Companhia Siderurgica Nacional S.A.

Good afternoon, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome everyone to CSN's conference call to present the results for the year 2020. Today we have with us the company's executive officers. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company presentation. Ensuing this, we will go on to the question and answer session when further instructions will be given. Should any participant require assistance during the call, please press star zero to reach the operator. We have a simultaneous webcast that may be accessed through CSN's Investor Relations website ircsn.com.br where the presentation is also available. The replay will be available for one week. You can flip through the slides at your own convenience. Before proceeding, we would like to state that forward-looking statements herein are mere expectations or trends based on the current assumptions and opinions of the company management. Future results, performance and events may differ materially from those expressed herein as they do not constitute projections. In fact, actual results, performances or events May differ materially from those expressed or implied by forward-looking statements due to general and economic conditions in Brazil and other countries, interest and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies. Protectionist measures in the U.S., Brazil and other countries, changes in laws and regulations and general competitive factors at global, regional or national basis. We will now turn the floor over to Mr. Marcelo Cunha Ribeiro, Investor Relations Executive Officer, who will present the operating and financial highlights for the periods. You may proceed, sir. A good afternoon to all of you and thank you for participating in the fourth quarter and full year 2020. Results call for CSN. This has been a special year for CSN where we attained record results in several dimensions. We began the year with concern because of the pandemic, sanitary problems, financial problems, but we're ending it in a very positive situation. We have the health of our associates and the impact of the pandemic has enabled us to attain positive results. We have had very few serious cases in the company thanks to the stringent protocols Financially, we prepared for a war. These are the words that Benjamin tends to use, a war that did not materialize and that was turned into a bonanza. Very stringently in cost, expenses, investment, and working capital, we were able to gain twice. We were rewarded with a quick recovery of volume and prices. We got to 11 billion EBITDA and this year 4.8 billion reais and margins of approximately 80%. EBITDA also was transformed into cash. We had a cash generation record. from Operational Improvement and Working Capital, and we were able to reduce the debt. In this quarter, the debt reduction was 5 billion reais, and in general, it attained 10 billion reais. This before the third highlighted point, which is the IPO of CSN Minera Cell, the conclusion of a very long period Thank you very much. These are the highlights for the period. We will now speak about the EBITDA evolution on page 4 of the presentation, where we observe one more quarter with consistent growth in margins and EBITDA for the company. In the first quarter of the year, the production was below normal in mining due to rainfall. We had two years of growth of EBITDA per semester, reaching 11.5 billion and 70% growth vis-à-vis the previous year. The great news in this quarter When we see the contribution of each business is that the business that most contributed was steel. Since 2019, it was a year of recovery, a very difficult year for steel. And this year, we had a speed up in the performance of the business. We had exceptional performance in minting and in the cement segments with a 35% growth for the semester, attaining EBITDA 4.2 billion. On the next page, We continue to speak about the main financial indicators. Our investors were continuous during the year, highly focused on sustaining the business as we were preparing for a pandemic that ended up not coming. And in steel, we had a productivity project until we had the resumption of the blasphemous two. Thank you for joining us. Because of the filtration units in net working capital, we used this leverage to allow for a robust cash generation. Once again, we worked with inventory reduction. We had robust sales in steel, good cash generation. And once again, we're renegotiating our terms with suppliers. We converted EBITDA into cash in an accentuated way. The $4.7 million in EBITDA, $3 million became cash. A generation of more than 8 billion reais in cash. Now, what we see in the following page resulted in a reduction of our indebtedness in this quarter. We were benefited by the exchange rate variation. It ended September at 5.6 reais per dollar, ended the year at about 5.2 reais per dollar, and this helped us reduce our debt. and we reduced our debt by 5 billion, more specifically in the fourth quarter. We had had another reduction of 3 billion in previous quarters. In the last six months, we were able to reduce our indebtedness by Thank you very much. In the next page, another immediate impact of the IPO, which is to improve the debt profile. Even before the IPO, we had increased our liquidity position by $10 billion because of our excellent cash generation. Now, cash coverage did not go beyond two figures. After the IPO, We will implement this exercise repeatedly and the average term of the debt will increase to five years or 60 months and cash coverage will go beyond 60 months completely eliminating that pressure of liquidity on cash and making the amortization much smoother in following years We can already feel this on our credit rating. On Friday, we had a better upgrade, but new upgrades will come as our level of indebtedness will continue to become stronger and we will have a longer debt profile. We would now like to speak about the business highlights on page 9. We begin with the steel performance that had exceptional performance. We ended the year with growth. In mid-2020, we had foreseen a drop of 20% in volumes. We were the first to see this recovery in the beginning of May and June. And we had the will and the aggressiveness to seek this growth since the beginning of the second quarter. In the second semester, we had a reduction of inventory, significant reduction. We have higher volumes than those of the fourth quarter, but in the fourth quarter, Thank you very much. We had a record EBITDA and a margin of 25%, almost close to 30% in the next page, to speak about the productivity of the steel company. Thank you for joining us. But we had better commercial volumes vis-à-vis the other quarter. Our cost contention was very successful. Slab cost increased only 3%. We had coal, pet coke, and others increasing at higher levels. And the cost per ton was more than 1,000 reais, almost $200 per ton. On page 11, we show you the mining results. Nowadays, this is an open company in the stock exchange, and we show you a record level of revenues, a record generation of EBITDA, a margin of 71%. Thanks to an excellent price realization, slabs with prices increasing, favorable conditions, and all of this offset the volumes that were impacted by rainfall with enormous volumes. And once again, due to the problem of COVID, these are one-off effects that have been resolved, and they do not alter our outlook for the year 2021. We should have volumes of 38 to 40 million tons, and of course this quarter will be much stronger than the quarter in 2020. In terms of the cement performance, once again a very strong year, not only for CSN Cements, But for the entire market, we had the civil construction market that sped up because of the lower interest rates, the corona emergency aid, there was a growth of 7% in the year. And we grew more than the market, we had a growth of 13%. This is the eighth year that we grow more than the market with a growth of 8%. And with these new scales, we benefit from a new level of prices reaching an EBITDA of 130 million reais, a margin of 46%, and EBITDA generation above 500 million reais. which already gives us a completely different dimension in the business and allows us to seek a new jump. That is why we created the subsidiary CSN S.A. and we're going to be a platform to grow organically and to consolidate the sector. These are the main operational and financial highlights. As of now, every quarter we're going to update you in our ESG system and I would like to ask Elena Guerra to present this. Good afternoon to all of you. It is a pleasure to be able to speak about social and environmental management. These are the pillars that we work on, and it is very gratifying to not only speak about very expressive financial and operational results, but also other results We began to deliver these operational results because we have a very good background. We had a reduction of 19% in the frequency rate of reportable accidents. And of course, we do prize our lives, our safety. We have an important Thank you for watching. And here you will see some of the indicators that we have. We have 68,000 hectares that we preserve and protect. We have our operations in water. In 2020, we became signatories of the UN Global Pact and we're already working with All of the UN alignment and protocols. We have become fully independent from dams in terms of mining. We have de-characterized the first dam and we invested more than 420 million reais in the environment and in social investments in the CSN. Eneas Garcia Diniz, This director will set forth goals, speak about diversity, work with emissions, water, and other material issues in the company. We have enhanced our rating, and we remain with the FTSE for Good group. And we ended the quarter and the year with all of this and the outlook is that 2021 will be even better. We want to be a model, a benchmark for all of the other companies in all of the segments in which we are active. With this, we would like to end the presentation and we can go on to the question and answer session. Thank you. We will now go on to the question and answer session for investors and analysts. Should you have a question, please press star one. If your question has been responded, you can withdraw from the queue by pressing star two. We request that you please pick up your phones from the hook when posing the questions so that we can have optimal sound quality. The first question is from Caio Ribeiro from Credit Suisse. You may proceed. A good afternoon to all of you and thank you for taking my question. The first question is about sustainability and the margins that you delivered in the steel business, which will be the evolution of this margin in the first quarter and the price transfers that you have for this quarter. What will happen with your margins? Secondly, in terms of dividends, you have a payout of 25% of net revenues until you are able to conclude your deleveraging. Presently your rate is at 2.2 times and with the conclusion of the IPO, this should drop even further. Eneas Garcia Diniz, Luis Fernando Barbosa Martinez, In terms of the 25% margin that we had in the fourth quarter, we'd like to explain what is happening in this first quarter. We have a price carryover that is given of about 25%, only the price carryover. In the fourth quarter, it was 19%, and in the first quarter, the carryover of prices will be 25%. There is a favorable world situation. It is very difficult to import in Brazil. The US market and the Asian markets are working domestically with very few imports. Besides this, We need to keep in mind that account that I always mention. To produce one ton of steel, you need 1.6 of iron ore and 0.6 of coal. In January of 2020, iron ore was 94. At present, it is 73. Eneas Garcia Diniz, Luis Fernando Barbosa Martinez, Rogério Bautista da Nova Moreira, Harry Morgenstern We will probably have another increase in March for distribution focused on the cold and hot products. And there's a part of the assembly parts that will be part of the first quarter in the second semester because of the CSN contracts that are somewhat different from local competitors. We sign quarterly contracts and we will have this carryover for assembly plants of about 20%. This is a given. There's nothing we can do. It reflurs to the past. This is what we have in terms of prices and margins for the first quarter. The second question refers to dividends, Caillou. When we destined the results of the year 2020, you will see that we allocated 25% of the results of the year, 900 million in dividends that will be paid after the General Assembly at the beginning of May. And going forward, we're going to continue to maintain that 25% policy. While we don't seek out the new goals that have been disseminated, 15 billion reais in debt and 1.0 net debt EBITDA With the IPO, we have 20 million in net debt, which means we have to reduce our net debt by 5 billion before we can debate the issue of dividends. This is Benjamin speaking, Caio. The question you posed is very important in terms of price. It may seem surprising to have price increases. They may seem too steep. But what Martinez mentioned about the 25% carryover and the outlook of new price increases for March, all of this is due to the moment in which we are. At present, if you go to market, you will have slabs that cost $750. But we have none for delivery. If you want to buy slabs, it is probable that they will only be available for delivery in May and they would arrive in Brazil in June or July. The increase in the raw material is maintaining a high and continuous price in what we deem to be a reference, a slab. This is almost a third quarter in which this happens. It's very... Thank you very much. Thank you for joining us. Thank you very much. And I see the need to have a new price increase in March and probably another one in the second quarter, once again due to the reality of the international market. Thank you. Thank you very much, Benjamin, Marcelo and Martinez. Very clear answers. Our next question comes from Danielle Sasson from Itaú BBA. You may proceed, Mr. Sasson. Good afternoon to all of you. Thank you for taking my question. My first question is a follow-up of the previous question. When it comes to prices, Martinez, that increase that you will announce for March, if you could comment on the parity of imports in Mexico, for example, where you work with imported products, and if this level of premium could be even higher than the 5 or 10% historical level because of that difficulty of importing products. My second question refers to the cement business. We saw an improvement of prices, volumes and margins, but without a doubt, there is still room for a greater increase in margins and volumes this year as well. Which is the potential that you believe this business group can attain? When you speak about price and the use of capacity once all of this has been fully normalized. Hello, Daniel. I will respond to the first question referring to prices. This is important. And to add to what was said by Benjamin, The price increase is due to a recomposition of costs, and we take into account four points. The supply-demand equation, which is very favorable. All markets have growth. The automobile market, agricultural, civil construction, packaging all have a favorable supply-demand equation from the viewpoint of cost. Coal Thank you for watching. When it comes to imports, to give more color to what is happening, the Chinese blast furnaces work with a level of utilization of 84%. And in China, There is a reduction of the tax rebate for the imports of about 13%, which will also benefit the world market. They will have to stop importing and foster internal growth. And in the retail market in the automobile sector, growth is still strong. In terms of prices, I'm considering a BQ in China, although it is not available for sale at $640, $650. If you calculate the premium, it's 12% to 15%. And in galvanized material where we have a greater share, it is 15% or 16%. Regarding your question about price elasticity, there is elasticity. In Brazil, we had premiums of more than 20% with a good demand supply equation. We have to recompose the prices in Brazil. And while the market is favorable and the import equation is favorable, we're going to work with the highest prices. Thank you very much. This is how we plan to work during the year 2021. I don't know if this is clear or if you have additional doubts. No, that's excellent, Martinez.

Daniel, this is Ejivaldo.

Thank you very much. The pet coke, which is imported, had a significant increase in the second semester with an impact this year. This means that in cement as well, we're going to have to continue to recover our prices as we are working with prices that are still below the historical levels. There is room to increase the prices effectively. and we also have to allow for room for volumes to grow. We work with a million tons and we have the room to grow 15 or 18% in this year and in coming years if we have the demand, of course. Basically, we're working with very limited costs with a very high efficiency in terms of SG&A. and we're going to be working with EBITDAs above 500 million despite the price pressures that we feel and that we have mitigated through our internal efforts. Danielle, simply to complement what was said by Edivaldo, The historical cement prices in the southern region and historical means a series that began in 2011 up to present it is 320 reais per ton at present this is 22 percent below what we practice in reais of course Thank you very much. Thank you very much. Our next question is from Leonardo Cogea from BTG Pacto. You may proceed, sir. Can you hear me? It's a bit muffled, but we can hear you. I do apologize for that. The first question is for Marcelo. In the introduction, you made it very clear that the market has always requested from you. And of course, the scenario was favorable to deliver a very good EBITDA in 2021. Now, the cost of debt still continues to be very high if we work with comparables. If you could speak about your expectation going forward, which is the type of debt reduction that you expect in the future? And beyond this, if you could speak about the