Usinas Sa S/Gdr

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the EasyMinas conference call-in, which we will discuss the results of Q1 of 2023. I'm Leonardo Karang, Investor Relations General Manager. To those who want to follow us in English, you will find translation of the web past presentation on the user in this IR website, we also have simultaneous translation choose the sound channel on the icon at the bottom of your zoom screen. All participants are logged on listen-only mode and questions can be asked in writing through the Zoom Q&A session icon at the bottom of your screen. Participants who are listening in English will also be able to ask questions directly in this section. This conference call is being recorded and simultaneously broadcasted by the using this YouTube channel. Please note that this conference call is exclusively for investments and market analysts. Please identify yourself so that your question can be answered. And for better flow, please limit your questions to two questions per participants. We also request that any questions from journalists by directed to Luzi Minas Media Relations by phone 313-499-8918 or by email imprensa.luziminas.com.br. Before proceeding, we would like to clarify that forward-looking statements made during this conference call regarding the company's business prospects, as well as projections, operating, and financial targets related to its growth potential, are forecast based on management's expectations of Usimina's future. These expectations are highly dependent on the performance of the steel sector, the country's economic situation, and the situation of international markets, and therefore are subject to change. With us today is Usimina's Executive Management, our CEO Alberto Ono, the Vice President of Finance and Investor Relations, Thiago Rodrigues, the Industrial Vice President, Américo Ferreira, the Vice President of Core Prep Planning, Gino Ritagliati, the Vice President of Technology and Quality, Toshihiro Miyakoshi, the Commercial Vice President, Miguel Holmes, and the CEO of Mineração Osiminas, Carlos Rezónico.

initially, Alberto will give some remarks and then we will have a Q&A session. Alberto, you have the floor. Well, good morning to everyone.

Once again, I thank you for your participation in our earnings results for Q1 of 2023. During this quarter, vis-a-vis Q4 of last year, here we can present improvements. in terms of operating indexes in steel and financial indexes by enlarging each one of our operations, as well as our consolidated result. And this is a result of the hard work of the Usiminas team that has been trying to deliver the best performance to you after the bad performance of Q4. As we had already stated during our last presentation, during the results of Q4, this was a point that we would strongly focus on and we would be pursuant for better results. And I believe that during this quarter, we were able to achieve this target. Another aspect that I would like to highlight here

In our earnings results call is that we are very close to the. To the.

to the shutdown of our blast furnace in Ipachinga 3. And we will start the overhaul. And this shutdown of our equipment is scheduled for the upcoming days. And everything is going according to our plan. Our plan is being strictly followed as expected. from the aspect of intervention of equipment and a number of works are underway in the surroundings of the equipment, but now I believe we will intervene within the equipment and this will happen in the upcoming days and all the preparation regarding the inventory of semi-finished products i'm talking about plates in order to service our car our customers and our markets during the period will we will not have production of steel In Ipachinga, well, I believe that this is complete. So we have an inventory to fulfill this. The production of our plates, of our slabs are ready. So we do have a slab inventory to service the market according to our plan. And now I will show you in detail our figures. but I would like to highlight our commitment together with the published, with the ESG targets as we did in the past years. Here we have an... Some goals are an extension of what we had last year. Some goals are new goals. But once again, I would like to commit to highlight how committed our management is to these goals. All our goals are connected to personal or collective goals. Now I will give the floor to Chiago. Thank you, Alberto. So we will start with our earnings result. We always start with the highlights of the quarter. So during this quarter, the first quarter of 2023, there was an increase in sales. We would like to highlight the domestic market. This is 7% growth vis-a-vis the last quarter and 8% vis-a-vis Q1 of 2022. Well, a 35% increase in adjusted EBITDA and increase in all business units. This is something that we will see subsequently a cash generation of $764 million with a reduction in our working capital despite the increase in our slab inventory. Now our net debt dropped 75% vis-a-vis the last quarter, as well as the net leverage that is close to zero. And as Alberto already mentioned, the preparation for Blast Furnace 3 relining according to the plan. So the blast furnace will, in the upcoming days, will go through an overhaul. Now, the results, consolidated results here in the net revenue, there has been a drop in the consolidated net revenue during Q4 of 2023, mainly because of the a lower volume in the mining industry and a drop of prices in the steel area that we will give you more details after. And moreover, there has been a significant improvement in our EBITDA. We totaled 783 million BRLs in EBITDA with a significant improvement in margin that totaled 10.8%. We will see this in each one of the segments. Net income following the same trend, $544 million during Q1 in percentage. This is an increase in comparison to the past quarter, and the net profit was higher. Now, when we see the steel unit result that we already mentioned, an increase in sales, we total 1,035,000 tons of steel sold with an increase of 7% vis-a-vis Q4 of 2022 and an increase regarding the domestic market. Both in comparison to the last quarter and the first of 2021 net revenue, it was $6,390,000,000. This is a drop because of the drop of prices. And moreover, here there's a significant increase in the EBITDA of 438 million during the last quarter, which has been the best quarter in the past three quarter in a margin of 6.9%. And during the next slide, you can see more details regarding the improvement of our EBITDA. Here we can see the negative effect of price, which was overcome by the higher volume inventories and better costs, mainly cost of raw material and cost of slabs that were recently purchased. But this is a result of a more stable operation with less interferences and shutdowns. Now when we go to Mineração Usiminas in terms of iron oil sales, there was a significant drop during the first quarter, 1,883,000,000 tons impacted by internal and external factors. Here we can mention the intense rainfalls during the period. Rainfalls that weren't as intense as Q1 of 2022 nonetheless. there were production shutdowns and also scheduled maintenance shutdowns in our plants and now we are we believe that we will recover our production volume this is why we're maintaining our guidance for 2023 in terms of production net total net revenue 784 million also um downturn because of the lower volume, but we would like to highlight the revenue per ton that increased from $72 to $89 during this quarter, following the trends of the main market indicators, and within the EBITDA has also followed this growth. In percentage points, we total 254 million of EBITDA and mineração with a margin of 32.4%.

Now, soluções in terms of volumes.

Well, there is a stability vis-à-vis Q4 with 296 million tons in sales and a drop in the net revenue following the drop of prices. And also in the steel industry, there's a net revenue of 2 billion, 134 million, a drop of 3% vis-a-vis the past quarter. And likewise, as we see in the steel unit, there has been an improvement in the EBITDA margin. We have 3.1% and 65 million of EBITDA, mainly due to the steel purchases at more favorable prices. Now, our financial indicators. Well, number one would be working capital. I believe that this is one of the main highlights of the quarter. We significantly dropped our working capital due to two factors. One was greater concentration during Q1 of SLAP suppliers. which give us better payment terms and this but mainly the reduction of inventories of coke and coal this is a result of our team's focus now we've established a committee of raw materials since the beginning of the year where we constantly and objectively follow up the inventories and therefore we were able to achieve this reduction This is a temporary reduction. The blast furnace is in maintenance. There is the need of coke and coal diminishes, but then it will go back to normal levels. This reduction of working capital was achieved even with an increase of the inventory of steel because the buildup, we build up We had 449 million tons of slabs because of the shutdown of Blast for Industry. So we are very happy with this result with our working capital. Now our capex during the quarter of 580 million is slightly below our expectation in all the segments. Nonetheless, we do believe that the acceleration of investments will take place as of the second and third quarter. And with this, we will maintain our 3.2 billion guidance in terms of investments for 2023. With here, there has been an increase in our cash position, an increase of $764 million in cash with the main effects, a strong generation of our EBITDA, a drop in our working capital, which outperformed the CAPEX in the period. To end, our financial indicators. Here you can see our cash, our net debt. with this increase of cash we reduced our net debt to this is an effect from the leverage level that is 0.07, the EBITDA. And now we are in a comfortable position regarding our cash for 2023 and the debt amortization profile. We do have a comfortable position with the first relevant maturants only mature in 2026.

Now we are ESG agenda.

We always try to show you interesting highlights of the period throughout this quarter.

We've seen the first women in the company to work.

As locomotive engineers, generally this role was occupied by men and now we have 10 professionals that are working in the Ipachinga plant and this reinforces our commitment with the pillar diversity and the next slide. Our public ESG goals, there's more details you may find in our release, but I would like to highlight a few, like the inventory of greenhouse gas effects that will be concluded by September this year. The objective of 18 or objectives by 18% of women as leaders and and donation of 100% of the steel aggregated generated in 2023 to the Camino do Vale program that helps the administrations to use this aggregated. And with this, well, I end my presentation. And now we have space for our Q&A session that I believe that this gives more value to our discussion. Leonardo, you have the floor. So ladies and gentlemen, we will go to our Q&A session. Our first question from Daniel Sasson from . He asks if you can talk about the price negotiations with the auto industry in April. Thank you, Leo. Good morning. Well, as a matter of fact, the contract negotiations that were renewed As of April 1st, there's a drop of 12%. Now, the contracts that renew as of April represent 80% of the volume of the sales for the auto industry. We would like to highlight that the level of price drop is aligned with the negotiations of the contracts that were renewed as of January 1st.

Thank you, Miguel. The next question to Américo.

From Daniel Sassoon from . From from BTG. from Santander. Américo, they want to know about blast furnace three. What are the initial impressions?

What is going to happen here?

What was the performance of this blast furnace during April and what are the preparations for the shutdown? And is your plan following what was scheduled? Have there been any changes? And what is the execution of the shutdown of blast furnace three going to be like? So thank you. Thank you, Leo. Leo, Caio, and Rafael posed these questions. Thank you for your questions. As Alberto and Thiago already mentioned, the shutdown of the blast furnace three will take place next year, and now we have the this there is a blowout eight hours after it begins and it takes a salamandra is the remaining material inside the plant our planning continues we will The blast furnace will be of 110 days. We are ready for the shutdown. And according to operational follow-up that go before the blowout and the salamandra emptying, these are follow-ups of operational variables especially of the activation of cadmium to have a thermal flow that can withdraw the remaining material from the interior. And we have not identified any problems. Our expectation is that everything will take place as planned. Our next question to Miguel from Caio Ribeiro from Bank of America and Caio Monegagla from Morgan Stanley. Caio asks about export prices, both of them. So the revenue per ton was corrected during the quarter, and I believe that this is associated to volumes hired off. of plates, how do you see the evolution of this line? Then the next quarter, this would help us. And he, and Tiago talks about the steel export if these could be opportunistic measures and that helped in the prices in the past quarters or the second quarter expects a drop of prices higher than the ones from the international prices. Thank you, Caio and Ricardo. Now, point number one, that the variation of the export prices. is because of the worst mix of products. When you analyze the export sales in the beginning, 75% went to the Argentine market and part of the sales with the finalizations of the delivery of our projects that we already mentioned in the past quarter and 25% to the Asian markets. that our spot sales are connected to products of second quality generally generated by the technological drop of our processes this worse mix strongly impacted the average price of export as well we cannot it is important to remember that sales to argentina significant volume goes to argentina and they're connected to the auto industry and the argentine auto industry renewed their contracts as of April 1st. So part of our sales to the auto industry in Argentina already presents an update of the contracts that was carried out during the Q1 of 2023. Now, second quarter, well, we believe that we continue with good expectations to deliver to the argentine sector we want to export added value products to traditional markets supporting the industrial chains of the brazilian sector we will continue exporting to the auto industry in argentina this is important we are There isn't a special project. It's not opportunistic. We develop products of great quality for these type of projects. And it's important to highlight that although this project has ended its delivery, we continue delivering projects of regular volumes. And it's important to highlight that we have in our portfolio negotiations of important projects in this markets and the industry of oil and gas is presenting an interesting dynamic in the Argentine market and we continue in negotiations may turn into future deliveries.

Thank you, Miguel. Now we're going to group.

We have four questions about the same subject, costs. Everybody wants to know the steel cost expectation for the upcoming quarters and all, especially Q2. Questions from Kayo Gaynor from BTG Pactual, Ricardo Monegagli, Morgan Stanley, and Vanessa Quiroga from Credit Suisse. in addition to the cost expectation of the steel mill for the upcoming quarters and mainly the next quarter Caillou is as asking if it's possible to see a slowdown of these because because of the consumption of slabs that were bought during the Q4 at a lower cost than what Last Furnace 3 was performing. Could you talk about the cost of slabs and the cost that we will see during Q2 onwards? Thank you, Caio, Ricardo, Vanessa. As you know, we do not provide cost guidances. What we could say is the following. As of the shutdown of the blast furnace, we continue producing in the two smaller furnaces, but we consume more slabs in a rolling mill. And as you saw during this quarter, during Q1, there was a drop in the average price of the raw material, especially slab. And when we analyze the market indicators, it is clear that the trend of the average price of this slab is, well, it will increase because the market indicators point out to these actions in a nutshell, I would say that the expectation is that we will increase the average price of the slabs that we have in our inventory, and this will affect the costs during quarter two. Thank you, Tiago. The next question goes to you. It's about cost. Vanessa Quiroga from Credit Suisse is asking to elaborate. What is included in the line others? What we included in our release, which explains the lowest cost from the steel division, which is in the column of raw material.

What does others mean? Vanessa, to provide you more details,

to break out, I will have to break out these values and I can send them afterwards. But I can mention a couple of things. Can I help you here? I have my cheat sheet here. Vanessa, others, mainly we're talking provisions of stock adjustment, a drop in idleness because we reconnected blast furnace two during Q4. So there is less idleness. And the rest are others, but basically it would be these would be the two main reasons why these this figure was higher.

So.

A medical there is a question about coke he got the money gagley wants an update on the realization of the operations and the cost of the coke plants. Thank you for your question, Ricardo. We continue with the recovery plan of both coke plants. These are repairments that we have already announced in coke plant two. We have the hot repair. that has already been approved and will initiate in 2024 and then co-plan three. We are studying which are the best roads to follow for the definite repair and we will submit this for approval in the future.

So thank you, Americo. The next question is, for Miguel and for Thiago.

Rafael Barcelos from Santander is asking, what about the price dynamic for flat steel? What can we expect in margins for the steel unit on Q2? Thank you. Well, we have observed throughout Q1 a strong pressure of an increase of raw material increase. and this increases the international steel prices and the spot domestic prices with the evolution of the international prices, freights and strong pressure from the price point of view, we could expect a continuous increase of the prices of steel. Now, obviously, there are many variables and many uncertainties regarding the market. We are facing a challenging scenario in terms of demand. It is stable in terms of demand, but it is challenging because of high inflation, restricted credit, many reforms that will still happen, although there are many challenges in the domestic market, there are opportunities because of the improvement of the economic variables of the country. What we can expect in terms of prices is an increased And this is what we expect. We have to match Miguel's comment with the past comment. There is a trend for stability because of an increase in prices of the main feedstock for production during the next quarter. By and large, I believe we will not see major differences, but there is a possibility of tighter margins.

Thank you. Our next question.

Miguel, people want to better understand how we reach this guidance of the sale of steels. PB, Lupita D Montoya- Does this come from weaker demand or production restriction, this is from Ricardo Monica live from Oregon Stanley half file. and Vanessa. Okay, thank you, Ricardo, Vanessa, and Rafael. Well, guidance. It's important to highlight that we do not break up per segment. In order to explain our drop-in guidance, this is related to what has been mentioned. Our focus on export will be to regional markets and segments of high value. We can expect that the drop of guidance is connected to a drop of in exports and in the local domestic market as you are aware and we see a domestic market which is stable and we see this in the industrial distribution and auto industry are presenting consumption is stability And we expect Brazilian economy to evolve throughout the next months. In terms of production, that is part of the question. We don't see any restrictions in offerings because of the shutdown. The other way around, we are prepared. We've prepared together with our customers to guarantee that we will supply products to all of our customers and where we operate in the domestic and in the regional chains. the next question to is for chiago lucas young from jp morgan and gabriel simmons from goldman sachs are asking about working capital gabriel says that he expected greater exp greater pressure because of the inventory of slabs as this was offset by other factors Here we have taxes, coals, and supplies. It would be interesting to understand if you understand that these are more structural factors, there should be a reversion or part of this improvement in the upcoming quarters. Basically, Lucas asked the same question. What are the expectations of working capital during the upcoming quarters because of the shutdown of last furnace three, Thiago? Lucas, Gabriel, thank you for your question. It's difficult to talk in the long run because this is a year where productive configuration will undergo a number of changes, but for the next quarter, we can, we can give you some color that we do not expect a significant change in our working capital changes. The drops achieved during this quarter are structural. Therefore they will, they will remain. And there is nothing indicating a significant change for this quarter. For the rest of the year, we have to wait and we have to see what happens and what the overhaul of the furnace will be like. We have to see the market demand, but these are things that we will announce during the other calls.

Next question for Alberto.

Lucas Young from JP Morgan asked, which are the next steps after the acquisition of the group TTA as a majority stakeholder? Alberto. Lucas, thank you for your question. In this aspect, I believe that all our information were announced on the material fact of March 30. I have nothing to add right now.

regarding a shareholder's position. Our last question is for Carlos Rezonico.

Gabriel Simones from Goldman Sachs. Does the fund due to the price and benchmark of iron, or we were expecting a higher price than what you presented? In your results, could you give us more color and tell us why the price is different from the benchmark? Can we expect to see this in the upcoming quarters? Well, thank you.

Thank you, Gabriel, for your question.

When you see the revenue, you have to consider different factors that can impact this figure.

Amongst them, we have hedges. freight, premium prices of iron ore, fixed prices.

There are a number of factors to result. in this revenue. Nonetheless, there is a variation of 24% between the revenue of the last quarter of last year and the first quarter this year vis-a-vis 27% of international price variation. When you only consider rates, that in our case, in the revenue has an 8% lower impact you can determine that basically we were aligned with the international prices. Now for this month, we have to consider a level of 40% of fall value in their sales and our exports. These are values that can also change, but this has been the average in the past quarters. I believe that in the sense, We consider that we are highly aligned with the price variations. Thank you, Carlos. I said this was the question, but we have two more questions here now. There is one about demand. Isabella Vasconcelos from Baradesco BBI asks, could you give us more color regarding the drivers of the stability of in the domestic demand? Which industries are? are weaker which are stronger Miguel thank you Isabella for your question well by and large all the sectors are being impacted by credit restrictions and high interest rate this is a common situation for all the sectors by and large if we classify the steel consumer sectors that would be distribution, construction, and drive. Well, the growth is of 2-3% and this would result to a scenario or to a dynamic of production and sales similar to what we saw throughout the first quarter when we see the industry as well. Sectors that had strong activity levels, connected to the agribusiness stabilize themselves at a relatively high level in comparison to the history. Remember, we will have record crops With high interest rate, restricted credit and high interest rates are strongly impacting the growth of the economy and the consumption of steel in Brazil. We have opportunities. The reforms that are being discussed by our Congress and Senate, that would be the tax reform, the new fiscal rules and federal programs that can give incentives to investments can impact consumption and economy, and can impact all the sectors as of the second semester. This being said, we see stability in all the sectors that consume steel. Thank you, Miguel. Now, the last question. Kyle Greiner from BTG Pactual is asking about prices. Can you elaborate? the level of prices in march and the and the average during the quarter now the average price of march and closed the 1.1 1.5 percent below the average price of the quarter impacted by a worse sales mix we have we had already mentioned that special oil and gas ended ended the deliveries during the two first months so this mix will maybe remain we see this mix we believe this mix will be similar during the second quarter with no Major variations. Now we bring our Q&A session to an end. I will hand it over to Alberto so he can give us his final remarks.

Once again, I would like to thank all of you for your participation and I would like to highlight that we are focused.

on this major intervention in Ipachinga. We are prepared. We have been preparing ourselves for the past four years, and we do believe that we will be very successful in this undertaking. And after the intervention, not only in the blast furnace, but in the steel mill and other pieces of equipment that will that will suffer these overhauls. With this, as a result, we will have a significant increase in our competitiveness in the sustainability of the operations in Ipatinga.

So we are focused on this. Mm-hmm.

And you can see the importance that we are giving to this major intervention that is taking place in our main plans. During our next earning results, we will be able to give you more color regarding the situation of this overhaul of this intervention. Thank you very much. And we will see you during our next earnings results call. Thank you, Alberto. We thank all to your participation. Should you have any questions, the IR team is at your disposal.