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São Paulo, May 14, 2018

 

1Q18 Earnings Release

 

Companhia Siderúrgica Nacional (CSN) (BM&FBOVESPA: CSNA3) (NYSE: SID) announces today its results for the first quarter of 2018 (1Q18) in Brazilian reais, and its consolidated financial statements, which are presented in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and with the accounting practices adopted in Brazil, which are fully convergent with international accounting standards, issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM), pursuant to CVM Instruction 485 of September 1, 2010. The comments presented herein refer to the Company's first quarter of 2018 (1Q18) and comparisons refer to the fourth quarter of 2017 (4Q17) and first quarter of 2017 (1Q17). The Brazilian real/US dollar exchange rate was R$3.3238 as at March 31, 2018 and R$3.3080 as at December 31, 2017.

 

1Q18 financial and operating highlights

 

·         Generation of adjusted EBITDA of R$1,242MM, an increase of 3% compared to the previous quarter, with EBITDA margin of 23%, due to better performance in the mining segment.

·         Steel sales volume in the domestic market in 1Q18 reached 782 thousand tons, an increase of 27% compared to the same period in 2017.

·         Increase in the production of flat rolled products from 12% to 2% compared to 1Q17 and 4Q17, respectively.

·         Mining adjusted EBITDA reached R$442MM, an increase of 26% compared to 4Q17, with highlight for the higher average price and adjusted EBITDA margin, an increase of 8.5 p.p. compared to the previous quarter.

·         Free cash flow, before the financing activities, significantly increased in 1Q18, totaling R$544MM, compared to R$73MM in 4Q17. 

·         Net profit of R$1.486MM in 1Q18, due to the gain accrued from the adjustment of the fair value of the Usiminas’ shares, which began to be recorded in profit or loss, under IFRS9.

 

¹ Adjusted EBITDA is calculated based on net profit/loss, plus depreciation and amortization, income tax, net finance income (costs), share of profit (loss) of investees and other operating income (expenses), and includes the proportionate share of EBITDA of the jointly-owned subsidiaries MRS Logística and CBSI. Adjusted EBITDA includes 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBSI beginning December/15.

² Adjusted net debt and adjusted cash account for, beginning December 15, 100% stake in Congonhas Minérios, 37.27% in MRS and 50% in CBSI, and exclude forfaiting and payor risk operations.

 

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CSN´s Consolidated Result

 

·         Net revenue in 1Q18 totaled R$5,066 million, 15% and 1% higher than those recorded in 1Q17 and 4Q17, respectively. The improvement in performance compared to 4Q17 was due to the increase in steel product prices, while in the mining segment net revenue remained stable.

 

·         In 1Q18, cost of sales totaled R$3,685 million, an increase of 2.9% compared to 4Q17, due to coal HCC FOB Aus US$/ton (+17.0%) price increases and iron ore Platts Iron Ore Fines 62% CFR North China (+13.3%).  

 

·         In the first quarter of 2018, gross profit totaled R$1,381 million, a decrease of 2% compared to 4Q17, and decrease in gross margin by 1.0 p.p. against the same comparison basis, reaching 27.3%, due to the increase in steel costs, partially compensated by the recovery of the mining margin.

 

·         In 1Q18, general and administrative expenses totaled R$102 million, a decrease of 9% compared to the same period in 2017, from 2.5% (1Q17) to 2.0% (1Q18) of net revenue, reflecting the dilution of expenses against an increase in revenues. Selling expenses totaled R$455 million, or 9.0% of net revenue, a growth of 0.7 p.p. compared to 1Q17 (8.3% of net revenue) due to an increase in sales for the period.

 

·         In 1Q18, other net income (costs), totaled R$1,797 million arising mainly from the gain on the appreciation of Usiminas’ shares, which were recognized at fair value through results, under IFRS9/CPC48, effective in January 2018.

 

·         In 1Q18, net finance costs, totaled R$594 million. Finance costs (ex-variation) continue to decrease, by virtue of the decrease in Selic rate, generating a reduction of R$264MM compared to 1Q17. The losses on inflation adjustments and exchange rate changes, in the amount of R$138 million, were partially compensated by the hedge accounting positions.

 

                           The finance income (costs) includes 100% stake in CSN Mining, 37.27% in MRS and 50% in CBSI, beginning December/15.

 

·         Share of profit of investees totaled R$25 million in 1Q18, compared to R$11 million in 4Q17, mainly due to the better results in MRS and Arverdi.

 

 

 

·          In 1Q18, the Company recorded net profit of R$1,486 million, compared to net profit of R$378 million in 4Q17, arising from the adjustment to fair value of Usiminas’ shares, which were recorded in results, under IFRS9.

 

 

For further information, please access: www.csn.com.br/ri

 

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EARNINGS RELEASE 1Q18

¹The Company’s adjusted EBITDA excludes equity interest and other operating income (expenses) as these items should not be considered when calculating the cash flow generated from operating activities.

 

·         Adjusted EBITDA totaled R$1.242 million, compared to R$1.204 million in 4Q17, an increase of 3% due to the increase in the mining segment. Adjusted EBITDA margin reached 23.5%, an increase of 0.5 p.p. compared to the previous quarter.

   

 

Adjusted EBITDA margin is calculated based on Adjusted EBITDA divided by Adjusted net revenue, which includes 100% stake in CSN Mining, 37.27% in MRS and 50% in CBSI, beginning December/15.

 

Debt

 

As of March 31, 2018, adjusted net debt totaled R$26,508 million, while net debt/EBITDA ratio, calculated based on the adjusted EBITDA for the last twelve months, reached 5.82x. The increase resulted from the exchange gains for the period that impacted the US dollar-denominated debt and dividends to minority shareholders for the 2015-2016 period of the former subsidiary Nacional Minérios S.A. (merged into CSN Mineração S.A.), paid in 1Q18.

 

 

 

For further information, please access: www.csn.com.br/ri

 

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EARNINGS RELEASE 1Q18

 

Foreign exchange exposure

 

The net foreign exchange exposure of the consolidated balance sheet was US$2,539 million as of March 31, 2018, as shown in the table below. It should be noted that within the net foreign exchange exposure, a liability of US$1.0 billion is included in line item “Borrowings and financing” related to the perpetual bond, which, due to its nature, will not require disbursement for settlement of the principal amount in the foreseeable future.

 

The hedge accounting adopted by CSN correlates the projected export inflow in US dollars with part of the scheduled debt payments in the same currency. As a result, the exchange rate changes in the US dollar-denominated debt is temporarily recorded in equity and subsequently recorded in profit or loss when revenues in US dollars from exports occur.

 

 

Investments

 

Investments totaled R$223 million in 1Q18, a decrease of 35% compared to 4Q17, arising mainly due to the project seasonality. The increase in mining expenses refers to the waste filtering projects and production by magnetic concentrators.

 

 

Working capital

 

To calculate working capital, CSN adjusts its assets and liabilities as demonstrated below:

                                                                                                                                                                                               

·         Accounts receivable: excludes dividends receivable, advances to employees and other receivables;

·         Inventories: includes estimated losses and excludes the spare parts, which are not part of the cash conversion cycle, and will be subsequently recorded in property, plant and equipment when consumed;

·         Advanced taxes: solely composed of income tax and social contribution included in line item “Recoverable taxes”;

·         Taxes payable: composed of line item "Taxes payable”, in current liabilities, plus taxes in installments;

 

 

For further information, please access: www.csn.com.br/ri

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EARNINGS RELEASE 1Q18

 

·         Advances from customers: recognized in line item “Other payables”, in current liabilities;

·         Trade payables: includes forfaiting and payor risk¹.

 

Accordingly, working capital invested in the Company’s business totaled R$2,383 million in 1Q18, reducing the financial cycle in 14 and 28 days, compared to 4Q17 and 1Q17, respectively, reflecting the effective working capital management, mainly in relation to the extension of maturity dates for payment of raw materials.  

 

                                                ¹The forfaiting and payor risk operations were settled in 2016.

 

Business segment reporting

 

The Company maintains integrated operations in five business segments: steel, mining, logistics, cement and energy. The main assets and/or companies comprising each segment are presented below:

 

    

 

Beginning 2013, the Company no longer proportionally consolidated its jointly-owned subsidiaries Namisa, MRS and CBSI. For purposes of preparation and presentation of the information by business segment, Management maintained the proportional consolidation of the jointly-owned subsidiaries, as historically presented. For purposes of reconciliation of the consolidated profit or loss, the amounts recorded by these companies are not included in “Corporate expenses/elimination”. After the closing of 2015, after the combination of the mining assets (Casa de Pedra, Namisa and Tecar), the consolidated profit or loss includes this new company´s information as a whole.

 

 

 

For further information, please access: www.csn.com.br/ri

 

 

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CSN’s Steel Results

 

According to the World Steel Association (WSA), the global crude steel production totaled 426.6 million tons (Mton) in 1Q18, an increase of 4.1% compared to 1Q17. Asia produced 294.1 Mton in 1Q18, an increase of 4.6% compared to the same period in 2017, while the European Union and North America increased by 0.9% and 1.9%, respectively, on the same comparison basis.

 

·           In 1Q18, CSN’s plate production totaled 1,050 thousand tons, an increase of 5% compared to 1Q17. In turn, the production of flat rolled products in 1Q18 increased by 2% and 12% compared to 4Q17 and 1Q17, respectively, totaling 1,023 thousand tons. According to the Brazilian Steel Institute (IABr), in the first quarter of 2018, the domestic sales totaled 4.4 million tons of steel, an increase of 11.4% compared to the first three months of prior year. The apparent consumption totaled 4.9 million tons, an increase of 8.3% compared to the same period of last year. Brazilian steel production totaled 8.6 million tons, an increase of 4.9%. The estimated domestic sales increased from 4.1% to 6.6% (18 million tons) in 2018.  

 

 

·           CSN’s total sales reached 1,277 thousand tons of steel products in 1Q18, an increase of 2% compared to 4Q17.

 

 

 

·          In 1Q18 the steel volume sold by CSN in the domestic market totaled 782 thousand tons, an increase of 2% compared to 4Q17 and 27% compared to 1Q17. The expansion of the automotive and OEM market significantly increased the cold rolled flat steel products (+33% - 1Q18x1Q17) and galvanized items (+54%- 1Q18x1Q17). Out of this total, 737 thousand tons refers to flat steel products 45 thousand tons to long steel products.

 

For further information, please access: www.csn.com.br/ri

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·         In the foreign market, CSN’s sales in 1Q18 totaled 496 thousand tons, an increase of 2.5% compared to the immediately prior quarter. In this period, 60 thousand tons were directly exported and 436 thousand tons were sold by the foreign subsidiaries, out of which 118 thousand tons by LLC, 216 thousand tons by SWT and 102 thousand tons by Lusosider.

 

 

 

·         In 1Q18, CSN maintained its high share of coated products as a percentage of total sales volume, following the strategy of adding more value to its product mix. Sales of coated products such as galvanized items and metallic sheets accounted for 53% of flat steel sales, considering all markets in which the Company operates. In the foreign market, coated products accounted for 81% of flat steel sales in 1Q18.

 

 

  

For further information, please access: www.csn.com.br/ri

 

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EARNINGS RELEASE 1Q18

 

·         Net revenue totaled R$3,674 million in 1Q18, an increase of 7% and 20% compared to 4Q17 and 1Q17, respectively, mainly due to an increase in sales in the domestic market and higher average steel prices, both in the domestic market (+6% compared to 4Q17) and foreign market (+5% compared to 4Q17).

 

 

 

 

·         Plate production cost in 1Q18 totaled R$1,474/t, an increase of 14% compared to 4Q17. The increase in the prices of the main raw materials, due to the abovementioned operational events, will be balanced in the next quarters.

 

·         Adjusted EBITDA totaled R$690 million in 1Q18, a decrease of 3.2% compared to R$713 million in 4Q17, due to CPV increase. The adjusted EBITDA margin in 1Q18 reached 18.8%, or a decrease of 2.0p.p. compared to the immediately prior quarter.

 

CSN’s Mining Results

 

In 1Q18, the expansion of the Chinese steel production aligned with the increase in the steel price in the foreign market positively impacted the iron ore prices. In this regard, iron ore price ratio in 1Q18 reached US$74.26/dmt (Platts, Fe62%, N. China), on average, a 13% increase compared to 4Q17; however, a decrease of 13% compared to 1Q17, with an average of US$85.64/dmt.

 

 

 

 

 

·         In 1Q18, iron ore production totaled 6.2 million tons, a decrease of 4% compared to 4Q17, mainly due to the high rainfall index in the period and limitations on our tailing dam utilization. Iron ore purchases totaled 1,487 thousand tons in 1Q18, a decrease of 19% compared to 4Q17.

 

·         Iron ore sales totaled 7.5 million tons in 1Q18, an increase of 3% compared to 1Q17, out of which 1.3 million tons were sold to Presidente Vargas Plant.

 

                                  The production and sales volumes considered a 100% stake in CSN Mineração.

 

 

For further information, please access: www.csn.com.br/ri

 

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EARNINGS RELEASE 1Q18

 

 

·         In 1Q18, mining net revenue totaled R$1.152 million, a decrease of 2% compared to the immediately prior quarter due to the decrease in sales volumes (-22%), compensated by the increase in the market prices, as well as the respective realization by the company. The CIF+FOB unit revenue in 1Q18 totaled US$55.9/wmt, an increase of 12% compared to the prior quarter.

 

Realized iron ore price by CSN Mineração

(CIF+FOB* - US$/wmt delivered in China)

 

 

*Beginning 4Q16, the company started to report the realized iron ore price considering the sum of the CIF and FOB values, as shown above.

 

·         Mining sales cost totaled R$795 million in 1Q18, a decrease of 13% compared to 4Q17, due to the decrease in the sales volume in the period (-22%).

 

·         Adjusted EBITDA totaled R$442 million in 1Q18, an increase of 26% compared to 4Q17. Adjusted EBITDA margin reached 38% in 1Q18, or an increase of 8,5p.p. compared to 4Q17, mainly due to the increase in realized prices, lower freight/ton ratio and decrease in the silica discounts in the period.

 

CSN’s Logistics Results

Railway logistics: In 1Q18, net revenue totaled R$331 million, generating adjusted EBITDA of R$128 million and adjusted EBITDA margin of 38.7%.

 

Port logistics: In 1Q18, Sepetiba Tecon shipped 219 thousand tons of steel products, in addition to 31 thousand tons of general cargo and approximately 65 thousand containers. In 1Q18, net revenue totaled R$66 million, generating adjusted EBITDA of R$14 million and adjusted EBITDA margin of 21%.

 

 

CSN’s Cement Results

 

In the first quarter of 2018, cement sales in the domestic market totaled 12.6 million tons, according to the preliminary industry data, disclosed by the SNIC (National Cement Industry Union), a decrease of 3.0% compared to the first quarter of 2017.

 

According to the SNIC data, sales volume in the first quarter was slightly below the estimated volume, due to the strong rainfall index in February and March, which impacted the sales performance. For 2018, SNIC estimates an increase between 1% and 2% in cement sales compared to the sales in 2017.

 

In 1Q18, cement sales totaled 806 thousand tons, an increase of 22% compared to 4Q17, representing net revenue of R$131 million. Adjusted EBITDA reached R$12 million (+346%), with adjusted EBITDA margin of 9.3%, or an increase of 6.7p.p. compared to the prior quarter, due to the increased prices and volumes.

 

 

For further information, please access: www.csn.com.br/ri

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CSN’s Energy Results

 

According to the EPE (Energy Research Company), domestic electric energy consumption increased by 0.4% in 1Q18 compared to the same period of prior year. The electric energy consumption in the industrial sector increased by 0.8% in March 2018 compared to the past year. The residential and commercial sectors reduced the electric energy consumption by -2.6% and -2.0%, respectively, compared to March 2017.

 

In 1Q18, net energy revenue totaled R$91 million, with adjusted EBITDA of R$22 million and adjusted EBITDA margin of 24%.

 

Capital market

 

In the first quarter of 2018, the CSN’s shares appreciated by 5.0%, while the Ibovespa index appreciated by 11.7%. The daily traded volume (CSNA3) on B3, in turn, totaled R$103.4 million. On the New York Stock Exchange (NYSE), the Company’s American Depositary Receipts (ADRs) appreciated by 4.4%, while Dow Jones decreased by 2.9%. The daily traded volume (SID) of the Company’s ADRs on NYSE totaled US$11.0 million.

 

 

 

 

For further information, please access: www.csn.com.br/ri

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This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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