Companhia Siderurgica Nacional S.A.

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to CSN's conference call to present results for the third quarter 22. Today, we have with us the company executive officers. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company presentation. Ensuing this, 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 a simultaneous webcast that may be accessed through CSN's investor relations website at ri.csn.com.brenglish. where the presentation is also available. The replay service will be available on the website for a week. You can flip through the slides at your own convenience. Before proceeding, we would like to clarify that some of the statements herein are mere expectations or trends and are based on the current assumptions and opinions of the company management. Future results, performance and events may differ materially from those expressed herein as they do not constitute projections. In fact, actual results, performances or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors such as the general and economic conditions in Brazil and other countries, interest rates and exchange rate levels, Thank you for joining us. who will present the company's operating and financial highlights for the period. Mr. Hibedo, you may proceed. Good morning and thank you all for participating in our results call for the third quarter. Our quarter highlights. First of all, I would like to mention that this was a pretty Thank you very much. We obtained a good operational result, a growth in volumes and a reduction in the cost of production of our main business. It shows that we are quite resilient in our figures. Secondly, we were able to conclude our strategy that transforms the cement business, integrating the plants and assets of Mofage Holcim Now called CSN Estimentos Brasil, it has been consolidated in our figures during September. The good news is that we have a company with ever stronger results and more promising synergies. In the third place and as a subsequent event, we were able to conclude two acquisitions that will also transform CSN in terms of energy. We concluded the acquisition of Quebra Queixo and ensuing this the inclusion of control of CEEEG and this is a step of the group towards renewable and competitive self-energy but also poses a low risk and is an excellent segment These are the highlights for the period. We go on to page three with our consolidated operating and financial indicators. A normalization of our profitability based on a change of all of that exuberance that you observed in prices and commodities at the beginning of the pandemic. This allows us to have representative margins in all segments. This quarter, We had an evolution with a drop of EBITDA of 16% because of the steel sector where there was a compression of margins in the quarter and the prices in the international market dropped and a sequential increase of prices. The good news is now the prices and the raw material costs are going down. But we do have a negative variation in the period in mining stability marked with a growth in production volumes, lower costs offset with a lower price for iron ore in cement, a strong performance and the consolidation of the CSN Brazil for the first month. We have 24% margin for the quarter. We continue on. We see the cash generation. We begin with investments that showed a stable performance at 839 million reais. We have already communicated to the market this. We're being very careful with our reimbursements because of a more turbulent market. Eneas Garcia Diniz Due to a delay in the manufacture of equipment, which is somewhat complex in terms of the delivery, the outlook for the Capex for the fourth quarter will drop following that guidance of 3 billion reais in working capital, a significant evolution. This is one of our essential leverages in our search for cash generation. We have had Good news in several fronts, stocks that are dropping the price of raw material and a lengthening in the term with suppliers boosting and aiding our networking capital with an impact of almost 3 billion reais. On the following page, you see the adjusted cash flow. Where we show you a favorable comparison vis-à-vis previous quarters. In previous quarters, we were impacted by the working capital because of the high cost in raw material with a negative impact in cash generation. And presently, you see a strong cash flow, a very timely one, offsetting the investments in the period taxes with a cash generation of 3.2 million reais. What is essential when we look at the next page is to look at our leverage under control. Of course, the leverage has increased as we have a normalization of EBITDA. And it goes from the last year to values of one time now getting to 1.7 times. But of course, this is the result of a very strong movement that we had this quarter. The confusion of the Lafage Holcim operation that should have reduced our indebtedness as we had a reimbursement of $4.8 million. Net debt increases $3 million, goes up to $24 million, and our leverage stands at 1.7 times. What is relevant is that we're changing our leverage guidance for the medium term. Thank you very much. Thank you for joining us. This is the amount we reached with a series of initiatives and the management of our liabilities. 1.4 billion reais for mining of an infrastructure debenture and an institutional CSN debenture carried out in the month of October. With this, we were not only able to obtain this amount, but lengthen our liabilities With a short-term debt coverage of more than six years and a very strong balance to face up to this moment of uncertainty and the investments foreseen for the coming year. It's a very strong metric that deserves a continuity of our upgrades in terms of credit ratings. We have a double B at present. We expect a double B plus very soon. And of course, this is a structural surge, this investment grade for us. I will speak about the performance of each separate business, beginning with steel. We had a strong performance in terms of volumes in the domestic market. We had stability. CSN was able to grow almost 20%. Using the distribution channels and its strength in segments and continues to grow in civil construction, which has been quite resilient. This offset other segments where the growth is lower, for example, the automotive segment and the white line. We have the typical seasonality of the summer in Europe. But we're on a very strong path of profitability, especially in terms of profitability in Germany, where we have excellent prices and favorable costs because of energy hedges and low raw material costs. This has given us stability during that period in terms of revenue despite the growth of volumes We had international prices that were adjusted, dropping approximately 9%. In the case of EBITDA, the compression of margins caused by the prices, and also because of very expensive raw material in purchases during the second semester, Coke and Coke, Reducing the margin in the period to 1.2, 1.3 billion with an EBITDA margin of 16%. In the next page, we see that this cross increase was a timely thing. In production, we have good news. There has been a drop of 6%, 4,100 reais a slab. And when we compare the cost The cost in September was 8% lower than the average for the quarter, showing us a clear direction for the fourth quarter. Costs will continue to be reduced significantly because of the raw material and because of the operational enhancements. This quarter we had more than 1 million tons of slabs and this helps us to reduce our fixed costs. We had 1,100 hiais, $105 of eboda per ton between the peaks of course that we saw in the pandemic but with interesting profitability above our historic average and this is how we will continue in the coming quarters. Speaking about mining, As in steel, we had an important moment in terms of production volumes and sales. These are the weaker quarters in the past impacted by operational restrictions because of the heavy rainfall and the contention of the use of water at the plant. These problems were reduced during the third quarter gradually We're still at the maximum limit of production that we will reach in the fourth quarter with all of the projects coming into operation. We still have some enhancements to do. This is the good news, but we did achieve this important evolution, but we had a significant drop in prices. Stability in the revenues is positive evolution of 20% in sales. Thank you very much. So we are at the best level of the year of $19 with a neutral epitaph vis-a-vis the second quarter. On page 13, a perhaps better comparison eliminating the effects of that reversion of provisions of cargo sold at provisional prices. Orange and orange. This quarter our EBITDA grows because of enhancements in all of the lines. Better volume, a better quality mix, better purchases, reduced freight and lower costs. Offset by the negative evolution of the PLATS index with a drop of 15%. We get to an EBITDA of 960 million reais. Our break-even of iron ore delivered in China is competitive, and despite the lower slab prices that will not persist below $80, we're making margins that are higher than $20 per ton. We have interesting margins presently. Regarding the next segment, which is cement, we had a very special quarter. with a change in level in terms of volumes because of the consolidation of the 10 plants of Lafarge Whole Cement Brazil, now called CSN Cements Brazil. Compared to our historic average, we have grown 650,000 tons a month and a growth of 50% that we had between one quarter and the other. Now, Because of this consolidation, the business did very well. Prices were recovering. There are increases based on inflation, volumes quite strong, reflecting a very resilient construction segment. And without the consolidation of Lafache-Haussing, our results were increasing. We also had the consolidation Thank you very much. Thank you very much. Acquisitions that will transform our energy business. 427 million reais funded by anticipation, a very efficient way of funding energy assets. And it will bring about a competitiveness and production of iron ore will benefit production and will transform us into a player in the energy sector, not only in our search for self-sufficiency, but will also enable us to sell some of this energy. We have already begun to operate this business and we're quite enthusiastic with the opportunities that we're finding with this. I would like to give the floor to Elena Guerra, who will speak about our ESG performance for the quarter. Good morning, everybody. Here we are again to present results for the third quarter. The full material is being presented and it's geared towards offering you a very transparent vision of ESG in the company. In the last quarter, for the eighth consecutive year, We received an award because this is the highest level of qualification of our inventories. During this period, because of a better understanding of our actions, we were able to improve our performance, and the rating went up to 55 points, when the average of the world is only points. and they also began our study on climate changes. We're analyzing our processes to detect some opportunities. Now this construction of scenario is based on the best market practices and they will enable us to make assertive decisions when it comes to climate changes. continue speaking about climate and our emissions for the quarter the accrued results for the nine months of the year point to adherence to the plans set forth for each segment improvements in the production of steel and a slight increase in the level of emissions in the production of iron ore and Of course, we do have great expectations in terms of our performance and the implementation of projects that have been set forth. We spoke about renewable energy, of course, when it comes to speaking about climate changes, and this is so important for the company. It is through the company's strategy that we will be able to stand out and also work with new innovation projects. We will have clean energy that can be scaled up in several of our new developments. Now, speaking about our dam management, we're continuing the de-characterization works on the Vigia Dam We have completed the structural building and officially it is being acknowledged as being de-characterized and then there is nothing reported in terms of our licenses. We have had a significant evolution in operational terms. Quarter on quarter we speak about our security which is also under evolution. We have reduced the number of accidents, the problem caused by third parties, always presenting the best results in our historical series. This quarter we reached the best figure and we ended the quarter with zero fatalities. And in terms of social and diversity, of course, we're under constant evolution. We have increased the representation of women in leadership positions. In nine months, we had significant advances compared to 2021. 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 1 on your phones. If your question has been answered, you may withdraw from the queue by pressing star 2. Please pick up your handsets when posing the question so that we can provide optimal sound quality. Please hold while we poll for questions. Our first question is from Danielle Sussall from Itaú VBA. You may proceed, Mr. Sussall. Good morning to everybody. Thank you for taking my question. Marcelo, if you could remark on KPEX, the reduction in your guidance. If this is Coming from something that will continue on the next year, which is your expectation of CAPEX for 2023. At this moment of greater uncertainty, it seems that you're revising the execution of some projects when it comes to steel. If you could speak about your expectations for volume and The guidance for 2022 was given 1,600,000 tons. If you could remark on this and perhaps Martinez could do this, if you're comfortable with these levels and give us more color in terms of volumes and prices for the short term. Thank you. Thank you for the question. I will begin to Answer the question on CAPEX and then give the floor to Martinez for his outlook on volume. Well, regarding CAPEX in the medium term, we still don't have anything. We're carrying out this exercise now. We're going to share this during CSN Investor Day. In the middle of December, but of course we're working with priorities as we have during 2022. This gave us a savings of 1 million reais because of the moment of uncertainty. And we're trying to increase the cadence of projects that will be delivered, but will be delivered in a different time frame. We're thinking of productivity gains in steel, growth in mining, but we do have to respect the environment and liquidity and leverage issues. This doesn't mean that we're changing our direction in steel. We're going to work with changes in centering, have some shutdowns and in terms of mining. The great projects is the expansion of P15 and PK expansion. In the other projects, we do have a master plan and part of our trajectory is to de-correctorize the dams and of course work with the tailings. This is a subsequent enrichment and their timeframe might become somewhat more flexible. We're going to maintain the annual CAPEX, but far from the levels of 10 million that we had in 2022. Of course, we will have significant expenses in these projects, but so far we do not have a precise figure for the medium term. Very soon we will be sharing this with you in the following 30 days. I give the floor to Martinez. Should you have any more doubts, we can continue speaking. Daniel, good morning and thank you for the questions. I will begin speaking about the market. The Brazilian market for flat steel this year will end at 4.4, I'm sorry, 14.4, 14.6 million tons. These are the other years. And in 2021, there will be a small drop. And From the viewpoint of volume, we should reach a very interesting figure, of course, because of the market conditions that we have had this year. Still speaking about the forequarter and the outlook for the sectors, some sectors continue to be very positive. Agribusiness, for example, civil construction, Agricultural implements, machines, equipment, packaging, trucks, all of these sectors are operating very well in terms of steel in Brazil. We have trucks with 8%, machines with 12%. Some sectors that lead the bid to be desired that should improve are the automotive sector, although it did improve in the third quarter. The outlook is more positive for the fourth quarter, and the white lines Also, it suffered significant seasonality in the third quarter, but they're getting ready for Black Friday and other end-of-the-year activities. From the viewpoint of guidance in the domestic market, the fixture is 3,300,000 tons for the year, and totaling for the group, A figure of 4,700,000 tons, considering Luso Cider with 300,000, WT60, long in Brazil, 240,000, and in the U.S., approximately 230,000. Approximately, this would be the guidance of volumes that we have for the year. A very positive piece of information. Strong penetration this year will drop to levels of 14 to 15 percent. This is good news. It will return significant volumes to the domestic market. And when it comes to prices, we have focused on, I mentioned this in the previous call, that we were focused on recovering market share, and we did. Thank you for joining us. Nationalized Imported Products. As Marcelo mentioned, our strategy is to remain operational and to compete. Our slab, I don't know if you will recall this, got to 4,200 reais per ton at the worst moment, should end the year at lower levels of 3,100, 3,600 reais. which makes us very competitive currently. What I can say regarding the market strategy is that we're going to continue to diversify the production. We're going to work towards added value, quality, action in all markets. The geographic issue is very important. We're well positioned in Germany, Portugal, There is a trend for recovery until the end of the year, beginning of 2023. And in the USA, good news. We have a sunset review for cold and hot lamination. So the US opens another door for the CSN. Besides the amounts that we export every year, We will have the opportunity of exporting 50,000 more cold lamination and 150,000 of hot lamination. Brazil won 3-2 and the other countries that were able to eliminate the anti-dumping lost by 7-0, which shows that we have a good outlook for Brazil. Now, still speaking about strategy, We're ever more horizontally integrated. We're seeking vertical integrations in long-term processes with strategic intentions, of course, and the market of zinc material. We're still struggling for prices. We have to fight against the imports in Brazil. The imports, 95% come from China, Eneas Garcia Diniz, Luis Fernando Barbosa Martinez, Rogério Bautista da Nova Moreira, Harry Morgenstern For automotive and for the white line, which means that we will gain some more diversity. In the metal line, we're working very strongly with the American market to increase our quota in the U.S. market. The quota is very small for Brazil. If we can get to 80 or 100,000 tons a year, this would be highly desirable. This is all, and thank you for the question. Thank you so much, Marcelo and Martinez. Our next question is from Rafael Barcelos from Santander Bank. You may proceed, sir. Good morning. Thank you for taking my question. I have a question about the leverage that you have spoken about. Will you speak about the price of iron ore or the same prices you spoke about steel? Now, regarding cement, with the consolidation of Lafage, what is your outlook for profitability? And if you could detail the growth that you're going to have in investments. Thank you. Well, thank you for the questions. Regarding the leverage, we do have that range, but it's more focused on a goal. We're aware of the challenges that are necessary to broaden that leverage and work with the drop of prices of commodities, which is important for CSN. In this forecast, we have already included In iron ore at a different level that we saw this quarter, between $80 and $90. And if the iron ore continues to drop in terms of price, the intention of CSN is to maintain indebtedness below that level of $1.95. We're going to seek out other initiatives to make this a ceiling, a limit. In terms of management, whenever we see the leverage increasing, we seek alternatives to reduce the leverage to get back to the levels that we deem acceptable. Now, I will give the floor for a fuller response. I'm sorry, I'm a bit hoarse. In terms of the evolution of profitability of cement, Nowadays, CSN is the most competitive platform in Brazil. We work with margins of 130%. Lafarge operates with lower levels. Marcelo has already mentioned that we found a very well-structured company with excellent assets and that we're Seeking out opportunities and synergies that are greater than we had imagined initially, we're quite convinced that in the short or medium term, we will bring Lafarge into operation with these very high levels of EBITDA. We're working on this now. And for this, of course, we have several synergies that go from Thank you for joining us. In terms of operations, we have several synergies, beginning with electrical energy. In the second semester of the coming year, we will have high production of energy, which will be important because of the acquisition of the plants that have been mentioned and synergies that we're seeking in terms of efficiency, cargo, and energy matrix. A new avenue of things that we are capturing in the short term, getting ready for the year 2023. We're quite optimistic in terms of this. Regarding the growth plan, we have 16,000 tons of capacity. We're selling 12 to 13 million. There's still room for growth, of course, for the present-day assets. And we have two important points. One, to be attentive to market opportunities. We believe that consolidation will continue in Brazil. CSN is a major player in this process. We're going to look at the opportunities with a great deal of discipline, of course, and an organic growth plan where we have the opportunity We have three projects in our pipeline that will be initiated if there is the need for this, or if we have a better visibility of the growth of the market in the coming years. There's a project in Pará, another in Paraná. Now, While we don't begin these projects immediately, we're working with the maturity of these projects, working with the licensing, the protocol of intentions with the government, and definition of all of the equipment so that these projects will be highly competitive in their respective regions. I hope that this has responded to your question. Rafael to complement the information that Edivaldo has just conveyed. We're going to follow the strategy of diversification in cement today. We have the best of both worlds. As CSN, we were highly focused on the retail segment. 90% we sold to the end users, end customers. We have 20,000 clients. We used to sell to only 8,000. That was our goal initially, to sell to less clients. And now we have an operation that is very focused on bulk cement, technical cement, that will sustain the growth of infrastructure in Brazil. And when we speak about geographies, and going beyond the projects mentioned by Eddie Valdo, we're very well positioned in some regions of Brazil in the Northeast, in the Southeast, in the region of Rio de Janeiro and Minas Gerais or in Sao Paulo, we have a market share of 20% for Brazil. In some regions, we predominate in the region and this allows us to also work on sales channels, distribution. This is a strategy that we're going to work with diversifying the geography, the customers, and of course, focusing on the value of the company, whether it is in bags or bulk. Thank you, thank you very much. Our next question will be in English. from Mr. Carlos de Alba from Morgan Stanley.

Thank you. Good morning, everyone. Just a couple of questions. One is when do you expect or when do the hedges that you had in place in Germany for energy cost or energy inputs will expire? And if you could give us a sense of how much below current spot prices were you purchasing energy at in Germany? That would be useful. And then the other question is on the benefit of the energy acquisitions that you recently did on the steel sector in particular. Have you quantified how much dollars per ton of slab production you expect to reduce or cogs per ton? However you have quantified, that would also help us. Thank you.

Thank you for the questions, Carlos. Speaking about Germany, we have had that hedging policy for 10 years. There hasn't been any alteration, and the policy is to hedge 100% during the short-term period and then quarter on quarter. Thank you very much. With these lower hedge levels for the coming year, we are looking at a result that will be double our historical results, 50,000, 60,000 euros for the unit, and we will pay double of that because gas and energy will be more expensive. This is the combination of limited supply. There are production problems there. And Thank you very much. We're speaking of $650 million highs or $30 million. $10 per ton. This is what improves in terms of our margin because of this synergy.