Companhia Siderurgica Nacional S.A.

Good morning, 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 2022. 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, we will go on to the Q&A section when further instructions will be given. Should any participant require assistance during the call, please press star zero to reach the operator. We have simultaneous webcast, That may be accessed through CSN's Investor Relations website at ri.csn.com.br, where the presentation is also available. The replay service will be available for one week. Once again, you can download the presentation at your own convenience. Simply as a reminder, 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 and their they may differ materially from those expressed herein, which do not constitute projections. In fact, actual results, performance, or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, general and economic conditions in Brazil and other countries, interest rates 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. We will now turn the floor over to Mr. Marcelo Cunha-Ribero, the CFO and Investor Relations Executive Officer, who will present the period highlights. You have the floor and may proceed. a good day to all of you thank you for participating in the results call besides the executives of the company we have mr benjamin steinbrook the chairman of the board who will also make comments We go on to page two of the presentation, underscoring the strong operating results in the first quarter, especially in the context of a year that has begun full of interference. The year 2021 ended with a drop in prices of iron ore and steel in China and Brazil. We reached 4.7 billion in EBITDA with a strong recovery and productivity, which is something we celebrate. In mining, especially, we had a very strong price realization because of the Platts index. despite the operating difficulties caused by the rainfalls in the period, our leverage level remained comfortably below our benchmark one times net EBITDA, ending the year very comfortably and finally We would like to highlight another step in our strategy for capital allocation, an investment that had already been communicated as being strategic to the market. acquisition in the generation of electrical energy once again to have self-production and a risk return profile that is extremely interesting in terms of an investment on page three We see the sequential evolution of EBITDA that reached 4.7 million, finally returning to the margins of 39%. And business by business, mining impacted by an excellent price realization, increasing results threefold, while steel the steel business was impacted by decreasing prices in the period and cement due to the price inflation with a marginal decline. But despite this, with a very robust performance, we reached a growth of 27%, almost a million reais compared to the fourth quarter, 21. On the next page, When we observe the cash generation regarding our capex, we began with 601 million highs, decreased compared to the fourth quarter because of a seasonal reason we accelerate during the year. but also in accordance with our guidance of 4 billion reais for the year. And this year in steel, we have a project to recover competitiveness with steel and Cochrane batteries. And we're working with the tailings filtration. Working capital was impacted by an increase in accounts receivable something that is absolutely normal as part of a good news that was an increase of revenues in mining 60% with prices that practically doubled and cargoes concentrated at the end of the period, which led to a one-time increase of some million reais. In the first weeks, we had a reversion Good news, therefore, that resulted in this increase of networking capital and that will be transformed in cash in the second quarter. We go on to page number 5. where we see this negative figure in terms of cash flow. Once again, this is a very temporal situation. The greatest impact that was working capital will be reverted during the second quarter. Another important impact refers to a positive item, which is the payment of income tax and social contribution. In the case of CSN, mineração happens with annual adjustments. The company makes adjustments during the year and in the The following year, there is this readjustment and a difference to pay, something that will not be repeated in the coming quarters. And our expectation for the coming quarters is to return to the strong generation observed during 2021. We move on to the next page where we show you the net debt. Leverage and liquidity were comfortably below the one times net debt EBITDA limit. We have 1.8 million to 18.6 million. Once again, thanks to the cash generation, a very timely event In the coming quarters, we hope to have a positive cash generation, and this will lead the net debt EBITDA ratio to even lower levels. We had to use the cash to conclude the buyback programs of CEMIG and CN. Besides, of course, the exchange rate, rate variation with an appreciation of how that has helped back our net debt. We move on to page number 7, where you see the debt amortization schedule vis-à-vis our cash. Now, please look at the maintenance of the high liquidity levels. Cash remained at 13.3 million after more than five years. And we would like to reinforce our commitment with a cash always around 15 million reais. And this is how we have worked towards management. This quarter, we issued one more 10-year bond because of the increase in interest rate in the American economy. market, we bought another bond, we purchased another bond and had other operations, anticipating the liquidation of Lafarge, 1.2 billion reais, and another issue of debentures as part of the preparation for the closing of this operation that is foreseen in the coming months. Now, in future months, we will continue with those operations of the lengthening of the debt and the limitation of our liabilities Once again, in the American market where we're able to capture better costs. This week, we're ending a loan of $375 million with Italian insurance company. One more reinforcements for liquidity in the company. Now to speak about the business on page 9, we begin with a steel part. we had a significant recovery in volumes at a time of year which is somewhat atypical the first quarter, tends to be somewhat slower. But despite this, we were able to grow as a reaction to the end of 2021. Because of our supply discipline, we prioritized profitability instead of volume. We have a strategy to speed up sales. And now we're working with a market recovery With a different performance in the foreign market and exports where we had a growth and were having an excellent moment in terms of prices, the European markets have been able to buy more. in the long term at competitive prices avoiding the price inflation with excellent margin and profitability speeding up our volumes in terms of net revenue as expected and this happened globally the steel prices have marginally had a decline of four percent this was restricted to the first quarter Now we have prices that have increased again because of the geopolitical situation. We did have a profitability of 25.7%, 2 billion reais. which means that we are above 30% with excellent margins abroad. In the second quarter, the expectation is ever more optimistic with a growth of volumes in the domestic and international market. a price recovery aligned with what has happened globally. And because of this, the margins will remain at a high level in the steel sector. Now, regarding the operations in steel seasonally, the first quarter is slower in terms of sales. That is why we decided to carry out scheduled maintenance. We also had the impact of rainfall, not only in mining. In steel, we had some blackouts that had an impact on volume. Now, despite this, we were able to maintain the cost, although the slab cost increased Because of the inflation of raw material, coal, coke, and iron ore, the final cost remained at the same level as that of the fourth quarter. We had good furnace efficiency and we maintained the cost per ton basically stable. The cost per ton remains at $350, double our historical average. In the second quarter, the expectation is that this unit profitability will continue to grow. We go on to the mining sector where we had a quarter strongly impacted by the atypical rainfall, something unheard of in the region. It had never rained that much and the mining had to be closed down for some days. And this, of course, has an impact not only on production and sales. On the other hand, all of this was offset by an exceptional price realization. Not only did the price of iron ore increase more than 30%, but our cargoes that had been sold previously had a complement of provision, and the realized prices increased 93%. So we had a thrust of more than 60%, with a direct impact on EBITDA and margins of 63.3%. In the next page, we show you that impact of previous quarters. This had been negative in 500 million reais in the previous quarter. Now this quarter, we had 4.5 million tons still with open pricing and this took us to almost 650 million highs in EBITDA we should highlight that the positive impact also was due to fleet and the exchange rate we are exporters everything denominated in dollars and this has decreased our results somewhat but we had an EBITDA of almost 2.500 million reais. For the second quarter, the expectation is a strong reaction in terms of volumes, high costs, and we should have better results if we can dilute the fixed costs even further. We speak about cement on page 15. In the first quarter, once again, a different quarter where works tend to proceed more slowly. We have a decrease in terms of the sequential comparison, but annually we have an increase because of the new plant, the Elizabeth Cement plant. We're growing in the market. Now regarding revenues, we also had a drop because of the drop in volumes, a lower drop because we have been able to transfer the problem to some of the prices only partially. The great impact in the first quarter was the cost inflation of raw material impacting the entire sector. The cost of electrical energy, thermal energy, the price of coke almost doubled and we reached 99 billion with a 25.7% margin in terms of EBITDA. Now volumes continue to be very strong, and because of this demand, we can continue to transfer these costs to prices. In April, the margins have returned to 32% to the levels we had last year, and this is how we hope to proceed in the next quarters. I now give the floor to our sustainability director, Elena Guerra, to speak about ESG management. A good day to all of you. I would like to highlight our efforts in terms of the climate action. We spoke about CSN mining previously and how they are cooperating in terms of this climate action agreement. We signed an agreement with Sani and we will be the first mining company in Brazil to use 100% electric trucks in our fleet. We have two units that will be tested the coming month. Now these tests tend to extend for six months and they use batteries instead of diesel oil and they will be tested at the mine Casa de Pedra. Now, in steel, the company has become a key member of the Net Zero Steel Initiative. This platform is a member of Mission Possible Partnership, working towards the decarbonization of heavy industry in the world for the next decade. There are several forums, the World Economic Forum and others to support this agenda to reach net zero emissions until 2050. And we are seeking for synergy when we participate in this type of platform. Now, this quarter, we concluded our greenhouse gas inventory with Luso Cider in Portugal and SWT. The inventory is reaching its conclusion to speak about dam management. The first quarter, once again, was impacted by the heavy rainfall in Minas Gerais. Historical rainfalls, we were able to cross over this period quite comfortably. And on March 31st, we... carried out an audit and we see that all of the dams at our zero emergency level, except for the Vigia dam that continues on with a de-characterization efforts that should be concluded in June 2023. Now we have the 14,001 certification for the Volta Redonda plant. And this applies to 100% of our production units. This is a new program and we celebrated the World Water Day. with a very good performance when it comes to the management of residues, something that has improved considerably since the last quarter. Referring to safety, we had a reduction of 2.6 percent in the accident rate CAF and SAF compared to 2021 where we had already achieved the best results in the last seven years and the fatality rate is quite below what it was in the last quarter of 2021 and in terms of social and diversity agenda At the end, we have had a growth compared to the last quarter of 21. We have 67% of active apprentices that have been hired during this period as well. Thank you, Elena. Before we go on to questions and answers, we would like to give the floor to the chairman of the board, Mr. Steinbrook. A good day to all of you. And of course, I would like to address you in terms of the performance of CSS in the first quarter of 2022. We are all aware of the difficulties posed by the first quarter. because of the difficulties that were pending. Now, these are new and different difficulties. We have the issue of the war, the issue of China, the increase in the cost of raw material, the cost inflation that we are all facing. All of these are novel issues and we have to take a stance Here at CSN, we decided to favor margins and prices at all of our units. We were able to transfer the cost increases in raw material in all of the segments in which we are present, and this has become our main line of action. when it comes to cost, the increase in the price of commodities, the price inflation, These costs have to be transferred so that we can maintain our margins. Now, this is what we are doing as far as possible. We're also working towards reducing costs. And one of our priorities, of course, is to curtail costs. to improve our working capital and to improve the leverage that we have. And we're working heavily and differently in the commercial part. Evermore, we're going to partner with our customers so that we can support them in terms of quality, whether it is in the technological field, added value in production, logistics and distribution, We're not going to bypass our customers. We're going to partner with them and work with a different type of marketing. We're going to come closer to the end consumer in all of our businesses. And we're going to enable our customers in the domestic market to do the same as well and to make the most of the support they receive from CSN. We are now geared towards maximizing technological issues of our customers and to add value to the products and to distinguish ourselves in marketing precisely to avoid having to give discounts by rendering ever more services along with our customers and the preferential customers. This is what the company will offer. We're going to work very strongly on this and we do believe we will be successful in terms of this new policy. well when it comes to the second quarter we believe that the price increases will be maintained the transfer of cost to prices now in april we had a strong transfer of costs in prices in terms of cement and other units and we're going to continue doing this in mining we do offer quality products. We have high inventories because of the policy that we adopted of a full production in all segments. With this, we're going to try to reduce our fixed cost and also have added value in terms of quality. We therefore believe that the figures that have proven to be quite good in terms of prices and margins will be further improved in the second quarter because of this strategy that was put in place since the beginning of the year. We're optimistic in terms of the market. We are allocating an enormous priority to the domestic market. This is where we are focusing. We're doing this in the steel sector, in cement. We have done this with the Elizabeth plant and with Lafarge Holcine. The idea is to do exactly the same, to come closer to the end consumer. with a very aggressive and diversified policy in terms of what each customer needs to attain their targets. Now, whatever we can do in terms of production, cost, and capital structure is being done. We're lengthening our debt profile ever more. reducing the cost of that debt with the issuance of bonds and other titles were also working with foreign bonds at a very good price and term and this is geared towards lengthening and reducing the cost of our debt and of course will enable us to improve our leveraging. I do believe the market will enable us to be specialists no longer commodity merchants. We have to move away from that basic competition. We have to diversify whatever it is we do and add value. And we are getting prepared for this. And we do believe that the second quarter will be much better than the first quarter. considering the high historical costs, our expectation of prices, our commercial policy, and because we're working very strongly in terms of reducing our costs. This is all. We can now go on to the question and answer session. Now, 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 answered, you can withdraw from the queue by pressing star two. Please take your phone off the hook when posing the question to allow for optimal sound quality. Our first question is from Chago Losiego from Bradesco BBI. A good morning and thank you. We have two questions. Martinez, if you could speak about the price dynamic in the domestic market. Do you foresee any pressure to offer discounts or if the prices can continue to be high for some time? And in terms of long steel, if there's a possibility for another price increase because you do have more quality there. The second question. refers to the steel cost, if you could speak about your cost expectation for the second quarter, and especially taking into account the price of coke and coal, simply so that we can better understand this dynamic. Can you hear me, Tiago? Yes, I can hear you, Martinez, very well. Well, regarding your first question, the price dynamic in the domestic market, what is important to underscore here, Thiago? refers to the world situation and when we speak about the dynamic of the domestic market, the issue of exports is important in the world scenario. Well, today we were reading news on China and they're highly focused on decarbonizing and steel is a significant part and parcel of this. Additionally, in China, the removal of all of the VITs, the rebates, the government incentives for the resumption of economy and for full employability are in place. So the price dynamic in the domestic market will be subject to the issue of exports What will happen in the Brazilian scenario, in our view at least, this year, the market should grow between 2.5 to 4%. CSN has a growth of 10 to 15%. now there is the cut of ipi that is favorable in imports there was a drop of 26 percent last year 18 percent this year we're working with a figure of 11 percent And on the other hand, there is a good balance, a good layout for exports here. Our units in Europe and the United States both have good margins, margins that should improve in the second quarter. Now, if we take into account this scenario, we have a premium in BQ when it comes to the nationalized import good of approximately 24% simultaneously in the sectors that were more involved in galvanized material. We're trying to create a strategy that is more similar to the international market so that we can minimize the entry of imported goods. What comes to Brazil, 80% is galvanized. We're trying to maintain this premium somewhat more balanced, and we're going to work with material coming from China and other countries. Regarding the price dynamic, which you also asked about, We had a price increase of 12.5% on April 1, 7.5% increase on April 15. And they have been implemented in distribution, civil construction. And in May, part of these will be implemented in the industry at large. The price dynamic has been fully worked out for this quarter. Are you speaking about flat steel or long steel? Flat steel. Now, pressure for discounts. We had this at the end of the year, a drop of 4%, but... Nowadays, we no longer have this pressure for a discount. What ends up happening, Tiago, is that the market has a very balanced inventory. If INGA has a two-month inventory, we have full offer, and the lack of stability of the exchange undermines imports, so this helps us to maintain these prices in the domestic market. From the viewpoint of long steel, where we have a small share in the market, the situation is opposite. The nationalized imported good is negative in long steel. On May 1st, we began with an increase of approximately 12% in long steel. reels and obviously we need to recover that premium during the second semester. Now this is a strategy that we have adopted for flat and long steel. If you allow me a very quick follow up on the price of BQ, you mentioned a 24% premium. Well, Tiago, I'm beginning with a price of $845 per ton, the Chinese price. And in the domestic market, the exchange rate stands at five and a net price of 6,700 reais per ton. This is the base price of BQ. And we can still capture a greater price in other products. Now, when I speak about galvanized material, which is the material that is of interest for us, that premium, we try to modulate it so that it will enable us to compete with other partners, with other competitors in the domestic market. Additionally, we want to allow competitiveness for the material that comes from china we don't want to lose this parcel which is the one that has the greatest added value we are at 52 of our output in coded material for example now 24 as part of what happened last year and in previous years is not a normal premium it's somewhat high. Don't you think that this will eventually translate into imports? perhaps we will see that people will import more into Brazil. I don't see this happening in the second quarter, perhaps in the third and fourth quarters. In the second quarter, what Benjamin managed and what we perceive is that there is an enormous logistic problem. Several customers that are importers have cargoes that have been waiting in ports for 120, 150 days in China as well as in Brazil. This works in our favor. Another problem is the exchange volatility. You may buy the products and they may never get here. I think we can maintain that premium. There is no import of BQ or BF. The greatest import is of galvanized material and coated material. And there we have a somewhat more aggressive strategy so that we do not lose out to the competition. Yes, that's very clear. I don't know if you're going to speak about the cost of steel. Yes, I could speak about this. Thank you for the question. When it comes to coal and coke, the good news is that we have that policy. that covers the entire first semester and we will have the entry of coal with costs below $380 per ton. We're not expecting a negative evolution when it comes to costs. We're expecting an average cost very similar to that of the first quarter, perhaps an increase of one or two percent. were quite comfortable in terms of the price increases announced, and we will have a situation and margins more similar to those we had in 2021. Thank you, Martinez, and thank you, Marcelo, for the answers.

The next question.

Mr. Carlos Alba, you may proceed.

Yeah, thank you very much. Good morning, everyone. Good afternoon for you. So a couple of questions on the mining side. One is, could you repeat the amount of volume that was priced under provisional terms at the end of the first quarter, and what was the price for those, as well as remind us what is the looking for what is the average or the period that you think these volumes will finally be priced in. Should it be April or May or perhaps the average of the second quarter? Also on mining, the capex that we saw in the first quarter was a little bit below what we were expecting. I wonder if there was just timing of the payments. And what do you expect in the coming quarters, given the ongoing projects that you have? And then my last question, if I may, is regarding a very large tax payment. I think it was in CSM in Arizona. Could you elaborate a little bit about what caused this big increase or this big cash tax disbursement? Thank you.

Thank you, Carlos, for the questions. Now, referring to the open cargoes that you can use in modeling, we ended the first quarter with a volume of approximately 4.5 million tons with plots very similar to the present day levels. Now, regarding the CAPEX, what we do have is seasonality. a normal lag between the approval and the disbursement, it's always normal for the capex of the second quarter to be higher than that of the first quarter. And we have nothing that will annualize the $4 billion, which is what we would like to invest in 2022. We're very aligned with what was planned Now, regarding the payment of taxes, yes, as I mentioned formerly, we do have an annual adjustment regime and monthly anticipations. Considering our profitability, these anticipations are never sufficient to pay the full amount, which would be $34,000. percent in terms of income tax and social contribution, which means we have a significant part that has to be paid at the end of the fourth quarter. This is what happened in the case of CSN. We have something that is relatively new, a higher profitability to such a point that we have cash payments of income tax until 2019. We had losses and we did not have to pay taxes beginning in 2020 going forward. We paid a great deal of income tax using temporary credits of P. Scoffin, 1.6 million reais that were paid during the period. Quite positive, of course, from the cash generation viewpoint. Now, this credit is depleted and we go back to the normal regime of paying taxes. Now, this is a value referring to the first quarter because of the profitability in the year 2021. It should not be reiterated in coming quarters.

Thank you. Thank you very much.

The next question is from Danielle Sasson from Itaú BBA. Good afternoon to all of you. Thank you for taking my questions. The first question refers to the cement business. If you could speak about the integration with the Lafarge business as the Antri trust agency has approved this business. and speak about the cement environment in Brazil if you have been able to transfer the significant cost increase that we have observed in the last few months. The second question refers to a previous point mentioned, the capex in mining. You have 12 billion reais in this initial phase of investment until 2026. Now, how will this be spread out during the coming months from now until the end of the first phase? Thank you very much. Thank you for the questions, Danielle. Now, regarding Lafarge Holcine, simply to remind you how the process operates, we had an approval of the CADE with a recommendation for approval without exception, something that was celebrated and this will continue to the board of CADI that is now debating this. In terms of the integration, we still have not begun. We're awaiting the end of this process. The expectation is to end this at the end of this quarter. Of course, this period has been used very properly in terms of planning the integration. We're quite satisfied from what we have learned about the business and the possibility of putting in place all the synergies we expected. Now, this is what we will begin doing in the second quarter regarding prices. Yes, there is seasonality in the sector, and this, of course, will cause a lag. It is very difficult to... Transfer cost increases to prices in a moment of weak demand where we have rainfall and carnival. Now, this happened in March. Civil construction proceeds strongly. It is quite heated because of inflation and interest rates. Now in the real estate market, residential construction proceeds very strongly. So demand is doing well. The expectation for this year is to have growing or stable volumes vis-a-vis 2021. And we have been able to transfer the cost increases to prices. Our expectation for 2022 are to have margins of 22% in our industrial park. Now regarding the capex for mining, yes, these are the figures. 12 million in the first five years, 2021 up to 2026, 2027. We announced this at the end of 2021. Now this year we will have lower volumes, limited expansion. We will invest less than 1 billion reais and then we will speed up We will have the expansion CAPEX that will be between 2 to 2.5 billion, and the consolidated CSN CAPEX will be between 4 and 5 billion in the coming years. Now, Danielle, simply to complement an important piece of information for CEMENT, you know the market figures well. To give you an idea, nowadays, in terms of order of magnitude, the net FOB price is of 310 reais per ton. It's a figure that is very different to what we had last year. the strongest increase in price was in April now, three reais per cement bag and approximately 60 or 65 reais per cement bulk. So for the accrued figures of the year, we have a variation of 19 to 25 percent. What we expect for cement in April is that the margin that we showed you that dropped to 26 or 27% will return to 33, 34% of EBITDA. And we underscore that CSN has the highest margin in the sector compared to its market peers. Thank you. Our next question is from Leonardo Merachica from Bank of America. Your line is open. You may proceed with the question. Can you hear me? Yes, you can proceed. Good morning. Thank you for taking my question. I would like to know your growth plan for CSN and perhaps potential MNAs and CESP and Salmarco, if this would make sense as part of the CSN strategy. Thank you for the questions. We have been very structured when it comes to the growth in each of our businesses and we speak about doubling the company as Benjamin said at the end of the year. All of this has been carefully conceived and it doesn't necessarily go through M&A's. We doubled with the integration of Lafarge Holcim and in mining, this is a plan of 12 billion reais, which will enable us to increase the company twofold. We have a project for Casa da Pedra and this is the priority in terms of steel, We do have some projects that will increase production by 1.5 million tons and eliminate bottlenecks. We're going to grow organically and greenfield in developed countries, especially the U.S. This is what we're working on, on projects in the U.S., small plants, especially for long steel, to have an interesting time to market until 2024, 2025 when we can already begin production. Yes, of course, we can increase the size of the company without speaking of M&A's. energy assets, for example, generation assets that we have just acquired are important for efficiency. Of course, we're always opportunistic. We always analyze opportunities because we are in the sector, but we don't count on these. We have no expectation regarding these. Our focus is the plan that I have just described to you. Thank you. Thank you so much. Ladies and gentlemen, we would like to remind you that should you wish to pose a question, please press star one. Please wait while we pull for questions. As we have no further questions, we're going to return the floor to Mr. Marcelo Cunha-Ribeiro, CFO and Executive Director of IR for his closing remarks. I would like to thank all of you for your participation and express our confidence of crossing these moments of turbulence delivering results in 2022 that can be as good as or better than the results in 2021. Thank you again for your participation. The results conference call for CSN ends here. We would like to thank all of you for your participation. Have a good afternoon.