Facilities and
improvements
Furniture and
fixtures Machinery and
equipment Electronic and IT equipment
Construction in progress Total
Balance as at December 31, 2016 150 70 308 206 10,391 11,125 Additions - 12 - 7 3,944 3,963 Depreciation (72) (12) (30) (74) - (188)
Balance as at September 30, 2017 78 70 278 139 14,335 14,900
Historical cost 574 158 407 689 14,335 16,163
Accumulated depreciation (496) (88) (129) (550) - (1,263)
Annual depreciation rate - % 10 10 10 25 - -
Parent Facilities and
improvements
Furniture and
fixtures Machinery and
equipment Electronic and IT equipment
Construction in progress Total
Balance as at December 31, 2015 248 84 309 272 1,551 2,464 Additions - - 37 42 8,840 8,919
Depreciation (98) (14) (38) (108) - (258)
Balance as at December 31, 2016 150 70 308 206 10,391 11,125
Historical cost 575 145 407 682 10,391 12,200
Accumulated depreciation (425) (75) (99) (476) - (1,075)
Annual depreciation rate - % 10 10 10 25 - -
Hidrovias do Brasil S.A.
23
Consolidated Land Buildings
Facilities and improvements
Furniture and
fixtures
Machinery and
equipment
Electronic and IT
equipment Company cars
Pushers, barges and
vessels Construction in
progress Total
Balance as at December 31, 2016 55,604 516,029 194 143 240,769 1,140 341 1,568,428 374,045 2,756,693 Additions 8,739 - 1,237 53 542 162 43 409 162,082 173,267 Depreciation - (15,728) (75) (38) (18,657) (281) (67) (53,327) - (88,173)
Translation adjustments - - (7) (6) (33) (7) (7) (26,647) (3,303) (30,010)
Balance as at September 30, 2017 64,343 500,301 1,349 152 222,621 1,014 310 1,488,863 532,824 2,811,777
Historical cost 64,343 530,534 2,170 391 258,689 2,279 706 1,641,786 532,824 3,033,722
Accumulated depreciation - (30,233) (821) (239) (36,068) (1,265) (396) (152,923) - (221,945)
Annual depreciation rate - % - 4 10 10 10 25 20 4 - -
Consolidated Land Buildings
Facilities and improvements
Furniture and
fixtures
Machinery and
equipment
Electronic and IT
equipment Company
cars
Pushers, barges and
vessels Construction in progress Total
Balance as at December 31, 2015 49,025 - 358 239 697 833 516 1,143,792 1,009,237 2,204,697 Additions - - - 3 1,213 722 - 1,355 384,005 387,298 Business combination (*) - - - - - - - 445,157 - 445,157 Transfers 20,083 530,537 (357) (227) 256,155 - - 173,150 (979,341) - Depreciation - (14,508) (130) (53) (17,292) (359) (104) (50,701) - (83,147)
Translation adjustments (13,504) - 323 181 (4) (56) (71) (144,325) (39,856) (197,312)
Balance as at December 31, 2016 55,604 516,029 194 143 240,769 1,140 341 1,568,428 374,045 2,756,693
Historical cost 55,604 530,535 943 347 258,183 2,133 676 1,667,999 374,045 2,890,465
Accumulated depreciation - (14,506) (749) (204) (17,414) (993) (335) (99,571) - (133,772)
Annual depreciation rate - % - 4 10 10 10 25 20 4 - -
(*) Log-in business combination (note 1.1)
Hidrovias do Brasil S.A.
24
Construction in progress
Net balance Operation startup Consolidated 09/30/2017 12/31/2016
Miritituba Project (ETC) (b) 32,090 26,256 2Q16 Vila do Conde Project (TUP) (b) 147,471 92,544 2Q16 Navegação Project (Vessels) (a) 276,361 218,821 (a)
Other projects 76,902 36,424 -
Total 532,824 374,045 (a) The balance recorded in the indirect subsidiary HB Navegação Norte’s assets refers to
investments related to the construction of pushers and barges that will be transferred to property, plant and equipment in use as the pushers and barges are delivered.
(b) The balance in progress in the indirect subsidiaries HB Miritituba and HB Vila do Conde refers to the investments linked to the completion of the port terminals in operation.
Impairment testing
Pursuant to accounting practices adopted in Brazil and IFRSs, if there is any indication that property, plant and equipment items might be impaired, i.e., that their carrying amounts exceed their recoverable amounts, such items are tested on an annual basis to determine whether an allowance for impairment is necessary to write down their carrying amounts to their realizable values.
In the periods ended September 30, 2017 and December 31, 2016, based on tests performed on an annual basis, no assets requiring such an impairment allowance were identified.
10. INTANGIBLE ASSETS
Parent Software Intangibles in progress Total
Balance as at December 31, 2016 12,858 3,020 15,878 Additions 2 49 51 Write-offs - - - Transfers - - -
Amortization (2,679) - (2,679)
Balance as at September 30, 2017 10,181 3,069 13,250
Historical cost 18,630 3,069 21,699
Accumulated amortization (8,449) - (8,449)
Annual amortization rate - % 20 - -
Parent Software Intangibles in progress Total
Balance as at December 31, 2015 4,070 14,105 18,175 Additions - 1,603 1,603 Write-offs - - - Transfers 12,688 (12,688) -
Amortization (3,900) - (3,900)
Balance as at December 31, 2016 12,858 3,020 15,878
Historical cost 18,628 3,020 21,648
Accumulated amortization (5,770) - (5,770)
Annual amortization rate - % 20 - -
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Consolidated Software Concession
agreement (a) Contracts (b) Goodwill Intangibles in progress Total
Balance as at December 31,
2016 13,183 12,956 343,258 8,039 8,484 385,920 Additions 21 - - - 117 138 Amortization (2,737) (362) (14,320) (294) - (17,713)
Translation adjustment (4) (1) - (224) (76) (305)
Balance as at September 30, 2017 10,463 12,593 328,938 7,521 8,525 368,040
Historical cost 19,137 12,593 328,938 9,704 8,525 378,897
Accumulated amortization (8,674) - - (2,183) - (10,857)
Annual amortization rate - % 20 5 5 10 - -
Consolidated Software
Concession agreement
(a) Contracts
(b) Goodwill Intangibles in progress Total
Balance as at December 31,
2015 4,362 15,522 - 7,026 20,569 47,479 Additions 149 - - 3,088 3,426 6,663 Business combination (**) - - 343,681 - - 343,681 Transfers 12,688 - - - (12,688) - Amortization (3,980) - (423) (430) - (4,833)
Translation adjustment (36) (2,566) - (1,645) (2,823) (7,070)
Balance as at December 31, 2016 13,183 12,956 343,258 8,039 8,484 385,920
Historical cost 19,123 12,956 343,258 9,983 8,484 393,804
Accumulated amortization (5,940) - - (1,944) - (7,884)
Annual amortization rate - % 20 5 5 10 - -
(a) Assets will be amortized over 20 years (operation period), eligible to another 10-year period from the start-up of operations in 2017.
(b) Log-in business combination (note 1.1).
Concession arrangement
Baloto’s concession right of R$12,593 (R$12,956 as at December 31, 2016), recorded as investment in the Parent, is based on studies developed by the Company of the future earnings expected from Baloto’s operations that provide for the accounting for the concession right. The concession right will be amortized over 20 years (corresponding to the operation period), from the start-up of operations. The concession right arising on the acquisition of Baloto is being recognized in the same functional currency of the foreign indirect subsidiary. The exchange rate changes arising on translating Baloto’s functional currency into the Company’s functional currency are accounted for in equity, in line item “Other comprehensive income (loss) - effects of translating foreign operations”.
Goodwill
The goodwill on the acquisition of 44.55% of Limday’s shares amounting to R$7,521 (R$8,039 as at December 31, 2016) is based on studies on the future earnings of the operations.
As at September 30, 2017 and December 31, 2016, no allowance for impairment losses was recorded.
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11. TRADE PAYABLES
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016 Domestic payables 1,855 1,498 49,361 39,355 Foreign payables - - 1,534 587
Total 1,855 1,498 50,895 39,942
The Company has financial risk management policies in place to ensure that all obligations are paid according to the terms originally agreed upon.
12. BORROWINGS AND FINANCING
Final maturity
Consolidated
Annual interest rate 09/30/2017 12/31/2016 Girocantex and Hidrovias del Paraguay:
Project financing - Banco IDB (a) May/26 4.3% and 4.5% +
Libor 259,055 274,121
Project financing - Banco IFC (a) May/26 4.3% and 4.5% +
Libor 259,055 274,121 Project financing – Banco Santander (a) May/26 4.3% + Libor 74,727 79,073 Cikelsol- Project financing – Banco Votorantim (b) Dec/19 3.85% + Libor 61,683 80,170 Resflir- Project financing - Banco ABC (i) Jul/20 5.60% + Libor 15,889 - HB Vila do Conde: Project financing loan – Banco do Brasil, Itaú
and BNDES (d) Jan/27 6% + TJLP 397,277 408,149 Bank Credit Note – Itaú (f) Mar/17 3.5% + CDI - 10,420 HB Miritituba: Project financing loan – Banco da Amazônia (e) Jan/28 11.18% 198,209 190,118 HB Navegação Norte: Project financing loan – Banco do Brasil and
BNDES (c) Jun/32 3.94% + TJLP 281,721 248,528 HB Hidrovias do Brasil (Parent): Bank Credit Note – Banco Pine (g) Mar/17 4.0% + CDI - 15,683 Bank Credit Note – Banco BBM (k) Dec/17 6.02% 19,359 - Bank Credit Note – Banco Pine (j) Oct/18 4.0% + CDI 93,110 - HB Cabotagem: Bank Credit Note – Banco BNDES (h) Jun/32 2.5% 456,149 472,215
Total 2,116,234 2,052,598
Classified as: Current 234,345 1,362,888 Noncurrent 1,881,889 689,710
The variation in consolidated borrowings and financing is as follows:
Subsidiaries
Opening balance
12/31/2016 Disbursem
ents Interest incurred
Principal repaym
ent Interest payment
Translation adjustments
Exchange differences
Closing balance
09/30/2017
Hidrovias do
Brasil 15,683 110,000 7,168 (15,000) (4,604) (778) - 112,469 Vila do Conde 418,569 14,000 31,630 (36,278) (30,644) - - 397,277 Miritituba 190,118 - 14,716 - (6,625) - - 198,209 Navegação 248,528 26,512 23,380 (8,528) (8,171) - - 281,721 Cabotagem 472,215 588 11,727 (11,190) (3,981) - (13,210) 456,149 Cikelsol 80,170 - 3,607 (16,008) (4,025) (2,061) - 61,683 Girocantex 627,315 - 30,404 (24,433) (21,844) (18,605) - 592,837
Resflir - 15,449 596 - (536) 380 - 15,889
2,052,598 166,549 123,228 (111,437) (80,430) (21,064) (13,210) 2,116,234
Description of borrowings and financing agreements
(a) On July 24, 2013, the indirect subsidiaries Girocantex and Hidrovias del Paraguay entered into a foreign-currency financing agreement of up to US$210,150 thousand to finance the construction of 8 pushers and 144 barges, and other indirect costs required to perform the iron ore waterway transportation contract with Vale. Interest and principal are being paid on a semiannual basis, within 12 years, beginning November 2013 and 2016, respectively.
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(b) On January 15, 2015, the indirect subsidiary Cikelsol entered into a foreign-currency financing agreement equivalent to R$94,500 (US$35,000 thousand). The interest and the principal are payable in 10 semiannual installments since July 16, 2015.
(c) On March 18, 2016, the indirect subsidiary HB Navegação Norte entered into a financing agreement with funds from the Merchant Marine Fund (FMM), in the amount of R$430,823, the first installment being released in the amount of R$188,489 on July 15, 2016, payable beginning March 2018.
(d) On April 27, 2016, the indirect subsidiary HB Vila do Conde entered into a financing agreement through onlending of funds from the National Bank for Economic and Social Bank (BNDES), in the total amount of R$429,850, payable beginning April 2017.
(e) On June 26, 2016, the indirect subsidiary HB Miritituba entered into a financing agreement, in the total amount of R$189,266, the first installment being released in the amount of R$175,962 on July 15, 2016, and the second installment being released in the amount of R$6,500 and R$2,500 on September 13, 2016 and September 30, 2016, respectively.
(f) On May 18, 2016, the indirect subsidiary HB Vila do Conde entered into the Bank Credit Note agreement with Itaú Unibanco S.A. (“Itaú”), in the total amount of R$10,000, settled in the first quarter of 2017.
(g) On September 23, 2016, the Company entered into the Bank Credit Note agreement with Banco Pine, in the total amount of R$15,000, settled on April 11, 2017.
(h) On December 23, 2016, the Company acquired, through its indirect subsidiary HB Cabotagem, as part of the negotiations with Log-In, a Bank Credit Note issued by BNDES (Brazilian development bank) totaling R$472,839, for the acquisition of two grain bulk carriers, to be repaid on a monthly basis until final settlement on June 10, 2032. This debt is collateralized by the acquired assets Tucunaré and Tambaqui.
(i) On March 15, 2017, the indirect subsidiary Resflir entered into a foreign-currency financing agreement with Banco ABC equivalent to R$15,449 (US$5,000 thousand), which is scheduled to be settled on July 14, 2020.
(j) On September 21, 2017, the Company entered into the Bank Credit Note agreement with Banco Pine, in the total amount of R$90,000, which is scheduled to be settled on October 21, 2018.
(k) On June 22, 2017, the Company entered into the Bank Credit Note agreement with Banco BBM, in the total amount of US$6,009, equivalent to R$20,000, which is scheduled to be settled on December 26, 2017.
Such instruments described in letters (c), (d) and (e) comprise the project finance of the North Project of subsidiaries HB Miritituba, HB Navegação and HB Vila do Conde, which comprises the construction of the Cargo Transshipment Station (ETC), river navigation convoys and one Private Use Terminal (TUP), respectively, in the State of Pará.
Surety
On December 17, 2013, Hidrovias do Brasil, through its indirect parents HB Miritituba and HB Vila do Conde, pledged a surety for the completion of the related terminal projects, as required by the ANTAQ (shipping industry regulator), totaling R$17,518. This surety is associated to the North corridor operation period.
Guarantees
Borrowings and financing are guaranteed by Hidrovias do Brasil through endorsements, promissory notes and deposits in bank accounts.
Covenants
The Company, through its subsidiaries, is subject to covenants under some financing agreements, which may, in the event of noncompliance, result in the accelerated debt maturity. These covenants comprise financial ratios, such as debt service coverage, indebtedness, liquidity and operating obligations.
The subsidiary Girocantex is subject to the following covenants:
1. Financial debt divided by total assets less total liabilities, excluding intangible assets, below 2.0.
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2. Profit plus finance costs and non-cash items divided by the payment of principal in the last six months above or equal to 1.3.
3. Current assets less prepaid expenses divided by current liabilities above or equal to 1.0.
4. Financial debt divided by the sum of financial debt plus equity below 70%.
The subsidiary Cikelsol is subject to the following covenant:
1. Generation of cash from operating activities divided by the payment of principal and interest for the period above or equal to 1.0 at the end of each six-month period based on the last 12 months.
The subsidiaries comprising Hidrovias do Brasil – Holding Norte represent the so-called “ North Project” which includes the Company’s following indirect subsidiaries: HB Holding Norte, Hidrovias do Brasil – Miritituba, Hidrovias do Brasil – Navegação Norte, Hidrovias do Brasil – Vila do Conde. The financing agreements contain the following covenants in effect:
1. Equity/total asset ratio above or equal to 0.2.
2. The SPEs are also subject to certain clauses relating to non-financial covenants (operating).
Noncompliance with certain non-financial covenants
As informed by the creditors comprising the Pool of Banks of the North Project (Basa, BB, Itaú BBA), certain non-financial covenants were not complied with by the SPEs, as described below:
(i) The SPEs have failed to deliver to the Depositary Agent the Annual O&M Budget for calendar year 2017 up to December 15, 2016;
(ii) The SPEs have failed to fully to recognize the O&M Reserve Accounts up to December 31, 2016;
(iii) The SPEs have failed to fully to recognize the Debt Service Reserve Accounts, as the case may be, up to December 10, 2016 or December 15, 2016; and
(iv) The SPEs have entered into non-onerous loans with HBSA in the aggregate amount between R$132,000 and R$150,000, depending on the lender bank.
PursPursuant to the letter received from Banco do Brasil on November 14, 2017, the bank has informed that the Company’s Management has held, on November 11, 2016 at the BNDES head office, an in-person meeting, attended by the other creditors comprising the Pool of Banks of the North Project (Basa, BB and Itau BBA), so as to evidence, before the deadlines stipulated in the financing agreements, the impossibility to comply with certain non-financial covenants, a fact that has resulted in a discussion with all creditors about the most appropriate way for the relevant parties (creditors and Company) to settle future pending issues identified. After such prior communication by the Company, the creditors elected, on their sole discretion, not to accelerate the debt maturity, as set forth in the financing agreements.
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The negotiation process ended after the execution of the following Agreements:
Date Financial institution Waiver agreement
08.29.2017 Banco do Brasil Waiver to settle contractual breaches within the scope
of the credit facility opening agreement upon transfer of BNDES resources No. 20/01156-3 and the agreement for the collateral assignment of rights, conditional assignment, account management and other covenants
09.11.2017 Itaú Unibanco Waiver to regularize irregularities within the scope of
the credit facility opening agreement upon transfer of BNDES resources No. 20/01156-3 and the agreement for the collateral assignment of rights, conditional assignment, account management and other covenants
09.28.2017 BASA Waiver to regularize irregularities within the scope of
the bank credit note No. 048-15-002-2 issued on December 30, 2015 and the agreement for the collateral assignment of rights, conditional assignment, account management and other covenants
The waiver agreements resulted in the recognition of a waiver fee in the amount of R$10,585, recorded as finance costs in profit or loss for the period.
Restatement of the 2016 consolidated balance sheet
The consolidated balance sheet and related notes for the year ended December 31, 2016 are being restated in the interim financial information for the nine-month period ended September 30, 2017 to contemplate the effects of the failure to comply with certain non-financial covenants that resulted in the classification of part of the debt recorded in noncurrent liabilities to current liabilities in the amount of R$1,287,749.
The table below shows the reclassification of the balances as at December 31, 2016, per SPEs, considering the effects of default and cross default:
Originally stated
Reclassifications
Restated
Current Noncurrent Total Current Noncurrent Total
North Project:
Vila do Conde 10,000 408,569 418,569 408,569 418,569 - 418,569 Miritituba 1,152 188,966 190,118 188,966 190,118 - 190,118 Navegação Norte - 248,528 248,528 248,528 248,528 - 248,528
Hidrovias do Brasil 15,683 - 15,683 - 15,683 - 15,683
Subtotal 26,835 846,063 872,898 846,063 872,898 - 872,898 Coastal shipping (*) 30,529 441,686 472,215 441,686 472,215 - 472,215
South Project 17,775 689,710 707,485 - 17,775 689,710 707,485
Total 75,139 1,977,459 2,052,598 1,287,749 1,362,888 689,710 2,052,598
(*)“cross default”
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Long-term debt
As at September 30, 2017, the noncurrent debt portion is broken down as follows:
Consolidated
09/30/2017 12/31/2016 2018 230,743 109,787 2019 192,633 109,787 2020 169,075 69,702 2021 164,608 69,702 2022 164,608 69,702 2023 to 2027 725,246 261,030 2028 to 2032 234,976 - Total 1,881,889 689,710
The effective interest rate applied on the loans of indirect subsidiaries Girocantex and Hidrovias del Paraguay as at September 30, 2017 is as follows:
Notional amount
Debt cost Net
Interest rate
Effective rate
Project financing 206,999 (22,671) 184,328 4.5% + Libor (*) 5.05%
Project financing 83,919 (9,191) 74,728
4.3% + Libor (*) 4.83%
Project financing 206,999 (22,671) 184,328
4.5% + Libor (*) 5.05%
Project financing 83,919 (9,191) 74,728
4.3% + Libor (*) 4.83%
Project financing 83,917 (9,192) 74,725
4.3% + Libor (*) 4.83%
Total 665,753 (72,916) 592,837 (*) The Company contracted a swap from floating to fixed rate, as mentioned in note
18.4.
12.1 Payor risk
The Company, through its subsidiaries, entered into payor risk agreements as indicated in the table below. These agreements mainly transfer the original creditors’ obligations to the banks listed below. These agreements do not change the maturity dates and amounts due.
Company
Opening balance 12/31/2016
New operations Interest Amortization
Closing balance
09/30/2017
Vila do
Conde 21,960 32,194 2,960 (34,858) 22,256
ABC 3,779 14,135 1,167 (9,704) 9,377 FIBRA 8,291 12,194 1,088 (14,097) 7,476 BB 9,890 5,865 705 (11,057) 5,403
Miritituba 10,266 4,037 859 (13,033) 2,129
ABC 2,714 1,881 388 (3,792) 1,191 FIBRA 7,552 2,106 466 (9,236) 888
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Company
Opening balance 12/31/2016
New operations Interest Amortization
Closing balance
09/30/2017
BB - 50 5 (5) 50
Navegação 35,605 32,388 4,680 (35,252) 37,421
ABC 12,723 20,930 746 (22,995) 11,404 FIBRA 22,882 7,569 3,934 (11,360) 23,025
BB - 3,889 - (897) 2,992 67,831 68,619 8,499 (83,143) 61,806
As at September 30, 2017, the balance payable amounts to R$61,806.
Due to the past-due and unpaid balances, the Company recorded late payment interest in the amount of R$8,499 in the period ended September 30, 2017 (R$6,112 as at December 31, 2016).
13. PAYROLL AND RELATED TAXES
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016 Accrued bonuses 5,453 7,450 7,684 9,752 Accrued vacation pay and related taxes 1,573 1,007 8,787 3,340 INSS 759 551 3,431 2,031 Withholding income tax (IRRF) 187 328 450 504 Severance pay fund (FGTS) 190 21 728 135
Total 8,162 9,357 21,080 15,762
14. PROVISION FOR RISKS
Probable Possible
Labor (*) 179 13,781 Civil - 2,801
Tax - 200
179 16,782
(*) The amount of R$7,561 refers mainly to the possible labor lawsuit involving the
indirect subsidiary HB Miritituba, related to property damages, loss of profits, pain and suffering and attorneys’ fees.
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15. CAPITAL
As at September 30, 2017 and December 31, 2016, capital amounts to R$1,296,778 represented by 692,483,100 registered common shares without par value.
The shareholding structure as at September 30, 2017 and December 31, 2016 is broken down below:
09/30/2017 12/31/2016
Shareholders Common shares %
Common shares %
P2 Brasil Infraestrutura Fundo de
Investimentos em Participação 342,123,278 49.40 342,123,278 49.40 Sheares Investments B.V. 136,149,027 19.66 136,149,027 19.66 1505718 Alberta Ltd. 54,638,333 7.89 54,638,333 7.89 1505722 Alberta Ltd. 21,277,822 3.07 21,277,822 3.07 HBSA Co-Investimento - Fundo de
Investimentos em Participações 51,216,649 7.40 51,216,649 7.40 BTO - Fundo de Investimento em
Participações 51,216,649 7.40 51,216,649 7.40 BNDES Participações S.A. - BNDESPAR 20,495,271 2.96 20,495,271 2.96 International Finance Corporation 15,366,071 2.22 15,366,071 2.22
Total 692,483,100 100 692,483,100 100
Dividends
Under the Company’s bylaws, shareholders are entitled to mandatory minimum dividends of 25% of profit adjusted according to the Brazilian Corporate Law.
16. EARNINGS (LOSS) PER SHARE
The basic earnings (loss) per share was calculated based on profit or loss for the period ended September 30, 2017 and 2016 and the respective average number of common shares outstanding during the period, as shown in the table below:
07/01 to 09/30/2017
01/01 to 09/30/2017
07/01 to 09/30/2016
01/01 to 09/30/2016
Profit (loss) for the period 45,347 8,682 (14,848) (34,743) Weighted average number of
outstanding shares 692,483 692,483 630,834 630,834
Earnings (loss) for the period per thousand shares 0.0655 0.0125 (0.0235) (0.0551)
The effects on the denominator used in the calculation of diluted earnings per share arising from the share-based payment plan (note 19) were considered antidilutive. For this reason, these effects were not included in the calculation for the period.
17. RELATED PARTIES
Key management personnel compensation
As at September 30, 2017, the compensation for key management personnel, which includes the Executive Committee and the Directors, totaled R$6,407 (R$5,346 as at September 30, 2016) in salaries and variable benefits.
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Related-party transactions involving the Company’s owners, joint ventures, or entities where they have significant influence
Parent Consolidated
Assets Liabilities Assets Liabilities
09/30/2017 12/31/2016 09/30/2017 12/31/2016 09/30/2017 12/31/2016 09/30/2017 12/31/2016
Claims from the Parent Girocantex (a) 3,540 3,584 (490) (63) - - - - Hidrovias del Sur (b) 3,235 35 (277) (117) 3,105 - - - Hidrovias do Brasil Holding Norte (c) 134,250 14,667 (443) (169) - - - - Service intermediation 515 - - - - - - -
Coastal shipping services 9,699 - - - - - - -
Subtotal 151,239 18,286 (1,210) (349) 3,105 - - -
Guarantees and security deposits (f) 5,031 90,929 - - - - - - IFC Loan (g) - - - - - - 259,055 274,121
Subtotal 5,031 90,929 - - - - 259,055 274,121
Total 156,270 109,215 (1,210) (349) 3,105 - 259,055 274,121
Current 17,881 8,286 (1,210) (349) - - - - Noncurrent 133,358 10,000 - - 3,105 - - -
Parent Consolidated
07/01 to 09/30/2017
01/01 to 09/30/2017
07/01 to 09/30/2016
01/01 to 09/30/2016
07/01 to 09/30/2017
01/01 to 09/30/2017
07/01 to 09/30/2016
01/01 to 09/30/2016
Revenues and expenses: Girocantex 9,031 9,031 - - - - - - Exchange rate changes on security deposit (105) (1,626) (1,016) 1,858 (105) (1,626) (1,016) 1,858 Pátria Investimentos Ltda, (e) - - (19) (639) - - (624) (2,793) PTLS Serviços de Tecnologia e Assistência Técnica Ltda, (d) - - (1) (112) - - - (112)
Subtotal 8,926 7,405 (1,036) 1,107 (105) (1,626) (1,640) (1,047)
IFC Loan (g) - - - - (5,260) (16,380) (3,270) (14,280)
Subtotal - - - - (5,260) (16,380) (3,270) (14,280)
Total 8,926 7,405 (1,036) 1,107 (5,365) (18,006) (4,910) (15,327)
(a) Refers to restructuring costs for Vale Project with the indirect subsidiary Girocantex, contracted in Brazil.
(b) Refers to administrative expenses incurred with the direct subsidiary Hidrovias del Sur.
(c) As at September 30, 2017, the balances below refer to related-party transactions, comprised of R$129,705 of loans with the indirect subsidiary Hidrovias do Brasil Holding Norte to be settled within up to two years, interest-free, for working capital purposes and R$4,545 of apportionment of opeating expenses among the group companies.
(d) Refers to supply of remote technical support in connection with the Company’s and offices’ infrastructure for all group companies in Brazil.
(e) Refers to financial advisory expenses for raising funds from private investors.
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(f) Refers to the funds granted to subsidiaries Girocantex (note 7 – item (a)) and Obrinel (note 7 – item (b)).
The finance income (costs) arising from exchange rate changes is recognized in profit or loss for the period..
(g) Refers to the loan raised by indirect subsidiary Girocantex with the bank IFC for the Vale project (note 12).
(h) Refers to collection of administrative services from CSC.
18. FINANCIAL INSTRUMENTS
18.1. Financial instruments by category
All transactions involving financial instruments and derivatives are recognized in the Company’s and its subsidiaries’ interim financial information. The estimated fair value of derivatives approximates their carrying amounts, as follows:
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016
Assets: Loans and receivables: Cash and cash equivalents 356 352 125,961 95,182
Securities 51,954 140,505 63,244 167,196
Restricted short-term investments - - 134,571 51,915
Guarantees and security deposits 5,334 91,232 5,334 91,251
Trade receivables - - 67,603 23,101
Due from related parties 151,239 18,286 3,105 -
Liabilities: Liabilities at amortized cost: Trade payables 1,855 1,498 50,895 39,942
Payor risk payable - - 61,806 67,831
Payables from acquisition of subsidiaries - - 45,464 132,140
Borrowings and financing 112,469 15,683 2,116,234 2,052,598
Due to related parties 1,210 349 - -
Fair value through profit or loss: Derivative financial instruments - - 42,701 44,396
18.2. Criteria, assumptions and limitations used in calculating market values
The Company’s and its subsidiaries’ financial instruments, except for derivatives, are classified as loans and receivables and liabilities at amortized cost, and are substantially pegged to market rates. The fair values of these financial instruments approximate their carrying amounts as at September 30, 2017 and December 31, 2016.
18.3. Fair value hierarchy
The derivatives are classified in Level 2, as defined in the fair value hierarchy described below, pursuant to CPC 40 (R1) - Financial Instruments: Disclosure.
• Level 1 - valuation based on quoted prices (unadjusted) in active markets, for identical assets or liabilities, at the balance sheet dates. A market is considered active if quoted prices are readily and regularly available from commodities and stock exchange, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
• Level 2 - used for financial instruments not traded in active markets (e.g., over-the-counter derivatives) using valuation techniques that, in addition to the quoted prices included in Level 1, use market inputs for the asset or liability either directly (as prices) or indirectly (derived from prices).
• Level 3 - valuation made based on inputs on assets or liabilities that are not based on the data adopted by the market (i.e., unobservable inputs).
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18.4. Derivative financial instruments
These financial instruments are managed through operating strategies, which aim at obtaining security of transactions and minimizing possible mismatches that can bring volatility in addition to those already contemplated in the Company’s Business Plan. The control policy consists of permanent monitoring of the contracted rates compared to market rates. The Company and its subsidiaries do not make speculative investments in derivatives or any other risk assets.
Derivatives are used as set forth in the internal policy, approved by the Executive Board, and only to hedge against the foreign exchange and interest rate risks, without any leverage or speculation component, since the derivatives contracted by the subsidiaries have terms perfectly aligned with those of the hedged obligations (debts or foreign currency-denominated cash flows).
Derivatives designated for swap - Consolidated
The hedging instruments contracted for the project financing debts consist of conventional “6M Libor” for fixed rate swaps to set the interest incurred in the payment flow of debts originally contracted using a floating rate, without any leverage or speculation component, margin call clause, daily adjustments, or periodic adjustments and, therefore, hedge principal repayment and interest payment flows (hedged items).
Trade date Maturity Notional amount Index Rate
10/09/2013 11/15/2017 219,686 Libor 3.45%
10/09/2013 05/15/2018 209,144 Libor 3.45%
10/09/2013 11/15/2018 198,603 Libor 3.45%
10/09/2013 05/15/2019 188,062 Libor 3.45%
10/09/2013 11/15/2019 177,066 Libor 3.45%
10/09/2013 05/15/2020 166,069 Libor 3.45%
10/09/2013 11/15/2020 153,576 Libor 3.45%
10/09/2013 05/15/2021 141,082 Libor 3.45%
10/09/2013 11/15/2021 128,588 Libor 3.45%
10/09/2013 05/15/2022 116,095 Libor 3.45%
10/09/2013 11/15/2022 103,146 Libor 3.45%
10/09/2013 05/15/2023 90,197 Libor 3.45%
10/09/2013 11/15/2023 75,751 Libor 3.45%
10/09/2013 05/15/2024 61,305 Libor 3.45%
10/09/2013 11/15/2024 46,859 Libor 3.45%
10/09/2013 05/15/2025 32,413 Libor 3.45%
10/09/2013 11/15/2025 17,967 Libor 3.45%
10/09/2013 05/15/2026 8,983 Libor 3.45%
The fair value of these instruments is as follows:
Consolidated
09/30/2017 12/31/2016
Sumitomo Mitsui Banking Corporation New York (14,170) (14,878) Banco Santander Cayman (14,424) (14,855) Banco Itaú BBA S.A. Nassau Branch (14,107) (14,663)
Total (42,701) (44,396)
As at September 30, 2017, as a result of the transactions described above, the subsidiaries recorded in current liabilities of R$12,445 and noncurrent liabilities of R$30,256 (R$44,396 as at December 31, 2016), against equity, in line item “Other comprehensive income”.
Hidrovias do Brasil S.A.
36
Variation in derivatives
09/30/2017 12/31/2016
Opening balance 44,396 66,020
Changes in fair value 2,567 (13,941)
Effect recognized in profit or loss for hedge payment (7,580) 501
Translation adjustments 3,318 (8,184)
Closing balance 42,701 44,396
18.5. Risk management
Financial risk management
Overview
The economic and financial risks reflect, mainly, the behavior of macroeconomic variables and the foreign exchange and interest rates, as well as the features of the financial instruments used by the Company. These risks are managed through Management’s oversight, which has an active role in operational management.
The Company has the policy of managing the existing risks conservatively; the main purposes of this policy are to preserve the value and liquidity of financial assets and ensure the inflow of funds for the good development of business. The main financial risks taken into consideration by Senior Management are as follows:
• Credit risk
• Liquidity risk
• Foreign exchange risk
• Interest rate risk
This note presents information on the Company’s and its subsidiaries’ exposure to each one of these risks, the risk measurement and management objectives, policies and processes, and capital management.
Risk management structure
Credit risk
Credit risk is the risk of the Company incurring a financial loss if a customer or a counterparty to a financial instrument fails to discharge its contractual obligations, and arises mainly from trade receivables mostly from recurring customers and short-term
investments.
In general, business steering is discussed in decision-making committee meetings. Results are monitored and the established strategies are adjusted to ensure that the expected results are obtained.
The carrying amounts of the financial instruments that represent the maximum exposure to credit risk at the end of the reporting periods are as follows:
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016
Cash and cash equivalents 356 352 125,961 95,182
Trade receivables - - 67,603 23,101
Securities 51,954 140,505 63,244 167,196
Restricted short-term invesments - - 134,571 51,915
Hidrovias do Brasil S.A.
37
Liquidity risk
It is the risk of the Company and its subsidiaries having difficulties of discharging their obligations related to financial liabilities settled in cash.
The approach adopted to manage the liquidity risk is to ensure the payment of obligations, therefore, the Company’s purpose is to maintain available cash to discharge short-term obligations, allowing for sufficient liquidity to comply with falling-due obligations, under normal and stress conditions, without generating unacceptable losses or the risk of jeopardizing the Company’s and its subsidiaries’ reputation.
The Company and its subsidiaries work to align fund availability and fund generation to discharge their obligations within the agreed terms.
Contractual maturity is based on the most recent date in which the Company and its subsidiaries should settle the related obligations:
Consolidated 09/30/2017
Next 12
months
Between
13 and
24 months
Between
25 and
36 months
37 and
thereafter Total
Guarantees and security deposits
(note 7) - 445 445 4,444 5,334
Trade payables (note 11) 50,895 - - - 50,895
Payor risk (note 12.1) 61,806 - - - 61,806
Payables from acquisition of
subsidiaries 45,464 - - - 45,464
Borrowings and financing 392,968 352,362 359,483 2,460,273 3,565,086
Swap financial instrument (note 18.4) 12,445 6,053 4,771 19,432 42,701
Foreign exchange risk
Arises from possible fluctuations in the exchange rates of the foreign currencies used by the Company and its subsidiaries.
Management analyzes and monitors its exposures for decision-making on contracting instruments to hedge the related exposures to foreign currency. The hedging instruments to manage exposures are defined by Management, and shared and approved by the Board of Directors, so that such instruments do not have a speculative nature or generate any risk in addition to the risks inherent to their original purposes.
Interest rate risk
The carrying amounts of the financial assets that represent the maximum exposure to the interest rate risk at the end of the reporting periods are as follows:
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016
Assets:
Cash and cash equivalents (note 4) 356 352 125,961 95,182
Securities (note 5.1) 51,954 140,505 63,244 167,196
Restricted short-term investments (Note 5.2) - - 134,571 51,915
Liabilities:
Payables from acquisition of subsidiaries
(note 1) - - 45,464 132,140
Borrowings and financing (note 12.1) 112,469 15,683 2,116,234 2,052,598
Hidrovias do Brasil S.A.
38
Sensitivity analysis
The Company and its subsidiaries conducted a sensitivity analysis of the main risks to which their financial instruments are exposed, basically represented by fluctuations in exchange and interest rates, as follows:
Interest rate changes
To analyze the sensitivity of the indices to which the Company’s and its subsidiaries’ investments are exposed as at September 30, 2017, three different scenarios were defined. Based on the FOCUS report of September 30, 2017, the Selic index position (7.0% p.a.) for one year was obtained.
The Company prepared three scenarios for the sensitivity analysis. Scenario I considers the future interest rates as at the reporting date, whereas scenarios II and III consider an appreciation of 25% and 50%, respectively, in the risk variable being considered.
The portfolio base date used was September 30, 2017, indices were projected for one year, and its sensitivity was determined in each scenario:
Financial instruments
(notes 5, 7, 12 and 18) Total
Consolidated
I II III
Securities 63,244 4,427 3,320 2,214
Restricted short-term investments 134,571 9,420 7,065 4,710
Security deposits 5,334 374 280 186
Payables from acquisition of subsidiaries 45,464 (3,182) (3,978) (4,774)
Borrowings and financing 2,116,234 (148,136) (185,170) (222,205)
Financial instruments 42,701 (2,989) (3,736) (4,484)
Payor risk 61,806 (4,328) (5,409) (6,488)
Total 2,469,354 (144,414) (187,628) (230,841)
Currency fluctuations
To test the sensitivity of the indices to which the Company’s and its subsidiaries’ investments are exposed as at September 30, 2017, three different scenarios were defined. Scenario I considers the fixed interest rate of each borrowing agreement and derivatives contract whereas scenarios II and III consider a depreciation and an appreciation of 25% and 50%, respectively, as required by CVM Instruction 475/08.
Consolidated
Depreciation Appreciation
Financial instruments Total III II I II III
Inter-American Development
Bank - IDB 184,328 (6,221) (4,147) 8,295 10,368 12,442
Inter-American Development
Bank - IDB 74,727 (2,410) (1,607) 3,213 4,017 4,820
International Finance Corporation
- IFC 184,328 (6,221) (4,147) 8,295 10,368 12,442
International Finance Corporation
- IFC 74,727 (2,410) (1,607) 3,213 4,017 4,820
Banco Santander 74,727 (2,410) (1,607) 3,213 4,017 4,820
Banco Votorantim 61,683 (1,989) (1,326) 2,652 3,315 3,979
Banco ABC 15,889 (512) (342) 683 854 1,025
Banco BNDES 456,149 (14,711) (9,807) 19,615 24,518 29,421
Total 1,126,558 (36,884) (24,590) 49,179 61,474 73,769
Hidrovias do Brasil S.A.
39
18.6. Capital management
It is the Company’s management’s policy to maintain a solid capital basis to ensure that investors, creditors and the market can rely on the future development of the business.
The Company’s management seeks to strike a balance between the highest possible returns with more appropriate loan levels and the benefits and security provided by a healthy capital position.
The Company’s debt-to-equity ratio as at September 30, 2017 and December 31, 2016 is as follows:
Parent Consolidated
09/30/2017 12/31/2016 09/30/2017 12/31/2016
Total current and noncurrent liabilities (129,515) (33,373) (2,513,120) (2,499,288)
Cash and cash equivalents 356 352 125,961 95,182
Securities 51,954 140,505 63,244 167,196
Restricted short-term investments - - 134,571 51,915
Cash surplus (deficit), net (77,205) 107,484 (2,189,344) (2,184,995)
Equity 1,182,950 1,180,830 1,176,115 1,180,830
Equity/net cash deficit ratio (7%) 9% (186%) (185%)
19. STOCK OPTION PLAN
The Company’s Extraordinary Shareholders’ Meeting held on December 7, 2010 approved the terms of the Stock Option Plan (“Plan”), the purpose of which is to grant Company’s stock options to Company’s officers and strategic staff members to attract and retain such professionals. The eligible participants, according to the rules and conditions of each program, will receive a number of stock options established by the Board of Directors, where each stock option entitles its holder to buy one Company’s common share, under the terms and conditions of the Plan and the approved programs.
The Company recorded the stock options granted as capital reserve as a balancing item to profit or loss, proportionally to the terms of the agreements, in the aggregate amount of R$5,074 (aggregate amount of R$5,079 for the year ended December 31, 2016). Under CPC 10 (R1) - Share-based Payment, the fair value of the stock options was determined on the grant date and is being recognized over the vesting period.
The fair value of the stock options is estimated on the grant date, based on the “Black-Scholes” pricing model, which takes into consideration the granting terms and conditions.
Hidrovias do Brasil S.A.
40
Breakdown of stock options granted
Plan/Program Vesting
date Exercise deadline
Strike price (in R$) (a) Granted Exercised
Cancelled/ forfeited Outstanding
Fair value (in R$)
(b)
2010/1st 12/07/2011 12/07/2020 1.00 500,000 - - 500,000 1.13 2010/1st 12/07/2012 12/07/2020 1.00 500,000 - - 500,000 1.27 2010/1st 12/07/2013 12/07/2020 1.00 500,000 - - 500,000 1.43
2010/1st 12/07/2014 12/07/2020 1.00 500,000 - - 500,000 1.61
Total 2010 Plan 2.000.000- - 2,000,000
Plan/Program Vesting date
Exercise
deadline
Strike price
(in R$) (a) Granted Exercised
Cancelled/
forfeited Outstanding
Fair value
(in R$) (b)
2011/1st 05/10/2012 05/10/2021 1.00 25,000 - - 25,000 1.17 2011/1st 05/10/2013 05/10/2021 1.00 25,000 - - 25,000 1.31 2011/1st 05/10/2014 05/10/2021 1.00 25,000 - - 25,000 1.47
2011/1st 05/10/2015 05/10/2021 1.00 25,000 - - 25,000 1.65
Total 2011 Plan 100.000 - - 100,000
Plan/Program Vesting date
Exercise
deadline
Strike price
(in R$) (a) Granted
Exercis
ed
Cancelled/
forfeited Outstanding
Fair value
(in R$) (b)
2012/1st 05/25/2013 05/25/2022 1.14 338,750 - (125,000) 213,750 1.37 2012/1st 05/25/2014 05/25/2022 1.14 338,750 - (125,000) 213,750 1.54 2012/1st 05/25/2015 05/25/2022 1.14 338,750 - (125,000) 213,750 1.73 2012/1st 05/25/2016 05/25/2022 1.14 338,750 - (157,500) 181,250 1.93 2012/2ª 08/10/2013 05/25/2022 1.28 100,000 - - 100,000 1.56 2012/2ª 08/10/2014 05/25/2022 1.28 100a,000 - - 100,000 1.75 2012/2ª 08/10/2015 05/25/2022 1.28 100,000 - - 100,000 1.98
2012/2ª 08/10/2016 05/25/2022 1.28 100,000 - - 100,000 2.23
Total 2012 Plan 1.755.000 - (532,500) 1,222,500
Plan/Program Vesting date
Exercise
deadline
Strike price
(in R$) (a) Granted Exercised
Cancelled/
forfeited Outstanding
Fair value
(in R$) (b)
2013/1st 02/26/2014 02/26/2023 1.41 275,234 - (35,400) 239,834 1.77 2013/1st 02/26/2015 02/26/2023 1.41 275,234 - (35,400) 239,834 2.01 2013/1st 02/26/2016 02/26/2023 1.41 275,233 - (65,490) 209,743 2.25
2013/1st 02/26/2017 02/26/2023 1.41 275,233 - (65,490) 209,743 2.54
Total 2013 Plan 1.100.936 - (201,780) 899,154
Plan/Prog
ram
Vesting
date
Exercise
deadline
Strike price
(in R$) (a) Granted Exercised
Cancelled/
forfeited
Outstandi
ng
Fair value
(in R$) (b)
2014/1st 03/31/2015 03/31/2024 1.68 555,750 - (4,500) 551,250 2.20 2014/1st 03/31/2016 03/31/2024 1.68 555,750 - (4,500) 551,250 2.47 2014/1st 03/31/2017 03/31/2024 1.68 555,750 - (27,000) 528,750 2.80
2014/1st 03/31/2018 03/31/2024 1.68 555,750 - (27,000) 528,750 3.15
Total 2014 Plan 2,223,000 - (63,000) 2,160,000
Plan/Prog
ram Vesting
date Exercise deadline
Strike price (in R$) (a) Granted Exercised
Cancelled/ forfeited
Outstanding
Fair value (in R$) (b)
2016 A/1st 07/27/2016 03/31/2025 3.64 891,779 - - 891,779 - 2016 A/1st 03/31/2017 03/31/2025 3.64 891,779 - - 891,779 0.93 2016 A/1st 03/31/2018 03/31/2025 3.64 891,778 - - 891,778 1.06
2016 A/1st 03/31/2019 03/31/2025 3.64 891,778 - - 891,778 1.14
Total 2016 Plan A 3.567.114 - - 3,567,114
Plan/Prog
ram Vesting
date Exercise deadline
Strike price (in R$) (a) Granted Exercised
Cancelled/ forfeited
Outstanding
Fair value (in R$) (b)
2016 B/1st 03/31/2017 03/31/2026 3.48 731,105 - - 731,105 1.06 2016 B/1st 03/31/2018 03/31/2026 3.48 731,105 - - 731,105 1.17 2016 B/1st 03/31/2019 03/31/2026 3.48 731,105 - - 731,105 1.24
2016 B/1st 03/31/2020 03/31/2026 3.48 731,105 - - 731,105 1.30
Total 2016 Plan B 2.924.420 - - 2,924,420 (a) Strike price on grant date subject to IPCA rate plus 7% p.a.
(b) Fair value on grant date.
Hidrovias do Brasil S.A.
41
20. COMMITMENTS AND GUARANTEES
Subsidiary Hidrovias do Brasil - Vila do Conde S.A., based on the obligations assumed under the purchase and sale contract with KF de Menezes Consultoria Logística, relating to a plot of land to build the Private Use Port Terminal (TUP), located in Barcarena, State of Pará, assumed the obligation to pay R$15,000 adjusted to R$18,000 based on the IPC and paid in installments beginning November 2016 and ending May 2019.
The Company has long-term contracts with the following customers:
1. VALE, at South Corridor, effective for 25 years beginning March 2014.
2. SODRU, at South and North Corridors, effective for eight years beginning February 2014 and for ten years beginning February 2017.
3. NIDERA, at South and North Corridors, effective for five years beginning August 2014 and for ten years beginning 2016, respectively.
4. NOBLE, at North Corridor, effective for ten years beginning 2016.
5. MULTIGRAIN, at North Corridor, effective for ten years beginning 2016.
6. ALLUNORTE, at North Corridor, effective for 25 years beginning 2010.
In March 2016, the indirect subsidiary HB Navegação Norte entered into lease agreements for the Don Antonio pushers owned by the indirect subsidiary Pricolpar S.A. and Draco, belonging to indirect subsidiary Cikelsol S.A., effective for 36 months (2019).
In November 2016, the indirect subsidiary HB Navegação Norte entered into lease agreements for the Hydra and Aquarius pushers owned by the indirect subsidiary Gircantex S.A., effective for 12 months (2017) in the amount of R$369,597.
21. NET REVENUE
Parent 07/01 to
09/30/2017 01/01 to
09/30/2017 07/01 to
09/30/2016 01/01 to
09/30/2016 Gross service revenue (a) 9,031 9,031 - - (a) Refers to the collection of administrative services from CSC. Consolidated
07/01 to 09/30/2017
01/01 to 09/30/2017
07/01 to 09/30/2016
01/01 to 09/30/2016
South Corridor (*):
Transportation services 94,974 242,484 67,508 237,330 North Corridor:
Transshipment services 17,464 41,870 7,483 14,588 Transportation services 53,915 122,667 29,029 50,249 Lifting services 39,485 77,764 18,190 23,568 Intermediation services 4,616 10,934 - -
Coastal shipping services 31,693 84,236 - -
Subtotal 147,173 337,471 54,702 88,405 Total gross revenue 242,147 579,955 122,210 325,735 Taxes on revenue (9,879) (26,885) (8,057) (13,727)
Total net revenue 232,268 553,070 114,153 312,008
Hidrovias do Brasil S.A.
42
(*) The South Corridor is exempt from paying taxes on the revenue of companies in Uruguay due to the Company’s commercial activities. In Paraguay, the Company is exempt from paying taxes on cargo intended for export while the other cargo are subject to a 10% income tax rate.
22. COSTS AND EXPENSES BY NATURE
Parent Consolidated
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
Salaries, payroll taxes
and benefits (8,200) (20,478) (6,127) (18,663) (31,783) (89,287) (19,105) (60,082)
Depreciation and
amortization (955) (2,867) (1,989) (3,014) (37,736) (105,886) (25,904) (61,901)
Maintenance - (12) (1) (60) (6,278) (18,969) (6,194) (13,277)
Insurance (9) (37) (14) (47) (4,214) (10,744) (2,777) (8,788)
Fuel - - - - (20,351) (53,844) (9,922) (27,896)
Outside services 6,244 (4,209) (1,686) (6,228) 301 (24,813) (5,928) (15,676)
Rentals (224) (981) (345) (874) (2,079) (9,439) (763) (4,940)
Freight (14) (36) (39) (39) (288) (1,062) (2,199) (704)
Travels and air tickets (802) (2,603) (381) (1288) (1,675) (4,845) (923) (3,417)
Mooring - - - - (2,542) (10,027) (5,719) (10,671)
Kitchen supplies (9) (23) (14) (25) (1,578) (4,836) (1,421) (2,977)
Agents 2 - - - (6,584) (20,260) (1,413) (3,375)
Operating and security 7 6 - - (3,095) (7,712) (2,548) (4,276)
Sundry fees (56) (307) (190) (375) (836) (2,225) 1,323 (1,314)
Operational materials - - - - (2,184) (4,775) (110) (109)
Renewal of flag - - - - (1,545) (1,720) (110) (1,621)
Lease of vessels - - - - (1,309) (3,968) (88) (658)
Share of profit (loss) of
subsidiaries 43,185 36,725 (5,918) 8,637 (2,487) (7,611) (1,998) (8,121)
Other costs and
expenses (249) (1,264) (554) (1078) (3,196) (6,861) 2,855 (2,913)
Total 38,920 3,914 (17,258) (23,054) (129,459) (388,884) (82,944) (232,716)
Classified as:
Cost of services - - - - (118,638) (334,540) (67,570) (179,638)
Salaries, payroll
taxes and benefits (8,029) (20,307) (6,052) (18,588) (9,522) (25,201) (7,646) (22,828)
General and
administrative
expenses (1,609) (1,958) (1,713) (3,961) (3,042) (6,634) (1,529) (9,388)
Professional services 6,328 (7,680) (1,586) (6,128) 5,424 (11,329) (1,959) (9,018)
Depreciation and
amortization (955) (2,866) (1,989) (3,014) (1,194) (3,569) (2,242) (3,723)
Share of profit (loss)
of subsidiaries 43,185 36,725 (5,918) 8,637 (2,487) (7,611) (1,998) (8,121)
Total 38,920 3,914 (17,258) (23,054) (129,459) (388,884) (82,944) (232,716)
23. FINANCE INCOME (COSTS)
Parent Consolidated
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2016
01/01 to
09/30/2016
Revenues: Income from short-
term investments 1,806 6,864 1,781 7,164 3,433 9,173 1,968 7,741
(-) PIS/COFINS
(taxes on revenue)
on finance income (195) (480) (134) (764) (278) (679) (164) (794)
Inflation
adjustments and
exchange rate
changes 1,111 7,176 1,020 9,166 27,506 57,266 1,102 9,811
Other 814 826 76 101 829 865 103 173
Total 3,536 14,386 2,743 15,667 31,490 66,625 3,009 16,931
Expenses:
Debt charges (3,226) (7,167) (7) (7) (33,981) (114,296) (55,037) (82,676)
Interest - - - - (1,260) (8,499) - -
Structuring
commission - - - - (10,585) (10,585) - -
Inflation
adjustments and
exchange rate
changes (1,770) (6,206) (2) (26,985) (8,383) (44,588) (260) (27,495)
Cash flow hedges - - - - (7,580) (7,580) (3,833) (3,833)
Tax on financial
transactions (IOF) (1,139) (3,317) (244) (248) (2,241) (6,341) (9,769) (11,373)
Other (5) (1,959) (80) (116) (7,760) (16,053) 20,726 (4,513)
Total (6,140) (18,649) (333) (27,356) (71,790) (207,942) (48,173) (129,890)
Finance income
(costs), net (2,604) (4,263) 2,410 (11,689) (40,300) (141,317) (45,164) (112,959)
Hidrovias do Brasil S.A.
43
24. INCOME TAX AND SOCIAL CONTRIBUTION
Taxes on income in Brazil include income tax and social contribution. The statutory rate applicable to the reporting periods is 34%. In other countries, the Company’s operations are subject to other tax rates, depending on the jurisdiction. The total taxes on profit reported in the statement of profit and loss for the period are reconciled to the statutory rates established by legislation, as follows:
Parent Consolidated 09/30/2017 09/30/2016 09/30/2017 09/30/2016
Profit (loss) before income tax and social
contribution 8,682 (34,743) 22,869 (33,667)
Statutory tax rate 34% 34% 34% 34%
Expected IRPJ and CSLL at statutory rates (2,952) 11,813 (7,775) 11,447
Permanent adjustments:
Nondeductible expenses:
Other employee benefits (9) (27) (1) (61)
Gifts - (3) (319) (19)
Share of profit (loss) of subsidiaries (12,486) (2,937) 2,588 (2,761)
Bonus (1,775) (1,425) (1,916) (1,663)
Fines and other - - - (2,524)
Exchange differences (cash) - - 4,271 -
Profit (loss) of foreign subsidiaries taxed at
rates different from those of the Parent - - 627 (1,076)
Temporary adjustments:
Stock options (5) (68) (5) (68)
Taxes with suspended payment (163) (260) (163) (260)
Reversal of accrued trade payables 81 164 81 731
Provision for labor contingency - - (62) -
Other provisions - - (2,258) -
Employees’ bonuses - 1,020 - 1,022
Effect of unutilized tax loss carryforwards
and tax offsets not recognized as
deferred tax assets 17,309 (8,277) 19,119 (5,844)
Deferred income tax and social contribution - - 275 -
Current income tax and social contribution - - (14,462) (1,076)
Income tax and social contribution in profit
or loss - - (14,187) (1,076)
Effective tax rate - - (62%) 3%
24.1 Deferred taxes
Deferred taxes are broken down as follows:
09/30/2017 12/31/2016 Opening balance (a) 124,504 124,824 Amortization (a) (3,996) (320) Recognition based on exchange differences (b) 4,271 -
Closing balance 124,779 124,504
(a) The Company, through its direct subsidiary HB Cabotagem, recognizes deferred
income tax on the acquisition of Log-In based on the valuation reports of provisional tangible and intangible assets that are in their final preparation stage, thus subject to changes.
(b) Refers to deferral of exchange difference taxation upon the settlement of the operation.
Hidrovias do Brasil S.A.
44
25. SEGMENT REPORTING - CONSOLIDATED
The Company’s operating segments are segregated based on the internal structure of the interim financial information and Management, by business segments.
Profit and loss accounts
North Corridor South corridor Holding company Total
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2017
01/01 to
09/30/2017
07/01 to
09/30/2017
01/01 to
09/30/2017
Net service
revenue 137,295 310,587 85,942 233,452 9,031 9,031 232,268 553,070
Cost of services (82,736) (222,906) (35,902) (111,634) - - (118,638) (334,540)
Operating
expenses (2,471) (8,961) (1,598) (4,961) (4,265) (32,811) (8,334) (46,733)
Finance income
(costs), net (21,378) (90,435) (16,319) (46,619) (2,603) (4,263) (40,300) (141,317)
Share of profit
(loss) of
subsidiaries - - (3,388) (8,734) 901 1,123 (2,487) (7,611)
Income tax (16,627) (13,562) (535) (625) - - (17,162) (14,187)
Profit or loss for
the period 14,083 (25,277) 28,200 60,879 3,064 (26,920) 45,347 8,682
North Corridor South corridor Holding company Total
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2016
01/01 to
09/30/2016
07/01 to
09/30/2016
01/01 to
09/30/2016
Net service
revenue 46,644 74,677 67,509 237,331 - - 114,153 312,008
Cost of services (34,259) (71,814) (33,311) (107,824) - - (67,570) (179,638)
Operating
expenses (592) (7,710) (1,445) (5,556) (11,339) (31,691) (13,376) (44,957)
Finance income
(costs), net (37,374) (62,231) (10,200) (39,039) 2,410 (11,689) (45,164) (112,959)
Share of profit
(loss) of
subsidiaries - - (1,998) (8,121) - - (1,998) (8,121)
Income tax (953) (953) 60 (123) - - (893) (1,076)
Profit or loss for
the period (26,534) (68,031) 20,615 76,668 (8,929) (43,380) (14,848) (34,743)
Balance sheet accounts
North Corridor
09/30/2017
South Corridor
09/30/2017
Holding company
09/30/2017
Total
09/30/2017
Current assets 70,485 150,711 75,453 296,649
Noncurrent assets 1,050,555 1,111,854 1,230,177 3,392,586
Total assets 1,121,040 1,262,565 1,305,630 3,689,235
Current liabilities 284,619 100,172 91,405 476,196
Noncurrent liabilities 1,383,264 615,550 38,110 2,036,924
Equity (546,843) 546,843 1,176,115 1,176,115
Total liabilities and equity 1,121,040 1,262,565 1,305,630 3,689,235
North Corridor
12/31/2017
South Corridor
12/31/2017
Holding company
12/31/2017
Total
12/31/2016
Current assets 43,690 127,472 168,359 339,521
Noncurrent assets 1,119,838 1,174,915 1,045,844 3,340,597
Total assets 1,163,528 1,302,387 1,214,203 3,680,118
Current liabilities 1,551,397 42,815 33,373 1,627,585
Noncurrent liabilities 65,067 806,636 - 871,703
Equity (452,936) 452,936 1,180,830 1,180,830
Total liabilities and equity 1,163,528 1,302,387 1,214,203 3,680,118
26. NONCASH TRANSACTIONS
During the period ended September 30, 2017, the following transactions did not affect the cash flow of the Company and its subsidiaries:
a) Additions to property, plant and equipment with accrued trade payables of R$15,998, in consolidated.
Hidrovias do Brasil S.A.
45
2017-SPO-3884 Notas V1.docx
27. EVENT AFTER THE REPORTING PERIOD
On October 25, 2017, the Board of Directors has approved the capital contribution to parent Hidrovias do Brasil S.A. in the amount of U$31,000.
28. APPROVAL OF INTERIM FINANCIAL INFORMATION
The individual and consolidated interim financial information was approved by the Company’s Executive Board and authorized of issue on November 15, 2017.