Companhia Siderurgica Nacional S.A.

Good afternoon and thank you for holding. At this time, we would like to welcome everyone to CSN's conference call to present results for the fourth quarter 21. 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's presentation ensuing this there will be a question and answer session 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 relation website, ri.csn.com.br, where the presentation is also available. The replay of this event will be available soon after closing for one week. you may flip over the slides at your own convenience please bear in mind that some of the forward-looking statements made herein are mere expectations or trends and are based on the current assumptions and opinions of the company management They may differ materially from those expressed herein, as they 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. countries, interest rates and exchange rate levels, future rescheduling or prepayment denominated in foreign currencies, protectionist measures in the US, Brazil and other countries, changes in laws and regulations and general competitive factors at global, regional or national basis. We will now turn the conference over to Mr. Marcelo Cunha-Hibero, Investor Relations Executive Officer. He will present the operating and financial highlights for the periods. You may proceed, sir. A good day to all of you. Thank you very much for joining us in this earnings conference call for 2021. I have Luis Martinez, the commercial director and the chairman, Benjamin Steinbrook. who will make his considerations before the Q&A. I begin with a presentation speaking about the period highlights. Of course, we have operational and financial records that are exceptional records. We doubled the results, attaining 22 billion reais in EBITDA, almost 50 billion reais of net revenue, and we're going to surpass this goal without a doubt in 2022, making the most of the excellent moment of international commodities, but also due to operational efficiency and stringency with costs. We go on to highlight two where we were able to resolve a problem in our balance, excessive leverage. We have now turned the page. We are below our goal of one times EBITDA, we are 0.76 times. with a solid cash generation and a commitment to maintain this, transforming the ability of companies of being a large capital allocating company. Now we have already begun this journey and we have made the most of this good moment to make transformational moments we had the ipo of semen important for the growth of the business and of course through the acquisitions of cement we will become the second cement player in brazil we go on to the next page to speak about the details of the quarter a very clear change between the first semester of the year and the second semester we begin to see gradual readjustments in the price of commodities in the third and fourth quarter this was also continued And CSN continued a very correct strategy of margin over volume, maintaining our percentage margins very high and moving away from the records in the second semester. In the fourth quarter, we had an important impact, lower mining volumes because of the commercial strategy, but also because of the heavy rainfall and a readjustment in the steel price. We got to EBITDA of 3.7 billion. The good news is that this readjustment underwent a reversion and enables us to foresee a 2022 as good as or better than 2021, very similar to the average of We go on to the next slide where we will speak about cash generation. We begin with CAPEX. We ended the year with almost a billion reais in investments, as had been foreseen, getting to an annual value very close to three billion reais. With that logic of increasing investments in the Presidente Vargas plant that is competitive with cohesive battery improvement, and projects for productivity and quality gain with magnetic concentrators, as well as the new fleets that will enable us to reduce costs and in a trajectory to get to a guidance of almost 4 billion of CapEx in 2022, as we speed up our growth projects in mining, as well as in cement. In terms of the working capital, Semester demanded more working capital. These stocks were pressured because of the growth in raw material and because of the strategy of margin over volume. We maintained a high inventory of finished products and we're going to explore this in 2022. We have a gradual reduction that will help us in sales as well as cash generation during the period. In the next slide, we speak about cash generation. We have a semester that is different from the previous one, 575 million reais in cash generation impacted by the EBITDA, the price of commodities that are somewhat lower, the higher volumes, and in a typical working capital that of course will be reverted, this cash flow should return to levels more similar to those of the previous semester, because this was a different fourth quarter. We continue on with the evolution of net debt. And we underscore that we attained our main goal, which was to reduce leverage to less than one times. We stand at 0.76 times. And it's very important to maintain this as a ceiling The only reason why the debt grew this semester went from 4.8 billion to 16.8 was because of the set of actions, remuneration to shareholders, buyback of shares, And exchange variation, almost 80% of our indebtedness is pegged to the dollar. Were it not for that, the net debt would have been relatively stable. And this is a forecast to maintain net debt low and leverage below one times. We show you our debt amortization schedule and show you how active we have been in the last few months in liability management, the management of liability, and we lengthened indebtedness, we reduced costs and increased cash coverage. We maintain cash at high level, 17 billion reais gives us a coverage of six years in terms of amortization. This is the policy to maintain our cash above 15 million in the next quarters. And all the other actions adopted to make sure that our indebtedness would become more extended. We issued the first debenture in 10 years for 1.5 billion reais. We issued the first infrastructure debenture in CSN Mineração for a period of 15 years. We also issued an international bond, the last in the window, allowing for a reduction of our bond, lengthening the debt for another 10 years. And finally, we issued our first CRI, for the balance and CSN cements. We had a good demand. We went beyond the original size foreseen and the cost was very interesting. Now this will continue We're going to attack these towers in 2022, 2023, and focusing on the banks that are close to CSN and that will roll over the debt for periods of four or five years, lifting that pressure of short-term indebtedness. We will now speak about each different business. We begin with steel with a fantastic year. We had an EBITDA with a growth of 300%. more than 2.5 million reais in 2020, 10 million in 2021. Very strong volumes, very similar to the volumes of 2020 that had been a good year. We were recovering from the pandemic, but especially in terms of prices, very strong prices around the world, not only in Brazil, United States, Europe and China. And the good news is that we continue on at a very high trajectory. In the fourth quarter, once again, that strategy of margins over volume We had the advantage of being able to grow despite the seasonality that was unfavorable. There was a drop of more than 20% during that quarter and we were able to grow 4%. We maintained prices in the domestic market at interesting levels and increased prices in the foreign market. Our mix was more favorable with the U.S., We increased the average price this year, and our foreign business continues at a record pace. Germany with €10 billion of EBITDA, Portugal €60 billion in EBITDA, and with a very favorable beginning of the year, which means that in the fourth quarter, the EBITDA had a margin of 33%, €2.5 billion, and a pace very similar to what we expect to have throughout this year. From the viewpoint of production and cost, as you can see on the following page, it was also an interesting year. We increased the production of slab, almost 4.1 million tons, the second largest in the history of the company. This enabled us to maintain relatively stable costs. hot costs in the fourth quarter and even with the growth of costs and raw material we did not have to purchase slab from third parties. We reduced costs in reais as well as in dollars and this helped us in EBITDA per ton that over surpassed $400, threefold our historic average. And this is what we would like to deliver in 2022. We go on to mining in the next page. Once again, we celebrate a year with a growth of sales and a growth in net revenue, of course, a growth of 6% in sales and EBITDA with a growth of 30%. And it's a year with two different histories, growing figures in the first semester, falling figures in the second semester, an impact on price realization as we have sales. from previous periods that were simply provisioned and therefore readjusted. But despite this, we were able to deliver this growth. Production with a growth of almost 20% also helps us to begin the year with a very strong pace and sales higher in the fourth quarter because of the margin over volume strategy. We decided to not sell shipments of iron ore to wait for moments that were better and also impacted with an unusual volume of rainfall. Now, all of these falls or declines will be offset in the first quarter. In the next page, we see a comparison that perhaps is more fair in terms of the results of the quarter to eliminate the effects of previous periods. Evidently, this EBITDA of the fourth quarter is not representative of our recurrent results. In that specific quarter, we had almost 500 million reais in impact because of provisions and shipments from previous periods. between the third and fourth quarters, there was a negative impact. The volume because of the delays and the PLATS decline of 30% mitigated by shipments of previous quotational periods that were sold at higher prices. So this readjustment shows you that without this reversion of provision, the EBITDA would be close to one point billion high, still not representative of what we would like to deliver in 2022, a growth in volumes. And now we will have the opposite effect, PLATS increasing to $160 and the reversion of provision will be positively impacting the results for the first quarter. We go on to the cement business with a quarter where once again, we observe growth at a moment of opposite seasonality. At the end of the year, there are many halts, heavy rainfall that delays works. but we were able to show a growth of 9%, not only in the plants in the southeast, but integrating the acquisition in Paraíba via Elizabeth Penn, responsible for 20% of our volume and growth in revenues. The cost of raw material had an impact. We had the cost of transportation, diesel, coke, and oil that also exerted pressure on the sector But this is a proof that we will transfer these costs to prices and we will maintain the margins at the level of 2021 and continue to grow our volumes. Here you have some data from 2022 showing growth. The growth will perhaps be lesser than previous years, but we will have good margins and will continue to grow. Well, that is the presentation of our business. We would now like to update you in terms of what we call strategic priorities. We begin with an efficient and disciplined capital allocation. We want CSN to be a smart capital allocator and respond to its shareholders. The example we just announced is an acquisition that complements us a metal plant in Iguazu. It's a type of acquisition that we will continue to seek out a reasonable size without an impact on our balance. And that adds strategic value, brings us control over a distribution channel for a very specific product. This will allow us the capacity to increase our capacity of metal tin and will allow us for a more efficient distribution. We're going to continue along these lines in terms of capital allocation using complementary lines to add strategic value. Regarding innovation, One more investment in CSN Nova. CSN Nova had already invested in a company, innovative company for the production of hydrogen, and they have found another promising startup, H2O Pro, Israeli company. startup that works with renowned people and very important investors such as Bill Gates that are betting on hydrogen as alternative fuel and as an alternative for the production of green steel. This is another pillar in our search for technology to help CSN in the future with its business. To conclude regarding ESG, We don't have Elena Guerra with us today, but she has given me the mission of sharing the good news with you, an evolution in our sustainability indicators, and these efforts are being acknowledged. We see this in the sustainability ratings for the company. Globally renowned agencies like Sustainability, SNP and MSCI have disseminated reports all pointing to significant improvements and making CSN a benchmark for the sector in Brazil. Of course, all of this is not in vain. At the last page, you can see what we have done, a very clear and transparent evolution, an evolution of scores. This because of more complex integrated reports, the reduction of CO2, Our goals for decarbonization that were disseminated on CSN day are benchmarks in the sector in cement and mining. We are the most efficient in the sector. Our management of dams, we continue to decommission these dams, maintaining stability in 100% of them. And in terms of security, we had one more year of strides with better indicators. And in environmental management, the effort is a better use of water, a better use of residues with positive impacts on our rating agencies that have classified as better. And regarding the diversity aspect, we already have very good indicators, the female participation with ever more ambitious goals that are advancing quickly. And in terms of the social goals, a historical mark to get to 100 million reais, in the CSN Foundation to support social responsibility work for the communities around our business. This is something that gives us a great deal of pride. With this, I would like to end the presentation very soon. We will go on to the question and answer. I would now like to give the floor to the chairman, Mr. Benjamin Steinbrook. Thank you, Marcelo. Good day to all of you. I would like to thank all of you for your participation in the call and express my satisfaction for being able to witness this moment where CSN has delivered the best results in this 80 years. CSN celebrates 80 years this year and all of you know how difficult it is to work with a company in Brazil and to keep it alive and active after 80 years. And we are now celebrating these 80 years At the very best moment. And to be alive to witness this is something that is a balm for my soul during the last few years for all of you who have kept up with us. That was our commitment. a commitment to deleverage the company, to maintain growth, and of course to maintain margins. This has always been our brand and our differentiated levels of EBITDA that throughout the year allowed us to become a benchmark So the fact that I am here today in which we announce the results for the last quarter and the full year 2021 is something that fills me with pride and motivation, pride. because we did what most people did not believe in. They did not believe that this could be done, especially the way it was done, which means that we maintain the assets, the company businesses. We left from almost nothing. We enhance the indicators in terms of margin, cash generation. We allow the company to grow. in an extraordinary fashion, not only in terms of net revenue, but also as regards EBITDA, and we have deleveraged the company radically, which means that We began with 3.2 net dead EBITDA ratio in 2020 to 0.76 or 78 at the end of 2021. And this is a commitment that we had made to the market. our main priority in the company, as this was the greatest demand that we had from our shareholders, stockholders to have a lower leverage below one times net debt EBITDA. So this, of course, is of supreme importance. And for those who feel gloating when they see the results of the fourth quarter, but don't look at the fantastic results of the company during the entire year. Well, this is something that offers us a great deal of satisfaction and motivation. The fourth quarter had a significant specificity because of the drop of prices of the Plaid Index, the heavy rainfall, exacerbation in the market as a whole. And basically, Because of the strategic decision made by the company, we preserved the margins, we were less aggressive with the market, we stocked up the products, and we are ready in the year 2022 to reap all of the benefits of this policy. So besides thoroughly celebrating the results of 2021 what motivates us even further is that outlook that we have for 2022 and i don't want to debate this as a one-off thing i don't want to uh shrink in that universe of the past and the future, I want to have a full view of the results of the company in 2022. Everything that was hampered in the fourth quarter will be benefited, will be improved in the first quarter of 2022. This, if we're speaking of prices, of margins, market recovery, or sale of inventories or stocks. We are prepared. And we're going to reap the benefits that we did not have in the fourth quarter in this first quarter. But beyond that, we have already set forth our commercial policy for the domestic market for all of our products, which will be to add even more value and more quality to our production in whichever product, in iron ore, In the steel mill, cement, we're going to always attempt to add value, add quality, to have a more horizontal distribution in the market, and to have a vertical distribution as well through the purchase of some participants, be it in the supplier chain or in the client chain, which means to say that we're going to be working in a more aggressive fashion, much more than in the past in the domestic market. And the basic assumption will always be quality, added value and distribution. as part of that concept of selling steel, cement and iron ore not by ton but by kilo so that we can be ever closer to the end consumer to have a consolidated well-established brand at all levels and to work in an organized way to be able to grow in the domestic market. And the same applies to the foreign market. We're going to use our plants in the US and Europe to enhance our distribution. We will be ever more aggressive and grow with our local production. What we yearn is to have our own production in the USA, Germany, and Portugal to increase twofold our activities. and to carry out all of this growth that we set forth in the past. It continues to be a goal going forward. We want to double the size of the company in the coming three years, maintaining our commitments in a rigorous way with the market in terms of leverage, margins, and growth. in three years we want to have a company that will be double of what it is maintaining a very low leverage we have less than one times net debt ebitda enhance the quality of our margins to do this without losing margin and participating more and more in the domestic and foreign markets. These are our challenges ahead of us. We want to grow our assets outside of Brazil, as we do have that concrete possibility at present. We want to have 20 or 30% of our assets outside of Brazil. for the sake of geographical diversification. And this will enable us to work with that new verticalization and a more horizontal distribution for the production of what we produce. It's with a great deal of joy that I am here alive, addressing you, delivering everything that we have promised in the last three years. And most people did not believe in this, not because of the company, but they would say that Benjamin would never reduce the debt, would never sell off. would never give up on working with deleveraging. And we have done all of this. We have deleveraged the company with a singular growth. Very few companies in Brazil and abroad have had the growth that we have had year on year. And furthermore, with the margins and the results that we are delivering, a net revenue of 14 billion and EBITDA of 23 billion. Once again, historically, everybody doubted this, and I do understand that. but it has proven to be perfectly feasible to put into practice this new exercise in 2021. And for 2022, the outlook upon entering is much better than that of 2021. The company is structured in terms of capital. The debt has been extended or lengthened with 16 billion in cash. which means that we will be able to do much more than was done last year with a business strategy that is well defined, clear, and already transferred on to all of the managers. so that we can be persistent and ensure that we are able to attain this growth with delivering and enhancement of margins. I would like to thank the entire team of the company the board of management, the directors, all the workers who believed in this and were willing to make the sacrifices that they made in the years 2020 and 2021. We hope that they will share with us this truly extraordinary moment of a victory, of success, of feeling that your hard work has reaped benefits. We share this with everybody, our employees, our shareholders, stockholders, everybody. This is a highly gratifying moment for everybody in the company and especially for me. And I reiterate my commitment and my optimism regarding the coming years in this wonderful company that is little known by part of the market, but that will certainly be able to fulfill its potential and have it acknowledged in the coming three years. Once again, I express my pride and satisfaction from being at CSN since 1993. I entered a company that was about to disappear and we transformed it into this very aggressive animal that is ever present, determined, searching for impossible things, searching for greater challenges. And at a moment like this one, when it is able to deliver this type of result, all difficulties, all the work, all the dedication are something of the past. And what we now want is a yearning and a commitment to deliver evermore. Thank you very much to all. And let us go on to questions and answers. The executive directors are all here to respond to your questions. Thank you once again. Thank you very much.

Thank you.

We will now go on to the question and answer session for investors and analysts. Should you wish to pose a question, please press star one. If your question has been answered, you can withdraw from the queue by pressing star two. We request that you please pick up your phone when posing the question so that we can have optimum sound quality. Please hold while we pull our questions. Our first question is from Chago Loftiego from Bradesco BBI. You may proceed, Chago. Thank you. And a good afternoon to all of you. Congratulations, Benjamin, for the company journey trajectory. I have two questions to Martinez if you could speak about steel here. First, the cost of iron ore, coal that are increasing for the plants, the slab increasing as well. What is your outlook for the price of steel in the global context? Do you think that at the end of the day, at the end of all of this confusion that we observe in the market, world steel will maintain its margin or lose its margin? The second question. also in the steel context in Brazil, which is a demand now at the beginning of the year. If you could speak about your plan for long steel, that would be excellent to understand the market dynamic in these two segments. Thank you. It seems that Martinez may have a problem in returning to the call.