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 results for the first quarter 2021 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 the remarks, there will be a question and answer section at which time further instructions will be given. Should any participant require assistance during this call, please press star zero to reach the operator. We have simultaneous webcasts that may be accessed through CSN's investor relations website, ri.csn.com.br, where the presentation is also available. The replay of this event will be available after the closing for one week. The slide presentation may be downloaded and you can flip through the slides at your convenience. Please bear in mind that some of the 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, which do not constitute protections. In fact, actual results, performance, or events may differ materially from those expressed or implied by the forward-looking statements as a result of several factors such as the general and economic conditions in Brazil and other countries, interest rate and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the US, Brazil and other countries, changes in laws and regulations and general competitive factors at a global, regional or national basis. I will now turn the conference over to Mr. Marcela Cunha Ribeiro, Investor Relations Executive Officer, who will present the company's operating and financial highlights for the period. Mr. Cunha, you have the floor. A good afternoon to all of you, and thank you for participating in another call for CSN. Today, we have the chairman of the board, Benjamin Steinbrook, Luis Martinez, who works with Steele, Mr. Habelo, and Elena Guerra, our sustainability director. For the initial address, I would like to give the floor to Benjamin Steinbrook. A good day to all of you. It is with pleasure that we present to you the results for the first quarter for CSN. Exceptional results from the viewpoint of EBITDA and net revenue. And the margins that we have been able to attain in each of our businesses, as mentioned previously, this is the expectation that we had to have a growth in margins, in steel, in cement, and in other areas. We were confident that we would have a very good quarter and it has now materialized in all of our businesses. We have received excellent figures working in a market where we have a continuous price increase for everything, not only for raw material that our products, but also in the final cost of our products, demand domestically as well as internationally for the steel mill is considerable. And I do believe that the market is fully supplied. The regulatory stocks still have not been recomposed, but whatever goes out to third parties is what comes in, which means to say that the production chain has been supplied. So far, we have not been able to recompose the intermediate and regulatory stocks. In the case of cement, the production is sold out completely. insofar as we can produce, we are able to sell our production. And I believe that steel as well as cement are essential products for the economic recovery of any country, which means to say that basically everything will go through infrastructure And in Brazil, the infrastructure works so far have not begun. Once they begin, without a doubt, there will be demand for these products. And in the domestic market, generally demand for other products, more specifically in our sector that have a growing demand. Evidently, we're all subject to price increases and within the chain we're purchasing at updated prices simply to give you an idea the Steel plate is approximately $900. And this is the base for the entire steel chain, the base for mining. And the first commercial product, of course, are the steer plates. And internationally, this is also happening. And the price is equivalent to that of the domestic price. what is being said in the market of a scarcity of supply and price increases is not true. The price increases due to the costs. Nevertheless, what I would like to do is share my vision with you and speak about the coming quarters. The cost of goods sold will continue. We're ending the first quarter. May and June have all been sold out. We have had a price adjustment as of May 1st. We will have an increase in cement as well as in steel And we have the outlook to have exports our business outside of Brazil in the United States in Germany and Portugal have also shown a very good performance with better margins. and demand is heated and with more production, of course, we could enhance our exports and export coated products to the European market as well as to the North American market. I believe that this will be a trend. There has been a significant change in China's behavior when it comes to steel production, a rather strange movement that so far is not very clear. There is a strong steel production in China underway due to a lack of productivity and the combat against environmental contamination, pollution. And China has adopted differentiated measures that did not foresee imports and that do foresee the export of steel. So China is de-stimulating production for exports, which of course It's something unheard of because China is a possibility now to have the entire world supplying. China is not something that seems very feasible. These are the initial movements that we observe. So far, we're not. very knowledgeable about them, but the international demand for steel is very strong. Prices are being readjusted as there is an increase in the price of raw material. And as part of our trade policy, and we will have the opportunity of presenting this, It has always been a characteristic to diversify, not only in terms of geographies, but also based on clients and products and by sector. Nowadays, I can say that we're much more focused on servicing distribution and not industry per se. And We have greater proximity with the day-to-day, with the price of products and amount of products. And the fact that we have verticalization and diversification in products eases our situation. And we have been very successful in this policy of selling steel not by ton, but as if it were by kilo, cement has also had a very good response to our trade policy in terms of prioritizing the bags, individuals. In effective terms, our concern, of course, is to service the end user directly and through the production of cement bags and geographically to be as diversified as possible in the southeastern region where we act. We have a good price margin and our production has been significantly fragmented and this is the direction that we're going to follow. I see very good outlooks for the second quarter i can say that the second quarter will be better than the first quarter in terms of mining We just held the call of CEMIG before the CSN call and pointed to a very optimistic stance when it comes to the quality and price of their production. And this is also reflected in the CSN balance. But I must say that our confidence levels are high regarding the first semester. And what we have set out to do is of knowledge of all of you, deleveraging And without a doubt, we will end the second quarter with less than one time net debt EBITDA. And we're striving to do this. We continue to strive when it comes to this de-levering. We truly believe that the secret at present is to work, in a completely deleveraged way to make the most of the organic growth opportunities through M&As or structured market operations that can comply with the opportunities for each of our products. We continue to work arduously in terms of the cement IPO, as you all were aware. We began with the mining IPO. We're now going on to the cement IPO, taking advantage of the moment of the new plants that we have and the productivity that we have been able to obtain and the price margins. that we are able to obtain and the fantastic EBITDA that we have presented. Our idea, therefore, is to make the most of this moment to hold the IPO and an eventual merger and acquisition. And we will become one of the most important players in the cement market in Brazil. So there is a convergence of positive moments in each of our distinct sectors, and we have a great deal of merit in this. The entire team worked very hard in 2020 to reduce costs, to reduce working capital, to increase terms for suppliers. That is to say doing everything possible to survive the year 2020 that ended up being better than we expected. And we will maintain this with a trend of further improving this for the second semester of 2021. Therefore, it is with a great deal of satisfaction and pride that we present the figures to the market, to all of you. This is what we committed ourselves to doing way back. We have been working three years in this direction. see that our action plan is now being awarded by the brilliant figures that we are presenting. And of course, this is a reason of celebration for the entire team. Once again, I would like to thank all of you for participating in the call. And I return the floor to Marcelo Ribeiro to continue on with the presentation. Thank you. Thank you, Benjamin, for your initial address. We will now go on to the presentation to the period highlights on page two. As Benjamin said, this is a semester with superlatives. The EBITDA was 5.8 million, another record margin of 48% and a true merit when it comes to cost control, production, but we also had very good prices and profitability in each of these segments secondly this was also mentioned by benjamin delivering the deleveraging we have been working on this in three fronts operational improvement financial actions working with our liabilities and i think this quarter We were able to deliver this 1.29 times net debt EBITDA, aided and abetted by CSN mining, and we're very close to attaining our goal of a 1.0 times net debt EBITDA ratio. With this, of course, we have had a reward when it comes to credit, the increase of our SSCN ratings, and we're at an intermediate stage. We would like to get to an investment rating. We go on to page 14. Number four, speaking about the adjusted EBITDA, this is not an isolated measure. We have had five quarters of strong growth. And if we look at this, we have five years of growth with a growth of almost compound growth of 40% a year. This time, we delivered an EBITDA that is double what it was a quarter before, $5.8 billion, with a record EBITDA already last year, which was 4.7B and 23%, with an exceptional performance for the mining that grew more than other businesses a growth of 48 million contributing with 600 million reais only this quarter but of course all companies contributed for us to reach this 5.8 million. On page five we speak about cash generation. We begin with financial indicators and begin with capex. There is a natural seasonality because of the maturity of projects and the approval of budget. Some investments do not reflect our expectation for the year. It is 3 billion reais as set forth in the guidance we're going to speed up especially in the second semester and deliver the disbursement that will take us to the guidance figures in terms of networking capital quite comfortable in this quarter nominally a slight drop because of the dividends of 900 million that we're going to pay out after the General Assembly at the beginning of May. That is why we observe a drop. But in terms of operation, we have a recomposition of inventory offset by new terms for suppliers. So this does not show you our full cash generation. It was very strong, 3.5 million reais. It was not a record because of seasonality, the income tax, social contribution based on the annual regime of mining. And this is what normally happens at the end of the first quarter. On page number six, We see how this good operating performance and the Siemens IPO allow us to get to a leverage of 1.29 times and a net debt that allows us to attain the goals and the leverage in a very short time. They will no longer be goals we will not have to be concerned about them, we will have the right capital structure for CSN and a net debt of 15 billion reais. It doesn't mean that from the viewpoint of capital allocation, we're not going to make the most of whatever is interesting in each of the sectors. There are interesting growth opportunities in cement, for example, but we're going to seek to make the most of opportunities such as the opening of capital of our subsidiary and we're not going to get re-leveraged again. We go on to page number seven where you see our debt amortization schedule. we're working on three fronts here fronts that were weakening our balance the first liquidity liquidity is close to 15 billion reais in March 21. Another important thing is the size of our gross debt. After the IPO of mining, we made the commitment of using almost 5 billion reais for the repayment of the debt, and this is what we have been doing since December. We have paid 2.3 billion, and with the conclusion of this plan, we will pay an additional 2.7 billion. And in the short term, we will have this reduction of 5 billion in the debt. The third point refers to the average term of the debt. We're working with partner banks, especially the public banks, Banco do Brasil and Caixa. It's a profile that we're presenting is the minimum lengthening profile this is what has been accepted by the banks but we will attempt to improve on this and despite the lengthening with the banks we have the financing of the bonds that will begin in 2023 this will enhance cash coverage and we will work with liquidity in the medium term and with the size of the debt we have had updates with Fitch, Moody's on the path to obtain the investment grade in coming years. On page number nine, we speak about the performance of different segments, beginning with a steel performance. In the quarter, we attained the best sales volume since 2016. It was a quarter where international sales also had a good performance the united states business made took advantage of the quotas for galvanized products the domestic market is strong with a very high level of orders as will be mentioned which allowed us to anticipate that we will have growing levels for the coming We confirm our guidance for the year 2021, a double digit growth for the volume sold in steel. Regarding prices, we're working to transfer the cost of raw material and reflect the cost of steel in the international market that have attained successive records, not only in China, where the recent reduction and exports increased the prices even further, United States and Europe with record prices. The same happens in Brazil. What happened in the first quarter should continue on in the second quarter. we attained EBITDA margins of 1.8 billion reais and 27 percent margin. On the next page, in production, we continue with volume increases in the first quarter. We began the two blast furnaces. They worked full steam. We attained a million tons of production, and this is one of the best quarters since 2017. Of course, this helps us to reduce fixed costs, but was not sufficient when there was a strong increase in raw material, especially iron ore, pellets, and Chinese coke. It led to a reduction that was offset by the increase in price, allowing for a 38% increase in unit profitability, $260 EBITDA margin, and this should improve. All of this was brought down by the performance in Germany, where the price of tar decreased and we were able to recover our margin. In the second quarter, we should recover these margins. In page 11, we speak about mining. Well, the first quarter always has smaller volumes, but they're much higher than those of last year when we had those centennial rains in the region of Belo Horizonte, a growth of 47%, a slight drop. but more than offset by the price increases of the Platts index and the realization, we had a good price realization above and beyond the growth of Platts, 6.5 million, a growth of 22%. Once again, translating into an EBITDA of 3.7 million, a record EBITDA, with percentage margin somewhat below because of the purchases from third parties that were higher than those of the previous quarter, but still representing 70%. On page number 12, we refer to cement. and show you the excellent market performance, not only more recently, but this is the outlook of some years coming out of a very long period for drop of volumes with an increase in 2018, a faster pace in 2020. low interest in 2020 and speeding up in the first quarter of 2021, despite the quarantine, despite the pandemic. As an anchor, we had a growth of 19%. And throughout this period, CSN has had growths above those of the market. And this year, we have come to a situation where we attain our maximum production and sales levels. And our board has met to rediscuss the growth plans, especially in the cement business, authorizing that we look for an IPO to fund our growth plans. This is an organic growth as well as projects that we already have in complementary regions in the southeast where we operate. and an M&A for an inorganic growth, making the most of the opportunities in the market. It shows you that we are ready for this new phase. Our competitiveness has showed margins that are above 40%, a very strong cash generation, EBITDA of 103 million reais. With this, we would like to end the discussion of each of our segments, and I give the floor to Elena Guerra, Director of Sustainability, to speak about ESG for the quarter. A good day to all of you. It is a pleasure to address you. We're going to speak about ESG, speak about safety. It's a semester of so many operational and financial results, and when we speak about safety, a very important delivery, a the best result, a historical result in 2021. Since we have incorporated this data in the first quarter of 2021, we had a 19% reduction in the accident frequency rate based on our historical averages. This is of course an expressive reduction and we had two accidents per man hour work only, and 34% reduction vis-a-vis 2020. So we not only have positive financial and operational results, but also very positive results in safety. We would like to speak about CSN mining. In March, we concluded the de-characterization of the Vigia auxiliary dam and we underwent a new audit cycle and we have all of these statements. We remain at zero emergency level. We The next dam that will be de-characterized is in work already and we will end up with only two more dams that will need to be de-characterized the coming year, another very important point for the corridor. When it comes to our social and diversity agenda, we created a new diversity management, and this will enable us to comply with a goal that we set forth for 2025. We're going to, in five years, we have anticipated our schedule, but we want to double the percentage of women in the CSN group by 2025. In February, We approved our new integrated diversity policy that is a very streamlined modern policy. It is fully aligned with regulatory issues and global practices and it will be deployed throughout all of our operations to speak about responsibility and other issues. The board also approved the creation of this committee based on five main pillars, social practices, sustainable practices, governance, diversity, and inclusion. All of this made up by the high levels of management of the company. In terms of environmental protection and climate action, this quarter we began the matrix of risks and climatic opportunities. based on TCFD, it is important to incorporate the risks, the risks that relate to climate. We began this task in the company this quarter, and of course, this is extremely important. we have to think about the risks we have in the company due to climate impacts. We have also contracted an artificial intelligence software that will help us. It is called CO2 Roadmap and it will help us in our research, will enable us to create that curve of the Marginal cost in terms of the new technologies that we're going to use to set CSN aside and so that we can begin establishing long term goals that will be very aggressive and perhaps review the goals that we had set forth initially in terms of a reduction of CO2 and finally in May. CSN as a group with a new matrix. We have reviewed the matrix we came up with last year. We have this with more than a thousand people and stakeholders, both inside and outside the company. And we're going to verify this by third parties. And of course, this enables us to comply with resolution 14 of the CVM. And I would now like to return the floor to Marcelo. Thank you, Elena. With this, we would like to end the presentation and 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 at any point your question has been responded, you can withdraw from the queue by pressing star two. Please pick up your phones when posing the question so that we can have optimum sound quality. We have a question from Leonardo Correa from BTG Pactual. Hey, good afternoon to all of you. Are you all well? My first question for Benjamin In the more strategic part, we look upon CSN in the last few years, and the focus was one of deleveraging that I think has been very well addressed by the CMIN IPO and the expressive cash generation that the company has had and will have going forward besides other initiatives. When we look at the company, perhaps it could get to 0.5 times net debt EBITDA. And this would, of course, play CSN at a level equivalent to Spears, not only in Latin America, but globally. and equivalent to companies that have a very conservative balance. So this level has already been attained. Now, when we look upon CSN in the period 2005-2010, a company with strong growth, seeking out new businesses, CSN today approved last night something that the market had been working on the IPO for cement and CSN held the CEMIN IPO and CSN has all of its business units fully funded with a very good growth outlook that can capture on their own and grow. Now, the question that I would like to pose now, Benjamin, looking forward, are the opportunities in the field of infrastructure and with the world recovering from COVID and reopening, You did speak about the resumption of business in the United States and Europe. My question, therefore, is a strategic one. What is it that you're looking upon as new businesses of interest? Which are the fields that you would consider as good opportunities? I imagine that in your strategic map, this is something historical considering the background of the company. The second question is to Martinez. I will not refer to the details, Martinez. You always point these out brilliantly, speak about price scenarios, demand, and opening outlooks. But my question is somewhat more generic. It refers to the implementation of these significant price increases, something unprecedented. I think we have never seen the prices going up more than 100% a year. Of course, we understand the reasons underlying this, the exchange rate, international prices. It's not that CNN is practicing excessive prices. This is a global movement. There is a strong movement to increase prices. There is the exchange rate and international parameters. But which is the acceptance of these price increases downstream Do you feel that you have a margin squeeze? Have you had a pushback in these implementations? Or has all of this been accepted and are you able to transfer these expressive price increases that are unprecedented? Thank you. Martinez, if you could respond first. Thank you. Hello, Leonardo. Good afternoon. A very timely question that you pose. and away from my natural script, that is to speak about prices. But your question, of course, is highly pertinent. If we speak from the strategic viewpoint of the company, I have been in the company practically 20 years. I was able to surf the small waves, the large waves, and observe business cycles. And in fact, in the last seven or eight months, I never observed such strong movements as we see in terms of supply, demand, imports and cost. It truly is something, as mentioned by Benjamin, peculiar thing, China being serviced by the world and not otherwise of having China as an exporter. Now, first of all, what we're focusing upon in the market, and we have always spoken about added value and capacity. As we move ahead in the value chain and get to the consumer, there is a natural difficulty of implementing increases, not in our case, but this when you work with the end consumer. And it is legitimate because in some products, the share of steel, if we think of agricultural implements, and I think agricultural implements are the sector with the greatest amount of steel, 70% of steel, or cars, incredibly enough, do not have such a high share of steel as they put in the price. So Benjamin also referred to our trade policy. What is it that I'm doing? What is it that I'm thinking? First of all, and more and more, and I had this experience in other sectors, the distribution price will come close to the price for industry. If you look at my portfolio today with a strategic viewpoint, i have practically 70 percent of my shipments or my sales linked to the distribution sector civil construction part of the industry that are spot prices that do not follow contracts and the trend therefore is that evermore csn And I'm speaking positively, not negatively. We will work with spots and more attuned with what is happening in the market. This is not a trend, it's a fact. And I can dare to say that in the coming quarters, these sales will represent 80% out of contract. Another very important point, something that we have closed up in the last days, was to alter the pricing system in some OEMs. And you will say, but to hamper to the client, no, when you're negotiating a price situation, I sell steel and the client produces the final product. This has to be a symbiotic relationship, otherwise it will not work. So there are two OEMs that are important. The white line and the automotive sector that are very important for CSN, especially the home appliances for our plant in Parana. We have altered our policy and we have contracts with very few clients instead of being yearly or six month contracts. They are quarterly contracts to give more color to what you asked. We had an increase for The assembly plants in January, spare parts, OEMs, those who assemble home appliances. And we're also going to have a price correction in June. Now, this has a positive and negative side effect. But we have a long-term relationship with the clients. And of course, I cannot live without selling steel and they cannot manufacture their products without steel. Of course, there's a difficulty, a standstill, but we do have the right to be different from the rest of the world. Who would... Imagine that a BQ in the United States would call $1,200, and in China, according to the report, is now $920, $940. This had happened in 2008. And to corroborate what was said by the chairman, it's not an issue of scarcity or capacity. the industry here is highly prepared if you base yourself on the year we have 14 million a year perhaps more it's not a problem of capacity what exists now and what was mentioned by benjamin is that inventories are still low they will be recovered recomposed and from the viewpoint of prices they're going to go up. There's no way out. Everything is moved by cost. And there are articles saying that the distributing sector is speculating. This does not exist. This is one of the most promising sectors in Brazil. Everything that is limited, that is cut off, goes through the distribution sector. It is a sector that adds value. And it is a sector that CSN holds in high value, high esteem. Therefore, everything is moved by cost, by the world movements. And despite all of this, we also have the increases in imports. There are several trade-offs that I have mentioned here that we are living with very well. This change in the CSN trade policy is very important. It allows us to say that we will have a list price for the entire market. regardless of their being distributors or industry, and that this will be modulated by scale discounts, which is a practice that exists worldwide and that we are finally able to work within Brazil for the good of the market and to redress the variations that are immense upwards and downwards. I was somewhat long in my response Leo, but I wanted to share this moment with you and what we are doing internally. If anybody needs this with premiums and what I normally refer to, more direct information. Thank you. Very well, Leonardo. what we are presenting now in terms of materializing good results is something we have been building since way back. We have always looked or aimed for the leadership in the sector, which we have opened and we will continue to seek. And perhaps the great novelty beginning last year, or I would say perhaps in 2019, is our understanding of the need to present ourselves, deleverage to the market, to be able to have a recognition of the qualities that CASN has always had and that we're darkened perhaps or by the high indebtedness, an indebtedness that was higher than the market wished for. This was in 2019 when we began to capture growth and quality in our assets. We superimpose this to the deleveraging. And this deleveraging by the strong cash generation of the business, We were under pressure of the market to sell our assets. We held back on this because this would be the easier and faster thing to do in terms of deleveraging. But we were confident in our assets. We were aware of their quality. So we did this gradually, progressively. And I can say that at present, we have come to Point three, we're going to end the quarter with less than one time net EBITDA in the CSN businesses. Target is less than that. Of course, we're going to work in a deleveraged way. below 0.5 times or half net debt EBITDA and maintaining this commitment as a premise. Assumption with the market, of course, at one point or another, this of our business, but the goal of course is 1.0 net debt EBITDA ratio, according to the opportunities that appear. But we have separated the CSN products. We have valued them in such a way that the part is more important than the whole. This was done with mining. It will be done with cement. And it will be done with a steel plant. The board has already authorized that we seek out an IPO yesterday. And the idea is to do this along with an M&A. we will have our own currency per business, and the issue of deleveraging will be a secondary one because we can offer the mining currency, the cement currency, the steel currency, and make the most of other opportunities in the market. Our most important commitment, and I would like the market to understand this, is with the deleveraging that is a given already, and will be faster than the market expects. and the main priority that we have is investment grade and we would like to attain this until the end of the year. I believe that CSN will fully deserve that investment grade and we're doing whatever is possible and impossible to obtain this investment grade until the end of the year. It will open up all of the markets and for our bonds and equity for all of the large investors worldwide. And along with the investment grade, we have the deleveraging and technology as another aid through the new CSN where we're working very hard to begin to deliver results. We're working in pairs and we truly believe that this will be a differential for CSN in terms of novelties. It's not something mad or crazy. Don't expect any changes from CSN in terms of priorities and investors. We're simply going to continue to do better, more of the same. And in the fields where we are active, of course, respecting the deleveraging technology through Innova and the ESG part, which is the third pillar that we have in terms of priority and support to have a rapid development. We're going to concentrate on the business, of course. We do foresee a huge potential for organic growth and M&As for mining. And similarly, we observed this for the cement business and for the steel business as well. We will be larger and better in each of the sectors, always respecting the three assumptions that we mentioned formerly. I foresee a very quick growth for CSN. challenge and the challenge for our team and all of the personnel at CSN and my own challenge is to double the CSN profit and we're going to do this with greater profitability, better profitability comparatively in each of the businesses. And we are in a deleveraged way going to make the most of some opportunities, opportunities that will make sense for us from the strategic viewpoint in the short, medium and long term. to truly become a benchmark in each of the sectors where we have a foothold more of the same in an elaborated way. And whenever we can geared towards new things and our way of doing things through technology or communication with the market. And this is what Martinez is proposing to do, to have a new trade policy, a revolutionary trade policy. We will adapt very quickly to that. I believe that this expansion is present in all of our businesses and internationally as well. To give you an idea, the plant in Germany as well as our plant in Portugal can double their production immediately. They have been conceived, projected to do that. they will be able to double their production. Outside of Brazil, the local funding lines offered by the countries themselves where we are working will enable us to do this very expeditiously, very calmly in terms of deleveraging. In Brazil, We intend to have organic growth when I say that we will be doubling from 2020 going forward this in terms of operational adjustments that we have with our present day assets. I'm not considering new assets, acquisitions or new M&A's. I do see big opportunities that if we are strongly deleveraged and this is what we will do 0.5 times net debt EBITDA with technology and prioritizing ESG, we will transform CSN into a leading company recovering the value that was perhaps hidden by the high indebtedness we had in the past, so we expect to have a significant valuation of our assets and I think the penalty that we were paying was the leveraging. Now, if you analyze the basis that we're working on now, they're fantastic mining at 70%, steel at 30%, cement 45%, which means that these are concrete facts that are underway, and I'm fully convinced that the second semester will be much better than the first semester for us. This is a given and we have this certainty as part of our strategic priority regarding this company. What was supposed to be have done in two years will be done in six months, in my opinion, and beginning in July. CSN will set itself aside in this market and will be ready for organic growth and will make the most of market opportunities, always based on our three basic premises, deleveraging, ESG, and technology. Thank you very much. The next question is from Daniel Fasson from Itaú BBA. Good afternoon. Thank you for taking my question. My question refers specifically to cement and is geared to Martinez. We know that IPO is very close. If you could recall the outlooks in terms of volume, price, results for the year, And if you allow me, Martinez, with the news that you're leaving this in Brazil, do you think you will have any problem with Cade? I would be very thankful if you could share your outlook on this. A second question also for you, Martinez, about the steel mill. You mentioned that your second quarter has already been sold out. What is happening in terms of the margins the margins that were above 27% in the first quarter, what is it that you expect in terms of realized prices in the second quarter because of the increases in distribution and refer to the costs, the increase of costs in raw materials, which will be the margin evolution in the steel mill. Good afternoon, Daniel. This is Eddie Valdo. I'm going to respond to this before Martinez and respond to the questions on cement. First, about the M&A, the exit of Lafarge from the Brazilian market. Now, in terms of M&A and market consolidation. We're following up on this closely and of course there will be a market consolidation in Brazil. In the last five or six years the players in cement suffered a great deal always working with margins that were close to zero or even negative therefore it's natural to have a market re-consolidation and obviously CSN is an important player and we are in the process of consolidation now faced with that we are thinking of the opportunities that we're going to go deeper in if they make sense for the company. This movement of Lafage was leaving Brazil. I think this was something that was expected. Now, when it comes to the expansion plan, as was said by Benjamin, we have two different avenues for the growth of the cement business. is through M&As that we have just remarked on. We're looking for opportunities. And the other avenue is organic growth. In the last few years, while there was a drop in the market, We surveyed Brazil. We carried out a deep analysis looking for the most relevant regions, relevant markets in Brazil. And we also tried to acquire rights in those areas. So our organic expansion plan will go through diversifying CSN cements geographically, but in a very orderly way and it will be one of the best markets here in our viewpoint. We have five projects that we're working strongly on. They're very robust projects. One is a downfield project, specific growth in our steel unit with a growth of 30 percent of volume in that unit. and four greenfield projects, Parana Project, the Sergipe Project, another in Ceará, and one in Pará. that will depend on the market growth and the resources that we may obtain from the IPO. Therefore, we're working strongly on these projects where we have a mineral reserve that is more than 100 or 200 years old. We're quite protected that way. We're carrying out the environmental work research for a project in the Northeast. We're working with the government so as to create a protocol of intentions for both parties so that we can implement these projects. We already have some of the protocols signed. We also have the engineering part for the project. So we're moving forward. We also have equipment that was acquired some years ago. A large part of this equipment was manufactured and they're now stored at the port of Antwerp in Belgium, but we will be bringing them down to Brazil. They should be here by July, and we will gear them to these different locations. Therefore, very quickly, this is the plan. This is what we're thinking of doing in the coming years, and thank you for your question. Thank you, Edivaldo. Danielle, once again, thank you for the question. And I would like to compliment what Eddie Valdo said. He spoke about all of the projects. I would simply like to underscore something that I have reiterated often. analysts speak about how this market will behave in Brazil, if it will continue to grow, if it depends on infrastructure, if it depends on the green and yellow. The truth is that in the first quarter, this market grew 18.8%, a relevant figure that motivates us and thrusts us forward to look upon this market with a much more positive viewpoint. If we carry out a historic series of this market since 1980, since the crisis, and later I can detail this better for you, we did this in a roadshow that we carried out with investors and clients. But despite this up and down of cement, if we look at 1970, the growth was a there was a drop. Now, if you look at this historical series, the growth was very positive at 7% to 8%. And this is important. Our drive for the IPO is to grow. It is not to pay off our debt. Our drive for the IPO is to set up a new plant, to think of M&A opportunities, and to enhance our position in the market. Now we go back to what was said by Benjamin. We have a single strategy, a unique strategy that considers the sale bag by bag of fragmented sale, looking at different regions. And this sets us aside in the market. Thanks again for the question about Lafarge and regarding the market. And I'll give you a short summary of what happened. The market projection for 2021. Now, the projection of CSN is that the Brazilian market should have a 10% growth, perhaps a little more, differently from other projections that refer to 5% or 6%. The industry in general will grow 6 to 8%. The automotive segment, a modest growth of 15%. Distribution, 8 to 10%. We still have the recomposition of stock. The part of the home appliances, the white line, 8% growth. Packaging, which is a sector where we have good representation, 9%. If you mix all of that and put it into our portfolio, I do believe that our sales, as mentioned by Marcelo, will be a high double digit for the year 2021. This is relevant information that I wanted to share with you about the market. Now, some points of curiosity to give a greater foundation to what I say. If we think about a sector with incontestable growth, the power of Brazil compared to other countries in agriculture, In agriculture, we have silos, agricultural machines, the drums for storage, agricultural implements. They have intensive use of steel. And as these markets, we're going to continue on regardless of what happens in the world, at least during the second quarter and in the third quarter that are practically guaranteed. CSN has a very strong front of orders of 1,200,000 tons. As Marcelo also remarked, luckily, our units outside of Brazil, And Marcelo spoke about the United States. But if we think of Portugal, I would have never imagined that in Portugal we would have 15 million EBITDA for the quarter. And I see no possibility of being different because sales there are at another level. The market component is important in terms of understanding what is happening. When it comes to prices, I don't know if you will recall in the last call, I said that the carryover prices for the first quarter would be 25 percent. I got it right, it's exactly that. I imagine, Daniel, that in terms of modeling and depending on my new commercial policy, I should have a carryover of 22 to 28% in the second quarter, quite expressive for the present day Brazilian market. So this is something that we are truly pursuing. Another fact, I don't know if you perceived it, but our cost has increased in the first quarter. The increase was expressive vis-a-vis the fourth quarter 20. And despite this, we had a very high EBITDA margin with those costs. What is going to happen to costs? Of course, in the first quarter, we had the impact of the raw material and we had a few variations and the cost of goods sold and the cost was somewhat higher. Going forward, what is going to happen? We buy Coke, we paid $480, $500, and this will benefit our costs. This Coke is now being negotiated at $409. It has reached $380. I don't think it'll remain at that level, but it should increase in the second quarter. Now, iron ore, we truly cannot say what will happen. And in coal, we're bought out. The value reached 140, now is down to 110. So if we think about margins, we're going to have a volume growth in the second quarter. We have $300 margins in the domestic market. We think that in the second quarter, it will go out even more because when you have a full capacity, we're maximizing the bottlenecks the real per hour of a hot lamination. And so we're now prioritizing to undo the bottlenecks. And despite the limited capacity that we have at present, we're obtaining maximum potential for the company and the issue of premiums. And it's important to speak about them. This came out in CRU. It is underestimated. The BQ price in China is impressive. It has reached $920, $940. The premium at present is negative and six or 7%. And beginning on May 1st, we have decided to implement a price increase that will go from 16% to 18%. I think that the value chain will end up absorbing this price. It's a matter of cost. And of course, the more steel-intensive products will suffer more. But generally, this is not something that pertains only to CESN. pertains to the entire market. This is the scenario that I imagined for the second quarter. And I dare to say that in another month, the third quarter will be guaranteed in terms of profitability, the placement of orders and results as a whole. Thank you once again for your question. The next question in English comes from Carlos de Alba from Morgan Stanley.

Yes, hello. Thank you very much. The question is just with the very strong performance across CSM businesses and the already strong balance sheet, what can we expect in terms of either more dividends, perhaps a more defined dividend policy linking those payments to shareholders to free cash flow or cash from operations like the sustaining CapEx or share buybacks? What are your thoughts there? Thank you very much.

Carlos, thank you for the question. We mentioned this, the capital allocation goes through the center of the company. Formerly, we were working on reducing debt. Now we're seeing what to do with cash allocation. We can invest for the business to grow. We can invest to enhance the business or remunerate the shareholder in the short term through dividends and share buyback. Now, all of this is very recent. Therefore, we still have not attained our deleveraging goals. It's around the corner, of course, and we should do this in the second quarter, having a net debt EBITDA below one and EBITDA below 15, the debt below 15 billion. But until we do this, we're not going to change the CSN dividend policy. We pay the minimum mandatory amount, 25% profit, What happens is these dividends will already increase significantly. Only in the first quarter, we had more than 5 billion reais in profit. Only this will lead to dividends that are higher than those in 2020. We will have more disbursements in terms of the payout to shareholders. In CSN mining, the dividend payout will be more generous, as discussed in the IPO, and a payout of 80 and 100%. This for the short term. In the medium term, as mentioned, We're going to try to make the most of the growth opportunities in M&As, investing in organic growth. But should these opportunities not appear in the short term, it would be natural to use this capital to pay out the shareholder through the dividend policy. It's too early to say anything at this point.

Fair enough. Thank you very much.

The next question is from from Credit Suisse. A good day to all of you. Thank you for taking my question. Most of the questions I had have been responded to. I would like to speak about the risks that you foresee today. We see a very favorable movement for mining, for steel, But what comes to mind is a possible reduction in the import of steel or the steel cuts in China that have been mentioned by the ministry and perhaps the taxation for the mining sector in Brazil. If you could speak about this, see if it is feasible that we will have changes this year. And... what will happen with the dynamic that we see for this year. Thank you. Regarding the reduction of the import tariffs, a very important thing is that the steel industry and specifically CSN have no problem in competing, none whatsoever. The level of operating excellence that a company such as CSN has is outstanding. Now the problem is that the worldwide business arena is not the same. What we're looking for is competitive isonomy. I don't think it would be intelligent for the government to scrap the industry by increasing import tariffs. I do believe that this is a movement that has a trend, as the government has said, but I think that CSN particularly will be able to be competitive and We also have a competitive industry and this will enable us to reduce taxes and reduce tariffs as well. Another important thing, what the government is saying is taking 10% of the 12% that we have at present, which would be 1.2 for the first year, which means this is correct. from people who are looking at the equation, a competitive isonomy. It's not something that is of concern at present. We are obviously concerned with the Brazilian industrial policy and the opportunities for exporting. Regarding the rebates in China, they're unbelievable throughout the last years. China was a net importer, became a net exporter. And with this new rule in the government, what happened? In the last call, I said that the capacity of the Chinese industry was 94. They continue to work with a high level of capacity, a very high level. And it's not only obsolete capacity. In truth, they're modulating everything vis-à-vis what happens with the climate. We no longer see those images of complete pollution. There are people in Hong Kong that are witnesses to what is happening. The fact that they changed the tariff is due to survival. had a GDP growth of close to 20% in the first quarter. There is no country that can grow without cement or steel. It's very simple. They're going to leave the steel in the domestic market. What was also not perceived is that there was a tariff for China to import semi-finished products from other countries. This is over. In the next meeting, we're going to see a movement of steel plates coming from Brazil and from Russia going to China. So this world balance of plates, the trans-Oceanic plate market, it's transferred from one plant to the other. It's 12 or 13 million. It's not that considerable. And this is another important point. Another point that could improve, I particularly believe that the prices in China are low. They will be appreciated because of the restriction for exports The scenario, therefore, is very positive in China. The scenario is highly positive in Europe. For a long time we had not seen such a thriving automotive industry in Europe and in the United States. No need to mention that the United States is undergoing a spectacular virtuous cycle For the first time in history, the stock is at zero practically. I will then ask Pedro to share with you an analysis of the inventories in the United States. And it's hard to go back. There's a natural industry inertia to recomposes and have accelerated growth. So very generally, this is the worldwide scenario. Now, what could go wrong? difficult to say. I think that there is an excess of liquidity worldwide. It's not happening only in the world. It's also happening in Brazil. And the president has said several times those that produce will be privileged. And Brazil is a country that has to produce. We have a great deal to do here, not only in the agricultural sector, industry, infrastructure. We're still at an incipient stage. Infrastructure hasn't even begun. Imagine when we have the resumption of this sector in Brazil. Caio, the environment is very positive. It's the realist optimist speaking here. I'm being more optimistic than realistic at present. Thank you for your question. Thank you very much. Very clear, Martinez. Thank you, Caio. The next question is in English from Alejandra Andrade from JP Morgan.

Hi, how are you? Thank you so much for taking my question. I just had a quick question on possible liability management. When we look at your pro forma debt profile, clearly we can see there that the idea would be to refinance the 23s with a smaller bond. But I was wondering if you're possibly looking into other types of liability management across your entire debt structure. Thank you.

Thank you, Alejandra, for the question. You're right. I'm going to confirm your interpretation. One of our initiatives would be to use our short-term bonds in 2023, lengthen it. The bond matured in 2018. It has a coupon of almost 8 percent and the refinancing today would bring us a great deal of savings and possibly also a reduction of our gross debt. We could reduce this and reduce our gross debt now. in this phase of rating improvement. Another liability management is the possibility of an issuance in the local market. Our rating begins to get to AA and goes beyond the local market And it would be interesting for issuance to finance investment and to finance our bank debts with longer terms and lower rates. So this is a front that we're going to seek out. And third, with a group of banks that are a minority in our balance at present, they're no longer interested in leaving they want to remain and they're interested in lengthening the dead under interesting conditions these are the three fronts that we will tackle therefore alejandra thank you so much that was very clear gracias uh thank you that was very clear The next question is from Isabella Vasconcelos from Bradesco BBI. Thank you, and a good afternoon to all of you. I think that all of the topics have been approached here. Martinez, if we could have estimates on the restocking cycle in Brazil for steel and the finished products. I think that this will move forward, perhaps. or will it not move forward until the end of the year? Good afternoon, Isabella. Thanks for the question. I could state today that the situation of the Brazilian market is full supply. What we have is a lag in some value chains linked to the sudden growth that we had in a very short interval. Simply to give you an idea in distribution at present, we had inventories of 1.5, 1.6 months of inventory. At present, it is at 2.3. In another two or three months, we will get back to the level of three months. which is what is acceptable for the market in the automotive sector, a very important sector. The car inventory at present is of 13 days. And in truth, the market would like to have 30 or 40 days. And steel is not the villain here. There are other products that are missing, such as semiconductors and other primary products. a very important fact, and I like to speak about facts. Fiesp presents a very well-drafted report every month of all sectors of economy, and steel is the sector with the best supply in the market. compared to paper, glass, and other sectors linked to commodities, I can say very calmly that Brazil and CSN are prepared to once again capture this growth that should be even stronger in the second quarter. Thank you. Thank you very much. As we have no further questions, we will return the floor to Marcelo Cunha Ribeiro, the executive investor officer for the closing remarks. I would simply like to thank all of you. It's been an hour and a half that we have been conversing. We hope to see you in the next call. Thank you very much. The conference call for the CSN results ends here. We would like to thank all of you for your participation. Have a good afternoon.