Usinas Sa S/Gdr

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the UZI Minas conference call in which we will discuss the results of Q2 of 2023. I am Leonardo Karam, Investor Relations General Manager. To those who want to follow us in English, you will find the translation of the webcast presentation on the Yuzumi Nazair website. We also have simultaneous translation to 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 made 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 Uzi Minas YouTube channel. Please note that this conference call is exclusively for investors 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 participant. We also request that any questions from journalists be directed to the media's medium relations by phone 313-499-8919. or by email imprensa.uziminas.com. Before we proceed, we would like to clarify that forward-looking statements made during this conference call regarding the company's business prospect as well as projections operating and financial targets related to its growth potential are forecast based on the management's expectation of UziMinas' 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 is subject to change. With us today is Marcelo Chara, our President and Vice President of Finance and Investor Relations, Tiago Rodrigo, and Miguel Holmes. initially Marcelo will begin and then Chago will present the results after questions will be answered I give the floor to Marcelo good afternoon it's a pleasure to be here today I have been spearheading Yuzimina since July 4th, and I am happy to be here in this deep transformation process. This is a transformation process because we are undergoing reforms. which are extremely complex in our Ipachinga plan. We have carried out a structural change in our blast furnace three. Our works are underway. We've changed the fuel system, a number of things. This is a very encompassing restructuring and carried out carried out by our professional teams. There are also interventions in the steel mills, like in the primary refiners and other facilities that we have in Pachinga. after these interventions come to an end, we will clearly have more production and more competitive production. There will be fuel efficiency, which is connected to our decarbonization agenda. And together with our rolling mills of of hot rollers, we will be competitive. In the Brazilian market, now speaking of markets, there is a slow demand. During the last press conference, I announced this and we are concerned and we are seeing some factors as the high interest rates the finished product imports from China that have significantly increased. This causes concern and we are paying attention to the evolution during the second semester to this point. Therefore, our main point within this stage in addition to all the interventions we are developing a strategic plan that is strongly focused to improve operational efficiency of our industrial equipment and our industrial processes. and strongly focused on excellence the preservation of the environment and careful regarding our processes we have a positive prospect there is a positive prospect for 2024 because we believe that all our interventions in the upstream of the industrial system will be finished, and we believe in Uzi Minas based on its huge potential, based on its products of high added value, as well as the potential and the ability that our team has and that our company has in all the processes. Now, I would like to give the floor to Tiago so he can talk about the results of Q2. Marcelo, welcome. It is a pleasure to have you in our conference call. I believe that you will contribute to the growth of Usiminas. Here we have a brief presentation of our quarterly results and then we will go to our Q&A session. Here we have the highlights of the quarter. Despite a slowdown in the demand in segments, the steel sales volume within guidance is with 972,000 tons recovery of iron or sales volume compared to Q1, which was impacted by the rainfalls in the region and there were scheduled shutdowns and there were 2.4 million tons of iron ore maintaining our guidance in terms of iron ore sales. Consolidated EBIT of 366 million. It was impacted by lower prices in mining and lower costs and greater costs in the steel mill. Working capital, there has been a drop because of lower slab inventories and also there has been a drop in accounts receivable. The net leverage net debt over EBITDA is 0.38. There were greater margins and more cash consumption during Q1, but we're in a comfortable level. The revamp of Blast Furnace 3, as Marcelo mentioned, we are at the right pace, although we have updated the return of the blast furnace in September. And this quarter, we're beginning the works of the de-characterization of the Samambaya Dam. And during the next quarters, we will talk about the evolution of this de-characterization project. Now we have the consolidated result. Let's say the net revenue is $6.9 billion with a drop because of a drop in prices in mining and in steel, which also contributed on a drop of an adjusted EBITDA of $366 million with a drop in all the business areas that we will see. And there was a net income of $287 million. Now, per segment, we start with steel units. The sales volume, there's a drop of 6% vis-a-vis the last quarter, but with a better product mix. Therefore, the revenue per ton is stable when we compare it to Q1, despite the drop in prices in a number of segments that we will be able to observe. The EBITDA of 74 million, a margin of 3%. and 7% last year. This is an important drop with other impacts that we will see in the upcoming slide. Mainly, in addition to the effects of price mix and volume, In addition to the effect of price and volume, there has been an increase of 2.4% in the cost per ton, especially at the adjustment at... the market value and there has been late higher cost in terms of idleness and the expenses we have expenses with idle equipment regarding the blast furnace 3 now Minera San Jose Minas the sales was 2.4 million this is a recovery after the first quarter that was impacted by rainfalls and maintenance scheduled We had an increase of 15% vis-a-vis the first quarter because of greater sales and greater sales with maritime freight, the EBITDA of 147 million. Here we can see a drop from 32 to 16%. This is not only by the market price, but also because of the price of the freight and the exchange rate in the period. In solutions, the sales volume was 3% higher than Q1. The revenue per ton of 6,910 BRLs, 4% lower than Q1. Now, the EBITDA was practically null because of the value of the stocks that were acquired at higher prices and resold to the automobile industry with the prices updated after the renegotiations during April. Now, when we see the financial index, working capital and inventories working capitals drop with 9.4 billion rails a drop of 400 million visa vq1 because of the reduction of the slab inventory and also here we can see the slabs that are directed to the revamp of last furnace 3. And during Q3, we will recover our inventory. Iron ore, coke will be seen here. The capex. Here we're talking about 879 billion when we see the accrued values, we see 1.5 billion in line with our plans. Now regarding revamp of blast furnace three, we are also aligned with the revamp of the blast furnace. Now our cash, there was a drop of $896 million with the working capital of $770 million, offset of the cap is of $879 million. and dividends pay out of this is mining steel unit from 2022 that was distributed this year end to end. Now regarding our net debt, the second quarter was 965 million because of the drop of the cash flow, but it was offset by the drop of our debt in dollars. So with this, our Our leverage went up 0.38 and the debt profile that will mature in 2026 and we are not concerned about this currently. So this was the brief presentation of our results and I will hand it back to Leo so he can begin the Q&A session. Thank you, Thiago. we will start our q a session our first question uh is for miguel miguel daniel sasso from itaú and morgan and carlos de abo from morgan stanley want to know about prices he wants what is the price of HEC in Brazil, but premium vis-à-vis imported products are hot. Now margins are compressed and it is difficult to provide discounts. Carlos de Alva wants to know about the market outlook regarding steel. Good afternoon, Daniel and Carlos. I believe that your question is important to explain our current scenario in the Brazilian domestic market. The prices have remained relatively stable in the past months despite the pressure of the high amount of imports. It is important to highlight the following. When we talk about a premium, we do have a higher premium than the historic average. Now we have to highlight the following. The price of imports that we see mainly rolling mill products that come from China have presented, according to reports made by specialized magazines, they present a A history of negative margin in the last 12 months. China, in the past seven years, these indicators presented a margin of $50 and $150 per ton. Now, during the past 12 months, the Chinese steel mills are working with negative margins. So now we will not follow this trend to operate during long periods with a negative margin because this would be unsustainable. So this premium is important to analyze because today this measurement, although it is above average, these are reasonable values. When we adjust it to positive margins in the market, we feel pressure by prices. The margins are compressed, and we see relatively stable prices in the future with no major variations. Any variation should be aligned to variables that will impact the cost, being iron ore or coal. Thank you, Miguel. For you, Miguel, again, we have Enrique Marquez from Goldman Sachs and Caio Ribeiro. Goldman Sachs, they want to know about the auto industry. What were the negotiations like? Do you have an update? What do we expect for the second semester? Because we're talking about semestral contracts. What were these negotiations like in July? Enrique and Cayo, most of the contracts updated throughout 2023 are semestral. Now, when the contracts ended in July, there have been no changes in the prices for the third quarter. and for the contracts that mature. In September, we are starting the negotiations. This being said, we will not see any changes in the prices for the auto industry on Q3, and as of Q4, we're still in the middle of negotiations. Thank you, Miguel. Now, Marcelo, questions regarding Blast Furnace 3. Our investors want to know what the revamp is. Here we have Itaú Sasson, Caio Ribeiro, Bank of America, Carlos de Alva, Morgan Stanley, and Mr. Barcelos from Santander. Everybody wants to know the revamp evolution. And there are more specific questions. How will this impact the margin after the conclusion? And when will it be up and running? Marcelo? Thank you for your interest. Just to give you a practical reference, our Blast Furnace 3 is like a 30-story building that has a basement. It was totally assembled and we are rebuilding it. And you do this with carbon blocks that were bought years ago and this is underway and it's working. Now the body of the blast furnace are the three 30 stories. Can you imagine to cut in three segments the 30 stories? to take away and to put in totally new three segments of 30 stories. We've imported special equipment from Europe in order for lifting, and we have had extremely complex welding. And this has been in preparation for months. This has been executed successfully. Can you imagine? The top of the building was totally changed. The top, the upper part of the glass furnace was totally modified to incorporate state-of-the-art technology that will allow will allow more efficiency with fuels, especially coke. Now we have a low distribution system that is amongst one of the most modern in the world now, the regenerators, that is the heating or the cooling system of the building. Here we have three regenerators with complex structures. and they were replaced totally the top of the three regenerators have been completely replaced what do i mean this work is extraordinary in terms of complexness and it is and it is underway of course this type of project where you have thousands of people working is complex but everything is running as expected in this type of project impact well this blast furnace ended a 24-year campaign at low production levels after the revamp. It will be one of the most modern blast furnaces in the world because here we have state of the art technology and efficiency production will increase. and it's going to improve the fuel efficiency. And when you consider that the cost in our industries are closely connected to iron ore and fuel, we will see that as we carry out the adjustments in the blast furnaces, we will see improvement in costs. marcelo just carlos wants to know after the what is the ramp up time once the operation begins as i already mentioned here we're talking about industry mature processes and it can take a couple of weeks we're not talking about days and there and there are very rigorous processes to adjust each one of the new components that are being incorporated so So during the first weeks, we will be able to complete the ramp up. That will be during the month of September. Leonardo, I would like to add something here. the total impacts of the blast furnace projected cost. We believe that we will see the results during 2024 because the ramp up can take weeks or months. So until the production goes through the P&L, we believe that we will see the results only in 2024. Our next question for Miguel. Miguel Rafael Barcelos from Santander wants to know what can we expect in terms of volume and prices in terms of flat steel for 2023? Miguel, you're muted. Can you hear me? Although we don't announce future events, we are seeing stability as you could see in our guidance. We are prioritizing in our exports, our regional markets, contracts with the auto industry, mainly in Argentina. that follows the contracts of our domestic market. There are no price variations for contracts during Q3. And our exports during the second semester will remain very similar. Our next question for Tiago. Tiago, Enrique Marx from Goldman Sachs wants to know about working capital. What to expect in terms of working capital because the revamp will end at the end of Q3, as I mentioned. We dropped our slab inventory. We have iron ore. Coke and coal, we will recompose it. There will not be a significant drop in working capital from here on. There is a group that wants to know about Carlos de Alba, Carlos Grainer from BTG, Marlon Cunha, Rafael Barcelos from Santander. They want to know what are the cost expectations for steel units and mining. And Caio. He says that the cash cost of steel unit increased significantly this quarter. Will we expect the increase of cost of sole products? And he wants to know if with the dropping prices, we will see negative margins during the third quarter. Thank you. I'm going to try. We don't give you cost or result guidance. as i mentioned that production cost will continue stable at the levels of today there is no indicator that shows something different although the cash cost went up during this quarter it dropped during the last month of the quarter so there is an expectation of instability in moza In reality, there was no increase in production costs. What we had was a greater volume of great sales with CEAP, but this was offset in our revenues. I think I covered everything. Now from Miguel, Carlos de Alba wants to know about Soluciones Usiminas, what can we expect in terms of results during the second semester of this year? How do you see this market? What is important? The impact of solutions will be impacted by the adjusters of the values of the adjustments of the contracts of the auto industry contract, because 50% of them are focused on the auto industry. We will go back to historic margins, and we've had positive impact because of the revaluation of those contracts.

Okay, Miguel.

Thiago, our next question from Vanessa Quiroga from Credit Suisse. She wants to know about the tax reform. Can you elaborate if there will be a negative impact from Article 20? Thiago? Vanessa, thank you. Well, number one, by and large, or what they are drafting in this reform is positive for the industry. They've made a lot of progress because there is reimbursement of accumulated credits, a simplification process, the end of the fiscal war. And Article 20 is an article that puts at risk the end of the fiscal war because some states... or the states to create differentiated taxes for some sectors. Although Article 20 doesn't directly impact the industries in Minas Gerais, there can be an indirect impact. We believe that this is a matter that has to be furtherly discussed and to maintain. and to focus on simplification, the end of accumulation and fiscal war. I believe that this article should be rediscussed, and this is our position, to rediscuss this article, to reanalyze it. Our next question for Miguel. Reinaldo Verissimo, he wants to know about imports. What will Uzi Minas do if the imports don't improve during the second semester? Reynaldo, there are different alternatives. One of them to work hand in hand with our market partners so that we don't lose space because of imports and more institutional action. That is, we have to work with Aso Brasil to understand what would be the position together with the public organizations to balance the situation. because to compete with imports with negative margins they are not meeting international trade practices so we have to work hand in hand with our main partners from the domestic market increasing the quality of our services and going straight to the to the steel producers from the market Miguel, another question for you. Prices. Luis Perman from Capitalo wants to know about the differentiation of steel prices between June and... This is important. The average price of the domestic market for June was approximately 3% lower than the average of the quarter. So this... this is a result of the auto industry contract and because actions in the network and some updates in industrial contracts that follow the trend of the distribution prices thank you miguel marcelo the next question from kyle grander he wants more information about the revamp of glass furnace 3 he wants to know if if the deadline if you are working And what about the deadline? Will it end according to the deadline? What about costs? Are you spending more than what you expected? Thank you, Caio. the 110 day deadline has suffered changes since the beginning. Because what I mentioned, we had to extend, there was an extension of the deadline, there was a reduction. Now we've extended. again but it is aligned and this is expected in in a work of this magnitude we have excellent managers with excellent with lots of experience and they follow everything up online and and let's say, and we have adopted contingency measures and we have adopted contingency preventive measure so that our stocks like, and because we will fulfill our commitments with our customers and there's no risk here. So, There have been a number of delays that are imaginable, but everything is according to our plan. And Caio says he asks about the capacity of the blast furnace. Will they go back to its nominal capacity that was 3 million? What is the run and at what run rate the blast furnace was operating when it was shut down? It was operating at 60, 70% of its nominal capacity. Its maximum productivity had been limited because it already existed for 24 years and because its heart was weak and we had to preserve its life. After this complete revamp, and this is what I mentioned, In my answers, the gain of productivity is significant when we compare it to the nominal capacity. Our last question, Marcelo, is for you. It is regarding your initiatives as the new company CEO, Carlos de Albo and Rodolfo de Anges want to know what will be the main initiatives in the short and mid run and what changes in terms of focus slash strategy with you as a CEO Industry excellency is of utmost importance because this is the basic demand of our customers. Our customers request sophisticated, sustainable products. Our shareholders, the community, and as we share an area where thousands of people live, public authorities, the employees, the industrial excellency, excellence performance in the steel industry requires a strong management dynamic that focuses on the variable impacts and we should take care we focus on taking care of the environment what we see and what we don't see because we want to be good neighbors of the surrounding communities, the development of practices for people's safety, safety processes, and to focus on an agenda that is associated to this type of performance. requires granularity and requires the incorporation of management tools so that our teams can fully use their potential in using meanness the best so the best practices in Yuzimina so that we can grow in competitiveness and sustainability. And there is an important agenda that is industry decarbonization. The steel industry impacts between three and 4% in the world, 78%. And the great challenge here is how to reduce the emission of greenhouse gas effects, especially in the production of steel. And in Brazil, the steel industry is highly competitive and it is strongly concentrated in traditional process, and part of our agenda is natural gas. If we would have competitive natural gas at competitive prices, not the prices that we pay today, if we could use the pre-salt gas, if we could increase the energy interaction with other countries of the region, This would be a combo of solutions, of policies that could be used in order to use gas as a transition fuel when we think about decarbonization. This is an important matter in our agenda. That would be how can we articulate and how can we foster the development of this important fuel. Thank you, Marcelo. So our Q&A session has come to an end, and we thank you all for your participation. Should you have any questions, our IR team is at your disposal, and perhaps we can answer questions that perhaps weren't answered during our conference call. Thank you very much for participating.