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

Outlook for M&As, I believe. A second question that is more strategic.

of course you are working in a very strategic way and cement seems to be opening up a new avenue but I would like to understand which are your priorities with steel because steel is generating very good results with a significant improvement And in terms of your priority list, what is it that you would like to begin doing simply so that we can understand which is your strategic thinking? And another quick question. You're speaking about a carryover of 25% in the first quarter with a price increase that has already been announced. Simply to dissipate confusion, you're speaking about net revenues in the domestic market. Your net revenues are going to increase 25% in the domestic market. Is this what you're saying? Well, let's begin with your last question, Leo. It's exactly what we are discussing. To review this fourth quarter, 19, the average price was 319. Then we went to 357 the fourth quarter, 226. And based on this 2 to 6, we're going to apply this 25% increase. The average price will increase 25% in the quarter. And of course, we will have an increase in costs. The slab will go from 1,200 reais per ton to 900 per ton because of the raw material that I just mentioned. Now, the increase will offset the increase we will have in costs and go beyond it. In terms of our debt profile, we have a great deal to gain. Thank you for joining us. For these coupons of less than 5% for much longer terms, we're referring to 300 base points on 20 billion reais. 600 million has a year of savings, basically, which is quite significant when it comes to the priorities in cement and steel. The issue of raising capital in mining was very specific. It was specific because of its size. This could be used to deleverage CSN and because it had had several years in which it increased the volumes threefold and it needed this capital to grow. Now, it seems that cement will be next because they also have a growth plan and a market moment that is in accordance with this organic projects that are very special with limestone reserves that have already been reserved. In very attractive markets where there is little competition, I'm referring to markets in the south and north and northeast where the prices are higher. And if you recall, we have plants in Sepetiba and another in Holland. Thank you very much. to work in consolidation. And we see that steel is an exceptional moment and we're going to use the cash to sustain for productivity. We're going to invest in centering and the maintenance of the steel mill in methodology. We're going to add more value, but this doesn't require a structural movement Like an IPO, this is our strategy for the time being.

Okay, thank you very much.

Our next question comes from Thiago Lofiego from Bradesco BBI. You may proceed, sir. Thank you. Good afternoon. Martinez, if you could remark on the Thank you very much. Which is your order book for the coming months and what will happen going forward? The second question refers to long steel more specifically. If there is room for price increases, according to our accounts, there would be this room. But of course, the supply dynamic is somewhat different. Thiago, simply to review this, 2020, the Brazilian market for flat steel stood at 12,000 tons, which is very good considering the pandemic. Now, CSN, with poor market figures, they could have been worse because of the pandemic, had a 2% growth. In long steel, the market was different. The market grew 5% vis-a-vis 2020 because of construction issues. because of the decrease in interest rates the market was stronger than it usually is in terms of the restocking in the market what do we see for 2021 We are projecting, well, the IABR is projecting a growth of 5.3. CSN will grow from 12% to 15% in 2021. In 2021, Yaberi says 6%. CSN is limited to 230,000-240,000 tons a year. and we're working at full steam in terms of sectors to justify what happens in the market. Industry in general has a forecast for growth of 68%, the automotive sector With a sales increase of 15% approximately and a production increase of 25%. Other sectors like trucks, agricultural machinery with a growth of two digits. What the market has presented, and this was consolidated yesterday in the AIBR figures, is that the market is growing strongly. If we look at the figures yesterday from INDA, the inventory hasn't been set up yet. We have a lack of raw material inventory, intermediate raw material, and this goes all the way to the Thank you for joining us. Thank you very much. The market will grow continuously 6% a year. In long steel, we had an increase of 15% in January and 15% in February. CSN has the highest market price for long steel because we have a limited capacity. and the long steel depends on iron ore and we also have historical levels in terms of well what we're doing is recomposing costs and I don't know if you have understood the dynamic that we have in terms of prices. I would like to confirm the following. CSN will grow 15% in volume this year. Longsteel In 2019, we produced 3 million tons in 2020, 3,200, and this year we will end at 3.6 million tons for the domestic market for exports. We're going to supply the amount of galvanized products to the U.S. and we're going to continue to supply what Luso Cider needs. If the market is stronger, we're going to leave the material here instead of exporting to Luso Cider. So we're going to be working full with a blast furnace with a volume of 4,500,000 tons for 2021. Very good. Martinez, if you allow me another question in terms of premiums. The premium today In my account is above 10%. Do you think that a higher premium will bring you higher prices? Because in January you had a plan of exports of 14% of the demand, I believe, if I'm not mistaken. I don't see any concern in this. There's a distortion in the figure of January. Some slabs were returned from the United States. They were in the free zone. We have brought them to the domestic market to service the national market. There's 50,000 that is CSN that will become material for the local market. Now, when it comes to the premium, we're working with 640, 650 for the Chinese BQ, and it's not available to buy. And as Benjamin said, you won't be able to place any products before May. The premium is somewhat higher than 10%, standing at 12 or 15%, according to the exchange rate. With this premium and with the supply and demand situation and with controlled imports, with the exception of galvanized material, I don't think we will have any problems in working with premiums, Thank you, Martinez. Our next question in English comes from Carlos D. Alba from Morgan Stanley. You may proceed, sir.

Thank you very much. Just a question regarding the liability management program. Marcelo, has this been completed, what you highlighted in the second part of that chart for the first quarter? Is that done or is something that you are still working on? Can you give us a little bit more details what banks are involved on this and when should we expect the closure of these initiatives? And then as the company continues to do a good job in significantly and rapidly reducing the leverage now, why wouldn't the company change the dividend policy towards something closer to cash flow generation? And the company manages working capital quite well. It also has lower capex and we have seen global peers in particular but also Vale moving towards giving a policy much closely aligned with cash regeneration. Why wouldn't CSN do that throughout 2021 or in 2022 once your balance sheet is definitely much stronger and you reach your targets? And if you are not prepared to do that, is it because the company has plans Thank you very much.

Thank you, Carlos, for the questions. Now, the conditions that we set forth in the simulation are things that we have in hand. These are discussions that we have been holding with the banks and you are aware of the banks. We have three or four relevant banks that in 2017 We worked with and in different conditions we could work with a new stage at present. We already have this in hand and we will implement this in the coming 45 days. This also applies to the capital market where we have been very active. It's open to all the companies with our profile. We're going to seek the best moment as the coming week we will have a positive action in terms of our ratings. Regarding the dividend policy, as I responded previously, once we comply with the 1.0 Ebeda, and 15 billion Heisen Debt. Our distribution of dividends will be equivalent to our cash generation. And this is something that CSN will consider, but beyond the 2022 horizon, this will be done Without the leveraging, as Benjamin said, we are going to grow. We're going to grow sustainably using the equity and the individual businesses. I hope that I have responded to your question.

Yeah, that's clear, Marcelo. And just coming back to the cement business, and maybe it was the English call. It wasn't very clear to me whether or not the cement business is, if the company is considering to IPO the cement business or not, and if so, what are the times that you are contemplating? Thank you.

The IPO is not a goal in itself. The IPO is something that will enable us to grow, a healthy and sustainable way to grow. And growth projects are moving forward. They are organic projects as well as consolidation projects. and it is the pace of the projects that will dictate the potential of IPO. It could happen this year because we have favorable winds but we can't control this. We are prepared. The company has been created legally. We have done the work for this. Thank you very much. With this, we would like to end the question and answer session. We will return the floor to Mr. Marcelo Cunhajibedo, the CFO and IR Manager for his closing remarks. You may proceed, sir. I would like to thank all of you who have been with us today in a day of celebration for CSN. We listed CSN Mineração. We have very special results to celebrate. I would like to thank all of you for your presence. Have a good afternoon. Thank you. The CSN conference call ends here. You may now disconnect and have a good day.