PERFORMANCE INDICATORS - marketscreener.com · PERFORMANCE INDICATORS OPERATIONAL Unit 2001 2002...

PERFORMANCE INDICATORS

OPERATIONAL Unit 2001 2002 2003 2004 2005

Crude steel production t thousand 4,048 5,107 5,318 5,518 5,201

Sales volume t thousand 4,0451 4,970 5,000 4,744 4,864

Number of employees1 9,179 8,470 8,501 8,175 8,542

Molten steel production t thousand 4,134 5,227 5,461 5,672 5,318

Rolled products1 t thousand 4,141 4,625 4,810 4,991 4,848

Operational productivity1 t/man/year 646 879 946 1,012 995

FINANCIAL Unit 2001 2002 2003 2004 2005

Gross revenues R$ mm 4,832 6,108 8,292 12,251 12,283

Net revenues R$ mm 3,982 5,165 6,977 9,800 10,038

EBITDA R$ mm 1,699 2,276 3,002 4,789 4,594

EBITDA Margin % 43 44 43 49 46

Gross profi t R$ mm 1,702 2,417 3,140 4,802 4,569

Gross margin % 43 47 45 49 46

Net profi t (loss) R$ mm 300 (195) 1,031 1,982 2,005

Net margin % 8 (4) 15 20 20

Net profi t (loss) R$/thousand shares2 4 (3) 14 8 7

Div. & Interest on own Capital1 R$ mm 2,754 140 800 752 2,268

ROE % 6 (4) 14 30 31

Net debt / EBITDA 2.9 2.1 1.6 1.0 1.0

Net debt / shareholders’ equity % 95.9 99.5 66.2 70.7 71.0

Added value1 R$ mm 2,467 4,890 2,346 5,892 4,925

1 Data from the Parent company.2 Adjusted for dividends and groupings.

(1,1) -1- 0_capa_ING.indd 6/27/06, 9:19:15 AM(1,1) -1- 0_capa_ING.indd 6/27/06, 9:19:15 AM

CSN

Average maturity 13.16 years

Average cost 8.93% p.a.

DEBT PROFILE


CSN AROUND THE WORLD

ears

p.a.


CSN FACILITIES IN BRAZIL

1 Fortaleza CE CFN

2 Maracanaú CE Metalic

3 Arcos MG Arcos mine

4 Congonhas MG Casa de Pedra mine

5 Ariquemes RO ERSA

6 Porto Real RJ GalvaSud

7 Volta Redonda RJ Presidente Vargas Steelworks

8 Rio de Janeiro RJ CSN Head Offi ce

9 Itaguaí RJ Sepetiba Port (Tecon and Tecar)

10 Mogi das Cruzes SP INAL

11 São Paulo SP CSN Sales Offi ce

12 Araucária PR CSN Paraná


www.csn.com.br

ADDRESSES

HEAD OFFICE

Rua São José 20, grupo 1.602

Centro, Rio de Janeiro RJ, 20010-020

Phone (55 21) 2215 4901 Fax (55 21) 2215 4901 ext.26

SALES OFFICE

Av. Brigadeiro Faria Lima 3.400, 20o andar

Itaim Bibi, São Paulo SP, 04538-132

Phone (55 11) 3049 7100 Fax (55 11) 3049 7150

PRESIDENTE VARGAS CENTRAL OFFICE

BR 393 (Lúcio Meira) s/no, km 5,001

Vila Santa Cecília, Volta Redonda RJ, 27260-390

Phone (55 24) 3344 6000 Fax (55 24) 3344 5131

PRESIDENTE VARGAS STEELWORKS

Auto Estrada s/no

Vila Santa Cecília, Volta Redonda RJ, 27269-900

CSN PARANÁ

Rodovia PR 423, 5.500

Araucária PR, 83705-300

Phone (55 41) 641 8000 Fax (55 41) 641 8009

GALVASUD

Av. Renato Monteiro 7.777

Porto Real RJ, 27570-000

Phone (55 24) 3358 2900 Fax (55 24) 3358 2901

CSN LLC

455 West Industrial Drive

Terre Haute, IN 47802, USA

Phone (1 812) 299 4157

LUSOSIDER

2840-075 Aldeia de Paio Pires

Portugal

Phone (351 21) 227 8307

CASA DE PEDRA MINE

Congonhas MG, 36415-000

Caixa Postal 101

Phone (55 31) 3749 1212 Fax (55 31) 3749 1161

ARCOS MINE

Arcos MG, 35588-000

Caixa Postal 24

Phone (55 37) 3359 7700 Fax (55 37) 3359 7777

ERSA

Rua do Estanho 123

Ariquemes RO, 78930-000

Phone (55 69) 3535 2160

INAL

Av. Cavalheiro Nami Jafet s/no

Vila Industrial, Mogi das Cruzes SP, 08700-040

Phone (55 11) 4791 7800 Fax (55 11) 4790 7091

METALIC

Rua Parque Sul 1.441

Maracanaú CE, 61910-000

Phone (55 85) 299 7309 Fax (55 85) 299 7335

SEPETIBA PORT (TECON and TECAR)

Estrada da Ilha da Madeira s/no

Itaguaí RJ, 23825-410

Phone (55 21) 2688 9201 Fax (55 21) 2688 9235

CFN

Av. Francisco Sá 4.829

Fortaleza CE, 60310-002

Phone (55 85) 4008 2500 Fax (55 85) 4008 2507


CS

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www.csn.com.br

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ANNUAL REPORT

2005

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iderúrgica Nacional


Companhia Siderúrgica Nacional (CSN) is one of the largest

and most competitive integrated steel complexes in Latin

America. The Company has the lowest production cost

and one of the highest EBITDA margins in the global steel

industry, a unique competitive advantage that makes it

one of the sector’s ten most valuable companies, in terms

of market capitalization. CSN focuses on the client and

offers complete solutions, possessing the fullest portfolio

of fl at steels on the continent. Self-suffi cient in iron ore

and electric power, the Company’s operations are truly

integrated and cover the entire steel production chain.

Its vertical structure allows it to capture the synergies

between its mining, steelmaking and logistical operations,

maximizing the returns for its shareholders. The Company’s

shares enjoy the highest level of liquidity of any steelmaker

in the São Paulo Stock Market and are also traded on the

New York Stock Exchange.

CSN’s Presidente Vargas Steelworks, in Volta Redonda,

Rio de Janeiro, has a production capacity of 5.6 million tons

of crude steel per year. The Company also has a cold-rolling

mill and galvanizing facility in the United States, CSN LLC,

and a 50% stake in the Lusosider steel mill, in Portugal.

In Brazil, it has two modern galvanizing plants – GalvaSud

and CSN Paraná – and a further three such lines within

the industrial complex at Volta Redonda. CSN is the only

producer of Galvalume and tin-plate in Brazil, and also

produces pre-painted steel – high value-added coated

products in growing demand by industry. Furthermore,

CSN’s subsidiary, Metalic, is the country’s sole producer

of steel cans for carbonated beverages.

CSN’s mining activities are geared towards inputs for

the steel business, producing iron ore, limestone,

dolomite and tin. The company undertakes all stages of

the steelmaking process: primary metallurgy, refi ning,

rolling and coating. It also handles distribution, through its

subsidiary INAL, one of the 500 largest companies in the

country and Brazil’s leading fl at steels distributor, with

service centers strategically located to effi ciently cover the

entire length and breadth of the country.

In terms of logistics, CSN has its own infrastructure and

therefore does not depend on third parties to move its raw

materials and products. It retains stakes in two rail compa-

nies, Companhia Ferroviária do Nordeste (CFN) and MRS

Logística, which connects the Presidente Vargas Steelworks

to Sepetiba Port – where CSN holds the concessions to run

two terminals, one for bulk solids and the other for contai-

ners. It is also a partner in two hydroelectric plants – those

of Itá and Igarapava – and runs a thermoelectric plant at the

Presidente Vargas Steelworks, thereby ensuring that it has

the power to feed its industrial facilities.

CSN strives to identify the needs of its clients in order

to add value to the products and services provided. These

clients come from a wide range of segments, including the

automotive, civil construction, packaging, home appliance and

OEM industries, both in Brazil and abroad. To this end, CSN

relies on a highly professional workforce, with the fl exibility and

dedication to adapt to constant changes and focus on results.

Founded in 1941, CSN is a landmark in Brazil’s

industrialization process. In its 65 years of operations, the

company has always stood out on account of its ethical

posture and the quality of its products and services.

Following a series of expansion drives that ended in the

1980s, it was privatized in 1993. Since then, the company

has undergone a new and intensive cycle of investments

geared towards modernizing its production processes and

its organizational structure.

CSN

MISSION

To increase value for our shareholders

To maintain our position as the steelmaker with the world’s lowest production costs and highest EBITDA margin

To become a global player, optimizing our infrastructure assets (mines, ports and railways) and their

competitive cost advantages, allowing CSN to grow even further

To focus on the client and offer complete steel solutions, supported by products and services of the highest quality,

in Brazil and abroad

To provide our employees with a safe and healthy working environment

To respect the environment and the communities in which we are present

NUAL REPORT

005


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MESSAGE FROM THE BOARD OF DIRECTORS

SECTOR ANALYSIS

STRATEGY AND OUTLOOK

THE BUSINESSES

OPERATING AND FINANCIAL PERFORMANCE

CAPITAL MARKETS

CORPORATE GOVERNANCE

HUMAN RESOURCES

SOCIAL RESPONSIBILITY

ENVIRONMENTAL RESPONSIBILITY

RISK MANAGEMENT

CONTENTS

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The results achieved in 2005 were very positive,

both in operational and in financial terms. Crude

steel production reached 5.2 million tons and

the consolidated sales of higher value-added

products accounted, for the first time, for more

than half of the total volume sold. The net income

amounted to R$ 2 billion and the cash generation,

using the EBITDA concept, to R$ 4.6 billion. We

distributed dividends of more than R$ 2 billion

and repurchased R$ 864 million worth of shares,

with no increase in our debt levels. In fact, we

extended the maturity of our debts from 8.2 to

13.16 years and anticipated the payment of future

contracts, such as loans taken out with the

BNDES, which were to fall due in 2011.

In 2005, CSN achieved an EBITDA margin

of 46%, consolidating its position as one of the

world’s leading integrated steel companies in

terms of profitability. The company’s unique

competitive edge, together with our strong

financial position, enabled us to close the year

as the eighth largest steel producer in the

world, in terms of market capitalization. It also

helped us raise more than US$ 1.2 billion in

the capital markets, including the issuance of

perpetual bonds amounting to US$ 750 million

– a demonstration of the confidence that foreign

investors have in the company’s capacity to

generate free cash flow.

Message from the Board of Directors

Our aim now is to triple in size over the

next four years. This growth strategy includes

investments in mining, with the expansion of the

Casa de Pedra mine, which will start exporting iron

ore in the second half of 2006; the construction

of steelmakers in Brazil, to increase production

capacity by 6 million tons; and the acquisition of

rolling assets in the US and European markets, to

add value to our operations in Brazil, which enjoy

the lowest costs in the sector.

One of our goals is to strengthen our mining

operations and become a competitive player

on the world stage in terms of both quality

and price, conquering an expected 5% of the

intercontinental seaborne iron ore trade as from

the start of 2008.

Although there is no question that our future

is promising, it is on the present that we must

focus. After all, our expansion plans would not be

feasible if CSN did not provide its shareholders

with high returns. From January 2003 to December

2005, our shares appreciated 492% in value. We

anticipate that our free cash flow generation in

2006 will enable us to continue rewarding our

shareholders in a similarly attractive fashion.

Benjamin Steinbruch

Chairman of the Board of Directors

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In 2005, the Port of Sepetiba (TECON) handled more than 138 thousand containers, 43% more than in 2004. Below, the Casa de Pedra mine, where iron ore production capacity is expected to reach 53 million tons by 2010

Sector Analysis

POSITIVE OUTLOOK With the likelihood of a cut in interest rates and government incentives for the sector, investments in Civil Construction should grow in 2006, leading to a healthy recovery during the year.

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In 2005, shipments to Steel Distributors fell by 20%.

This drop in distributor consumption was led by the

Agricultural and Cold Profiles micro-sectors.

There was also a 16% retraction in the Home

Appliance market over the year. With the ex-

Sector Analysis

change rate discouraging exports and trade bar-

riers placed on Brazilian products (as occurred

in Argentina), steel consumption by the Home

Appliance industries slipped 23% in 2005, a sub-

stantial reduction.

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Packaged coils: steel consumption is expected to resume expansion at twice the GDP rate, which is projected at 3.5%, reaching 7%

Furthermore, by the year end, consumption by

the Civil Construction Sector had fallen 9%. The

biggest decline in consumption occurred in the

Agricultural/Road transport micro-sector, with a

drop of 71% in 2005. Nevertheless, with the likeli-

hood of a lowering, albeit moderate, in the Basic

Interest Rate for the economy (the Selic rate),

and with the new package of measures adopted

by the government for the sector, Civil Construc-

tion is expected to attract investment in 2006 and

should stage a healthy recovery.

In 2005, the Auto Sector enjoyed sustainable

growth over the course of the year, driven by in-

creased production and particularly the upturn in

exports. Vehicle production increased 9% in the

year and sales rose 4%. Consequently, shipments

for the sector grew 3% against 2004.

In the meantime, CSN established itself as

the leading supplier to the Bus Market, providing

almost all the steel needs of this micro-sector.

As part of its strategy, the company also

expanded its portfolio of clients in the Automotive

segment, making significant gains in the Auto

parts and Road accessory sub-sectors.

In 2005, the volumes of tin-plate sold rose 1%

in comparison to 2004, the good performance

due primarily to the healthy Milk and Derivatives,

and Tomato-based product markets.

The can gained market share in the Milk

and Derivatives, Edible Oil and Paint categories,

due to CSN’s constant marketing efforts, such

as publicity campaigns on the benefits of the

steel packaging and the development of designs

with the clients and packagers. The closer

relationship to the retail trade has helped

improve the success of the can.

To control the drop in price, the steel compa-

nies adjusted their production capacity, reducing

the output from their plants. However, the balance

between supply and demand was then upset by

the increase in Chinese steel production, which

occurred when stock levels in the market were

already relatively high and demand was down.

At the end of the third quarter, the USA,

struck by natural disasters such as Hurricane

Katrina reduced a significant proportion of its

inventories and local market prices began to

recovery, rising again to the highest in the world.

Since this time, global consumption has picked

up, albeit timidly, leading to announcements of

price adjustments. In light of all this, the average

value of steel in 2005 rose in comparison to 2004

– a good result, in historical terms.

While, at world level, the market fluctuated

between highs and lows, in Brazil it experienced

a sharp drop. In 2005, affected by the macro-

economic situation, the domestic consumption

of flat steel fell 9%, with a 21% fall in the last

quarter alone, as compared to the same period

the previous year.

The combination of an economic slowdown,

high interest rates and the appreciation of the

Brazilian real led not only to a slump in domestic

demand, but also affected the competitiveness

of Brazilian exports, particularly in segments

such as that of electrical home appliances, which

purchased 16% less steel than in 2004. The

distribution sector also suffered a significant

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5loss, with a 20% drop over the year, and a 36%

decline just in the last quarter, when compared to

the same period in 2004.

In contrast, the Brazilian automotive steel

market enjoyed a period of sustainable growth

throughout the year, driven by a 9.11% rise in pro-

duction and, above all, by the upturn in exports.

Shipments in this sector actually increased 3%

over 2004, despite the 11% retraction in con-

sumption during the last quarter, as expected.

In 2006 the domestic flat steels market is

expected to pick up again. With the country’s

risk rating at its lowest historical level, a

falling interest rate, increasing amounts of

foreign investment, new government incentives

expected for the Civil Construction industry

and the sustainable growth of exports in the

Automotive sector, the outlook for the steel

industry is promising. Steel consumption is

expected to resume expansion at twice the GDP

rate, reaching 7%. In the international market,

the future also looks bright. Prices in Asia and

Europe show signs of recovery, approaching the

levels practiced in the USA.

In a globalized and fiercely competitive mar-

ket such as that of steel, in which the pressure

to cut costs is constant, CSN believes in the

resumption of growth in the sector, driven by the

company’s continual marketing efforts.

Strategy and Outlook

FUTURE GROWTH The company has plans to expand its businesses in the steel, mining, cement and logistical segments.

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STRATEGY

CSN’s financial solidity, its fully integrated struc-

ture, the self-sufficiency it enjoys in almost all the

main inputs and its production costs, which are

rated among the lowest in the global steel indus-

try, combine to give the company its unique com-

petitive advantage. These factors also sustain its

strategy for growth in the four segments in which

it operates, or in which it plans to soon start oper-

ating – mining, steel, logistics and cement.

To consolidate its position as a major global

player, the company will seek to expand its pres-

ence both within Brazil and overseas. The focus

of its growth strategy will remain on the steel

segment. It intends to increase its capacity for

steel production in Brazil and boost its participa-

tion in regions where it already operates overseas

(the United States and Europe); to conquer market

share in all its steel products, particularly the

higher value-added coated steel items; and to ex-

pand horizontally, in activities that offer synergies

with its main business, steel, such as in the case

of cement and mining, in which it plans to grow by

exporting iron ore.

MINING:

US$ 1 BILLION IN NEW REVENUES

In recent years, China’s significant economic

development has driven up demand for iron ore,

the main input employed in the production of

steel. As demand has increased, the price of iron

ore has soared, rising each year between 2003

and 2005 by 9%, 18.6% and 71.5%. Analysts

believe this upward trend will continue until 2010,


when the average price should stabilize at a level

approximately 40% above that recorded in 2004.

CSN is self-sufficient in iron ore and has,

historically, sold its surplus production

exclusively on the domestic market. With the

increase in international demand, however, the

company realized it could earn significant profits

though ore exports. Consequently, it decided to

invest US$ 1.5 billion in increasing its capacity

for iron ore production (from 16 to 53 million

tons), beneficiation and shipping.

The investments are to be used to expand the

Casa de Pedra mine, located in the town of

Congonhas (Minas Gerais), which contains 4,487

million tons of excellent quality iron ore, as audited

in December 2003; construction of two pelletizing

plants, with capacity to produce 6 million tons/

year; and adaptation and expansion of the Sepetiba

Port Tecar bulk terminal, to prepare it for the

export of up to 30 million tons of ore per year. The

ore will be sent by rail from the mine to the port,

carried by MRS Logística S.A., which will also

invest to expand its capacity to handle the ore. CSN

holds a 32.2% stake in the share capital of MRS.

Iron ore shipments are due to start in the

second half of 2006, when Tecar will be capable of

exporting 7 million tons/year. Once the system is

running at full capacity, CSN will account for 5%

of the intercontinental seaborne iron ore trade,

with a projected annual gross revenue of more

than US$ 1 billion. The short distance between

the mine and port, besides its own excellent

operations, will provide the company with a

considerable competitive advantage, allowing it to

benefit from lower than average market costs.

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Casa de Pedra Mine: 4,487 million tons of audited high grade iron ore reserves and a production capacity of 16 million tons/year

The company’s commercial strategy will

focus on long term supply agreements,

particularly with clients in Europe. As part of

this strategy, CSN negotiated its first long term

iron ore export contract in March 2005, which

provides for annual shipments of 5.5 million

tons of ore over a period of 10 years, at prices

reigning in the international market. Although

most of the production will be earmarked for

export, some of the ore will continue to be sold

on the domestic market.

The Casa de Pedra mine expansion project

is now fully under way, with CSN having

obtained all the environmental licenses

required for its go-ahead (see the chapter on

Environmental Responsibility).

STEEL:

EXPANSION WITHIN BRAZIL AND OVERSEAS

Over the next few years merger and acquisition


activity within the steel industry is likely to

intensify. Competing within an increasingly glo-

balized market, CSN intends to use its cheap

production costs – amongst the lowest in the

world – to expand its steel business both within

Brazil and abroad.

The idea is to increase slab production

in Brazil and purchase rolling and finishing

facilities in Europe and the United States. To

increase its production capacity in Brazil, the

company will invest in new facilities in the

south-east. These will help supply the rolling

mills overseas (both existing and future).

CSN plans to build two slab plants. The first

is to be set up in Itaguaí, in the State of Rio de

Janeiro, and will have a production capacity

of 3 million tons. The two units investments

are budgeted at US$ 3.6 billion, raising CSN’s

crude steel production from its current level of

5.6 million tons to around 11.6 million tons.

BASE CASE 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

Investment 21 Mtpa MAR 07

Investment 53 Mtpa

Expansion to 40 Mtpa* MAR 08

Expansion to 42 Mtpa* DEC 08

Expansion to 45 Mtpa* JUL 09

Expansion to 53 Mtpa* JUL 10

PELLETISATION 6 MTPA

Itaguaí 3 Mtpa JUL 09

Casa de Pedra 3 Mtpa JUL 10

PORT

1st phase 7 Mtpa OCT 06

2nd phase 30 Mtpa JUL 07

3rd phase JUL 09

* (million tons per annum)

LOGISTICS:

AUTONOMY IN MANAGING THE BUSINESS

In industries such as steel and mining, logisti-

cal efficiency is crucial to achieving a good eco-

nomic and financial performance. CSN operates

two terminals at the Port of Sepetiba in Rio de

Janeiro and holds stakes in two rail companies,

MRS Logística and Companhia Ferroviária do

Nordeste (CFN), which cover the South-east-

ern and North-eastern regions, respectively.

Controlling the logistical operations not only

generates efficiency in costs, it is also impor-

tant strategically, since it gives the company

autonomy in two vital stages of its business: the

receipt of raw materials and the distribution of

the final products.

To make its expansion overseas possible,

CSN is investing in transforming the Tecar

terminal – which until 2005 only handled im-

ports of coal, coke and sulfur, amongst other

bulk products - in order to prepare the port to

handle exports, particularly iron ore. The first

stage of the project will be completed in the

second half of 2006, when iron ore shipments

overseas are due to start.

In addition to its own needs, CSN’s logisti-

cal assets also generate returns by providing

services to third companies. MRS Logística is a

prime example, earning around R$ 2 billion in

2005, 23.3% more than in 2004. In 2005, MRS

made investments of R$ 398 million, including

the acquisition of 20 new locomotives, 29 heavy

locomotives from the US second-hand market,

716 wagons and 18,000 tons of state of the art rail

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Presidente Vargas Steelworks: the cost of production of steel slabs is 50% lower than in European and North American steelworks


rates, the new mills will enable the company to

produce high quality cement at a low produc-

tion cost and in an environmentally responsible

manner.

Given the investments in infrastructure re-

quired to foster the economic and social growth

of Brazil, the as yet low cement consumption

levels in the national market and the high levels

of synergy with CSN’s existing operations, the

cement segment represents an opportunity for

the company to compete in a market with a lot of

potential, combining profitability and growth.

of 132 formerly idle wagons and the expansion of

its rail yards.

Reaffirming its belief in Brazil, CSN, to-

gether with the Federal Government, is to invest

around R$ 4 billion to transform the Companhia

Ferroviária do Nordeste (CFN) into the ‘Ferrovia

Transnordestina’ (Trans-northeastern Railway).

The first phase of the work, which will generate

approximately 600 thousand direct and indirect

jobs, is due to be concluded at the start of 2008.

The project aims to encourage the economic

integration of the North-eastern region, in-

creasing the railway’s current transportation

capacity by a factor of 20, from 1.5 to 30 million

tons a year. Greater operational efficiency will

allow cost reductions of up to 75%, boosting the

region’s economy, largely by stimulating agro-

business exports.

CEMENT: PROFITABILITY

AND HIGH GROWTH POTENTIAL

Located within the complex at Volta Redonda,

with the gains in scale and logistics that this will

bring, the market driven by the high levels of

synergy between this activity and the company’s

existing operations. Every year the Presidente

Vargas Steelworks generates, as part of its pro-

duction process, around 1.4 million tons of blast

furnace slag, which alone accounts for up to 70%

of the raw material used in the production of ce-

ment. new cement factory will also use the most

modern cement production technology avail-

able in Brazil - vertical cement mills. Capable

of controlling the product’s quality in real time,

and with relatively low electricity consumption

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The Businesses

MINE IN EXPANSIONLocated in Congonhas, in Minas Gerais, the Casa de Pedra mine has audited resources of more than 4.4 billion tons of excellent quality iron ore. Its production capacity, which currently stands at 16 million tons, is expected to grow to 53 million tons by 2010.

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CSN’s integrated operations cover the entire

steel production process, from ore extraction

to delivery of the end product to the client. The

synergies captured between its mining, steel

production and logistical activities, together with

its self-sufficiency in almost all the main inputs,

enable the company to minimize costs and, con-

sequently, to maximize returns in the production

and commercialization of its flat steels.

MINING

CSN’s mining activities focus on inputs used

in the production of steel. The company mines

iron ore, limestone, dolomite and tin. In 2005,

CSN supplied all the iron ore required by its

own steel production lines and then sold the

surplus to other Brazilian plants. As from

2006, with completion of the first phase of

expansion of the Sepetiba Port bulk terminal,

this ore will also be exported. The limestone,

dolomite and tin, on the other hand, are

produced solely for CSN’s own consumption.

Once CSN starts to produce cement, the

limestone not absorbed in steel production will

also be used to produce clinker.

CASA DE PEDRA

Located in the municipality of Congonhas, in the

State of Minas Gerais, the Casa de Pedra mine

has audited resources of more than 4.4 billion

tons of excellent quality iron ore and a current

production capacity of 16 million tons of the end

product. In 2005, production reached 13.7 million

tons, of which 54% was consumed by CSN and

43% was sold on the market.

With the Casa de Pedra expansion project,

CSN intends to improve the usage and prolong

the service life of the field. The company aims

to increase its iron ore production capacity to

53 million tons/year. It should reach this target by

the end of the decade.

The first shipments of iron ore abroad are

expected to take place in the second half of 2006.

The Businesses

RESOURCES1

Proven 502

Indicated 1,551

Inferred 2,433

Total 4,487

1 in million tons. Source: Amec - Survey in December 2003

Current Production Production Sales Internal PRODUCTS Capacity1 20052 20052 Consumption 20052

Iron ore 16.00 13.70 5.90 7.40

Limestone 2.45 1.42 0.00 1.30

Dolomite 1.10 0.64 0.00 0.55

1 In million tons. Refers to the capacity for production of finished products. 2 In million tons.

CASA DE PEDRA MINE (million tons)

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With an efficient integrated logistical system at its

disposal that includes a railway (operated by MRS)

and bulk terminal (at the Port of Sepetiba), CSN is

well-positioned to become a competitive player in

the international iron ore market.

BOCAINA

Situated in the municipality of Arcos in Minas

Gerais, the Bocaina mine produces limestone

and dolomite, inputs used as flux materials in

the iron ore blast furnace reduction process.

The mine will also supply the limestone not

absorbed in steel production used to produce

clinker, a raw material of the cement output.

ERSA

Acquired in 2005, for R$ 100 million, Estanho

de Rondônia S.A. (ERSA) comprises the

Santa Bárbara tin mine, in Itapuã do Oeste,

and a smelting facility at Ariquemes, both

in the State of Rondônia. The deposit holds

proven reserves of 25,898 tons and potential

resources of 54,066 tons of tin. The smelting

facility has the capacity to process 3,600 tons

of tin metal per year.

The acquisition of ERSA was a strategic

move on the part of CSN. Tin is used in the

production of tin-plate, a high value-added

coated product used in packaging that is

produced in Brazil exclusively by CSN. The

latter is also one of the five largest tin-

plate producers, worldwide. CSN’s goal is to

increase ERSA’s annual production from the

current 3,600 tons (the volume consumed by

CSN) to 4,800 tons until 2009.

STEELMAKING

CSN’s operations cover the entire steel chain, from

the production of slabs to distribution of the finished

products. At the Presidente Vargas Steelworks, in

Volta Redonda, the Company produces the widest

array of flat steels offered in Latin America. It also

has two galvanizing plants in Brazil, GalvaSud

and CSN Paraná, located near the towns of Porto

Real (in Rio de Janeiro) and Araucária (in Paraná),

respectively. On top of this, CSN also has two plants

overseas. In the United States, it owns CSN LLC,

which boasts pickling, cold-rolling and galvanizing

lines, while in Portugal, it retains a 50% stake in the

steelmaker, Lusosider, which produces galvanized

and tin-plate products.

CSN is Brazil’s only producer of tin-plate – a

steel used in the packaging industry – and Galva-

lume, a steel coated with zinc and aluminum that

is both resistant and visually attractive and which

is used in civil construction. It also produces pre-

painted steel, a high value-added coated product

used in the home appliance and civil construction

industries. In 2005, 51 thousand tons of pre-painted

steel were produced.

METALLURGY

This is the first stage of steelmaking, in which the

ores, flux materials and coals are transformed

into pig iron and, subsequently, into molten steel.

The liquid metal is then cast into slabs.

ROLLING

In the hot-rolling mill, steel slabs are converted

into sheets of various thicknesses. The sheets

The Businesses

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INAL

Largest flat steel distributor in Brazil

333 thousand tons of sales in 2005

Gross revenues: R$ 980 million

12.9% share in the steel distribution market

are then rolled into coils, which can be used in

the manufacture of a variety of products, includ-

ing wheels, pipes and gas cylinders.

In the cold-rolling process, which takes place

after the hot-rolling, the thickness of the sheets

is reduced even further. The resulting products

can then be used in the civil construction and

packaging industries, among others.

COATING

After cold-rolling, the sheets are sent to the

zinc-, chrome- and tin-electrolytic facilities,

where they are transformed into galvanized steel

(used in the civil construction and home appli-

ance industries), or chrome- or tin-plate, both of

which are employed in the packaging industry.

CSN is the only Brazilian company autho-

rized to produce Galvalume, a steel coated with

20% zinc and 80% aluminum. Three times more

resistant than traditional galvanized rolled steel,

Galvalume is used in civil construction, particu-

larly roofing, and side panels.

PACKAGING

Metalic Nordeste S.A., a CSN subsidiary, is

the only producer of two-part steel cans for

carbonated beverages in Latin America. Metalic

has two plants, one producing steel cans and

the other, aluminum can lids.

In 2005, CSN made a positive impression on

the packaging segment with its expanded steel,

a versatile material that allows for creative pack-

aging designs, featuring customized angles and

curves, used in the food industry.

DISTRIBUTION

CSN operates in the distribution market and

provides services through Indústria Nacional

de Aços Laminados (INAL S.A.), which is active

in six Brazilian states. INAL processes and

distributes flat steels, catering to a number

of segments, including the automotive, auto

parts, home appliance, civil construction,

electrical-mechanical equipment, packaging

and furniture industries.

As Brazil’s leading distributor of flat

steels, INAL maintains substantial stock

levels and has the technical capacity to

provide steel-processing services. Moreover,

the flexibility of its structure also allows INAL

to offer its clients special services such as

just-in-time delivery.

LOGISTICS

PORTS

CSN manages two terminals in Rio de Janeiro:

a Bulk Solids Terminal (Tecar) and a Container

Terminal (Sepetiba Tecon), both at the Port of

Sepetiba. A project is currently under way to

adapt and expand Tecar. The plan is to prepare

the terminal, which currently receives imported

coal and coke, to also export iron ore. The

partial inauguration of the iron ore terminal

is due to take place in the second half of 2006,

with an initial shipping capacity of 7 million

tons/year.

Once fully concluded, in July 2007, the iron

ore terminal will have an annual capacity of 30

million tons, which will help establish the

Sepetiba port complex as one of the leading

facilities in the country.

In 2005, Tecar handled 4.7 million tons of

products. The terminal handles coal, petroleum

coke, sulfur, zinc concentrate, pellets, pig-iron,

ferroalloys, soybean and other bulk solids for a

variety of clients, as well as coal and coke for CSN.

The Sepetiba Tecon facility, meanwhile,

handled more than 138 thousand containers in

2005, 43% more than in 2004. With the strong

demand from the container market, which

grows substantially with each passing year, the

The Businesses

TECON

CONTAINERS HANDLED

2003 18,947

2004 96,089

2005 138,036Sepetiba Port: strong demand from the container market has helped make the Terminal one of the largest in Brazil.

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CSN is to invest R$ 4 billion in transforming CFN into ‘Transnordestina’. The works are due to be completed in 2008

Terminal has become one of the largest of its

type in Brazil.

RAILWAYS

CSN holds stakes in two railway companies.

The first, MRS Logística, now runs what was

the South-eastern network of the old federal

rail company (Rede Ferroviária Federal S.A.),

connecting Rio de Janeiro, São Paulo and Belo

Horizonte. The second, Companhia Ferroviária

do Nordeste (CFN), operates the former

North-eastern network, serving the States of

Maranhão, Piauí, Ceará, Rio Grande do Norte,

Paraíba, Pernambuco and Alagoas.

CSN and the Federal Government are to

invest R$ 4 billion in transforming CFN – which

currently uses 2,600 kilometers of rail track

– into ‘Transnordestina’, a new railway with 20

times the current transportation capacity. The

new, expanded system will play an important

role in the development of the North-eastern

region. The works are expected to be concluded

in 2008.

MRS Logística, which concluded nine years

of operations, continues to grow. In 2005, MRS

transported 108.3 million tons of products, a

10.4% increase in volume over the previous year.

In 2005, it focused on serving clients in the heavy

haul segment (carrying ore, bauxite, coal and

coke) and on winning new markets.

MRS’s rail transport services play a vital

role in bringing in raw materials and outflow

of end products. All the iron ore, coal and coke

consumed by the Presidente Vargas Steelworks

The Businesses

are carried by MRS, as is some of the steel

produced by CSN, both for the domestic market

and for export.

In 2005, MRS’s gross revenues reached R$ 2

billion, up 23.3% on 2004. The railway closed the

year with a net profit of R$ 410.3 million. Other

indicators also reflect the results of its efforts:

during the year, MRS reached 120.3 thousand TEU

(20 foot containers) – a 30.9% increase compared

to the 91.9 thousand TEU registered in 2004.

This performance reinforces MRS’s position

as the largest container carrier in the national

rail sector. In 2005, the company achieved 44.4

billion useful ton-kilometers (TKU), surpassing

the 33.1 billion TKU target set by Brazil’s Na-

tional Land Transport Agency.

ENERGY

CSN is one of the biggest industrial consumers

of electricity in Brazil, its consumption being

equivalent to that of the entire Federal District.

Since power is so crucial to its production

process, the company has invested heavily in

electrical generation plants assets in order to

ensure its own self-sufficiency. These assets

are: the Itá Hydroelectric plant in the State of

Santa Catarina, which has a capacity of 1,450

MW and in which CSN retains a 29.5% stake;

the Igarapava Hydroelectric plant in Minas

Gerais, which has a capacity of 210 MW and in

which CSN holds a 17.9% stake; and, finally, the

238 MW thermal power plant that operates at

the Presidente Vargas Steelworks, which CSN

opened in 1999. This plant is fuelled by the waste

gases from the steel production process. The

three plants combined provide CSN with 430 MW

of electric power.

MRS

Gross revenues: R$ 2 billion (23.3% growth in relation to 2004)

Operating Cash Generation (Ebitda): R$ 887.9 million (15.3% more than in 2004)

Net Profit: R$ 410.3 million

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238 MW Thermoelectric plant, operating at the Presidente Vargas Steelworks since 1999

Operating and Financial Performance

RECORD PRODUCTIONLocated in Porto Real, in the State of Rio de Janeiro, GalvaSud specializes in galvanized products catering for the demanding automotive industry. The company, in which CSN retains 100% of the share capital, has a production capacity of 350 thousand tons/year and, in 2005, set a new record: 297 thousand tons.

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PRODUCTION

In 2006, the Presidente Vargas Steelworks will

celebrate 65 years of uninterrupted activity. Over

the past six decades, the business has grown

substantially, particularly in terms of production

volume, product line expansion, environmental

control and productivity. In the 1940s, coal con-

sumption stood at 1,100 kg/t of pig iron; it now

stands at around 600 kg/t. In the 1940s, 125 tons

of crude steel were required to obtain 100 tons of

products; nowadays, just 108 tons are required.

When CSN started operations it had a pro-

duction capacity of 500 thousand tons per year.

Forty years on, while occupying the same land,

the company can produce almost 11 times as

much. One interesting point: only one original

item of equipment is still used in the plant’s op-

Continuous casting system at the Presidente Vargas Steelworks: cutting the steel sheets for production of the coils


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PRODUCÃO E CAPACIDADE PRODUTIVA

PRODUCTIVE CAPACITY / OUTPUT

CAPACITY OUTPUT 2005 CAPACITY

UNIT (thousand tons) (thousand tons) UTILIZATION (%)

Coke plant 1,680 1,666 99.2

Blast Furnaces 5,380 4,994 92.8

Steel works 5,750 5,318 92.5

Casting 5,600 5,201 92.9

Hot-rolling 5,100 4,847 95.0

Cold-rolling 4,210 3,470 82.4

Galvanizing 1,525 1,022 67.0

Tinning 1,030 985 95.6

Painting line 100 51 51.0

erations – the temper mill (LE-1), which, having

undergone a number of refits over the years, is

now used just 12 shifts a week.

The Volta Redonda Plant has the capacity to

produce 5.6 million tons a year of crude steel.

In 2005, CSN produced 5.2 million tons – 92.9%

of the installed capacity. Although less than the

95.1% recorded in 2004, this is the second high-

est rate ever achieved in the company’s history.

Production in 2005 was adversely affected by the

breakdown in the Furnas Power System, in Janu-

ary, which caused the temporary shutdown of

blast furnace 3, also causing a partial stoppage

of production in the hot strip mill.

SALES

The Brazilian steel market shrank 7.8% in 2005.

The retraction can largely be explained by two

factors: the lower than expected growth in the

country’s GDP and the relatively high stocks

held by clients in the first half of the year, in the

expectation of future price increases and fear of

a shortage in supply.

In 2005, CSN sold 4.9 million tons, 2.6% more

than in the previous year. Of the total volumes

sold, 59% went to domestic clients, as against

70% in 2004, reflecting the weak performance

of the Brazilian market. CSN LLC and Lusosider,

together, consumed approximately 500 thousand

tons, around 25% of the 1.989 million tons that

were exported.

In Brazil, to minimize the impact of the drop

in domestic steel consumption on the company’s

turnover, the sales department strove to expand

CSN’s client base and strengthen ties with ex-

isting clients, in order to boost its sales of the

higher value-added coated products.

In 2005, CSN consolidated the use of ex-

panded steel in the packaging industry, adding

value to the product through designs for the food

industry that won international awards. To pro-

duce differentiated packaging, CSN worked with

design studios, can manufacturers and the food

industry itself, causing a major impact in the

market.

By focusing on its clients and the market

rather than on the product, the company pushed

up the sales of coated products, which already

account for 50% of the total volumes sold. One of

the highlights was the advance in sales of pre-

painted steel: in 2005, in just its second full year

of production, this line of products from CSN

Paraná reached 50% of its total capacity.

CONSOLIDATED FINANCIAL PERFORMANCE

REVENUES AND COSTS

In 2005, net revenues reached the R$ 10 billion

mark , 2.4% higher when compared to 2004. The

growth in revenues is explained by the increase

in the volume of products sold, which more than

made up for the fall in average prices in the in-

ternational market during 2005.

The rise in the cost of goods sold (COGS),

to R$ 5.5 billion, reflected not only the greater

volume of sales, but also the use of high-priced

coke during the year. Although the price of coke

in the international market declined significantly

during the second half, CSN still held stocks of

the product at 2004 prices. Consequently, the

company anticipates an extraordinary reduction

in the cost of this raw material in 2006.


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INAL is the largest individual client for the steel produced by CSN and Brazil’s leading distributor of flat steels

EBITDA AND NET INCOME

The company’s EBITDA in 2005 amounted to

R$ 4.6 billion, with an EBITDA margin of 45.8%,

one of the highest in the world steel industry.

This was the second best performance by the

company in its history, having posted cash gen-

eration – using the EBITDA concept – of R$ 4.8

billion and a margin of 48.9% in 2004. CSN’s net

income amounted to R$ 2 billion, up 1.1% on the

previous year.

FINANCIAL RESULTS

The net financial result in 2005 amounted to an

expense of R$ 761 million, a R$ 48 million (equiv-

alent to 6%) reduction compared to the expense

registered in 2004. As regards the losses aris-

ing from the devaluation of the Brazilian Real in

2001, pursuant to Resolution nos. 404 and 409/01

of the CVM (the Brazilian Securities Commis-

sion), CSN amortized the remaining balance of

R$ 113 million in 2004, which generates a favor-

able effect in the comparison with 2005.

NET INDEBTEDNESS

The net indebtedness at the year end was equiv-

alent to 1x (one time) the EBITDA, holding at

practically the same level as at the close of 2004

(0.98x). Variations in both gross debt and cash

between December 2004 and December 2005

were insignificant.

Adopted since 2003, the strategy of extend-

ing the maturity of the debt proved successful

in 2005: the average maturity increased from

8.2 years to 13.2 years. This achievement was

only possible as a result of the funds raised in

the capital markets during the period. These

amounted to more than US$ 1.2 billion, includ-

ing the issuance of US$ 750 million in perpetual

bonds, in July, which were largely acquired by

Asian investors.

Furthermore, in 2005, CSN anticipated the

payment of contracts with the BNDES, which

related to financing obtained for a number of

investment projects implemented between 1996

and 2002.


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EQUITY RESULTS

As in the case of the indebtedness, there was

little variation in the consolidated equity holding

results: in 2005 these amounted to a negative

R$ 55 million against a negative R$ 46 million

in 2004, relating to the amortization of goodwill

from investments.

Income tax / social contributions on profit

In 2005, income tax and social contributions on

profit charges amounted to R$ 869 million, 5.6%

higher than in 2004, due, basically, to the Com-

pany’s higher taxable base. It should be noted

that the 30% effective tax rate stayed in line with

that for the previous year.

INVESTMENTS

In 2005, the annual consolidated capex amounted

to R$ 1 billion, climbing 14% against the R$ 891

million booked in 2004. Of this total CSN invested

R$ 700 million, while MRS and CFN invested

R$ 130 million* and R$ 48 million*, respectively,

in their expansion projects. CSN’s Coal Terminal

adaptation and expansion project alone absorbed

R$ 210 million, equivalent to 30% of the total

amount invested by CSN.

SHAREHOLDER RETURNS

The dividend distribution policy adopted by CSN

in recent years has prioritized shareholder re-

turns, a strategy that has been vindicated given

the growth in free cash flow generated by the

company. The year 2005 proved no exception.

During the period, R$ 2.3 billion were distributed

in dividends, which related to the 2004 financial

year. It is proposed that dividends amounting to

R$ 1.3 billion be distributed for the financial year

ending on the 31st December 2005, of which

R$ 937 million have already been distributed as

advance dividend payments, in February 2006.

PERFORMANCE OF THE STEEL

SECTOR SUBSIDIARIES

CSN PARANÁ

CSN Paraná is a steel rolling and coating plant

located in Araucária, within the metropolitan

area of Curitiba. The plant produces three high

value-added coated products – Galvalume (steel

galvanized with a zinc and aluminum alloy), pre-

painted steel and steel galvanized with a pure

zinc coating – that are increasingly sought by the

civil construction and home appliance industries.

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Average maturity 13.16 years

Average cost 8.93% p.a.

DEBT PROFILE

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* reflects the proportion of CSN’s holding in

these companies.

Production starts with the pickling and

cold-rolling of steel coils, to attain the precise

thickness required by each client. The process

is concluded in the Service Center, which cuts

the steel into sheets, blanks, strips and profiles.

Operational synergies with the nearby INAL unit

have enabled the subsidiary to increase business

with clients from the Southern region of Brazil,

offering a just-in-time supply service.

In 2005, CSN Paraná produced 51 thousand

tons of pre-painted steel, 27.6% more than had

been produced since its inauguration, in Sep-

tember 2003. The company expects to improve

further on this performance in 2006. The plant

has a production capacity for 100 thousand tons

of pre-painted steel per year.

GALVASUD

Located in Porto Real, in the south of the State

of Rio de Janeiro, GalvaSud specializes in


galvanized coated products. Its product mix

includes Galvanneal (galvanized steel with

an iron and zinc alloy) and galvanized steel

coated with pure zinc, used for internal and

exposed parts. Both are used in the automo-

tive industry.

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In 2005, CSN expanded its client base and also increased its sales of higher value-added coated products

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with a production capacity of 350 thousand

tons/year; a Cut Service Center, for the benefi-

ciation of flat steels, with a production capacity

of 160 thousand tons/year; and a Laser Welding

Center, with a production capacity of 8 thousand

tons/year.

Galvasud serves clients in both the domes-

tic and foreign markets, offering products such

as galvanized coils; and rectangular, trapezoi-

dal and special shaped blanks, as well as laser

welded blanks – all of which are high value-

added products. It also offers a number of

special services, such as just-in-time delivery

and pre- and post-sales technical assistance.

The company, in which CSN has held 100% of the

share capital since June 2004, set a new record

for production in 2005, of 297 thousand tons.

METALIC

Located in Maracanaú, in Ceará, Metalic is the

only company in Brazil to produce steel beverage

cans. The main material used is tin-plate with a

special DWI (Draw Wall Ironing) steel, a technol-

ogy that in Brazil is exclusive to CSN.

Metalic has two plants. One produces cans,

having the capacity to produce 900 million such

items per year, or around 2 thousand a minute.

The other produces aluminum can lids, having a

production capacity of 1.8 billion units per year.

In 2005, the company sold 645 million complete

cans and a little over 480 million lids, including

sales to clients in Latin America. Its perfor-

mance was improved by 15% in comparison to

2004. Metalic holds 53% of the market share in

canned beverages in the North-east of Brazil,

but just 5% in the South-eastern region.

In its pursuit of growth, part of the challenge

faced by Metalic is cultural. Despite the fact that

steel can is cheaper, more resistant and less

harmful to the environment than its aluminum

counterpart – it takes around five years for a

steel can to decompose, as compared to 110

years for one made of aluminum – steel can

still only accounts for 6.7% of the market share

in Brazil. In Asia, by contrast, 54% of the cans

sold are made of steel, while in some Western

European countries up to 90% of the carbonated

beverage cans are steel.

INAL

Inal is Brazil’s leading distributor of flat steels.

It has four Service Centers fitted with state of the

art equipment and four strategically located Dis-

tribution Centers efficiently covering the entire

country.

The company is the largest individual client

for the steel produced by CSN – in 2005, it pur-

chased more than 330 thousand tons – and has

a portfolio of over 3 thousand clients, to whom it

sells monthly volumes of up to 300 tons.

The company’s strategy of pursuing a high

number of sale orders but with smaller volumes

per sale, together with its value-adding steel

processing services, allows it to obtain an up to

50% higher average selling price per ton than

that practiced directly by CSN, who directly

serves clients that make purchases of at least 10

thousand tons/month.

INAL supply an extensive array of products,

such as coils, rolls, sheets, blanks, metal-

plates, profiles, pipes and tiles, amongst others.

Its clients are from a wide variety of segments in

industry, ranging from the automotive sector to

civil construction.

LUSOSIDER

Situated in the town of Paio Pires, in Portugal,

Lusosider is jointly controlled, on an equal basis,

by CSN and the Anglo-Dutch steel company,

Corus. In 2005, Lusosider achieved a gross rev-

enue of US$ 217 million, producing 85 thousand

tons of tin-plate and 240 thousand tons of galva-

nized products. With the start-up of a new pick-

ling line, production capacity at the plant rose

from 360 thousand to 550 thousand tons a year.

Lusosider is not only a major consumer of the

hot coils produced by CSN – 173 thousand tons in

2005 – it is also an important strategic asset. Al-

though it cannot sell CSN products, since it has

a European partner, the subsidiary provides CSN

with a better understanding of what is happening

in the local markets, particularly in the Iberian

Peninsula.

CSN LLC

This is a plant of cold-rolling and galvanizing

situated in the U.S. State of Indiana. CSN LLC

imports slabs and hot coils produced in Brazil,

which are then processed locally. In 2005, it im-

ported a record volume of 298 thousand tons.

As a wholly-owned subsidiary of CSN, LLC

can also sell the full range of products made by

the company in Brazil. In 2005, LLC underwent

a thorough commercial restructuring process,

building up a sales team of professionals with a

profound knowledge of the local market.

Despite its relatively small size, LLC is an

important strategic asset, providing CSN with a

gateway into the US market, one of the largest

steel consuming markets in the world.


Located in the U.S. State of Indiana, CSN LLC underwent a thorough commercial restructuring process in 2005

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5PERFORMANCE INDICATORS

OPERATIONAL Unit 2001 2002 2003 2004 2005

Crude steel production t thousand 4,048 5,107 5,318 5,518 5,201

Sales volume t thousand 4,0451 4,970 5,000 4,744 4,864

Number of employees1 9,179 8,470 8,501 8,175 8,542

Molten steel production t thousand 4,134 5,227 5,461 5,672 5,318

Rolled products production1 t thousand 4,141 4,625 4,810 4,991 4,848

Operational productivity1 t/man/year 646 879 946 1,012 995

FINANCIAL Unit 2001 2002 2003 2004 2005

Gross revenues R$ mm 4,832 6,108 8,292 12,251 12,283

Net revenues R$ mm 3,982 5,165 6,977 9,800 10,038

EBITDA R$ mm 1,699 2,276 3,002 4,789 4,594

EBITDA Margin % 43 44 43 49 46

Gross profit R$ mm 1,702 2,417 3,140 4,802 4,569

Gross margin % 43 47 45 49 46

Net profit (loss) R$ mm 300 (195) 1,031 1,982 2,005

Net margin % 8 (4) 15 20 20

Net profit (loss) R$/thousand shares2 4 (3) 14 8 7

Div. & Interest on own Capital 1 R$ mm 2,754 140 800 752 2,268

Return on Equity (ROE) % 6 (4) 14 30 31

Net debt / EBITDA 2.9 2.1 1.6 1.0 1.0

Net debt / shareholders’ equity % 95.9 99.5 66.2 70.7 71.0

Added value1 R$ mm 2,467 4,890 2,346 5,892 4,925

1 Data from the Parent company.2 Adjusted for dividends and groupings.

Capital Markets

ATTRACTIVE STOCKIn recent years CSN shares have appreciated at higher than market rates, paid substantial dividends and enjoyed healthy liquidity - everything investors like.

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Capital Markets

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Companhia Siderúrgica Nacional stock is

traded on the São Paulo (Bovespa - CSNA3)

and New York (NYSE -SID) stock exchanges.

In 2005, daily trading in CSN shares amounted

to around US$ 20 million on the Bovespa and

US$ 17 million on the NYSE, consolidating its

position as one of the most liquid companies

in the steel industry on both exchanges, a fact

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corroborated by the increase in the shares’

weight in the Ibovespa Index: from 3.7% to 3.9%.

The high liquidity of the stock is a

consequence of the continuing and growing

interest of investors in steel companies shares,

particularly those displaying a sustainable

competitive position, with high profitability and

healthy growth outlook, as in the case of CSN.

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The appreciation of CSN’s stock underscores the competitiveness of the company, which enjoys one of the highest EBITDA margins in the world steel industry

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Capital Markets

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In Brazil, the steel industry obtained excellent results in the first half of 2005, a fact reflected in the performance of CSN’s shares, which appreciated 18%

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Capital Markets

The company’s shares appreciated in value for

the third consecutive year, having climbed 492%

between January 2003 and December 2005.

CSN closed the year as the eighth highest-

valued steel company in the world, with a

market capitalization of US$ 5.8 billion, almost

double its market value at the end of 2003.

Notwithstanding the real rise in share price

by the year end, the behavior of CSN shares was

relatively cyclical throughout 2005. In the first

quarter, these appreciated 24.6%, with the steel

market starting 2005 at the same accelerated

pace as it ended 2004, and with the prices of

steel and its main inputs remaining at record

levels. In the second quarter, the shares slid

29.6%, reflecting investor fears that the period

of high steel prices was in the end, after seeing

steel price drops of up to 30% on the interna-

tional stage. In the third quarter, the recovery

of the steel price in the international market as

a consequence of demand heated up in some

countries, drove the company’s share prices

back up 36.6% in the period. In the last quarter

these fell again slightly (2.8%) due to profit tak-

ing by investors.

The shares have not only appreciated in

value, but have also provided substantial

returns to their holders by way of dividend

Control room at the Presidente Vargas Steelworks: a member of staff oversees production

46 | 47

RANKING COMPANY MARKET CAPITALIZATION INSTALLED PRODUCTION CAPACITY (US$ Million) (million tons)1

1st Nippon Steel 24,280 32.4

2nd JFE 19,749 31.6

3rd Mittal 18,905 42.8

4th POSCO 17,266 30.2

5th ARCELOR 15,882 46.9

6th ThyssenKrup 10,741 17.6

7th NUCOR 10,383 17.9

8th CSN 5,847 5.5

9th US Steel 5,450 20.8

1 Source: IISI (INTERNATIONAL IRON AND STEEL INSTITUTE) data for 2004. CSN now has a production capacity of 5.6 million tons.

TOP 10 RANKING

payments. Over the past three years, the

company paid around R$ 3.8 billion in dividends,

of which R$ 2.3 billion were paid in 2005,

relating to the fiscal year 2004.

This performance has attracted the

attention of foreign investors, who now hold

between 30% and 35% of the total share capital

in the company.

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Corporate Governance

MORE TRANSPARENCYIn 2005, CSN set up the Audit Committee and formally laid out the responsibilities of its members, who are authorized to take decisions regarding the provisions of the Sarbanes-Oxley Law, such as recommending the contracting of an external auditor and supervising the in-house and external audits.

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CSN’s corporate governance efforts are guided

by four concepts:

• Fairness – people are treated fairly.

• Accountability – management must be aware

of their responsibilities and account for their acts.

• Compliance – there must be strict and full

compliance with the legislation in effect.

• Disclosure – the information provided to the

market must be transparent and of a high quality.

INVESTOR RELATIONS

The company’s relations with shareholders

and investors are built upon its commitment to

transparency. In 2005, the Investor Relations

sector improved its mechanisms for communi-

cating with the markets in an effort to broaden

and enhance the transparency of the information

provided about the company. The IR team also

hosted and took part in an intense schedule of

events in order to strengthen relations with mar-

ket analysts and shareholders.

One of the initiatives taken during 2005 to

improve communication was to redesign the

website for investors. The site is now both easier

to use and faster, in terms of navigation and ac-

cess to content. New areas have been created, to

satisfy the demand for given types of informa-

tion. This was made possible by using a system

that monitors the visits to the various different

pages of the site, allowing the company to identify

what types of information are most sought after

by investors. Improvements were also made to

the quarterly earnings releases – another tool

for communication with the market. New types

of information and analysis are now provided,

with more detailed explanations as to accounting

procedures and operations that occur during the

quarter, as well as the inclusion of a section for

guidance. In addition, teleconferences are now

set up to follow the disclosure of the results, in

which the company’s leading executives discuss

the results and the future outlook for CSN, as

well as for the steel industry as a whole.

Indeed, the company’s earnings releases and

information disclosure procedures were rated

amongst the top five in Latin America, according

to the criteria used in the eighth edition of the In-

Meetings with Investors at the Company 56

Lunch with Investors 8

Conferences /Roadshows Brazil 6 São Paulo, Rio de Janeiro, Salvador

Teleconferences with banks 4

Visits to the industrial facilities 3

Conferences /Roadshows Abroad 4 USA, Europe and Asia

EVENTS WITH INVESTORS

vestor Relations Global Ranking. The award dem-

onstrates that the efforts the company is making

to provide the information sought by its investors

are leading in the right direction.

The IR team set up no less than 81 meetings

with investors, in Brazil and abroad, in 2005, in

an effort to forge closer ties to its target public,

always striving to provide the highest quality

service possible. The team endeavors on a daily

basis to clarify doubts and provide information

on the telephone, as well as welcoming visits to

the company by both existing and prospective

shareholders, either at its offices or at its indus-

trial facilities.

SARBANES-OXLEY LAW

In 2005, CSN identified the company’s internal

exposures and controls, so as to improve its

in-house controls in relation to the disclosure

of Financial Information, and furthermore, to

adopt practices in full and strict compliance with

the Sarbanes-Oxley Law. The main measures

adopted were:

• The amendment of the Corporate By-laws,

updating these to provide for the Audit Commit-

tee and establishing the responsibilities of the

members;

• The annual assessment and testing of the in-

house controls, to comply with the requirements

of Section 302;

• The updating of the Code of Ethics (Section 406);

• The setting up of the Audit Committee and

formal statement of the responsibilities of its

members (Section 301);

• The setting up of a channel of communication

through which to receive complaints from staff and

suppliers (Sections 302 and 806), with the creation

of an e-mail address for external use, and a dedi-

cated mail box for in-house use. In 2006, a toll-free

line will also be set up for these purposes.

• The scanning and testing of the in-house

processes and controls for compliance with Sec-

tion 404, to ensure there is an Internal Controls

structure as regards the Financial Statements,

and guarantee its effectiveness and adherence to

the Laws, as well as the reliability of the Finan-

cial Information.

• Preparation of the Manual for the Disclosure

and Use of Information concerning Material Acts

or Facts and the Trading of Securities (currently

in the process of being checked and approved).

US GAAP

The US GAAP Financial Statements are based on

the Securities Exchange Act of 1934, which, pur-

suant to an internal regulation, complies with all

the requirements of the Securities and Exchange

Commission (SEC).

DISCLOSURE OF MATERIAL ACTS OR FACTS

The company has an internal guideline which de-

termines that all disclosures must contain infor-

mation that is trustworthy – correct, proper and

transparent – within the appropriate deadlines,

as set out in CVM 358, of the 3rd January 2002.

All material acts and facts are disclosed to

the markets in which the company’s shares are 50 | 51C

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listed on the Stock Exchanges, first in Brazil,

then in the USA – there being a time lag of ap-

proximately one hour between the releases.

CSN issues quarterly performance reports,

containing approximately 20 pages of informa-

tion. These are released in conference calls with

both Brazilian and foreign investors, which take

place at different times and at which the execu-

tive officers of the company are present. The an-

nual performance report is submitted at an event

in which the leading executives are present.

In 2005, the company undertook the task of

drawing up a manual for the disclosure and use of

information concerning material acts or facts and

the trading of securities, in compliance with the

US Sarbanes-Oxley Law. The manual is currently

in the process of being checked and approved.

CODE OF ETHICS

Although it was not mandatory at the time, hav-

ing only become a legal requirement in 2005, the

CSN companies have had a formal Code of Ethics

since 1998. All staff receive a copy of the Code,

which sets out not only the standards of personal

and professional conduct they are expected to

adhere to in relations with their various publics,

but also a declaration of our conduct and com-

mitments as a company. This Code applies to all

staff of the various CSN companies, and covers

all relations with shareholders, clients, suppli-

ers, unions, communities, government, society

and the communication media.

Information regarding possible ethical viola-

tions or illegal activities are received and dealt

with in the strictest confidence, with no retalia-

tion of any kind being countenanced.

The items that make up the Code of Ethics

are updated periodically, and are regulated ac-

cording to guidelines divulged through the com-

pany’s intranet system. At the last review, which

took place in 2005 and included the participation

of representatives from all the CSN companies,

it was proposed to link the Ethics Committee to

the Board of Directors. The Committee com-

prises the executive officers in charge of Internal

Audits, Human Resources and Legal Affairs.

The Ethics Committee holds ordinary meet-

ings every six months and, when necessary, can

be summoned for extraordinary meetings should

material issues arise that require an urgent deci-

sion. The Committee may also, at their discretion,

invite officers from other sectors of the company

to take part in the meetings.

ADMINISTRATION

Companhia Siderúrgica Nacional is controlled by

Vicunha Siderurgia S.A., which holds 43% of the

shares in circulation. It is managed by the Board

of Directors and the Board of Executive Officers.

The General Meeting of Shareholders – the

sovereign body – meets ordinarily once a year

and, extraordinarily, whenever necessary – in

compliance with the appropriate legislation. It

is responsible for approving any amendments

to the Corporate By-laws and for electing the

members of the Board of Directors.

The role of the Board of Directors is to ana-

lyze and approve the policies and strategies,

and oversee the acts of the Board of Execu-


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tive Officers. It elects the Executive Officers

and the statutory committees. According to the

Corporate By-laws of CSN, in addition to the

responsibilities attributable to it under law, the

Board of Directors is responsible for, amongst

other tasks:

• Approving the general management direc-

tives, as well as deciding on the general direc-

tion of the company’s business, laying down the

basic guidelines for executive action, includ-

ing as regards production, commercialization,

technology transfers, the use of brands and

patents, investment and financial manage-

ment, as well as ensuring these guidelines are

strictly complied with;

• Examining the company’s books and records,

requesting information concerning specific

documents, business or projects, whether under

way or already concluded;

• Electing or dismissing the members of the

Audit Committee, setting their remuneration,

determining the responsibilities of the Com-

mittee and approving the operational rules

that the latter establishes in order to function

appropriately.

BOARD OF DIRECTORS

The Board of Directors comprises eight mem-

bers, five of whom are independent. Ordinary

Meetings are held on the dates set out in the

yearly schedule approved by the Board. Since the

29th April 2005, the Board has been made up as

follows:

Benjamin Steinbruch – Chairman of the Board of

CSN since the 28th April, 1995 and CEO since the

30th April 2002. He is also Managing Director of

Vicunha Siderurgia.

Jacks Rabinovich – Vice-Chairman of the Board

of CSN since the 24th April, 2001 and a member

of the Board since the 23rd April, 1993.

Antonio Francisco dos Santos – A CSN Board

member since the 25th November, 1997. He

is Chairman of the Board and CEO of the CSN

Investment Club and a member of the Decision-

making Board of the CSN Employees’ Pension

Fund (CBS).

Darc Antonio da Luz Costa – A CSN Board

member since the 29th April, 2004. Mr. Costa

is a corporate planning consultant and guest

Transportation of iron ore at Casa de Pedra

professor for the COPPE postgraduate pro-

gram at the Federal University of Rio de Janei-

ro (UFRJ). Previously he was Vice-President of

the BNDES (National Bank for Economic and

Social Development).

Dionísio Dias Carneiro Netto – A CSN Board

member since the 30th April, 2002. He has been

a professor in the Economics Department at the

Pontifícia Universidade Católica (PUC) of Rio de

Janeiro since 1985 and Director of Galanto Pes-

quisas Econômicas since 1993.

Fernando Perrone – A CSN Board member

since the 26th September, 2002. He has been the

Executive Officer for Infrastructure and Energy

at CSN, CEO of the Empresa Brasileira de Infra-

Estrutura Aeroportuária (Infraero) and Director

of Infrastructure at the BNDES.

Mauro Molchansky – A CSN Board member

since the 24th April, 2001. He was CEO of Globo

Comunicações e Participações S.A. (Globopar)

and, before that, Director of Finance and Investor

Relations for Aracruz Celulose S.A..

Yoshiaki Nakano – A CSN Board member since

the 29th April, 2004. Head of the Economics De-

partment at the Getúlio Vargas Foundation (FGV)

in São Paulo, he was a consultant to the World

Bank and Finance Secretary for the São Paulo

State Government from 1995 to 2001.

AUDIT COMMITTEE

The Audit Committee has the autonomy to

take decisions relating to the provisions of the

Sarbanes-Oxley Law – Sections 301 and 407.

Its main responsibilities include reviewing,

considering and recommending to the Board

of Directors the appointment, remuneration

and contracting of external auditors, as well as

overseeing the performance of the internal and

external audits.

The Audit Committee consists of three in-

dependent members, elected by the Board of

Directors. Members have a one year mandate

and can be re-elected. The Committee meets at

least once every three months and its decisions

must be unanimous. It is currently made up of

Fernando Perrone, Dionísio Dias Carneiro Netto

and Yoshiaki Nakano.

BOARD OF EXECUTIVE OFFICERS

The Board of Executive Officers has four mem-

bers, including the CEO, Benjamin Steinbruch.

The other three members are:

Eneas Garcia Diniz – Executive Officer for Pro-

duction since the 21st June, 2005. Mr. Diniz has

worked at CSN since 1985, and has previously

been General Manager for Hot-Rolling, General

Manager for Maintenance, Director of Metallurgy

and General Director of the Presidente Vargas

Steelworks.

Marcos Marinho Lutz – Executive Officer for

Infrastructure and Energy since the 24th June,

2003. Before joining CSN, he was Managing

Director of Ultracargo S.A. (Grupo Ultra).

Pedro Felipe Borges Neto – Institutional Execu-

tive Officer since the 20th September, 2005. Prior

to joining CSN, he held the posts of Managing

Director, Vice-Chairman and CEO of the Vicunha

Group.


Coal at the Sepetiba Port Solid Bulk Terminal (TECAR)

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Coal at the Sepetiba Port Solid Bulk Terminal (TECAR)

Human Resources

TRAINING IN THE WORKPLACEIn 2005, CSN intensified its efforts to standardize the Human Resources management policies in the various units of the company so as to establish common criteria for the activities and appraisal of personnel and results.

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Human Resources

During 2005, CSN adopted a series of measures

that included the mapping out and redefining of

job and salary structures, linking these to the re-

sults each function generates for the company.

CSN recognizes that to achieve its goal of

tripling in size over the next four years, it must be

pro-active in attracting, developing and retaining

the best talent in the market. The main attributes

sought by the company in its staff are professional

competence, the flexibility to deal with constant

change and an ability to focus on results. Fur-

thermore, staff are expected, at all times, to act in

a strictly ethical and professional manner.

INTERNAL COMMUNICATION

CSN understands the importance of good corpo-

rate communication within the company. It there-

fore employs a variety of channels to communi-

cate with its staff. These include: memos, both

printed and electronic, to transmit news quickly

and efficiently; a printed bimonthly magazine; an

intranet system, to provide information and tools

to the different areas; an e-mail system, with

specific addresses for press relations, internal au-

diting and the ethics committee, amongst others;

notice boards, banners and billboard posters.

INVOLVEMENT OF STAFF IN MANAGEMENT

CSN’s organizational structure is constantly

evolving to make its operations as efficient as

possible and to respond more quickly to our

clients and the market, offering a high quality,

competitive service.

Most of the changes aim to bring manage-

ment closer to the factory floor, providing for and

requiring a more open form of administration

that is accessible to the staff.

In 2005, two initiatives designed to involve

staff in management stood out - the Quality

Cycle and the Technological Seminar. The lat-

ter allows staff to participate and contribute

with technical work, geared towards improving

systems and the growth of the company. The two

projects award prizes to the best pieces of work,

based on criteria such as profitability, increases

in productivity and the reduction of costs.

PROFIT SHARING SCHEME

The Profit Sharing Scheme is company-wide and

pegged to the corporate earnings. All company

areas have targets that must be met during the

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Staff at the Port of Sepetiba:

training, health and safety

year. The amount payable is calculated based on

the average target fulfillment over all areas, tak-

ing the company as a whole.

WORK SAFETY

CSN strives to promote safety in the workplace.

The company runs progressive accident pre-

vention programs that focus on establishing a

safety-driven attitude amongst staff and include

subcontracted personnel. There are weekly

meetings to analyze and improve the corrective

and preventative measures in place.

SKILLS AND PERFORMANCE EVALUATION

Executives are assessed on a 360 degree basis,

using a model that considers their performance

and competence in nine skills, divided into three

categories: business, personal qualities and lead-

ership. This tool is one of the means used to iden-

tify talent and potential staff, to select personnel

for key positions, to pinpoint areas that require de-

velopment, and to prepare staff retention and suc-

cession programs. The 360 degree model was first

introduced five years ago and provides guidelines

for executive development, as well as impacting on

the profit and earnings sharing scheme.

BENEFITS

The company offers a range of benefits to its

staff, including medical care, life insurance, day

nursery allowance, maternity and child support,

funeral allowance, and special agreements with

pharmacies, amongst others.

At the Presidente Vargas Steelworks, for

example, a Social Security office has been set

up to help with social security benefit applica-

tions, such as for sick leave and pensions. A

request for sickness support, for example, which

would normally take up to 90 days for the INSS

(the Brazilian national social security service) to

process, if handled through the ‘Prisma’ office, is

cleared in around 30 days.

TRAINING AND DEVELOPMENT

CSN offers a number of opportunities for staff

training and development. More than 2,000 staff

have completed their primary and secondary

education through the company’s Programa

Educar (Educate Program), which was set up at

the Presidente Vargas Steelworks in 1998. The

program is fully funded by the company, which

provides the classrooms and organizes classes

and teachers, setting up agreements with educa-

tional establishments.

The program also includes technical training

courses sponsored in conjunction with Fundação

CSN’s Pandiá Calógeras Technical School. New

courses in Electrical mechanics and Metallurgy

are now being run every year for CSN staff, who

invariably then go through internal recruitment

processes and rise to technical posts.

All operational staff undergo workplace

training in company practices and processes,

safety awareness and environment-related is-

sues when they join the firm, before they take

part in any operational / production activities on

their own. The knowledge required for each posi-

Human Resources

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tion is defined and observed to ensure that every

professional has the knowledge and skills nec-

essary to carry out their respective functions.

The company offers a number of partial schol-

arships to staff to study at university in order to

further their personal and professional develop-

ment. CSN staff can apply to be selected for these

benefits at the start of each academic year.

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5 December 2005 saw the introduction of the

Equipe de Valor (Valuable Team) Program, ini-

tially involving 240 staff from the Presidente Var-

gas Steelworks. This program aims to develop

potential company leaders and is geared to all

those responsible for managing other employ-

ees, from supervisors to managers. All such

personnel from all CSN companies will eventu-

CSN offers staff a series of benefits, such as medical care, life insurance, nursery day-care allowance, maternity and child support

Human Resources

ally be included. The two-year program will al-

low CSN to standardize its managerial practices

and ensure the participants’ commitment to its

corporate strategies. In 2006, the program is to

be extended to a further 180 members of staff

from other CSN business units.

HEALTH AND QUALITY OF LIFE

CSN promotes a better quality of life at the work-

place through various projects geared to health-

care. The company runs programs to combat drug

addiction and smoking, as well as for the preven-

tion of cancer, stress and Aids, amongst others.

In September 2005, after observing that

orthopedic problems were the leading cause of

sick leave and disability retirements, the com-

pany set up a Physiotherapy Center at the Presi-

dente Vargas Steelworks, which provided 255

consultations for 21 members of staff. Besides

its healing treatments, the Center also plays a

preventative role, promoting better ergonometric

practices in the workplace and physical exercise

in the day-to-day routines of the staff. Another

initiative worthy of mention is the Semana de

Conservação Auditiva (Hearing Preservation

Week) which, in 2005, examined and provided

guidance to 4,707 personnel.

RETIREMENT PREPARATION PROGRAM

CSN offers a Retirement Preparation Program

aimed at providing advice to personnel and their

spouses for this new phase in their lives. The

couples are invited to spend time at company, at-

tend talks and discuss any doubts they might have

on the subject. In 2005, 104 personnel took part in

this program, which covered themes such as the

rights of workers, of pensioners and the family,

health, and the social integration of pensioners.

RETIREMENT

In 2005, 87 staff applied for retirement (212 ap-

plied in 2004). In each case there is a process

that needs to be followed, namely: the calcula-

tion of the period of service (prior calculation);

the filing of a formal request through a system

linked to the National Institute of Social Security

(INSS); consultations in person and by tele-

phone to obtain information on the status of the

request; and the contacting of the employee as

soon as the process is completed.

CBS

CSN offers its personnel a private pension

scheme, managed and administered by CBS

Previdência, formerly the ‘Caixa Beneficente dos

Empregados da CSN’. The scheme is open to all

personnel, who can join or leave it at any given

moment. The CBS Previdência scheme admin-

isters a fund of approximately R$ 1.5 billion. In

2005, the fund achieved a profitability of 11.51%

in the year, enjoying a R$ 139.6 million surplus.

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CBS

Retirees 10,940

Beneficiaries 5,391 (dependents who receive pensions following

the death of the participating member)

Dependants of retirees and beneficiaries 26,169 dependents

Funds injected every month in Volta Redonda R$13,850,000.00/month (average for 2005)

Share of the city’s gross product 33%

MILLENIUM PLAN RETURN X ACTUARIAL TARGET (INPC + 6% P.A) X SAVINGS

YEAR Millenium Plan Return Actuarial Target (INPC + 6% p.a) Savings

2001 25.35 16.00 8.59

2002 15.36 21.61 9.14

2003 41.06 17.01 11.10

2004 16.49 12.51 8.10

2005 17.63 11.37 9.18

Social Responsibility

AN EXERCISE IN CITIZENSHIPIn 2005, Fundação CSN invested R$ 20 million in socially responsible projects geared towards education, culture, community development, sports and oral health, serving more than 200 thousand people in 12 municipalities across five Brazilian states.

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SOCIAL RESPONSIBILITY

CSN believes firmly that in order to achieve its

goals it must be transparent and ethical in its

relations with its stakeholders – the staff, share-

holders, clients, investors, suppliers, service pro-

viders, government and society as a whole – and

fulfill its role in society in a responsible manner.

The company understands that the quality of

life enjoyed by its personnel and the surrounding

communities is just as important as the busi-

ness itself. CSN’s activities in the field of social

responsibility are channeled through Fundação

CSN (the CSN Foundation).

FUNDAÇÃO CSN

The work of Fundação CSN is guided by a com-

mitment to improving the quality of life and the

social development of the communities in which

the company is present.

In 2005, Fundação CSN invested R$ 20 million

in education, cultural, sporting and health –

related projects serving more than 200

thousand people, in 12 municipalities across

five Brazilian states.

The Foundation’s efforts focus on projects run

in partnership with carefully chosen institutions

that display the capacity to generate results,

transform people’s lives and be self-supporting.

The underlying philosophy is that the part-

nering institutions must be able to generate

income to reinvest in the projects and thus en-

sure their long-term sustainability. This is the

only way to promote effective and lasting social

change in the communities.

Fundação CSN maintains two schools that

offer high quality technical training for young-

sters: the Escola Técnica Pandiá Calógeras, in

Volta Redonda, Rio de Janeiro, and the Centro de

Educação Tecnológica General Edmundo Macedo

Soares e Silva, in Congonhas, Minas Gerais.

In addition to its partnerships with private in-

stitutions, Fundação CSN forges agreements with

the local authorities in the areas in which it oper-

ates, seeking to set up projects that provide work

In 2005, Fundação CSN invested R$ 20 million in educational, cultural, social, sporting and health-related projects

training, generate jobs and income, and encourage

the digital and social inclusion of the population.

In 2005, the Garoto Cidadão (Child Citizen)

project, which caters to underprivileged chil-

dren and teenagers, received the LIF award for

Freedom, Equality and Fraternity, granted by the

France-Brazil Chamber of Commerce, in recogni-

tion of its immense contribution to the country.

The award highlighted the project’s efforts to

develop responsible citizens, fostering talents and

stimulating self-esteem, and to thereby lay the

foundations for a better future. In 2006 the project

is to be introduced in other towns in which Funda-

ção CSN is active, starting with Congonhas.

FUNDAÇÃO CSN PARTNERSHIPS IN 2005

The Projeto Informática e Cidadania

(Information Technology and

Citizenship Project)

This is a digital and social inclusion initiative

developed in partnership with the Committee for

the Democratization of Information Technology

(CDI) that aims to train underprivileged young

people and adults in order to help them enter the

job market.

The hallmark of the project is the attention

given to personal growth and the building of

self-esteem, using computers and IT as tools to

develop genuine citizenship.

In addition to its work with young people and

adults, the project also caters to children and

teenagers from underprivileged backgrounds,

providing them with an outlet to occupy their free

time. To take part the youngsters have to be en-

rolled in the Public Education System. 66 | 67C

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nology and Citizenship Schools to be set up in all

the cities and towns where CSN is present, al-

ways in partnership with the CDI. There are cur-

rently ten schools up and running – in the mu-

nicipalities of Itaguaí, Volta Redonda and Barra

Mansa (Rio de Janeiro), Araucária (Paraná) and

Arcos and Congonhas (Minas Gerais). Three new

schools were opened in 2005, in Barra Mansa,

Arcos and Volta Redonda.

The Fundação CSN e Você contra a fome

(Fundação CSN and You against hunger)

Campaign

This campaign is run every year at Christmas

time. In 2005, Fundação CSN raised 64.5 tons of

foodstuffs, donated to around 120 entities that pro-

vide social assistance. The campaign covered all

the areas in which CSN operates: in Volta Redon-

da, the surrounding region and Itaguaí (RJ); Arcos

and Congonhas (MG); Araucária (PR); Fortaleza

and Maracanaú (Ceará); Arquimedes (Rondônia);

and Mogi das Cruzes and São Paulo (SP).

The Garoto Cidadão (Child Citizen) project

Set up in 1999, the project aims to promote

the social, educational and emotional develop-

ment of children and teenagers between the

ages of 8 and 18, helping to create citizens with a

capacity to think critically, through their partici-

pation in musical and artistic activities. To take

part the students must be enrolled in the Public

Education System.

The choice of which activity the children and

teenagers will take part in – whether music,

drama, ballet or art – depends on their skills, a

judgment based on the experience gained after

six years observing the artistic talents of each

one, and on their own preferences.

Cultural activities are backed up by recreational

pastimes that encourage integration and interac-

tion. The project also offers food – with supple-

mentary meals for the children and a basic food

basket for their families, dental treatment, trans-

port and uniforms for all participants, as well as

support work by psychologists and social workers.

The activities offered by the Garoto Cidadão

project are intended to help improve the quality

of life and interpersonal relationships not just

of the children and teenagers who take part, but

also, indirectly, those of their families.

The workshops that involve the families en-

courage greater integration, which generates ad-

ditional benefits for the children and teenagers,

such as better performance in their activities

both in and out of school. Family participation is

essential, particularly to avoid the exploitation of

child labor, a practice that, unfortunately, is still

relatively common amongst low income families.

The Garoto Cidadão methodology is based on

the four pillars set out by UNESCO in its educa-

tional policy for the 21st Century: learn to know,

learn to do, learn to live together and learn to be.

These concepts include cognitive and techni-

cal aspects (to know and to do) and human and

relationship skills (to be and to live together),

emphasizing that educational development

should not focus only on knowledge – it must

also encourage creativity, the control of emo-

tions and feelings, the establishment of ethical

values and the capacity to relate to other people.

The specific aims of the project are to raise

and/or develop the self-esteem of children and

teenagers when in social risk; to provide for the

inclusion and, particularly, the social transfor-

mation of all participants; to stimulate inte-

gration between children, teenagers and their

families; and to contribute to the development of

social technology.

• Music

The project includes classical, contemporary

and popular music, with particular emphasis on

renowned Brazilian composers. The youngsters

are taught to play instruments (strings, wind,

brass and percussion) and to sing. There are

also theoretical lessons such as on the history

and understanding of music.

The idea is to develop the students’ instru-

ment-playing skills and critical capabilities, in-

cluding their musical taste, ear, sensitivity, tone

and rhythm.

Group performances are put on throughout

the year, and feature experimental band, cham-

ber and symphonic orchestra music, with stu-

dents working together on stage, thus encourag-

ing both discipline and cooperation.

• Ballet

Ballet encourages students to explore the

potential of their body, developing their mo-

tor skills and musical coordination, as well as

corporal and facial expressions. For children

and teenagers to be able to move with ease and

precision, and thus express their own individual


The Garoto Cidadão Project contributes to the development of children and teenagers through musical and artistic activities

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The Garoto Cidadão Project contributes to the development of children and teenagers through musical and artistic activities

personalities, it is essential that they acquire and

master such skills.

The purpose of ballet is to develop, through

movement, a consciousness of the complete

individual (body, mind and emotion) and corpo-

ral self-awareness, through social interaction.

These skills are clearly evident at the end of year

show in which all the dancers take part.

• Art

The art activities include painting, drawing,

sculpture, clay-modeling and graffiti, amongst

others. The aim is for students to learn and

make connections between the different forms

of expression, transforming and expanding their

understanding and sensibility, knowledge, imagi-

nation and capacity to produce art. Using the

different forms, the students are encouraged to

think about art individually or in groups.

• Drama

The theater workshops aim to develop the

ability of the students to interact, and to express

themselves through movement and speech, as

well as their corporal, visual and hearing senses.

In this way, they stimulate creativity, the imagi-

nation and memory.

The methodology followed involves interac-

tive games, play activities, the study of texts,

physical body training and vocal exercises. At

the end of each year, a Theater Festival is put on

featuring plays by a variety of authors, largely

Brazilian, who write for younger audiences. In

2005, the Festival featured works by the author,

Maria Clara Machado.


• The “SER e CONVIVER”

(To Be and Live Together) Workshop

The Garoto Cidadão Project uses cultural

development as a way to reveal a social cultural

identity. At the same time, it emphasizes that

one’s personal development should also be

steadily encouraged. In this way the discovery of

the social cultural identity occurs together with

that of the individual, leading to both individual

and collective growth.

The program is split into modules and covers

topics such as the Statute for children and teen-

agers, Personal identity, Ethics and citizenship,

Personal attitudes, the Importance of the group,

Interpersonal communication, Sexuality and Life

planning.

• The “ACONTECER” (To Happen) Workshop

The Garoto Cidadão Project also offers work-

shops to strengthen family integration, following

a specific methodology. The workshops work

with the families in connection with the personal

development of the child, interlinking the devel-

opment of the individual and the group.

The program is split into modules and cov-

ers topics such as the Statute for children and

teenagers, Personal hygiene, Ethics and citizen-

ship, Domestic violence, the Importance of the

group, Notions of law, nutrition and education,

amongst others.

• Social and Cultural Workshops

The main target of these workshops is chil-

dren and teenagers attended by social insti-

tutions that have agreements with Fundação

CSN. The aim is to accentuate the charm and

playfulness of the artistic activities of the Garoto

Cidadão project, encouraging more access to art

and culture in the communities.

• Technological Education Center

The Centro de Educação Tecnológica Gen-

eral Edmundo Macedo Soares e Silva (CET) first

opened more than 40 years ago and provides

young people with professional training and

qualifications. It also offers companies in the

Alto Paraopeba (MG) region a source of high

quality personnel.

The Center offers seven courses: Industrial

apprenticeship, Secondary schooling, Adminis-

tration, Mining, Work safety, and Electrical-tech-

nical and Electrical-mechanical training.

Through its Oral Hygiene Center, Fundação CSN attends around 500 people, from babies to adults

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with full and 18 with partial scholarships. There

were also 79 students with internships at various

firms in the region.

• The Pandiá Calógeras Technical College (ETPC)

The ETPC, which is located in Volta Redonda

(RJ), prepares teenagers for the job market and

university. The quality of the teaching, the equip-

ment and facilities at the college have made it a

benchmark for technical/professional training

and secondary education. The ETPC offers six

courses: Metal-mechanics, Electrical-mechan-

ics, Electronics, Information Technology, Tele-

communication and Telematics.

In 2005, the college had 1,282 students en-

rolled, of whom 410 enjoyed full or partial schol-

arships. Furthermore, 84 students had profes-

sional training internships offered in a scheme

set up by the local government of Porto Real, in

conjunction with Fundação CSN and GalvaSud:

21 in Electrical Maintenance, 20 in Mechanical

Maintenance and 43 in Oxy-acetylene Cutting/

Welding. All student interns also had refresh-

ments and transport provided.

In 2005, 939 young people from the public

and private education systems of Volta Redonda

attended the Professional Guidance and Lec-

tures Circuit, a scheme run by the ETPC.

During the year, the ETPC, through its stu-

dents, continued to run Social Responsibility

projects, providing assistance to underprivileged

communities and to homes for senior citizens.

The students organized campaigns for the dona-

tion of food, clothing and toys for underprivileged

children, as well as personal hygiene items for the

residents of the Dom Bosco Home for the Elderly.

Sport and Citizenship

The Recreio sport and leisure center of Funda-

ção CSN occupies an area of 47 thousand square

meters. The facility boasts a multi-sport gym hall,

an aquatic park with three pools, sports grounds

with both an artificial and natural grass field, a

sand court, two tennis courts, an athletics track

and kiosk, as well as an exercise gym and car park.

Two sports-based social projects are run at

the center, based around volleyball (Viva Vôlei)

and badminton (Núcleo de Badminton), the lat-

ter being run in partnership with the Brazilian

Badminton Confederation. Each one caters to 80

children and youngsters from public schools in

the Médio Paraíba region of Rio de Janeiro.

The Recreio also offers leisure activities for

the community in general, including internal,

regional and state Sporting Tournaments; recre-

ational events like on Children’s Day; Environ-

ment Week; Open days showing the sports

courses offered; the Dance Festival; and the

Swimming Festival, amongst others.

Besides the Social Sporting projects, the

Recreio runs 17 courses and leisure activities for

its own members. These cater for both begin-

ners and the more advanced, and cover a variety

of field, court, pool and gym activities.

Moreover, the center promotes leisure events

geared to all age groups. In 2005, these included

the Summer project, featuring live music at the

pool; the Holiday Camp; Happy Hour; the Dance

Festival; the Children’s Day celebrations; an Eco-


logical Walk; Sports Tournaments; Sports Festi-

vals and the Cycling Tour, to name but a few.

The Fundação CSN Cultural Center

Located in the city of Volta Redonda, in Rio de

Janeiro, the Center has established a reputation

for artistic information, development and advance-

ment. Renowned professionals help discover,

train, and develop artists, musicians, producers

and cultural agents from the city and the entire

southern region of the State of Rio de Janeiro. The

Center’s prime objective is to foster and dissemi-

nate culture, and to stimulate its widespread ap-

preciation, through seminars, workshops, lectures,

exhibitions, recitals and concerts.

The Cultural Center features an art gallery, cul-

tural garden, multi-cultural room, cultural corridor

and rooms for courses and workshops, as well as a

hall for lectures and performances. Its challenge is

to become an instrument for social change through

Culture, by discovering and developing talent, by

disseminating and broadening the access of the

community at large to cultural values and by en-

couraging the development of those values.

During 2005, the Cultural Center directly

served more than one thousand people, com-

prising teachers, students, and other profession-

al workers involved with the events and activi-

ties. A further 25 thousand visitors also benefited

from the various cultural activities on offer.

The Fundação CSN Experimental Band

and Orchestra

These groups are formed by children and teen-

agers from underprivileged communities in the

Children and teenagers who participate in the Fundação CSN Orchestra learn to play string, wind and percussion instruments

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Children and teenagers who participate in the Fundação CSN Orchestra learn to play string, wind and percussion instruments

south of Rio de Janeiro who are registered with

support institutions accredited by Fundação CSN.

The program offers practical orchestra

classes, featuring string (violin, viola and cello),

wind or brass (recorder, fife, flute, clarinet,

saxophone, trumpet, trombone and tuba) and

percussion (snare, cymbals, timpani, drums,

symphonic drum, full drum set, vibraphone and

bells) instruments. The musical lessons are

rounded off with workshops on choir-singing, vo-

cal techniques, and musical theory, history and

perception. The students also take part in or-

chestral rehearsals and concerts and chamber

music activities, which are conducted every day

at the Fundação CSN Cultural Center.

In December 2005, the Orchestra put on a

“Brazilian Classics” Concert, in which the Brazil-

ian Youth Symphony Orchestra took part. The

event, which was held in the Recreio Gym Hall,

in Volta Redonda (RJ), attracted an audience of

around 5 thousand people.

Community Workshops

The Trupe do Aço (Steel Troupe) sets up social

cultural workshop schemes in underprivileged

communities, giving children and teenagers ac-

cess to cultural events and training in music,

theater and the visual arts. The project involves

producers, actors, musicians, artists and dancers.

The schemes have a number of aims, namely:

to stimulate family well-being and integration

through meetings, performances and workshops;

to help create audiences to revive interest in Cul-

ture; to encourage youngsters to form cultural

groups in their communities; and to encourage

the inclusion and, above all, the social transfor-

mation of all participants. In 2005, the Community

Workshops directly and systematically involved

more than 1,500 children and teenagers.

Caravana Cultural (Cultural Caravan) –

A Tale of Steel and Daring

In 2005, Fundação CSN toured the country

with the Caravana Cultural - Uma História de Aço

e Ousadia project, in which researchers, poets,

musicians and actors took part, and which in-

volved youngsters assisted by the Garoto Cidadão

Project, as well as members of the Fundação

CSN Symphonic Orchestra.

More than 32 thousand spectators enjoyed the

onstage musical, which tells the story of the min-

ers who migrated to the southern part of the State

of Rio de Janeiro in search of a new life and helped

build the largest steelworks in Latin America – the

Presidente Vargas plant, CSN’s industrial heart.

Fundação CSN raised and purchased more

than 30 tons of food for donation to institutions

that provide social assistance in the towns and

cities in which the shows were put on.

The Itaguaí Community Library

As part of its efforts to promote the social

development of the communities in which it is

present, CSN and Fundação CSN, together with

the Instituto Ecofuturo and Itaguaí Education

Department, developed a project in 2005 to set

up a Community Library in the municipality of

Itaguaí (RJ), where the Port of Itaguaí is located.

This was the first step in a program to encour-

age reading amongst children and teenagers in

the town. It is hoped the library will benefit more

than 1,500 youngsters from the region.

Oral Hygiene Center

Through its Oral Hygiene Center (CSO),

Fundação CSN, in partnership with local authori-

ties and NGOs, runs community projects geared

towards oral health. All the projects run by the

Center, which include the Sorriso Amigo (Friend-

ly Smile) and Educar para Prevenir (Educate

to Prevent) initiatives, form part of the Sorriso

Novo (Fresh Smile) scheme. The Center attends

around 500 people, including babies, children,

teenagers, young people and adults.

The Rindo à Toa (Laughing Openly) Project

Run by Fundação CSN, in partnership with

the local authorities of the towns where the

company is present, this project focuses on oral

health, with an emphasis on education and pre-

vention. The scheme caters to students from the

state school educational system, up to 4th grade

(primary).

The students are given fluoride treatment and

oral physiotherapy. They also attend talks, watch

films and even take part in short plays that un-

derscore the importance of oral hygiene. One of

the hallmarks of the scheme is precisely this use

of drama as a tool to motivate the children.

In 2005 the project benefited 12 thousand

children from the municipality of Itaguaí, who

each won a dental kit (toothpaste, dental floss

and toothbrush). In 2006, the project is to be

introduced in other towns and cities covered by

Fundação CSN, starting in the municipality of

Quatis, in the State of Rio Janeiro.


2005 ANNUAL SOCIAL BALANCE SHEET – IBASE

COMPANY

1 - Basis of Calculation 2005 Amount (R$ thousand) 2004 Amount (R$ thousand)

Net Revenues (NR) 8,173,977 8,134,492

Operating Result (OR) 2,578,033 2,993,096

Gross payroll (GP) 373,826 317,520

2 - Internal Social Indicators Amount (thousand) % of GP % of NR Amount (thousand) % of GP % of NR

Food 17,406 4.66% 0.21% 7,902 2.49% 0.10%

Mandatory payroll taxes 107,448 28.74% 1.31% 108,810 34.27% 1.34%

Private pension plan 68,908 18.43% 0.84% 66,050 20.80% 0.81%

Health 48,573 12.99% 0.59% 43,303 13.64% 0.53%

Work Health and Safety 30,263 8.10% 0.37% 35,778 11.27% 0.44%

Education 625 0.17% 0.01% 822 0.26% 0.01%

Culture 0 0.00% 0.00% 0 0.00% 0.00%

Training and development 1,066 0.29% 0.01% 1,322 0.42% 0.02%

Day-care/day-care allowance 85 0.02% 0.00% 92 0.03% 0.00%

Profit/income sharing scheme 51,866 13.87% 0.63% 51,462 16.21% 0.63%

Other 11,876 3.18% 0.15% 1,583 0.50% 0.02%

Total - Internal social indicators 273,223 73.09% 3.34% 262,665 82.72% 3.23%

3 - External Social Indicators Amount (thousand) % of OR % of NR Amount (thousand) % of OR % of NR

Education 8,093 0.31% 0.10% 7,700 0.26% 0.09%

Culture 1,066 0.04% 0.01% 563 0.02% 0.01%

Health and sanitation 382 0.01% 0.00% 412 0.01% 0.01%

Sports 2,084 0.08% 0.03% 2,160 0.07% 0.03%

Nutritional support /allowance 0 0.00% 0.00% 0 0.00% 0.00%

Other 1,897 0.07% 0.02% 1,170 0.04% 0.01%

Total contributions to society 0 0.00% 0.00% 0 0.00% 0.00%

Taxes (excluding payroll taxes) 2,244,075 87.05% 27.45% 2,379,450 79.50% 29.25%

Total - External social Indicators 0 0.00% 0.00% 0 0.00% 0.00%

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4 - Environmental Indicators Amount (thousand) % of OR % of NR Amount (thousand) % of OR % of NR

Investments related to company production/ operations 229,243 8.89% 2.80% 159,436 5.33% 1.96%

Investments in external projects and/or programs 0 0.00% 0.00% 0 0.00% 0.00%

Total environmental investment 229,243 8.89% 2.80% 159,436 5.33% 1.96%

With regard to the setting of ‘annual targets’ for minimizing ( ) has no targets ( ) achieves to 51 a 75% ( ) has no targets ( ) achieves to 51 a 75% waste, general consumption in its production / operations, ( ) achieves 0 to 50% (X) achieves to 76 a 100% ( ) achieves 0 to 50% (X) achieves to 76 a 100% and increasing its efficiency in the use of natural resources, the company

5 - Staff Indicators 2005 2004

No. of employees at the year end 8,542 8,175

No. of employees hired during the year 1,076 498

No. of outsourced personnel 11,606 10,465

No. of interns 102 92

No. of employees above 45 years of age 1,985 1,740

No. of women working at the company 621 570

% of management positions occupied by women 9.60% 9.30%

No. of Afro-Brazilians working at the company 2,091 1,904

% of management positions occupied by Afro-Brazilians 3.40% 4.00%

No. of employees with disabilities or special needs 41 32

6 – Material Information relating to corporate responsibility 2005 2006 Targets

Ratio between the highest and lowest remuneration package at the company 0 0

Total number of work-related accidents 48 0

The social and environmental projects developed ( ) top executives (x) top executives ( )all employees ( ) top executives (x) top executives ( )all employees by the company were selected by: and middle management and middle management

Health and safety standards ( ) top executives (x) top executives ( )all employees ( ) top executives (x) top executives ( )all employees at the workplace were set by: and middle management and middle management

As to worker union freedom, ( ) does not ( ) follows (x) encourages ( ) does not ( ) follows (x) encourages right to collective negotiation get involved ILO rules and follows get involved ILO rules and follows and internal representation, the company: ILO rules ILO rules

Company pension plan covers: ( ) top executives ( ) top executives (X)all employees ( ) top executives ( ) top executives (X)all employees and middle management and middle management

Profit-sharing scheme covers: ( ) top executives ( ) top executives (X)all employees ( ) top executives ( ) top executives (X)all employees and middle management and middle management

In selecting suppliers, the same ethical and social environmental ( ) are not (x) are ( ) are ( ) are not (x) are ( ) are responsibility standards as adopted by the company: considered suggested required considered suggested required

In relation to volunteer work by employees, the company: ( ) does not ( ) supports (x) organizes ( ) does not ( ) supports (x) organizes get involved and encourages get involved and encourages

Total number of consumer claims and complaints: at the company at Procon in Court at the company at Procon in Court __________ __________ __________ __________ __________ __________

% of claims and complaints solved: at the company at Procon in Court at the company at Procon in Court _________% _________% _________% _________% _________% _________%

Total added value to distribute (R$ thousand): In 2005: 4,925 In 2004: 5,892

Added value allocation: 54.6% government 9.8% staff 48.7% government 7.5% staff 24.3% shareholders (2.6)% third parties 39.1% shareholders 3.3% third parties 13.9% retained 1.5% retained

7 - Other information

2005 ANNUAL SOCIAL BALANCE SHEET – IBASE (continued)

Day of the Smile

On this day a number of activities are run

to encourage the practice of oral hygiene

amongst children from the state school sys-

tem between the ages of 3 and 14. Trained

dental hygiene staff target the different age

groups using various kinds of light-hearted

educational, recreational and preventative

activities organized for both the students and

their parents.

In 2005, ‘Day of the Smile’ events took

place in towns in the southern region of the

State of Rio de Janeiro and in Congonhas,

Minas Gerais.

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5

Environmental Responsibility

GREEN LIGHTIn 2005, CSN invested more than R$ 200 million in environmental studies, measurements and works. The year saw intense environmental licensing activity in relation to the company’s new mining, logistical and cement projects.

THE ENVIRONMENT

CSN’s environmental management efforts are

geared towards prevention. The company uses

equipment featuring state of the art control

technology to constantly monitor and manage its

environmental risks.

Its Internal Environmental Management

Committee, in which staff from all areas of the

company participate, meets every week to dis-

cuss any problems that have arisen and to identi-

fy any preventative action that can be taken in the

different areas of production so as to minimize

future environmental risks. At CSN, environmen-

tal concerns are a major factor in guiding the

way production is managed, together with safety

and quality.

The year 2005 saw intense environmental

licensing activity undertaken in relation to the

company’s new mining, logistical and cement

production projects.

Of the new investments, the most substan-

tial related to the works undertaken at the Port

of Itaguaí’s Solid Bulk Terminal (TECAR), where

the company intensified efforts to implement

the environmental control systems and equip-

ment provided for under the Environmental

Commitment Agreement (TCA) signed with the

Rio de Janeiro State Government on the 30th

November, 2001 and then revised on the 24th

May, 2004.

Several projects were completed at TECAR,

including the system for drainage and treatment

of the effluents arising from pier washing opera-

tions and the installation of collector channels


and humectant systems for the ship unloaders,

which prevent the spillage of waste into the sea

and the dispersion of dust into the atmosphere

during the unloading of bulk materials.

A number of other projects are in the final

stage of completion, such as the modern system

for the collection and treatment of effluents from

the solid bulk stockyards and the water sprin-

kling systems that cover two lines of bulk mate-

rials, the car dumpers and the transfer points.

Geotechnical work is also under way to recover

two lines of the bulk stockyard.

By the end of 2006, as a result of all these

investments and works, the Ituaguaí Port Termi-

nals run by CSN will be the most modern in Bra-

zil in terms of pollution prevention and control.

INVESTMENTS

Between 2000 and 2003, CSN invested R$ 300

million in environmental projects - of which

more than R$ 250 million were absorbed in

works relating to the Presidente Vargas Steel-

works Environmental Commitment Agreement

(TCA) - raising its environmental performance to

new heights.

The need for ‘investments’ in this area is now

relatively low, and is concentrated on two types

of initiatives: those geared towards improvement

and those geared towards growth. In contrast,

the expenses incurred with defrayal is increas-

ing with every passing year, particularly as items

relating to the operation and maintenance of

the new environmental control equipment are

booked as defrayal.

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5 In 2005, environmental management

spending amounted to R$ 229.2 million, and

mainly went towards studies that needed to be

conducted in order to obtain and renew envi-

ronmental licensing; towards studies, mea-

surements and works carried out to remedy

environmental liabilities arising from past

operations, particularly that arising from the

pre-privatization period (both in Volta Redonda

and in Criciúma, Siderópolis, Treviso and Capiva-

ri de Baixo - deactivated coal-mining areas lo-

cated in Santa Catarina); and towards continu-

ing the works and actions provided for under

the Environmental Commitment Agreement

(TCA) of the Solid Bulk Terminal at the Port of

Sepetiba (TECAR).

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The following graphs detail the Company’s

expenditure on the environment in 2005, broken

down into investments and costs, per applica-

tion. The substantial increase in total invest-

ments - from R$ 11.7 million to R$ 66.3 million

– relates to the TCA of the TECAR terminal and

to the control equipment provided for under the

plans to export iron ore, both at the Casa de Pe-

dra unit and at the TECAR.

ENVIRONMENTAL MANAGEMENT SYSTEM

Based on ISO Norm 14001, the Environmental

Management System (SGA) employed at CSN’s

units has allowed the company to continually im-

prove its environmental performance. The SGA is

a decentralized system featuring a set of general

rules and norms that are applied in, and impact

on, the company’s different units.

In 2005, the system was once again audited

by ABS - Quality Evaluations. The Casa de Pedra

mine and Presidente Vargas Steelworks, as

well as the other operations in Volta Redonda

obtained re-certification under the most recent

international standards criteria for environmen-

tal management systems, ISO 14001:2004. Gal-

vaSud maintained its certification, having con-

cluded the training of its entire workforce (both

direct employees and subcontracted personnel)

in relation to the SGA.

The SGA reflects the company’s environmen-

tal policy. This policy is built upon six pillars,

which, in Portuguese, are encapsulated in the

acronym S.E.M.P.R.E. (or “always”), namely:

• Support for the business

• Corporate Transparency

• Continual improvement

• Prevention of pollution

• Respect for the environmental legislation

• Correction of any cases of noncompliance

These six principles provide the basis for the

objectives and goals of all the company units; for

its preventive and corrective action plans and

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5programs; and for the monitoring and verifi-

cation procedures and audits that ensure the

system’s efficiency and constant improvement.

AIR QUALITY

All CSN operations that may have an impact on

the atmosphere have pollution control systems

in place, either in the form of dust abatement and

gas washing systems or complex filtration sys-

tems (sleeve filters and electrostatic precipita-

tors, among others).

In Volta Redonda, the company maintains a

sophisticated air quality monitoring system, made

up of nine monitoring stations:

• 3 automatic telemetric stations, which reg-

ister the total concentrations of particles in

suspension and transmit this information, on

an hourly basis, on-line, to the company and to

FEEMA, the Environmental Agency for the State

of Rio de Janeiro. The data transmitted includes

the total concentrations of particles and concen-

trations of inhalable particles, those of nitrogen

oxides, sulfur oxides, ozone, benzene, toluene,

xylene, methane and total hydrocarbons in the

atmosphere, as well as meteorological wind data.

• 5 semi-automatic stations, fitted with equip-

ment to measure total concentrations of par-

ticles in suspension and inhalable particles (one

of these semi-automatic stations was set up in

2005, in the Sidervile neighborhood, at Feema’s

request).

• 1 complete meteorological station that also

transmits on-line to the company and to Feema.

The results of the monitoring performed by

the automatic stations are expressed through

the Air Quality Index (IQA), measured by Feema

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and are updated daily on its website (www.

feema.rj.gov.br).

The samples show that the quality of the air in

Volta Redonda is good. Throughout 2005, the IQA

fluctuated between “average” and “good”, signify-

ing that it remained within the legal standards.

On just one day in November, the automatic

station located at Recreio do Trabalhador, in the

Vila Santa Cecília neighborhood, gave a reading

indicating inappropriate levels of ozone.

Ozone is a secondary pollutant formed in the

atmosphere when two gases, which are mainly

generated by vehicles and traffic, come into con-

tact with light. Exposure to ozone levels above

those considered appropriate for one day will not

have any effect on human health.

In the municipality of Araucária, where CSN

Paraná is located, the company maintains an

automatic air quality monitoring station linked to

the Paraná Environmental Institute (IAP). In the

mines and the port terminals the particulate mat-


ter is measured by networks of semi-automatic

stations, which generate results every six days.

WATER RESOURCES

The Presidente Vargas Steelworks, in Volta Re-

donda, is one of the largest individual consum-

ers of water in the State of Rio de Janeiro, with a

catchment rate of more than six thousand liters

per second, the equivalent to around 1/6 of the

total catchment for the city of Rio de Janeiro. In

2005, for each ton of steel produced, CSN con-

sumed 42.8 m3 of water.

CSN sees the rational use of water in its pro-

duction processes as a priority, from the point

of view of both costs and the environment. The

company operates, maintains and is developing a

series of projects and initiatives geared towards

increasing the volumes of water that are re-cir-

culated. The steelwork processes use around 42

thousand liters of water per second, of which 36

thousand liters will have been recycled.

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CSN sees the rational use of water in its produc-tion process as a priority. Of the approximately 42 thousand liters of water used per second, 36 thousand liters have been re-cycled

Through a modern and complete water

catchment and treatment system, the company

can even, in the event of an emergency, serve

part of the population of Volta Redonda. The net-

work extends over several kilometers, supply-

ing water and providing effluent controls for all

areas of the Presidente Vargas Steelworks.

The Presidente Vargas Steelworks has a total

of nine pump-houses for re-circulating the water;

13 effluent treatment stations, with seven operating

in a closed circuit, returning all the treated water to

be used again in the industrial processes, while the

remaining six subsequently release the waters into

the Paraíba do Sul river, once these are within the

standards required by the legislation.

The initiatives taken to rationalize the use of

water have allowed the company to reduce its

catchment volumes, in three years, from 8.7 thou-

sand liters per second to the current 6.15 thou-

sand liters (the consumption of “new water”, ten

years ago, amounted to around 15 thousand liters

per second). The volume of cooling water and ef-

fluents released back into the Paraíba do Sul river

has also been substantially reduced over the past

three years, from 7.5 m3/s to 5.2 m3/s.

To help it make further improvements in the

future, CSN commissioned a study from the Inter-

national Water Recycling Reference Center (Cir-

ra), linked to the University of São Paulo (USP),

to assess possible new initiatives to increase the

proportion of water that is re-used at the Presi-

dente Vargas Steelworks (currently at 84%, one of

the highest rates in the Brazilian steel industry).

When it receives the study in mid-2006, CSN

will undertake a technical and economic ap-

CSN sees the rational use of water in its produc-tion process as a priority. Of the approximately 42 thousand liters of water used per second, 36 thousand liters have been re-cycled

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5


praisal of the proposals submitted in order to

implement those that are economically sustain-

able and that will allow it to reduce further the

levels of water it collects and the volumes of ef-

fluents it releases into the Paraíba do Sul river.

This same policy of maximizing the efficiency

of the use of water is also followed in CSN’s other

productive units. In 2005, the Casa de Pedra mine

received substantial funds to expand its projects

to monitor and control the potential impacts aris-

ing from the lowering of the underground water

table, caused by the pumping out of the water

from the mines, and to monitor the river sources

of the hydrographical micro-basins that run into

the mines. It was observed that the lowering of

the water table, which is necessary to allow the

ore to be extracted, has not caused a reduction in

the flows of these natural river sources.

A number of measures were adopted in

relation to water resources in 2005, including:

improvements made to the effluent treatment

systems of CSN Paraná, in Araucária; improve-

ments made to the drainage systems of the

Companhia Ferroviária do Nordeste’s central

workshop, in Fortaleza, with the installation of

a Water/Oil Separating Station; and, at Metalic,

also in the State of Ceará, the introduction of a

system to re-use the liquid effluents from the

cans washer to irrigate the garden.

PARAÍBA DO SUL RIVER: THE FISH ARE BACK

The Presidente Vargas Steelworks benefited

from significant environmental investments be-

tween 2000 and 2003. Under an Environmental

Commitment Agreement (TCA) signed with the

Government of the State of Rio de Janeiro on the

27th January, 2000, more than R$ 250 million

were invested in pollution prevention and con-

trol equipment, systems and initiatives. Of this

amount, around 42% was allocated to prevent

the pollution of the Paraíba do Sul River.

In 2002, through the National Museum and

the Federal University of Rio de Janeiro, CSN

hired a team of renowned fish researchers and

biologists to monitor the fauna in the Paraíba do

Sul river, in order to compare the state of health

of the river following a series of investments

made to clean it up with that indicated in stud-

ies and reports prepared prior to the company’s

privatization.

The report on the more than three years of

research concludes that CSN has fulfilled its

role in reducing the level of pollutants in its ef-

fluents – and recommends that the company’s

environmental control program be permanently

maintained. While the full results from these

three years of studies can be accessed at our

site (www.csn.com.br), some of the main points

were as follows:

• The ictiological diversity (number of differ-

ent species) and relative abundance (quantity

of individuals captured per specie) downstream

of Volta Redonda increased over the last three

years, a fact observed not only by the project

team, but also by local small-scale and amateur

fishermen;

• There is now no difference between the

diversity and equitability of samples from

stretches of the river upstream and downstream

of Volta Redonda;

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5• There has been a significant reduction in the

proportion of fish displaying anomalies in the

two areas over the past three years, compared to

previous data (Feema, 1983);

• There was no significant difference (just 1%)

in the proportion of fish displaying anomalies

between the samples from Floriano (upstream of

Volta Redonda) and Pinheiral (downstream);

• The environmental quality of the main channel

of the Paraíba do Sul river downstream of Volta

Redonda improved significantly as a result of the

treatment of liquid effluents from the Presidente

Vargas Steelworks/ CSN, as confirmed by the re-

sults of research carried out and information gath-

ered from inhabitants of riverside communities.

INDUSTRIAL WASTE

Most of the waste that is generated is re-used.

Some is re-used as a raw material in the steel-

works production process, while some is trans-

formed into co-products used by other industries

or in construction.

In 2005, the Presidente Vargas Steelworks gen-

erated 3.4 million tons of waste, or 670 kg per ton

of steel produced. Of this total, 67.8% were sold,

31.3% were recycled internally, 0.1% were recycled

externally, 0.1% were co-processed in cement

kilns and 0.7% were incinerated or disposed of in

landfills specifically licensed to receive waste.

Waste recycling at the Presidente Vargas

Steelworks – which largely consists in the con-

sumption of acquired scrap, of scrap generated

from the industrial processes at the Presidente

Vargas Steelworks, CSN Paraná, GalvaSud

and Inal, in the use of powders and muds in the

sintering processes and in the steelworks, and

in the consumption of carbon wastes and waste

gases as energy-generating substitutes in vari-

ous stages of the production process - has led

to a considerable reduction in production costs

(of around R$ 160 million per year), while also

reducing the pressure generated by the facility

on natural resources.

Indeed, CSN has been transforming its

industrial waste into a lucrative business, gen-

erating gross revenues of R$ 196 million in 2005.

One of the main sources of revenue is ‘steel ag-

gregate’, a co-product formed from the granula-

tion of the facility’s main waste product - blast

furnace slag - which is ground and used in the

production of cement, increasing its resistance.

As from 2007, this blast furnace slag will be used

by CSN to produce its own cement.

WASTE REDUCTION AT SOURCE

In 2005, CSN expanded its efforts to reduce the

generation of waste at source. At the Casa de

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Pedra and Arcos mines, a series of initiatives

were introduced to reduce the generation of

hazardous wastes, including used oils and poly-

urethane wastes.

At Casa de Pedra, particular mention should

be made of the initiatives to reduce the genera-

tion of solid mining effluents, such as the proj-

ects to prevent erosive processes and to control

the generation of solids that are subsequently

disposed of in the tailings dams. At Arcos, plans

were implemented to reduce the generation of

ultra-fine wastes, envisaging their re-use in the

sintering processes at the Presidente Vargas

Steelworks.

At both mining facilities and also at the Presi-

dente Vargas Steelworks, the transformers and

capacitors containing dielectric askarel oil (poly-

chlorinated biphenyl) are being replaced by new

equipment, reducing the risks of contamination.

The three units also continued with initiatives to

eliminate equipment containing CFC12.

In 2005, the CSN companies also adjusted

their disposal procedures for non recyclable

wastes. Hazardous and oily wastes from the

Presidente Vargas Steelworks, CSN Paraná and

GalvaSud were sent for thermal destruction, be-

ing co-processed in cement kilns or burnt in in-

dustrial incinerators. A smaller proportion were

disposed of in class 1 landfills run by outside

companies. At Metalic, a review was undertaken

of all solid industrial waste applications, particu-

larly in relation to the paints and varnishes used

in the production process.

RECYCLING SCRAP PRODUCTS

The Projeto RECICLAÇO is a recycling project

run by Metalic, the only manufacturer of steel

cans for carbonated beverages in Brazil. The

initiative seeks to encourage the recycling of the

cans so that these may be re-used in the produc-

tion process as scrap. The success of the project

is measured not only through the considerable

increase in the recycling rate (from 27% in 2000

to a current rate of 88%), but also by the fact that

it offers an alternative source of income for the

scrap collectors.

To increase the steel can recycling capacity in

the country’s North-eastern Region, RECICLAÇO

maintains a register of scrap collectors; orga-

nizes promotions during events; installs its own

collection points in beach stands, bars, hotels and

restaurants; and forges promotional partnerships

with soft-drinks and beer producers.

ENVIRONMENTAL OBLIGATIONS

In 2005, CSN continued to investigate, analyze,

treat and remedy environmental damage at its

units. The mandatory operational environmental

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audits were undertaken and submitted to the Rio

de Janeiro and Paraná State environmental au-

thorities in compliance with the respective state

laws. The following list sets out the main envi-

ronmental licenses requested and granted in the

period, as required in order to set up and engage

in the company’s current and future activities:

Environmental licenses requested in 2005

• Rio de Janeiro (Volta Redonda)

• 500 KV transmission line (Preliminary Li-

cense) – Feema Process E07-200.064/05 – Re-

quested on the 07/01/05.

• Rio de Janeiro (Itaguaí)

• Itaguaí Pelletizing Plant (Preliminary Licen-

se) – Feema Process E07-200.065/05 – Reques-

ted on the 07/01/05.

• Sepetiba TECON – Mooring Berth 304

(Preliminary License) – Feema Process E-

07/202968/05 – Requested on the 09/09/2005.

• Sepetiba TECON – Containers Area 3


07/202893/05 – Requested on the 09/09/2005.

• TECAR – Mooring Berths 103 and 203


07/203305/05 – Requested on the 01/12/2005.

• Sepetiba TECON – Container Washer

(Installation License) – Feema Process E-

07200143/05 – Requested on the 18/01/2005.

• Sepetiba TECON – Container Washer

(Operational License) – Feema Process E-

07/203.813/05 – Requested on the 30/11/2005.

• Rio de Janeiro (Porto Real)

• GalvaSud artesian well (SERLA request for

grant) – SERLA Process E-07/101548/05.

• Minas Gerais (Congonhas)

• Expansion of the Casa de Pedra Mine: mining


at Corpo Norte (the Northern Body) and Mascate,

Expansion of Corpo Oeste (the Western Body)

and Corpo Principal (the Main Body), the Casa

de Pedra Dam and the Batateiro Dam (Installa-

tion License FEAM/COPAM) – Requested on the

13/01/2005.

• Deforestation: water recirculation supply

network and electrical network of the dam, min-

ing at Entre-corpos (area between the Bodies)

and Entorno (the immediate surroundings) and

sinter heap COBRAPI (IEF Authorization) – Re-

quested on the 25/01/2005.

• Deforestation (452.76 ha): Corpo Norte/Mas-

cate mining areas, Dam at Casa de Pedra and

Batateiro. (Ibama authorization) – Requested on

the 28/01/2005.

• Water course walkways/channels for instal-

lation along the Access Road to Corpo Norte

(IGAM Authorizations) – Requested on the

05/04/2005.

• Diversion of the Casa de Pedra stream to

develop a products heap (IGAM Authorization)

– Requested on the 28/04/2005.

• Santa Catarina

(Criciúma /Siderópolis/Içara/Treviso)

• Lot 42 – Rehabilitation of degraded area

(renewal of Environmental Operational License)

– Fatma Process RSI 032/CRS.

• Lot 44 - Rehabilitation of degraded area

(renewal of Environmental Operational License)

Fatma Process RSI 034/CRS.

• Operation of clay deposit (renewal of Envi-

ronmental Operational License) - Fatma Process

MIN 336/CRS.

• Gleba Malha II Oeste - Rehabilitation of de-

graded area (renewal of Environmental Installa-

tion License) – Fatma Process DIV 200/CRS.

• Gleba Morozini - Rehabilitation of degraded

area (Environmental Installation License and

Environmental Operational License) – Fatma

Process RSI 036/CRS.

• Ceará

• Companhia Ferroviária do Nordeste (CFN/

Ceará) – Environmental Authorization for the

transportation of Class l Waste – Semace Pro-

cess 05471447-8.

• Piauí

• CFN/Piauí – Renewal of the Installation Li-

cense – Semar Protocol 2.410/05 – Requested on

the 21/11/2005.

• CFN/Piauí – Renewal of the Operational Li-

cense – Semar Protocol 2.445/05 - Requested on

the 16/11/2005.

• Rondônia (Itapuã do Oeste)

• Authorization for deforestation (96 ha), at

ERSA, Estanho de Rondônia SA – Ibama/Gerex/

MMA/Gerex-RO Process 02024.000012.2005/12.

Environmental Licenses granted in 2005

• Rio de Janeiro (Volta Redonda)

• Cement Grinding (Preliminary License)

– Feema Process LP FE010138 – Granted on the

27/12/2005.

• INAL Cutting Lines Unit within the Presidente

Vargas Steelworks (Installation License) – Feema

Process LI FE00931 – Granted on the 27/09/2005.

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A Region of Atlantic Rainforest close to the Casa de Pedra mine, in Congonhas, Minas Gerais


• Rio de Janeiro (Barra Mansa)

• INAL Floriano (Water Catchment Authori-

zation) - Serla Ordinance 376 – Granted on the

22/02/2005.

• Rio de Janeiro (Itaguaí)

• TECAR Expansion (Preliminary License)

– Feema Process LP FE009311 – Granted on the

22/12/2005.

• TECON Container washer – (Installation Li-

cense) – Feema Process LI 007941 – Granted on

the 28/06/2005.

• Minas Gerais (Congonhas)

• Deforestation: water recirculation sup-

ply network and electrical network of the dam,

mining at Entre-corpos and Entorno and sinter

heap COBRAPI (32.30 ha). Ibama Authorization

047/2005, granted on the 04/07/2005. Authoriza-

tion IEF 003972, granted on the 12/09/05.

• Deforestation (452.76 ha): Corpo Norte/Mas-

cate mining areas, Dam at Casa de Pedra and

Batateiro. Ibama Authorization 056/2005, grant-

ed on the 19/07/2005.

• New Loading area and Rail Maneuvering

Yard A70 (Preliminary License) – Feam/Co-

pam Process LP 060/2005 – Granted on the

26/08/2005.

• Rectification of the Maria José Stream to

implement a Loading area and Rail Maneuvering

Yard – Igam Authorization: Ordinance 623/2005,

granted on the 09/05/2005.

• Expansion of the Casa de Pedra Mine: Mining

area at Corpo Norte and Mascate, Expansion of

Corpo Oeste and Corpo Principal, the Casa de

Pedra Dam and the Batateiro Dam (Installation

License) – Feam/Copam Process LI 210/2005

– Granted on the 15/12/2005.

• Water course walkways / channels for instal-

lation along Access Road to Corpo Norte – Igam

Authorizations: ordinances 624/05, 806/05,

807/05, granted respectively in May, June and

July, 2005.

• Implementation of the Batateiro Dam – Igam

Authorization: ordinance 812/2005, granted on

the 20/07/2005.

• Water catchment on the Maranhão river

– Igam Authorization: ordinance 1154/2005,


• Implementation of the Casa de Pedra Dam

and recirculation of the water from the bar-

rier – Igam Authorization: ordinance 1155/2005,


• Minas Gerais (Arcos)

• Authorization for Deforestation – Ibama,


• Santa Catarina (Treviso/Capivari de Baixo)

• Gleba Morozini – Recovery of the Area De-

graded by Coal Mining – Fatma Process RSI 036/

CRS, LAP 123/2005.

• Ceará

• Metalic (Operational License) – Semace Pro-

cess 1009/2005. Granted on the 07/07/2005.

• CFN Ceará (Operational License) – Semace

Process 1269/2005.

• CFN Ceará (Installation License) – Semace

Process 134/2005.

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5• Pernambuco

• INAL Recife (Operational License) – CPRH

Process 01242/2005 – Granted on the 15/06/2005.

• CFN/Pernambuco (Renewal of Operational

License) – CPRH Process 01450/2005.

• Piauí

• CFN/Piauí (Installation License) – Semar

Process 2005D063.

• Maranhão

• CFN/Maranhão (Operational License) – Gema

Process 301/2004.

• Paraíba

• CFN/Paraíba (Operational License) – Sudema

Process 821/2005.

• CFN/Paraíba: installation and operation of

the iron ore loading and unloading unit, in the

yard at Juazerinho-PB (Environmental Authori-

zation) – Sudema Process 1316/20058.

ENVIRONMENTAL COMMITMENT

AGREEMENTS (TCAS)

In 2005, CSN signed two Environmental Com-

mitment Agreements (TCA), both related to the

Casa de Pedra mine. TCA number 0905036/2005

provides for the introduction and implementation

of environmental protection measures by virtue of

the deforestation authorization granted by the IEF

(Authorization 003972/2005) for intervention in an

area of 79.19 hectares in order to set up the water

catchment supply line at the Casa de Pedra Tailings

Dam; implementation of the Electrical Power Dis-

tribution Network, the Ore Mining operations in the

Southern and Entorno parts of the Corpo Principal

and Corpo Oeste areas. TCA number 105052/2005

provides for environmental compensation in rela-

tion to the Casa de Pedra Mine Expansion Project,

pursuant to the SNUC Law (Law 9985/2000).

Furthermore, the company also has obliga-

tions remaining from a TCA relating to environ-

mental liability in the coal-producing region

in the south of the State of Santa Catarina,

resulting from CSN’s coal production activities

from 1940 through to 1989 - prior, therefore,

to the company’s privatization. In 2005, around

R$ 4.7 million went towards recovery work and

the fixed costs of the operations.

In addition, the company has obligations it still

has to fulfill with respect to the TCA for the Itaguaí

Port Solid Bulk Terminal (TECAR), signed on the

30th November 2001 with Feema and the Depart-

ment for the Environment and Urban Development

of the State of Rio de Janeiro, and revised on the

28th May 2004, through the 1st Addendum to the

Commitment Agreement. The revision included

a series of obligations to carry out environmental

control work identified as being necessary during

the studies and monitoring processes conducted in

the first stage of the TCA. In 2005, R$ 47.46 million

were spent on works relating to the TECAR Envi-

ronmental Commitment Agreement.

FOR FURTHER INFORMATION

www.csn.com.br

Linha Verde CSN (toll-free): 0800 2824440

E-mail: [email protected]

Risk Management

UNDER DIRECT CONTROLCSN strives to minimize the impact of economic, financial, fiscal, political and regulatory factors upon its business.

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5

Risk Management

ports its coal and coke from overseas suppliers.

In order to negotiate better prices, the company

seeks to vary the source, quality and quantity of

these imports.

CSN is the only Brazilian producer of tin-

plate, a high value-added product, and one of

the five largest producers in the world, with an

output of more than 1 million tons/year. In 2005,

with the acquisition of Estanho de Rondônia S.A.

(ERSA), for R$ 100 million, CSN became self-

sufficient in tin, the main raw material used in

tin-plate production, thus eliminating its expo-

sure to swings in the material’s price.

COMPETITION

In recent years, the world steel industry has

undergone some moments of intense change,

marked by mergers and acquisitions envisaging

gains in competitiveness through the reduction of

costs. Brazil has not been immune to such chang-

es. In 2005, a number of new global players en-

tered the market, causing a substantial impact on

industry, particularly in the automotive segment.

CSN aims to forge closer relationships with

its clients, offering them higher value-added

products that are more suited to their needs, in

terms of quality, service, and delivery peri-

ods. Seeking to offer a more efficient service to

the domestic and international markets, CSN

acquired stakes in two rolling mill companies -

CSN LLC, in the USA, and Lusosider, in Portugal.

This presence in North America and Europe will,

in the longer term, enable the company to ex-

pand its client base and strengthen its ties with

foreign customers.

RISK MANAGEMENT

CSN operates in a globalized and increasingly

complex market. It is therefore permanently

exposed to various risks that can affect its perfor-

mance. These risk factors are closely followed by

specialized professionals, who monitor them on

a daily basis. Although risk management, in the

strictest sense, only encompasses factors that

can be controlled by routine actions, CSN also

strives to minimize the impact of economic, finan-

cial, fiscal, political and regulatory factors on its

business, both within Brazil and around the world.

CYCLICAL AND MARKET-RELATED FACTORS

The steel industry is highly cyclical in nature,

thanks to swings in supply and demand caused

by global macroeconomic fluctuations. Substan-

tial downturns in the demand for steel from the

markets served by CSN in Brazil and abroad can

cause an impact on its operations. It is, therefore,

sensitive to trends in the automotive, civil con-

struction, home appliance and packaging sectors.

After record growth in 2004, in terms of both

volume and price, the steel industry suffered a

series of adjustments in 2005. However, CSN tends

to enjoy relative stability during such cycles, since

a high proportion of the products it sells are coated

steel (galvanized and tin-plate), which have a wide

range of applications in the consumer-goods indus-

try and whose prices are less susceptible to swings.

RAW MATERIAL SUPPLY AND COSTS

Brazil suffers from a shortage in coals suitable

for use in steel production. CSN therefore im-

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5FOREIGN EXCHANGE EXPOSURE

Since CSN operates and earns income abroad,

some of its revenue (from exports) and costs (from

imported raw materials and equipment, as well

as debt servicing items) are in foreign currency. To

protect itself against any sudden variations in the

exchange rate, CSN resorts to derivative financial

instruments, particularly futures contracts and

swaps, as well as investing a large portion of its

cash resources in the foreign markets.

ANTIDUMPING MEASURES

AND GOVERNMENT PROTECTIONISM

Antidumping measures and international trade

inquiries are common in the world steel industry

and are often used to make it more difficult for the

companies under investigation to gain access to

the leading markets. In 2005, CSN won an anti-

dumping suit in the USA that overtaxed Brazilian

hot-rolled coil exports. This result will help CSN

expand its activities in the North American market.

One of the strategies used to offset such

restrictions is to maintain a diversified and well-

spread portfolio of clients. CSN currently has

clients in around 60 countries. In 2005, 26% of its

exports went to North America, 28% to Europe,

8% to Latin America and 33% to Asia, with the

remainder going to Africa, the Middle East and

Oceania. However, the tendency is that, in the

future, exports will focus more on Latin America,

Europe and North America.

ENVIRONMENTAL REGULATIONS

Steelworks generate jobs and products that

help drive the Brazilian economy, but they also

produce wastes and effluents that can harm the

environment. Consequently, they are obliged

to comply with a series of requirements under

Brazil’s strict environmental legislation. These

seek to control emissions into the atmosphere,

the release of effluents into the waterways and

the handling and disposal of solid waste, so as to

safeguard human health and that of the environ-

ment. CSN’s efforts go beyond compliance with

the requirements of the legislation. The company

has adopted a proactive and preventative stance

on environmental issues, striving to anticipate

potential risks and/or problems. Details on the

company’s environmental management system

and major accomplishments and initiatives in

2005 are highlighted in the Environmental Re-

sponsibility section of this report.

FISCAL AND ENVIRONMENTAL

CONTINGENCIES

CSN is involved in a number of lawsuits concern-

ing civil, labor and environment-related claims,

as well as federal, state and municipal tax

charges and contributions. At the close of 2005,

the company had set aside provisions of

R$ 3.3 billion in relation to these suits, as well

as R$ 673 million in judicial deposits. There is,

however, no guarantee that the company will

obtain a favorable outcome in these proceedings,

which may, in the end, be dismissed.

EMPLOYEES’ PENSION FUND (CBS)

In August 2002, the State Supplementary Social

Security Department approved the plan drawn

up by CSN, together with CBS Previdência,

to tackle the insufficiency of the unamortized

mathematical reserves, for which the sponsors

are responsible. The plan proposes the payment

of 240 consecutive monthly installments in the

amounts of R$ 958 thousand (installments 1 to

12) and R$ 3.1 million (installments 13 to 240).

It also provides for the anticipation of install-

ments in the event the defined benefit plans re-

quire cash. The installments have been adjusted

for inflation in accordance with the INPC + 6%

p.a., since June 2002.

The agreement also envisages the transfer to

the updated debtor balance of any deficits/sur-

pluses for which the sponsors are liable, in order

to maintain the balance of the plans without

exceeding the maximum amortization period set

out in the contract.

The company decided to recognize actu-

arial liability adjustments in the results for

the five year period from the 1st January 2002,

as established in CVM Decision no. 371/00,

including R$23 million for 2005, which, added

to disbursements, amounted to R$ 100 million.

The balance of the provision to cover actuarial

liabilities on the 31st December 2005 stood at

R$ 223 million.

In 2005, the Guaranteeing Assets increased

11.50% over 2004 – rising from R$ 1,341 mil-

lion to R$ 1,495 million – with 39.52% invested

in CSN shares and 51.27% in Fixed Income

investments.

INSURANCE COVERAGE

CSN carries insurance policies with a series of

specific coverages to cover a variety of risks.

A single policy with a maximum indemnity

limit, sub-limits and clauses tailored to the par-

ticular industrial operations in question insures

the industrial operations, assets and equipment

of the Presidente Vargas Steelworks, Galva-

Sud, Tecar and Tecon, in the city and towns of

Volta Redonda, Porto Real and Itaguaí, respec-

tively, within the State of Rio de Janeiro; of CSN

Paraná, in the town of Araucária, in the State of

Paraná; of the Casa de Pedra and Arcos mines,

in the towns of Congonhas do Campo and Arcos,

respectively, in the State of Minas Gerais; and,

lastly, of ERSA, in the towns of Ariquemes and

Itapoã do Oeste, in the State of Rondônia.

INAL, Metalic, the non industrial sites, the

central offices and the technological research

center are insured by individual property, busi-

ness interruption and fixed costs insurance

policies, with a maximum indemnity limit, sub-

limits and clauses tailored to the operations

carried out there.

Risk Management

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2005

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The Tecar and Tecon terminals have specific

port operator liability insurance policies to cover

their operations, with limits and clauses tailored

to their activities.

CSN also holds a general public liability

insurance policy to cover any lawsuits brought

by third parties as a result of losses caused by

the company’s activities, policies covering the

transportation of steel products, raw materials,

equipment and spare parts both within Brazil

and abroad, an export credit insurance policy

to ensure receipt of its export sales credits and

group life insurance for the directors and staff.

CREDIT RISKS

Credit risk exposure from financial instruments

is managed by only accepting as counterparts in

derivative instruments large financial institu-

tions with respectable credit quality. Manage-

ment believe the risk of default by the counter-

parts is thus insignificant.

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5 CSN neither maintains nor issues financial

instruments for commercial purposes. The com-

pany adopts a series of procedures to minimize

potential problems with its commercial partners,

namely: the careful selection of clients, the di-

versification of its portfolio of accounts receiv-

able and keeping strict control over the sales

financing terms for each business segment.

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BOARD OF DIRECTORS

CHAIRMAN Benjamin Steinbruch

VICE-CHAIRMAN Jacks Rabinovich

BOARD MEMBER Antonio Francisco Dos Santos

BOARD MEMBER Mauro Molchansky

BOARD MEMBER Fernando Perrone

BOARD MEMBER Yoshiaki Nakano

BOARD MEMBER Dionísio Dias Carneiro Netto

BOARD MEMBER Darc Antônio Da Luz Costa

BOARD OF EXECUTIVE OFFICERS

CEO Benjamin Steinbruch

EXECUTIVE OFFICER FOR PRODUCTION Eneas Garcia Diniz

EXECUTIVE OFFICER FOR INFRASTRUCTURE AND ENERGY Marcos Marinho Lutz

INSTITUTIONAL EXECUTIVE OFFICER Pedro Felipe Borges Neto

INVESTOR RELATIONS

INVESTOR RELATIONS MANAGER

Marcos Leite Ferreira E-Mail: [email protected]: (55 11) 3049-7588

INVESTOR RELATIONS ANALYST

Renata Isis KaterE-Mail: [email protected]: (55 11) 3049-7592


Geraldo ColonheziE-Mail: [email protected]: (55 11) 3049-7593


José Eduardo Szuster E-Mail:[email protected]: (55 11) 3049-7526

GENERAL E-Mail: [email protected]: (55 11) 3049-7150

CORPORATE COMMUNICATIONS

CORPORATE COMMUNICATIONS MANAGER

Marcos BarretoE-Mail: [email protected]: (55 11) 3049-7550

CORPORATE COMMUNICATIONS COORDINATOR

Adriana Bidoli Rezende S. ReccoE-Mail: [email protected]: (55 11) 3049-7222

Corporate Information

NEWSPAPERS USED FOR CORPORATE ANNOUNCEMENTS IN 2005

CSN publishes all its corporate

announcements in the following newspapers:

Jornal do Commercio; Gazeta Mercantil;

O Valor Econômico and Diário Oficial

do Estado do Rio De Janeiro

INDEPENDENT EXTERNAL AUDITORS

Deloitte Touche Tohmatsu

Auditores Independentes

ADR

Depositary bank: Banco Jp Morgan

Address: 4 New York Plaza, 13th Floor - New York - NY

SHAREHOLDER SERVICE

Shareholder services are provided by Banco Itaú,

custodian for CSN’s shares, at theShareholder

service desks, at its branches or by telephone:

(55 11) 5029-7780

2005 ANNUAL REPORT CREDITS Corporate Communications DepartmentGeneral Accounting DepartmentEnvironment DepartmentInvestor Relations Department Mining DivisionAudit DivisionCommercial Division Infrastructure and Logistics Division Human Resources DivisionSupply DivisionPresidente Vargas Steelworks DivisionFundação CSN

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PHOTOGRAPHS

CSN CollectionEugênio SávioFelipe Varanda

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