Usinas Siderúrgicas de Minas Gerais S.A.

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Uzi Minas conference call in which we will discuss the results of Q2 of 2022. I am Leonardo Karam, Uzi Minas IR General Manager. To those who want to follow us in English, you can find the translation of the presentation on the Uzi Minas IR website. We also have an interpreter for simultaneous translation. Please select the sound channel on the icon on the bottom of your Zoom screen. All participants are connected on listen only mode, and your questions can be posed in writing in the Zoom Q&A session. This is the icon below on your screen. English speaking participants will also be able to ask their questions directly in this section. This video conference call is being recorded and broadcasted simultaneously through using Mina's YouTube channel. Please note that this conference call is exclusive for investors and market analysts please identify yourself for your question to be answered. And for the sake of time we asked to limit to two questions per participant. Now questions from journalists should be forwarded to Uzi Minas Media Relations by phone 313-499-8918 or email imprensa at uziminas.com. 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 regarding its growth potential are forecast based on the management's expectations regarding Usumina's future. These expectations highly depend on the performance of the steel sector, the country's economic situation, and the international market situations, and therefore subject to change. With us today, we have the Executive Management, our CEO, Alberto Ono, Vice President of Finance and Investor Relations, Thiago Rodriguez, Industrial VP, Americo Ferreira, VP of Corporate Planning, Gino, Rita Agliacci, VP of Technology and Quality. Toshihiro Miyakoshi, Commercial VP. Miguel Holmes, the CEO of Mineracion Usiminas. Carlos Rezonico, the Executive Director of Soluciones Usiminas. Leonardo Zenobio, the Superintendent Director of Usiminas. Mecanica Fernando Mazzoni, Initially, Alberto will begin with a few remarks. Soon after, Thiago will present the results. Then the questions made in the Q&A section will be answered. Now I give the floor to Mr. Alberto. Alberto, you have the floor. Well, good morning to everyone. I thank all of you for participating in our earnings video conference call for Q2 of 2022. I would like to highlight from our second Q results, number one, I would like to mention an evolution in performance in all our business units. our EBITDA increased 24 percent this quarter vis-a-vis last quarter and all units have contributed positively this is something that I wanted to highlight what is interesting when we see the steel unit is the sales volume in the domestic market which has improved despite all the volatile scenario throughout the quarter And as a consequence, because of the domestic market and the international market, especially when we see the conflict between Russia and Ukraine has been affecting us in the supply of raw material, price, international prices, steel, logistics. This is a quarter where there was a lot of volatility and challenging aspects, but I believe that we have been successful and we're delivering good results. I would like to highlight during this quarter we have renegotiated our our debt we have dropped our debt the here we had a 700 million rise of adventure that matured in 2023 our debt has been extended as well this is interesting because we have a longer term and with lower costs so this was also interesting another aspect that i would like to highlight of the quarter was was the last payment parcel regarding the dividends of the results of 2021 of 634 million reais if we add all the dividends that were paid out regarding last year's results i believe we have 2.1 billion reais as a result that is the greatest dividend payout for one year in our history so i believe this is a very important point that we should highlight and i and i just wanted to highlight that this was realized during the last quarter during the quarter when we also analyze RESG initiatives in our sustainability report regarding 2021. Well, it was launched in April. And here you can clearly see all of our initiatives and everything that is being done regarding sustainability in Uzi Minas. This is a point that is important and we have been able to demonstrate what we have done throughout q2 and finally before handing it over to chiago yes we had positive highlights during the quarter despite challenging moments throughout the period and this is a result of the team's hard work all teams are totally focused on the performance on delivering results and also focused on adapting ourselves to the scenarios because this is a volatile scenario this is teamwork and with this we have been able to deliver good results thanks to the team thank you very much i'll give the floor to chiago thank you alberto thank you to all that are here it's a pleasure to be here in my first video conference call together with the executive management let's go straight to the presentation we start with the highlights of this quarter we will start with the steel unit sales volume here there has been a crease in the domestic market in terms of value it is important because this is a mix of greater added value that brings more margins. There was a slight drop of 4% that shows a stability on our sales volume. Now, when we see iron ore sales, there has been a significant increase vis-a-vis last quarter. strongly impacted by rainfall rainfalls in the southeast regions but when we see past quarters these 2.3 million tons represent a very significant volume which is above average when we compare it to past quarters now our adjusted ebitda as alberto mentioned this is a significant value this has been a good quarter, 1,930,000,000 RAS with a margin increase of 23%. And in the next slide, we will see an increase in absolute values in all business units. Net profit didn't follow the increase of the EBITDA because of the exchange rate variation, which affected us in dollars. here we have the adjustments the habitat margins per segment here the consolidated result here we can see that the margin it has normalized here we start with 2021 that was an exceptional year because of the recovery after the worst moment of the pandemic in terms of stock but this margin of 22 percent compared to the past is a positive margin Now the steel unit and a bit of 1,400,000 with the margin around 18%. Once again, as we already mentioned, this was positively impacted by the good prices of the period and a better sales mix focused on the domestic market. Now mining unit in an absolute terms, there has been an increase in EBITDA due to the volume, as we mentioned in the past slide, but with a margin drop mainly impacted because of the cost of export freights. and during q2 we exported over 90 percent of our iron ore volume and cfr now solution now in steel transformation positive effect of the prices of the quarter and the sales mix now following two other financial indicators Now we go to working capital that had an increase of 14 percent during this quarter because of the prices of raw material, which affected the entire chain. So the value of finished products impacted accounts receivable and a small part of in volume of raw material. Here we have homework in order to drop our working capital in the upcoming quarters. We cannot forget that there will be an increase in working capital, especially during the last quarter of the year, because of the inventory of slabs for the refurbishment of blast furnace three. Here we can see steel inventories, the controls are controlled, and this is around 63 days of inventory, which is very ideal for this moment. Now our next slide. Here we have our net debt. When we compare it to Q1 and Q2, there was a cash drop of 1 billion Reais. It's important to mention to the generation of operational cash was positive above 600 million offset by a capex that we have already accelerated. We've seen this. and and it mainly impacted by the the payment of the complement of the dividends of 2021 which was 1 billion reais our debt our debt increased 500 million because of the exchange rate variation as i previously mentioned therefore we ended q2 with a net debt of about 450 million reais still is a comfortable lever with an indicator of net debt over ebitda of 0.05 on the lower part you see the profile of the debt here we rolled over our debt with the eighth image commission of debentures where we use this value to pay the debentures of the seventh dimension that mature in 2023. We extended the debt profile, and now the maturing dates are between 27, 28, and this gives us more breath in order to fulfill our CAPEX commitments for 2022 and 2023. Now, speaking of CAPEX, our next slide shows the acceleration of our CAPEX on Q2. this was expected still slightly below what we had planned and we do have a guidance of this year's capex of 2 billion reais and we remain with this guidance be what this means that during the second semester there will be an even greater increase of the capex disbursement especially focused on the retrofit retrofit of blast furnace 3 plan for next year. Now, now our Esg agenda. Our targets in details are in our press release, and we are on the right path. We've achieved 10% of our goals, 80% in line with planning and 10%. need more focus in order to fulfill our target by the end of the year. But this is nothing that concerns us. And here we have a number of highlights. Here Minera San Guziminas also received certificate of a de-characterization of its central dam. there was upstream, we no longer have upstream dam and you can see how the area has been reintegrated to nature with over 12,000 plant plant seed plantlets of native species and here during the last quarter we carried out the third diversity week this is a program that is already part of the company's culture we want to promote these years and we mobilize the entire company in virtual and in-person activities we talk about diversity like race gender diversity and other matters another thing that we would like to say regarding our esg agenda is the restructuring So here now we have a general manage that reports directly to Alberto that shows the importance that we give to this agenda. These are our results you already had access to them now, I will give. floor back to leonardo so we can start our q a session thank you chiago now we will go to our q a session our first question for miguel regarding steel sales edgar gisosa from itaubba asks about what will drive the drop of sales volume of steels during the next semester because seasonality, in seasons, the third quarter is the stronger. Could you tell us which sectors are driving the demand, which are weaker? Thank you, Leo. Good morning, Carlos. i wouldn't say that there is going to be a drop in volume when we analyze the sectors where we participate we can distribute it in three major markets in the domestic market the automobile sector industrial sector and network distribution in the case of the auto industry as was increased by amphibia well they are still suffering with volatility and uncertainty because the availability of components and spare parts, everything due to the Chinese situation. Now the industrial sector is a highlight in the quarter and we believe that it will continue being a highlight in the upcoming Court is because the good period of the agribusiness and the opportunities to export to deck to different sectors, like electrical appliances, when we see the announced the results announced during the last days of important customers in the sector. It is clear to see that these sectors are undergoing a positive moment, not only because of the situation of the agribusiness nationally, internationally and export opportunities of these sectors because of the exchange rate. Now, distribution, we are seeing certain stability and distribution. is what may suffer because of the international situation. Because this is an important turmoil with high volatility and high uncertainty because of the war between Russia and Ukraine, the COVID zero policy of China, the high interest rates at a global level that can impact the ability of consumption and investment. which will impact the economies and also the use of steel at a global level. There are sectors that perform positively like the industrial sector, the auto industry still with uncertainties, but with opportunity if there is availability of greater volumes of semiconductors and spare parts and distribution. that we have to monitor because of the volatilities and uncertainties in the international market. What is positive is the stability that we see in the domestic market in terms of demand. Some sectors perform better than others, as we have already explained. Thank you, Miguel. Now we have a next question for Thiago. a number of analysts want to know about costs we have enrique marquez from goldman sachs and they're asking the following how do you see the price pressure for the second semester mainly because of the coking plants if you will have necessary natural gas but edgar says but raw material like the price of slabs and iron ore have dropped. And Isabella also asks about the outlook of CPV per tonus in the upcoming quarters. You have the floor. Okay, thanks. Thank you all for your question. Now, regarding because cost structure of the company, we expected to remain similar to what we had last quarter. I'm talking about Q. Three. The fourth quarter is distant. Therefore it's it's difficult to talk about it. But regarding our structure, Our consumption structure we expected to remain like the one of Q2. Therefore, the effects of the coking plants will remain stable during the second semester and the price effect will vary a little bit. there are raw materials that have a differentiated lead time like slabs we still we will buy them during consume them during the third quarter but they were bought at high prices we will only see the drop of price significantly during q4 therefore so i believe that we will see a stability in the structure with with a variable price and slabs and coke and we will receive a little bit of this benefit from iron ore. thank you chiago our next question is about our capex this is for you chiago here we have from edgar itaul and ricardo from morgan stanley could you give us more color regarding the necessary investment to retrofit the coking plant the expectation of the company is a linear recovery in a coking plant or will something impact this normalization? Edgar says that regarding the capex any update regarding the 1 billion that are 2 billion that is our guidance that includes the retrofit of blast furnace three and they also ask about the coking plaque plant if there is anything we expect regarding capex thank you Well, our guidance remains at 2 billion. There is no relevant CapEx increase that has already been approved. Now regarding our coking plants, as we mentioned in our material facts, this is under study in order to extend the lifespan of coking plant. We're doing preservation works that would be maintenance that should gradually put our our blast furnace is gradually back in operation so we are we believe that the increase will be linear here what could what could take longer to accelerate the return of the blast furnace would be the shutdown of blast furnace three little three year this will be linear but with a potential of a more significant return as of the moment that blast furnace 3 goes becomes operational as of the second semester of next year our next question is from lucas young jp morgan is for america i would like more color about the cocaine plant He wants more information regarding the coking plants and what do we need for this recovery? A medical? Well, thank you for your question. Adding to Thiago's comments, we have two technologists that support us with these activities, and there is a third technician that is an expert in assembling coking plants. So basically, these are preservation activities. The level of waste was Therefore, we needed greater interventions and we had to reduce our coke production. And as Thiago said, we have a plan for both coking plants and we want the growth to be linear due to the strategy that we have. because they're done through blast furnace blocks. Now, when we think about the resumption of blast furnace three, we believe that throughout the period, there will be a better evolution during the second semester of 2023. Thank you, Americo. Now for Miguel, prices. They're asking about price. Ricardo Manegagli from Morgan Stanley, Isabella from BBI, she says, what can make the steel price of Usiminas evolve different from the prices announced by consulting companies? And Isabella says, if there is pressure for discounts, for distributions, after the granted discounts and the uh and what about the premium how do we see the premium of national material vis-a-vis imported material miguel thank you ricardo isabella this is an interesting question ricardo because in reality although we talk about distribution prices and we could think about the sale of more commercial product the portfolio of our products is the most noble portfolio in the brazilian steel industry and this includes distribution because when we talk about sale to tier three and four in the chains of the different industrial sectors we already include these sales as distribution because there are sectors from the distribution channel that are part of these changes of different industrial sectors. Yes, we may have an average price in the distribution sector slightly above the rest of the market because of the mix of products sold to this sector. Isabella, regarding premium and discounts, Of course, we are observing great volatility in the variables that are part of the premium. We're talking about international shipment. We talk about exchange rate and international prices. Today, when we do our math, we can talk about a premium of around 2% and 15%. This is a premium that we believe doesn't incentivate. Here we see a drop, a gradual drop of imports in our domestic market. There are imports from China that are focused and coded products, and there are projects from the domestic market market that are not part of the steel industry so we expect, we expect to continue with the gradual, we expect a gradual drop of imports in the domestic market. Well pressure is part of negotiation we have to management. and in uzi minas we're responsible for optimizing the profitability of our business guaranteeing the competitiveness of our partners in the domestic market thank you miguel next question from victor kitzman from Small Caps Portal, and this is for Thiago. Thiago, he wants to know about working capital. What is your expectation of evolution of working capital for Q3, discounting the refurbishment of blast furnace three? Thank you, Victor. We have not announced a guidance of working capital, but if you see the values of the main raw materials market index, you can see that there has been a drop. Nonetheless, as I mentioned, a number of raw materials have greater lead time. So once again, we are still receiving and processing the slabs that we bought at a very high price so i would say that based on this analysis i believe that the first impression is that there will be a drop in working capital but there is this detail that will give more stability to this value our prospect is once again as prices will drop in the future and subsequently they will increase because of the increase of more slaps because of the uh shut down a blast furnace three now question from ricardo from morgan stanley this is the inventories of blast furnace three why build an inventory of slabs with the with the production of slab of Blast Furnace 3 because probably your cost is lower than the cash cost per ton, Miguel. Good morning, Ricardo. Now, because of the schedule and planning of the shutdown of Blast Furnace 3, our expectation is to build the inventory as of the beginning of the Q4 of this year. As you were informed, the expectation and a blast furnace three as of October. From here up to the day we will observe the volatility and the evolution from the prices of raw material that are a part of the cost of our own production and also the evolution of the price of the slab. Now on the other side, We must understand that the noble mix of Uzi mean especially to service the auto sector and the industrial sector where we have an added value and this is reflected on our prices and operational margin. This is why it makes sense to have our own production to service these sectors that do not buy commercial slabs. Now, commercial slabs are, it's easier to look for them and find them in the market or by third parties. And this is more related to the indexes that you see in the international slabs. On one side, we have to see the evolution of the assumptions and the product mix of sectors where Uzi Minas participates. Thank you. Our next question for chiago about prevent. He wants to know if the company proposes. interest of our own capital regarding the results of the first semester, this would be in terms of dividends. Thank you for your question, no we don't have this we don't we don't expect this, we will see the result of the year in order to in order to see what kind of proceeds, we will give to our shareholders. Our next question is for me go from software, he wants to know about imports, how do you see import penetration and galvanize products is the company adopting a different commercial strategy than that different from what you've had Miguel good morning Vinny seals. Thank you for your question. As a matter of fact, imports of coated that come from China have increased significantly in the past months. 2021 and the first semester of 2022, we see high imports of coated products. And this is caused by the incentives that the Chinese government offers to export these type of products. Here, we consider this fierce competition, this loyal competition, And we're talking to the government to see what can we do from here on. Now, Uzi Minas has low share in this commercial segment of coated products. We dedicate great part of our coated product to the auto and the industrial sector. Of course, we also participate in specific projects of power. In reality, the impact of these imports for Uzi Minas Well, it's slow. We continue with geared sales and prioritizing servicing industrial and auto sector here in Brazil and in regional markets like Argentina. Thank you, Miguel. Our next question for you as well, Miguel, about the order prices. Edmundo Pires, he's an individual, and he asks about the price readjustment that you expect in April of 2020. Oh, was this implemented in April? Yes, the increase of price was implemented. That was around 5060 persons, but the real and these were, these were readjustment of contracts that were updated in April. Thank you, Miguel. Next question for. tiago a capex follow-up sydney nacimento individual he wants to know about your planning in order to accelerate the capex expenses it is this concentrated during q3 or q4 tiago oh sydney good morning i believe that q4 the closer we get to the shutdown of blast furnace three activities increase and also the disbursements, therefore, we will see a growing curve up till Q4. Thank you, Tiago. Another follow up regarding steel volume from Isabella Vasconcelos, Bradesco BBI. Could you elaborate if the guidance of volume for 3Q considers greater drop of export and stability a slight improvement in the domestic market? Miguel, Isabella. We could talk about stability and we do not see major variations in this mix. Certainly the situation of the agribusiness sector and there are also big products of power in oil and gas and renewable. This could be a good scenario for heavy plates. but we understand that we will not see great variations in terms of the sales mix when we compare it to the second semester. Thank you, Miguel. Next question for Carlos Rezonico from Leonardo Nerachica from Bank of America. He wants to know the outlook of cost per tons in the mining unit in the upcoming quarters. Thank you, thank you Leonardo for your question, the costs. will maintain themselves at the current level, we want to reduce costs. But the actions that will be implemented will not be done in the short term, this will also depend on the fuel prices, because, as you know. One of the greatest costs would be fuel i'm talking about costs within our operations i'm not talking about other costs, but these are logistic costs within our operations. i'm not thinking about major variations in the upcoming quarters or months. another question carlos about sales volume isabella vasconcellos from bradesco bb i want you to elaborate on the outlook of iron ore volume due to the strong performance of q3 this year well isabella thank you for your question we are trying to improve the performance of our plant we have been able to achieve good results during Q2, but we did not achieve the performance that we needed. The collapse of the plant impacted Q2 in some areas. We are correcting many of these gaps And for the time being we're maintaining our guidance that is between eight and a half and 9 million this, of course, will depend on the market and what I mean i'm not talking about price conditions from China. But I also refer to something that could happen with freight with logistic what can happen with discounts discounts have increased significantly. in the last month. If market conditions maintain themselves at the current level, our guidance will be maintained. Now if this changes, we will have to analyze what is the best scenario for our production. Thank you, Carlos. Our next question is for Miguel regarding solutions. Leonardo Nerachi from Bank of America, he asks, what can we expect regarding margins in the transformation segment from here on? Miguel? Good morning, Leo. Now, obviously, we've seen an ideal result in solutions in addition to everything that was done in efficiency, productivity and performance of our plants and different service centers and solutions, there is a positive impact because of the increase of price in the domestic market and the impact and result because of the cost of inventories. Now, after the positive cycle of price increase, we can expect the return of the normalization of the business characteristic that has service centers for automobiles and industry. And one other thing here toward distribution. Thank you, Miguel. Our next question for you, Miguel. This comes from Artur Vizcola from Santander. He wants to know about the demand. How is Uzi Mina's order book? Are there signals of a slowdown, Miguel? Artur, as we already mentioned, we are seeing certain stability in the consumption and demand of the domestic market in addition to volatility, uncertainties and turmoil in the international market. This stability is an important thing. in the domestic market because of the behavior and the resiliency that we see of many industrial sectors. We talk about the auto industry. We believe that there are opportunities if there is an improvement in availability of spare parts and components that would be positive for the internal demand and for Zemina's order book. In addition to these sectors, we see a positive scenario for different projects that are being carried out of the second semester connected to energy projects in this sense. We do expect a positive scenario for heavy plates during the second semester, and this will provide us opportunities of sale. So the message is, we do not see a slowdown, we are seeing certain stability of the consumption and demand of steel in the internal market, and yes, there are opportunities that we could leverage from here on. Thank you, Miguel. Our next question from Artur Biscoit Santander is for Thiago. He wants to know about potential galvanized land if the company could consider it, even if there is a slowdown in demand from the domestic market. Well, alternatives to improve was he mean as this mix we're always looking for them, and we're always analyzing these points and a galvanized line would be one of these options. Now, this, we can not decide this based on a scenario of midterm because we have to see long term demand. nonetheless this being said uzi minas always assesses different alternatives but for the time being we have nothing to mention regarding this matter thank you chiago carlos volumes and prices from moza provisional what volume of iron more was in transit between the second to the third quarter could you say something about the provisional price Now, speaking of volumes that remained in transit and haven't been hatched or don't have established price we're talking about 500,000 tons at an average price of 118. This is the only information that I could give you right now. Thank you. Carlos. Our last question for Miguel. Miguel, Luis Brodi from Meta asked that he wants to know more about prices. I would like to know what is your expectation for the average steel price traded on Q3 vis-a-vis the second quarter of 2022. Luis, Izuminas does not announce future events. but what i can tell you to calculate future prices the average price of june is in line with the average price of the quarter on the other side of course there were discounts that were done or given throughout the last part of the quarter because of the evolutions of the variables that impact the price this is for distribution now industrial sectors they update their contract according to the characteristic of each one of the contracts and sectors and the auto sector maintains fixed prices because of their contracts thank you miguel well our q a session has come to an end i would like to hand it over back to alberto for his final remarks alberto you have the floor well i would just like to thank all of you once again for participating in our video conference call and we we expect to see you during our our next earning conference call i would like to highlight that we are facing a challenging scenario internally and domestically but our team is doing its best to deliver the best result thank you alberto well we thank all of you for your participation should you have doubts our investor relation team is at your disposal to answer any questions