Cyrela Brazil Realty S.A. Empreendimentos e Participações
Individual and Consolidated Financial Statements for the year ended December 31, 2017 (A free translation of the original report in Portuguese as published in Brazil containing Financial Statement prepared in accordance with accounting practices adopted in Brazil and IFRS)
KPMG Auditores Independentes, uma sociedade simples brasileira e firma- KPMG Auditores Independentes, a Brazilian entity and a member firm of the membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), uma entidade suíça. International Cooperative (“KPMG International”), a Swiss entity.
Independent auditors’ report in the individual and consolidated financial statements
To the Shareholders and Management of Cyrela Brazil Realty S.A. Empreendimentos e Participações São Paulo – SP
Opinion
We have audited the individual and consolidated financial statements of Cyrela Brazil Realty S.A Empreendimentos e Participações (“the Company”), respectively referred to as Individual and Consolidated, which comprise the statement of financial position as at December 31, 2017 the income statements and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.
Opinion on the individual financial statements In our opinion, the accompanying individual financial statements present fairly, in all material respects, the financial position of the Cyrela Brazil Realty S.A Empreendimentos e Participações (“the Company”) as at December 31, 2017 and of its financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Cyrela Brazil Realty S.A Empreendimentos e Participações as at December 31, 2017 and of its consolidated financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS) applicable to the Brazilian Real Estate development entities and approved by the Accounting Pronouncements Committee (CPC), and approved by the (CVM) and the Brazilian Federal Accounting Council (CFC).
Basis for opinion
We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Individual and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics (“Código de Ética Profissional do Contador”) and in the professional standards issued by the Brazilian Federal Accounting Council (“Conselho Federal de Contabilidade”) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matters - Technical Orientation OCPC04, edited by the Accounting Pronouncements Committee
As described in Note 2.1 (ii), the individual and consolidated financial information was prepared in accordance with accounting practices adopted in Brazil. The consolidated financial information were prepared in accordance with the IFRS applicable to the Brazilian Real Estate development entities also considers the Technical Orientation OCPC04, edited by the Accounting Pronouncements Committee (CPC). This Technical Orientation refers to the revenue recognition of this sector and comprises other matters related to the meaning and adoption of the concept of continuous transfer of the risks, benefits and control over real estate unit sales, as further described in Note 2.3.1 (a) and (b). Our conclusion is not modified in view of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the individual and consolidated financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Income Recognition – estimated construction costs and construction work percentage of completion (“POC”)
Notes 2.2 (ii), 2.3.1 (a) and (b) and 24 of individual and consolidated financial statements.
Key audit matters How our audit conducted this issue
The Company recognizes its income deriving We evaluated design of controls implemented from sale of real estate units under by the Company in the process of determining construction based on Percentage of completion stage of respective real estate units Completion (POC) of respective traded projects and determination of cost estimates. Through and traded real estate units. Determination of sampling, we conducted the following real estate units’ completion stage and their procedures in budgets used in the process of respective non-incurred costs, which are used recognizing income from construction work in to determine the amount of income to be progress: (i) budget approval by the engineering recognized, requires a high level of judgment department, (ii) we evaluated the nature and by the Company. Due to transactions volume, fairness of main changes in budgeted costs, (iii) judgments involved in estimates of non- we confronted the value of costs incurred with incurred costs, stage of completion of real respective supporting documentation, and (iv) estate units, and possible impact of these evaluated monitoring of incurred and non- matters on recognition of income in the incurred costs, as well as their impacts on Company’s consolidated and individual financial determination of total project costs. In addition, statements, we consider this as the main key we confronted indices used by the Company to audit matter. calculate inflation adjustment of estimated non- incurred budget costs of projects under construction against respective market indices, and analyzed fairness of construction work evolution percentage. We also evaluated adequacy of disclosure made by the Company in financial statements.
Based on evidences obtained through above- summarized procedures, we consider as acceptable the recognition of income in the context of individual and consolidated financial statements taken as a whole referring to year ended December 31, 2017. Recoverability of assets (impairment) – real estate inventories, accounts receivable and loans with associates
Notes 2.3.5, 2.3.6 (a), 5, 6 and 13 of individual and consolidated financial statements.
Key audit matters How our audit conducted this issue
The Company has a significant volume of real For inventories, based on sample, we analyzed estate units at several development stages, documentation and assumptions that support amounts receivable due to sale of real estate the Company’s decision regarding these units, and loans with associates, directly assets’ realizable value, including comparison controlled by the Company or through of realization value of completed properties for associated entities. sale, properties under construction and properties for future launches with realization Any change in market conditions may impact value of similar assets. the value of real estate inventories, value of loans with associates, value of accounts For amounts receivable, we evaluated fairness receivable, provision for cancellation of of criteria and assumptions used by the contracts and investments recorded at the Company to calculate these assets’ equity method in financial statements. As a recoverability, compared with history of losses result, we consider this matter as significant for and evaluated sufficiency of recognized our audit. provisions.
For loans with associates, through sampling, we carried out confirmation procedures with third parties and analyzed obtained responses, as well as evaluated supporting documents for disbursed amounts.
We have also verified the fairness of the Company’s disclosures.
Based on evidences obtained through above- summarized procedures, we consider that, regarding recoverability, real estate balances, accounts receivable and loans with associates, as well as related disclosures, are acceptable in the context of individual and consolidated financial statements taken as a whole, referring to year ended December 31, 2017.
Other matters
Statements of added value The individual and consolidated statements of value added (DVA) for the year ended December 31, 2017, prepared under the responsibility of the Company’s management, and presented herein as supplementary information for IFRS purposes, have been subject to audit procedures jointly performed with the audit of the Company's financial statements. In order to form our opinion, we assessed whether those statements are reconciled with the financial statements and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added issued by the Committee for Accounting Pronouncements (CPC). In our opinion, the statements of value added have been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement, and are consistent with the overall individual and consolidated financial statements.
Corresponding amounts The corresponding amounts relating to the individual and consolidated balance sheets as of December 31, 2016 were previously audited by other independent auditors who issued an unqualified report dated March 23, 2017 and consolidated statements of income, comprehensive income, changes in shareholders’ equity, cash flows for the year ended December 31, 2016. The corresponding amounts relating to the individual and consolidated Statements of Added Value (DVA) for the year ended December 31, 2016 were submitted to the same review procedures by those independent auditors and, based on their review, those auditors issued a report that they were not aware of any fact that would lead them to believe that the DVA was not prepared, in all material respects, in a manner consistent with the individual and consolidated interim financial information taken as a whole.
Other information accompanying individual and consolidated financial statements and the auditor's report
Management is responsible for the other information comprising the management report.
Our opinion on the individual and consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
Responsibilities of Management and Those Charged with Governance for the Individual and Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s and subsidiaries financial reporting process.
Auditors’ responsibilities for the audit of the individual and consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. – Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and its subsidiaries ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company and subsidiaries to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the individual and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
São Paulo, March 22, 2018
KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Fernando Antônio Rodrigues Alfredo Contador CRC 1SP252419/O-0
Earnings Release – 4Q17 | 2017 MESSAGE FROM MANAGEMENT
The fourth quarter of 2017 pointed to the maintenance of the continuous improvement process of the economic indicators, even considering the uncertainties brought about during an electoral year in 2018.
At the end of 2017, inflation rate as measured by the Brazilian Consumer Price Index stood at 2.95%. This rate has not only fallen below the inflation target, but has also recorded its lowest level since 1998. As a result, the benchmark interest rate has dropped to the lowest mark ever, to 6.50% p.a. in March 2018. In spite of this favorable scenario, two key indicators connected to the industry in which the Company operates still show considerable room for improvement: (i) the real estate financing rates have not yet accompanied the sharp drop in Selic rates; and (ii) notwithstanding the slight decrease in unemployment rate, this indictor still remains high, having fallen to 11.8% during the fourth quarter of 2017.
As was the case in 2016, once again in 2017, the companies operating in the real estate industry had to cope with the major challenge of cancellations. Such structural obstacle that hampers the Company’s industry consists in our main vulnerability. In 2017, however, Cyrela’s net sales amounted to R$ 3.3 billion, representing a 17.8% year-over- year increase. Worthy of mention was the volume of sales of finished inventory units, which accounted for 30% of net sales, or R$ 979 million, representing a 55% growth over 2016.
The major highlight for both the quarter and year was the cash generation. The Company attained a cash generation of R$ 245 million in 4Q17 and R$ 712 million during FY 2017, versus a cash burn of R$ 115 million in FY 2016. In view of the rather conservative debt profile, the Company decided to approve the distribution of extraordinary dividends in the amount of R$ 200 million (ad referendum to the GSM). This decision reflects the Company’s effort in pursuit of optimization of its capital structure.
We would like to once more thank all our stakeholders, from customers to
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Earnings Release – 4Q17 | 2017 shareholders, for their support and interest. It is for you that we consistently work day by day to make Cyrela an ever more solid, profitable and sustainable company.
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Earnings Release – 4Q17 | 2017 MAIN INDICATORS
4Q17 4Q16 4Q17 x 4Q16 3Q17 4Q17 x 3Q17 (pro forma)
Launches (1) Number of Launches 19 15 26,7% 8 137,5% Launched PSV - R$ Million (100%) 1.269 1.274 -0,4% 532 138,6% Launched PSV - R$ Million (%CBR) 786 1.038 -24,3% 380 107,0% Cyrela's Share 61,9% 81,5% -19,6 p.p. 71,4% -9,5 p.p. PSV Swapped - R$ Million (100%) 22 85 -74,4% 31 -30,6% Average Price per sq. m. (R$) (ex-lots) 6.079 5.766 5,4% 5.665 7,3% Usable Area Launched (sq. m.) 208.798 499.277 -58,2% 93.886 122,4% Units Launched 4.125 4.726 -12,7% 2.050 101,2%
Sales (2) Pre-Sales Contracts - R$ Million (100%) 1.253 1.090 15,0% 730 71,8% Pre-Sales Contracts - R$ Million (%CBR) 872 856 1,8% 554 57,4% Cyrela's Share 69,6% 78,5% -9,0 p.p. 75,9% -6,3 p.p. Average Price per sq. m. (R$) (ex-lots) 5.790 5.837 -0,8% 5.741 0,9% Units Sold 4.216 3.758 12,2% 2.555 65,0%
Sales from Launches (2) Pre-Sales Contracts from Launches of the year - R$ Million (100%) 772 736 4,9% 409 88,7% Pre-Sales Contracts from Launches of the year - R$ Million (%CBR) 475 556 -14,5% 306 55,2% Cyrela's Share 61,6% 75,6% -14,0 p.p. 74,9% -13,3 p.p. Average Price per sq. m. (R$) (ex-lots) 5.779 5.822 -0,7% 5.382 7,4% Units Sold 2.820 2.955 -4,6% 1.599 76,4%
Deliveries Delivered PSV (100%) 1.666 2.396 -30,5% 1.532 8,7% Delivered Units 6.419 7.333 -12,5% 4.495 42,8%
Landbank PSV with swaps - R$ Million (100%) 45.449 50.898 -10,7% 47.459 -4,2% PSV without swaps - R$ Million (100%) 38.382 43.229 -11,2% 40.131 -4,4% Landbank (thd sq. m.) 12.944 17.490 -26,0% 14.602 -11,4% % Swap over land value 75,8% 60,7% 15,1 p.p. 75,0% 0,7 p.p. % CBR 88% 87% 0,8 p.p. 88% -0,1 p.p. Financial Indicators Net Revenue (R$ Million) 809 877 -7,7% 598 35,3% Gross Profit (R$ Million) 219 252 -13,2% 147 48,4% Net Income (R$ Million) 48,8 30,9 57,6% (6,8) n.a Gross Margin 27,0% 28,7% -1,7 p.p. 24,6% 2,3 p.p. Net Margin 6,0% 3,5% 2,5 p.p. n.a n.a Earnings per Share (R$) (³) 0,13 0,08 57,3% -0,02 n.a
Backlog 12/31/2017 09/30/2017 Chg. Revenues to be Recognized (R$ Million) 1.654 1.636 1,1% Gross Profit to be Recognized (R$ Million) 645 636 1,4% Margin to be Recognized 39,0% 38,9% 0,1 p.p.
(1) Including swapped units (2) Net of cancellations and including swaps (2’) Net of cancellations: sales during the quarter of launches in the year (2’’) Net of cancellations: sales during the year of launches in the year (3) Earnings per share are net of Treasury shares (4) Cash generation does not include dividends, funds allocated to the share buyback program and acquisitions of equity interests
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Earnings Release – 4Q17 | 2017 OPERATING PERFORMANCE Note: detailed information on launches can be found at the end of this report in the appendix tables. LAUNCHES
Launches amounted to a total Pre-Sales Value (PSV) of R$1,269 million in 4Q17, down 0.4% from R$1,274 million in 4Q16. Swaps in launches came to R$22 million in 4Q17, vs. R$85 million in 4Q16. In 2017, launches amounted to R$3,053 million, up 3.9% year-over-year. In turn, swaps came to R$69 million in 2017, vs. R$180 million in 2016.
Launched PSV (in R$ million – 100%) +3.9% 3,053 2,937
908 1,168
-0.4% 1,274 1,269 High end 408 435 2,029 1,885 Middle + MCMV 866 834
4Q16 4Q17 2016 2017
%CBR 81% 62% 75% 70%
In 4Q17, the Company launched 19 projects: 16 in São Paulo, two in Rio de Janeiro and one in the South Region.
Cyrela’s share (%CBR) in the 4Q17 launches stood at 62%, down from 81% in 4Q16.
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Earnings Release – 4Q17 | 2017 Excluding swaps and based on the %CBR alone, launches amounted to R$774 million in 4Q17, 20.3% down on R$972 million in 4Q16. In 2017, launches came to R$2,100 million, vs. R$2,065 million in 2016.
Launched PSV Ex-Swap (in R$ million - %CBR)
+1.7%
2,065 2,100
-20.3% 972 774
4Q16 4Q17 2016 2017
Among the 4Q17 launches, the following projects stand out: (i) “Living Exclusive”, in São Paulo, with a PSV of R$61 million, sold out during the launch quarter; and (ii) “Quadra Greenwich”, with a PSV of R$283 million, 47% of which was sold during the quarter.
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Earnings Release – 4Q17 | 2017 The breakdown of the 2017 launches by geographical region and segment can be seen below:
Launches per Region – 2017 Launches per Product – 2017
South Middle West 3% 7% Rio de Janeiro MCMV 2 and 3 11% 30% High end 38%
79% 31% São Paulo Middle
Of the PSV launched in the quarter, 57% is recognized through full consolidation and 43% through the equity method.
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Earnings Release – 4Q17 | 2017 SALES Note: detailed information on pre-sales can be found at the end of this report in the appendix tables.
Net pre-sales amounted to R$1,253 million in 4Q17, up 15% from 4Q16 (R$1,090 million.) In 2017, sales totaled R$3,259 million, up 17.8% year-over-year.
Pre Sales (in R$ million – 100%)
+17.8% 3,259 2,766 1,276
1,209
+15.0%
1,253 1,090 442 1,984 High end 499 1,557 811 Middle + MCMV 591
4Q16 4Q17 2016 2017
%CBR 79% 70% 77% 72%
The Company’s share in pre-sales stood at 70% in 4Q17 against 79% in 4Q16. In 2017, it stood at 72%, vs. 77% in 2016.
Of the 4Q17 net sales, 62% will be recognized through full consolidation and 38% through the equity method1.
1 Corrected from the preliminary operating information. 9
Earnings Release – 4Q17 | 2017 Sales of finished inventory units accounted for R$296 million (24%), sales of inventory units under construction for R$394 million (31%) and sales of launches for R$563 million (45%) of net sales in the quarter. Therefore, the sales speed (SoS) for launches stood at 44% in 4Q17. In 2017, sales of finished units came to R$979 million, a year-over- year rise of 54.8%.
Pre Sales Breakdown (in R$ million – 100%)
+17.8% 3,259
2,766 1,137
1,400
+15.0% 1,144 1,253 1,090 563 733 635 394 979 170 632 285 296
4Q16 4Q17 2016 2017
Launches Under Construction Inventory Finished Inventory
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Earnings Release – 4Q17 | 2017 Excluding swaps and based on the %CBR alone, pre-sales amounted to R$862 million in 4Q17, 7.1% up on R$805 million in 4Q16. In 2017, pre-sales amounted to R$2,321 million, 14.2% up on R$2,032 million in 2016.
Sales Ex-Swap (in R$ million – %CBR)
+14.2%
2,321
2,032
+7.1% 862 805
4Q16 4Q17 2016 2017
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Earnings Release – 4Q17 | 2017 The breakdown of 2017 sales by geographic region shows that São Paulo accounted for 71% of total sales, followed by Rio de Janeiro at 16%.
The breakdown of sales by geographic region and segment can be seen below:
Sales per Region – 2017 Sales per Product – 2017
North and Others Northeast South 5% 6% MCMV 2 and 3 2% 29% High end Rio de Janeiro 16% 39%
62% 9% São Paulo São Paulo - Other Cities 32% Middle
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Earnings Release – 4Q17 | 2017 SALES SPEED (SOS)
Operating data shows Speed of Sales (SoS) in the trailing 12 months stood at 34% in 4Q17, up from 29.1% in 4Q16 and from 32.7% in 3Q17.
SoS (12 months)
32,7% 34,0% 30,8% 29,1% 29,1%
SOS LTM
4Q16 1Q17 2Q17 3Q17 4Q17
Concerning sales speed by vintage, 44% of the 4Q17 vintage has been sold.
Sales Speed – 100% through swaps: Cyrela * 4Q16 50% 12% 10% 6% 5% 82%
1Q17 18% 22% 7% 8% 56%
2Q17 31% 16% 9% 55%
3Q17 50% 20% 70%
4Q17 44%
In 3 months In 6 months In 9 months In 12 months In 15 months
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Earnings Release – 4Q17 | 2017 INVENTORIESORIES
Cyrela’s inventory market value amounted to R$6,176 million (100%) and R$5,032 million (%CRB) at the close of 4Q17. There was a quarter-over-quarter drop of 0.6% in the total inventory at market value in 4Q17.
The share of the total inventory of R$6,176 million to be consolidated into the Company’s revenue is R$5,219 million (%CBR: R$4,567 million) whereas R$957 million (%CBR: R$465 million) will be accounted for under “Equity Result and Other Appreciations.”
Inventory at Market Value (R$ MM) Inventory by Delivery Schedule (R$ MM)
6,538 6,646 6,441 6,212 6,176 1,149 1,069 1,069 Inventory to be 1,043 1,144 Total Consolidation Equity Method delivered Finisehd 2.588 2.235 353 12 Months 1.280 1.137 143 5,576 24 Months 1.094 885 209 % CBR 5,389 5,372 5,169 5,032 36 Months 1.054 802 252 48 Months 160 160 - Total 6.176 5.219 957
4Q16 1Q17 2Q17 3Q17 4Q17
Changes in Inventory Units (R$ million) Total Inventory Breakdown in 4Q17
-0.6% North Others 6,212.2 -562.8 6,175.5 1,269.2 -52.6 -394.4 South 2% -296.2 5% -690.6 11% Northeast São Paulo 3% 37%
24% Rio de Janeiro Inventory Sales of Launches Sales of Price change Inventory 3Q17 inventories 4Q17 launches 4Q17 4Q17 18%
Inventory under construction Finished inventory São Paulo - Other Cities
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Earnings Release – 4Q17 | 2017
During 4Q17, the Company sold 11.2% of its Finished Inventory Breakdown in 4Q17 inventory of finished units early in the quarter. Others North Considering deliveries, the Company’s inventory of São Paulo 6% 2% 17% finished units decreased in value from R$2,657 million South 16% in 3Q17 to R$2,588 million in 4Q17. Although still high, the inventory of finished units in Rio de Janeiro and the Northeast 7% 26% Northeast Regions put together fell in value in relation São Paulo - Other Cities to 3Q17, from R$944 million to R$852 million (down 26% Rio de Janeiro from 35% to 33% of the total inventory.) The Company’s inventory of finished units decreased from 6.4 thousand units at the close of 3Q17 to 6.1 thousand units at the close of 4Q17.
Changes in Finished Inventory Units (R$ million)
-2.6% 2,656.5 2,587.8 -61.5 -296.2 288.9
Finished Sales of PSV Delivered Price change Finished Units 3Q17 finished units Units 4Q17
The share of the inventory of finished units to be consolidated into the Company’s revenue is R$2,235 million (%CBR: R$1,926 million) whereas R$353 million (%CBR: R$176 million) will be accounted for under “Equity Result and Other Appreciations.”
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Earnings Release – 4Q17 | 2017 LANDBANK Note: detailed information on landbank can be found at the end of this report in the appendix tables.
At the end of 4Q17, the Company’s landbank amounted to 13 million sq. m. of marketable area with total potential sales value of R$45 billion. Cyrela’s share in the landbank is 88%, equivalent to R$40 billion.
During 4Q17, 5 landplots were acquired, 3 in São Paulo, 1 in Rio de Janeiro and 1 in the South Region. The Company canceled/sold 4 plots of land with a net negative impact of R$ 2.2 million.
Landbank on 12/31/2017*
Breakdown by Segment (PSV in R$ billion) Method of Acquisition (in %)
MCMV 2 and 3 Middle 1.0 Cash 8.3 24%
36.2 76% High end Swaps
Breakdown by Region (PSV in R$ billion)
São Paulo 8.8
Rio de Janeiro 22.5 5.0 São Paulo - Other Cities * The landbank PSV is based on the latest feasibility assessment of the land plot, adjusted by the 3.5 0.8 INCC year-to-date. South 0.3 3.0 1.5 North Middle West Northeast Minas Gerais
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Earnings Release – 4Q17 | 2017 DELIVERIES Note: detailed information on delivered units can be found in the appendix tables at the end of this report.
Cyrela delivered 14 projects in 4Q17, with 6,5 thousand units totaling a PSV of R$1,665 million on the dates of their respective launches. Of all the projects delivered during the quarter, two belong to the MCMV 1 segment.
In 2017, Cyrela delivered 55 projects, with 19,5 thousand units totaling a PSV of R$5,506 million on the dates of their respective launches. Of all the projects delivered during the year, seven belong to the MCMV 1 segment.
Deliveries
-30% 7,894 Others* 312 Northeast 746
South 573 North 580 5,506 0 227 Rio de Janeiro 1,629 686 60
1,230
São Paulo** 4,054 3,303
2016 2017
Note: * Espírito Santo State, Center West Region and Minas Gerais State. ** São Paulo and São Paulo–Interior.
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Earnings Release – 4Q17 | 2017 CONSTRUCTION SITES
At the end of 4Q17, there were 89 projects in progress (according to the active construction site criterion), broken down as follows, by segment, execution and geographic location. Faixa 1 MCMV accounts for eight of all the projects in progress.
Projects in Progress
89 89 89 4 North 2 Partners 5 High end 23 Midwest(2) 19 South RJ
Cyrela and JV’s 85 Middle + MCMV 66 SP 61
4Q17 4Q17 4Q17
In line with its strategic direction, the Company manages a large share of the construction sites to monitor the execution of the projects. At the close of 4Q17, 96% of the construction sites were managed by the Company's own teams or joint ventures. This clearly shows Cyrela’s commitment to managing costs and ensuring product quality. Of all the 4Q17 launches, no projects will be constructed by third parties.
Construction Projects
105 104 7% 101 Partners 7 6 6% 6 90 89 6% 4 4 4% 5%
93% 94% Cyrela and JV’s 98 98 95 94% 96% 95% 86 85
4Q16 1Q17 2Q17 3Q17 4Q17
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Earnings Release – 4Q17 | 2017 Economic and Financial Performance
Because MAC has been accounted for in a different manner since 2Q17, we will be presenting only “proforma” numbers for 4Q16 and 2016, considering MAC through the equity method, so that comparisons between those periods and 4Q17 and/or 2017 can be made.
REVENUE
The Company’s total gross revenue amounted to R$832 million in 4Q17, 8.0% down on R$905 million in 4Q16 and 35.4% up on R$614 million in 3Q17.
In 2017, gross revenue fell by 13.9% year-over-year to R$2,694 million.
Gross Revenue by Activity (R$ million)
-13.9% 3,127 2,694
-8.0% +35.4% 3,080 2,661 905 832 614 900 827 609
4Q16 4Q17 3Q17 2016 2017 pro forma pro forma
Services rendered Real Estate Development
19
Earnings Release – 4Q17 | 2017 COST OF GOODS SOLD AND/OR SERVICES RENDERED
Total costs came to R$590 million, falling by 5.5% against 4Q16 and rising by 31.0% against 3Q17.
In 2017, total costs came to R$1,903 million, down 6.7% against 2016.
Costs by Activity (R$ million)
-6.7% 2,039 1,903
-5.5% +31.0% 1,996 1,885 625 590 450 619 587 447
4Q16 4Q17 3Q17 2016 2017 pro forma pro forma
Services rendered Real Estate Development
The cost of development activities accounted for 99.5% of total costs and came to R$587 million in 4Q17, 31.4% up on 3Q17 and 5.2% down on 4Q16. In 2017, the cost of development activities came to R$1,885 million, vs. R$1,996 million in 2016.
20
Earnings Release – 4Q17 | 2017 GROSS MARGIN
The Company’s total gross margin stood at 27.0% in 4Q17, 2.3 p.p. up on 24.6% in 3Q17 and 1.7 p.p. down on 28.7% in 4Q16.
This quarter-over-quarter increase can be explained mainly by: (i) a lower impact of cancellations on total recognized revenue and (ii) higher margin of new sales due to the product mix.
The impact of net construction savings on revenue stood at R$9 million in 4Q17, down from R$25 million in 3Q17.
In 2017, gross margin stood at 27.4%, a year-over-year decrease of 5.5 p.p.
Adjusted gross margin stood at 32.5% in 4Q17, 1.2 p.p. up on the 3Q17 adjusted gross margin and 1.9 p.p. down on the 4Q16 adjusted gross margin. In 2017, adjusted gross margin was 34.1%, a year-over-year decrease of 5.4 p.p.
4Q16 2016 4Q17 3Q17 2017 (pro forma) (pro forma) Adjusted Gross Margin 4Q17 x 3Q17 4Q17 x 4Q16 2017 x 2016 R$ MM R$ MM R$ MM R$ MM R$ MM
Net Revenue 809 598 35,3% 877 -7,7% 2.619 3.037 -13,8% Gross Profit 219 147 48,4% 252 -13,2% 717 998 -28,2% Gross Margin 27,0% 24,6% 2,3 p.p. 28,7% -1,7 p.p. 27,4% 32,9% -5,5 p.p. Capitalized Interest from COGS 44 39 11,9% 49 -10,4% 176 203 -13,0% Adjusted Gross Margin 32,5% 31,2% 1,2 p.p. 34,3% -1,9 p.p. 34,1% 39,5% -5,4 p.p.
21
Earnings Release – 4Q17 | 2017
Gross Margin
-5.5 p.p. 32.9% -2.3 p.p. 28.7% 27.0% 27.4% 24.6%
4Q17 Gross Profit: R$219 million
4Q17 Gross Margin: 27.0%
4Q16 3Q17 4Q17 2016 2017 (pro forma) (pro forma)
22
Earnings Release – 4Q17 | 2017 SALES TO BE RECOGNIZED
Net revenues from sales to be recognized totaled R$1,654 million at the close of 4Q17. Gross margin from sales to be recognized stood at 39.0% during the quarter, 0.1 p.p. up on 3Q17.
It is worth noting gross backlog margin does not consider the PVA effect and SFH- related financing costs. These effects usually have an impact between five and seven p.p. on margin.
Backlog Margin
+0.1 p.p.
38.9% 39.0% 37.2%
Margin to be recognized: 39.0%
4Q16 3Q17 4Q17
Sales to be Recognized (R$ MM) 4Q17 3Q17 4Q17 x 3Q17 4Q16 4Q17 x 4Q16 Sales to be Recognized 1.689 1.672 1,0% 2.164 -22,0% Taxes to be Recognized (35) (37) -4,9% (45) -23,1% Net Income to be Recognized 1.654 1.636 1,1% 2.119 -21,9%
Costs of Units Sold to be Recognized (1.009) (1.000) 0,9% (1.331) -24,1%
Gross Profit to be Recognized 645 636 1,4% 789 -18,3%
Gross Margin to be Recognized 39,0% 38,9% 0,1 p.p. 37,2% 1,8 p.p.
23
Earnings Release – 4Q17 | 2017
SELLING EXPENSES
Selling expenses totaled R$80 million in 4Q17, down 10% from 3Q17 and 18% from 4Q16.
In 2017, selling expenses amounted to R$341 million, down R$52 million from 2016. It is worth noting the “Sales Show-rooms” and “Third-party Services” accounts, under which we recorded a significant drop, partially offset by higher expenses on maintenance of finished units.
4Q17 3Q17 4Q16 2017 2016 Commercial expenses 4Q17 x 3Q17 (pro forma) 4Q17 x 4Q16 (pro forma) 2017 x 2016 R$ MM R$ MM R$ MM R$ MM R$ MM
Show-rooms 16 20 -21,3% 30 -46,8% 82 110 -25,2% Media 22 15 45,2% 21 3,9% 69 70 -2,2% Third-party Services 18 25 -26,5% 22 -18,0% 85 105 -19,0% Finished Inventory Maintenance* 17 19 -10,7% 12 35,1% 68 56 22,1% Others 7 9 -26,8% 12 -40,1% 37 53 -30,0% Total 80 88 -9,7% 97 -18,0% 341 393 -13,4%
* maintenance costs of the inventory of finished units such as carrying fees and property tax.
24
Earnings Release – 4Q17 | 2017 GENERAL & ADMINISTRATIVE EXPENSES
General and administrative expenses totaled R$99 million in 4Q17, up R$5 million quarter-over-quarter and down R$8 million year-over-year. The quarter-over-quarter increase was primarily due to severance costs (R$33 million in 4Q17 vs. R$24 million in 3Q17, up 34.8%.) In 2017, general and administrative expenses totaled R$392 million, a R$16 million fall year-over-year. It is worth noting (i) Salaries and Social Charges, which fell by 14.7% YoY due to structure downsizing, and (ii) Rent, Travel and Representation Expenses, which fell by 28.8% YoY due to changes in the São Paulo and Rio de Janeiro offices.
4Q17 3Q17 4Q16 2017 2016 General & Administrative Expenses 4Q17 x 3Q17 (pro forma) 4Q17 x 4Q16 (pro forma) 2017 x 2016 R$ MM R$ MM R$ MM R$ MM R$ MM Salaries and Social Charges 27 26 0,9% 28 -6,0% 106 124 -14,7% Board Members/Management Remuneration 1 1 -9,6% 1 6,0% 6 6 -7,9% Employees' 2 2 3,2% 0 -1255,3% 9 4 118,3% Stock Options 2 1 25,7% 2 -12,3% 6 10 -36,4% Third-Party Services 16 19 -18,6% 23 -31,2% 80 86 -7,0% Rent, travelling and representation 5 7 -28,3% 8 -44,4% 25 35 -28,8% Indemnities 33 24 34,8% 35 -6,1% 106 108 -1,3% Others 15 14 8,9% 10 48,7% 54 36 50,1% Total 99 94 4,9% 107 -7,7% 392 408 -4,1%
25
Earnings Release – 4Q17 | 2017 FINANCIAL RESULT
The Company recorded net financial income of R$8 million in 4Q17, vs. R$12 million in 3Q17.
R$ million 4Q17 3Q17
Financial Expenses SFH Interest (34) (49) Interest on Corporate Loans (22) (28) Capitalized Interest 32 42 Sub Total (24) (35) Monetary Adjustment on Loans (0) (1) Bank Expenses (3) (3) Other financial expenses (2) (3) Total Financial Expenses (29) (42)
Financial Revenues Income on Investments 26 43 Income on Receivables - - Income on Loans to Partners 5 4 Other financial income 6 7 Total Financial Revenues 37 54
Financial Result 8 12
26
Earnings Release – 4Q17 | 2017 NET INCOME AND NET MARGIN
In addition to the accounts described and discussed above, it is worth noting the following items affecting net income:
(i) a positive impact of R$31 million in 4Q17 and R$74 million in 2017 from Cury’s net income, recognized under “Equity Result and Other Appreciations in Equity”; (ii) a negative impact of R$9 million on the 4Q17 net income due to new contingencies.
Accordingly, the Company recorded net income of R$49 million in 4Q17, vs. a net loss of R$7 million in 3Q17 and net income of R$31 million in 4Q16. In 2017, the Company recorded a net loss of R$95 million vs. net income of R$151 million in 2016.
The Company’s earnings per share rose to R$0.13 in 4Q17, vs. -R$0.02 in 3Q17 and R$0.08 in 4Q16.
EPS
600 0.5 550 0.4 500 0.3 450 0.13 0.2 400 0.08 0.1 350 0.0 300 -0.02 -0.1 250 -0.2 200 382 383 383 * Total shares at the close of the quarter, not 150 -0.3 including Treasury shares on the same date -0.4 ** Number of shares without Treasury shares 100 in millions 50 -0.5 0 -0.6 4Q16 3Q17 4Q17
EPS Shares ex-treasury
27
Earnings Release – 4Q17 | 2017
Net Profit (R$ million)
151
49 31
-7
-95 4Q16 4Q17 3Q17 2016 2017 Net Margin 3.5% 6.0% 5.0%
This led to a LTM ROE of -1.6%.
28
Earnings Release – 4Q17
ARBITRATION CHAMBER
The Company is subject to the Market Arbitration Chamber, in accordance with the Arbitration Clause included in the Company's Bylaws.
RELATIONSHIP WITH INDEPENDENT AUDITORS
In compliance with CVM Instruction 381/03, we hereby inform you that we engaged KPMG Auditores Independentes to provide the following services: audit of the financial statements prepared in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards ("IFRS"s); and review of the quarterly interim financial information in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 - "Revisao de lnformações lntermedirias Executadas pelo Auditor da Entidade" and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). The Company did not engage the independent auditors to perform any other work, other than the audit of the financial statements.
The engagement of independent auditors is based on principles that protect the auditor's independence , which consist of the following: (a) the auditor should not audit his/her own work ; (b) the auditor should not exercise managerial duties; and (c) the auditor should not provide any services that can be considered a prohibited under prevailing standards . Additionally, Management obtains from the independent auditors a statement in the sense that the special services provided do not affect their professional independence.
The information in the performance report is not clearly identified as copy of the information included in the financial statements, nor has it been subjected to audit or review.
1
Contents
Balance sheet...... 3
Income statements...... 4
Statement of comprehensive income...... 5
Statement of changes in shareholders’ equity...... 6
Statement of cash flows...... 7
Statement of added value...... 8
Notes to the financial statements...... 9
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
BALANCE SHEET AS AT DECEMBER 31, 2017 (In thousands of Brazilian reais - R$)
Individual Consolidated Individual Consolidated ASSETS Note 2017 2016 2017 2016 LIABILITIES AND EQUITY Note 2017 2016 2017 2016
CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 3 49,772 281,963 195,630 513,757 Suppliers 2,860 5,878 115,242 144,511 Securities 4 547,401 369,305 1,047,498 1,016,529 Borrowings and financing 10 104,501 9,563 930,347 877,307 Trade receivables 5 4,434 10,853 2,069,412 2,615,078 Debentures 11 44,450 3,010 44,555 3,010 Properties for sale 6 47,598 16,836 3,218,341 3,656,791 Real Estate Certificates (CRIs) 12 261,401 255,094 304,976 254,785 Recoverable taxes 664 - 15,917 18,119 Provision for warranty 17 - - 96,268 64,655 Deferred taxes 20 - - 2,227 491 Taxes and contributions payable 1,809 1,176 32,588 16,789 Accrued selling expenses - - 11,548 13,358 Deferred taxes and contributions 20 599 30 85,989 110,168 Prepaid expenses 5,725 4,478 11,934 12,610 Payroll, related taxes and profit sharing 13,951 14,169 42,272 48,920 Others assets 37,562 11,161 68,352 70,227 Payables due to property acquisitions 18 2,516 - 107,932 142,531 Total Current Assets 693,156 694,596 6,640,859 7,916,960 Dividends payable 21 (d) - 35,946 - 35,946 Credits Payables from Related parties 13 52,323 50,482 50,182 64,812 Current accounts with venture partners 14 - - 37,290 45,427 NONCURRENT ASSETS Advances from customers 16 - - 314,803 351,306 Trade Receivables 5 5,685 767 597,822 764,714 Other liabilities 155,167 122,489 40,678 115,841 Securities 4 118,983 128,996 119,633 168,005 Total current liabilities 639,577 497,837 2,203,122 2,276,008 Current accounts with venture partners 14 5,972 6,413 14,255 13,070 Credits Receivable from Related parties 13 714,344 643,465 349,914 340,973 NONCURRENT LIABILITIES Recoverable taxes 52,400 39,916 126,794 111,851 Borrowings and financing 10 342,129 603,384 1,183,097 1,993,514 Properties for sale 6 - 29,064 1,531,414 1,415,069 Debentures 11 - 42,630 4,000 42,630 Others assets 34,739 37,591 83,060 93,959 Real Estate Certificates (CRIs) 12 73,672 222,843 107,065 252,418 Investments in subsidiaries and associates 7.a) to 7.d) 5,384,713 5,721,686 836,822 903,345 Provision for warranty 17 - - 86,015 75,678 Property, plant and equipment 8 9,369 10,572 61,159 85,690 Payables due to property acquisitions 18 76,285 - 125,439 18,926 Intangible assets 9 42,191 77,427 39,809 66,063 Provisions for tax, labor and civil risks 19 4,196 8,360 143,806 213,958 Total noncurrent assets 6,368,396 6,695,897 3,760,682 3,962,739 Taxes and contributions payable - - - 183 Deferred taxes and contributions 20 1,102 1,883 24,621 36,930 Advances from customers 16 - - 158,878 202,711 Total noncurrent liabilities 497,384 879,100 1,832,921 2,836,948
EQUITY Capital 21.a) 3,395,744 3,395,744 3,395,744 3,395,744 Other reserves (103,967) (103,967) (103,967) (103,967) Capital reserves: Stock option reserve 22 (c) 61,216 61,785 61,216 61,785 Earnings reserves: Legal reserve 21 (d) 291,104 291,104 291,104 291,104 Expansion reserve 21 (d) 2,551,443 2,646,447 2,551,443 2,646,447 Treasury shares 21 (b) (214,887) (221,925) (214,887) (221,925) Other comprehensive income (56,062) (55,634) (56,062) (55,634) Company's owners 5,924,591 6,013,556 5,924,591 6,013,556 Noncontrolling shareholders - - 440,907 753,186 Total equity 5,924,591 6,013,556 6,365,498 6,766,743
TOTAL ASSETS 7,061,552 7,390,493 10,401,541 11,879,699 TOTAL LIABILITIES AND EQUITY 7,061,552 7,390,493 10,401,541 11,879,699
Notes to the financial statement are an integral part of these report.
2
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian reais - R$, except earnings per share)
Individual Consolidated Note 0 1 2017 2016 2017 . 2016 0 1
NET OPERATING INCOME 25 6.313 11.988 2.673.770 3.195.310
COST OF SALES AND SERVICES 24 (2.331) (2.491) (1.939.257) (2.132.787)
GROSS PROFIT 3.982 9.497 734.513 1.062.523
OPERATING INCOME (EXPENSES) Selling expenses 25 (2.814) (3.135) (343.283) (400.579) General and administrative expenses 26 (108.031) (114.027) (391.470) (432.347) Management fees 13.c) (5.031) (5.004) (5.761) (6.254) Profit (loss) on equity interests: Share of profit of subsidiaries 7.a) (40.725) 274.647 73.690 49.438 Other operating income on investments 7. e) 43.308 4.186 53.675 10.288 Others Income 21.960 3.713 89.804 - Others Expense (15.652) (21.196) (194.350) (43.869)
PROFIT BEFORE FINANCE INCOME (103.003) 148.681 16.818 239.200
FINANCE INCOME (COSTS) Finance costs 27 (124.746) (155.340) (167.580) (226.550) Finance income 27 132.596 158.278 205.392 305.693 7.850 2.938 37.812 79.143
PROFIT BEFORE TAXES ON INCOME AND NONCONTROLLING INTERESTS (95.153) 151.619 54.630 318.343
INCOME TAX AND SOCIAL CONTRIBUTION Deferred 20.d) 149 (267) 17.595 9.440 Current 20.d) - - (82.764) (83.163) 149 (267) (65.169) (73.723)
PROFIT FOR THE PERIOD (95.004) 151.352 (10.539) 244.620
PORTION OF PROFIT ATTRIBUTABLE TO NONCONTROLLING INTERESTS: Company's owners - - (95.004) 151.352 Noncontrolling shareholders - - 84.465 93.268 (10.539) 244.620
BASIC EARNINGS PER SHARE 28 (0,25222) 0,39605
DILUTED EARNINGS PER SHARE 28 (0,25057) 0,39825
Notes to the financial statement are an integral part of these report
3
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian reais - R$)
Individual Consolidated
2017 2016 2017 2016
PROFIT FOR THE YEAR FROM CONTINUED OPERATIONS (95,004) 151,352 (10,539) 244,620 Other comprehensive income: Items that will not be subsequently reclassified to the statement of profit or loss - by translation of investments and appreciation of financial assets (428) 2,664 (428) 2,664
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (95,432) 154,016 (10,967) 247,284
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Company's owners (95,432) 154,016 (95,432) 154,016 Noncontrolling interests - - 84,465 93,268 (95,432) 154,016 (10,967) 247,284
BASIC EARNINGS PER SHARE (0.25222) 0.39605
DILUTED EARNINGS PER SHARE (0.25057) 0.39825
Notes to the financial statement are an integral part of these report.
4
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
STATEMENT OF CHANGES IN EQUITY (INDIVIDUAL AND CONSOLIDATED) FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian reais - R$)
Capital reserves Earnings Reserve Other Stock option Treasury Other Legal Earnings Retained comprehensive Company's Noncontrolling Total Note Capital reserve shares reserves reserve retention earnings income owners interests consolidated
AS AT DECEMBER 31, 2015 3,095,744 90,329 (260,627) (102,251) 283,537 2,838,609 - (58,298) 5,887,043 791,844 6,678,887
Capital transactions: Capital increase 21 (a) 300,000 - - - - (300,000) - - - 286,108 286,108 Capital transactions 21 (e) - - - (1,716) - - - - (1,716) - (1,716) Stock options granted/exercised 21 (d) - (38,702) 38,702 ------Share-based payment 21 (c) - 10,160 ------10,160 - 10,160 - - - Profit for the year ------151,352 - 151,352 93,269 244,621 Profit allocation: - - Legal reserve 21 (c) - - - - 7,567 - (7,567) - - - - Dividends paid 21 (c) ------(35,947) - (35,947) (418,035) (453,982) Earnings retention reserve 21 (d) - - - - - 107,838 (107,838) - - - - Adjustments due to translation of investments ------2,664 2,664 - 2,664
AS AT DECEMBER 31, 2016 3,395,744 61,787 (221,925) (103,967) 291,104 2,646,447 - (55,634) 6,013,556 753,186 6,766,742
Capital transactions: Capital increase 21 (a) ------129,652 129,652 Other Changes in Equity ------(288,998) (288,998) Stock options granted/exercised 22 (b) - (7,038) 7,038 ------Share-based payment 22 (b) - 6,467 ------6,467 - 6,467
Profit for the year ------(95,004) - (95,004) 84,465 (10,539) Profit allocation: - Dividends paid 21 (d) ------(237,398) (237,398) Loss absorption 21 (d) - - - - - (95,004) 95,004 - - - - Adjustments due to translation of investments 7 (d) ------(428) (428) - (428)
AS AT DECEMBER 31, 2017 3,395,744 61,216 (214,887) (103,967) 291,104 2,551,443 - (56,062) 5,924,591 440,907 6,365,498 Notes to the financial statement are an integral part of these report.
5
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian reais - R$)
Individual Consolidated 2017 2016 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax and social contribution (95,153) 151,619 54,630 318,344 Adjusted by: - Depreciation and amortization of property, plant and equipment and intangible assets 14,539 14,382 55,495 97,438 Write-off of property, plant and equipment and intangible assets - 808 13,402 33,652 Amortization of appreciation of assets 24,014 5,563 11,039 8,806 Share of loss of subsidiaries 40,725 (274,647) (73,690) (49,438) Interest and inflation adjustments on borrowings, debentures and CRI 104,711 134,938 206,909 416,589 Deferred taxes (63) 115 (20,629) (8,121) Adjustments to present value - - 30,591 3,507 Provisions for warranty - - 46,221 73,185 Interest on securities (89,919) (131,983) (156,801) (234,949) Provisions for tax, labor and civil risks (4,164) (3,713) (70,152) 12,301 Investment conversion adjustments (428) 2,664 (428) 2,664 Accrued share-based payment 6,468 10,160 6,468 10,160 730 (90,094) 103,055 684,138 Changes in current and noncurrent assets and liabilities: Trade receivables 1,501 (4,077) 681,967 462,993 Properties for sale (1,698) (7,601) 322,105 66,283 Current accounts with venture partners 441 2,903 (9,322) (13,828) Credits Receivable and Payables from Related parties (69,038) (472,337) (23,571) (192,080) Recoverable taxes (13,148) (9,532) (12,741) (11,046) Accrued selling expenses - 1,810 3,940 Prepaid expenses (1,247) (1,304) 676 (3,248) Others assets (23,549) 17,035 12,774 18,853 Payables due to acquisition of properties 78,801 - 71,914 (49,015) Taxes and contributions payable 633 848 15,392 (17,070) Trade payables (3,018) 1,646 (29,269) (53,175) Provision for warranty - - (4,271) (71,154) Payroll, related taxes and profit sharing (218) (11,291) (6,648) (17,413) Advances from costumers - (767) (80,337) (374,192) Other Liabilities 32,676 29,124 (73,277) 27,367 Cash and cash equivalents used in operating activities: 2,867 (545,447) 970,257 461,353 Taxes and contributions paid - - (82,540) (81,805) Interests paid (109,407) (130,772) (308,297) (373,314) Cash and cash equivalents provided by (used in) operating activities (106,540) (676,219) 579,420 6,233
CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (1,923) (7,560) (30,195) (58,474) Dividends 938,430 516,703 297,301 59,632 Increase (decrease) in investments (642,182) (260,860) (157,088) (167,698) Acquisition of intangible assets (191) (2,540) (843) (8,414) Securities (78,164) 603,015 174,204 455,488 Cash and cash equivalents provided by (used in) investing activities 215,970 848,758 283,379 280,534
CASH FLOW FROM INVESTING ACTIVITIES Proceeds from new borrowings, financing and CRIs 115,456 425,528 1,089,913 1,763,130 Repayment of borrowings, financing and CRIs (421,131) (494,315) (1,838,149) (2,124,351) Distribution of dividends (35,946) (106,658) (35,946) (106,658) Increase (decrease) of noncontrolling interests - - (396,744) (131,927) Capital transactions - (1,716) - (1,716) Cash and cash equivalents used in financing activities (341,621) (177,161) (1,180,926) (601,522)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (232,191) (4,622) (318,127) (314,755)
At the beginning of the year 281,963 286,585 513,757 828,512 At the end of the year 49,772 281,963 195,630 513,757
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (232,191) (4,622) (318,127) (314,755)
Notes to the financial statement are an integral part of these report. 6
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES
STATEMENT OF VALUE ADDED FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of Brazilian reais - R$)
Individual Consolidated 2017 2016 2017 2016
REVENUE Sale of goods, products and services 7,124 12,931 2,749,920 3,290,704 Other revenues 6,308 (17,483) (104,546) (43,869) 13,432 (4,552) 2,645,374 3,246,835
INPUTS ACQUIRED FROM THIRD PARTIES Cost of sales and services (2,331) (2,491) (1,939,257) (2,132,787) Materials, energy, outside services and other (52,888) (57,947) (445,045) (444,637) (55,219) (60,438) (2,384,302) (2,577,424)
GROSS VALUE ADDED (41,787) (64,990) 261,072 669,411
RETENTIONS Depreciation, amortization and depletion (14,538) (14,382) (55,495) (97,438) Amortization of appreciation of assets (24,014) (5,563) (11,040) (8,806) (38,552) (19,945) (66,535) (106,244)
WEALTH PRODUCED BY THE COMPANY (80,339) (84,935) 194,537 563,167
WEALTH RECEIVED IN TRANSFERS Share of profits of subsidiaries (40,725) 274,647 73,690 49,438 Other profits on investments, less amortization of appreciation 67,322 9,749 64,714 19,094 Finance income 132,596 158,278 205,392 305,693
TOTAL WEALTH RECEIVED IN TRANSFERS 159,193 442,674 343,796 374,225
TOTAL WEALTH FOR DISTRIBUTION 78,854 357,739 538,333 937,392
WEALTH DISTRIBUTED Personnel and payroll taxes Salaries and related taxes 34,706 39,886 186,168 228,987 Sales commissions 34 5 32,191 47,560 Management fees 5,031 5,004 5,761 6,254 Profit sharing 8,678 4,941 15,512 14,304 48,449 49,836 239,632 297,105
Taxes, fees and contributions 663 1,210 141,320 169,117 Interest 124,746 155,341 167,923 226,550 173,858 206,387 548,875 692,772 SHAREHOLDERS Profit for the year (95,004) 151,352 (95,004) 151,352 Portion of profit attributable to noncontrolling interests - - 84,462 93,268 (95,004) 151,352 (10,542) 244,620
TOTAL WEALTH DISTRIBUTED 78,854 357,739 538,333 937,392
Notes to the financial statement are an integral part of these report.
7
CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (In thousands of reais – R$, unless otherwise indicated)
1. OPERATIONS
Cyrela Brazil Realty S.A. Empreendimentos e Participações (“Company”) is a publicly-held corporation headquartered in the city of São Paulo, state of São Paulo; its shares are traded on the BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros - Novo Mercado, under the acronym CYRE3.
The Company’s headquarters is located at Rua do Rocio, 109 - 2º floor, Room 01, in city of São Paulo, in São Paulo State.
The Company is primarily engaged in the development and construction of residential properties, alone or jointly with other companies. The subsidiaries, companies under shared control and associated companies share with the parent company the corporate, managerial and operating costs and structures of the Company or of the partner, according to each situation.
Management affirms that all relevant information characteristic of financial statements, are being evidenced and correspond to those used by Management.
2. PRESENTATION OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES ADOPTED
2.1. Basis of presentation and preparation of individual and consolidated financial statements
i) Statement of conformity
The Company’s individual and consolidated financial statements have been prepared and presented in accordance with Brazilian accounting practices and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), applicable to real estate entities in Brazil and approved by the Accounting Pronouncement Committee (CPC), the Brazilian Securities and Exchange Committee (CVM) and the Federal Accounting Committee (CFC). In conformity with Guideline “OCPC 07 – Evidencing in Disclosure of General Purpose Accounting-Financial Reports”, relevant information typical of financial statements is being evidenced and corresponds to those used by Management.
Accounting practices adopted in Brazil include those in Brazilian corporate law and in Pronouncements, Guidelines and Interpretations issued by CPC and approved by CVM and CFC. Management affirms that all relevant information characteristic of financial statements, are being evidenced and correspond to those used by Management. Presentation of individual and consolidated Statements of Value Added is required by the Brazilian corporate law and Brazilian accounting practices applicable to listed companies and has been prepared in accordance with CVM Resolution no. 557, of November 12, 2008, which approved accounting pronouncement CPC 09 – Statement of Added Value.
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IFRS standards do not require presentation of this statement. Accordingly, in conformity with IFRS standards, this statement is presented as supplementary information, without prejudice to financial statements as a whole. ii) Basis of preparation
The individual and consolidated financial statements were prepared based on the historical cost, except for certain financial instruments measured at its fair values, as described in the description of significant accounting practices of this report.
The Company’s individual financial statements are not considered in conformity with the International Financial Reporting Standards (IFRS), as they consider capitalization of interest on investees’ qualifiable assets in parent company’s financial statements.
The consolidated financial statements are in agreement with the International Financial Reporting Standards – IFRS applicable to property development companies in Brazil, including Guidance OCPC 04 - Application of Technical Interpretation ICPC 02 to property development companies in Brazil with regard to income recognition in the activity and involving matters related to applying the concept of ongoing risk transfers, benefits and control of property units sold.
iii) Basis of consolidation
The Company’s consolidated financial statements include Cyrela and its direct and indirect subsidiaries’ financial statements. The Company controls an entity when it is exposed to, or has a right over the variable return arising from its involvement with the entity and has the ability to interfere in those returns due to its power over the entity. The existence and effects of potential voting rights, currently exercisable or convertible, are taken into account when assessing whether the Company controls other entity.
The subsidiaries are fully consolidated as of the date control is transferred, and stop being consolidated as of the date when control no longer exists. Accounting practices were uniformly applied to all subsidiaries included in consolidated financial statements and these entities’ years coincide with that of the Company.
When necessary, subsidiaries' financial statements accounting practices are adjusted to those of the Company.
All transactions, balances, income and expenses among subsidiaries or jointly-owned subsidiaries are fully eliminated in consolidated financial statements.
iv) Segment information
The operating segment information are disclosed in a consistent manner with the internal report provided to the main operating decision makers, represented by the Company’s Management, who are responsible for resource allocation, performance evaluation of the operating segments and strategic decision making.
2.2. Accounting judgments, estimates and assumptions
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Accounting estimates and judgments are constantly assessed and are based on prior experience and other factors, including expected future events considered as reasonable in view of circumstances.
Individual and consolidated financial statement preparation of the Company requires that management make judgments and estimates, and adopt assumptions with effect on amounts carried as revenues, expenses, assets and liabilities, and disclosure of assets and liabilities on the base date of the financial statements.
Assets and liabilities subject to estimates and assumptions include provision for impairment of assets, transactions with share-based payments, provision for lawsuits, financial instruments’ fair value, measurement of projects’ budgeted cost, and deferred tax assets, among others.
The main assumptions concerning the sources of uncertainty in future estimates and other important sources of uncertainty in estimates on the balance sheet date, that may result in different amounts upon settlement, are discussed below: i) Impairment loss for non-financial assets
Impairment exists when the book value of an asset or exceeds its recoverable value, which is the higher of its fair value less costs to sell and its value-in-use.
Impairment test of intangible assets with undefined useful lives, Properties’ inventories for sale inventories for sale, and goodwill per expected future earnings is carried out on an annual basis and/or when circumstances indicate losses due to devaluation of book value.
The fair value less costs to sell calculation is based on available data from sales transactions of similar assets or observable market prices less incremental costs for disposing of the asset. The value-in-use calculation is based on the discounted cash flow model. Cash flows result from budget for the next five years and do not include restructuring activities to which the Company has not yet committed or significant future investments that will enhance the asset base of the cash generating unit under test. The recoverable amount is sensitive to the discount rate used for the discounted cash flow model, as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. ii) Projects’ budgeted costs
Budgeted costs, comprised mainly of costs incurred and costs to be incurred for the conclusion of construction work, are regularly reviewed according to evolution of construction work, and possible adjustments identified based on such review are reflected on the Company’s results. iii) Provision for guarantee
Measurement of provision for warranties to cover repair expenditures in covered projects during warranty period is carried out based on an estimate that considers the history of incurred expenditures that are adjusted at expected future expenditures, which is regularly reviewed.
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iv) Allowance for doubtful accounts and cancellation of clients’ contract cancellation
The Company measures the allowance for doubtful accounts and contract cancellations based on assumptions that consider the history of its current transactions and their estimates. These assumptions are reviewed on an annual basis to consider possible changes in circumstances and histories.
v) Transactions with share-based payments
The Company measures the cost of transactions to be settled with employees’ shares based on the fair value of equity instruments at the date of their respective granting. Estimates of share-based payments’ fair values require the most adequate evaluation method for the granting of equity instruments, which depends on grant terms and conditions.
vi) Provision for tax, labor and civil risks
The Company recognizes the provisions for tax, labor and civil risks (note 19). Determination of the likelihood of loss includes determination of evidences available, hierarchy of laws, jurisprudence available, more recent court decisions and relevance thereof in legal system, as well as evaluation of external lawyers. Provisions are reviewed and adjusted so as to consider changes in circumstances, such as applicable statute of limitations, conclusions of tax audits or additional exposures identified based on new matters or court rulings.
The Company and its subsidiaries, in the normal course of business, are subject to investigations, audits, judicial and administrative proceedings in civil, tax and labor matters.
2.3. Description of significant accounting practices 2.3.1 Determination of real estate income, sale of properties and other i) Determination of income from real estate development and sale of properties is carried out according to the following criteria: a) On sales of completed units, income is recognized at the time sale is completed (transfer of risks and benefits), regardless of contract value receipt period, and income is measured at fair value of received or receivable consideration. b) On sale of incomplete units, the following procedures are followed:
− Sales income, land and construction costs, and sales commissions are recognized in income (loss) using the percentage of completion of each joint venture, and this percentage is measured based on costs incurred in relation to total budgeted costs of respective joint ventures;
− Incurred cost (including land cost and other expenditures directly related to formation of inventories) corresponding to sold units is fully recognized in income. For units not yet traded, incurred cost is recognized in inventories under caption “Property for sale”;
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− Recognized amounts of sales income that are higher than those effectively received from clients are recorded in current assets or long-term receivables, under caption “Accounts receivable”. Received amounts referring to sale of units that are higher than recognized income amounts are accounted for under caption "Advances from clients";
− Interest and inflation adjustment on accounts receivable balance, as well as adjustment to present value of accounts receivable balance, are recognized in income from real estate development and sale of properties when incurred, following the accrual system for “pro rata temporis” years;
− Financial charges due to acquisition of land and those directly associated to financing of construction work are capitalized and recorded in property for sale, and recognized in incurred cost of units under construction up to their completion, following the same criteria for recognition of real estate development cost in proportion to units sold during construction;
− Taxes levied and deferred on the difference between real estate development income and accumulated income submitted to taxation are calculated and recorded in accounting books when this income difference is recognized;
− Other expenses, including those with marketing and publicity are recognized in income (loss) when incurred. c) In cancellations of contracts for the purchase and sale of real estate, income and cost recognized in income (loss) are reversed according to previously mentioned determination criteria. Reversal of cost increases inventories. The Company also recognizes, due to cancellation, liabilities deriving from return of advances from clients and gain or loss effects are immediately recognized in income (loss).
ii) Provision of construction services Income deriving from the provision of real estate services are recognized as services are provided and are linked to construction work management for third parties and to technical advisory.
iii) Barter transactions Barter of pieces of land refers to receipt of land from third parties to be settled through delivery of real estate units or transfer of installments deriving from sale of projects’ real estate units. Pieces of land acquired by the Company and its subsidiaries are recorded at fair value, as a component of inventories, as a contra-entry to advances from clients in liabilities. Income and costs derived from barter operations are recorded in the result over the construction period of the developments, as criteria described in item i) b) above.
2.3.2 Financial instruments The main financial instruments of the Company and entities include cash and cash equivalents, financial investments, securities, accounts receivable and payable, financing, loans, debentures and CRI, among others. After the initial recognition, the financial instruments are measured as described below:
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i) Financial assets at fair value through profit or loss An instrument is classified by fair value through profit or loss if it is held for trading, that is, stated as such when initially recognized. Financial instruments are stated at fair value through profit or loss if the Company manages these investments and makes decisions on investment and redemption based on fair value according to the strategy of investment and risk management. After initial recognition, attributable transaction costs are recognized in statement of income when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and their fluctuations are recognized in profit or loss. The Company does not adopt Hedge Accounting. ii) Financial assets Financial assets are classified as financial assets at fair value through income, receivables, investments held to maturity, and financial assets available for sale. The Company determines the classification of its financial assets upon its initial recognition, when it becomes part of the contractual provisions of the instrument. Financial assets are initially recognized at fair value plus, in the case of investments not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. A financial asset is partially or fully written-off when the rights to receive assets’ cash flows expire; when the Company substantially transfers all assets’ risks and benefits or when the Company does not substantially transfer or retain all risks and benefits related to the asset, but transfers control over the asset. The Company’s financial assets include cash and cash equivalents, securities, trade receivables and other. iii) Financial liabilities
• Other financial liabilities at amortized cost Other financial liabilities, including loans, financing, debentures, CRI’s, suppliers and other accounts payable are initially recognized at fair value, net of transaction costs. Financial liabilities subject to interest are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in the income statement upon write-off of liabilities, as well as during the amortization process by the effective interest rate method.
A financial liability is derecognized (written off) when the obligation under the liability is discharged, canceled or expired. When an existing financial liability is replaced by another of the same lender with substantially different terms, or the terms of an existing liability are significantly changed, this substitution or alteration is treated as a write-off of the original liability and recognition of a new liability, whereas the difference in the corresponding book value is recognized in the statement of income. 2.3.3 Cash and cash equivalents
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The Company and its subsidiaries classify in this category cash balances, bank account balances, highly-liquid balances, which are readily convertible into a known cash amount subject to insignificant risk of change in value and whose maturity is lower than 90 days. 2.3.4 Securities Securities include bank deposit certificates, Government bonds issued by the Federal Government, and exclusive investment funds that are fully consolidated. They are classified as securities held to maturity presented at acquisition cost plus interest and inflation adjustment, less impairment losses, when applicable. 2.3.5 Accounts receivable “Accounts receivable” caption balance is measured at original amount of contract sale, adjusted at fixed interest and recognized in income at the accrual system, regardless of whether it was received.
The allowance for doubtful accounts is formed when there is objective evidence that the Company and its subsidiaries will not be able to collect all amounts due according the accounts receivable original terms. The Company and its subsidiaries consider credit risk as low, as there is real guarantee that sold assets will be recovered and, accordingly, does not recognize an allowance for doubtful accounts. In case there are signs that recorded amount is lower than accounts receivable recoverable value, a provision is recognized.
According to technical guideline issued by CPC, through technical guideline OCPC 01 (R1), in credit sales of incomplete units, interest-free receivables with inflation adjustment, including key installment, should be discounted to present value, as contracted inflation adjustment rates do not include interest. Formation of adjustment and its reversal, when carried out during construction work, are recorded as a contra-entry to real estate development income.
2.3.6 Property for sale i) Cost formation Properties that are ready for sales and those under construction are stated at formation cost, not exceeding net realizable value.
Net realizable value is the estimated sales price, less cost to complete the project (when applicable), selling expenses and taxes.
Formation cost includes cost for acquisition of land (which includes barter transactions described in note 2.3.1 iii)), expenditures required to approve the project with government authorities, real estate development expenditures, construction material, labor (own or hired from third parties) and other related construction costs, including financial cost incurred during construction work up to completion of construction work.
ii) Segregation between current and non-current Classification between current and non-current is carried out based on expected launching of real estate development, subject to periodic reviews.
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2.3.7 Unrecorded sales expenses Brokerage expenditures on sale of properties are stated as advanced payments, following technical guideline OCPC 01 (R1), and are recognized in income as part of trading expenses, following the same criterion adopted for recognition of income and sold units’ costs (note 2.3.1 i)), except for commissions on cancelled sales, which are recorded in income (loss) in case of cancellation or when it is probable that there will be no payment of contracted amounts. Charges related to sales commission belonging to the property’s acquirer do not form income or expense of the Company and its subsidiaries. 2.3.8 Prepaid expenses Expenses that are paid in advance are recognized in income (loss) for the year when incurred at the accrual system.
2.3.9 Equity interest investments Investments in shareholding interest are recorded at the equity method in the parent company. In consolidated financial statements, investees classified as jointly-controlled subsidiaries and associated companies are also recorded under the equity method, based on financial statements of respective investees of the same base dates and accounting criteria used by the Company. Investments in foreign companies Brazil Realty Serviços e Investimentos Ltd.: This subsidiary is located in Bahamas and, in essence, is an extension of the Company’s financial activities, its functional currency is the dollar.
Cyrsa S.A.: Associated company whose purpose is to develop and trade property. Located in Argentina, it has its own management, as well as administrative, financial and operating independence. Its functional currency is the Argentinian Peso.
Assets, liabilities and income are translated into the Company’s presentation currency at the following method: (i) assets and liabilities translated at the closing rate; (ii) shareholders' equity translated at the rate prevailing on transaction dates; and (iii) income and expenses translated at the average rate. Effects of this translation into presentation currency are recorded in caption “Accumulated translation adjustment”, accumulated in caption “Other comprehensive income” in shareholders' equity. In case investment is disposed of or written-off, effects from translation recorded in account “Other comprehensive income” should be accounted for in income for the year in the same period in which this investment was disposed of or written-off.
2.3.10 Property, plant and equipment Stated at acquisition cost, less accumulated depreciation, calculated at the straight-line method, based on estimated useful life of assets, according to note 8.
According to technical guideline OCPC 01 (R1), expenses incurred with construction of sale stands, model apartments and respective furniture will be incorporated into the 15
Company and its subsidiaries’ property, plant and equipment. These assets start to be depreciated after project’s launch and completion, and this expense is recorded in income under caption “Sales expenses”, at estimated useful life.
2.3.11 Intangible assets Expenditures related to acquisition and implementation of information systems and software licenses of use are recorded at acquisition cost, being amortized on a straight- line basis and subject to periodic analysis of assets’ impairment.
Shareholding investments in the Company include goodwill when acquired company’s acquisition cost exceeds its net assets’ market value.
Goodwill is amortized as assets in these investees are realized.
2.3.12 Income tax and social contribution on net income i) Current income and social contribution taxes Current tax is the expected tax payable or receivable/to be offset on taxable income for the year. The income tax (25%) and the social contribution on net income (9%) are calculated in conformity with their nominal rates, which together add up to 34%. Deferred income tax is generated by temporary differences on the balance sheet date between the tax bases of assets and liabilities and their book values. As allowed by tax legislation, certain subsidiaries have opted to use the deemed profit regime. For those companies, the calculation basis for income tax and social contribution is based on estimated profit, at the rate of 8% and 12% of gross income, respectively, on which nominal rates for the respective tax or contribution are applied. As permitted by the law, development of some projects are subject to the segregation system, according to which the piece of land and accessions that are the object of real estate development, as well as other assets, rights and obligations related to it, are segregated from the developer’s assets and form segregated appropriation of assets, intended to the achievement of corresponding real estate and delivery of real estate units to respective acquirers. In addition, some subsidiaries irrevocably opted for the “Special Taxation System (RET)”, according to which income and social contribution taxes are calculated at the rate of 1.92% on gross income (4% also considering PIS and COFINS on income). ii) Deferred income and social contribution taxes Deferred taxes are recognized in relation to the temporary differences between the amounts of assets and liabilities for purposes and the related amounts used for taxation purposes. When applicable, the Company recognizes deferred tax on tax losses and social contribution negative basis. Accumulated tax losses on tax losses have no statute of limitations; however, their offset is limited to up to 30% of taxable income of each year. Entities that choose deemed income system may not offset tax losses for a period in subsequent years.
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Deferred income and social contribution tax assets and liabilities are presented at net value in balance sheet only when there is the legal right and the intention of offsetting them upon calculation of current taxes, related to the same legal entity and the same tax authority.
2.3.13 Accounts payable upon acquisition of properties, and advances from clients referring to barter Obligations upon property acquisition are recognized at amounts corresponding to assumed contract obligations. Later, they are presented at amortized cost, that is, plus or less, as applicable, charges and interest proportional to incurred year and adjustment to present value up to balance sheet date.
Transactions that barter land for real estate units are recorded in inventories as a contra- entry to caption “Advance from clients”. This transaction is carried out only when land risks and benefits fully flow to the Company and amounts are stated at realization fair value. Recognition of income in income (loss) is carried out in caption “Income from sale of real estate units” at the same criteria explained in note 2.3.1 i).
2.3.14 Other assets and liabilities Other assets and liabilities are presented at cost or realization (assets) value or, when referring to known or calculable (liabilities) value, plus earnings and incurred financial charges, as applicable. 2.3.15 Adjustment to present value of assets and liabilities Adjustment to present value recorded under “Accounts receivable” caption was calculated considering the estimated period until the delivery of the keys of the properties sold, using either the average rate of remuneration of government bonds (NTN-B) or the average rate of funding practiced by the Company, whichever is higher, without inflation, for the financing obtained.
Adjustment to present value of caption “Accounts receivable” is recorded in income (loss) under caption “Net Income”. Reversal of adjustment to present value is recognized in the same caption. 2.3.16 Loans, financing, Real Estate Receivables Certificate (CRI), bank credit notes and debentures. Obtained financial funds, either loans, financing, debentures, Real Estate Receivable Certificates (CRI’s) or Bank Credit Notes (CCB’s) are initially recognized at receipt of funds, net of transaction cost, and measured at amortized cost, that is, plus charges and interest proportional to year up to the date when information is presented.
2.3.17 Expenditures upon issuance of securities Expenditures with recognition of public distribution of securities are recorded in an account that reduces account that originated received funds. Accordingly, expenditures with public distribution of shares are classified in caption “Capital Reserve” and expenditures with issuance of CRI’s are classified in caption “Real Estate Receivable Certificates (CRI)’, as disclosed in note 12.
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2.3.18 Stock options The Company offers to employees and management, as dully approved by the Board of Directors, a share-based remuneration plan (stock option plan), according to which the Company receives services as compensation for granted stock options.
Options’ fair value is established on grant date and is recognized as expenses in income for the year (as a contra-entry to shareholders' equity), as services are provided (vesting period) by employees and management. Remuneration costs were estimated based on stock valuation model denominated Black & Scholes.
In case a stock option plan is cancelled, it is treated as if it had been granted on cancellation date, and any expense not recognized in the plan is immediately recognized. However, if a new plan substitutes the canceled plan, and is designated as substitute plan on the granting date, the canceled plan and the new plan are treated as if they were a modification of the original plan, as previously described.
2.3.19 Other employee benefits
Salaries and benefits granted to employees and managers of the Company include fixed remuneration (salary, INSS, FGTS, vacation, 13th salary, etc.) and variable remuneration, such as profit sharing and share-based payments. These benefits are recorded in income for the year, under caption “General and administrative expenses”, as they are incurred.
Bonus system operates with corporate and individual goals, structured on corporate goals’ efficiency, followed by business goals and individual goals.
The Company and its subsidiaries do not have private pension plan and retirement plan.
2.3.20 Provisions i) Provision for tax, labor and civil risks The Company is a party to several judicial and administrative proceedings. Provisions are established for all demands referring to lawsuits whose likelihood of loss is probable.
Contingent liabilities evaluated as possible and remote losses are only disclosed in notes.
Contingent assets are only recognized when there are real guarantees, or favorable, final and unappealable decisions. Contingent assets with chance of success classified as probable are only disclosed in a note. As of December 31, 2017 and 2016, there are no lawsuits involving contingent assets recorded in the Company’s financial statements.
ii) Allowance for doubtful accounts and cancellation of clients’ contract cancellation The Company recognizes an allowance for doubtful accounts and contract cancellations for clients with overdue installments, according to assumptions defined for each of the Company’s segments. This provision is calculated based on construction work progress percentage, methodology that is applied to recognition of income, according to note 2.3.1 i).
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iii) Provision for guarantee Established to cover expenditures with warranty repairs in projects, based on history of incurred expenses. This provision is recognized as a contra-entry to income (cost), as sold unit costs are incurred. This provision’s possible unused remaining balance is reversed after warranty period, in general five years counted as of delivery.
iv) Provision for impairment (impairment test) The Company evaluates events or changes in economic, operating or technological circumstances that may indicate deterioration or impairment losses of assets with defined useful lives. When these evidences are detected and the net book value exceeds recoverable value, an impairment provision is created to adjust net book value to recoverable value. Main captions subject to evaluation of recovery are: “Properties for sale”, “Investments”, “Property, plant and equipment”, “Intangible assets” and “Securities”.
For assets with undefined useful life, the Company evaluates, at least on an annual basis, regardless of any indication, recoverable value. In case recoverable value is lower than book value, a provision for impairment is recognized, adjusting net book value to recoverable value.
2.3.21 Sales tax For companies using non-cumulative taxable income taxation system, PIS and COFINS rates are respectively 1.65% and 7.6%, calculated on gross operating income and with discount of some credits calculated based on costs and incurred expenses. For companies opting the deemed profit tax regime, the rates of deemed income with the cumulative system, PIS and COFINS are respectively 0.65% and 3% on gross operating income.
2.3.22 Treasury shares They are equity instruments that are bought back, recognized at cost, and deducted from shareholders’ equity. No gain or loss is recognized in the income statement on the purchase, sale, issuance or cancellation of the Company’s equity instruments. Any difference between the book value and the remuneration is recognized in “Other capital reserves”.
2.3.23 Dividends The proposal for distribution of dividends made by the Company’s Management and the portion equivalent to minimum mandatory dividends is recorded as current liabilities, under caption “Dividends payable”, as it is considered as a legal obligation provided for in the Company’s bylaws.
2.3.24 Basic earnings and diluted per share Basic and diluted earnings per share is calculated through income (loss) for the year attributable to the Company’s shareholders, and weighted average of outstanding common shares is calculated in respective year, considering, when applicable, stock split adjustments.
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2.4. New and revised standards and interpretations already issued but not yet adopted Standards, interpretations and amendments to existing standards that will become
Although early adoption is permitted, the Company and its subsidiaries did not adopt the new IFRSs listed below:
IFRS CPC Theme Maturity IFRS 9 CPC 48 Financial instruments January 1, 2018 Income from contracts with IFRS 15 CPC 47 January 1, 2018 clients Changes in IFRS 2 unedited Share-based payments To be determined Changes in IFRS 10 and Associated company or unedited To be determined IAS 28 "Joint Venture" Advances in foreign IFRIC 22 unedited January 1, 2018 currencies Annual Improvements unedited IFRS Cycle 2014–2017 January 1, 2017 and 2018
The Company’s management has not yet evaluated new standards, but it does not expect significant impacts, except for IFRS 15 and IFRS 9 whose details are as follows:
CPC 47 (IFRS 15)
In November 2016, CPC issued pronouncement “CPC 47 – Income from Contracts with Clients” (IFRS 15), which established new income recognition criteria based mainly on transfer of control of one asset or service. This evaluation, according to the standard’s criteria, will determine how the entity should recognize income from contract for sale of real estate units, if in a specific moment or throughout the time.
Entities of the real estate sector together with the CPC presented to the IFRIC (IASB’s entity), at the end of 2017, its interpretation about application of this standard in view of contract models applied in Brazil. There was still no response from IFRIC about this theme.
CVM’s technical area published CVM/SNC/SEP Circular Letter no. 1/2018, guiding entities to follow still prevailing provisions of OCPC 04 (approved by CVM Resolution no. 653/2010), applying adjustments that are necessary due to validity of IFRS 15 for annual periods beginning as of January 1, 2018, until there is an agreement about application or not of income recognition throughout the time. Accordingly, the Company is waiting for the conclusion of this theme to measure, if applicable, possible impact from application of this standard to its financial statements.
CPC 48 (IFRS 09)
IFRS 9 replaces guidelines of IAS 39 (CPC 38) Financial Instruments: Recognition and Measurement, including new models for the classification and measurement of financial instruments and measurement of expected credit losses for financial and contractual assets, and new requirements on hedge accounting. The standard maintains the IAS 39 guidelines about acknowledging and disacknowledging financial instruments. IFRS 9 is effective for years beginning on or after January 1, 2018.
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As a result of discussions held about application of IFRS 15 (CPC 47), prevailing beginning as of January 1, 2018, the Company is not able to estimate the effects of adopting this standard.
3. CASH AND CASH EQUIVALENTS
Individual Consolidated 2017 2016 2017 2016 Cash and Banks - local currency 2,461 16,758 99,449 171,538 Bank deposit certificates and repurchase agreements (i) 47,311 265,205 96,181 342,219 49,772 281,963 195,630 513,757
(i) Financial investments that have immediate convertibility into a known amount of cash and are not subject to significant risk of change in value, and the Company has immediate redemption rights, have an average yield of 92.52% of the Interbank Deposit Certificate (CDI) rate.
4. SECURITIES
Individual Consolidated 2017 2016 2017 2016 Bank deposit certificates (i) 17,876 16,811 178,553 320,684 Exclusive investment funds (ii) 348,183 301,663 688,178 647,629 Federal Government - NTNB - 114,469 - 150,864 Treasury Bills (iii) 20,452 - 20,452 - Sundry investment funds (iv) 129,458 23,013 129,532 23,013 Real Estate Certificates (v) 32,484 - 32,484 - Others (vi) 117,931 42,345 117,932 42,344 666,384 498,301 1,167,131 1,184,534
Current 547,401 369,305 1,047,498 1,016,529 Noncurrent 118,983 128,996 119,633 168,005
(i) Financial investments paid at the average rate of 92.52% of the CDI rate, and have no immediate liquidity.
(ii) The Company invested in exclusive investment funds BRACYR and CYR18, administrated by Banco Safra S.A. and Banco Santander S.A. This financial institution is responsible for the custody of assets in fund’s portfolio and for financial settlement of its operations. The funds are comprised of fixed-income securities and were remunerated at the average rate of 100.56% of the CDI rate.
(iii) Financial letters remunerated at the average rate of 114.25% of the CDI rate.
(iv) The Company has open and multi-market investments, administrated by Banco Credit Suisse Hedging-Griffo Corretora de Valores S.A, XP Investimentos CCTVM S.A., Banco Safra S.A., Banco Santander S.A., Caixa Economica Federal, Banco Bradesco S.A. and Banco BNY Mellon Banco S.A., respectively. The financial institution is responsible for the custody of the assets of the fund’s portfolio and for the financial settlement of its operations. The Fund is comprised of variable income securities and remunerated at an average rate of 150.53% of the CDI rate.
(v) Investment in senior and subordinated CRI’s with average remuneration of 8.25% p.a.
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(vi) These are substantially represented by real estate credit notes with average remuneration of 12% p.a. + inflation.
The breakdown of the exclusive investment fund, in proportion to the shares held by the Company, is shown below:
Consolidated Consolidated 2017 2016 Bank Deposit Certificates 67,661 87,546 Investment funds (iii) 212,234 101,189 Treasury Bills (ii) 215,470 216,002 Repurchase agreements 4,563 21,447 Public Federal Bonds (i) 188,250 221,445 688,178 647,629
(i) Public Security at the rate of 100.14% of SELIC.
(ii) Financial letters remunerated at the average rate of 102.70% of the CDI rate.
(iii) Investment funds at the rate of 100.56% of CDI.
5. ACCOUNTS RECEIVABLE
Individual Consolidated 2017 2016 2017 2016
Real estate projects completed 10,119 11,620 1,399,075 1,286,697
Real Estate projects in construction Recognized revenue - - 4,088,623 6,552,916 Installments received - - (2,799,234) (4,407,409) - - 1,289,389 2,145,507 Adjustment to presente value (AVP) - - (24,467) (55,057) - - 1,264,922 2,090,450
Receivables from sale recognized 10,119 11,620 2,663,997 3,377,147
Services rendered - - 3,237 2,645
Total accounts receivables 10,119 11,620 2,667,234 3,379,792
Current 4,434 10,853 2,069,412 2,615,078 Noncurrent 5,685 767 597,822 764,714 Balance of accounts receivable from sale of properties under construction is adjusted at the Civil Construction National Index (INCC) until keys are delivered. After the delivery of keys, receivables accrue interest of 12% per year plus correction for inflation through the General Market Price Index (IGP-M).
The adjustment to present value is calculated on balances of accounts receivable from unfinished units considering the estimated period until the delivery of the keys, using either the average rate of remuneration of government bonds (NTN-B) or the average rate of funding practiced by the 22
Company, whichever is higher, without inflation, for the financing obtained. Average rate used for year ended December 31, 2017 was 4.48% p.a. (6.10% as of December 31, 2016). Adjustment to present value accounted for in income, under caption “Net Income” totaled R$30,591 in year ended December 31, 2017 (R$3,507 as of December 31, 2016).
The allowance for doubtful accounts is formed when there is objective evidence that the Company and its subsidiaries will not be able to collect all amounts due according the accounts receivable original terms. If there is evidence that the amount recorded is lower than the recoverable value of accounts receivable, the provision will be recorded. See the provision for cancellations (Note 19).
The balance of accounts receivable from the unfinished properties sold is not fully shown in consolidated financial statements, because it is recorded only to the extent of the income recognized according to the progress of civil works, net of installments received.
As additional information, full balances not yet reflected in financial statements are as follows:
Individual Consolidated Real estate development and resale 2017 2016 2017 2016
Total in current assets 4,434 10,853 2,066,175 2,612,433 Total in noncurrent assets 5,685 767 597,822 764,714 10,119 11,620 2,663,997 3,377,147
Total sales contracted to be appropriated - - 1,654,031 2,164,418 Portion classified as advances from customers - - (119,794) (67,633) 10,119 11,620 4,198,234 5,473,932
Current 4,434 10,853 2,654,167 3,292,085 Noncurrent 5,685 767 1,544,067 2,181,847
Classification in non-current assets is determined by amounts that are expected to be received, according to contract flow, with maturity beginning as of the 12th month.
Schedule of the portfolio of receivables for real estate development and resale
The following portfolio is presented based on the expectation of receipts, considering the income already recognized and yet to be recognized, as follows:
Individual Consolidated 2017 2016 2017 2016 12 Months 4,434 10,853 2,654,167 3,292,085 24 Months 1,306 746 893,830 1,342,360 36 Months 999 21 477,155 630,845 48 Months 891 - 83,544 91,234 Above 48 Months 2,489 - 89,539 117,408 Total 10,119 11,620 4,198,235 5,473,932
As of December 31, 2017, the amount of installments overdue for more than 350 days in our consolidated receivables portfolio was R$41,955 (R$57,784 as of December 31, 2016).
23
6. PROPERTIES FOR SALE
Represented by the costs of real estate units available for sale (real estate properties completed and under construction), land for future developments and advances to acquisition of land as shown below:
Individual Consolidated 2017 2016 2017 2016
Properties under construction - 12,051 1,439,956 1,978,007 Completed properties 16,670 4,785 1,201,285 934,463 Lands for future developments (a) 30,928 29,064 1,782,213 1,834,181 Advances for acquisition of land - - 108,385 106,015 Interest capitalized in inventories (b) - - 217,916 219,194 47,598 45,900 4,749,755 5,071,860
Current 47,598 16,836 3,218,341 3,656,791 Noncurrent - 29,064 1,531,414 1,415,069
(a) The classification of land for future developments between current and non-current assets is made based on the expectation of the period for launching of the real estate developments, periodically reviewed by Management. The properties under construction and finished properties are classified in current assets, considering their availability for sale.
(b) The balance of capitalized charges in consolidated represented R$ 144,687 relating to the Housing Financial System (“SFH”) and R$ 73,229 relating to charges of other debts, totaling R$ 217,915 on December 31, 2017 (SFH charges: R$ 128,192; charges of other debts: R$ 91,001; totaling R$ 219,193 on December 31, 2016).
(b.1) Recognition of charges capitalized in the consolidated statement of income, under caption “Cost of properties sold”, totaled R$155,587 referring to charges of the Sistema Financeiro de Habitação (home financial system - SFH) and R$20,287 referring to other debts’ charges, totaling R$176,414 as of December 31, 2017, (SFH charges of R$185,931, other debts’ charges of R$16,821, totaling R$202,752 as of December 31, 2016), being recognized in income according to OCPC 01 (R1). The balance of charges capitalized to the inventory had a decrease by R$ 1,772, relating to investees that were no longer consolidated or sold in the period.
7. INVESTMENTS a) The main information on ownership interest held is summarized below:
24
Total Equity interest - % Profit (loss) for the Share profit (loss) of 2017 2016 Equi ty period Investment subsidiaries
Companies: Total Direct Total Direct 2017 2016 2017 2016 2017 2016 2017 2016
Austria Incorporadora Ltda 50.00 50.00 50.00 50.00 28,953 26,981 1,435 2,967 14,476 13,491 718 1,484 Cabo Frio Incorporadora Ltda 50.00 50.00 50.00 50.00 35,543 36,210 (787) 20,709 17,771 18,105 (394) 10,354 Camargo Correa Cyrela Empreendimentos Imobiliários SPE Ltda 50.00 50.00 50.00 50.00 16,987 13,262 (340) 64 8,493 6,631 (170) 32 Canoa Quebrada Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 28,098 27,270 (146) (118) 28,098 27,270 (146) (118) Carapa Empreendimentos Imobiliários Ltda 60.00 60.00 60.00 60.00 48,393 35,065 13,564 25,500 29,036 21,039 8,138 15,300 CBR 011 Empreendimentos Imobiliários Ltda 32.50 32.50 32.50 32.50 85,003 139,309 17,414 (50,268) 27,626 45,276 5,659 (16,337) CBR 014 Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 14,023 15,285 (2,181) 10,261 14,023 15,285 (2,181) 10,261 CBR 016 Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 10,739 5,930 1,888 13 10,739 5,930 1,888 13 CBR 024 Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 163,791 155,068 (10,562) (10,830) 81,896 77,534 (5,281) (5,415) CBR 030 Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 110,368 110,304 64 (11) 55,184 55,152 32 (5) CBR 031 Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 107,076 117,163 12,010 22,176 107,076 117,163 12,010 22,176 CBR 051 Empreendimentos Imobiliários Ltda (iv) 50.00 50.00 - - 103,617 - (3) - 51,808 - (1) - CHL Lxxviii Incorporações Ltda 50.00 50.00 50.00 50.00 18,276 18,797 756 (245) 9,138 9,399 378 (122) Country de Investimentos Imobiliários Ltda (ii) 97.25 97.25 97.25 72.25 13,199 12,703 970 1,525 12,836 9,178 944 1,102 Cury Construtora E Incorporadora S/A 50.00 50.00 50.00 50.00 252,726 229,039 120,130 92,863 126,363 114,519 60,065 46,431 Cyrela Aconcagua Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 49,526 52,043 (158) (1,692) 49,526 52,043 (158) (1,692) Cyrela Anis Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 37,441 55,465 (2,274) 6,478 37,441 55,465 (2,274) 6,478 Cyrela Asteca Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 44,857 38,588 (77) (561) 44,857 38,588 (77) (561) Cyrela Austurias Empreendimentos Imobiliários Ltda 80.00 80.00 80.00 80.00 17,766 13,018 4,748 6,915 14,213 10,414 3,799 5,532 Cyrela Borgonha Empreendimentos Imobiliários Ltda 80.00 80.00 80.00 80.00 12,671 3,061 (2) 173 10,137 2,449 (2) 138 Cyrela Brazil Realty Rjz Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 48,263 66,450 (14,944) 18,044 48,263 66,450 (14,944) 18,044 Cyrela Cristal Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 32,871 32,538 333 18,021 32,871 32,538 333 18,021 Cyrela Empreendimentos Imobiliários Comercial Importadora e Exportadora Ltda 100.00 100.00 100.00 100.00 20,656 35,320 (5,351) 1,210 20,656 35,320 (5,351) 1,210 Cyrela Europa Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 51,480 58,608 (2,864) (3,065) 51,480 58,608 (2,864) (3,065) Cyrela Grenwood de Investimentos Imobiliários Ltda (ii) 95.75 75.00 95.75 55.00 41,568 32,590 (551) (651) 31,176 17,924 (413) (358) Cyrela Imobiliária Ltda 100.00 100.00 100.00 100.00 45,923 49,563 1,829 310 45,923 49,563 1,829 310 Cyrela Índico Empreendimentos Imobiliários Ltda 72.00 72.00 72.00 72.00 32,939 47,678 8,477 3,827 23,716 34,328 6,103 2,756 Cyrela Indonesia Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 44,385 47,590 2,282 25,245 44,385 47,590 2,282 25,245 Cyrela Magik Monaco Empreendimentos Imobiliários Ltda 80.00 80.00 80.00 80.00 25,048 46,561 1,007 11,779 20,038 37,248 806 9,424 Cyrela Maguari Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 11,853 7,904 6,493 5,104 11,853 7,904 6,493 5,104 Cyrela Malasia Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 14,102 22,050 (1,989) (3,882) 14,102 22,050 (1,989) (3,882) Cyrela Malibu Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 10,243 10,221 (11) 11 10,243 10,221 (11) 11 Cyrela Montblanc Empreendimentos Imobiliários Ltda (ii) 99.99 99.99 100.00 100.00 134,084 154,385 (31,345) (41,892) 134,071 154,385 (31,342) (41,892) Cyrela Monza Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 186,332 202,778 11,136 26,650 186,332 202,778 11,136 26,650 Cyrela Nordeste Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 85,474 112,994 4,580 (26,742) 85,474 112,994 4,580 (26,742) Cyrela Pacifico Empreendimentos Imobiliários S/A 80.00 80.00 80.00 80.00 29,104 30,176 28 165 23,283 24,141 22 132 Cyrela Pamplona Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 12,849 10,273 (326) 879 12,849 10,273 (326) 879 Cyrela Paris Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 62,646 74,271 (14,391) 20,496 62,646 74,271 (14,391) 20,496 Cyrela Perola Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 11,187 5,693 3,877 (0) 11,187 5,693 3,877 - Cyrela Piracema Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 26,565 25,510 (49) 19 26,565 25,510 (49) 19 Cyrela Portugal Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 44,261 53,543 31,380 (2,638) 44,261 53,543 31,380 (2,638) Cyrela Puglia Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 28,624 2,049 (228) 3,540 28,624 2,049 (228) 3,540 Cyrela Recife Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 162,435 166,557 (4,122) 35,687 162,435 166,557 (4,122) 35,687 Cyrela Rjz Construtora e Empreendimentos Imobiliários Ltda 100.00 84.17 100.00 84.17 107,514 101,760 (25,300) (2,491) 90,490 85,647 (21,294) (2,096) Cyrela Rjz Empreendimentos Imobiliários Ltda 97.45 59.90 97.45 59.90 82,107 98,140 1,146 (830) 49,182 58,786 686 (497) Cyrela Rjz Jcgontijo Empreendimentos Imobiliários Ltda 43.00 25.00 43.00 25.00 122,152 189,497 33,872 15,316 30,538 47,374 8,468 3,829 Cyrela Suecia Empreendimentos Imobiliários Ltda 100.00 50.00 100.00 50.00 62,552 107,919 (9,367) (14,382) 31,276 53,960 (4,684) (7,191) Cyrela Vermont de Investimentos Imobiliários Ltda (ii) 97.90 85.00 97.90 50.00 13,498 13,164 (122) (475) 11,473 6,582 (104) (238) Cyrela Violeta Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 18,289 17,862 (245) (1) 18,289 17,862 (245) (1) Dona Margarida II Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 24,204 18,556 6,030 (547) 24,204 18,556 6,030 (547) Fazenda Sao Joao Empreendimentos Imobiliários SPE Ltda 85.00 85.00 85.00 85.00 23,433 23,401 (2) (31) 19,918 19,890 (2) (26) Flamingo Investimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 13,426 12,197 (1) (76) 13,426 12,197 (1) (76) Goldsztein Cyrela Empreendimentos Imobiliários S/A 100.00 100.00 100.00 100.00 709,460 693,178 67,207 58,312 709,460 693,178 67,207 58,312 Iracema Incorporadora Ltda 50.00 50.00 50.00 50.00 57,069 56,198 3 6 28,535 28,099 2 3 Jacira Reis Empreendimentos Imobilários Ltda 50.00 50.00 50.00 50.00 31,913 47,177 (15,265) (15,100) 15,956 23,589 (7,632) (7,550) Lider Cyrela Df 01 Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 34,551 33,532 94 (2,071) 34,551 33,532 94 (2,071) Living 002 Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 12,746 6,127 6,649 1,556 12,746 6,127 6,649 1,556 Living Botucatu Empreendimentos Imobiliários Ltda 75.00 50.00 75.00 50.00 24,580 13,638 10,942 13,128 12,290 6,819 5,471 6,564 Living Cedro Empreendimentos Imobiliários Ltda (ii) 100.00 100.00 100.00 50.00 125,317 46,320 (28,900) 22,130 125,317 23,160 (28,900) 11,065 Living Empreendimentos Imobiliários S/A 100.00 100.00 100.00 100.00 724,397 725,899 (22,510) 54,628 724,397 725,899 (22,510) 54,628 Living Sabino Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 11,311 5,708 4,510 1,279 11,311 5,708 4,510 1,279 Living Salazares Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 14,312 7,135 5,985 465 14,312 7,135 5,985 465 Living Talara Empreendimentos Imobiliários Ltda 70.00 40.00 70.00 40.00 12,813 6,704 6,109 2,813 5,125 2,682 2,444 1,125 Lorena Empreendimentos Imobiliários SPE Ltda 55.00 10.00 55.00 10.00 17,358 5,265 21,602 6,670 1,736 527 2,160 667 Luanda Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 103,453 104,352 5,145 7,740 103,453 104,352 5,145 7,740 Lucio Brazil Real Estate S/A 50.00 50.00 50.00 50.00 32,918 35,949 (2,401) 434 16,459 17,974 (1,200) 217 Mac Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 155,908 566,235 47,238 65,279 77,954 283,118 23,619 32,639 Mac Veneza Empreendimentos Imobiliários Ltda (ii) 50.00 50.00 74.51 50.00 60,928 44,000 8 6 30,464 22,000 4 3 Marques de Itu SPE Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 24,509 23,181 902 3,506 12,255 11,591 451 1,753 Moinho Velho Empreendimentos Imobiliários SPE Ltda 50.00 50.00 50.00 50.00 11,928 11,758 (1) 9 5,964 5,879 - 4 Pionner-4 Empreendimentos Imobiliários Ltda (iii) 100.00 100.00 - - 15,410 - 118 - 15,410 - 118 - Plano & Plano Construções e Participações Ltda 100.00 100.00 100.00 100.00 273,635 310,431 (1,796) 8,324 273,635 310,431 (1,796) 8,324 Plano & Plano Desenvolvimento Imobiliários Ltda 50.00 50.00 50.00 50.00 40,686 8,779 31,907 8,769 20,343 4,390 15,953 4,385 Plano Amoreira Empreendimentos Imobiliários SPE Ltda 100.00 60.00 100.00 60.00 70,383 100,232 15,151 38,463 42,230 60,139 9,091 23,078 Plarcon Cyrela Empreendimentos Imobiliários SPE Ltda 50.00 50.00 50.00 50.00 10,822 15,007 (4,186) 1,008 5,411 7,504 (2,093) 504 Queiroz Galvao Mac Cyrela Veneza Empreendimentos Imobiliarios S/A 30.00 15.00 30.00 15.00 14,805 18,610 (3,805) 2,254 2,221 2,791 (571) 338 Ravenna Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 51,448 46,206 7,641 9,025 51,448 46,206 7,641 9,025 Reserva Casa Grande Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 29,699 3,232 6,198 755 14,850 1,616 3,099 377 Rua dos Alpes Empreendimentos Imobiliários Ltda 100.00 100.00 100.00 100.00 37,312 38,435 2,563 2,338 37,312 38,435 2,563 2,338 SCP Veredas Buritis Fase II 60.00 6.00 60.00 6.00 17,184 17,635 1,737 (1,323) 1,031 1,058 104 (79) SCP Vinson Praça Piratininga (iv) 2.92 2.92 - - 24,823 - 2,941 - 725 83,149 86 - Seattle Empreendimentos Imobiliários Ltda (iv) 50.00 50.00 - - 106,631 - 6,496 - 53,315 - 3,248 - Seller Consultoria Imobiliários e Representações Ltda 100.00 100.00 100.00 100.00 14,173 15,388 (28,220) (29,233) 14,173 15,388 (28,220) (29,233) SK Realty Empreendimentos Imobiliários S/A 50.00 50.00 50.00 50.00 172,245 149,019 31,353 23,727 86,122 74,509 15,676 11,864 SPE Barbacena Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 47,592 42,919 4,524 8,249 23,796 21,460 2,262 4,125 SPE Brasil Incorporação 28 Ltda 50.00 50.00 50.00 50.00 12,213 22,689 695 1,855 6,107 11,345 347 927 SPE Brasil Incorporação 83 Ltda 50.00 50.00 50.00 50.00 44,599 27,180 (4,689) 3,089 22,300 13,590 (2,345) 1,545 SPE CHL Cv Incorporacoes Ltda 50.00 50.00 50.00 50.00 12,411 18,088 (3,162) (10,085) 6,205 9,044 (1,581) (5,043) SPE Faicalville Incorporação 1 Ltda 50.00 50.00 50.00 50.00 14,424 23,673 225 (3,353) 7,212 11,836 112 (1,677) Tamoios Empreendimentos Imobiliários SPE Ltda 60.00 60.00 60.00 60.00 28,802 28,294 816 (1,533) 17,281 16,977 490 (920) Tecnisa S/A (ii) 7.91 7.91 13.62 13.62 1,049,061 1,420,976 (520,652) (448,981) 56,464 79,458 (4,843) (8,224) Toulon Empreendimentos Imobiliários SPE Ltda 100.00 100.00 100.00 100.00 21,301 21,288 - (5,128) 21,301 21,288 - (5,128) Vinson Empreendimentos Imobiliários Ltda 74.51 74.51 74.51 74.51 126,145 111,595 15,961 (737) 93,991 - 11,892 (549) Others 256 SPEs with Equity up to 10MM 420,523 2,088,117 (207,645) (76,878) 348,106 558,056 (184,210) (74,807) Sub-total 5,335,239 5,657,762 (24,866) 286,726 Interest capitalization (i) 49,474 63,924 (15,859) (12,079) 5,384,713 5,721,686 (40,725) 274,647
25
(i) The parent company’s investments have capitalization of interest on loans, financing and debentures, which are identified directly to the real estate developments of its investees. In consolidated, these amounts are capitalized to inventories, according to Note 6.
(ii) Change derived from increase/(decrease) in interest.
(iii) Acquisition of parent company
(iv) Refers to the establishment of the new company.
Changes in the Company’s investments may be presented as follow:
Individual Consolidated
Balance as at December 31, 2015 5,702,882 745,841 Subscription / (decrease) Capital 254,363 167,698 Dividends (516,703) (59,632) Share of point (loss) of subsidiaries 274,647 49,438 Interest capitalization 6,497 - Balance as at December 31, 2016 5,721,686 903,345
Balance as at December 31, 2016 5,721,686 903,345 Subscription / (decrease) Capital 640,773 157,088 Dividends (938,430) (297,301) Share of point (loss) of subsidiaries (40,725) 73,690 Interest capitalization 1,409 - Balance as at December 31, 2017 5,384,713 836,822 b) The total balances of the equity accounts and P/L accounts of consolidated and jointly-controlled companies or associated companies, directly and indirectly, included in the consolidated financial statements, as of December 31, 2017 and December 31, 2016, can be shown as follows:
26
Total Equity interest -% 2017 2016
Profit (loss) for Profit (loss) for 2017 2016 Asset Liability Equi ty Asset Liability Equi ty the period the period
Abdo Empreendimentos Imobiliários Ltda 100.00 100.00 28,563 1,291 27,272 (486) 28,738 2,134 26,604 2 Ak 19 - Empreendimentos E Participações Ltda 26.00 26.00 134,712 85,401 49,311 (3,462) 124,950 83,165 41,785 4,827 Alphaville Nova Esplanada 3 Empreendimentos Ltda 25.00 25.00 37,526 8,123 29,404 (9,742) 54,562 7,174 47,388 1,759 Andorra Empreendimentos Imobiliários Ltda 80.00 80.00 171,816 100,431 71,386 47,058 110,239 45,691 64,548 39,203 Api Spe35 Planejamento E Desenvolvimento Ltda 50.00 50.00 26,202 13,515 12,687 7,915 23,544 16,009 7,535 2,923 Australia Empreeendimentos Imobiliários Ltda 100.00 100.00 27,077 5,949 21,129 2,498 33,162 15,762 17,400 (4,752) Austria Incorporadora Ltda 50.00 50.00 34,342 5,390 28,953 1,435 31,679 4,698 26,981 2,967 Batel Empreendimentos Imobiliários Ltda 80.00 80.00 35,861 11,198 24,663 (2,391) 75,667 39,238 36,429 9,987 Bello Villarinho Empreendimentos Imobiliários Ltda 50.00 50.00 13,904 93 13,810 27 13,947 163 13,783 122 Cabo Frio Incorporadora Ltda 50.00 50.00 35,897 354 35,543 (787) 40,199 3,989 36,210 20,709 Camargo Correa Cyrela Empreendimentos Imobiliários Spe Ltda 50.00 50.00 19,240 2,254 16,987 (340) 20,052 6,790 13,262 64 Campos Sales Empreendimentos Imobiliários Ltda 40.00 40.00 51,324 17,690 33,634 (6,453) 75,927 35,840 40,087 8,430 Canoa Quebrada Empreendimentos Imobiliários Ltda 100.00 100.00 28,144 46 28,098 (146) 27,597 327 27,270 (118) Carapa Empreendimentos Imobiliários Ltda 60.00 60.00 137,786 89,393 48,393 13,564 99,789 64,724 35,065 25,500 CBR 008 Empreendimentos Imobiliários Ltda 100.00 100.00 152,144 78,708 73,436 (26,663) 200,335 136,400 63,935 (5,320) CBR 011 Empreendimentos Imobiliários Ltda 32.50 32.50 98,151 13,148 85,003 17,414 187,023 47,714 139,309 (50,268) CBR 014 Empreendimentos Imobiliários Ltda 100.00 100.00 23,565 9,543 14,023 (2,181) 22,797 7,511 15,285 10,261 CBR 016 Empreendimentos Imobiliários Ltda 100.00 100.00 11,530 790 10,739 1,888 6,431 500 5,930 13 CBR 024 Empreendimentos Imobiliários Ltda 50.00 50.00 261,400 97,609 163,791 (10,562) 225,860 70,792 155,068 (10,830) CBR 030 Empreendimentos Imobiliários Ltda 50.00 50.00 243,420 133,052 110,368 64 231,080 120,776 110,304 (11) CBR 031 Empreendimentos Imobiliários Ltda 100.00 100.00 133,051 25,975 107,076 12,010 134,407 17,244 117,163 22,176 CBR 051 Empreendimentos Imobiliários Ltda (iii) 50.00 - 103,625 8 103,617 (3) - - - - CCISA 02 Incorporadora Ltda 49.95 49.95 28,202 9,361 18,841 1,199 30,936 13,294 17,642 4,559 CCISA 03 Incorporadora Ltda 25.00 25.00 62,763 29,563 33,200 5,555 91,574 11,042 80,532 3,365 CCISA 04 Incorporadora Ltda 49.95 49.95 38,828 6,960 31,867 1,284 54,798 24,214 30,584 10,991 CCISA 05 Incorporadora Ltda 25.00 25.00 69,821 9,837 59,984 (251) 81,791 21,556 60,235 1,961 CCISA11 Incorporadora Ltda 49.95 49.95 14,423 1,592 12,831 5,569 20,277 13,016 7,262 6,943 CCISA12 Incorporadora Ltda 49.95 49.95 22,367 11,900 10,468 9,068 26,324 19,321 7,003 4,646 CCISA25 Incorporadora Ltda 49.95 49.95 73,934 57,074 16,860 12,849 40,402 36,391 4,011 4,043 Chillan Investimentos Imobiliários Ltda 25.00 25.00 31,140 1,288 29,852 2,113 30,106 1,766 28,340 7,201 Chl Lxxviii Incorporações Ltda 50.00 50.00 35,593 17,317 18,276 756 35,979 17,182 18,797 (245) Country De Investimentos Imobiliários Ltda 97.25 97.25 15,484 2,286 13,199 970 13,818 1,115 12,703 1,525 Cury Construtora E Incorporadora S/A 50.00 50.00 692,131 439,405 252,726 120,130 630,653 401,614 229,039 92,863 Cyrela Aconcagua Empreendimentos Imobiliários Ltda 100.00 100.00 50,890 1,364 49,526 (158) 52,919 876 52,043 (1,692) Cyrela Andrade Mendonca Jcpm Empreendimentos Imobiliários Spe S/A 85.00 85.00 26,710 13,093 13,617 (3,776) 63,852 31,973 31,879 (8,759) Cyrela Anis Empreendimentos Imobiliários Ltda 100.00 100.00 39,691 2,250 37,441 (2,274) 63,293 7,828 55,465 6,478 Cyrela Asteca Empreendimentos Imobiliários Ltda 100.00 100.00 44,924 67 44,857 (77) 38,890 302 38,588 (561) Cyrela Austurias Empreendimentos Imobiliários Ltda 80.00 80.00 39,603 21,837 17,766 4,748 35,032 22,014 13,018 6,915 Cyrela Borgonha Empreendimentos Imobiliários Ltda 80.00 80.00 12,679 8 12,671 (2) 3,074 13 3,061 173 Cyrela Brazil Realty Rjz Empreendimentos Imobiliários Ltda 100.00 100.00 74,920 26,657 48,263 (14,944) 79,989 13,539 66,450 18,044 Cyrela Ccp Canela Empreendimentos Imobiliários Ltda 50.00 50.00 32,003 8 31,995 (389) 32,287 9 32,278 (102) Cyrela Cristal Empreendimentos Imobiliários Ltda 100.00 100.00 115,441 82,570 32,871 333 108,576 76,038 32,538 18,021 Cyrela Diamante Empreendimentos Imobiliários Ltda 51.02 51.02 17,274 2,089 15,186 1,977 19,684 5,517 14,167 318 Cyrela Empreendimentos Imobiliários Comercial Importadora E Exportadora Ltda 100.00 100.00 22,257 1,601 20,656 (5,351) 36,795 1,475 35,320 1,210 Cyrela Europa Empreendimentos Imobiliários Ltda 100.00 100.00 119,753 68,273 51,480 (2,864) 141,268 82,660 58,608 (3,065) Cyrela Grenwood De Investimentos Imobiliários Ltda 95.75 95.75 41,664 97 41,568 (551) 36,804 4,214 32,590 (651) Cyrela Imobiliária Ltda 100.00 100.00 54,023 8,099 45,923 1,829 63,666 14,103 49,563 310 Cyrela Índico Empreendimentos Imobiliários Ltda 72.00 72.00 32,940 1 32,939 8,477 47,678 - 47,678 3,827 Cyrela Indonesia Empreendimentos Imobiliários Ltda 100.00 100.00 46,383 1,998 44,385 2,282 103,662 56,072 47,590 25,245 Cyrela Magik Monaco Empreendimentos Imobiliários Ltda 80.00 80.00 62,644 37,596 25,048 1,007 90,110 43,549 46,561 11,779 Cyrela Maguari Empreendimentos Imobiliários Ltda 100.00 100.00 29,587 17,734 11,853 6,493 23,662 15,758 7,904 5,104 Cyrela Malasia Empreendimentos Imobiliários Ltda 100.00 100.00 18,398 4,297 14,102 (1,989) 29,420 7,370 22,050 (3,882) Cyrela Malibu Empreendimentos Imobiliários Ltda 100.00 100.00 10,244 - 10,243 (11) 10,257 36 10,221 11 Cyrela Montblanc Empreendimentos Imobiliários Ltda 100.00 100.00 172,073 37,988 134,084 (31,345) 223,139 68,754 154,385 (41,892) Cyrela Monza Empreendimentos Imobiliários Ltda 100.00 100.00 209,187 22,855 186,332 11,136 261,391 58,613 202,778 26,650 Cyrela Nordeste Empreendimentos Imobiliários Ltda 100.00 100.00 89,336 3,863 85,474 4,580 115,584 2,590 112,994 (26,742) Cyrela Pacifico Empreendimentos Imobiliários S/A 80.00 80.00 29,218 114 29,104 28 30,192 16 30,176 165 Cyrela Pamplona Empreendimentos Imobiliários Ltda 100.00 100.00 25,808 12,958 12,849 (326) 19,214 8,941 10,273 879 Cyrela Parana Empreendimentos Imobiliários Ltda 100.00 100.00 87,677 16,359 71,318 (1,894) 101,331 37,221 64,110 (12,403) Cyrela Paris Empreendimentos Imobiliários Ltda 100.00 100.00 178,003 115,357 62,646 (14,391) 208,584 134,313 74,271 20,496 Cyrela Perola Empreendimentos Imobiliários Ltda 100.00 100.00 12,009 822 11,187 3,877 5,694 1 5,693 (0) Cyrela Piracema Empreendimentos Imobiliários Ltda 100.00 100.00 27,993 1,428 26,565 (49) 31,892 6,382 25,510 19 Cyrela Polinesia Empreendimentos Imobiliários Ltda 100.00 100.00 72,501 15,660 56,841 (6,949) 128,162 51,967 76,195 (9,495) Cyrela Portugal Empreendimentos Imobiliários Ltda 100.00 100.00 72,255 27,993 44,261 31,380 53,642 99 53,543 (2,638) Cyrela Puglia Empreendimentos Imobiliários Ltda 100.00 100.00 29,674 1,051 28,624 (228) 10,439 8,390 2,049 3,540 Cyrela Recife Empreendimentos Imobiliários Ltda 100.00 100.00 457,588 295,153 162,435 (4,122) 422,306 255,749 166,557 35,687 Cyrela Rjz Construtora E Empreendimentos Imobiliários Ltda 100.00 100.00 123,509 15,995 107,514 (25,300) 120,625 18,865 101,760 (2,491) Cyrela Rjz Empreendimentos Imobiliários Ltda 97.45 97.45 42,177 (39,931) 82,107 1,146 57,205 (40,935) 98,140 (830) Cyrela Rjz Jcgontijo Empreendimentos Imobiliários Ltda 43.00 43.00 219,789 97,636 122,152 33,872 291,351 101,854 189,497 15,316 Cyrela Somerset De Investimentos Imobiliários Ltda 83.00 83.00 25,436 384 25,052 (126) 25,144 1,677 23,467 (800) Cyrela Suecia Empreendimentos Imobiliários Ltda 100.00 100.00 242,658 180,106 62,552 (9,367) 282,677 174,758 107,919 (14,382) Cyrela Sul 001 Empreendimentos Imobiliários Spe Ltda 92.50 92.50 136,830 10,070 126,760 52,516 105,511 36,317 69,194 53,159 Cyrela Sul 002 Empreendimentos Imobiliários Spe Ltda 92.50 92.50 34,531 2,528 32,003 9,067 19,696 3,616 16,079 6,557 Cyrela Sul 003 Empreendimentos Imobiliários Spe Ltda 92.50 92.50 24,467 6,971 17,496 5,323 15,785 125 15,659 (56) Cyrela Sul 004 Empreendimentos Imobiliários Spe Ltda 92.50 92.50 18,060 6 18,054 (144) 16,364 16 16,348 (322) Cyrela Sul 006 Empreendimentos Imobiliários Spe Ltda 92.50 92.50 27,083 12,972 14,111 2,297 17,237 2,532 14,705 2,818 Cyrela Sul 008 Empreendimentos Imobiliarios Spe Ltda 90.00 90.00 28,895 2,517 26,378 (1,219) 24,643 182 24,461 (1,049) Cyrela Sul 013 Empreendimentos Imobiliarios Spe Ltda 92.50 92.50 34,223 14,854 19,369 5,582 39,065 19,324 19,741 12,541 Cyrela Sul 014 Empreendimentos Imobiliários Spe Ltda 90.00 90.00 55,995 29,099 26,897 21,987 44,329 36,419 7,910 5,691 Cyrela Tupiza Empreendimentos Imobiliários Ltda 100.00 100.00 28,701 17,636 11,065 (2,417) 35,772 22,290 13,482 (3,402)
27
Total Equity interest -% 2017 2016
Profit (loss) for Profit (loss) for 2017 2016 Asset Liability Equi ty Asset Liability Equi ty the period the period
Cyrela Vermont De Investimentos Imobiliários Ltda 97.90 97.90 13,500 2 13,498 (122) 13,215 51 13,164 (475) Cyrela Violeta Empreendimentos Imobiliários Ltda 100.00 100.00 18,323 34 18,289 (245) 17,870 8 17,862 (1) Dgc João Gualberto Ltda 95.00 95.00 37,349 1,867 35,482 (11,488) 55,546 8,851 46,695 3,014 Dgc Map Parana Empreendimentos Imobiliários Ltda 88.25 88.25 43,713 12,444 31,269 7,304 39,812 15,847 23,965 10,690 Dona Margarida Ii Empreendimentos Imobiliários Ltda 100.00 100.00 25,210 1,006 24,204 6,030 19,234 678 18,556 (547) Emmerin Incorporações Ltda 49.95 49.95 62,405 49,088 13,317 41,769 89,519 78,797 10,721 7,159 Fazenda Sao Joao Empreendimentos Imobiliários Spe Ltda 85.00 85.00 23,433 - 23,433 (2) 23,402 2 23,401 (31) Flamingo Investimentos Imobiliários Ltda 100.00 100.00 13,707 281 13,426 (1) 12,197 (0) 12,197 (76) Galeria Boulevard Negocios Imobiliários S/A 48.62 48.62 14,199 2,378 11,821 337 14,199 2,210 11,989 119 Gcln Incorporações E Empreendimentos Ltda 80.00 80.00 42,240 2,849 39,392 (3,763) 56,235 13,465 42,770 (5,850) Gcw Capao Da Canoa Empreendimentos Imobiliários Ltda 60.00 60.00 15,685 3 15,683 (150) 15,481 43 15,438 (56) Goldsztein Cyrela Empreendimentos Imobiliários S/A 100.00 100.00 839,140 129,680 709,460 67,207 969,333 276,155 693,178 58,312 Imperio Do Ocidente Incorporações Ltda 75.00 75.00 16,153 758 15,395 173 17,220 1,998 15,222 2,974 Iracema Incorporadora Ltda 50.00 50.00 57,075 5 57,069 3 56,198 0 56,198 6 Jacira Reis Empreendimentos Imobiliários Ltda 50.00 50.00 69,319 37,407 31,913 (15,265) 114,365 67,188 47,177 (15,100) Jaguariuna Empreendimentos Imobiliários Ltda 50.00 50.00 47,297 34,060 13,237 10,022 17,672 10,430 7,241 5,716 Jardim Leao Empreendimentos Imobiliários Ltda 100.00 100.00 20,287 2,606 17,681 1,202 26,007 1,925 24,082 (4,367) Jardim Loureiro Da Silva Empreendimentos Imobiliários Ltda 65.00 65.00 44,726 6,479 38,247 (2,517) 49,182 9,311 39,871 14,317 Lamballe Incorporadora Ltda 70.00 70.00 41,241 9,771 31,470 7,844 57,246 30,620 26,626 17,917 Lider Cyrela Df 01 Empreendimentos Imobiliários Ltda 100.00 100.00 35,039 488 34,551 94 36,409 2,877 33,532 (2,071) Living 002 Empreendimentos Imobiliários Ltda 100.00 100.00 29,691 16,945 12,746 6,649 11,303 5,176 6,127 1,556 Living 006 Empreendimentos Imobiliários Ltda 100.00 100.00 35,774 23,035 12,739 6,022 21,015 6,072 14,943 3,804 Living Amoreira Empreendimentos Imobiliários Ltda 100.00 100.00 13,537 321 13,216 (27) 10,050 1 10,049 (5) Living Amparo Empreendimentos Imobiliários Ltda 100.00 100.00 108,995 81,982 27,013 (15,061) 136,972 94,918 42,054 (2,343) Living Apiai Empreendimentos Imobiliários Ltda 100.00 100.00 146,069 68,242 77,827 19,445 116,281 53,982 62,299 17,494 Living Batatais Empreendimentos Imobiliários Ltda 100.00 100.00 75,929 23,833 52,096 (2,004) 104,068 72,463 31,605 5,646 Living Barbacena Empreendimentos Imobiliários Ltda 100.00 100.00 26,747 11,676 15,071 (11,399) 59,477 41,910 17,567 8,016 Living Botucatu Empreendimentos Imobiliários Ltda 75.00 75.00 123,696 99,116 24,580 10,942 100,684 87,046 13,638 13,128 Living Carita Empreendimentos Imobiliários Ltda 100.00 100.00 38,475 1,271 37,204 9,907 29,262 17,938 11,324 (308) Living Cedro Empreendimentos Imobiliários Ltda 100.00 100.00 130,225 4,908 125,317 (28,900) 171,746 125,426 46,320 22,130 Living Empreendimentos Imobiliários S/A 100.00 100.00 758,490 34,092 724,397 (22,510) 762,892 36,993 725,899 54,628 Living Jacaranda Empreendimentos Imobiliários Ltda 100.00 100.00 19,708 5,613 14,094 (7,313) 47,874 31,123 16,751 12,546 Living Martini Empreendimentos Imobiliários Ltda 100.00 100.00 59,496 44,325 15,171 (997) 69,678 53,598 16,080 8,631 Living Panama Empreendimentos Imobiliários Ltda 100.00 100.00 149,631 42,357 107,273 (15,922) 206,204 65,925 140,279 (41,555) Living Pitangui Empreendimentos Imobiliários Ltda 100.00 100.00 99,003 80,095 18,908 7,502 78,888 48,127 30,761 16,018 Living Provance Empreendimentos Imobiliários Ltda 100.00 100.00 100,180 69,349 30,831 2,743 69,306 38,714 30,592 10,325 Living Ribeirao Empreendimentos Imobiliários Ltda 100.00 100.00 35,189 18,230 16,960 3,080 20,032 6,267 13,764 906 Living Sabara Empreendimentos Imobiliários Ltda 100.00 100.00 43,022 23,187 19,835 2,779 31,186 24,997 6,189 6,407 Living Sabino Empreendimentos Imobiliários Ltda 100.00 100.00 24,444 13,133 11,311 4,510 9,683 3,975 5,708 1,279 Living Salazares Empreendimentos Imobiliários Ltda 100.00 100.00 25,238 10,926 14,312 5,985 13,828 6,693 7,135 465 Living Sul Empreendimentos Imobiliários Ltda 100.00 100.00 90,013 4,080 85,933 10,150 133,872 8,347 125,525 (23,364) Living Talara Empreendimentos Imobiliários Ltda 70.00 70.00 54,027 41,213 12,813 6,109 24,514 17,810 6,704 2,813 Lorena Empreendimentos Imobiliários Spe Ltda 55.00 55.00 51,269 33,912 17,358 21,602 23,275 18,010 5,265 6,670 Luanda Empreendimentos Imobiliários Ltda 100.00 100.00 160,013 56,560 103,453 5,145 121,947 17,595 104,352 7,740 Lucio Brazil Real Estate S/A 50.00 50.00 34,080 1,162 32,918 (2,401) 35,954 5 35,949 434 Mac Barcelona Empreendimentos Imobiliários Ltda 49.45 49.45 27,916 3,734 24,182 13,128 45,028 24,474 20,554 16,893 Mac Empreendimentos Imobiliários Ltda 50.00 50.00 177,527 21,619 155,908 47,238 592,692 26,457 566,235 65,279 Mac Massachusetts Empreedimentos Imobiliários Ltda 50.00 50.00 38,740 21,326 17,414 3,593 37,578 23,758 13,820 4,755 Mac Otacilio Empreendimentos Imobiliários Ltda 50.00 50.00 18,708 3,332 15,376 7,057 46,616 11,667 34,949 3,700 Mac Pionner-4 Empreedimentos Imobiliários Ltda (ii) 100.00 50.00 17,383 1,972 15,410 118 16,607 1,931 14,675 (6) Mac Veneza Empreendimentos Imobiliários Ltda (ii) 50.00 74.51 61,982 1,054 60,928 8 54,056 10,056 44,000 6 Marques De Itu Spe Empreendimentos Imobiliários Ltda 50.00 50.00 58,405 33,896 24,509 902 57,767 34,586 23,181 3,506 Mnr6 Empreendimentos Imobiliários S/A 35.00 35.00 30,853 2,012 28,841 (5,421) 41,906 7,645 34,261 3,493 Moinho Velho Empreendimentos Imobiliários Spe Ltda 50.00 50.00 12,022 94 11,928 (1) 11,760 2 11,758 9 Oaxaca Incorporadora Ltda 100.00 100.00 49,811 9,974 39,837 (24,499) 106,724 28,852 77,872 (20,543) Plano & Plano Construções E Participações Ltda 100.00 100.00 326,182 52,547 273,635 (1,796) 394,474 84,043 310,431 8,324 Plano & Plano Desenvolvimento Imobiliário Ltda 50.00 50.00 135,932 95,246 40,686 31,907 83,368 74,589 8,779 8,769 Plano Amoreira Empreendimentos Imobiliários Spe Ltda 100.00 100.00 107,905 37,522 70,383 15,151 177,479 77,247 100,232 38,463 Plano Angelim Empreendimentos Imobiliários Ltda 50.00 50.00 57,304 31,097 26,207 8,789 29,811 6,331 23,480 (1,079) Plano Cedro Empreendimentos Imobiliários Ltda 100.00 100.00 22,613 1,841 20,772 (1,185) 27,418 4,497 22,921 6,337 Plano Eucalipto Empreendimentos Imobiliários Ltda 100.00 100.00 12,843 1,564 11,279 (2,205) 12,459 444 12,016 (668) Plano Flambouyant Empreendimentos Imobiliários Ltda 100.00 100.00 29,924 15,156 14,768 (3,315) 51,801 40,336 11,465 5,142 Plano Jacaranda Empreendimentos Imobiliários Ltda 100.00 100.00 28,485 9,571 18,914 (6,453) 58,008 38,128 19,880 4,356 Plano Limoeiro Empreendimentos Imobiliários Ltda 100.00 100.00 63,879 43,970 19,908 14,504 42,505 19,493 23,012 5,706 Plano Macieira Empreendimentos Imobiliários Ltda 100.00 100.00 35,903 433 35,471 (1,990) 35,665 447 35,218 1,721 Plano Mangueira Empreendimentos Imobiliários Ltda 100.00 100.00 56,944 27,348 29,596 4,105 52,421 24,105 28,316 1,318 Plano Palmeiras Empreendimentos Imobiliários Ltda 100.00 100.00 15,669 4,335 11,333 (7,291) 31,182 19,504 11,678 3,620 Plano Pinheiro Empreendimentos Imobiliários Ltda (ii) 50.00 100.00 23,611 11,298 12,314 7,528 1,370 9 1,361 (113) Plano Pitangueiras Empreendimentos Imobiliários Ltda 100.00 100.00 36,248 18,236 18,012 (3,629) 57,332 43,583 13,749 3,905 Plano Tocantis Empreendimentos Imobiliários Ltda 50.00 50.00 20,211 7,407 12,804 1,727 2,421 27 2,394 (371) Plarcon Cyrela Empreendimentos Imobiliários Spe Ltda 50.00 50.00 14,015 3,193 10,822 (4,186) 18,035 3,028 15,007 1,008 Queiroz Galvao Mac Cyrela Veneza Empreendimentos Imobiliarios S/A 30.00 30.00 55,590 40,785 14,805 (3,805) 55,417 36,807 18,610 2,254 Ravenna Empreendimentos Imobiliários Ltda 100.00 100.00 100,124 48,676 51,448 7,641 86,397 40,191 46,206 9,025 Reserva Casa Grande Empreendimentos Imobiliários Ltda 50.00 50.00 31,462 1,763 29,699 6,198 8,305 5,074 3,232 755 Rgc Urbanismo Ltda 50.00 50.00 30,596 5,638 24,958 212 20,714 5,816 14,898 5 Rua Dos Alpes Empreendimentos Imobiliários Ltda 100.00 100.00 38,403 1,091 37,312 2,563 39,726 1,291 38,435 2,338 Santo Eliseu Empreendimentos Imobiliários Ltda 50.00 50.00 10,974 78 10,896 846 10,293 383 9,910 (3) Scp Empreendimentos 2012 49.45 49.45 53,699 18,059 35,640 31,763 101,590 - 101,590 38,516 Scp Veredas Buritis Fase Ii 60.00 60.00 18,111 927 17,184 1,737 25,267 7,632 17,635 (1,323) Scp Vinson Praça Piratininga (iii) 2.92 - 35,705 10,882 24,823 2,941 - - - - Seattle Empreendimentos Imobiliários Ltda (ii) 50.00 49.02 112,395 5,764 106,631 6,496 94,632 2,577 92,055 (12) Seller Consultoria Imobiliários E Representações Ltda 100.00 100.00 30,234 16,060 14,173 (28,220) 31,610 16,222 15,388 (29,233) Sk Antonio Macedo Empreendimentos Imobiliários Spe Ltda 50.00 50.00 12,833 463 12,369 3,036 38,358 18,405 19,953 9,607 Sk Ipojuca Empreendimentos Imobiliarios Ltda 50.00 50.00 15,671 1,603 14,068 (23) 15,531 1,600 13,930 (50) Sk Joaquim Ferreira Lobo Empreendimentos Imobiliários Spe Ltda 50.00 50.00 16,765 2,427 14,338 (128) 12,515 3,034 9,482 (36) Sk Jurucê Empreendimentos Imobiliários Spe Ltda 50.00 50.00 26,501 691 25,810 360 20,545 291 20,254 (543) Sk Mourato Coelho Empreendimentos Imobiliários Spe Ltda 50.00 50.00 14,711 716 13,995 (905) 13,440 37 13,403 (102) Sk Realty Empreendimentos Imobiliários S/A 50.00 50.00 178,119 5,874 172,245 31,353 154,874 5,855 149,019 23,727 Sk Xxi Empreendimentos Imobiliários Ltda 50.00 50.00 17,767 3,017 14,750 (547) 1,017 15 1,002 (56) Spe Barbacena Empreendimentos Imobiliários Ltda 50.00 50.00 69,098 21,506 47,592 4,524 58,407 15,488 42,919 8,249 Spe Brasil Incorporação 28 Ltda 50.00 50.00 12,515 302 12,213 695 24,766 2,077 22,689 1,855 Spe Brasil Incorporação 83 Ltda 50.00 50.00 57,152 12,553 44,599 (4,689) 53,625 26,445 27,180 3,089 Spe Chl Cv Incorporacoes Ltda 50.00 50.00 36,625 24,214 12,411 (3,162) 39,345 21,256 18,088 (10,085) Spe Faicalville Incorporação 1 Ltda 50.00 50.00 19,737 5,312 14,424 225 29,862 6,189 23,673 (3,353) Ssb Empreendimentos Imobiliários Spe S/A 84.25 84.25 11,073 549 10,524 (354) 12,539 1,523 11,016 (3,354) Tamoios Empreendimentos Imobiliários Spe Ltda 60.00 60.00 29,403 600 28,802 816 28,582 288 28,294 (1,533) Tecnisa S/A (ii) 7.91 13.62 1,944,129 892,657 1,051,472 (518,241) 2,165,467 744,491 1,420,976 (448,981) Teresopolis Empreendimentos Imobiliários Ltda 80.00 80.00 24,421 12,360 12,061 (137) 24,826 12,383 12,443 495 Topazio Brasil Empreendimentos Imobiliários Spe Ltda 49.90 49.90 34,210 1,450 32,760 (381) 34,881 1,740 33,141 1,595 Torres Vedras Empreendimentos Imobiliários Ltda 80.00 80.00 94,855 63,023 31,831 (2,496) 121,128 94,560 26,568 3,120 Toulon Empreendimentos Imobiliários Spe Ltda 100.00 100.00 21,302 1 21,301 (0) 21,289 1 21,288 (5,128) Vinson Empreendimentos Imobiliários Ltda 74.51 74.51 163,567 37,421 126,145 15,961 154,450 42,855 111,595 (737) Vmss Empreendimentos Imobiliários Spe S/A (ii) 84.95 82.00 26,292 8,747 17,545 (12,543) 76,853 16,970 59,883 (3,642) Others 525 SPEs with Equity up to 10MM 2,697,243 2,148,062 549,181 426,047 6,821,532 3,949,303 2,872,230 397,671
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(i) Change derived from increase/(decrease) in interest.
(ii) Refers to change from indirect interest to direct interest.
(iii) Refers to the establishment of the new company.
c) Foreign investments:
Financial statements of jointly-owned subsidiary Cyrsa S.A. (headquartered in Argentina), whose functional currency is the Argentinian Peso, were translated into Brazilian Reais at foreign exchange rate prevailing as of December 31, 2017 R$0.1755 (December 31, 2016: R$0.2056). Effects of this balance sheet translation into the Company’s presentation currency are reflected on “Other comprehensive income” in shareholders' equity, represented by R$56,062 as of December 31, 2017.
Investments in foreign companies
Brazil Realty Serviços e Investimentos Ltd.: This subsidiary is located in Bahamas and, in essence, is an extension of the Company’s financial activities; its functional currency is the dollar. It does not have relevant assets and liabilities as of December 31, 2017.
d) Breakdown of investments presented in consolidated:
Total Equity Interest - % Share of profit (loss) 2017 2016 Equi ty Profit (loss) for the period Investments subsidiarie Total Direct (i) Total Direct (i) 2017 2016 2017 2016 2017 2016 2017 2016
Ak 19 - Empreendimentos E Participações Ltda 26.00 26.00 26.00 26.00 49,311 41,785 (3,462) 4,827 12,821 10,864 (900) 1,255 Austria Incorporadora Ltda 50.00 50.00 50.00 50.00 28,953 26,981 1,435 2,967 14,476 13,491 718 1,484 Bello Villarinho Empreendimentos Imobilários Ltda 50.00 50.00 50.00 50.00 13,810 13,783 27 122 6,905 6,892 14 61 Cabo Frio Incorporadora Ltda 50.00 50.00 50.00 50.00 35,543 36,210 (787) 20,709 17,771 18,105 (394) 10,354 Camargo Correa Cyrela Empr Im SPE Ltda 50.00 50.00 50.00 50.00 16,987 13,262 (340) 64 8,493 6,631 (170) 32 CBR 011 Empreendimentos Imobiliários Ltda 32.50 32.50 32.50 32.50 85,003 139,309 17,414 (50,268) 27,626 45,276 5,659 (16,337) CBR 051 Empreendimentos Imobiliários Ltda (v) 50.00 50.00 - - 103,617 - (3) - 51,808 - (1) - CHL Lxxviii Incorporações Ltda 50.00 50.00 50.00 50.00 18,276 18,797 756 (245) 9,138 9,399 378 (122) Cury Construtora E Incorporadora S/A (ii) 50.00 50.00 50.00 50.00 252,726 229,039 120,130 92,863 126,363 114,519 60,065 46,431 Fazenda Sao Joao Empreendimentos Imobiliários SPE Ltda 85.00 85.00 85.00 85.00 23,433 23,401 (2) (31) 19,918 19,890 (2) (26) Galeria Boulevard Negocios Imobilários S/A 48.62 50.00 48.62 50.00 11,821 11,989 337 119 5,911 5,995 169 60 Imperio do Ocidente Incorporações Ltda (ii) 75.00 50.00 75.00 50.00 15,395 15,222 173 2,974 7,697 7,611 86 1,487 Jacira Reis Empreendimentos Imobilários Ltda 50.00 50.00 50.00 50.00 31,913 47,177 (15,265) (15,100) 15,956 23,589 (7,632) (7,550) Lamballe Incorporadora Ltda (ii) 70.00 40.00 70.00 40.00 31,470 26,626 7,844 17,917 12,588 10,650 3,138 7,167 Living Botucatu Empreendimentos Imobiliários Ltda (ii) 75.00 50.00 75.00 50.00 24,580 13,638 10,942 13,128 12,290 6,819 5,471 6,564 Living Talara Empreendimentos Imobiliários Ltda (ii) 70.00 40.00 70.00 40.00 12,813 6,704 6,109 2,813 5,125 2,682 2,444 1,125 Lucio Brazil Real Estate S/A 50.00 50.00 50.00 50.00 32,918 35,949 (2,401) 434 16,459 17,974 (1,200) 217 Mac Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 155,908 566,235 47,238 - 77,954 - 23,619 - Mac Veneza Empreendimentos Imobiliários Ltda (ii) 50.00 50.00 74.51 50.00 60,928 44,000 8 - 30,464 - 4 - Marques de Itu SPE Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 24,509 23,181 902 3,506 12,255 11,591 451 1,753 Moinho Velho Empreendimentos Imobiliários SPE Ltda 50.00 50.00 50.00 50.00 11,928 11,758 (1) 9 5,964 5,879 - 4 Plarcon Cyrela Empreendimentos Imobiliários SPE Ltda 50.00 50.00 50.00 50.00 10,822 15,007 (4,186) 1,008 5,411 7,504 (2,093) 504 Queiroz Galvao Mac Cyrela Veneza Empreendimentos Imobiliarios S/A 30.00 15.00 30.00 15.00 14,805 18,610 (3,805) 2,254 2,221 8,374 (571) 1,014 Reserva Casa Grande Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 29,699 3,232 6,198 755 14,850 1,616 3,099 377 Rgc Urbanismo Ltda 50.00 50.00 50.00 50.00 24,958 14,898 212 5 12,479 7,449 106 3 Santo Eliseu Empreendimentos Imobilários Ltda 50.00 50.00 50.00 50.00 10,896 9,910 846 (3) 5,448 4,955 423 (2) SCP Veredas Buritis Fase II 60.00 6.00 60.00 6.00 17,184 17,635 1,737 (1,323) 1,031 1,058 104 (79) Seattle Empreendimentos Imobilários Ltda (v) 50.00 50.00 - - 106,631 92,055 6,496 - 53,315 - 3,248 - SPE Barbacena Empreendimentos Imobiliários Ltda 50.00 50.00 50.00 50.00 47,592 42,919 4,524 8,249 23,796 21,460 2,262 4,125 SPE Brasil Incorporação 28 Ltda 50.00 50.00 50.00 50.00 12,213 22,689 695 1,855 6,107 11,345 347 927 SPE Brasil Incorporação 83 Ltda 50.00 50.00 50.00 50.00 44,599 27,180 (4,689) 3,089 22,300 13,590 (2,345) 1,545 SPE CHL Cv Incorporações Ltda 50.00 50.00 50.00 50.00 12,411 18,088 (3,162) (10,085) 6,205 9,044 (1,581) (5,043) SPE Faicalville Incorporação 1 Ltda 50.00 50.00 50.00 50.00 14,424 23,673 225 (3,353) 7,212 11,836 112 (1,677) Tamoios Empreendimentos Imobiliários SPE Ltda 60.00 60.00 60.00 60.00 28,802 28,294 816 (1,533) 17,281 16,977 490 (920) Tecnisa S/A (iii) / (vi) 7.91 7.91 13.62 13.62 1,049,061 1,420,976 (520,652) (448,981) 56,464 79,458 (4,843) (8,224) Teresopolis Empreendimentos Imobilários Ltda 80.00 80.00 80.00 80.00 12,061 12,443 (137) 495 9,649 9,954 (110) 396 Others 89 SPE´s with Equity up to 10MM 153,733 1,670,203 (28,113) (27,330) 95,070 360,868 (16,875) 2,532 2,465,938 3,100,214 (323,691) (351,255) 836,822 903,345 73,690 49,438 (i) Corresponds to the stake of the parent company and its subsidiaries that compose the consolidated investments.
(ii) Company controlled by Cury Construtora e Incorporadora S/A.
(iii) Change derived from increase/(decrease) in interest.
(iv) Change of control, going from subsidiary to associated company.
(v) Refers to the establishment of the new company.
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(vi) Considering the characteristics of significant influence over the investee (CPC 18 (R2) - Investment in Associated Company, Subsidiary, and Joint Ventures), the Company classified the investment as equity interest in a related company, and the equity income of subsidiaries was recognized as net of fair value adjustment. The Company calculated adjustment to fair value (CPC 15 – Business Combination) considering dates of admission to Tecnisa on August 25, 2016 and April 27, 2017.
e) Investment recorded at fair value
The Company’s interest in Cyrela Commercial Properties S.A. Empreendimentos e Participações was recognized as investment at fair value, in line with CPC 38 – Financial Instruments: Recognition and Measurement, as there is no significant influence on the Investee’s relevant decisions. The investment totaled R$ 16,766, considering 1,883,805 shares held by the Company and valued at market value per share of R$ 8.90, pursuant to the last closing date on December 31, 2017.
8. PROPERTY, PLANT AND EQUIPMENT
Changes are shown below:
Individual Machinery and Furniture and Company Leasehold Cost: Computers Facilities Total Equipments Fixtures Cars improvements (i) Balance as at Dec 31, 2015 1,406 5,915 11,097 374 92 16,761 35,645 Additions 92 2 7 - - 7,459 7,560 Balance as at Dec 31, 2016 1,498 5,917 11,104 374 92 24,220 43,205 Additions 19 4 173 - - 1,727 1,923 Balance as at Dec 31, 2017 1,517 5,921 11,277 374 92 25,947 45,128
Individual 10% p.a. - 10% a.a - 20% p.a. - 10% p.a. - Leasehold Depreciation: Machinery and Furniture and 20% p.a. - Computers Company Total Facilities improvements (i) Equipments Fixtures Cars Balance as at Dec 31, 2015 (893) (3,716) (9,312) (209) (92) (15,308) (29,530) Depreciation (127) (591) (839) (38) - (1,508) (3,103) Balance as at Dec 31, 2016 (1,020) (4,307) (10,151) (247) (92) (16,816) (32,633) Depreciation (248) (629) (515) (47) - (1,687) (3,126) Balance as at Dec 31, 2017 (1,268) (4,936) (10,666) (294) (92) (18,503) (35,759)
Residual balance as at Dec 31, 2015 513 2,199 1,785 165 - 1,453 6,115 Residual balance as at Dec 31, 2016 478 1,610 953 127 - 7,404 10,572 Residual balance as at Dec 31, 2017 250 984 611 80 - 7,444 9,369
Consolidated Machinery and Furniture and Company Leasehold Cost: Computers Facilities Sales stand (ii) Total Equipments Fixtures Cars improvements (i) Balance as at Dec 31, 2015 8,664 14,234 17,747 1,083 243 25,802 547,238 615,011 Additions - 143 - - 11,475 46,856 58,474 Write-offs (2,903) (258) - - (81) - (27,895) (31,137) Balance as at Dec 31, 2016 5,761 13,976 17,890 1,083 162 37,277 566,199 642,348 Additions - 4,036 - - - 4,146 22,013 30,195 Write-offs (202) - (854) - - - (9,818) (10,874) Balance as at Dec 31, 2017 5,559 18,012 17,036 1,083 162 41,423 578,394 661,669
Consolidated 10% p.a. - 10% a.a - 20% p.a. - 10% p.a. - Leasehold Depreciation: Machinery and Furniture and 20% p.a. - Computers Company Sales stand (ii) Total Facilities improvements (i) Equipments Fixtures Cars
Balance as at Dec 31, 2015 (5,849) (8,178) (14,909) (628) (218) (21,443) (424,115) (475,340) Depreciation 1,891 (1,085) (1,040) (110) 67 (2,652) (78,389) (81,318) Balance as at Dec 31, 2016 (3,958) (9,263) (15,949) (738) (151) (24,095) (502,504) (556,658) Depreciation (487) (1,266) 66 (138) (9) (3,787) (38,231) (43,852) Balance as at Dec 31, 2017 (4,445) (10,530) (15,883) (876) (160) (27,882) (540,735) (600,510)
Residual balance as at Dec 31, 2015 2,815 6,056 2,839 455 25 4,359 123,123 139,671 Residual balance as at Dec 31, 2016 1,803 4,713 1,941 345 11 13,182 63,695 85,690 Residual balance as at Dec 31, 2017 1,114 7,483 1,153 207 2 13,541 37,659 61,159
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(i) The expenses are appropriated to P/L according to the term of lease of the properties, ranging from three to five years.
(ii) The depreciation is made according to the useful life of the assets, with average term of 24 months used during the year of sale of the joint ventures and recorded in the result under the caption “Sales Expenses”.
As of December 31, 2017 and 2016, no assets requiring provision for impairment were identified.
9. INTANGIBLE ASSETS
Changes are shown below:
Individual Trademarks and Implementation Cost: Software license Sub-total Goodwill Total patents costs Balance as at Dec 31, 2015 37 72,620 25,032 97,689 138,217 235,906 Additions - 951 182 1,133 1,407 2,540 Write-offs - (808) - (808) - (808) Balance as at Dec 31, 2016 37 72,763 25,214 98,014 139,624 237,638 Additions - 26 165 191 - 191 Balance as at Dec 31, 2017 37 72,789 25,379 98,205 139,624 237,829
Individual 14% p.a. - Trademarks and 20% p.a. - Amortization: Implementation Sub-total Goodwill Total patents Software license costs Balance as at Dec 31, 2015 - (27,533) (14,345) (41,878) (101,491) (143,369) Amortization - (8,272) (3,007) (11,279) (5,563) (16,842) Balance as at Dec 31, 2016 - (35,805) (17,352) (53,157) (107,054) (160,211) Amortization (9,695) (1,718) (11,413) (24,014) (35,427) Balance as at Dec 31, 2017 - (45,500) (19,070) (64,570) (131,068) (195,638)
Residual balance as at Dec 31, 2015 37 45,087 10,687 55,811 36,726 92,537 Residual balance as at Dec 31, 2016 37 36,958 7,862 44,857 32,570 77,427 Residual balance as at Dec 31, 2017 37 27,289 6,309 33,635 8,556 42,191
Consolidated Trademarks and Implementation Cost: Software license Sub-total Goodwill Total patents costs Saldo em 31.12.2015 72 88,744 44,035 132,851 127,165 260,016 Additions - 2,349 - 2,349 6,065 8,414 Write-offs - (1,472) (956) (2,428) (2,363) (4,791) Balance as at Dec 31, 2016 72 89,621 43,079 132,772 130,867 263,639 Additions - 98 - 98 745 843 Write-offs - - (4,414) (4,414) - (4,414) Balance as at Dec 31, 2017 72 89,719 38,665 128,456 131,612 260,068
Consolidated 14% p.a. - Trademarks and 20% p.a. - Amortization: Implementation Sub-total Goodwill Total patents Software license costs Saldo em 31.12.2015 - (38,224) (27,711) (65,935) (108,991) (174,926) Amortization - (10,125) (3,718) (13,843) (8,806) (22,649) Balance as at Dec 31, 2016 - (48,349) (31,429) (79,778) (117,797) (197,575) Amortization - (10,982) (661) (11,643) (11,039) (22,682) Balance as at Dec 31, 2017 - (59,331) (32,090) (91,421) (128,836) (220,257)
Residual balance as at Dec 31, 2015 72 50,520 16,324 66,916 18,174 85,090 Residual balance as at Dec 31, 2016 72 41,272 11,650 52,994 13,069 66,063 Residual balance as at Dec 31, 2017 72 30,388 6,575 37,034 2,775 39,809
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Asset gains balances have a defined useful life according to the construction of the joint ventures, and are allocated to the headings of “Properties for sale” in the consolidated financial statements, and at the parent company, are in the Intangible Assets group.
As of December 31, 2017 and 2016, no assets requiring provision for impairment were identified.
For other intangibles, Management periodically reviews the useful life of the Company’s intangible assets.
The analytical movement of asset gains balances with defined useful lives is shown below:
Individual
Balance at Balance at Balance at 12.31.2015 Goodwill Amortization 12.31.2016 Amortization 12.31.2017 Goodwill in the Company
Cyrela Malasia Empreendimentos Imobiliários Ltda 13,811 - - 13,811 (13,811) - Mac Empreendimentos Imobiliários Ltda 10,000 - - 10,000 (10,000) - Spe Mg 02 Empreendimentos Imobiliários Ltda 4,410 - - 4,410 - 4,410 Spe Mg 01 Empreendimentos Imobiliários Ltda 4,658 - (4,658) - - - Spe Mg 03 Empreendimentos Imobiliários Ltda 3,289 - - 3,289 - 3,289 Spe Barbacena Empreendimentos Imobiliários S/A - 1,327 (308) 1,019 (169) 850 Others goodwill up to 500 thousands 558 80 (597) 41 (35) 7
Total 36,726 1,407 (5,563) 32,570 (24,015) 8,556
Consolidated
Balance at Balance at Balance at 12.31.2015 Goodwill Amortization 12.31.2016 Goodwill Amortization 12.31.2017 Goodwill in the Company Cyma Desenvolvimento Imobiliário S/A - - - - 745 - 745 Cyrela Indonesia Empreendimentos Imobiliários Ltda (i) 3,248 - (2,413) 835 - (835) - Living Sul Empreendimentos Imobiliários Ltda (i) 1,229 2 (56) 1,175 - - 1,175 Mac Empreendimentos Imobiliários Ltda 10,000 - - 10,000 - (10,000) - Plano & Plano Construções E Participações Ltda (i) 3,138 (2,365) (773) - - - - Spe Barbacena Empreendimentos Imobiliários S/A - 1,327 (308) 1,019 - (169) 850 Spe Mg 01 Empreendimentos Imobiliários Ltda - 4,658 (4,658) - - - - Others goodwill up to 500 thousands 559 80 (598) 41 - (34) 7
Total 18,174 3,702 (8,806) 13,070 745 (11,038) 2,775
(i) Investees’ goodwill
10. LOANS AND FINANCING Individual Consolidated 2017 2016 2017 2016
Loans - local currency 443,003 605,697 574,471 773,974 Interest payable - local currency 10,160 11,707 12,231 14,209 Transaction costs - local currency (2,316) (4,252) (2,316) (4,252) Financing - local currency - - 1,527,216 2,076,296 Interest Payable - Financing - - 6,059 10,799 Interest payable (receivable) - Swap (i) (4,217) (205) (4,217) (205)
446,630 612,947 2,113,444 2,870,821
Current 104,501 9,563 930,347 877,307 Noncurrent 342,129 603,384 1,183,097 1,993,514
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Loans in domestic currency are represented by:
Contracted 2017 2016 Rate dec-13 35,000 65,000 CDI + 0.703% dec-13 95,569 99,799 TJLP + 3.78% apr-14 350 699 3.5% p.a. apr-14 100,000 100,407 TR + 8.75% may-14 500 150,000 112% CDI may-15 208,401 207,091 TR + 9.72% jun-15 188 278 6.00% p.a. dec-15 361 480 9.5% p.a. feb-16 134,102 148,199 TR + 10.59% aug-16 - 2,021 113.5% CDI 574,471 773,974
As of December 31, 2017, financing of R$ 1,527,216 (R$ 2,076,296 on December 31, 2016) corresponds to real estate loan agreements, subject to interest rates between 8.30% and 11% per annum, plus the TR (reference rate). They have early maturity clauses in case of non-compliance with the commitments assumed therein, such as the investment of the resources in the object of the agreement, registration of the mortgage of the joint venture, compliance with the construction timetables, and others. The financing guarantees are comprised of collateral of receivables, representing 120% to 130% of the loan amounts, mortgage of the land and future units, as well as the Company’s surety.
As of June 8, 2015, the Company contracted a Fixed Rate x DI swap at a pre rate of 10.52% p.a. (asset position), and a rate of 85.03% of CDI (liability position). This transaction is related to debt in the amount of R$ 208,401, as mentioned in item (i) above and has the same maturity dates. As of December 31, 2017, this Swap accounting position was R$1,339 receivable.
As of February 1, 2016, the Company contracted a Fixed Rate x DI swap at a pre rate of 10.59% p.a. (asset position), and a rate of 71.86% of CDI (liability position). This transaction is related to debt in the amount of R$ 134,102, as mentioned in item (i) above and has the same maturity dates. As of December 31, 2017, this Swap accounting position was R$2,878 receivable.
On December 22, 2017, a Swap transaction was contracted; the Company in asset position at fixed rate of 8.3% p.a. and liability position at 88.7% of CDI. This transaction corresponds to construction financing debt contracted in the same period.
Loan interest of real estate credit contracts, eligible to capitalization of inventories, net of financial investment earnings, total R$172,082 as of December 31, 2017, (R$226,063 as of December 31, 2016).
The amounts of non-current liabilities are broken down by year of maturity as shown below:
33
Individual Consolidated Year 2017 2016 2017 2016 2018 - 248,468 - 1,045,764 2019 342,129 354,916 575,683 579,940 2020 - - 331,416 222,517 2021 - - 166,193 80,917 2022 - - 57,362 10,463 2023 - - 11,734 11,608 2024 at 2027 - - 40,709 42,305 Total 342,129 603,384 1,183,097 1,993,514
Changes in the balances are as follows:
Individual Consolidated 2017 2016 2017 2016 Opening balance 612,947 704,308 2,870,821 3,229,750 Additions - 145,439 917,733 1,453,042 Principal repayment (165,564) (244,315) (1,576,738) (1,857,684) Interest paid (51,941) (69,367) (247,063) (310,772) Interest and charges 51,188 76,882 148,691 356,485 Closing balance 446,630 612,947 2,113,444 2,870,821
Covenants
Some loan agreements mentioned above have covenants that determine maximum levels of indebtedness and leverage, as well as minimum levels of coverage of installments falling due, which must be met on a quarterly basis. Below, we demonstrate the required indices:
Contractually required radio
Net debt (plus properties payable less SFH debt)/ Equity Equal or lower than 0.7 Receivables (plus properties for sale)/ net debt (less properties Equal or higher than 1.5 payable and unrecognized costs and expenses) or lower than 0 Equal or higher than 1.5 EBIT / finance costs, net or lower than 0
On December 31, 2017, All contractual clauses were complied with.
11. DEBENTURES (INDIVIDUAL AND CONSOLIDATED)
a) The summary of the characteristics and the balances of the debentures shown below:
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CYRE 12 CYRE 22 Cyma 01 Issued Series Second Second First Type of issuance Simple Simple Simple Nature of issuance Public Public Private Issuance date 01/05/2018 01/05/2018 10/31/2017 Maturity date 01/05/2018 01/05/2018 10/31/2022 Type of debenture Unsecured Unsecured Unsecured
100% DI + 100% DI + 2,4% of net revenues from sales of Yield 0.65% p.a. 0.65% p.a. units from Klabin Cyma Project
Par Value (unit) 10 10 500 Securities issued (unit) 24,975 24,975 8 Securities outstanding (unit) 10 4,253 8 Type of interest payment (unit) (24,965) (20,722) 0
Quarterly, after 6 months expedition Type of interest payment Semiannual Semiannual certificate of conclusion work
Amortization installments 1 1 1
CYRE 12 CYRE 22 CYMA 01 2017 Debentures payable 100 42,529 4,000 46,629 Interest over Debentures payable 4 1,817 105 1,926 104 44,346 4,105 48,555
Current 104 44,346 105 44,555 Noncurrent - - 4,000 4,000 The debentures may be redeemed in advance, at the sole discretion of the Company. The Company may also acquire debentures circulating on the market, subject to current legislation.
Debentures’ interest eligible to capitalization of inventories totaled R$700 in year ended December 31, 2017 (R$1,174 as of December 31, 2016).
The balances of non-current liabilities are broken down as follow:
Year 2016
24 months 42,630
Total 42,630
Changes in the “Debentures” balance are shown below:
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Individual Consolidated 2017 2016 2017 2016 Opening balance 45,640 148,646 45,640 148,646 Additions - - 4,000 - Principal repayment - (100,000) - (100,000) Interest payment (5,594) (22,305) (5,594) (22,305) Interest and charges 4,404 19,299 4,509 19,299 Closing balance 44,450 45,640 48,555 45,640 b) Covenants
Private instruments for issuance of CYRE 12 and CYRE 22 debentures have covenants, determining maximum levels of indebtedness and leverage, as well as minimum levels of coverage of installments falling due, which must be met on a quarterly basis. Below, we demonstrate the required indices:
Contractually required radio
Net debt (plus properties payable less SFH debt)/ Equity Equal or lower than 0.7 Receivables (plus properties for sale)/ net debt (less properties Equal or higher than 1.5 payable and unrecognized costs and expenses) or lower than 0 Equal or higher than 1.5 EBIT / finance costs, net or lower than 0
Debentures issuance deed CYMA 01 presents clauses that determine early maturity in case of Issuer’s bankruptcy or court-ordered reorganization claims.
On December 31, 2017, All contractual clauses were complied with.
12. CERTIFICATES OF REAL ESTATE RECEIVABLE - CRI (INDIVIDUAL AND CONSOLIDATED)
a) Brazil Realty Companhia Securitizadora de Créditos Imobiliários S/A (“Securitizadora”)
On June 14, 2011, Securitizadora carried out its 1st series of the 1st issue of CRI operations, approved at a meeting of the Board of Directors held on February 23, 2011. On May 21, 2012, Securitizadora carried out the 2nd issue of CRI operations, approved at a meeting of the Board of Directors held on May 17, 2012. On September 30, 2016, Securitizadora carried out the 5th issue of CRI, approved at a meeting of the Board of Directors held on September 30, 2016. As of December 6, 2016, the Securitization Company carried out the 6th issuance of CRI approved in Board of Directors’ Meeting held on December 06, 2016. As of December 21, 2016, the Securitization Company carried out the 7th issuance of CRI approved in Board of Directors’ Meeting held on December 21, 2016. The placement of the CRIs on the market of the 1st series of the 1st issue occurred through the public offering of 900 nominative and book-entry CRIs with a unit value of R$ 300, totaling R$ 270,000; the second issue with 900 nominative and book-entry CRIs, with a unit value of R$
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333, totaling R$ 300,000; the 5th issue with 150,000 nominative and book-entry CRIs with a unit value of R$ 1, totaling R$ 150,000; the 6th issue of 200,000 nominative and book-entry CRIs with a unit value of R$ 1, totaling R$ 200,000, and the 7th issue of 30,000 nominative and book-entry CRIs with a unit value of R$ 1, totaling R$ 30,000. As defined in the Terms of Securitization of Real Estate Credit, the CRIs of the 1st and 2nd issues are guaranteed by the fiduciary assignment of:
• Credit rights arising from the sale of real estate development units owned by the fiduciary assignor (investees of the Parent Company) and of the Company, rights and amounts deposited by the purchasers of the real estate units, by the fiduciary assignor or by the Parent Company, in bank accounts specifically designated for the receipt of such amounts, pursuant to the agreement on fiduciary assignment. The CRIs of the 1st and 2nd issues are leveraged by real estate credits arising from CCBs issued by the Company, the CRIs of the 5th and 6th issues are leveraged by real estate credits arising from Debentures issued by the Company, and the CRIs of the 7th issue are leveraged by real estate credits arising from a CCB issued by Plano & Plano Desenvolvimento Imobiliário Ltda., represented by a Real Estate Credit Note (“CCI”), which were acquired by Securitizadora pursuant to Law 10.931/04 (“Real Estate Credits”) and an assignment contract. Securitizadora established the “Fiduciary Regime” on Real Estate Credits, in accordance with the Term of Securitization, pursuant to article 9 of Law 9.514/97, with the appointment of Pentágono S.A. Distributor of Securities as a fiduciary agent. The Real Estate Credits and the Guarantee subject to the Fiduciary Regime will be detached from the shareholder’s equity of the subsidiary and will become separate assets, specifically for the payment of CRIs and other obligations related to the Fiduciary Regime, pursuant to article 11 of Law 9.514 / 97. The CRIs were admitted to negotiation in the CETIP 21 System of CETIP S.A. - Organized Counter of Assets and Derivatives and, in the Bovespafix System of BM&FBOVESPA S.A. - Securities, Commodities and Futures Exchange, respectively.
The main characteristics of the 1st series, considering the 1st, 2nd, 5th, 6th and 7th issuances, are:
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Features 1st and 2nd series of the 6th issue - code (i) 1st series of the 7th issue - code (i)
Issue date 12/06/2016 12/21/2016 1st series: December 15, 2017 Amortization date 2nd series: September 17, October 15 December 14, 2018 and November 15, 2018 Unit par value on issuance 1 1 Number of certificates issued 200,000 30,000
Interest at 98% of the DI rate calculated and Interest at 100% of the DI rate calculated and Yield disclosed by CETIP. disclosed by CETIP.
Retrocession None None The non-compliance with the covenants below, The non-compliance with the covenants below, calculated on a quarterly basis by the Debtor based calculated on a quarterly basis by the Debtor on the audited consolidated financial statements based on the audited consolidated financial for the quarters ended March, June, September and statements for the quarters ended March, June, December of each year, and verified by September and December of each year, and Securitizadora within up to five days after the verified by Securitizadora within up to five days receipt of the calculation submitted by the Debtor: after the receipt of the calculation submitted by a. the ratio between: (A) the sum of Net Debt and the Debtor: a. the ratio between: (A) the sum of Properties for Sale; and (B) Equity must be always Net Debt and Properties for Sale; and (B) Equity Restrictive covenants equivalent to or lower than 0.80; b. the ration must be always equivalent to or lower than 0.80; between: (A) the sum of Total Receivables and b. the ration between: (A) the sum of Total Properties for Sale; and (B) the sum of Net Debt, Receivables and Properties for Sale; and (B) the Properties Payable and Unaccrued Costs and sum of Net Debt, Properties Payable and Expenses must be equivalent to or higher than 1.5 Unaccrued Costs and Expenses must be or lower than 0; and c. the ratio between: (A) EBIT equivalent to or higher than 1.5 or lower than 0; and (B) Net Finance Costs must be equivalent to or and c. the ratio between: (A) EBIT and (B) Net higher than 1.5 or lower than 0, provided that in any Finance Costs must be equivalent to or higher event the EBIT must be always positive. than 1.5 or lower than 0, provided that in any event the EBIT must be always positive.
(i) The default of receivables linked to the issuance of the CRI does not have any impact on the operation, since the receivables are only a guarantee of future payment.
(ii) Risk rating: On February 2, 2018, the Company obtained a rating report of Ba2 (global scale) and Aa3.br (national scale), through a rating agency. As per CVM Instruction No. 414/04, the Company monitors the risk rating reports of the securitization operations every three months, since the aforementioned Instruction requires this restatement for operations with a unit par value equal to or greater than R$ 300.
(iii) Risk rating: on December 21, 2017, the rating agency Standard & Poor’s maintained the ‘brAA- (sf)’ risk rating assigned to the 1st series of the 5th issuance of CRIs. The risk classification of the issuance must exist during the entire duration of the CRIs, and such classification should be updated quarterly in accordance with the provisions of article 7, paragraph 7 of CVM Instruction 414/04.
The balance presented in the parent company does not include expenses on issuance, since such expenses are the responsibility of “Securitizadora,” with the exception of expenses with the issuance of the 5th CRI issue. b) Gaia Securitizadora S/A (“Gaia”)
CRI’s of Gaia’s fourth issuance of the 102nd and 103rd series are backed by receivables portfolio acquired by Gaia, which, on its turn, issued 256 per Real Estate Credit Notes (CCI) in conformity with Law no. 10,931/04 (“Real Estate Credits”). Gaia established the “Fiduciary Regime” on Real Estate Credits, in accordance with the Term of Securitization, pursuant to article 9 of Law No. 9.514/97, with the appointment of Pentágono S.A. Distributor of Securities as a fiduciary agent. The Real Estate Credits and the Guarantee subject to the Fiduciary Regime will be detached from the shareholders’ equity of Gaia and will become separate assets, specifically for the payment of CRIs and other obligations related to the Fiduciary Regime, pursuant to article 11 of Law No. 9.514 / 97. CRI’s were accepted for negotiation in CETIP 21 System of B3.
The placement of the CRIs in the market occurred through a public offer of 792 registered and book-entry senior CRIs (102nd series), with par value of R$ 100, totaling R$ 79,210, and 210
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registered and book-entry subordinated CRIs (103rd series), with par value of R$ 100, totaling R$ 21,056, fully acquired by the Company. The Senior CRIs have preference in receiving interest, principal and late payment charges incurred in relation to Subordinated CRIs. Accordingly, Subordinated CRIs cannot be redeemed by the Issuer prior to the full redemption of Senior CRIs. Features 102nd serie of the 4th issue 103rd serie of the 4th issue Issue date 07/06/2017 07/06/2017 Amortization date Monthly as per Annex II to the Securitization Term Unit par value on issuance 100,013.04 100,266.24 Interest at 100% of the Dl rate and increased by a Yield Interest at 100% of the Dl rate and increased by a spread of 5% p.a. spread of 1.2% p.a. Retrocession None Payment of Senior CRI: The resources of payments and prepayments of Total Loans will be used, in full and in accordance with the Cascade of Payments, for the exclusive payment of the Senior CRI ("Senior CRI Payment"), whenever (ii) the sum of the total amounts received in the period, is greater than or equal to 80% (eighty percent) ("Payment Event of the Senior CRI "). Payment of the Subordinated CRI: Observed the Cascade of Payments, the resources of the payments and prepayments of the Real Estate Credits due to the Subordinated CRI will be retained in the Centralizing Account if it is verified monthly that the ratio between (i) the value of the payment due to the Senior CRI in the period, and (ii) the sum of the total amounts received in the period, is less Restrictive covenants than 80% (eighty percent) and greater or equal to 77.50% (seventy-seven whole and fifty hundredths percent) , during the respective month, as verified by the Issuer ("Subordinated CRI Payment Event"). The resources held in the Centralizing Account, as provided in item 8.5 above, will be used to pay the Subordinated CRI ("Payment of Subordinated CRI") whenever: (i) the ratio of (i) the amount of the payment due to the CRI Seniors in the period, and (ii) the sum of the total amounts received in the period, is less than 77.50% (seventy-seven whole and fifty hundredths percent) during the respective month, as verified by the Issuer; and (ii) the following equation is complied with, respecting the payment dates established in the current Table: NPV CRI Senior / NPV ≤ 80%.
c) Balances, maturities and changes in CRIs
The funds obtained through the subscription of CRIs were used exclusively to pay the amount of the assignment of the receivables portfolio. The risks and benefits of the Real Estate Credits remain with the economic group; thus, the consolidated balance in liabilities, reported in the financial statements, can be demonstrated as follows: Individual 2017 2016 Interest Interest Issue Balance Total Balance Total payable payable
1st serie of the 1st issue - code 11F0013690 43,200 262 43,462 43,200 527 43,727
1st serie of the 2nd issue - code 12E0019753 - - - 150,000 2,358 152,358
1st serie of the 5th issue - code 16I0999367 150,000 751 150,751 80,089 1,992 82,081 less: CRI issuance costs (844) - (844) (926) - (926)
1st and 2nd serie of the 6th issue - code 16L0074259 and 16L0074261 100,000 259 100,259 200,000 697 200,697
102nd serie of the 4th issue - code 30,287 123 30,410 - - - 17G0848381
103rd serie of the 4th issue - code 9,691 1,344 11,035 - - - 17G0848382
332,334 2,739 335,073 472,363 5,574 477,937
Current 258,662 2,739 261,401 249,520 5,574 255,094 Noncurrent 73,672 - 73,672 222,843 - 222,843
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Consolidated 2017 2016
Issue Interest Interest Balance payable Total Balance payable Total
1st serie of the 1st issue - code 11F0013690 43,200 262 43,462 43,200 527 43,727 less: CRI issuance costs - - - (504) - (504)
1st serie of the 2nd issue - code 12E0019753 - - - 150,000 2,358 152,358 less: CRI issuance costs - - - (307) - (307)
1st serie of the 5th issue - code 16I0999367 150,000 751 150,751 80,089 1,992 82,081 less: CRI issuance costs (844) - (844) (926) - (926)
1st and 2nd serie of the 6th issue - code 16L0074259 and 16L0074261 100,000 259 100,259 200,000 697 200,697
1st serie of the 7th issue - code 16L0195217 30,000 87 30,087 30,000 77 30,077
102nd serie of the 4th issue - code 65,802 123 65,925 - - - 17G0848381
103rd serie of the 4th issue - code 21,058 1,343 22,401 - - - 17G0848382
409,216 2,825 412,041 501,552 5,651 507,203
Current 302,151 2,825 304,976 249,134 5,651 254,785 Noncurrent 107,065 - 107,065 252,418 - 252,418
The movements of the balances are shown below:
Individual Consolidated 2017 2016 2017 2016 Opening balance 477,937 348,191 507,203 363,214 Additions 115,456 280,089 168,180 310,088 Principal repayment (255,567) (150,000) (261,411) (166,667) Interest payment (51,872) (39,100) (55,640) (40,237) Interest and charges 49,119 38,757 53,709 40,805 Closing balance 335,073 477,937 412,041 507,203
CRI’s interest eligible to capitalization in inventories totaled R$709 in year ended December 31, 2017 (R$5,322 as of December 31, 2016).
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13. CREDITS RECEIVABLE AND OBLIGATIONS PAYABLE WITH RELATED PARTIES
a) Loan operations with related parties to finance civil works
The balances of the loan operations maintained with related parties have no predetermined maturity and are not subject to financial charges, except those signed with the joint ventures, when indicated.
Balances in parent company and consolidated financial statements are presented as follows:
Individual Consolidated Credits Receivable Credits Payables Credits Receivable Credits Payables from Related Parties from Related Parties from Related Parties from Related Parties 2017 2016 2017 2016 2017 2016 2017 2016
Angra Dos Reis Empreendimentos Imobiliários Ltda 11 1,151 1,412 8,850 - 1 1,455 934 Arizona Investimento Imobiliário Ltda 175 - 5,934 5,934 175 - 5,934 5,934 Barao De Miracema Empreendimentos Imobiliários Spe Ltda 3 1,632 ------BKO Desenvolvimento Imobiliário XVIII Ltda 1,176 - - - 1,176 - - - Cabo Frio Incorporadora Ltda - - - 15,400 - - - 15,400 Carcavelos Empreendimentos Imobiliários Ltda - 157 752 - - 157 752 - CBR 030 Empreendimentos Imobiliários Ltda 8,109 4,161 - - 1,913 4,188 9,706 5,573 CBR 037 Empreendimentos Imobiliários Ltda 20 1,972 ------CBR 044 Empreendimentos Imobiliarios Ltda. 2,055 7 ------Chiachiaretta Empreendimentos Imobiliários Ltda 3 1 - - 661 - 6 6 Cipasa Votorantim Empreend Imob S/A 4,607 67 - - 4,607 67 - - Construtora Santa Izaura Ltda 1,030 968 - - 1,030 968 - - Conx Empreeendimentos Imobiliários Ltda - 10,007 - - - 8,584 - - Corsega Empreendimentos Imobiliários Ltda 3 646 ------Costa Maggiore Empreendimentos Imobiliários Ltda 278 982 - - 278 982 - - Crua Empreendimentos S/A 8,533 6,769 - - 8,533 6,769 - - Cury Construtora E Incorporadora S/A 121,226 118,738 1 1 121,226 118,738 1 1 Cybra De Investimento Imobiliário Ltda 36 68 - - - 3,142 - - Cyma Desenvolvimento Imobiliário Ltda - 718 ------Cyrela Anis Empreendimentos Imobiliários Ltda 920 73 1,046 - - - - - Cyrela Bahia Empreendimentos Imobiliários Ltda 12 1,297 ------Cyrela Boraceia Empreendimentos Imobiliários Ltda 2,676 7,061 ------Cyrela Braga Empreendimentos Imobiliários Ltda 3,146 5,369 ------Cyrela Chile Empreendimentos Imobiliários Ltda 598 12 - - - - 105 - Cyrela Comercial Imobiliária Ltda 3,116 3,410 - - 106 103 1,026 1,062 Cyrela Construtora Ltda 46 1,602 1 - - - - - Cyrela Cristal Empreendimentos Imobiliários Ltda 10,702 7,624 - - - - - 21 Cyrela Df 01 Empreendimentos Imobiliários Ltda 1 1,063 ------Cyrela Dinamarca Empreendimentos Imobiliários Ltda 7 715 ------Cyrela Empreendimentos Imobiliários Comercial Importadora e Exportadora Ltda 1,279 1,277 - - 13 - - - Cyrela Esmeralda Empreendimentos Imobiliários Ltda 594 21 - - - - 1 - Cyrela Extrema Empreendimentos Imobiliários Ltda 121,674 69,340 ------Cyrela Iberia Empreendimentos Imobiliários Ltda 1,623 1,925 ------Cyrela Imobiliária Ltda 631 22 ------Cyrela Investimentos E Participações Ltda 2 11 - - 388 388 2,564 2,564 Cyrela Magiklz Oiticica Empreendimentos Imobiliários Ltda 15 3,526 - - - - - 844 Cyrela Malasia Empreendimentos Imobiliários Ltda 1,939 774 ------Cyrela Manaus Empreendimentos Imobiliários Ltda 4,644 4,644 - - 1,475 1,475 - - Cyrela Maresias Empreendimentos Imobiliários Ltda 1,042 6,922 ------Cyrela Moinho Empreendimentos Imobiliários Ltda 27,581 67,611 - - - 2 - - Cyrela Montblanc Empreendimentos Imobiliários S/A 2,699 2,699 ------Cyrela Monza Empreendimentos Imobiliários Ltda 85 29,628 - - 874 821 - -
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Individual Consolidated Credits Receivable Credits Payables Credits Receivable Credits Payables from Related Parties from Related Parties from Related Parties from Related Parties 2017 2016 2017 2016 2017 2016 2017 2016
Cyrela Nordeste Empreendimentos Imobiliários Ltda 3 - - - 629 599 870 49 Cyrela Pamplona Empreendimentos Imobiliários Ltda - 1,774 ------Cyrela Paris Empreendimentos Imobiliários Ltda 18,588 2,869 ------Cyrela Pompeia Empreendimentos Imobiliários Ltda 605 689 ------Cyrela Puglia Empreendimentos Imobiliários Ltda 14 104 27,296 - - - - - Cyrela Recife Empreendimentos Imobiliários Ltda 61,623 14,185 - - - - - 164 Cyrela Rjz Construtora E Empreendimentos Imobiliários Ltda 147 45 - - 80,892 72,906 278 278 Cyrela Rjz Empreendimentos Imobiliários Ltda 2,541 3,142 - - 1 283 - - Cyrela Rjz Jcgontijo Empreendimentos Imobiliários Ltda 348 1,788 - - - - - 1,210 Cyrela Roraima Empreendimentos Imobiliários Ltda 6 1,338 ------Cyrela Tolteca Empreendimentos Imobiliários Ltda 2,857 80 ------Cyrela White River Investimento Imobiliário Spe Ltda 465 506 580 580 - - - - Cytec Empreendimentos Imobiliários Ltda - - - - - 161 613 115 Dgc João Gualberto Ltda 2 - - - - 773 - 337 Elbrus Empreendimentos Imobiliários Ltda 544 - - - 544 - - - Emporio Jardim Shoppings 965 ------Forest Hill De Investimentos Imobiliários Ltda - - 2,720 2,720 - - 2,720 2,720 Gcw Xangri-La Urbanismo Ltda ------111 989 Global Park Residencial Empreendimentos Imobiliários Ltda 105 1,832 ------Goldsztein Cyrela Empreendimentos Imobiliários S/A 18,435 41,823 - - 22,494 21,293 - 4 Himalaia Empreendimentos Imobiliários Ltda 2 621 ------Imobiliaria 513 Do Brasil Projetos 53,168 - - - 53,168 - - - Jacira Reis Empreendimentos Imobiliários Ltda 10,704 9,144 - - 10,704 9,144 - - Jose Celso Gontijo Engenharia S/A - 41,047 - - - 41,047 - - Kalahari Empreendimentos Imobiliários Ltda 113 4,225 ------Lavvi Empreendimentos Imobiliários Ltda ------1,696 - Living Abaete Empreendimentos Imobiliários Ltda 28,707 19,348 ------Living Afenas Empreendimentos Imobiliários Ltda 35,886 42,040 ------Living Amparo Empreendimentos Imobiliários Ltda 26,498 3,400 ------Living Batatais Empreendimentos Imobiliários Ltda 115 11,548 - - 18 - - - Living Empreendimentos Imobiliários S/A - 18,065 - - 733 133 5,309 5,049 Living Martini Empreendimentos Imobiliários Ltda 11,499 1,113 - - 32 - 1 - Living Nazare Empreendimentos Imobiliarios Ltda 1,975 413 - - - 33 - - Living Panama Empreendimentos Imobiliários Ltda 419 735 - - - 10 1 - Living Pirassununga Empreendimentos Imobiliarios Ltda 10,776 281 ------Living Provance Empreendimentos Imobiliários Ltda 61,158 553 ------Living Ribeirao Empreendimentos Imobiliários Ltda 18 640 ------Living Sul Empreendimentos Imobiliários Ltda 26 33 - - 785 2,495 - - Living Talara Empreendimentos Imobiliários Ltda 3,428 3,428 - - 3,428 3,428 - - Lombok Incorporadora Ltda 1,938 264 - - 62 - - - Luanda Empreendimentos Imobiliários Ltda 9 12,768 ------Magnum Investimento Imobiliário Ltda - - 4,195 4,195 - - 4,195 4,195 Mdl Realty Incorporadora S/A - - 841 - - - 841 - Nova Iguacu Empreendimentos Imobiliários Ltda 25 525 ------Nova Zelandia Empreendimentos Imobiliários Ltda 542 - - 1,525 - - - - Option de Investimento Imobiliário Ltda - - 644 - - - - - Pdg Realty S/A Empreendimentos e Participações - - 2,314 2,314 - - 2,314 2,314 Plano & Plano Construções e Participações Ltda - - - - - 60 - 2,238 Plano Amoreira Empreendimentos Imobiliários Spe Ltda - - - - - 2,178 - - Plarcon Cyrela Empreendimentos Imobiliários Spe Ltda 623 628 - - 623 628 - - Pre 27 Empreendimentos Imobiliários Spe Ltda - - - 1,000 - - - 1,000 Queiroz Galvão Desenvolvimento Imobiliário Ltda 5,006 - - - 5,006 - - - Ravenna Empreendimentos Imobiliários Ltda 36 7,463 - - - - - 16 Reserva Casa Grande Empreendimentos Imobiliários Ltda 7 1,691 - - 7 1,691 - - Rouxinol Salvador Alende Empreendimentos Imobiliários Ltda - - - 2,400 - - - 2,400 Rubem Vasconcelos Imoveis Ltda - 4,901 - - - 4,901 - - Sanca Desenvolvimento Urbano Ltda - - 695 - - - 695 - Scp Isla Empreendimentos Imobiliários Ltda 2,598 5,673 - 3,075 2,598 5,673 - 3,075 Seller Consultoria Imobiliária E Representações Ltda 129 4 10 - 14,981 14,842 - - Sevilha Empreendimentos Imobiliários Ltda 1,041 ------Sk Joaquim Ferreira Lobo Empreendimentos Imobiliários Spe Ltda ------1,065 Spe Brasil Incorporação 17 Ltda - 600 - 275 - 600 - 275 Spe Brasil Incorporação 28 Ltda - - 1,005 400 - - 1,005 400 Spe Brasil Incorporação 29 Ltda - 650 - 750 - 650 - 750 Spe Brasil Incorporação 83 Ltda - 2,000 - - - 2,000 - - Spe Chl Cv Incorporações Ltda 1,682 882 - - 1,682 882 - - Spe Faicalville Incorporação 1 Ltda - - 1,236 850 - - 1,236 850 Tm Participacoes Societarias E Imobiliárias Ltda 2,574 - - - 2,574 - - - Vinson Empreendimentos Imobiliários Ltda ------5,513 - Vix One Empreendimentos Imobiliários Spe Ltda 6,772 50 - - 2,246 - 3 3 Vmss Empreendimentos Imobiliários Spe S/A 7 3 - - 932 1,854 16 229 Others 235 SPE´s with balances up to R$500 7,318 13,879 1,641 213 3,320 6,324 1,215 2,748
Total 714,344 643,465 52,323 50,482 349,914 340,973 50,182 64,812
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The Company has loan balances totaling R$ 7,027 in the consolidated, on December 31, 2017 (R$ 52,975 on December 31, 2016). Guarantees given to the Company are linked to delivery of shares in subsidiary or jointly-owned subsidiaries.
As of December 31, 2017, there is a balance of R$ 54,490 (R$ 49,559 as of December 31, 2016), which corresponds to advances granted to the company from which the land was acquired, as established in contract. Advances are subject to restatement based on the changes in CDI Interest is payable monthly, and the principal will be amortized through receipts corresponding to its stake in the joint venture.
As of December 31, 2017, the Company has dividends receivable from the investee Cury Construtora e Incorporadora S/A, totaling R$ 121,029. b) Operations
Operations maintained with related parties mainly represent services that involve the technical responsibility of projects and the control of all contractors who provide skilled construction labor, applied in the development of the joint ventures of the Company and its investees.
These operations are classified as costs incurred by the units under construction and allocated to P/L according to the stage of marketing of the units of the joint venture. c) Directors’ fees
i) Fixed remuneration: The total remuneration to the Company’s administrators for the year 2017 was fixed at R$ 14,647, according to the Annual Shareholders’ Meeting of April 8, 2017 (R$ 12,381 for 2016).
The remuneration recorded in the Company’s P/L is included under “Expenses on Management Fees.”
Accumulated expenses incurred in the years may be shown as follow:
Individual Consolidated Total members 2017 2016 2017 2016 2017 2016
Executive Committee 1,282 1,045 1,891 2,087 7 7 Board of Directors 2,910 3,125 2,910 3,125 6 6 Charges 839 834 960 1,042 - - 5,031 5,004 5,761 6,254 13 13
Benefits - Executive Committee 2,980 2,583 3,017 2,599 Benefits - Board of Directors 244 255 244 255 3,224 2,838 3,261 2,854
Total 8,255 7,842 9,022 9,108
Compensation in the period: Executive Committee - higher compensation 257 257 865 912 Executive Committee - lower compensation 66 197 674 65 Board of Directors - higher compensation 725 728 725 728 Board of Directors - lower compensation 246 246 246 246 43
ii) Variable remuneration: Under the terms of article 190 of the Brazilian Corporations Act, the Ordinary Shareholder Meeting that approves the accounts for the fiscal year may determine the distribution of up to 10% of the earnings of the fiscal year, after adjustments of article 189 of the Corporations Act, to the Company’s administrators and employees, as profit sharing.
Profit sharing with managers and employees may only occur in fiscal years in which shareholders are assured the payment of the minimum mandatory dividend provided for in Article 41 of the Bylaws. The Company maintains stock options. All managers and employees who are entitled to receive the annual bonus, and who do not have commissions directly or indirectly linked to the sale or purchase of assets for the Company as a component of their remuneration, are eligible for this modality. As of December 31, 2017, management expenses accounted for in income totaled R$6,468 (R$10,160 as of December 31, 2016). No amounts were paid in respect to: (1) post-employment benefits (pensions, other retirement benefits, post-employment life insurance and medical care); (2) long-term benefits (license for years of service and long-term disability benefits); and (3) benefits on termination of employment contract.
14. CURRENT ACCOUNTS WITH PARTNERS OF JOINT VENTURES
The balances in net assets and liabilities are shown below:
Individual Consolidated 2017 2016 2017 2016 ABC Realty de Investimento Imobiliária Ltda - - 1,227 1,051 CBR 014 Empreendimentos Imobiliários Ltda - - (1,686) (1,676) Consórcio de Urbarnização Jundiai 5,972 6,413 5,972 6,413 Corsega Empreendimentos Imobiliários Ltda - - (525) (105) Cyrela Begonia Empreendimentos Imobiliária Ltda - - 212 - Cyrela Brazil Realty Rjz Empreendimentos Imobiliária Ltda - - 2,374 2,166 Cyrela Europa Empreendimentos Imobiliários Ltda - - (4,168) (3,547) Cyrela Iberia Empreendimentos Imobiliários Ltda - - 615 615 Cyrela Imobiliária Ltda - - 1,102 731 Cyrela Jasmim Ltda - - 120 - Cyrela Lambari Empreendimentos Imobiliários Ltda - - (1,246) (1,253) Cyrela Paris Empreendimentos Imobiliários Ltda - - (270) - Cyrela Polinesia Empreendimentos Imobiliários Ltda - - 488 482 Cyrela Rjz Construtora e Empreendimentos Imobiliários Ltda - - (864) (729) Cyrela Roraima Empreendimentos Imobiliários Ltda - - (881) (2,727) Cyrela Suecia Empreendimentos Imobiliários Ltda - - (15,842) (27,194) Cyrela Urbanismo 5 - Empreendimentos Imobiliarios Ltda - - (3,507) (3,536) Goldsztein Cyrela Empreendimentos Imobiliários S/A - - 244 244 Jardim Loureiro da Silva Empreendimentos Imobiliários Ltda - - 774 1,135 Kalahari Empreendimentos Imobiliários Ltda - - (972) (556) Living Sabino Empreendimentos Imobiliários Ltda - - (253) - Pitombeira Empreendimentos Imobiliários Ltda - - (240) (363) Plano Aroeira Empreendimentos Imobiliários Ltda - - 1,100 (501) Plano Cambara Empreendimentos Imobiliários Ltda - - (106) (106) Plano Cambui Empreendimentos Imobiliários Ltda - - (3,292) - Plano Guapira Empreendimentos Imobiliários Ltda - - (541) (556) SCP H.Aidar (Cyrela Begonia) - - (470) - Lorena Empreendimentos Imobiliários SPE Ltda - - (313) (23) Vero Sta Isabel Empreendimentos Imobiliários SPE Ltda - - (2,053) (2,295) Others 25 SPE´s with balance up to R$100 - - (34) (27)
5,972 6,413 (23,035) (32,357)
Noncurrent Assets 5,972 6,413 14,255 13,070 Current Liabilities - - 37,290 45,427 44
15. WORKS IN PROGRESS
As a result of the procedure established by CVM Resolution 561/08 (OCPC 01 (R1)), as amended by Resolution 624/10, the balances of sales income and corresponding budgeted costs, for the units sold and with costs not yet incurred, are not reflected in the financial statements of the Company and its subsidiaries.
The main balances to be reflected as costs are incurred are presented below:
a) Contracted real estate operations to be appropriated from accumulated construction works in progress.
2017 2016
(+) Total gross sales revenue 6,944,278 12,595,664 (-) Total recognized gross revenue (5,290,248) (10,431,246) (=) Unrecognized sales revenue: (i) 1,654,030 2,164,418
(+) Total cost of properties sold 4,165,791 7,220,722 (-) Total recognized cost (3,156,397) (5,890,148) (=) Unrecognized cost (ii) 1,009,394 1,330,574
Unrecognized profit 644,636 833,844
(i) It does not include taxes on income
(ii) It does not include expenses with unrecognized guarantees
b) Commitments to costs budgeted and not yet incurred, referring to units sold: 2017 2016 Amounts not reflected in the financial statements Current 547,452 809,744 Noncurrent 461,942 520,830 1,009,394 1,330,574
45
16. ADVANCES FROM CLIENTS
Consolidated 2017 2016 Amounts received for property sales Amounts received for Project sales: Others advances 4,991 6,453 4,991 6,453
Sold units in projects under constructions Allocated revenue (1,201,625) (3,878,331) Receivable revenue 1,321,419 3,945,964 119,794 67,633
124,785 74,086 Amount received for physical barters Barters with land 348,896 479,932 Total advances from clients 473,681 554,018
Current 314,803 351,306 Noncurrent 158,878 202,712
17. PROVISION FOR PROPERTY MAINTENANCE
Consolidated 2017 2016 Accured construction warranties (i) 108,975 140,333 Other suppliers of goods and services (ii) 73,308 - Total trade payables 182,283 140,333
Current 96,268 64,655 Noncurrent 86,015 75,678
(i) The Company and its subsidiaries offer guarantees to their clients in the sale of their properties. These warranties have specific characteristics in accordance with certain items and are provided for years that vary to up to 5 years after the completion of the work and are partially shared with suppliers of goods and services.
(ii) Balances of suppliers of operations in progress, also including the full provision for estimated indemnities and work costs required to renovate the Grand Parc Residential Resort project in Vitória - ES.
18. ACCOUNTS PAYABLE FOR ACQUISITION OF LAND
Refer to pieces of land acquired for the purpose of launching new joint ventures, isolated or with participation of third parties, with the following maturity schedule:
46
Individual Consolidated Year 2017 2016 2017 2016 2018 - - - 18,889 2019 76,285 - 121,623 32 2020 - - 2,075 5 2021 - - 1,741 - Noncurrent 76,285 - 125,439 18,926
Current 2,516 - 107,932 142,531
Total 78,801 - 233,371 161,457
They are adjusted at INCC change, IGP-M change, or change in the Special Clearance and Custody System (SELIC) rate.
Interest and inflation adjustment eligible to capitalization of inventories referring to land balance payable totaled R$3,418 in year ended December 31, 2017 (Reversal of R$5,551 as of December 31, 2016).
19. PROVISION FOR TAX, LABOR AND CIVIL RISKS
Provisions for risks of probable losses are summarized as follows:
Individual Consolidated 2017 2016 2017 2016 Civil lawsuits 3,010 7,164 88,550 107,692 Tax lawsuits 16 610 953 4,568 Labor lawsuits 1,170 586 37,687 78,702 Cancelled sales (i) - - 16,616 22,996 4,196 8,360 143,806 213,958
(i) The Company maintains a provision for cancellation of client contracts that is sufficient to cover probable losses in trade accounts receivable. As of December 31, 2017, amount recorded as provision was R$16,616 (R$22,996 as of December 31, 2016).
Total amount involving lawsuits classified as possible and remote loss in consolidated financial statements is as follows:
2017 Possible Remote Total Civil 133,308 19,105 152,413 Labor 97,206 23,635 120,841 Tax 165,457 89,054 254,511 395,971 131,794 527,765
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2016 Possible Remote Total Civil 160,249 25,236 185,485 Labor 102,714 35,203 137,917 Tax 118,567 38,431 156,998 381,530 98,870 480,400
Main lawsuits classified as possible loss are as follows:
• The Company is a party to a tax administrative proceeding deriving from Federal Revenue Service (SRF) tax assessment referring to collection of alleged IRRF (withholding income tax) and INSS (national institute of social security) tax credits related to stock option plan. This proceeding is being defended in the administrative sphere and has not yet been analyzed by tax authorities.
• The Company and its investees are parties to tax administrative proceedings deriving from Federal Revenue Service decision on non-homologation of taxes paid through credit offset. These credits mostly derive from the use of withheld taxes of balance determined in annual adjustment return. These proceedings are being defended in the administrative sphere and have not yet been analyzed by tax authorities. As of December 31, 2017, these lawsuits totaled R$12,252 (R$11,326 as of December 31, 2016).
• Certain Company’s subsidiaries are parties to administrative proceeding deriving from tax assessment referring to collection of social security contributions on Profit Sharing distribution for calendar year 2008 and on contributions of autonomous workers. Companies challenged decisions and are awaiting tax authorities’ position. As of December 31, 2017, this lawsuit amounted to R$6,562 (R$5,885 as of December 31, 2016).
• Queiroz Galvão MAC Cyrela Veneza, organization in which the Company holds 30% of interest, is a party to public civil lawsuit that discusses validity of Construction License for joint venture Domínio Marajoara; on December 31, 2017, the Company considers likelihood of loss as probable, with possible monetary conviction regarding environmental aspects. The Company’s management recorded a provision of R$11,396 related to civil lawsuits linked to the joint venture.
• Cyrela, in the capacity of Developer of the real estate development denominated Condomínio Grand Parc Residencial Resort, clarifies that, on July 19, 2017, a collapse occurred in the external leisure area and causes are still unknown; and liabilities are being duly investigated by competent police authorities. Even though the Company is not responsible for joint venture construction, which was the responsibility of the construction company Incortel Incorporações e Construções Ltda., Company as the Developer, bore and is bearing indemnity amounts until the real cause of the accident is determined.
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Change in provision balances is as follows:
Individual Civil Tax Labor Total Balance as at Dec 31, 2015 10,183 - 1,890 12,073 Additions 236 603 164 1,003 Payments (171) - (474) (645) Reversal (6,140) - (1,729) (7,869) Adjustments 3,056 7 734 3,797 Balance as at Dec 31, 2016 7,164 610 585 8,359
Balance as at Dec 31, 2016 7,164 610 585 8,359 Additions 1,518 16 1,344 2,879 Payments (1,073) - (1,773) (2,847) Reversal (2,089) (610) 715 (1,984) Adjustments (2,510) - 298 (2,211) Balance as at Dec 31, 2017 3,010 16 1,169 4,196
Consolidated Cancelled Civil Tax Labor Total Sales Balance as at Dec 31, 2015 102,632 2,633 75,695 20,697 201,657 Additions 55,517 2,869 50,879 5,644 114,909 Payments (63,007) - (44,885) - (107,892) Reversal (18,463) (1,269) (16,184) (3,345) (39,261) Adjustments 31,014 334 13,197 - 44,545 Balance as at Dec 31, 2016 107,693 4,567 78,702 22,996 213,958
Balance as at Dec 31, 2016 107,693 4,567 78,702 22,996 213,958 Additions 55,952 173 53,088 (149) 109,064 Payments (74,413) - (32,014) - (106,427) Reversal (13,884) (3,897) (62,089) (6,231) (86,101) Adjustments 13,202 109 - - 13,312 Balance as at Dec 31, 2017 88,550 952 37,687 16,616 143,806
20. DEFERRED TAXES AND CONTRIBUTIONS FOR PAYMENT
a) Breakdown of income tax, social contribution, PIS and COFINS for deferred payment
These are recorded to reflect tax effects deriving from tax basis temporary differences, which determine the time of payment, as property sales are received (SRF Regulatory Instruction no. 84/79), and effective recognition of real estate earnings, in conformity with CFC Resolution no. 1,266/09 and CVM Decision no. 561/08, as amended by CVM Resolution no. 624/10 (OCPC 01(R1)).
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Balances of taxes and contributions with deferred payments are as follows:
Consolidated 2017 2016 Assets IRPJ 693 155 CSLL 365 81 Subtotal 1,058 236
PIS 285 45 COFINS 884 210 Subtotal 1,169 255 Total: 2,227 491
Current 2,227 491 Noncurrent - -
Individual Consolidated 2017 2016 2017 2016 Liabilities IRPJ 875 985 35,378 47,523 CSLL 316 354 18,272 24,374 Subtotal 1,191 1,339 53,650 71,897
PIS 91 102 10,134 13,379 COFINS 419 472 46,826 61,822 Subtotal 510 574 56,960 75,201
Total 1,701 1,913 110,610 147,098
Current 599 30 85,989 110,168 Noncurrent 1,102 1,883 24,621 36,930 Effective payment of these taxes occurs as sales installments are received.
As a result of previously-mentioned tax credits and obligations, corresponding tax effects (deferred income tax and social contribution) were recognized, as follows:
Individual Consolidated 2017 2016 2017 2016 In current and nocurrent assets Difference of profit on real estate activities - deemed income - - 242 - Difference of profit on real estate activities - RET - - 816 236 - - 1,058 236
In current and nocurrent liabilities Difference of profit on real estate activities - taxable income (1,190) (1,339) (2,639) (4,735) Difference of profit on real estate activities - deemed income - - (5,840) (10,071) Difference of profit on real estate activities - RET - - (45,170) (57,091)
(1,190) (1,339) (53,649) (71,897)
50 b) Calculation basis for temporary differences from deferred income
The Company and its subsidiaries have the following negative balances to offset, deducted from or added to future taxable income calculation bases to be determined based on real income. In addition, certain subsidiaries have differences to be taxed in future years deriving from profit in real estate activities taxed at the cash system and recorded at the accrual system and Special taxation regime – RET, considering taxation at deemed income, as follows:
Individual Consolidated 2017 2016 2017 2016 Credits for offset - taxable income Tax loss carryfowards to be offset against future taxable income 1,604,898 1,529,918 2,626,930 1,944,207
Taxable obligations - taxable income Difference between profit from real estate activities taxed on a cash basis and amount recorded on the accrual basis (3,501) (3,939) (7,763) (13,926)
Taxable obligations - deemed income Difference between the profit from taxable real estate activities on a cash basis and the amount recorded on the accrual basis Income tax base - - 14,575 26,263 Social contribution base - - 21,779 38,948
Taxable obligations - special taxation regime - RET Tax base - - 2,314,515 2,934,468 c) Balance of PIS and COFINS Deferred PIS and COFINS calculated on the difference between income taxed at the cash system and income recognized at the accrual system are recorded under caption “Taxes and contributions with deferred payment” in current and non-current liabilities, according to expected settlement:
Individual Consolidated 2017 2016 2017 2016 Current - - 1,943 2,255 Deferred payment 510 574 56,960 75,201 510 574 58,903 77,456
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d) Income and social contribution tax expense for the year Income and social contribution tax expenses for the years ended December 31, 2017 and 2016 may be reconciled with income before taxes:
Individual Consolidated
2017 2016 2017 2016
Profit before income tax and social contribution (95,153) 151,619 54,630 318,343 (x) Statutory rate: -34% -34% -34% -34% (=) Expected income tax and social contribution expense 32,352 (51,550) (18,574) (108,237) (+/-) Effect of the statutory rate on: Share of profit of subsidiaries (13,847) 93,380 25,055 16,809 Temporary additions and deductions and other (i) (132,285) (19,594) (137,594) (19,594) Unrecognized tax credits (ii) 113,929 (22,503) (75,305) (22,503) Effect of tax gain from adopting the deemed income or RET regime - - 141,249 59,802 (=) Income tax and social contribution expense 149 (267) (65,169) (73,723)
149 (267) 17,595 9,441 Deferred taxes - - (82,764) (83,164) Current taxes 149 (267) (65,169) (73,723)
(i) Refers to balance of unaccounted tax losses and negative basis.
(ii) Refers to unrecorded tax loss balances
21. SHAREHOLDERS' EQUITY
a) Capital
On December 31, 2017, subscribed and paid-in capital totals R$ 3,395,744 (R$ 3,395,744 as of December 31, 2016) is represented by 399,742,799 nominative common shares.
The Company’s Board of Directors is authorized to increase capital - regardless of Shareholders’ Meeting or amendments to the Bylaws - up to the limit of 750,000,000 common nominative shares for distribution in the country and/or abroad, either publicly or privately.
b) Treasury shares
According to decision of the Board of Directors, the Company may acquire its own shares to keep them in treasury and, then, cancel them or dispose of them.
Considering provisions of Article 8 of CVM Instruction no. 10/80, the following was decided:
(i) The Company’s purpose is to acquire its own shares to keep them in treasury and then cancel them or dispose of them in order to invest funds available and maximize value to shareholders.
(ii) The number of common shares issued by the Company that is outstanding in the market is 252,703,489, as informed by depositary institution on December 31, 2017 (244,084,628 as of December 31, 2016).
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Program for repurchase of shares / cancellation of shares
Quotation of said shares on December 31, 2017 was R$13.22 per share, market value expressed in Brazilian Reais (R$10.27 – value expressed in Brazilian Reais as of December 31, 2016). Market value is obtained using quotation of the Company’s shares at BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros as reference.
The balance may be shown as follows as of December 31, 2017:
Buypack Average Market Position Number price Buypack price price Balance as at December 31, 2016 17,593,623 221,925 12.61 236,464 Plan 2008_Match employee - 04/29/2008 (224) (3) - (3) Plan 2012 - Match employee (1x) - 5 years - 05/02/2012 (7,480) (94) - (99) Plan 2012 - Match employee (2x) - 5 years - 05/02/2012 (141,428) (1,784) - (1,870) Plan 2012 (Retention) - granted - 08/01/2012 (76,708) (968) - (1,014) Plan 2013 (Retention) - granted - 09/02/2013 (16,268) (205) - (215) Plan 2013 - Match employee (2x) - 5 years - 05/02/2013 (4,617) (58) - (61) Plan 2014 - Match employee (1x) - 3 years - 05/02/2014 (119,744) (1,510) - (1,583) Plan 2014 - Match employee (2x) - 3 years - 05/02/2014 (191,565) (2,415) - (2,531) Balance as at December 31, 2017 17,035,589 214,887 12.61 229,088
c) Profit retention
As of December 31, 2017, the Company determined net loss for the year of R$95,004, which was absorbed from “Profit retention” balance in “Profit reserve”.
As of December 31, 2016, net income remaining balance for the year was transferred to caption “Earnings retention” in “Profit reserve”, after recognition of “Legal reserve” in the amount of R$7,567 and recognition of dividends in the amount of R$107,838.
d) Other reserves
These are represented by expenditures with issuance of shares and changes in capital transactions. Capital reserves are primarily explained by acquisition of minority interests in entities that were already consolidated in the Company’s financial statements.
e) Capital management
Company’s capital management aims to ensure that a proper credit rating is maintained before institutions, as well as a strong capital relationship, so as to support business and leverage shareholders' value.
The Company controls its capital structure by adjusting it to the current economic conditions. In order to maintain an adjusted structure, the Company may pay dividends, return capital to the shareholders, take out new loans and issuances of debentures. Since the year ended December 31, 2008, there was no change in the objectives, policies or processes of capital structure.
22. BENEFITS TO OFFICERS AND EMPLOYEES
Benefits to employees and administrators are all in the form of remuneration paid, payable, provided by the Company or on behalf of it, in exchange for services that are provided to the Company.
53 a) Post-retirement benefits
The Company and its subsidiaries do not provide private pension plans to its employees, but make monthly contributions based on social security payroll, which are recorded in expenses at the accrual system. b) Profit sharing program - PLR
The Company and other Group’s companies have a profit sharing program in accordance with the collective agreement entered into with the São Paulo Civil Construction Worker Industries’ Union. On December 31, 2017, this provision is R$8,500 (R$9,000 on December 31, 2016), recorded in income under caption “General and administrative expenses” and in liabilities under “Salaries, payroll charges and interests”, based on indicators and parameters defined in signed agreement and on projections of results.
c) Stock options
Plan description
To take part in the program, manager or collaborator must acquire shares from the Company at predefined terms, using own resources or resources deriving solely from receipt of annual bonus granted according to prevailing remuneration policy.
In return for acquisition of shares, the Company enters or will enter into an Instrument for the Grant of Stock Options with each beneficiary; through this instrument, the Company grants stock options within previously-defined limits and conditions to each acquired share.
Calculation of these amounts and accounting recognition of stock options are performed in accordance with criteria established in CVM Resolution No. 650/10 – Share-based Payments (CPC 10 (R1)).
Number of granted stock options, grace period and exercise period approved in the Company’s Shareholders’ Meeting are commented below:
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Plan’s quantities, values and terms
Plans granted on 2007 2008 2011 2012 2013 2014 2015 2016 05/17/2007 10/08/2007 10/01/2009 12/01/2010 03/28/2013 02/01/2011 05/02/2013 08/01/2012 10/01/2013 Grant dates 09/02/2013 04/29/2008 08/11/2011 05/02/2012 12/12/2013 05/02/2014 08/10/2015 10/01/2016
5 (five) years 3 (three) years 5 (five) years 2,5 (two and half 3 (three) years 3 (three) years 05 (five) years Vesting period 05 (five) years 05 (five) years years) 5 (five) years 2 (two) years 03 (three) years 05 (five) years 05 (five) years 05/17/2012 10/08/2012 10/01/2014 12/01/2015 02/01/2016 08/10/2016 03/30/2018 08/01/2017 08/10/2014 04/27/2015 04/30/2016 05/02/2017 Exercise period 09/02/2018 04/28/2013 02/10/2014 04/27/2017 05/30/2015 05/02/2019 08/10/2020 10/01/2021 Average strike price R$ 0.01 R$ 0.01 R$ 0.01 R$ 0.01 R$ 0.01 R$ 0.01 R$ 0.01 R$ 0.01
2007 2008 2011 2012 2013 2014 2015 2016 Total Number of shares as at 12/31/2015 2,798,480 11,533 275,828 161,508 2,139,793 525,244 77,600 - 5,989,986 Granted shares 77,600 200,000 277,600 Reactivated shares 46,148 ------46,148 Exercised shares (2,662,033) - (260,228) - (157,933) - - - (3,080,194) Cancelled shares (20,701) - (15,600) (12,600) (47,120) (79,359) - - (175,380) Number of shares as at 12/31/2016 161,894 11,533 - 148,908 1,934,740 523,485 77,600 200,000 3,058,160 Reactivated shares - 224 ------224 Exercised shares (92,975) (224) - (148,908) (4,617) (311,219) - - (557,943) Cancelled shares (2,650) (11,116) - - (514) (4,307) - - (18,587) Number of shares as at 12/31/2017 66,269 417 - - 1,929,609 207,959 77,600 200,000 2,481,854
Market value of each stock option is estimated on grant date using “Black-Scholes” model of share pricing, which uses grant price, strike price, grace period, volatility of share price, percentage of distributed dividends, and risk-free rate as basic assumptions.
Amounts of amortizations recorded as expense in financial statements, as a contra-entry to the Company’s shareholders' equity from grant date to December 31, 2017, are described below:
Average strike Accumulated Accumulated Plan price Grant date expenses 2017 expenses 2016 2006 14.60 05/04/2006 2,744 2,744
05/17/2007 2007 0.01 10/08/2007 10/01/2009 12/01/2010 78,461 78,303 02/01/2011 08/01/2012 09/02/2013
2008 0.01 04/29/2008 22,457 22,451 2011 0.01 08/11/2011 3,794 3,794 2012 0.01 05/02/2012 5,029 4,922 03/28/2013 05/02/2013 10/01/2013 2013 0.01 31,449 26,144 12/12/2013
2014 0.01 05/02/2017 05/02/2019 5,285 4,492
2015 0.01 08/10/2015 238 136
2016 0.01 09/01/2016 449 106 Total 149,906 143,092
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23. FINANCIAL INSTRUMENTS
a) Description of significant financial instruments
The Company and its subsidiaries are parties in transactions involving financial instruments, all recorded in assets and liabilities, which are designed to satisfy their needs, and to reduce credit, currency and foreign exchange and interest rate risk exposure. The management of these risks is performed by means of the definition of strategies, establishment of control systems and determination of limits of positions. The Company does not carry out financial instrument transactions for speculative purposes.
Individual Consolidated 2017 2016 2017 2016 Classification
FINANCIAL ASSETS 1,446,591 1,441,762 4,394,164 5,432,126 Cash and cash equivalents 49,772 281,963 195,630 513,757 Fair value through profit or loss Securities 666,384 498,301 1,167,131 1,184,534 Fair value through profit or loss Trade receivables 10,119 11,620 2,667,234 3,379,792 Loans and receivables Related Parties 714,344 643,465 349,914 340,973 Loans and receivables Current accounts with venture partners 5,972 6,413 14,255 13,070 Loans and receivables
FINANCIAL LIABILITIES 960,137 1,192,884 3,010,125 3,839,871 Loans and financing 446,630 612,947 2,113,444 2,870,821 Liabilities at amortized cost Debentures 44,450 45,640 48,555 45,640 Liabilities at amortized cost Certificates of Real Estate Receivables (CRIs) 335,073 477,937 412,041 507,203 Liabilities at amortized cost Payables for property acquisitions 78,801 - 233,371 161,457 Liabilities at amortized cost Trade payables and provision for warranty 2,860 5,878 115,242 144,511 Liabilities at amortized cost Related Parties 52,323 50,482 50,182 64,812 Liabilities at amortized cost Current accounts with venture partners - - 37,290 45,427 Liabilities at amortized cost b) Sensitivity analysis of financial assets and liabilities
Financial assets
Based on probable scenario in the next 12 months for accumulated CDI, scenarios with financial assets’ deterioration of 25% and 50% were defined. Probable rate for accumulated CDI in the next 12 months was defined – 6.86% p.a. – based on pre-swap reference rates x one-year DI disclosed by BM&FBOVESPA and alternative scenarios considering CDI of 5.15% p.a. and 3.43% p.a. The "gross financial income" was calculated for each scenario, not taking into account the incidence of taxes on investment yields. Sensitivity of securities to scenarios of monthly average remuneration was calculated based on balance on December 31, 2017. For cases in which risk factor is the change in USD rate over the following 12- month scenario, of R$ 3.50, scenarios with deterioration of 25% and 50% were defined, considering North-American dollar at R$2.63 and R$1.75, respectively.
Said rates used for market projections were extracted from an external source.
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Position Risk Scenario I Transaction 2017 Factor Probable Scenario II Scenario III
Investment fund - fixed income 688,178 CDI 6.86% 5.15% 3.43% Projected income 47,209 35,441 23,604
Sundry investment funds 129,532 CDI 6.86% 5.15% 3.43% Projected income 8,886 6,671 4,443
Bank deposit certificates 274,734 CDI 6.86% 5.15% 3.43% Projected income 18,847 14,149 9,423
Federal gorvermment bonds – NTNB 20,452 CDI 6.86% 5.15% 3.43% Projected income 1,403 1,053 702
Certificate of Real Estate Credits - Seniors 10,085 IPCA 3.91% 2.93% 1.95% Projected income 394 296 197
Certificate of Real Estate Credits - Subordinate 22,399 CDI 6.86% 5.15% 3.43% Projected income 1,537 1,154 768
Other 117,932 IGPM 16.10% 15.07% 14.05% Projected income 18,987 17,772 16,569
1,263,312 97,263 76,536 55,706
Financial liabilities
The Company has securities (debentures and CRI’s) at the total amount of R$462,042, gross of issuance expenditures, that are remunerate at interest rates of 100% of CDI plus 0.65% p.a., and from 98% to 107% of CDI, respectively. In order to verity the sensitivity of indebtedness linked to CDI, interest rate risk factor to which the Company had a liability exposure on December 31, 2017, 03 different scenarios were defined. Accumulated CDI probable rate for the next 12-month period of 6.86% p.a. was defined based on pre-swap reference rate x one-year DI disclosed by BM&FBOVESPA, which is equivalent to probable scenarios listed below. Based on probable scenario for CDI, deterioration scenarios with average rate of 8.58% p.a. and 10.29% p.a. were defined for the following 12 months. Sensitivity of financial expenses to the scenarios for risk of changes in CDI rate was calculated based on balances existing on December 31, 2017, gross of issuance expenditures, as highlighted below:
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Position Risk Scenario I Transaction 2017 Factor Probable Scenario II Scenario III
Debentures CYRE 12 and 22 44,450 CDI 7.55% 9.29% 11.01% Projected expense 3,356 4,129 4,894
Debentures CYMA 01 4,105 IPCA 3.91% 2.93% 1.95% Projected expense 160 120 80
CRI - 1st Issue 43,462 CDI 7.36% 9.21% 11.05% Projected expense 3,199 4,003 4,803
CRI - 5th Issue 150,751 CDI 6.72% 8.40% 10.07% Projected expense 10,130 12,663 15,181
CRI - 6th Issue 100,259 CDI 6.72% 8.40% 10.07% Projected expense 6,737 8,422 10,096
CRI - 7th Issue 30,087 CDI 6.86% 8.58% 10.29% Projected expense 2,064 2,581 3,096
CRI - 4th Issue - 102nd serie 65,926 CDI 8.14% 9.88% 11.61% Projected expense 5,366 6,513 7,654
CRI - 4th Issue - 103rd serie 22,401 CDI 12.20% 14.01% 15.80% Projected expense 2,733 3,138 3,539
Total 461,441 33,745 41,569 49,343
Financing for the construction of properties are subject to interest of 9.23% p.a., as average, indexed at Reference Rate. Accordingly, for the purpose of showing sensitivity of “financial expenses” to Reference Rate, interest rate risk factor to which the Company is exposed on December 31, 2017, three different scenarios were defined. Future Reference Rate (12 months) was used based on projection of Reference Rate for one year, which is equivalent to probable Reference Rate scenario of 0.01% p.a. Based on probable scenario for Reference Rate, scenarios with deteriorations of 25% and 50% were defined, and annual rate applied to financing of construction work was recalculated. For each scenario, financial expenses were calculated not taking into consideration tax effects and payment flow scheduled for 2017. Sensitivity of financial expenses was calculated based on balance existing on December 31, 2017.
Debt assumed with the National Bank for Economic and Social Development (BNDES) is remunerated at 3.78% p.a., added to TJLP (long-term reference rate). For the purpose of verifying sensitivity of indebtedness pegged to TJLP, interest rates risk factors to which the Company was exposed on base date December 31, 2017, three different scenarios were defined using TJLP of 6.50% p.a. for probable scenario. Based on it, scenarios with deteriorations of 25% and 50% were defined and annual rate applied to this financing was recalculated as follows:
Position Risk Scenario I Transaction 2017 Factor Probable Scenario II Scenario III
BNDES 97,515 TJLP 10.53% 12.22% 13.90% Projected Expense 10,268 11,916 13,555
Domestic Borrowing 489,187 CDI e TR 9.62% 9.75% 9.88% Projected Expense 47,060 47,696 48,332
Construction Financing 1,533,275 TR 9.24% 9.24% 9.25% Projected Expense 141,675 141,675 141,828
2,119,977 199,003 201,287 203,715
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c) Operation with derivative financial instrument
According to CVM Resolution no. 550 dated October 17, 2008 states that public companies must disclose, in a specific explanatory note, information on all derivative financial instruments. Derivative financial instruments are used by the Company to manage market risks related to interest rate, mainly for CCB-type loans, which are fixed.
(i) Cash flow swap
This type of swap permits payment of interest difference during contract period at periodic intervals (constant flow). The Company has two transactions of that type:
The Company is in the long leg at fixed rate of 10.52% p.a. and in the short leg at rate of 85.03% of CDI, contracted on June 08, 2016, with maturity on May 6, 2019 and amortization of principal value in the last four months of the contract.
Short position Original amount Long position Fair value Description (Banco Morgan in R$ thousand (Cyrela) Position (Cyrela). Stanley)
Cash flow swap linked to borrowing 200,000 10,52% p.a. 85,03% CDI 1,339
The Company is in the long leg at fixed rate of 10.59% p.a. and in the short leg at rate of 71.86% of CDI, contracted on February 01, 2016, with maturity on February 5, 2019 and amortization of principal value on contract maturity.
Short position Original amount Long position Fair value Description (Banco Morgan in R$ thousand (Cyrela) Position (Cyrela). Stanley) Cash flow swap linked to borrowing 145,439 10,59% p.a. 71,86% CDI 2,878
d) Considerations on capital risks and management
Key market risks to which the Company and its subsidiaries are exposed to in conducting their activities are:
(i) Market risk
Market risk is linked to fluctuations in fair value of a financial instrument’s future cash flows in active market. Market prices are mainly affected by the change in interest rate (inflation) and by foreign currency fluctuation. Financial instruments affected by market risk include securities, accounts receivable, accounts payable, loans payable, financial instruments available for sale and derivative financial instruments.
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• Risk of interest rate: the Company and its subsidiaries’ income are subject to changes in interest rates levied on investments, securities and debts, mainly by CDI in trade accounts receivable that are remunerated at INCC-M and IGPM according to contract model.
• Risk of client contract cancellation: The Company efficiently applies its policies for credit analysis for the purpose of guaranteeing credit at the end of construction work and definitive client transfer to the bank. In spite of that, a greater number of clients have sought the Company to cancel their respective purchase and sale promise agreements, reflex of Brazilian economic retraction.
• Currency risk: the Company maintains foreign currency transactions that are exposed to market risks deriving from changes in these currencies’ quotations. Any change in foreign exchange rate may increase or reduce said balances. As of December 31, 2017 and 2016, the Company did not present balance of loans in foreign currency. Securities in foreign currency presented balance of R$ 6,377 on December 31, 2017 (did not present balance as of December 31, 2016), and this exposure was protected by future receivables from real estate development already delivered in Argentina, in US dollars.
(ii) Credit risk
Credit risk is the risk of a deal counterparty not complying with an obligation provided for in financial instruments and contracts for the purchase and sale of properties, which would lead to financial loss. The Company is exposed to credit risk in its operating activities.
The credit risk in Company’s operating activities is managed by specific client acceptance standards, credit analysis and setting of limits of exposure by the client, which are periodically reviewed.
In addition, Management conducts periodic analyses to identify if there are objective evidences that economic benefits associated to recognized income may not flow to the entity. Examples: (i) late payment of installments; (ii) unfavorable local or national economic conditions; among others. In case there are such evidences, respective provision for cancellation of agreement is recorded. Amount to be recorded in this provision considers that the property will be recovered by the Company, that possible amounts may be retained upon payment of indemnities to respective promising buyers, among others.
(iii) Liquidity risk
The liquidity risk consists of the eventuality of the Company and its subsidiaries not having sufficient financial resources to honor their commitments on account of the different currencies and settlement terms of their rights and obligations.
Control of the liquidity and cash flow of the Company and its subsidiaries is monitored daily by the Company's management areas, in order to guarantee that operating cash generation and the previous obtainment of funding, when necessary, 60
are sufficient for the maintenance of its schedule of commitments, not generating liquidity risks for the Company and its subsidiaries.
The Company’s net debt could be presented as follows:
Individual Consolidated 2017 2016 2017 2016
( + ) Inflation adjusted debt (principal) (i) 819,485 1,121,615 2,558,376 3,396,189 ( - ) Cash and Cash Equivalents and securities (716,156) (780,264) (1,362,761) (1,698,292) - Net debt 103,329 341,351 1,195,615 1,697,897
(i) Comprised of loans and financing, debentures and CRI’s, gross of issuance expenditures.
24. GROSS INCOME
We present below the breakdown of net income and costs related to income, presented in the statement of income:
Individual Consolidated
2017 2016 2017 2016
Gross revenue Real estate development and resale 1,175 3,284 2,671,670 3,126,299 Land subdivision 2,142 7,694 44,168 111,276 Service rendering and other 3,807 1,953 34,083 53,129 7,124 12,931 2,749,921 3,290,704 Deductions from gross revenue (811) (943) (76,151) (95,394) Net revenue 6,313 11,988 2,673,770 3,195,310
Cost of sales and services Sold Real Estate units (1,119) (956) (1,898,766) (2,030,518) Land subdivision (1,064) (1,660) (22,948) (57,686) Service rendering (148) 125 (17,543) (44,583) (2,331) (2,491) (1,939,257) (2,132,787)
Gross profit 3,982 9,497 734,513 1,062,523
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25. SALES EXPENSES
The main expenditures incurred in the years may be presented as follows:
Individual Consolidated 2017 2016 2017 2016 Sales stands (82) (258) (82,598) (111,356) Advertising and publicity (media) (28) - (69,670) (74,419) Professional services (2,701) (2,884) (85,340) (106,725) Inventory maintance (2) (192) (68,860) (55,804) Other selling expenses (i) (1) 199 (36,815) (52,275) (2,814) (3,135) (343,283) (400,579)
(i) Refers to recognized expenses with sales commission, salaries and other expenses of the Group’s sale companies.
26. GENERAL AND ADMINISTRATIVE EXPENSES
Main expenditures incurred over the years may be presented as follows:
Individual Consolidado
2017 2016 2017 2016
Payroll and related taxes (33,438) (40,186) (108,387) (135,625) Profit sharing (PLR) (2,212) 5,218 (9,046) (4,144) Share-based expense (stock options) (6,468) (10,160) (6,468) (10,160) Professional services (27,246) (31,960) (82,008) (96,342) Leases, travel and representations (12,581) (13,637) (24,708) (40,715) Indemnities for sundry risks (i) (2,847) (645) (106,427) (107,892) Other administrative expenses (23,239) (22,657) (54,426) (37,469) (108,031) (114,027) (391,470) (432,347)
(i) As Note 19.
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27. FINANCIAL INCOME (LOSS)
The main expenditures and income incurred in the years may be presented as follow:
Individual Consolidated 2017 2016 2017 2016 Finance costs: Interest - National Housing System (SFH) - - (191,383) (252,512) Interest - domestic and foreign financing (111,899) (141,208) (121,377) (166,893) Interest Capitalization 1,409 6,497 173,966 232,947 Inflation adjustments (3,656) (11,420) (5,274) (14,039) Banking Fees (5,677) (5,498) (10,838) (11,753) Discounts granted - (478) (525) (757) Other finance costs (4,923) (3,233) (12,149) (13,543) (124,746) (155,340) (167,580) (226,550)
Finance income: Income from short-term investments 89,919 131,983 156,801 234,949 Inflation adjustments 1,033 2,309 16,951 19,129 Discounts obtained 11 9 303 335 Sundry interest gains 39,775 30,584 26,406 55,243 Other finance income 9,166 1,151 14,159 6,094 Cofins/Pis on finance income (7,308) (7,758) (9,228) (10,057) 132,596 158,278 205,392 305,693
Finance income (costs) 7,850 2,938 37,812 79,143
28. EARNING (LOSSES) PER SHARE
Basic and diluted income/losses per share are as follows:
2017 2016 Basic and diluted earnings per share Profit (losses) of the period (95,004) 151,352 Number of outstanding shares (-) treasury 376,672 376,986 Earnings per share - in R$ (0.25222) 0.40148
Diluted earnings per share: Profit (losses) of the period (95,004) 151,352
Weighted average number of shares in the year 376,672 376,986 Increase in the number of shares arising on the Stock Options Plans if all 2,482 3,058 granted stocks options were exercised Average number of shares during the plans - Diluted 379,154 380,044
Diluted earnings per share - in R$ (0.25057) 0.39825
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29. SEGMENT REPORTING
a) Criteria for identifying operating segments
The Company defined segmentation of its operating structure taking into consideration the way in which Management manages the business. Operating segments presented in financial statements are as follows:
(i) Merger activity.
(ii) Service fee income
Development segment contemplates sale and resale of properties and allotment activity and is subdivided and presented in accordance with developed product to be traded, as follows:
(i) Cyrela Products: projects defined by the Launching Committee as high standard and luxury, both belonging to the parent company and to joint ventures, are classified.
(ii) Living products plus MCMV (government real estate project): projects defined by the Launching Committee as Living or Minha Casa, Minha Vida, both belonging to the parent company and to joint ventures, are classified.
Information on allotment activities and provision of services is presented in this note under term “Others”.
b) Consolidated information from operating segments
Consolidated 2017 Cyrela Living + MCMV Other Corporate Total
Net revenue 1,411,938 1,049,685 212,147 - 2,673,770 Cost of sales and services (1,001,214) (774,662) (163,382) - (1,939,257) Gross profit 410,724 275,023 48,765 - 734,513 Operating expenses (169,643) (127,609) (46,031) (374,412) (717,695) Operating income (expenses) before finance income (costs) 241,081 147,414 2,734 (374,412) 16,818
Total assets 4,277,588 3,103,646 98,455 2,921,852 10,401,541 Total liabilities 1,499,292 1,228,672 34,182 1,273,897 4,036,043 Equi ty 2,778,296 1,874,974 64,273 1,647,955 6,365,498
Consolidated 2016 Cyrela Living + MCMV Other Corporate Total Net revenue 2,027,472 1,047,283 120,555 - 3,195,310 Cost of sales and services (1,343,099) (720,773) (68,915) - (2,132,787) Gross profit 684,373 326,510 51,640 - 1,062,523 Operating expenses (202,288) (141,764) (56,527) (422,744) (823,323) Operating income (expenses) before finance income (costs) 482,085 184,746 (4,887) (422,744) 239,200
Total assets 5,781,575 3,566,138 117,613 2,414,373 11,879,699 Total liabilities 2,056,785 1,565,353 38,929 1,451,890 5,112,957 Equi ty 3,724,790 2,000,785 78,684 962,483 6,766,742 Amounts presented as corporative values involve mainly expenses of the corporate unit not allocated to other segments.
c) Information on net sales
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A substantial portion of consolidated net income derives from Brazilian domestic market.
d) Information on main clients
The Company and its investees’ clients do not concentrate relevant interest (above 10%) in their joint ventures which could affect operating results.
30. INSURANCE
The Company and its subsidiaries maintain insurance as shown below, to cover possible risks on its assets and/or responsibilities:
a) Engineering risk:
(i) Basic – R$1,910,694: cover accidents (sudden and unforeseen cause) in construction work site, such as damages caused by nature or by force majeure, wind, storm, ray, flood, earthquake, damage inherent to construction work, use of faulty or improper material, failures in construction, and collapse of structures.
(ii) Projects - R$ 1,910,694: coverage of indirect damages caused by possible project errors.
(iii) Other - R$ 380,761: refers to extraordinary expenses, debris removal, riots, strikes and civil commotion, among others.
b) Sales stand: fire - R$ 12,850, theft - R$ 450, and other risks - R$ 1,450.
c) Contractual guarantees: R$185,845
d) Risk of physical damage to mortgaged properties: R$500,162.
e) Construction risks - civil liability - R$ 147,000.
f) Civil Liability on actions of Directors and Managers– R$ 99,240
31. APPROVAL OF FINANCIAL STATEMENTS
The Company’s individual and consolidated financial statements were approved in the Board of Directors’ Meeting held on March 22, 2018.
In compliance with provisions of CVM Instruction no. 480/09, the Company’s executive board declared that it discussed, reviewed and agreed with the Company’s individual and consolidated financial statements and with conclusion expressed in the independent auditors’ report for the year ended December 31, 2017.
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