Companhia Siderurgica Nacional SA (SID) 2015 Q3 法說會逐字稿

Good afternoon. Thank you very much for waiting. Welcome to CSN's conference call for the presentation of results related to the third quarter of 2015. We have today, the officers of the Company. I would like to inform you that this event is being recorded and all participants will be on listen-only mode during the Company's presentation. Next we will initiate the Q&A session, when further instructions will be provided. (Operator Instructions)

Today's event is also being simultaneously broadcasted online and it can be accessed through CSN's website, www.csn.com.br/ir. The slide presentation will be available through the website and will be controlled by you. The replay of this event will be available right after the call is concluded.

Before proceeding, let me mention that forward-looking statements that may be during this conference call related to CSN's business projections and financial and operating targets are mere assumptions and beliefs of the Company as well as information currently available. Future considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may affect the future performance of CSN and as such could leads to results to differ materially from those expressed in such forward-looking statements.

Now, I would like to turn the floor to Mr. Gustavo Sousa, CSN's Controllership, Tax Planning and Investor Relations Officer, who will present the Company's operating and financial highlights for the period. Please Mr. Sousa, you may proceed.

Good afternoon, everyone and thank you very much for participating in CSN's conference call for the results of the third quarter of 2015. And now, jumping straight to slide number 3. I've here a summary of our strategies to expand competitiveness and recover our cash generation. This strategy is based on three pillars; operating efficiency, which comprises the total integration of our assets, generating synergies, allowing us to be leaders in most part of the segments and if you look at our projects, our investments are focused on cost reductions and volume increase. And more particularly, we will talk about the migrations in the cement area. And after that, we will have the presentation by Mr. Caffarelli, our Corporate Director will talk about the financial aspects of the Company.

Now jumping to page 4, here we have a market overview in the different segments where we operate. In terms of steel mill, we hold a very unique portfolio with a very good focus on cost which has allowed us to be very competitive abroad. In terms of mining, we have a world-class assets totally integrated. As for cement, we will see how this segment is growing in the Company and we will have further growing stages in this area and we also will give some highlights on the logistics side about containers and all of the segments have good assets that allow us to have self-sufficiency in terms of energy generation.

In the next slide, we have our main targets and consolidated results, our EBITDA was BRL853 million, a 6% increase vis-a-vis the same quarter of the year before. Our EBITDA margin is 20% in keeping with the second quarter of this year and a net loss of BRL533 million. Our gross debt was BRL35 billion, net debt of BRL23 billion and the net debt over EBITDA ratio of 6.6 times.

In the next slide, we have a graphical representation that shows the evolution of EBITDA of BRL853 million and also the results posted in the period with a special highlights to our financial results. Here, we show how we went from the financial result according to IFRS, which is that red bar at BRL1.5 billion to the financial result in green. And then on slide 7, we will give you more details.

In the third quarter, our financial result according to IFRS was BRL1.549 billion. This result once added to the financial revenue from our associate companies and joint ventures, this a relevant cash position and therefore our proportional financial results tends to be BRL779 million. Comparing the fact that [Namibia] is a joint venture, does not allow for consolidation, but in terms of the proportional financial results, we just keep the parity with Namibia results in terms of [TSM].

Now in the next slide, we have the goals for segment. We start with the steel performance. In the last quarter, we see a growth in sales in the foreign market, more particularly in the third quarter reached 42% of sales in the foreign market. When compared to the total volume, our net revenue was BRL2.7 billion and our EBITDA is BRL376 million and our EBITDA margin in the steel area of 14%.

Next slide we show the performance in the last past year in terms of our mix of products. And we privileged products with the higher added volume. In the last part of the chart, we see that the coated steel products had an increase of 49% in the total sales volume, jumping from 49% to 52%.

Next slide, we have some cost numbers for the steel industry. We were able to promote a cost reduction both in dollars and in real, which put us in the first quartile of our cost position. Now going to slide 11, now we have the beginning of -- we have information on mining and in this quarter there was a growth in the production volume of 17% when compared to the previous quarters, reaching 7.94 million tons during the period with a special highlight for Casa de Pedra of 4.7 million which is again another production record.

In the mining sector, our net income grew 39%, our EBITDA grew 74%, reaching BRL395 million with a margin of 42% and this is the highest margin ever posted in the mining segment since the first quarter of 2014. Slide 12, we see that even with a reduction of [58.4%] in Platts and in the third quarter $54.9, even with that reduction in Platts, we were able to keep our per ton FOB revenue and we also promoted cost reductions, which allow us to have a $17 cost margin per ton and $19 per ton of cash margins.

Slide 13 shows us the cost performance has been gradually improving and this improvement was generated through some measures related to cost reductions, stimulated by our mining team. Slide 14, we see the result of our guidance, CSN is really well positioned if you look at the overall scale of cost amongst all mining companies in the world.

In slide 15, we see the performance in our cement industry, cement area. There was a slight reduction in net revenue, slight reduction and there was also an [EBIT] reduction caused by a non-scheduled stoppage in Volta Redonda and our maintenance number was 37 days which generated a reduction in EBITDA but the activity has been resumed and things are normalized.

On slide 16, we've been showing this slide to the market because it shows the evolution of our cement project. In the second quarter, we had already shown you the level of productions of the grinding mill at Arcos. In the fourth quarter now, we are projecting now the grinding mill number two and for 2016 we will have the start-up of our new clinker kiln at Arcos.

Now going to slide 17, now we have here the breakdown of the performance from our container terminals Sepetiba Tecon. The net revenue when comparing the third quarter of this year with the same quarter the year before, revenues grew 54% and EBITDA when compared to the second quarter of this year grew 145%. Therefore, the margin in the second quarter is 37% and all of that happened due to improvements in the main volume metrics at this comp with a 44% growth in the volume of containers and 38% growth in the steel volume and almost 100% increase in the general cargo volume.

Page 18, we see that this performance is a consequence of increase in our regular routes portfolio, especially now we launched a new line to Asia for import and export of containers with this new route. Tecon becomes the main container terminal from Rio into other countries. And we also have a new regular route to the United States, particularly Houston, Mexico and Central America through the Gulf of Mexico. In the third quarter, also we were able to consolidate the operation of the first regular projects for general container. So we're connecting Tecon to Belo Horizonte, to the automotive area of Rio de Janeiro and Sao Paulo.

In slide 19, we have the breakdown of the results of the Company by segment and the highlight goes to steel, to the steel area, accounting for 65%. Mining 42% and our logistics accounting for 15% of our EBITDA. So, steel 41%, mining 42%, logistics 15%.

The next page, we have the nine months to-date numbers and we reached BRL1.7 billion in CapEx and the highlight goes some anticipation which were very strategic for the Company and first anticipation was for the acquisition of new mining equipment where we took advantage of the current conditions of the iron ore market to be able to buy equipment and machinery at attractive prices and also the quick ones that we bought at very favorable conditions and all of this equipment and machinery are already producing some good results (inaudible) and we accelerated the development of Arcos. We wanted to also to anticipate part of our Arcos project as previously demonstrated in previous slides when I referred to our cement projects.

Now going to page 21, we have our financial agenda and then I will give the floor to Paulo Caffarelli, our CFO.

Thank you very much and thank you participating. And I would like to refer to our financial agenda for this quarter is made out of four items. I'm on page 21, I would like to say that the word of order here is reducing net debt over EBITDA ratio or leverage. At CSN, we focus on liquidity, which is BRL11 billion and in the third quarter, taking advantage of the appreciation of the exchange rate, we had a percentage that if you invest above CDIs, our new revenues will be an increment of about BRL600 million.

On item two, when we look at the liability management, we were able to have an extension with [Casa Economica] and Banco do Brasil of BRL4.8 billion and we are constantly looking for the back half in the back payments. In terms of cost reduction and working capital requirements, there is a very strong focus in the reduction of working capital, inventory and the drastic reduction of cost. And finally, maybe what is more important to us at the moment is that in terms of divestment and the sale of some selected assets, all the banks already will take a notice to -- already know that we are selling some assets.

On page 22, now, we see the result of the extension that we did with Casa Economica and this refers to some operations for 2016 and 2017 and until 2022, so for five years and Banco do Brasil the debt is also extended for the years of 2020 and 2022. So why do we do that, we will have a better way to work in the sale of our selected assets and (inaudible) in terms of more attractive funding, we are now conducting some negotiations with some Japanese banks to securitize some sales to Asia at a more attractive costs, and here in the domestic market there is some incentive lines like FINAME and also BM&F.

Next page, when we talk about working capital management and cost reductions, we are focusing on managing the inventory intermediary inventory and in terms of steel, we are looking for a constant modernization of our steel milling operation, and also we want to reduce energy consumption in terms of mining, we see constant improvement in the quality of our products and also the optimization of the mine planning, processing the cost reductions and reductions in our overhead.

In terms of processes and in expenses control, we're applying VBB and so we are monitoring our expenses very closely. We were also getting an extension in the payment terms with our vendors and the renegotiation of the payment we have with them. And we're looking for more competitive assets.

So last item of this financial agenda, on page 24, we have more details about our business. We reinstate therefore that we keep the focus on our core business, which is still mining and cements and also here, we have some other available assets that will allow us to divest. And at first, we elected from assets in the US. We had 14% stake at Usiminas. At Tecon, we have more than 20 companies interested in the assets, and their proposals will begin to come in early December. We also have some participation in MRS, a stake of MRS and Itasa, Prada and Igarapava. I would like to say that all of the banks are already working towards that end, Bradesco and Banco do Brasil in terms of MRS, it's Banco do Brasil, in energy assets Banco do Brasil and others in Credit Suisse.

I would also like to refer to that we have [exploration] capacity of our company, particularly related to our iron ore record production, which has been constant in the past few months. We also promoted this, having cost cuts, reduced EBITDA and iron ore at $38 per ton and this place us amongst the best companies in the world, we were competitive. In worldwide terms, the price is low today. We also have a very strong exploration capacity. Therefore, and I refer this to exports. In the past, we used to sell 90% in domestic market and only 10% abroad, today it's half and half. We sell half to the foreign market and this just shows how adapted we are and how well we can adapt to the challenges in the market.

Thank you very much. Now I'll give the floor back to Gustavo.

Before we jump to the Q&A, I would like to give the floor to Mr. Benjamin Steinbruch for closing remarks.

Good afternoon. I also have a few comments related to the recent past, the current present and the future. In terms of the Company last year, we suffered an impact, as well as the entire economy was impacted. We had a carryover inventory and also the production changes also will impact us in the economic downturn. Last year we also experienced a weaker year, but as of September we started doing something and also gearing our steel milling production to focus on the export market that was a difficult task, because we are mostly concentrate in the domestic market, but now we are beginning to see the results, which were more apparent in the first quarter of this year. We work in a different way now, we are no longer operating to trading companies, but through now our own team and new geography considering each country as a internal market.

It takes longer for you to see results, but by the same token, we have a better sales prices and lower cost than we want to sell products with high added value. I would also tell you that as of February the economy was pragmated and has been pragmated all over, particularly starting with the industrial sector, the average inventory time was three months, and the economy cut in almost half, so intermediary stocks, inventories that each chain had to turn inventory of six months, so that considering until September, there was almost no replacement purchases, but we then consumed all of the inventory with a very minor replacement factor, because we were delivering completely.

We geared the steel production towards exports and we believe that Brazilian market sell by 48% and we then geared our production to exports and we maintained our production but by the same token, we reduced costs so as to allow us to go into the desired market. Always focusing on products with high added value, we want to sell quality per kilogram, this was our desire, this was our challenge and this is what we are pursuing. Then we were able to see the first results in the third quarter, we were able to get a better product mix and a sales volume comparable to our production. We, I mean, end of third quarter, we weren't yet able to experience a full inventory reduction or the reduction that we expected, but we will continue to work hard to that end. Our EBITDA was 14% in the steel area, which in my view is low, and this was not related to cost because we were able to reduce cost, the slab is $178, but I think we will be able to get to $215 soon in terms of price, but prices were under pressure in the domestic market. We are increasing prices by 8%. And probably in the first quarter of next year we will see, I mean, we will be seeing in the end of first quarter of next year and this in fact is just a cost replacement. We're working at Vale do Paraiba to reduce cost, increase prices and improve our sales mix. And this is what we're doing in the steel area. We want to sell quality and to sell it at a different shift.

And the more segment at the steel -- areas in terms of market, clients and products, the more successful we will have in Brazil in this policy. So in terms of the steel milling, this is what I have to say, the market is very challenging. The entire Brazilian economy is down. And so, we anticipated ourselves and focused on the foreign market and now with the consumption of intermediary inventories, we now have 60% of handling, which is being consumed and this is moving the productive chain. And I believe if nothing goes wrong in terms of the economic policy of the country, the situation tends to be improved domestically.

Now speaking about mining, we had a very good quarter. Our EBITDA margin was 42%. As explained before, this margin in my view will get better in the fourth quarter, and I will not re-emphasize as our margins reach approximately 50% in the next quarters, because the price has been given. The sales for the fourth quarter have already been concluded and therefore, all of the shipments are guaranteed. And we are constantly pursuing cost reduction. Our cost today is around $19 to $20 on the shift. So we were able to get a very -- to have very competitive at cost, then we are very pleased to say that it's around $10. Our railway cost is about $5 MRS and port around $4. We believe that this $19 cost can be reduced further by 10% to $17.5 through a lot of hard work in the mine and also to a better scrap negotiation. We believe that we will have a production of 3 million tons a month, a year -- 3 million tons a month and our production is anticipated to be 36 million next year and we believe that this continued effort from Daniel and his team to promote further cost reductions certainly places us amongst the five most competitive companies in the world.

I would also like to talk about Cement. We are investing, as you know, to increase our production. We have this first grinding of Arcos already in place. And we are now starting up with the second grinding. We had problems with the Volta Redonda grinding which was partially, I mean, that production interruption was replaced by the grinding 1 at Arcos, that we are working diligently so that by the end of next week we will have a clinker kiln operational and this will improve our EBITDA margins.

Our flag movement is expensive and this was at a cost and that's why our EBITDA was very low. We believe that in the fourth quarter, we will have a much better performance because we have new replacement, new logistics, the cost is very competitive and with the two grindings, in addition to the new clinker kiln, our cost will be much more competitive in markets where we already operate.

Now as to working capital, I would like to mention that unlike what we wish we could do there was an increase in our working capital. This working capital increase about BRL595 million and basically this is due to accounts receivable and inventory. But like I said before, our export oriented policy, which is performed by ourselves gives a normal extension in the term, considering the billing and sales as a point of destination. At the end of the day, both accounts receivable and inventory levels are increased.

I wouldn't say this is desirable that as a macro consequence of the policy we adopted in order to improve our prices, our margins with a unique mix on top of value-added products that we were searching for. So it does not justify because working capital for us is something critical right now. We are working heavily to lower the numbers, but I am confident that Q4 will bring good news in that regard.

As to CapEx, our CapEx, our investments amounted to BRL1.700 billion. I know you might find weird, you -- market analysts might find it weird. But you are aware how tough and how hard it is for us to cope with credit and cash today. So, I'd like to say that basically these were investments in mining BRL473 million, basically purchase of equipment off-road amounted to $150 billion. And that was a business opportunity we had and we can be sure there'll be a cost reduction, because now we have larger, higher yielding of equipment with fewer people involved in the operation. So, cost reductions that we'll begin to see over Q3 is partly due to this part of new fleet and equipment. And that's why we can see this include and also anticipation of CapEx.

I would say that in terms of results, this is fully justified. As to regular logistics, I don't have too many comments. EBITDA was 40%, which is quite acceptable. Likewise, the same goes for Port, 37% EBITDA in logistics, increasing revenue. Since we are focusing our attention on management to the port of Tecon and Sepetiba and also via exports and also due to the largest member of container lines. So certainly, these activities are railway logistics and port logistics, we do have a huge potential against our net growth in EBITDA.

Regarding the outlook for the Company, with the last quarter of the year Q4, we're rest assured that our EBITDA will be over BRL1 billion. We've done a homework in mining, in field, so it's almost certain that we will have EBITDA levels over BRL1 billion.

With regards to efforts to lower our working capital, we have an important item and we were not successful yet in reduction, but this relates to over inventory, we have BRL2.7 billion in this inventory level and I believe we can lower this easily at least at BRL1.5 billion, which contributes to our liquidity and our cash. We have done everything we can in order to better manage this item.

Net debt over EBITDA, this is critical and we're focusing our efforts and attention. Like we said before, we are working, whether it's disposal of assets, but maybe this is the most important item and I would like to say that when we analyze net debt over EBITDA ratio, as you know we look backwards one year vis-a-vis the EBITDA, the current EBITDA of the Company greatly improved compared to previous months, thanks to the measured taken. I believe we should expect to see BRL350 million to BRL400 million EBITDA and therefore net debt over EBITDA ratio, considering our efforts for working capital, if we add it altogether, certainly the numbers will go down in Q4.

To conclude, I would like to say that, we are going to be very stringent with zero base budget starting January 1st. We are getting ourselves ready to start everything from scratch, OpEx, CapEx, we are also going to scrutinize and make stringent efforts to manage these [cost trends].

With regards to CapEx, I'm confident that we are only going -- we're going to focus on the essentials, that we have the conclusion of the Clinker Kiln, Volta Redonda coke oven plant and some efforts in shipments, some mining. We have a production capacity that is higher today. We are ready to deliver more. [The reduction] is with shipment.

So, in order to increase our sales for the half of the year or for mining and also to improve our margins vis-a-vis the steel mill because the coke plant is critical for us in terms of quality and generation of gas to produce energy which does lower our costs, this will be [capital allocative] for CapEx. As to OpEx, which today is where we have even more margins, we are going to be very stringent in order to really have huge facing and achieve the results expected in a shorter timeframe.

The company is under control. The hardest part is over and this change in order to shift production which was in the domestic market, shifting to export but in a smart way in order to have the better mix possible with higher value added products in better markets working at full capacity without reducing production, that's quite a challenge in these two industries. But we overcame the toughest test and from now onwards, we want to be reap the fruit.

As to mining, this is what we have already started to do in the past. In other words, we have a commercial issue very active in sale and purchase of our renewals. We no longer buy from third parties. It's only in-house production and also oriented to quality and cost. In other words, CSN in every product, all products are always related to quality and low cost. We want to be unique in qualitative terms in our products and in terms of cost, we are focusing our efforts to lower costs.

I am not trying to be too bullish about the fourth quarter. However, we are realistic these are the conditions and efforts that will be made and like I said, I am confident that we'll be delivering great results in the fourth quarter. The economic recession will continue but I believe that in our mode of operations we'll keep on working at full capacity and we keep on trying to reduce our expenses, selling unique products with more competitive prices. So this is it. Thank you very much and I'll be also here to take your question.

(Operator Instructions) Leonardo Correa, BTG Pactual.

My first question is about price. You mentioned 8% increase in price, basically early next year. So just to have some color about acceptance or about implementation, do you think you could have 8% on top of basically old line or anything more specific for distribution processes. It’s the only time for us because there are some negotiations that are slightly apart, automotive for instance. Sometimes it top and also some industrial players.

So you get about an increase of 8%. How do you classify it and what about the ratio and the impact? And could you also comment on the premium in the domestic markets today and if you consider the results of the third quarter of other competitors that was a lot of discounts taken place. And I wonder if you provide any discount to the third quarter or a renewal rather than an increase in net price. So just like to better understand the equation of price considering a challenging demand scenario and recession in 2016.

My second question is about CapEx. It was crystal clear during the presentation, Benjamin, what you said about CapEx and tradeoff. The need to spend a little bit more in the short term to reap benefits in terms of cost in the long run. So the equation for net debt over EBITDA or leverage is far from simple and the ratio is going more. CapEx is higher than the market for us, imagine. So just to have more color, what is the plan for 2016?

So what about the level that has cut down CapEx by half if necessary to try and go back to free cash flow, which is positively generated and what about CapEx for next year. So if you could give us some numbers, that will be really helpful and just to conclude Casa de Pedra (inaudible) CapEx. For some time now, you have been working to that standard and considering the recent interest and unfortunately, we had a tragedy of [some Arcos too]. What about the raising of the dam to expand Casa de Pedra? Could you give us more detail?

Thank you. Martinez is going to answer your question about price [infield].

First about premiums, [hot banks] today considering the price increase, the premium ranges from 6% to 8%. The code coil between 0% and 2% and galvanize 0% to 2% with the announcement of 8%. We have already taken over part of 5% or 6% increase in distribution and civil construction and now we are negotiating with companies, while line car parks and OEM. The focus will be on selling more and more. (inaudible) announced to more customers to enrich CSN mix in coated products.

Benjamin talked a lot about value added products. Just to give an idea of the magnitude, [mining] 39% to 42% coated products. And for coated products for CSN as a whole from 39% to 45%, so what you do next is to maintain the same strategy. Domestic market focus on value-added products, galvanized products and increase the level of service delivered to these clients.

As to the outlook for the domestic market, what we see today by the way another point that was not mention before, imports went down 52% for products in which CSN already participate, which is quite significant. Direct imports and indirect, the drop was 13%. These events are very power, if you believe that penetration of imports in the markets were around BRL2 million and it will go down to BRL1 million, BRL1 million in the domestic market on our lap and part of it will also be on CSN because part of it is material efforts coming in galvanized and (inaudible). Another important point that is also happening on Benjamin (inaudible), the production stream by and large are out of stock. So there are three drivers that will be in our favor in the [third quarter] and first quarter of next year, drop in the direct imports, drop in indirect products and ex-imports.

Answering your specific question about CapEx and net debt over EBITDA, I could give you more detail on the investments in mining equipment. In addition to acquisition price of the equipment and the market condition and financial conditions that are also very favorable, this kind of investment is projected in terms of mining cost for 2016, in which levels will be fully operational vis-a-vis 2015 there will be a reduction of percent in mining cost. And in 2016, our production will be at least 10% higher compared to 2015.

So your point is clear, what you think about daily, which is CapEx investments and impact our net debt over EBITDA but there are opportunities there we can optimize in the operations that has excellent result like mining. As to the outlook of investment for 2016, the numbers have not been closed yet. We had announced to the market our vision is BRL1.5 billion at 2016. But naturally, the anticipation we would visit the number, possibly it would be zero based budget and we'll be working on essential products that are underway. Now (inaudible) is going to talk about the dam.

We were concerned with the accidents in Mariana. Circumstances are very good, we only have different realities. Each mine is different, each mine operates its dam slightly different from the rest, earnings are also different. Casa de Pedra, our dam is very secure and safe. You asked about us. It is very secure, will have a stability certificate issued in compliance with the environmental regulation for the dams in the state and this week, we had an inspection team right after the accident in Mariana, two days ago more specifically, everything is okay. As to the [raining] of the dam, we are -- our environmental license and permit is on schedule and we expect to happen business as usual, as planned.

Osmar, HSBC.

My question regards the consequences of the tragedy in Samarco and also the demand by fine products. What about the volume of fines and premiums? Do you think the numbers will increase, that's my question, my first question.

Second question, I would like to have an update about the merger between Casa de Pedra and Namisa, which is expected to happen in the coming months. Could you give us an update, that would really helpful?

Gustavo will answer your second question. We are in the final process to be concluded in December this year. So far there are no problems and we expect to meet the deadline that we mentioned before.

About demand for fine products, we do believe there might be a window of opportunities in the short term. More specifically, it was not only Samarco that got affected. Another competitor company was also affected. And possibly the portfolio of products may be supplied by ourselves. We decided to speed up some engineering studies in some projects to check whether at a right time, [if better] opportunities will come up, we can meet and supply both principle demand in the market.

(inaudible), Credit Suisse.

You do have some guidance about a reduction, to what extend it was due to the exchange impact or effective cost reduction effort? Would you give us additional guidance about how much you expect the reduction to happen?

[About] 10%. I'm sorry to interrupt, apparently we do not listen the first part of the question. There is a problem in the connection. Would you mind repeating please.

Sure. You reported substantial reduction in mining costs, can we breakdown or give us a guidance how much was an exchange effect and how much they do to cost reduction efforts and could you give us some guidance about how much is exchange and how much is exports, lower cost in the future and maybe could you quantify or give us some color about working capital going forward considering all the improvements you've been making, that would be very helpful.

Regarding mining costs, naturally the exchange rate was favorable to us (inaudible) in price and also cost because our costs are denominated in reais, not occur in dollars but we have a real effort of reduction in reais which is constant. This year, we can say that -- let me just check my notes. Reduction was very significant, going down approximately BRL5 per ton quarter-on-quarter.

So that's the effort we are making. Whatever we cut down on cost, the impact is on Brazilian reais in order to have sustainable long term reduction in the reais. The idea is to have a long-term impact and volatile with the exchange rate. But we don't have the perfect breakdown, but from the second to the third quarter, we had a reduction, 9% and percentage-wise, it is the same order of magnitude, also around 9%.

Tiago, Bank of America.

My first question is about iron ore shipment for coming years considering a reduction of third party purchase and Casa de Pedra achieving 36,000 tons next year. So what about the expectation for volume in 2016 and going forward?

Second question, maybe just to clarify, cost in this new segment, you quantify the cost reduction, could you repeat the number please and explain the main drivers that would leave to this cost reduction, that would be great.

Thiago, this year we expect to have (technical difficulty) next year with a production of 36 million tons, we expect to be around 30 million, that's our guidance. And we have to see what we have in the port services and third-party services next year but our own production, we are working on the estimate. And going forward, depending on the investment in Casa de Pedra shipment, which is the [about one acre] of production today and maybe to process system as a whole, we might have a higher volume for 2017.

As to the cost of the slab, I am going to read in reals and dollars, just bear with me for a second please. We are checking on this.

So, the price of the slab is $320 and in reals was [BRL984 for BRL979], this reduction was due to all of our investments in revamping our city, the investments in the coke plant and also further efficiency improvements in the processes of our Volta Redonda plant.

Rodolfo Angele, JP Morgan.

I would like to take the opportunity that Benjamin is also participating in this call, and ask you whether you can tell us what shareholders could expect in terms of dividends in the next coming years because in the past, the Company paid out a lot of dividend. What should they expect during seasonal from now on?

As I said, during the conference call for the results of the previous quarter, the dividend payout now is secondary to us, considering our current priority and efforts to reduce our leverage levels. I think that what can be done in operating terms to reducing cost, improving revenue and improving EBITDA is an ongoing effort and we are already seeing the results, which we had a better third quarter but it was a transition quarter. And in the fourth quarter, that's when we will see a more apparent improvement in our EBITDA, more in keeping with what we anticipate. In terms of our indebtedness we are also taking all the possible measures, our EBITDA improvement are now being undertaken in terms the sale of assets will help us with our leveraged levels and certainly we knew that it would take at least six months, meaning that we are now receiving -- we are about to receive the first proposals, because all of the banks are already working with these known assets, the demands are very promising for these assets. And we believe that we will be able to receive some more concrete results in this next quarter and the fourth quarter. So what's up to us do is being done and all of our efforts to improve EBITDA, they are going and they are -- continues in the Company.

Now in terms of leverage or net debt over EBITDA ratio, we are negotiating our debt position. We want to you reduce our indebtedness by selling assets, and any assets that will be sold will certainly bring more cash to the Company and then we will be able to have more reserves that will be paid out in the form of the dividend. I believe that next year or around next year we will pay our dividend. All of the other factors have to in place for us to be able to payout dividend.

(Operator Instructions) Victor Penna, Banco do Brasil.

I would like to know, what is the debt percentage that you were working with for the milling segment? And I think with the sales assets is higher than what has been anticipated by the Company, and in terms of our industrial capacity, I know that you were working towards optimizing costs et cetera. The second question is about the rollout of the debt and whether the company is working with another organization or whether you are looking at the maturity in 2016?

I will start with your second question about debt. The bulk of the debt mature in 2016 and 2017 and we already initiated the rollout. And in this case, we could achieve further improvement in 2017, but most part of our home work is done. Could you repeat your first question, because it's very difficult for us to understand.

My first question is about your percentage of utilization of capital and in case your sale of asset you made in concrete, if you are considering the appreciation of what's happened to some other peers in the industry and how do you want to work with your operating expenses?

We are working at full capacity in our Presidente Vargas mill. Our strategy, as we said, is to use our competitors first domestically and abroad, so its exports and we have a consequence as well benefit abroad. Given our cost differential, we are still operating in sales, both in the domestic market, but we are also privileging exports, through export markets.

[Eduardo Limo, HSBC].

The question is about Volta Redonda.

Eduardo, I apologize, but I cannot hear your question.

I'm sorry, so I will repeat. My question is about the Volta Redonda news. There is a lawsuit in environmental sphere and also Atrium of conduct that may hinder the operation of the plant. What is the status of that claims and what are the other implications stemming from that process?

It is a subject that was covered by the press recently and this is an important subject currently. In all -- we are the operating Volta Redonda and we are doing everything we can to overcome the issue. We are in the final stages of negotiation with offer and as the [decision made] and once the situation is settled, the market will be notified.

(inaudible)

I would just like to have an idea, you had over BRL58 million this quarter and you went to BRL184 million, what does that refer and what is the timings?

I would have to get back to you. You are talking about related parties and the debt and there was a difference from one year to another, it's part of our cash management and we have -- if you consider CSN in Brazil and abroad there are several companies, so I will have to get back to you giving you more specific details that would probably help clarify your question.

Carlos Alba, Morgan Stanley.

I just have a couple of question. The first one is, if you can give us a rough idea of the EBITDA proportion that you are making on average on your steel exports? And second is, the big efforts and (inaudible) you are having in reducing cost of capital and would that in any way reduce the life of mine of the operation or how should we think about any potential impact on the long term?

Carlos this is Martinez. The net margin we have in our exports sales for galvanized product for the foreign market is around 12% to 17%, that's approximately it. Could you please repeat the second part of your question please?

Sure, yes, it's just about the potential impact that the cost reduction efforts in Casa de Pedra could have on the life of mine of the operation and how we should think about that?

As I said several times in the past, we do not -- not do high grading all of the improvements are related to the high quality of our assets. We still have a great amount of product in the ports and that's why our mining plan, our long term mining plan is very favorable and is favors the quality of production and high production and we are also deploying great improvements in our processes. We just introduced a new reagent unit for flotation and we also improved the magnetic separator. So we are investing a lot in processes. So having high quality or with the occupancy plant, with new processes, with all of that, we are eligible to continue offering high quality products. At Casa de Pedra we have many processes and all of these processes help us transform the ore into high quality products. And with that, we can keep our exploration at sustainable levels and cost which are continuously being reduced into our efforts to reduce expenses and high productivity, we are keeping up the speed.

Marcos, Itau BBA.

In fact, this [Carlos] and my question is about your cash position. It was $1.2 million last quarter, and so I would like to know, what will be the strategy of the Company vis-a-vis your operations abroad and your position?

Yes, in the third quarter, we managed $1.2 billion investments abroad for Brazil and the closing position in September, our cash position in dollars was $1.1 billion, whereas 70% of our cash positions are denominated in dollar and Namisa accounted for $995 million. We put together a complete hedging structure and efficiency structure for that nationalization up to this point, there is amount of 1.2 that was part of our plan, but we have no guidance concerning what will happen in the fourth quarter.

As there are no further questions, I would like to give the floor back to Mr. Gustavo Sousa, Controllership, Tax Planning and IR Executive Officer, for his final remarks.

Thank you all very much for joining this conference call this afternoon. If you have any additional questions, please speak to our IR department. Thank you very much.

CSN conference all is now over. I wish you all a very good day. Thank you.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.