Usinas Siderúrgicas de Minas Gerais S.A.

Good morning, ladies and gentlemen.

Thank you for waiting. Welcome to the conference call of UCMina to discuss the unease release of the fourth quarter 22 and for the whole year of 22. I'm Leonardo Caron, Manager of Investors Relations for UCMina. For those who want to follow us in English, free translation of the webcast presentation is available on the UCMina's IR website. We also have an interpreter for simultaneous translation. Choose the sound channel on the icon Interpretation on the bottom of your Zoom screen. All participants are in listen-only mode, and the questions may be submitted in writing through the Q&A icon, where you can find below in the bar. Participants who are listening in English may also ask their questions using the Q&A function. This conference call is being recorded and being streamed through YouTube channel. This is a conference exclusive for investors and market and analysts. Please tell us who you are and your organization so that we can have your question answered. And please limit to two questions per participant. Questions made by journalists can be submitted to Media Relations of Usiminas using phone 3134-998918 or through email impresa at usiminas.com. Before moving on, we would like to clarify that forward-looking statements that may be made during this conference call with respect to business prospects, forecasts, operational and financial goals of the company and its growth potential are all based on beliefs and assumptions of the Executive Board of UC Minas. These expectations depend largely on the performance of the steel industry, domestic economic conditions, and the situation of international markets, and therefore are subject to variations. We have here with us today the executive team of UC Minas, CEO Alberto Mono, VP of Finance and IRO Tiago Rodriguez, Industrial VP Amerigo Ferreira, VP of Corporate Planning Gino Ritaliati, VP of Technology and Quality Yoshihiro Miyakoshi, commercial VP, Miguel Olmes, CEO of Mineração Usiminas, Carlos Risonico, CEO of Soluções Usiminas, Leonardo Zenóbio, and CEO of Usiminas Mecânico, Fernando Marzoni. Alberto will make his initial remarks, followed by Tiago, who is going to present the results. Later, questions submitted through the Q&A will be answered. Let me now hand it over to Alberto. Good morning to everyone. Good morning, everyone. I'd like to start by thanking all of you for being here with us in our conference call of the fourth quarter 22. And we are also going to go over the results of the full year 22. 2022 was characterized by major volatility. You've all seen how we evolved throughout the years with some events that we were not anticipating, but they turned out to be a reality, and that impacted us. not only the steel sales steel processing and also the economic perspective which started with the russia ukrainian war in the first half of the year we've emphasized that extensively before but Also, COVID cases in China and that impacted lockdown and impact of supply chain. Also, the decrease of the development of Chinese economy. And finally, here in Brazil, the elections and the expectations for the election of the new president. It has all resulted in a very volatile, complex situation. And for UC Minas, despite all that, the results of the year have shown that we have still delivered consistent results. It was the second best result for the past 13 years. Despite the complex scenario throughout the year, the complex situations still presented consistent results. Let me also emphasize that 2022 was the year in which we celebrated 60 years of our operation in Ipatinga. Being a company for a long time in Brazil, we are now going into... into a period where the CAPEX and the investments is required in renewal of equipment, overhauling, and so on. It has already been accounted for in the investments that we made in 2022, and the same applies to 2023, as we've already communicated. So it's important to bear in mind we've been in operation for six years in our main site, which means... that we require investments to renovate, realign, and recover most of our equipment. I'll take the piece on the main highlights that I wanted to share with you, and I'm going to hand it over to Tiago, who's going to talk about the results and our highlights. Thank you, Alberto. Good morning, everyone. Let's go on with our presentation. slide presentation we can go to slide two where we can see the main highlights for the period something which we have already published in the end of december which is the mean is now part of the isp which is the corporate sustainability index of b3 confirming our commitment with sustainability of operations, something that really makes us very happy. We are the only steel company that is part of this index. In terms of revenues, we had the second highest annual net revenue in history, 32.5 billion BRL, 7.7 billion in the fourth quarter, and I'm going to provide further details. In terms of EBITDA, it was also the second highest for the past 14 years, 4.9 billion BRL in 2022, 579 billion in the fourth quarter. Second highest annual net income in the past 14 years, 2.1 billion profit with loss of 839 million in the fourth quarter due to internal effects that we are going to share with you later. In December, we completed our ninth issuance of debentures, 1.5 billion BRL with immaturity of up to 10 years, very favorable conditions. So 2.2 billion BRL issued in 2022. solid cash position of 5.1 billion BRL, very comfortable level, and net debt EBITDA of 0.2, which shows really our solid financial position. And we are going to keep on increasing our slab inventory for the relining of BF3 as initially planned. Now, going to the next slide, we can see the consolidated numbers for 2022. The first chart, we can see still sales over 4.2 million tons, 12% below 21, but still above the period before the pandemic. in iron ore, 8.6 million, within our guidance of 8 to 9, even with problems with supply chain and production in the beginning of the year because of the rain in some of our sites. Now, in terms of consolidated net revenue, 32.5 million, below 21, but still at very high levels if we compare against 2018 to 2022. Adjusted EBITDA has presented absolute and marginal drops. Even so, it's the highest of the past 14 years. And this drop was due to effects in steel production and in mining, as we are going to show you later. and net income of 2.1 billion just following the trend of a deterioration of some of the margins. Now, in the next slide, we can see consolidated numbers of the fourth quarter. there was a reduction of the main indicators of results caused primarily due to lower volumes and low prices in the steel unit. And we're going to see that specifically in the upcoming slides. So 7.7 billion net revenue, 9% below the third quarter EBITDA, 579 billion with a decrease of 2.3 percentage points. And net income, In the quarter, there was a net loss of $839 million, including $1.4 billion of the impairment ESAT. The company has run some variability recovery of some of the assets, and due to the high investment levels required for the coming years, generated impairment of 1.4 billion in the steel unit and a reversion of an impairment that we had already recognized of 0.3 billion. Now, speaking of steel unit, sales volume was higher than the guidance, 963 tons. Our guidance was 950 tons. We expected that decrease due to seasonality because the last quarter of the year tends to be weaker. The good news is in the internal market, domestic market, we exceed the volume of the fourth quarter of previous year, of fourth quarter 21, showing favorable conditions in the domestic market. Net revenue, we can also observe a reduction primarily due to prices in the domestic market. The reduction was 5.9%. Adjusted EBITDA had a reduction over the third quarter, 22, but with a positive effect on cost, as we can see in the next slide. Here we can see the main reason for EBITDA reduction, which was due to price and sales volumes partially offset by lower costs. There was a reduction of the cost by ton of 6,640 in the third quarter to 6,470 in the fourth quarter. We also had the expectations of decrease of cost due to the cost of raw material, primarily the slabs, and some stability in operational indicators. Concerning mining minerals and usiminas, we close the quarter with 2.2 million tons of sales, the largest volume in the year, quarter over quarter, and we can see stability in revenues and EBITDA level, reflecting then the market indicators for the period. Usiminas Solutions, solutions, similarly to the steel unit, a lower sales volume over the third quarter, 22, but still above the fourth quarter, 21, with reductions of revenues and EBITDA because of lower prices being applied. Now, going into financial indicators, Working capital, it has presented stability, just a minor reduction over the third quarter, even with the increase in inventory levels of slabs because of better control and reduction of inventory, especially of coal and coke, which have really helped us maintain stability levels and also a price repositioning of these materials. Concerning steel inventories, as you can see on the right, We have the necessary inventory levels for the shutdown of BF3. We have here the level of inventories as had been initially planned. The next slide shows us the capex for the consolidated caps of 2.1 billion BRL. Somewhat above our guidance was 2.05. This was due to the activities that are set in motion. And the closer we are to the May reiling and renovation of the unit, more activities are required, so that's expected. During the fourth quarter, there were 215 million invested in the renovation of the blast furnace and also in the steel operation 611. So total 611 million invested, 1.5 billion, or rather 1.1 billion in the other activities of the steel unit, 364 for mining. The next slide. we can see the impact it has on cash generation of EBITDA, improvement of working capital, all offset by the capex invested in the period. So we had a 65 million reduction in cash position, which has not impacted significantly our results. Now, going into cash position net debt and amortization, we've maintained very well-controlled net debt, 1.1 billion BRL, and the leverage index of 0.23 EBITDA, which is still a very comfortable level for the company. With the issuance of the new debentures, we have now a maturity. Some of the bonds for 2024-2025 were extended for 10 more years, so now we are not going to have any significant debts to pay within the next 10 years, which means we can keep on making the investments as originally planned. Now, to close, I would like to tell you about our ESG agenda. Once again, we were included in the ISE index, and the main factors that enabled our inclusion in the index are shown here. We've created the area of risk management and internal controls management. We've also approved our risk management policy and the company, which helps us with governance, giving more transparency and control. We've also evolved in the steel chain project, which includes suppliers and brings suppliers to be our partners so that we can reach our sustainability goals. We've also completed our emission inventory recognized by GHG protocol, and we've also participated in the carbon disclosure project, providing all the important information for the industry. For the second consecutive year, we are also part of the Carbon Efficient Index of B3. The next slide shows our ESG goals and our status throughout the year. Most of them were met, so water recirculation in Ipatinga, construction of clean energy, engagement of critical suppliers with scope three of the climate agenda, reaching minimum level of women in our apprentice training groups, and execution of our innovation pilots, as well as the certification of rolled laminated steel. The other items were not met yet. So, GHD inventory, we completed that for NUSA, but not for Solusões Usuárias. Lost-time accidents were outside our expected rate. This is something that we have a full commitment with. the general customer satisfaction index was very close to our goal and this is constantly monitored by us an implementation of our environmental compliance program which had some changes to its scope and we are going to have it completed now in 2023 so that was the overview of our results and with that i'll hand it over to leo so that we can go into the q a session Thank you, Tiago. Let's start our Q&A session now. The first question is asked to Miguel by Daniel Sasson with Itaú. And he asks you, Miguel, what are the results of the negotiation with the automotive part four contracts being renewed in January? Do you have the same expectations for contracts which will be renewed in April? Good morning. Good morning, Danielle. Good morning, everyone who's here with us today. The negotiation with contracts renewed as of January 1st were concluded in the end of December, and the results led to 12% price adjustment. It's important to emphasize the duration of contracts. In the Brazilian market, we had been using 12-month contracts. But as of 23 January 1st, now contracts of most of those contracts will be six months because of the volatility that we've come across in both the domestic and international steel industry. Another question to you, Miguel, about demands in the domestic market. Leonardo Correia of BTG, Carlos Alves of Morgan Stanley, asks whether you can anticipate any improvement of demand and which are the industries that are surprising you in terms of higher demand. Any other comments concerning demands for flat steel? The local demand seems to be stable, aligned with the expectations of growth or evolution of consumption of steel in 2023, disseminated by Aso Brazil in its last conference call. We see it as stable. We don't anticipate any sector except for oil and gas. which has been developing and presenting important projects of oil and gas for the past eight, ten months. And there are still some ongoing discussions and quotations. So I would just highlight oil and gas. But in general, we expect very stable demand, similarly to what we've observed in the past six months. So flat demand, in other words. Miguel, one more for you. prices in the domestic market, Daniel Sasson and Itaú and Leonardo Correia of BTG. So what were the prices in December as opposed to the average of the quarter? And Leo asks whether it has been difficult to have a price adjustment in this more challenging market. Well, Concerning the average price in December in the domestic market was 1% lower than the average price of the quarter, so very much aligned with the average price of the fourth quarter, 22. It's always challenging, really, to have price adjustments. It requires negotiations, complex negotiations, but we believe that The foundations for price adjustments are solid, are robust, because we are under pressure and the whole steel market globally is subject to pressure and increased costs. especially because an increase of ore and carbon in the past six months. So by having a robust system and by really showing them the increased cost, we've been successful in our price renegotiations. One more question to you, Miguel. People are asking about exports. Isabella Vasconcelos from Bradesco is asking what the prices of export still have been quite healthy. What can we expect in terms of volume and prices for the upcoming six months? Exports will be focused on added value products, too. Markets which are more profitable to Usiminas. There is a very important challenge, which is the relining of Blast Furnace 3. So we want to have a profitable market for exports. We expect export levels which are stable to the levels that we've had in recent quarters. So focus on automotive industry. We have a very significant share in the region. And also oil and gas projects, which are added value products, therefore offering better price margins. Thank you. And there is one more. to Zemina Solutions, and maybe you can ask the Nobio to add. So, Soluções Usiminas, Carlos Alba is asking, what's the outlook for Soluções Usiminas? Well, in terms of sales, we also follow the market. The area of solutions, Soluções, has a sales mix very similar to that of Zemina's as holding, right? So it adds in the automotive industry. According to the last report, there is an increase in the – there is an expectation of increase in car manufacturing at 2%. So we believe Isimina Soluções will also have increased sales. As we expect to have a total increase of flat seal consumed in Brazil as well, so UCMinas is expected to follow along the natural movement. So, Soluções and UCMinas, the holding, are focused on added value products on Brazil. long-term commitments and development of products that can really meet specific market requests. Thank you. Now one question to Tiago. I'll try to encompass a number of questions. Most are asking about the CAPEX guidance that we announced today. They all want to know about the guidance of CAPEX. Concerning the increase of CAMPEX guidance, our expectation was announced of 2.4 last year, and now it's 3.2 billion. That's the CAMPEX for 2023. Daniel says that the capex for the relining of the blast furnace has not changed, so he'd like to understand whether the increase is just due to maintenance or should we also expect that's going to be carried on in upcoming years. Lucas would also like to know more details about the capex. And Rafael would also like to have some more details. And also, Carlos, they all would like you to elaborate further. Are there more projects than relining of blast furnace 3 concerning the CAPEX new level? And finally, Marcio Faridi, just concluding the guidance on CAPEX, has asked, What would be the campaign for recurring maintenance from now on? Tiago? Well, thank you for your question. So many questions within one. So let me set the context and then we can always build up on it. So the first important point is We talk a lot about the CAPEX of Blast Furnace 3, but there are other relevant investments being made in other operating units of Ipatinga, which are going to take place at the same time as we have the relining of Blast Furnace 3. For example, maintenance or overhauling in one of our reoperations, which is over 500 million. It is... It has not had any impact in values. What we have had is an increased value of capex, of palliative, as we have in the operations of COPE. They were partial for 2022, and that's going to be throughout the whole year. And with this, stop of blast furnace in the coke operations uh there would be a reduction of the sustained campus and we've reviewed the plan we are maintaining the sustained campus at similar levels as we had in 2022. and this has increased the total capex of the steel processing the mountain caps is between 801 billion so in addition to the main shutdowns that i pointed out some other activities will be carried out at similar levels as in 2022 as we are going to have the shutdown of important pieces of equipment. So by doing that, we can take the opportunity and also perform other works once we are going to have enhanced yield and productivity, once the black furnace is back into operation. We've also had some contacts for mining, primarily... the compact project study and the beginning of the environmental license process and also the plant of the tailings area of Samambaia. It's also going to be a very important and it has requested more impact in that. And also, the Usenina solutions, it will have higher CapEx than previous years, really maintaining all the different lines and also all the different added value to our products. Well, I hope it has been enough. Please let me know if you'd like to know any further details. Maintenance recurrent CAPEX for sustaining and for everyone, between 800 and 1 billion. That's great.

The next topic concerns costs.

So Caio, Bank of America, Rafael Barcelos of Santander, they're asking about cost expectations for upcoming quarters. Can you please tell us a little bit about that, especially concerning the relining of the blast furnace, and how do you expect that cost dynamic? Well, we don't give any guidance on cost, but what we can tell you is that the market indications show that in the first quarter, we expect to have a positive costing peg of raw material. So slabs and some other raw materials which are coming at a lower price in terms of COGS than what we currently have. Operationally, we don't expect any significant changes. just a small reduction by price and operational stability. Aware of the fact that we are coming very close to the relining of the blast furnace and there might be instability. So stable costs in the first quarter compared to the fourth quarter 22.

Thank you, Tiago.

The next question is to Carlos. Caio Ribeiro of Banking of America is asking about the guidance of volume of mining. You've announced 8.5 to 9 tons per year, but with the relining of the blast furnace, do you think there's going to be increased sales to third parties? And if yes, how long can we expect it to extend? Thank you. Thank you, Caio, for the question. Good morning, everyone. We've been monitoring the variation of demand and what it will mean in terms of the relining of the blast furnace. So we are planning our sales based on that as well. There is a very important part of the volume which is going to be directed to export, primarily concerning the fine ore. the granular bulk will be directed to the domestic market, and we are also considering sales to this market. The main purpose of UCMidness is not to impact our production, considering the limits that we all have in terms of increase. That's it, Leonardo. Thank you. Thank you, Carlos. We were talking about lump, right? Next question to Tiago. Leo Correa from BCG. He was talking about profitability for the steel unit. Concerning the operational performance of steel units, is it possible to have profitability over 10% with a beta margin, or do you anticipate something similar to the fourth quarter 22, which was about 4%, 5%? Tiago? You see, Leonardo, operationally speaking, in cost of production, we don't anticipate significant improvement in the year. It's going to be an atypical year for Resumina. It's a very important year. We've been preparing for it. to resume the operations with our blast furnace at much better condition, and that's going to impact our costs in the end of the year. Throughout the year, we don't anticipate significant changes, especially because of costs. Well, the margin may be influenced by the market. We also have a very conservative, let's say, perspective of that, being stable throughout the year. Now, concerning the expectations once the blast furnace is back in operation, we've been making investments not only there, but also in peripheral operations and some other important equipment of the company. We are going to recover also the coke side, which is extremely important. But once we resume the operation of the blast furnace, especially beginning of 2024, it will mean increased productivity of at least 20%. So it does give you the importance of the investments that are being made and how this is going to mean a better position of UCMinas as of 2024. Great, thank you.

The next question is to Miguel.

Rafael Barcelos from Santander is asking about the availability of slabs. And I'm going to combine with a question about slab inventory levels. Rafael said that the price of slab has gone up again in Brazil. So what about availability of slabs in Brazil, especially once the CFP was purchased by SL Ormitar? And Carlos compliment by saying, how do you anticipate the increase in slab inventory levels for the next two quarters? Miguel? Concerning slab inventory, as Tiago pointed out, in the end of December, there were 350,000, 351,000 slabs in the inventory for the relining of Blast Furnace 3. We've been, of course, purchasing and receiving monthly. So until the end of the shutdown, which will be in April, we will need a 450,000, 470,000 ton inventory level, as was originally planned for the whole operation. We don't anticipate any problems for our preparation before the relining. And now, Rafael, the price of slabs has increased in recent weeks, which shows the trend of raw material price, especially coal and ore. The slab market quickly shows these changes in cost of steel production and if we look closely some international consultants they are showing very critical situations of let's say chinese steel industries which are still not reflecting these costs increasing their prices with 15 or 20 percent negative margins What is being seen today in the slab market should also impact finished product markets. If you may compliment Miguel, because Carlos is asking about this phase of creating the inventory levels for the next two quarters. As we said in the previous call, it usually takes from six to eight months of preparation to come up with our inventory levels. In December, there were 350,000, so more than half is there, placed on the site, and the other half is part of already contracted agreements. From December to April, we will be building the expected level to get to 450,000, 480,000 tons until the beginning of the relining. Thank you. Tiago, the next question by Victor Sanchez of Itaú PBA. He asks about Musa cash position. 5.1 billion. How much is within Musa? Well, Victor, a bit more than 50% of the cash is with Musa. 3 billion approximately.

50.

Tiago, one more question to you. CapEx at Musa. Isabella Vasconcelos of Bradesco BB, Marcus Farid of Goldman Sachs are asking whether you can tell us more about the CapEx of the mining of 500 million, which was the guidance. And can you give us any more details about that? Is it maintenance? Is it any specific project of mining? Well, I don't have the numbers, the detailed number, but in the year there were 364 million of investments in Musa. The main difference over the previous year was the operation with the tailing dams of Sambambaya. The other part is sustaining and also some compact study, but I'll say the main difference comes from the Sambambaya tailing dam discontinuation. Thank you, Tiago. The next question is also to you, Tiago, by Guilherme Nips with XP. He asks about impairment. Oh, impairment, I mean. Can you tell us about the impairment? What was the result of the EBITDA margin, combination of manufacturers? How can you explain that? Well, the main difference over the previous year where there was no impairment was the change in market conditions. The results of the year can clearly show the decrease of margin in the beginning of 2022 to the end of 2022. So a different market situation in addition to a high level of capex to be invested in upcoming years, which meant a reduction of expected cash flow of the company.

Thank you.

The next question, Miguel, is by Kai Greene of BTG. He asks about slab inventory. Can you share the average price of the slab once you're creating the inventory levels? So we have our own production of the operation of the three blast furnaces that are in operation in Icaatinga and also third-part purchase. The procurements from third parties represent a 60-day between negotiations and receiving. We've been creating our inventory level since the end of the third quarter, and we are going to maintain it till April. So the prices have been changing because of market volatility. You can rely on international indicators because we buy flaps, it's a free market, so we always buy them according to international market conditions. The prices vary significantly because of volatility. There is a trend of decreased price to December, January, and then an increase in prices, both of domestic and international market, and this is going to impact our inventories that are going to be composed up to the shutdown in April. Thank you. The last question is to you, Tiago, about capital structure. Eduardo Santavecchi with Bradesco. He would like to hear about the expectations about liquidity in this cycle of investment. What would be the minimum cash position that we would consider comfortable? Is there any review in the net leverage or in specific target there? And finally, have you anticipated any opportunities to extend our dollar debt, which is due in December 26? Thank you, Edward.

Thank you.

The impact on cash will be more stressed during the second and third quarter. After the third quarter, when we resume the operations of the blast furnace, and once we start using most of the labs which were in the inventory levels, there would be an inversion of the working capital. There would be an additional cash need And then the end of the year, that will go into the expected level. So by doing that, we can certainly deal with the cash need. We are not considering minimum cash levels. We are not going to get closer to a minimum cash level yet. that leverage tends to increase somewhat, but we are not anticipating any indicator of concern. I'll say we are at a very comfortable level in terms of liquidity. Now, concerning bonds due in 26, we've been monitoring the market closely. The bonds become callable as of June or July this year. We are actively monitoring them, and once we consider it to be the most appropriate time, we will do something about that. But there's still time up to 2026. It's not something which is in our immediate agenda here.

Great.

Thank you. With that, we close our Q&A session. I would like now to hand it over to Alberto for his closing remarks. Alberto, please. Once again, let me thank you all for your participation and thank you for the relevant questions concerning our results of 2022 and also the outlooks for 2023. i think the main point that was addressed in the questions is our main focus for the year It is the investment that we're going to make in our main unit of Ipatinga. And as pointed out by all my fellow officers, it's going to certainly transform our productive unit and take it to a different level in the end of the process. This is the main focus of the top leadership this year. make sure that all investments that are made in Ipatinga plant can really impact and be really perceived as of the beginning of next year. So thank you all very much and have a great day.

Thank you.

If you have any questions, our investors relation team is here to support you. Thank you all very much for your participation.