Usinas Sa S/Gdr

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Zemina's teleconference, where we will discuss the results for the third quarter of 2023. I'm Leonardo Karama, Zemina's Investor Relations General Manager. For those that want to follow us in English, we have free translation of the webcast presentation. uh is available on using nina's ir website we also have an interpreter for simultaneous translation please choose the sound channel on the icon at the bottom of your zoom screen all participants are connected on listen only mon and question can be posed in writing in the zoom q a session this is an icon below on your screen participants who are listening in english can also post questions directly in this section this video conference is being recorded and simultaneously broadcasted on using mina's youtube channel please know that this video conference is exclusive for investors and market analysts we kindly request you to identify yourself For your questions to be addressed and for smoother proceedings, we request you to limit your questions to two per participant. We also ask any questions from journalists to be directed to the Uzi Minas Media Relations by 313-499-9312 or through the email imprensa.uziminas.com. Before we proceed, we would like to clarify that statements made during this video conference regarding the company's business prospects, as well as projections, operational and financial targets related to the growth potential, are forward-looking statements based on the management's expectations regarding uzimina's future these expectations highly depend on the performance of the steel industry the country's economic situation and the international market situation and are subject to changes with us today we have our president marcelo chada the vp of finance and investor relations thiago rodriguez and vp commercial vp miguel holmes initially marcelo will start with his remarks subsequently thiago will present the results subsequently questions from the q a session will be answered now i hand it over to marcelo marcelo you have the floor Good morning. Thank you very much. Today we're in Ipachinga with Miguel and Thiago. This is the heart. This is the industrial center. And here we're following up all of our operations. This has been a quarter mainly concentrated on the pursuit for operational excellence, continuous improvement in performance in all the industrial operations of our system. Mainly, we focused on the efficiency of primary areas. and we also had the opportunity and we we defined important definitions like in coke line three where we that was deactivated and it impacted it significantly environmental improvement and cause we have routines management routines focused on more control and the optimization of all the productive resources. I would like to say that we have concluded the realigning work of blast furnace through our main facility, which defines the productive capacity. Currently, we are carrying out all the necessary tasks. In order to begin the operation and in the upcoming days, we will be able to have the glowing or the effective production of the blast furnace 3. Now, this as we have changed our productive configuration with the integration of blast furnace 3 with this, we will be able to face the major challenges that we have in the market. The Brazilian market mainly. Well, this is associated to the enter of Chinese imports of finished products. In the Brazilian market, this negatively impacts on the industrial sector of the country. In terms of comparison in imports still in the apparent consumption of the country, The history of the last decade was 12%. Now, year to date, this has doubled. The income of imported products accounts for 23%. And what concerns us is that we've seen that these products have present sales value that don't compensate the cost. So we are before unloyal competition here. Now we see stability in the consumption of steel in the Brazilian market in 2023. This shows the resilience of the Brazilian economy. The GDP will grow between 2.9 and 3% with high consumption and strongly driven by the agro sector, but there is low performance from the transformation industry, strongly affected by imports. Now, this has dropped 0.7% and there are negative indicators in fixed capital. These indicators impact strongly the steel industry and all its value chain for 2020 for our expectations. And as we saw in the last focus result, the growth of GDP will be positive, but in half of But half of what we saw in 2022, and it is important to highlight, we need to strongly focus on the reindustrialization policies of the country. It's important to make progress in the reforms that are undergoing the Congress. And the contention policies against unloyal trade, just an example, what Europe has done with Safeguard and Mexico and the United States that tax all the steel products with 25%. We have to pay attention to this. This already was initiated by Aso Brazil with the associates that we participate together with the government and we have to resolve this in the short term to avoid negative impacts in terms of in the industrial activity of the country. that also negatively impacts the generation of highly qualified labor in the industry. I do thank you for your attention and Tiago, you may continue. Good afternoon. So we will start with the results of our Quarterly results. Well, here we have the highlights of the quarter. I would like to highlight the steel sales volume slightly above expectation. This is 1,000,002,000 tons. Now, they were 2.4 million. Now, consolidated EBITDA was negative 20 million, impacted by the steel segment that we will see in detail. We also had a strong reduction in working capital, and this is an increase of 780 million in cash flow. and the reduction in leverage was 0.21, and as the reinitiation of the blast furnishings will start in the next few days, here we have consolidated results. Therefore, the net revenue continues dropping, 2022 we had very high prices on q3 the revenue was 6.7 billion 2.5 below the past quarter now this drop in price is because this is because of the drop in price and this contributed with the drop of evita that was negative 20 million Net income was impacted by the operational and financial results, especially because the exchange rate, we had a net loss of 166 million reais. Now, when we see the steel unit results, the sales volumes presented an increase of 5% vis-a-vis the past quarter in the domestic and the foreign market, this total 1%. 1,021,000. There was a drop of net revenue because of the drop in price and a worse mix in the exports that included the sales of plates during the quarter. This impacted our EBITDA. We have a negative EBITDA of 251 million and a margin of minus 4% vis-a-vis 3.1%. That was last quarter. On our next slide, we will give you more details. It's clear to see what impacted the EBITDA during the quarter. And here we can see that the price mix effect was the main factor. power partially offset by lower cogs now the cogs drop is because of gains of efficiency during the quarter but because of the mix of sold products on the other half side the fixed cost of blast furnace 3 continues negatively affecting the results Now, on our next slide, we will see in it as some results. The sales volume is stable 2,391,000 tons net revenue. 793M realize this is below the last quarter due part to the. We have more sales with no maritime freight, but a worse mix quality. The EBITDA was 129 million, a drop of 2%, with negative impacts because of the mix and because of the appreciation of the rail. This is an impact of 10 million reais in the final result. Now, on the next slide, our sales volume was stable, 301,000 tons. Here, the revenue, 6,675,000. million reais three million below last quarter and the ebitda 28 million showing us a slight recovery vis-a-vis the last quarter because of the steel now now our financial indicators we will start with our working capital and inventory we are dropping our working capital during this quarter the effect was very important because of the drop of steel inventories Also, plate inventories because of the overhaul of Blast Furnace 3, but we improved the accounts of suppliers and also advancements from customers. On our next slide, we have our CapEx. The CapEx of the quarter was 886 million reais. This is aligned with our plan. And we continue with the expectation to end our yearly capex within the guidance that we already disclosed that was 3.2M. Now regarding our cash position, Great Impact was working capital 1,544,000,000. And now we have a cash position, which is sound for the company, highly robust. And this affects the indicators that we will see in the next slide, the drop in our net debt. and the maintenance of the leverage index of 0.21, which is extremely comfortable and no changes in our timeline of debt and our timeline regarding the amortization. This was our brief presentation. I will hand it back to Leonardo so we can start the Q&A session. Thank you, Tiago. Well, we will start now our Q&A session. Our first question comes from a number of analysts, Gabriel Simoes from Goldman Sachs, from Bank of America. Everybody's asking about working capital they want to know. how much of this changes as a result of the drop of the inputs and how much is because of the consumption of plates? And how do we see this in the upcoming quarters if we will see more releases in the upcoming quarters? Danielle asks, is this dynamic, if this additional drop of third-party, Slabs, can we see a liberation? And complete as if this release will be the peak in during Q3 in terms of slabs and what can we expect in the future? Thank you, Daniel, Gabriel, Guilherme. Now this quarter, the amount was major in this quarter because of the consumption of our slabs inventory. and the beginning of the operation of blast furnace three, as it still hasn't started, we have been able to better manage the coke and coal inventories. In our view, this quarter was the peak moment of the drop of our working capital. Our expectation is to have more drop next quarter, not as big as now, be lower because we ended the replenishment of the inventories after the operational blast furnace. Now the effect price and volume greater impact on the volume. We had a peak of over 660,000 tons of slabs. And with the drop of the slab inventory, the effect was on volume. In summary, our expectation is more drops, but lower than what we saw this quarter. Thank you, Tiago. Our next question, it's about prices. There are a number of people that want to better understand this, and I will try to merge these questions because of time. Gabriel Simões from Goldman Sachs, Rafael Barcelos Santander, Lucas XB, Guilherme from Bank of America want to better understand the price dynamic of steel in Brazil because of the drop of prices in the benchmark vis-a-vis the average of the third quarter. Should we see steel prices pressured on Q4? Do we expect a change in the sales mix dynamic or a cost that offsets this phenomenon? Rafael wants you to elaborate on the dynamic of flat steel in Brazil. What about the increase in China? Is there a partial normalization? in terms of profit for the steel mills in Brazil. So, and finally, Rosito from Bank of America wants to know if we can, it will be a downward review in the new contracts in the automobile industry. Good afternoon to everyone. When we talk about the prices on the end and the expiry of Q4, UZ Minas doesn't announce future event. These are prices in the distribution or spot negotiations on a monthly basis. In this sense, yes, there have been adjustments throughout the Q3, which impact the average price of Q3 when we compare. the price of September of the domestic market and the average price of the quarter, we can tell you that the average price of September in the domestic market was approximately between 3 and 4 percent below the price of the quarter. This is a carryover on the fourth quarter. Now, this is for the distribution sector and the spot market. as we always clarify the business to automobile industry one group as of january will be updated one as of april and other contracts of the other industrial sector most of these contracts continue are renegotiated every three four or six months that follow the trend of the price of the distribution sector. Now, regarding the mix, we don't expect major changes in the mix of Q3, vis-a-vis Q3 in the domestic market, but there can be an improvement of mix in exports during Q4. And we will present the result of sales for oil and gas, especially in Argentina. Another question regarding the automobile industry. Yes. Now, the auto contracts, the ones that will be updated as of January, we're negotiating it. Now it's too early to give you our guidance about the result. In our view, in the next 45 days, we will have had already concluded the negotiations and the contracts that are updated in January. They are 30, 35 percent of the car volumes. The other contracts will be updated in April. We still have not started these negotiations. Uzi Minas always looks for long-term partnerships. Our share in the auto industry is major. So because we supply a great amount of steel to the automobile industry in Brazil, first we have a long-term strategy and we see the current situation of the market and we also see the future expectation. The other question was regarding China. Of course, we have observed a very complex situation in the margins of the steel industries in China. According to some specialized magazines, we can see that in the past four or five quarters, the Chinese steel industries are operating with negative margins. We don't believe that the scenario will maintain. Because with sound material as iron, ore, and coal, this may affect, we may see an increase in prices of Chinese products. And this will positively affect the steel industry globally and in Brazil. Now a follow-up, because here we have some questions that people didn't understand very well. Can we expect a downward review in the contracts? For the automobile sector, most of our contracts are semestral and there is no update of contracts during Q4. For one part of the contract, we expect an adjustment on Q4 of 2023. All right, thank you, Miguel. Thiago, we have a number of questions regarding cost. We have Daniel Sasso from Itaú, Lucas from XP, and Mr. Rosito. The cost production that dropped on Q2 dropped 7% on Q3. Cogs per ton of Q3 should show a sequential improvement. Rosito asked the same question, what is the cost per ton if it will drop even more during Q4? And Lucas asked how to think about the evolution of these costs throughout the quarter, seeing the cost of inputs and the slabs and the improvements in our operations, something that we've seen on Q3. Well, regarding the cost, we have verified an improvement in efficiency in the two blast furnaces that are operational. We have to remember that blast furnace three will become operational in the upcoming day. The start of our furnace needs more consumption of raw material, so the indicators aren't the best during the beginning moment and during the ramp up. phase, which takes a number of months. So, by and large, during Q4, we don't expect to see a significant improvement. We will maintain our cost at levels very similar to the past quarter, but as we have already communicated, the expectation for 2024 is very reassuring because our blast furnace will be stabilized and we will be able to capture all the efficiency gains that we expect to achieve with the blast furnace three. Thank you, Thiago. Our next question for Miguel. Gustavo from HSBC. He wants color regarding how you see the steel demand, the flat steel demand for Q4 and Q1 of 2021. Well, today we see stability in the steel consumption, I would say that is highly stable in most consumption sectors. We could highlight some sectors like oil and gas. We have greater levels of bid, but there are ongoing projects that will demand more steel in the upcoming quarters, not only Q4, but only Q1 of 2024. And the agro-storage area is increasing. and the naval industry for agro and fuel transportation. So by and large, we see stability and more stability in consumption. Going back to costs, we have two questions. One from XP Bank of America regarding blast furnace three. They want to understand what is the improvement that you expect with the conclusion of the overhaul of the blast furnace? If you could give us an update regarding the overhaul and what level of efficiency do you expect as soon as it becomes operation? Now, the inventory of slabs, is it enough? Right now, Lucas Guilherme, it is difficult to give you an accurate value because there are a number of factors that affect the production costs. One, the productive configuration that Z-minus will have. will depend on the market with the market demand. We do our numbers to see if we continue producing with 3-2 furnaces, the cost of cost and quality of raw material affects the cost with all these variables, it is very difficult to see a drop. We have high expectations. Well, we believe in a significant drop of cost as soon as Blast Furnace 3 becomes operational. This furnace was operating It was around 2M tons, and it has capacity of 3M tons. So we believe that we will increase our productive capacity, increasing consumption gains, diminishment of fixed costs. so we are not going to give you figures we will just tell you that a cost reduction will be important as of the next quarter i would like to add that as Tiago just mentioned with this furnace, we have a configuration of three furnace. An important fact is that we have carried out significant technological improvements in this furnace. I'm not going to give you details because this would take a long period of time. This is a furnace that is state-of-the-art furnace, but just But we have to see the level of imports of steel in the market. Perhaps we won't be able to operate with three full furnaces because of the record level of imports that has been almost 5 million tons this year at prices with negative margins. this doesn't only impact the steel industry, but also the value chain. Can you imagine what this means? The steel products that are coming in from China, they are the... Here we have a deficit of $40 million in our trade balance. So we... We just carried out a major overhaul. The ramp up will start in the upcoming weeks in the beginning of 2024. We will clearly see the benefits of this overhaul, but if the level of imports continues this way, we are not only assessing how many furnaces will operate, but we're redimensioning our industrial operation. You also mentioned the importance of the approval of reforms that are undergoing our Congress. I would like to make a brief comment regarding our tax reform. And the report that was announced by the Senate recently, we believe that the proposal is better than what we have today. So this proposal is still a significant proposal and the impact will be positive in the economy by and large. What concerns us a bit is number one, when you start When you establish too many exceptions to the rule, like the simplification, what concerns us is selective taxes. Selective taxes that may impact inputs from the industry, which generates jobs. that goes against the principle of tax neutrality. And when you have a selective tax on fuels and minerals, this can affect the industrial chain as a whole. And this affects the competitiveness of the Brazilian industry. This is something that I believe that we should highlight from Marcelo's statement. Thank you, Thiago. Miguel, once again, Let's elaborate a little bit more with the auto industry contract from . They want to know about the negotiations with the auto sector for the April contracts that should have been reviewed in October. And he wants to know what is the dimension of this review for Q4. This is regarding the high volume that you mentioned. I want to highlight something. There are no current negotiations or no contract update. The contract will be updated in January and April. What we are going to do and what we're going to present on Q4 are adjustments or new conditions that are predefined in the negotiations of the past for the contracts in January and April. In this case, approximately one through third of the contracts will receive an adjustment of 5% on Q4. So I believe that now this is clear regarding our contracts. Now the contracts will be updated, 40% of the contracts as of January. This negotiation is underway and 60% of the contracts will be updated as of April. These negotiations have not started, but we believe that we will begin this on Q1 of 2024. Okay, thank you, Miguel. Our next question for Thiago , he wants to know about the profitability of the steel unit in the upcoming quarter, quarter four. Thiago. Well, as I said, in terms of costs, we see certain instability in comparison to Q3. And Miguel mentioned the difficulty and told and showed us the sale scenario. Well, we believe that it will be a difficult order, but we are focused on the future after we go over. the cost impacts and will we in the future, will we have a future outlook for next year? We believe that quarter four will still be a difficult quarter for you, Uzi, Minas, but according to our expectations, but we have a more positive outlook during 2024. One more question for Miguel from Daniel Sasson BBA. He wants to know about the imports. When do you expect to see the drop of steel levels in Brazil? How is the competitive scenario? Is there is space to increase prices in the short term? Then when we analyze the Chinese situation, we see different variables. On one side, the Chinese production in September significantly dropped vis-a-vis the past month with a drop in production with an improvement expectation of the consumption indicators of the domestic market. especially driven by infrastructure projects and some renewable energy projects. We could expect a drop in the upcoming months of Chinese exports, so this diminishes the imports in Brazil. Now the international trend has a different dynamic. So, until the end of the year, our view, we can expect a drop of steel imports in Brazil. In the middle of all of this, we have a scenario that is a strong, unloyal competition regarding imported products coming into the country, and we expect measures in order to balance and minimize the impact of this unloyal trade in all the industry and all the steel chain of Brazil. Regarding a competitive market and increase of price, we will continue monitoring the steel industry. There's strong pressure on cost and this could be reflected in an improvement in margins in the upcoming months following the international and local situation. Thank you, Miguel. Our next question for Thiago from Rafael Barcelo Santander. He wants to know about CAPEX, Thiago. He wants to know if you could talk about CAPEX expectations for 2024. Well, we are in the middle of our budget, so we don't have an approved figure here, but the expectation is a lower capex than this year. That was an exceptional year because of the Ipachinga plant. We don't have a figure, but the expectation of our capex is that it will be lower than what we had this year. Next question for Marcelo Rafael Araújo from Devolve Capital. He wants to know about MOSA. What about possible projects in iron ore? Well, iron ore for us is strategic and mainly in Musa because of the characteristic of the reserve because their iron ore is extremely pure and our focus in the mid and the long term would be decarbonization and the quality of iron ore is vital. Therefore, it is a priority for us And we want improvements, improving our efficiency, guaranteeing the necessary iron ore for our growth project. We feel highly reassured, and we're going to focus on this. Thank you, Marcella. Marcella. One question regarding the blast furnace. What about the costs? from RPS Capital. She asks about the cash cost per ton of steel unit if there will be a drop during Q4 this year. If not, when can we see the efficiency gain after the overhaul in the company result? Paola, as we mentioned, the expectation is to see the effect as of next year, the cash cost of Q4 should present. An improvement of the furnaces in operation today, but worse indicators of less for industry that will be in the ramp up state. We believe that in. In the mid run, the cash cost of this quarter will be the same or. Stable to, and we will see an improvement as of Q1 of 2024. Now we have our last question for Marcelo. We are going to group a number of people that ask practically the same thing about import tariffs. We have Rafael Marcelo Santander, Guilherme Josito Benkoff, Amira Gustavo, 1HSBC, and Mateus Moreira from Bradesco BEBI all want to know about the import tariffs. your view about a potential increase of import tariffs in brazil if we can see this this year if the 25 percent that have been mentioned are is this feasible and without this increased is it possible to think about an increase in price in 2024? And Mateos also asks if the evolution of the import of flat steel, what do you expect in the upcoming months? Lower domestic prices can prevent the import to increase, or do you believe that... We will, if the Chinese imports will still come in very easily. Well, let's say Mexico decides to close or to place tax barriers at 25%, the U.S. 25%, Europe safeguards 25%. As Miguel mentioned, there's a difficult situation in the Chinese markets. So where is this finish still going to go? This is going to the countries that are unprotected. Brazil is amongst the 10 greatest economies in the world. It's a market reference. They can't go to Mexico. So they come to Brazil. Competition is unloyal. And why 25%? Because Europe, because Mexico and US established 25%. So we are not different. If we don't do anything different, they're going to they're going to bring steel that doesn't match the cost, the real cost. This is negative. We wanted to hire 600 people this year. We haven't contracted these people because of the number of importers. We closed a center in Sao Paulo. So once again, we, we, are concerned and also brazil is is adamant regarding this because this impacts labor now as of this our expectations for 2024 are would be cautious follow-up and see and how the economic dynamic of the country will develop. The growth will grow half of 2023. It's important to adopt actions in order to prevent greater damage to all the industrial network in the country. When I say the balance of industrialized product has the impact, we're not talking about 5 million this year. You can multiply this by two. We're talking about manufactured products that come with this steel. This is Chinese labor that replaces Brazilian labor. We don't want protection. We want to level the playing field and we don't want unloyal competition. I believe that the government has to do something about this. Thank you, Marcelo. I said that this is the last question, but we have a last question that is important. asks about the integration with Tenno. What can you talk about the Tenno turnaround project and the new company management? Do you have a diagnosis? Do you believe that the plan the will be CapEx intensive or will be more processes slash management. Marcel, well, as I have already mentioned, during the three first months, the focus, as we are, you can, you know, the fact of being a Ipachinga means something. It's not by chance, it's systemic. We are strongly focused on following up the management in detail with KPIs, with benchmarks, and we trust the turnaround of the company. This will take some time. Now, human resources that we have in Uzi Minas, this is a company that has an extraordinary capacity to develop talents and level of commitment because they identify themselves with our brand. And Uzi Minas is a market reference in management capacity and in our share. our shareholders. We have Nippon Steel with technical capacity. We are reassured and we are within a strong transformation process that is strongly focused on improving efficiency. Intensive CAPEX is connected to the agenda that is connected to the environment. with industrial efficiency with sustainability by which what i can guarantee is that the capex plan that we expect is strongly linked To consolidate to consolidating the productive processes in all our productive dimension, because we want to see how to improve our service level together with our customers, integrating a number of processes that can increase our. our capacity to service and to show our added value. My message here is we are focused on improving our efficiency and improving our profit to improve our integration together with the communities, taking care of the environment and operational safety and strongly focused on meeting the requirements of our customers. We want to be competitive and close to their needs. We have an encompassing and challenging agenda. Nonetheless, we are optimistic regarding the evolution And now we concluded the overhaul of the Blast for Industry, and we are within a startup process. Thank you, Marcelo. So now our Q&A session comes to an end. We would like to thank all of you for your participation. Should you have further questions, our investor relations team is at your disposal. A good afternoon to everyone.